BEAVERTON, Oregon, September 21 /PRNewswire/ --
- Worldwide Futures Orders Up 6 Percent
NIKE, Inc. (NYSE: NKE) today reported financial results for the first quarter, ended August 31, 2006. Revenue grew 9 percent to US$4.2 billion, compared to US$3.9 billion for the same period last year. Changes in currency exchange rates increased revenue growth by 2 percentage points for the quarter. First quarter net income declined 13 percent to US$377.2 million, compared to US$432.3 million in the prior year and diluted earnings per share declined 9 percent to US$1.47, versus US$1.61 last year. Results for the first quarter included a US$40.8 million expense, net of taxes, related to the expensing of stock options, which reduced diluted earnings per share by US$0.16. Excluding stock option expense first quarter net income declined 3 percent and diluted earnings per share increased 1 percent to US$1.63.
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Mark Parker, Nike, Inc. President and Chief Executive Officer, said, "We're off to a strong start. While making major brand investments to drive key markets and implementing new accounting rules to include stock option expenses, we continued to deliver strong top line growth and laid the foundation for another successful year.
"We are confident in the year ahead, the fundamental strength of our business and our brands. We continue to deliver breakthrough innovations, like our global soccer initiative, Joga Bonito, and our Nike+ product concept. We also see significant momentum across our brand portfolio with strong performances from Converse, Brand Jordan and Nike Golf."(i)
Futures Orders
The Company reported worldwide futures orders for athletic footwear and apparel, scheduled for delivery from September 2006 through January 2007, totaling US$5.2 billion, 6 percent higher than such orders reported for the same period last year. Changes in currency exchange rates did not significantly impact this growth.(i)
By region, futures orders for the U.S. increased 8 percent; Europe (which includes the Middle East and Africa) increased 2 percent; Asia Pacific grew 11 percent; and the Americas declined 4 percent. Changes in currency exchange rates increased the reported futures orders growth in Europe by 1 percentage point. Changes in currency exchange rates increased reported futures orders growth in Asia Pacific by 1 percentage point. In the Americas region changes in currency exchange rates decreased reported futures growth by 5 percentage points.(i)
Regional Highlights
U.S.
During the first quarter, U.S. revenues increased 6 percent to US$1.6 billion versus US$1.5 billion for the first quarter of fiscal 2006. U.S. athletic footwear revenues increased 6 percent to US$1.1 billion. Apparel revenues increased 9 percent to US$431.5 million. Equipment revenues declined 1 percent to US$91.3 million. U.S. pre-tax income declined 2 percent to US$338.9 million.
Europe
First quarter revenues for the European region grew 4 percent to US$1.3 billion from US$1.2 billion for the same period last year. Changes in currency exchange rates increased revenue growth by 3 percentage points. Footwear revenues were US$679.5 million, down 1 percent from US$685.1 million last year. Apparel revenues increased 12 percent to US$487.0 million and equipment revenues increased 7 percent to US$104.4 million. Pre-tax income declined 8 percent to US$302.5 million.
Asia Pacific
In the first quarter revenues in the Asia Pacific region grew 13 percent to US$518.4 million compared to US$459.6 million a year ago. Changes in currency exchange rates did not have a significant impact on revenue growth. Footwear revenues were up 12 percent to US$266.0 million, apparel revenues increased 14 percent to US$200.9 million and equipment revenues grew 13 percent to US$51.5 million. Pre-tax income increased 8 percent to US$98.9 million.
Americas
Revenues in the Americas region increased 13 percent to US$242.5 million, an improvement from US$213.7 million in the first quarter of fiscal 2006. Currency exchange rates contributed 3 percentage points to this growth rate. Footwear revenues were up 10 percent to US$172.3 million, apparel revenues increased 26 percent to US$51.2 million and equipment revenues grew 18 percent to US$19.0 million. Pre-tax income was up 9 percent to US$48.4 million.
Other Businesses
For the first quarter, Other business revenues, which include Converse Inc., NIKE Golf, NIKE Bauer Hockey Inc., Cole Haan Holdings Incorporated, Hurley International LLC and Exeter Brands Group LLC, grew 21 percent to US$560.4 million from US$462.3 million last year. Pre-tax income increased 120 percent to US$87.9 million for the quarter.
During the first quarter the Company settled a previously disclosed arbitration ruling involving Converse and a former South American licensee. The final settlement was lower than the accrual, which resulted in a US$14.2 million benefit to Other business pretax income and increased the Company's diluted earnings per share for the first quarter by US$0.03.
Income Statement Review
Gross margins were 44.1 percent compared to 45.3 percent last year for the first quarter. Selling and administrative expenses were 30.8 percent of first quarter revenues, compared to 28.6 percent last year. The effective tax rate for the first quarter was 34.5 percent.
Balance Sheet Review
At quarter end, global inventories stood at US$2.1 billion, an increase of 15 percent from August 31, 2005. Cash and short-term investments were US$1.7 billion at the end of the quarter, compared to US$1.9 billion last year.
Share Repurchase
During the first quarter, the Company purchased a total of 6,027,300 shares for approximately US$476.7 million. During the quarter the Company completed its previous four-year US$1.5 billion share repurchase program approved by the Board of Directors in June 2004 and started repurchasing shares under the Company's new four-year US$3 billion share repurchase program approved by the Board of Directors in June 2006. As of the end of the first quarter the Company had purchased 4,018,576 shares for approximately US$314.1 million under the new plan.
NIKE, Inc. based near Beaverton, Oregon, is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly owned Nike subsidiaries include Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories; NIKE Bauer Hockey Inc., a leading designer and distributor of hockey equipment; Cole Haan Holdings Incorporated, a leading designer and marketer of luxury shoes, handbags, accessories and coats; Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories and Exeter Brands Group LLC, which designs and markets athletic footwear and apparel for the value retail channel.
NIKE's earnings releases and other financial information are available on the Internet at www.nikebiz.com/invest .
(i) The marked paragraphs contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed from time to time in reports filed by NIKE with the S.E.C., including Forms 8-K, 10-Q, and 10-K. Some forward-looking statements in this release concern changes in futures orders that are not necessarily indicative of changes in total revenues for subsequent periods due to the mix of futures and "at once" orders, exchange rate fluctuations, order cancellations and discounts, which may vary significantly from quarter to quarter, and because a significant portion of the business does not report futures orders.
NIKE, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED AUGUST 31, 2006
(In millions US$, except per share data)
QUARTER ENDING
%
INCOME STATEMENT 08/31/2006 08/31/2005 Chg
Revenues $4,194.1 $3,862.0 9%
Cost of sales 2,344.9 2,113.9 11%
Gross margin 1,849.2 1,748.1 6%
44.1% 45.3%
Selling and administrative
expense 1,289.7 1,104.4 17%
30.8% 28.6%
Interest income, net (13.1) (6.4) 105%
Other income, net (3.2) (9.9) -68%
Income before income taxes 575.8 660.0 -13%
Income taxes 198.6 227.7 -13%
34.5% 34.5%
Net income $377.2 $432.3 -13%
Diluted EPS $1.47 $1.61 -9%
Basic EPS $1.49 $1.66 -10%
Weighted Average Common
Shares Outstanding:
Diluted 256.0 268.6
Basic 252.7 260.9
Dividends declared $0.31 $0.25
NIKE, Inc.
BALANCE SHEET (ii) 08/31/2006 08/31/2005
ASSETS
Current assets:
Cash and equivalents $1,030.7 $1,588.9
Short-term investments 693.9 304.2
Accounts receivable, net 2,569.1 2,390.6
Inventories 2,134.3 1,850.6
Deferred income taxes 188.8 106.3
Prepaid expenses and other current assets 382.3 425.7
Total current assets 6,999.1 6,666.3
Property, plant and equipment 3,451.1 3,186.5
Less accumulated depreciation 1,802.4 1,605.3
Property, plant and equipment, net 1,648.7 1,581.2
Identifiable intangible assets, net 407.5 404.7
Goodwill 130.8 135.4
Deferred income taxes and other assets 384.4 328.1
Total assets $9,570.5 $9,115.7
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $30.5 $256.0
Notes payable 61.3 64.3
Accounts payable 867.7 708.1
Accrued liabilities 1,297.7 1,057.0
Income taxes payable 152.5 148.1
Total current liabilities 2,409.7 2,233.5
Long-term debt 380.4 428.4
Deferred income taxes and other liabilities 559.2 489.7
Redeemable preferred stock 0.3 0.3
Shareholders' equity 6,220.9 5,963.8
Total liabilities and shareholders' equity $9,570.5 $9,115.7
(ii) 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.
QUARTER ENDING
DIVISIONAL REVENUES 08/31/2006 08/31/2005 % Chg
U.S. Region
Footwear $1,079.1 $1,021.1 6%
Apparel 431.5 395.5 9%
Equipment 91.3 92.3 -1%
Total 1,601.9 1,508.9 6%
EMEA Region
Footwear 679.5 685.1 -1%
Apparel 487.0 435.2 12%
Equipment 104.4 97.2 7%
Total 1,270.9 1,217.5 4%
Asia Pacific Region
Footwear 266.0 237.4 12%
Apparel 200.9 176.5 14%
Equipment 51.5 45.7 13%
Total 518.4 459.6 13%
Americas Region
Footwear 172.3 156.9 10%
Apparel 51.2 40.7 26%
Equipment 19.0 16.1 18%
Total 242.5 213.7 13%
3,633.7 3,399.7 7%
Other businesses 560.4 462.3 21%
Total NIKE, Inc. revenues $4,194.1 $3,862.0 9%
NIKE, Inc.
QUARTER ENDING
%
PRE-TAX INCOME(1) 08/31/2006 08/31/2005 Chg
U.S. Region $338.9 $345.2 -2%
EMEA Region 302.5 330.2 -8%
Asia Pacific Region 98.9 91.4 8%
Americas Region 48.4 44.6 9%
Other businesses 87.9 40.0 120%
Corporate(2) (300.8) (191.4) -57%
Total pre-tax income(1) $575.8 $660.0 -13%
(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 QUARTER ENDING %
EPS RECONCILIATION(1) 08/31/2006 08/31/2005 Chg
Net income, as reported $377.2 $432.3 -13%
Exclude: Stock-based
compensation expense,
net of tax(2) 40.8 -- --
Net income, excluding
stock-based compensation
expense(2) $418.0 $432.3 -3%
Diluted EPS, as reported $1.47 $1.61 -9%
Diluted EPS, excluding
stock-based compensation
expense(2) $1.63 $1.61 1%
(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 purchase rights 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.
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