10-QPeriod: Q3 FY2007

NIKE, Inc. Quarterly Report for Q3 Ended Jan 4, 2007

Filed January 4, 2007For Securities:NKE

Summary

NIKE, Inc. reported its second quarter fiscal year 2007 results, demonstrating continued revenue growth and profitability. Revenues increased by 10% to $3.8 billion, driven by broad-based demand across all geographic regions and product categories, with particular strength in apparel and equipment. Net income rose 8% to $325.6 million, and diluted earnings per share (EPS) saw a 12% increase to $1.28. A significant positive development for the company is the finalization of a new ten-year tax agreement with Dutch tax authorities, which is expected to improve cash flows and reduce the effective tax rate in future years, and provided a retroactive tax benefit in the current quarter. The adoption of new accounting standards, specifically SFAS No. 123R for stock-based compensation, resulted in a quarterly charge of $18.8 million ($0.08 per diluted share). Despite higher demand creation spending compared to the prior year, which benefited from the timing of World Cup-related expenses, NIKE's EPS growth outpaced net income growth due to ongoing share repurchase programs. The company also announced a new $1 billion credit facility and continued its share repurchase activity, signaling confidence in its financial position and commitment to shareholder returns.

Key Highlights

  • 1Revenues increased 10% year-over-year to $3.8 billion for the second quarter of fiscal 2007.
  • 2Net income grew 8% to $325.6 million, with diluted EPS up 12% to $1.28.
  • 3A favorable ten-year tax agreement with Dutch tax authorities was finalized, expected to reduce the effective tax rate and provide a retroactive tax benefit.
  • 4The company adopted SFAS No. 123R, resulting in a $18.8 million stock-based compensation expense for the quarter.
  • 5Worldwide futures and advance orders were up 7% for deliveries from December 2006 through April 2007.
  • 6NIKE entered into a new $1 billion multi-year credit facility.
  • 7The company repurchased 1.5 million shares for $126 million during the quarter under its new $3 billion repurchase program.

Frequently Asked Questions

Revenue growth was driven by strong demand for NIKE brand products across all four geographic regions and all three product business units. Apparel and equipment businesses showed particular strength, each posting 11% growth for the quarter.

The new ten-year tax agreement with the Dutch tax authorities is expected to improve NIKE's cash flows and reduce its effective tax rate from fiscal 2007 onwards. This agreement also provided a retroactive tax benefit for fiscal 2006 and the first quarter of fiscal 2007, which was recognized in the second quarter results, contributing $0.13 per diluted share.

NIKE adopted SFAS No. 123R on June 1, 2006. For the second quarter of fiscal 2007, this resulted in an after-tax charge of $18.8 million, or approximately $0.08 per diluted share, for stock-based compensation expense, primarily related to stock options and ESPP shares. This expense was not reflected in the prior year's comparable period.

NIKE continues to return capital to shareholders through share repurchases and dividends. During the quarter, they repurchased 1.5 million shares for $126 million under a new $3 billion program and increased their quarterly dividend per common share by 19% to $0.37.