UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FOR QUARTERLY REPORTS UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended February 28, 2007
Commission file number - 1-10635
NIKE, Inc.
(Exact name of registrant as specified in its charter)
OREGON 93-0584541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 X No .
___ ___
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
Large accelerated filer X Accelerated filer Non-accelerated filer
___ ___ ___
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes No X .
___ ___
Common Stock shares outstanding as of February 28, 2007 were:
_______________
Class A 117,733,388
Class B 387,778,304
_______________
505,511,692
===============
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NIKE, Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
February 28, May 31,
2007 2006
________ ________
(in millions)
ASSETS
Current assets:
Cash and equivalents $1,879.2 $ 954.2
Short-term investments 390.5 1,348.8
Accounts receivable, net 2,532.0 2,395.9
Inventories (Note 2) 2,167.8 2,076.7
Deferred income taxes 184.4 203.3
Prepaid expenses and other current assets 486.2 380.1
_________ ________
Total current assets 7,640.1 7,359.0
Property, plant and equipment 3,568.9 3,408.3
Less accumulated depreciation 1,914.3 1,750.6
_________ ________
Property, plant and equipment, net 1,654.6 1,657.7
Identifiable intangible assets, net (Note 3) 406.1 405.5
Goodwill (Note 3) 130.8 130.8
Deferred income taxes and other assets 387.0 316.6
_________ ________
Total assets $10,218.6 $9,869.6
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 30.6 $ 255.3
Notes payable 96.0 43.4
Accounts payable 800.9 952.2
Accrued liabilities (Note 4) 1,310.5 1,286.9
Income taxes payable 74.7 85.5
_________ ________
Total current liabilities 2,312.7 2,623.3
Long-term debt 419.4 410.7
Deferred income taxes and other liabilities 638.2 550.1
Commitments and contingencies (Note 10) -- --
Redeemable preferred stock 0.3 0.3
Shareholders' equity:
Common stock at stated value:
Class A convertible-117.7 and
127.8 million shares outstanding 0.1 0.1
Class B-387.8 and 384.2 million shares
outstanding 2.7 2.7
Capital in excess of stated value 1,880.9 1,447.3
Accumulated other comprehensive income (Note 6) 146.1 121.7
Retained earnings 4,818.2 4,713.4
_________ ________
Total shareholders' equity 6,848.0 6,285.2
_________ ________
Total liabilities and shareholders' equity $10,218.6 $9,869.6
========= ========
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 Nine Months Ended
February 28, February 28,
____________________ __________________
2007 2006 2007 2006
____ ____ ____ ____
(in millions, except per share data)
Revenues $3,926.9 $3,612.8 $11,942.7 $10,949.5
Cost of sales 2,191.7 2,038.7 6,701.2 6,115.9
_________ _________ __________ _________
Gross margin 1,735.2 1,574.1 5,241.5 4,833.6
Selling and administrative expense 1,243.3 1,086.6 3,756.7 3,245.7
Interest income, net (15.8) (8.4) (43.0) (20.5)
Other income, net (10.3) (10.7) (13.3) (22.0)
_________ _________ _________ _________
Income before income taxes 518.0 506.6 1,541.1 1,630.4
Income taxes (Note 5) 167.2 180.8 487.5 571.2
_________ _________ _________ _________
Net income $ 350.8 $ 325.8 $1,053.6 $1,059.2
========= ========= ========= =========
Basic earnings per common share (Note 8) $ 0.69 $ 0.63 $ 2.09 $ 2.04
========= ========= ========= =========
Diluted earnings per common share (Note 8) $ 0.68 $ 0.62 $ 2.07 $ 2.00
========= ========= ========= =========
Dividends declared per common share $ 0.185 $ 0.155 $ 0.525 $ 0.435
========= ========= ========= =========
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
Nine Months Ended
February 28,
_____________________
2007 2006
____ ____
(in millions)
Cash provided (used) by operations:
Net income $1,053.6 $1,059.2
Income charges (credits) not affecting cash:
Depreciation 199.2 206.4
Deferred income taxes 61.1 4.6
Stock-based compensation (Note 7) 119.1 --
Amortization and other (10.0) 27.3
Tax benefit from exercise of stock options -- 49.2
Changes in certain working capital components and other
assets and liabilities:
Increase in accounts receivable (102.7) (95.5)
Increase in inventories (108.8) (198.0)
Increase in prepaid expenses
and other assets (139.6) (135.6)
(Decrease)increase in accounts payable, accrued
liabilities and income taxes payable (157.1) 35.5
_________ ________
Cash provided by operations 914.8 953.1
_________ ________
Cash provided (used) by investing activities:
Purchases of investments (1,193.7) (1,379.8)
Maturities of investments 2,170.2 1,279.0
Additions to property, plant and
equipment (217.1) (232.1)
Proceeds from the sale of property, plant and
equipment 27.8 1.2
Increase in other assets and liabilities, net (9.2) (24.2)
_________ ________
Cash provided (used) by investing activities 778.0 (355.9)
_________ ________
Cash provided (used) by financing activities:
Proceeds from issuance of long-term debt 41.5 --
Reductions in long-term debt,
including current portion (254.2) (4.6)
Increase in notes payable 49.0 16.8
Proceeds from exercise of stock options and
other stock issuances 275.2 188.6
Excess tax benefits from share-based payment
arrangements 48.3 --
Repurchase of common stock (704.6) (511.0)
Dividends on common stock (250.2) (210.8)
_________ ________
Cash used by financing activities (795.0) (521.0)
_________ ________
Effect of exchange rate changes on cash 27.2 7.8
_________ ________
Net increase in cash and equivalents 925.0 84.0
Cash and equivalents, beginning of period 954.2 1,388.1
_________ ________
Cash and equivalents, end of period $1,879.2 $1,472.1
========= =========
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, 2006 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 nine months ended February 28, 2007 are not necessarily
indicative of results to be expected for the entire year.
On February 15, 2007 the Board of Directors declared a two-for-one
stock split of the Company's Class A and Class B common shares, which was
effected in the form of a 100% common stock dividend distributed on April 2,
2007. All references in the accompanying consolidated financial statements to
share and per share amounts have been retroactively restated to reflect the
two-for-one stock split.
Recently Issued Accounting Standards:
In June 2006, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in the Company's financial statements in accordance with FASB
Statement No. 109, "Accounting for Income Taxes." The provisions of FIN 48
are effective for the fiscal year beginning June 1, 2007. The Company is
currently evaluating the impact of the provisions of FIN 48.
In June 2006, the FASB ratified the consensus reached on Emerging Issues
Task Force ("EITF") Issue No. 06-2, "Accounting for Sabbatical Leave and Other
Similar Benefits Pursuant to FASB Statement No. 43" ("EITF 06-2"). EITF 06-2
clarifies recognition guidance on the accrual of employees' rights to
compensated absences under a sabbatical or other similar benefit arrangement.
The provisions of EITF 06-2 are effective for the fiscal year beginning June
1, 2007 and will be applied through a cumulative effect adjustment to retained
earnings. The Company has evaluated the provisions of EITF 06-2 and does not
expect that the adoption will have a material impact on the Company's
consolidated financial position or results of operations.
In June 2006, the FASB ratified the consensus reached on EITF Issue No.
06-3, "How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (That Is, Gross versus
Net Presentation)" ("EITF 06-3"). EITF 06-3 requires disclosure of the method
of accounting for the applicable assessed taxes and the amount of assessed
taxes that are included in revenues if they are accounted for under the gross
method. EITF 06-3 is effective for the fourth quarter ending May 31, 2007;
however, since the Company presents revenues net of any taxes collected from
customers, no additional disclosures will be required.
In September 2006, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157
defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. The provisions of FAS 157 are
effective for the fiscal year beginning June 1, 2008. The Company is
currently evaluating the impact of the provisions of FAS 157.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans" ("FAS 158"). FAS
158 requires employers to fully recognize the obligations associated with
single-employer defined benefit pension, retiree healthcare and other
postretirement plans in their financial statements. The provisions of FAS 158
are effective as of the end of the fiscal year ending May 31, 2007. The
Company has evaluated the provisions of FAS 158 and does not expect that the
adoption will have a material impact on the Company's consolidated financial
position or results of operations.
In September 2006, the SEC staff issued Staff Accounting Bulletin No.
108, "Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" ("SAB 108"). SAB 108
requires public companies to quantify errors using both a balance sheet and
income statement approach and evaluate whether either approach results in
quantifying a misstatement as material, when all relevant quantitative and
qualitative factors are considered. The guidance in SAB 108 is effective for
the fiscal year ending May 31, 2007. The Company has evaluated the provisions
of SAB 108 and does not expect that the adoption will have a material impact
on the Company's consolidated financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities including an Amendment of FASB
Statement No. 115" ("FAS 159"). FAS 159 permits entities to choose to measure
many financial instruments and certain other items at fair value. The
provisions of FAS 159 are effective for the fiscal year beginning June 1,
2008. The Company is currently evaluating the impact of the provisions of FAS
159.
NOTE 2 - Inventories:
___________
Inventory balances of $2,167.8 million and $2,076.7 million at February
28, 2007 and May 31, 2006, 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 February 28, 2007 and May 31, 2006:
February 28, 2007 May 31, 2006
______________________ ______________________
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
________ ____________ ________ ________ ____________ ________
(in millions)
Amortized intangible assets:
Patents $ 38.7 $ (11.6) $ 27.1 $ 34.1 $ (10.5) $ 23.6
Trademarks 49.0 (16.1) 32.9 46.4 (11.8) 34.6
Other 21.5 (16.9) 4.6 21.5 (15.7) 5.8
________ ________ ________ ________ ________ ________
Total $ 109.2 $ (44.6) $ 64.6 $ 102.0 $ (38.0) $ 64.0
======== ======== ======== ========
Unamortized intangible assets - Trademarks $ 341.5 $ 341.5
________ ________
Identifiable intangible assets, net $ 406.1 $ 405.5
======== ========
Goodwill $ 130.8 $ 130.8
======== ========
Amortization expense, which is included in selling and administrative
expense, was $2.5 million and $2.4 million for the three-month periods ended
February 28, 2007 and 2006, respectively, and $7.4 million and $7.3 million
for the nine-month periods ended February 28, 2007 and 2006, respectively.
The estimated amortization expense for intangible assets subject to
amortization for each of the years ending May 31, 2007 through May 31, 2011
are as follows: 2007: $9.8 million; 2008: $9.2 million; 2009: $8.2 million;
2010: $7.7 million; 2011: $7.2 million.
NOTE 4 - Accrued Liabilities:
___________________
Accrued liabilities include the following:
February 28, 2007 May 31, 2006
_______________ ____________
(in millions)
Compensation and benefits, excluding taxes $400.0 $427.2
Taxes other than income taxes 160.1 115.1
Endorser compensation 133.1 124.7
Advertising and marketing 115.2 75.4
Fair value of derivatives 97.0 111.2
Dividends payable 93.5 79.5
Import and logistics costs 69.0 63.3
Converse arbitration1 -- 51.9
Other2 242.6 238.6
_________ _________
$1,310.5 $1,286.9
========= =========
1 The Converse arbitration relates to a charge taken during the fourth
quarter ended May 31, 2006 as a result of a contract dispute between
NIKE, Inc.'s Converse subsidiary and a former South American licensee. The
dispute was settled during the first quarter ended August 31, 2006.
2 Other consists of various accrued expenses and no individual item accounted
for more than $50 million of the balance at February 28, 2007 and May 31, 2006.
NOTE 5 - Income Taxes:
____________
The effective tax rate for the three and nine months ended February
28, 2007 of 32.3% and 31.6%, respectively, has decreased from the full-year
fiscal 2006 effective tax rate of 35.0%. The decrease is primarily due to a
European tax agreement entered into during the three months ended November 30,
2006 and the retroactive reinstatement of the U.S. research and development
tax credit signed into law in December 2006 as part of the Tax Relief and
Healthcare Act of 2006. The Company recorded a retroactive benefit for both
the European tax agreement and the U.S. research and development tax credit
during the nine months ended February 28, 2007.
NOTE 6 - Comprehensive Income:
____________________
Comprehensive income, net of taxes, is as follows:
Three Months Ended Nine Months Ended
February 28, February 28,
_____________________ __________________
2007 2006 2007 2006
____ ____ ____ ____
(in millions)
Net income $350.8 $325.8 $1,053.6 $1,059.2
Other comprehensive income:
Change in cumulative translation
adjustment and other 3.0 22.6 42.0 (20.7)
Changes due to cash flow hedging
instruments:
Net gain (loss) on hedge derivatives (8.1) (4.3) (27.1) 93.1
Reclassification to net income of
previously deferred (gains) and losses
related to hedge derivative instruments 8.5 (17.4) 9.5 (18.1)
_______ _______ _________ _________
Other comprehensive income 3.4 0.9 24.4 54.3
_______ _______ _________ _________
Total comprehensive income $354.2 $326.7 $1,078.0 $1,113.5
======= ======= ========= =========
NOTE 7 - Stock-Based Compensation
________________________
In 1990, the Board of Directors adopted, and the shareholders approved,
the NIKE, Inc. 1990 Stock Incentive Plan (the "1990 Plan"). The 1990 Plan
provides for the issuance of up to 132 million previously unissued shares of
Class B Common Stock in connection with stock options and other awards granted
under the plan. The 1990 Plan authorizes the grant of non-statutory stock
options, incentive stock options, stock appreciation rights, stock bonuses and
the issuance and sale of restricted stock. The exercise price for non-
statutory stock options, stock appreciation rights and the grant price of
restricted stock may not be less than 75% of the market price of the
underlying shares on the date of grant. The exercise price for incentive stock
options may not be less than the market price of the underlying shares on
the date of grant. A committee of the Board of Directors administers the 1990
Plan. The committee has the authority to determine the employees to whom
awards will be made, the amount of the awards, and the other terms and
conditions of the awards. The committee has granted substantially all stock
options and restricted stock at 100% of the market price on the date of grant.
Substantially all 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"). Employees are eligible to participate through
payroll deductions up to 10% of their compensation. At the end of each six-
month offering period, shares are purchased by the participants at 85% of the
lower of the fair market value at the beginning or the ending of the offering
period. In each of the nine months ended February 28, 2007 and 2006,
employees purchased 0.4 million shares.
On June 1, 2006, the Company adopted SFAS No. 123R "Share-Based Payment"
("FAS 123R") which requires the Company to record expense for stock-based
compensation to employees using a fair value method. 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 in the Unaudited Condensed Consolidated Statements of
Income over the vesting period using the straight-line method.
The following table summarizes the effects of applying FAS 123R during
the three and nine months ended February 28, 2007. The resulting stock-based
compensation expense primarily relates to stock options.
Three Months Ended Nine Months Ended
February 28, 2007 February 28, 2007
___________________ ___________________
(in millions, except per share data)
Addition to selling and administrative
expense $ 26.0 $114.9
Reduction to income tax expense (8.2) (36.8)
________ ________
Reduction to net income1 $ 17.8 $ 78.1
======== ========
Reduction to earnings per share:
Basic $ 0.04 $ 0.15
Diluted $ 0.04 $ 0.15
1 In accordance with FAS 123R, stock-based compensation expense reported
during the three and nine months ended February 28, 2007, includes $0.3
million, net of tax, no effect per diluted share, and $23.9 million, net of
tax, or $0.04 per diluted share, respectively, of accelerated stock-based
compensation expense recorded for employees eligible for accelerated stock
option vesting upon retirement. Because the Company usually grants the
majority of stock options in a single grant in the first three months of each
fiscal year, under FAS 123R, accelerated vesting will normally result in
higher expense in the first three months of the fiscal year.
As of February 28, 2007, the Company had $157.4 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 Company has adopted the modified prospective transition method
prescribed by FAS 123R, which does not require the restatement of financial
results for previous periods. In accordance with this transition method,
the Company's Unaudited Condensed Consolidated Statements of Income for the
three and nine months ended February 28, 2007 include (1) amortization
of outstanding stock-based compensation granted prior to, but not vested, as
of June 1, 2006, based on the fair value estimated in accordance with the
original provisions of SFAS No. 123, "Accounting for Stock-Based Compensation"
("FAS 123") and (2) amortization of all stock-based awards granted subsequent
to June 1, 2006, based on the fair value estimated in accordance with the
provisions of FAS 123R.
Prior to the adoption of FAS 123R, the Company used the intrinsic value
method to account for stock options and ESPP shares in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" as permitted by FAS 123. If the Company had instead
accounted for stock options and ESPP shares issued to employees using the fair
value method prescribed by FAS 123 during the three and nine months
ended February 28, 2006, the Company's pro forma net income and pro forma
earnings per share would have been reported as follows:
Three Months Ended Nine Months Ended
February 28, 2006 February 28, 2006
____________________ __________________
(in millions, except per share data)
Net income as reported $325.8 $1,059.2
Add: Stock option expense included
in reported net income, net of tax 0.1 0.2
Deduct: Total stock option and ESPP
expense under fair value based method for all
awards, net of tax1 (20.6) (59.1)
_______ _________
Pro forma net income $305.3 $1,000.3
======= =========
Earnings per share:
Basic - as reported $ 0.63 $ 2.04
Basic - pro forma 0.59 1.93
Diluted - as reported 0.62 2.00
Diluted - pro forma 0.58 1.89
1 Accelerated stock-based compensation expense for options subject to
accelerated vesting due to employee retirement is not included in the pro
forma figures shown above for the three and nine months ended February
28, 2006. This disclosure reflects the expense of such options ratably over
the stated vesting period or upon actual employee retirement. Had the Company
recognized the fair value for such stock options on an accelerated basis in
this pro forma disclosure, the Company would have recognized less stock-based
compensation expense of $1.2 million, net of tax, no effect per diluted share,
for the three months ended February 28, 2006 and additional stock-based
compensation expense of $18.3 million, net of tax, or $0.04 per diluted share
for the nine months ended February 28, 2006.
The weighted average fair value per share of the options granted during
the nine months ended February 28, 2007 and 2006 as computed using the Black-
Scholes pricing model was $8.79 and $9.68, respectively. The weighted average
assumptions used to estimate these fair values are as follows:
Nine Months Ended
February 28,
____________________
2007 2006
____ ____
Dividend yield 1.6% 1.0%
Expected volatility 18.7% 20.7%
Weighted-average expected life (in years) 5.0 4.5
Risk-free interest rate 5.0% 4.0%
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.
The following summarizes the Company's stock option transactions during
the nine months ended February 28, 2007:
Weighted
Weighted Average
Average Contractual Aggregate
Exercise Life Intrinsic
Shares Price Remaining Value
__________ __________ __________ _________
(in millions) (in years) (in millions)
Options outstanding May 31, 2006 40.4 $ 32.31
Exercised (9.6) 27.30
Forfeited (1.4) 36.97
Granted 11.6 39.51
__________
Options outstanding February 28, 2007 41.0 $ 35.35 7.4 $ 692.5
========== ========= ========== =========
Options exercisable February 28, 2007 16.2 $ 29.36 5.7 $ 369.1
========== ========= ========== =========
The aggregate intrinsic value in the table above was the amount by which
the market value of the underlying stock exceeded the exercise price of the
options. The total intrinsic value of the options exercised during the
nine months ended February 28, 2007 and 2006 was $177.9 million and $128.9
million, respectively.
The following table summarizes the Company's total stock-based
compensation expense:
Three Months Ended Nine Months Ended
February 28, 2007 February 28, 2007
____________________ __________________
(in millions)
Stock options $24.5 $109.9
ESPPs 1.5 5.0
Restricted stock1 1.4 4.2
______ _______
Total stock-based compensation expense $27.4 $119.1
====== =======
1 The expense related to restricted stock awards was included in selling
and administrative expense in prior years and was not affected by the adoption
of FAS 123R.
NOTE 8 - Earnings Per Common Share:
_________________________
The following represents a reconciliation from basic earnings per share
to diluted earnings per share. Options to purchase an additional 9.2 million
and 11.2 million shares of common stock were outstanding for the three months
ended February 28, 2007 and 2006, respectively, and 10.2 million and 11.2
million shares of common stock were outstanding for the nine months ended
February 28, 2007 and 2006, respectively, but were not included in the
computation of diluted earnings per share because the options were
antidilutive.
Three Months Ended Nine Months Ended
February 28, February 28,
_____________________ ___________________
2007 2006 2007 2006
____ ____ ____ ____
(in millions, except per share data)
Determination of shares:
Weighted average common shares
outstanding 504.5 517.8 504.1 519.3
Assumed conversion of
dilutive stock options
and awards 6.3 9.1 5.5 9.8
_______ _______ _______ _______
Diluted weighted average common
shares outstanding 510.8 526.9 509.6 529.1
======= ======= ======= =======
Basic earnings per common share1 $ 0.69 $ 0.63 $ 2.09 $ 2.04
======= ======= ======= =======
Diluted earnings per common share1 $ 0.68 $ 0.62 $ 2.07 $ 2.00
======= ======= ======= =======
1 Basic and diluted earnings per common share for the three months ended February 28, 2007
do not recalculate due to rounding.
NOTE 9 - 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 represents activities of Cole Haan Holdings Incorporated, Converse
Inc., Exeter Brands Group LLC, Hurley International LLC, NIKE Bauer Hockey
Inc., and NIKE Golf, which 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.
Three Months Ended Nine Months Ended
February 28, February 28,
__________________ _________________
2007 2006 2007 2006
_____ _____ _____ _____
(in millions)
Net Revenue
U.S. $1,477.0 $1,442.8 $4,496.9 $4,258.8
EUROPE, MIDDLE EAST, AFRICA 1,124.8 980.1 3,431.9 3,175.0
ASIA PACIFIC 589.9 532.3 1,686.5 1,495.2
AMERICAS 212.5 203.1 717.5 668.9
OTHER 522.7 454.5 1,609.9 1,351.6
_________ _________ __________ __________
$3,926.9 $3,612.8 $11,942.7 $10,949.5
========= ========= ========== ==========
Pre-tax Income
U.S. $ 280.2 $ 286.2 $ 885.1 $ 897.1
EUROPE, MIDDLE EAST, AFRICA 246.5 208.7 707.8 733.1
ASIA PACIFIC 126.4 119.6 365.2 326.2
AMERICAS 40.7 38.5 148.9 140.5
OTHER 68.4 44.6 210.6 107.6
CORPORATE (244.2) (191.0) (776.5) (574.1)
_________ _________ _________ _________
$ 518.0 $ 506.6 $1,541.1 $1,630.4
========= ========= ========= =========
Feb. 28, May 31,
2007 2006
_________ _________
(in millions)
Accounts receivable, net
U.S. $ 842.3 $ 717.2
EUROPE, MIDDLE EAST, AFRICA 721.6 716.3
ASIA PACIFIC 306.0 319.7
AMERICAS 188.4 174.5
OTHER 392.3 410.0
CORPORATE 81.4 58.2
_________ _________
$2,532.0 $2,395.9
========= =========
Inventories
U.S. $ 771.3 $ 725.9
EUROPE, MIDDLE EAST, AFRICA 561.4 590.1
ASIA PACIFIC 236.5 238.3
AMERICAS 131.0 147.6
OTHER 409.5 330.5
CORPORATE 58.1 44.3
_________ _________
$2,167.8 $2,076.7
========= =========
Property, plant and equipment, net
U.S. $ 220.5 $ 219.3
EUROPE, MIDDLE EAST, AFRICA 302.2 266.6
ASIA PACIFIC 328.8 354.8
AMERICAS 16.1 17.0
OTHER 100.5 98.2
CORPORATE 686.5 701.8
_________ _________
$1,654.6 $1,657.7
========= =========
NOTE 10 - Commitments and Contingencies:
_____________________________
At February 28, 2007, the Company had letters of credit outstanding
totaling $142.2 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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
In the third quarter of fiscal 2007, revenues grew 9% to $3.9 billion,
net income grew 8% to $350.8 million and we delivered diluted earnings per
share of $0.68, a 10% increase versus the third quarter of fiscal 2006.
Included in our third quarter results is an after-tax charge of $17.8 million,
or approximately $0.04 per diluted share, related to stock-based compensation
expense now recognized in accordance with Statement of Financial Accounting
Standard ("SFAS") No. 123R "Share-Based Payment" ("FAS 123R"), which we
adopted during the first quarter of fiscal 2007.
Third quarter results were positively affected by a reduction in our
effective tax rate of 340 basis points as compared to the third quarter of
fiscal 2006, primarily as a result of the European tax agreement the Company
finalized in the second quarter of fiscal 2007 as well as the retroactive
reinstatement of the U.S. research and development tax credit signed into law
in December 2006. Net income for the quarter was reduced by higher operating
overhead expenses versus the same period in the prior year, which was
attributable to higher investments in growth drivers such as emerging markets,
non-Nike brands and owned retail, as well as normal wage inflation and
performance based compensation. Our earnings per share for the quarter grew at
a higher rate than net income given lower outstanding shares due to
repurchases made under our share repurchase program.
Results of Operations
Three Months Ended Nine Months Ended
February 28, February 28,
___________________ __________________
% %
2007 2006 change 2007 2006 change
______ ______ ________ ______ ______ ________
(dollars in millions, except per share data)
Revenues $3,926.9 $3,612.8 9% $11,942.7 $10,949.5 9%
Cost of sales 2,191.7 2,038.7 8% 6,701.2 6,115.9 10%
Gross margin 1,735.2 1,574.1 10% 5,241.5 4,833.6 8%
Gross margin % 44.2% 43.6% 43.9% 44.1%
Selling and administrative 1,243.3 1,086.6 14% 3,756.7 3,245.7 16%
% of revenue 31.7% 30.1% 31.5% 29.6%
Income before income taxes 518.0 506.6 2% 1,541.1 1,630.4 -5%
Net income 350.8 325.8 8% 1,053.6 1,059.2 -1%
Diluted earnings per share 0.68 0.62 10% 2.07 2.00 4%
Reconciliation of Net Income and Diluted Earnings Per Share ("EPS")
Excluding Stock-Based Compensation Expense
Three Months Ended Nine Months Ended
February 28, February 28,
___________________ __________________
% %
2007 2006 change 2007 2006 change
______ ______ ________ ______ ______ _______
(dollars in millions, except per share data)
Net income, as reported $350.8 $325.8 8% $1,053.6 $1,059.2 -1%
Stock-based compensation expense1,
net of tax of $8.2 and $36.8 17.8 -- 78.1 --
_______ ________ ________ ________
Net income, excluding stock-
based compensation expense2 $368.6 $325.8 13% $1,131.7 $1,059.2 7%
Diluted EPS, as reported $ 0.68 $ 0.62 10% $ 2.07 $ 2.00 4%
Diluted EPS, excluding stock-
based compensation expense $ 0.72 $ 0.62 16% $ 2.22 $ 2.00 11%
1 This charge relates to stock-based compensation associated with stock
options and Employee Stock Purchase Plan ("ESPP") shares issued to
employees and expensed in accordance with FAS 123R. We adopted FAS
123R on June 1, 2006 using the modified prospective transition method.
While this expense was not reflected in our results of operations for
the third quarter and first nine months of fiscal 2006, it will
continue to be reflected in future accounting periods.
2 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. In addition, this schedule is
provided to enhance the visibility of the underlying business trends
by presenting our results for the third quarter and year-to-date
period of fiscal 2007 using the same accounting policy for stock-based
compensation expense applied during the comparable prior year periods.
Consolidated Operating Results
Revenues
Three Months Ended Nine Months Ended
February 28, February 28,
___________________ __________________
% %
2007 2006 change 2007 2006 change
______ ______ ________ ______ ______ _______
(dollars in millions)
Revenues $3,926.9 $3,612.8 9% $11,942.7 $10,949.5 9%
On a consolidated basis, changes in foreign currency exchange rates
increased revenues by 3 percentage points for the third quarter, and 2
percentage points for the first nine months of fiscal 2007. Strong demand for
NIKE brand products continued to drive revenue growth for the quarter and
year-to-date period, as all four of our geographic regions and, on a
consolidated basis, all three of our product business units continued to
deliver revenue growth. Excluding the effects of changes in currency exchange
rates, our international regions contributed 3 percentage points to the
consolidated revenue growth for both the quarter and year-to-date periods.
Our Other businesses, comprised primarily of results from Cole Haan Holdings
Incorporated, Converse Inc., Exeter Brands Group LLC, Hurley International
LLC, NIKE Bauer Hockey, Inc., and NIKE Golf contributed 2 percentage points of
the consolidated constant-currency revenue growth for both the quarter and
year-to-date period and the US Region contributed the balance of revenue
growth.
By product group, our worldwide equipment and apparel businesses reported
revenue growth of 13% and 9% for the third quarter, respectively, and combined,
added $113 million of incremental revenue. Footwear grew 7% and contributed
$133 million of incremental revenue for the quarter. For the first nine months
of fiscal 2007, our worldwide apparel and equipment businesses contributed $391
million of incremental revenue, while footwear contributed $344 million of
incremental revenue.
Gross Margin
Three Months Ended Nine Months Ended
February 28, February 28,
___________________ __________________
% %
2007 2006 change 2007 2006 change
______ ______ _______ ______ ______ _______
(dollars in millions)
Gross margin $1,735.2 $1,574.1 10% $5,241.5 $4,833.6 8%
Gross margin % 44.2% 43.6% 60 bps 43.9% 44.1% -20 bps
For the third quarter of fiscal 2007, the increase in gross margins versus the
prior year quarter was attributable to improved gross margins in our Other
businesses, driven primarily by Converse, favorable hedge results in the EMEA
and Asia Pacific regions, and better inventory management in our Asia Pacific
region, offset by sales discounts combined with a higher closeout mix in the
U.S. region.
For the year-to-date period, the primary factors contributing to the decrease
in gross margin percentage versus the prior year were as follows:
(1) Lower footwear net pricing margins due to sales discounts, combined
with a higher closeout mix, primarily in the EMEA and U.S. regions;
offset by
(2) Improved gross margins in our Other businesses, driven primarily by
the growth in Converse's international licensing business, partially
offset by the expected effects of the transition in Exeter's
business model from licensing to wholesale;
(3) Favorable hedge results relative to the same period in the prior
year, primarily in the EMEA and Asia Pacific regions; and
(4) Lower obsolescence costs due to better inventory management, most
notably in our Asia Pacific region.
Selling and Administrative Expense
Three Months Ended Nine Months Ended
February 28, February 28,
___________________ __________________
% %
2007 2006 change 2007 2006 change
______ ______ ________ ______ ______ _______
(dollars in millions)
Operating overhead expense, excluding
stock-based compensation expense1 $ 749.5 $ 658.3 14% $2,192.5 $2,018.8 9%
Stock-based compensation expense2 26.0 -- 114.9 --
_______ ________ _________ ________
Operating overhead expense, as
reported 775.5 658.3 18% 2,307.4 2,018.8 14%
Demand creation expense3 467.8 428.3 9% 1,449.3 1,226.9 18%
________ _________ _________ _________
Selling and administrative
expense $1,243.3 $1,086.6 14% $3,756.7 $3,245.7 16%
% of revenues 31.7% 30.1% 160 bps 31.5% 29.6% 190 bps
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. In addition, this schedule is
provided to enhance the visibility of the underlying business trends
excluding this identifiable expense by presenting our results for the
third quarter and first nine months of fiscal 2007 using the same
accounting policy for stock-based compensation expense applied during the
comparable prior year periods.
2 This charge relates to stock-based compensation associated with stock
options and ESPP shares issued to employees and expensed in accordance
with FAS 123R. We adopted FAS 123R on June 1, 2006 using the modified
prospective transition method. While this expense was not reflected in
our results of operations for the third quarter and first nine months of
fiscal 2006, it will continue to be reflected in future accounting
periods.
3 Demand creation consists of advertising and promotion expenses, including
costs of endorsement contracts.
In the third quarter and year-to-date period, on a constant-currency
basis, demand creation expense increased 6% and 16%, respectively, versus the
same periods in the prior year. The increase was primarily attributable to
higher spending on advertising and brand events, most notably the Force
Basketball and Just Do It campaigns during the third quarter, combined with
investments in the global World Cup, NIKE Air (registered), NIKE Pro, LeBron,
American Football, and NIKE+ campaigns over the nine-month period. For the full
fiscal year 2007, growth in demand creation expense is expected to be more in
line with our revenue growth.
Excluding stock-based compensation expense, on a constant-currency basis,
operating overhead increased 11% for the quarter and 7% for the year-to-date
period. The increase in operating overhead was attributable to the timing of
expenditures during the third quarter, and investments in growth drivers such
as emerging markets, non-Nike brands and owned retail, as well as normal wage
inflation and performance based compensation during both the third quarter and
year-to-date period.
Other Income, net
Three Months Ended Nine Months Ended
February 28, February 28,
___________________ __________________
% %
2007 2006 change 2007 2006 change
______ ______ ________ ______ ______ _______
(dollars in millions)
Other income, net $10.3 $ 10.7 -4% $ 13.3 $ 22.0 -40%
Other income, net is comprised substantially 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 the third
quarter of fiscal 2007, Other income, net was primarily comprised of a $14.7
million gain on the sale of our Oregon footwear distribution center, partially
offset by foreign currency hedge losses. In the prior year quarter, foreign
currency hedge gains were the most significant component of Other income, net.
The decrease in Other income, net for the first nine months of fiscal
2007 compared to the prior year was primarily the result of foreign currency
hedge losses in fiscal 2007, compared to foreign currency hedge gains in
fiscal 2006. The foreign currency hedge losses recognized in the first nine
months of fiscal 2007 were more than offset by the $14.2 million benefit from
the settlement of the Converse arbitration during the first quarter and the
$14.7 million gain on the sale of the Oregon footwear distribution center
discussed above. For our segment reporting, foreign currency hedge gains and
losses are reflected in the Corporate line, the gain on the sale of the
Oregon footwear distribution center is reflected in the U.S. line, and the
Converse arbitration settlement is reflected in the Other line in our segment
presentation of pre-tax income in the Notes to Unaudited Condensed
Consolidated Financial Statements (Note 9 - Operating Segments).
Income Taxes
Three Months Ended Nine Months Ended
February 28, February 28,
___________________ __________________
% %
2007 2006 change 2007 2006 change
______ ______ ________ ______ ______ _______
Effective tax rate 32.3% 35.7% -340 bps 31.6% 35.0% -340 bps
As disclosed in the second quarter, we finalized a European tax agreement that
is effective for fiscal years 2006 through 2015. This agreement, combined with
the retroactive reinstatement of the U.S. research and development tax credit
in December 2006, favorably impacted our third quarter and year-to-date
effective tax rates. We estimate that our full year effective tax rate will
be consistent with the effective tax rate for the third quarter.
Futures Orders
Worldwide futures and advance orders for our footwear and apparel,
scheduled for delivery from March through July 2007, were 9% higher
than such orders reported for the comparable period of fiscal 2006. 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 1 percentage point to
futures growth versus the same period in the prior year. Excluding this
currency impact, unit sales volume increases for both footwear and apparel
drove the growth in overall futures and advance orders. The reported futures
and advance orders growth is not necessarily indicative of our expectation of
revenue growth during this period. This is 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 futures and advance 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 footwear and apparel, wholesale sales of equipment, U.S. licensed team
apparel, Cole Haan, Converse, Exeter Brands Group, Hurley, NIKE Bauer Hockey,
NIKE Golf and retail sales across all brands.
Operating Segments
The breakdown of revenues is as follows:
Three Months Ended Nine Months Ended
February 28, February 28,
___________________ ____________________
% %
2007 2006 change 2007 2006 change
______ ______ _______ ______ ______ ______
(dollars in millions)
U.S. REGION
FOOTWEAR $1,027.9 $1,005.9 2% $2,986.4 $2,838.5 5%
APPAREL 371.3 366.6 1% 1,278.2 1,195.9 7%
EQUIPMENT 77.8 70.3 11% 232.3 224.4 4%
________ ________ ________ ________
TOTAL U.S. 1,477.0 1,442.8 2% 4,496.9 4,258.8 6%
EMEA REGION
FOOTWEAR 630.0 563.8 12% 1,850.9 1,782.1 4%
APPAREL 413.2 347.1 19% 1,321.2 1,161.9 14%
EQUIPMENT 81.6 69.2 18% 259.8 231.0 12%
________ ________ ________ ________
TOTAL EMEA 1,124.8 980.1 15% 3,431.9 3,175.0 8%
ASIA PACIFIC REGION
FOOTWEAR 319.4 284.1 12% 862.8 766.9 13%
APPAREL 217.4 199.0 9% 668.9 590.1 13%
EQUIPMENT 53.1 49.2 8% 154.8 138.2 12%
________ ________ ________ ________
TOTAL ASIA PACIFIC 589.9 532.3 11% 1,686.5 1,495.2 13%
AMERICAS REGION
FOOTWEAR 152.8 143.7 6% 510.2 478.7 7%
APPAREL 42.3 44.4 -5% 149.2 140.5 6%
EQUIPMENT 17.4 15.0 16% 58.1 49.7 17%
________ ________ ________ ________
TOTAL AMERICAS 212.5 203.1 5% 717.5 668.9 7%
________ ________ ________ ________
3,404.2 3,158.3 8% 10,332.8 9,597.9 8%
OTHER 522.7 454.5 15% 1,609.9 1,351.6 19%
________ ________ _________ _________
TOTAL REVENUES $3,926.9 $3,612.8 9% $11,942.7 $10,949.5 9%
======== ======== ========= =========
The breakdown of income before income taxes ("pre-tax income") follows:
Three Months Ended Nine Months Ended
February 28, February 28,
___________________ __________________
% %
2007 2006 change 2007 2006 change
______ ______ ________ ______ ______ _______
(dollars in millions)
U.S. Region $ 280.2 $ 286.2 -2% $ 885.1 $ 897.1 -1%
EMEA Region 246.5 208.7 18% 707.8 733.1 -3%
Asia Pacific Region 126.4 119.6 6% 365.2 326.2 12%
Americas Region 40.7 38.5 6% 148.9 140.5 6%
Other 68.4 44.6 53% 210.6 107.6 96%
Corporate (244.2) (191.0) -28% (776.5) (574.1) -35%
________ ________ _________ _________
Total pre-tax income $ 518.0 $ 506.6 2% $1,541.1 $1,630.4 -5%
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 SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." As discussed in Note 9 -
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 Nine Months Ended
February 28, February 28,
___________________ __________________
% %
2007 2006 change 2007 2006 change
______ ______ ________ ______ ______ _______
(dollars in millions)
Revenues
Footwear $1,027.9 $1,005.9 2% $2,986.4 $2,838.5 5%
Apparel 371.3 366.6 1% 1,278.2 1,195.9 7%
Equipment 77.8 70.3 11% 232.3 224.4 4%
_________ _________ _________ _________
Total revenues $1,477.0 $1,442.8 2% $4,496.9 $4,258.8 6%
Pre-tax income $ 280.2 $ 286.2 -2% $ 885.1 $ 897.1 -1%
For the third quarter, the increase in U.S. footwear revenue was
attributable to mid-single digit growth in unit sales, partially offset by a
decrease in the average selling price per pair. The growth in unit sales was
driven by higher demand for our NIKE brand sport culture products, including
boys and girls sport culture, men's sport performance, most notably running
due to the growth of our Nike+ performance product, and Brand Jordan
products. The decrease in average selling price per pair compared to the
prior year was the result of a change in mix in sport culture, as we
continue to expand our product offering, and a higher mix of off-price
product compared to the prior year, combined with growth in lower priced
kids' product. For the year-to-date period, U.S. footwear revenue growth
reflected an increase in both unit sales and average selling price per pair,
driven by higher demand for our NIKE brand sport culture, running, and Brand
Jordan products.
The growth in U.S. apparel revenues for the third quarter reflected
stable pricing combined with an increase in unit sales, driven by growth in
Brand Jordan products. For the year-to-date period, U.S. apparel revenue
growth was attributable to higher unit sales, most notably NIKE brand sport
performance apparel, combined with an improvement in average selling prices,
driven by team and licensed apparel and Brand Jordan products.
Pre-tax income for the U.S. region was down slightly for the third
quarter and year-to-date period, versus the comparable prior year periods, as
higher selling and administrative expenses and lower gross margins offset the
growth in revenues. For the quarter, the gross margin decline was primarily
attributable to sales discounts combined with a higher level of closeouts than
the prior year quarter.
For the year-to-date period, lower gross margins resulted from additional
logistics costs incurred to meet footwear unit demand, increasing footwear
product costs, and higher sales incentives. Selling and administrative
expenses increased for the quarter and first nine months of the fiscal year as
a result of higher demand creation spending around the Force Basketball
campaign during the third quarter, combined with increased spend around the
World Cup, Nike Air (registered), LeBron, American Football and Nike+
campaigns in the first six months of fiscal 2007. The growth in demand
creation spend versus the comparable prior year periods is also a function of
the difference in timing of major advertising campaigns during fiscal 2007
versus fiscal 2006. Operating overhead increased during the third quarter and
year-to-date period due primarily to normal wage inflation, performance-based
compensation and higher headcount due to retail growth.
EMEA Region
Three Months Ended Nine Months Ended
February 28, February 28,
___________________ __________________
% %
2007 2006 change 2007 2006 change
______ ______ ________ ______ ______ _______
(dollars in millions)
Revenues
Footwear $ 630.0 $ 563.8 12% $1,850.9 $1,782.1 4%
Apparel 413.2 347.1 19% 1,321.2 1,161.9 14%
Equipment 81.6 69.2 18% 259.8 231.0 12%
_________ _________ _________ _________
Total revenues $1,124.8 $ 980.1 15% $3,431.9 $3,175.0 8%
Pre-tax income $ 246.5 $ 208.7 18% $ 707.8 $ 733.1 -3%
For the EMEA region, which includes Europe, Middle East and Africa,
changes in currency exchange rates contributed 9 percentage points and 5
percentage points of the revenue growth for the third quarter and first nine
months of fiscal 2007, respectively. Excluding changes in currency exchange
rates, all markets within the region, with the exception of the U.K. and
France, increased revenues during the quarter and year-to-date period. The
emerging markets in the region grew over 30% for both the quarter and year-to-
date period, driven by strong results in Russia, South Africa and Turkey.
Increases in Northern Europe, Italy and Spain also contributed significantly
to the revenue growth in both the third quarter and year-to-date period.
Excluding changes in exchange rates, footwear revenues increased 4
percentage points during the third quarter and decreased 1 percentage point
for the first nine months of fiscal 2007 compared to the same periods in the
prior year. The increase in the third quarter was primarily driven by
increased unit sales of sport culture products. For the first nine months of
fiscal 2007, the slight decrease in footwear revenues was attributable to
decreased unit sales, resulting from the challenging retail environment in
the U.K. and France, partially offset by increased demand for sport culture
products across the rest of the region.
The increase in EMEA apparel revenue during the third quarter and
first nine months of fiscal 2007 was attributable to increased unit sales of
NIKE brand apparel, primarily sport culture, soccer and sport performance
products.
The increase in EMEA pre-tax income for the third quarter of fiscal
2007 compared to the same period in the prior year reflected higher unit
sales, stable gross margins and a decrease in demand creation spending
combined with favorable foreign currency translation, partially offset by an
increase in operating overhead. The decline in EMEA pre-tax income for the
first nine months of fiscal 2007 reflected a lower gross margin percentage
and higher selling and administrative expenses, which more than offset the
increase in revenues and favorable foreign currency translation compared to
the prior year period. The lower gross margin percentage for the year-to-
date period was attributable to lower in-line net pricing margins in
footwear combined with an increase in warehousing costs. The lower in-line
net pricing margins in footwear were attributable to sales discounts,
particularly in the U.K. and France, and a shift in product mix, combined
with strategies to improve consumer value.
Excluding changes in foreign currency exchange rates, selling and
administrative expenses for the third quarter and first nine months of 2007
were higher than the corresponding periods in the prior year. Operating
overhead expense was higher in the third quarter and year-to-date period due
primarily to expected annual increases in wages and benefits, and higher
samples cost. For the first nine months of fiscal 2007, the increase in
demand creation spending versus the prior year was primarily due to
investments in the World Cup, Nike Air (registered), Nike Pro and Nike+
campaigns.
Asia Pacific Region
Three Months Ended Nine Months Ended
February 28, February 28,
___________________ __________________
% %
2007 2006 change 2007 2006 change
______ ______ ________ ______ ______ _______
(dollars in millions)
Revenues
Footwear $ 319.4 $ 284.1 12% $ 862.8 $ 766.9 13%
Apparel 217.4 199.0 9% 668.9 590.1 13%
Equipment 53.1 49.2 8% 154.8 138.2 12%
_________ _________ __________ _________
Total revenues $ 589.9 $ 532.3 11% $ 1,686.5 $1,495.2 13%
Pre-tax income $ 126.4 $ 119.6 6% $ 365.2 $ 326.2 12%
In the Asia Pacific region, changes in currency exchange rates
contributed 3 percentage points and 1 percentage point of revenue growth for
the third quarter and year-to-date period, respectively. The majority of
countries within the region reported double-digit sales increases for both the
quarter and year-to-date period. China continues to be the primary driver of
growth within the region, as revenues increased 20% for the quarter and 27%
for the year-to-date period on a constant currency basis due to expansion in
both the number of stores selling Nike product and the sales through existing
doors. While revenue growth in the Asia Pacific region was strong, revenue
in Japan decreased 3% for the quarter and remained flat year-to-date. Despite
sustained softness in this market, we are starting to see positive signs,
including higher gross margins, improvements in sell through at retail
and improving futures order trends.
Footwear revenue growth for both the quarter and first nine months of
fiscal 2007 reflected increased unit sales, most notably in China and Korea,
partially offset by lower average selling prices, which primarily resulted
from strategies to improve consumer value in Japan combined with a change in
the mix of products sold across the region. The increase in apparel revenue
for both the quarter and year-to-date period was also primarily driven by
increased demand in China and Korea.
The increase in pre-tax income in the third quarter and first nine
months of fiscal 2007 was driven by higher revenues, improved gross
margins and favorable foreign currency translation, which more than offset
higher selling and administrative expenses. The gross margin improvement
for the quarter and first nine months of the fiscal year was primarily
driven by better inventory management, improved year-over-year hedge rates
and reduced warehousing costs. The improvement in margins was partially
offset by higher sales incentives combined with efforts to improve consumer
value, most notably in Japan. The increase in selling and administrative
expenses during the third quarter and the first nine months of fiscal 2007
was primarily attributable to demand creation investments. In the third
quarter, the increase was driven primarily by the Just Do It and Force
Basketball campaigns. For the first nine months of fiscal 2007 the increase
was driven by the third quarter events noted above, as well as demand
creation investments in the LeBron campaign, the Just Do It campaign in
China, the launch of Nike+ in Japan and increased spend around the World
Cup. Overall business growth across the region, combined with retail
expansion in China also contributed to an increase in operating overhead
expenses.
Americas Region
Three Months Ended Nine Months Ended
February 28, February 28,
___________________ __________________
% %
2007 2006 change 2007 2006 change
______ ______ ________ ______ ______ _______
(dollars in millions)
Revenues
Footwear $ 152.8 $ 143.7 6% $ 510.2 $ 478.7 7%
Apparel 42.3 44.4 -5% 149.2 140.5 6%
Equipment 17.4 15.0 16% 58.1 49.7 17%
_________ _________ _________ _________
Total revenues $ 212.5 $ 203.1 5% $ 717.5 $ 668.9 7%
Pre-tax income $ 40.7 $ 38.5 6% $ 148.9 $ 140.5 6%
In the Americas region, changes in currency exchange rates did not have
a significant impact on reported revenue growth for the third quarter and
contributed 1 percentage point of revenue growth for the first nine months
of fiscal 2007. Excluding the changes in foreign currency exchange rates,
double-digit revenue growth in most markets within the region during the
third quarter and year-to-date period more than offset softer results in
Brazil.
The increase in pre-tax income for both the third quarter and first
nine months of fiscal 2007 versus the comparable prior year periods, was
primarily attributable to higher revenues and improved gross margins. These
factors were partially offset by higher selling and administrative expenses
for both the quarter and year-to-date period.
Other Businesses
Three Months Ended Nine Months Ended
February 28, February 28,
___________________ __________________
% %
2007 2006 change 2007 2006 change
______ ______ ________ ______ ______ _______
(dollars in millions)
Revenues $ 522.7 $ 454.5 15% $1,609.9 $1,351.6 19%
Pre-tax income 68.4 44.6 53% 210.6 107.6 96%
The increase in Other business revenues for the third quarter was
driven by higher revenues at NIKE Golf, Converse and Hurley, while year-to-
date revenue growth was driven by higher revenues across all businesses,
most notably NIKE Golf, Converse, NIKE Bauer Hockey and Exeter Brands Group.
During the third quarter and year-to-date period, growth at NIKE Golf
and NIKE Bauer Hockey, most notably during the first six months of fiscal
2007, combined with improved profitability at Converse, driven by increased
revenues in the United States and internationally, contributed to the
increase in pre-tax income versus the same periods in the prior year. As
previously discussed, the year-to-date results include the benefit from the
$14.2 million favorable settlement of the arbitration ruling involving
Converse and a former South American licensee.
Liquidity and Capital Resources
Cash Flow Activity
Cash provided by operations was $914.8 million for the first nine months
of fiscal 2007, compared to $953.1 million for the first nine months of
fiscal 2006. Our primary source of operating cash flow for the first nine
months of 2007 was net income of $1,053.6 million offset by investments in
working capital to support growth in the business. The increased investment
in working capital during the first nine months of fiscal 2007 was largely
due to a decrease in accounts payable and corresponding increase in
inventory related to the timing of payments and inventory receipts versus
the same period in the prior year.
Cash provided by investing activities was $778.0 million for the first
nine months of fiscal 2007, compared to cash used in investing activities of
$355.9 million for the first nine months of fiscal 2006. The increase over
fiscal 2006 was primarily due to higher net maturities of short-term
investments (maturities net of purchases) as we liquidated short-term
investments for share repurchases.
Cash used in financing activities was $794.7 million for the first nine
months of fiscal 2007, compared to $521.0 million used in the first nine
months of fiscal 2006. The increase over fiscal 2006 was primarily due to
the $250 million repayment of corporate bonds, combined with an increase in
share repurchases, as discussed below.
In the third quarter of fiscal 2007, we purchased 1.8 million shares of
NIKE's Class B common stock for $91.3 million, bringing total purchases for
the first nine months of fiscal 2007 to 16.8 million shares at a cost of
$694.0 million. In the first quarter of fiscal 2007, we repurchased 12
million shares, of which 4 million shares completed the previous four-year,
$1.5 million share repurchase program approved by the Board of Directors in
June 2004. As of the end of the third quarter of fiscal 2007, we have now
repurchased 12.8 million shares for $531.4 million under the new $3 billion
program approved by our Board of Directors in June 2006. 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 third quarter of
fiscal 2007 were $0.185, compared to $0.155 in the third quarter of fiscal
2006.
Contractual Obligations
As a result of renewals of and additions to outstanding endorsement
contracts, the cash payments due under our endorsement contracts have
changed from what was previously reported in our Annual Report on Form 10-K
as of May 31, 2006.
Endorsement contract obligations as of the date of this filing are as
follows:
Cash Payments Due During the Fiscal Year Ending
May 31,
_______________________________________________
Remaining
Description of Commitment 2007 2008 2009 2010 2011 Thereafter Total
__________________________ ______ ______ ______ ______ ______ __________ _______
(in millions)
Endorsement Contracts $ 109.0 462.4 418.0 337.3 275.7 886.7 $2,489.1
The amounts listed for endorsement contracts represent approximate
amounts of base compensation and minimum guaranteed royalty fees we are
obligated to pay athlete and sport team endorsers of our products. Actual
payments under some contracts may be higher than the amounts listed as these
contracts provide for bonuses to be paid to the endorsers based upon
athletic achievements and/or royalties on product sales in future periods.
Actual payments under some contracts may also be lower as these contracts
include provisions for reduced payments if athletic performance declines in
future periods.
In addition to the cash payments, we are obligated to furnish the
endorsers with NIKE products for their use. It is not possible to determine
how much we will spend on this product on an annual basis, as the contracts
do not stipulate a specific amount of cash to be spent on the product, and
as a result, such amounts are not included in the table above. The amount of
product provided to the endorsers will depend on many factors including
general playing conditions, the number of sporting events in which they
participate, and our own decisions regarding product and marketing
initiatives. In addition, the costs to design, develop, source, and purchase
the products furnished to the endorsers are incurred over a period of time
and are not necessarily tracked separately from similar costs incurred for
products sold to customers.
Capital Resources
On December 1, 2006, the Company entered into a $1 billion multi-year
credit facility that replaces the Company's previous $750 million facility.
The new revolving credit facility has similar terms to the previous facility
and matures in December 2011, with a one year extension option prior to each
of the first anniversary and second anniversary of the closing date, for a
total extension of two years. No amounts were outstanding under these
facilities at May 31, 2006 or February 28, 2007.
On January 12, 2007, one of the Company's Japanese subsidiaries entered
into a 3 billion Yen (approximately $25.6 million) loan facility that
replaces certain intercompany borrowings. The interest rate on the facility
is based on the six-month Japanese Yen London Interbank Offer Rate (JPY
LIBOR) plus a spread, currently 0.805%. The facility expires December 31,
2007 unless both parties agree to an extension.
On February 14, 2007, the Company's same Japanese subsidiary entered into
a 5 billion Yen (approximately $41.5 million) term loan maturing February 14,
2012 that replaces certain intercompany borrowings. The interest rate on the
loan is 1.52125% and interest is paid semi-annually.
Our long-term senior unsecured debt ratings remain at A+ and A2 from
Standard and Poor's Corporation and Moody's Investor Services, respectively.
Liquidity is also provided by our commercial paper program, under which
there was no amount outstanding at February 28, 2007 or May 31, 2006. We
currently have short-term debt ratings of A1 and P1 from Standard and Poor's
Corporation and Moody's Investor Services, respectively.
We currently believe that 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, 2006, will be
sufficient to meet our operating and capital needs in the foreseeable
future.
Recently Issued Accounting Standards
In June 2006, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in our financial statements in accordance with FASB Statement No.
109, "Accounting for Income Taxes." The provisions of FIN 48 are effective
for our fiscal year beginning June 1, 2007. We are currently evaluating the
impact of the provisions of FIN 48.
In June 2006, the FASB ratified the consensus reached in Emerging Issues
Task Force ("EITF") Issue No. 06-2, "Accounting for Sabbatical Leave and Other
Similar Benefits Pursuant to FASB Statement No. 43" ("EITF 06-2"). EITF 06-2
clarifies recognition guidance on the accrual of employees' rights to
compensated absences under a sabbatical or other similar benefit arrangement.
The provisions of EITF 06-2 are effective for the fiscal year beginning June
1, 2007 and will be applied through a cumulative effect adjustment to retained
earnings. We have evaluated the provisions of EITF 06-2 and do not expect
that the adoption will have a material impact on our consolidated financial
position or results of operations.
In June 2006, the FASB ratified the consensus reached on EITF Issue No.
06-3, "How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (That Is, Gross
versus Net Presentation)" ("EITF 06-3"). EITF 06-3 requires disclosure of
the method of accounting for the applicable assessed taxes and the amount of
assessed taxes that are included in revenues if they are accounted for under
the gross method. EITF 06-3 is effective for the fourth quarter ending May
31, 2007; however, since we present revenues net of any taxes collected from
customers, no additional disclosures will be required.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" ("FAS 157"). FAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. The
provisions of FAS 157 are effective for our fiscal year beginning June 1,
2008. We are currently evaluating the impact of the provisions of FAS 157.
In September 2006, the FASB issued SFAS No. 158. "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans" ("FAS 158").
FAS 158 requires employers to fully recognize the obligations associated
with single-employer defined benefit pension, retiree healthcare and other
postretirement plans in their financial statements. The provisions of FAS
158 are effective as of the end of the fiscal year ending May 31, 2007. We
have evaluated the provisions of FAS 158 and do not expect that the adoption
will have a material impact on our consolidated financial position or
results of operations.
In September 2006, the SEC staff issued Staff Accounting Bulletin No.
108, "Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" ("SAB 108"). SAB 108
requires public companies to quantify errors using both a balance sheet and
income statement approach and evaluate whether either approach results in
quantifying a misstatement as material, when all relevant quantitative and
qualitative factors are considered. The guidance in SAB 108 is effective for
the fiscal year ending May 31, 2007. We are currently evaluating the
impact of SAB 108.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities including an Amendment of
FASB Statement No. 115" ("FAS 159"). FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value.
The provisions of FAS 159 are effective for the fiscal year beginning June
1, 2008. We have evaluated the provisions of SAB 108 and do not expect that
the adoption will have a material impact on our consolidated financial
position or results of operations.
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. With the adoption of FAS 123R at the beginning of the first
quarter of fiscal 2007, we have added "Stock-based Compensation" as a
critical accounting policy as described below. Actual results could differ
from the estimates we use in applying the critical accounting policies.
Certain of these critical accounting policies affect working capital account
balances, including the policies for revenue recognition, the reserve for
uncollectible accounts receivable, inventory reserves, and contingent
payments under endorsement contracts. These policies require that we make
estimates in the preparation of our financial statements as of a given date.
However, since our business cycle is relatively short, actual results
related to these estimates are generally known within the six-month period
following the financial statement date. Thus, these policies generally
affect only the timing of reported amounts across two to three quarters.
Within the context of these critical accounting policies, we are not
currently aware of any reasonably likely events or circumstances that would
result in materially different amounts being reported.
Stock-based Compensation
As of the first quarter of fiscal 2007, we account for stock-based
compensation in accordance with FAS 123R. Under the provisions of FAS 123R,
the fair value of stock-based compensation is estimated on the date of grant
using the Black-Scholes fair value model. The Black-Scholes option pricing
model requires the input of highly subjective assumptions including
volatility. Expected volatility is estimated based on implied volatility in
market traded options on our common stock with a term greater than
one year, along with other factors. Our decision to use implied volatility
was based on the availability of actively traded options on our common stock
and our assessment that implied volatility is more representative of future
stock price trends than historical volatility. If factors change and we use
different assumptions for estimating stock-based compensation expense in
future periods, stock-based compensation expense may differ materially in the
future from that recorded in the current period.
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, 2006.
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 February 28, 2007.
There has been no change in our internal controls over financial
reporting during our most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal controls 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 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 significant developments with respect to the
information previously reported under Item 4 of the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 2006.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those
disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal
year ended May 31, 2006.
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 February 28, 2007. In June 2006, our Board of
Directors approved a new four-year $3.0 billion share repurchase program.
During the first quarter ended August 31, 2006, we completed the previous $1.5
billion share repurchase program authorized by the Board of Directors
in June 2004.
Total Number of Maximum Dollar Value
Shares Purchased as of Shares that May
Total Number Average Part of Publicly Yet Be Purchased
Of Shares Price Paid Announced Plans Under the Plans
Period Purchased Per Share or Programs or Programs
______ ____________ __________ ___________________ ____________________
(in millions)
December 1 - 31, 2006 551,200 $ 48.93 551,200 $2,532.9
January 1 - 31, 2007 570,000 $ 49.14 570,000 $2,504.9
February 1 - 28, 2007 692,200 $ 52.46 692,200 $2,468.6
_________ _______ _________
Total 1,813,400 $ 50.35 1,813,400
========= ======= =========
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 Credit Agreement (incorporated by reference from Exhibit 4.01
to the Company's Current Report on Form 8-K filed December 6, 2006).
10.2 Deferred Compensation Plan (incorporated by reference from
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
December 19, 2006).*
10.3 Commercial Paper Agreement between NIKE, Inc., as Issuer and
Goldman, Sachs & Co., as Dealer.
10.4 Commercial Paper Agreement between NIKE, Inc., as Issuer and
Merrill Lynch Money Markets Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as Dealer.
10.5 Commercial Paper Agreement between NIKE, Inc., as Issuer and
Wells Fargo Brokerage Services, LLC, as Dealer.
10.6 Long Term Incentive Plan Agreement (incorporated by reference
from Exhibit 10.1 to the Company's Current Report on Form 8-K
filed February 16, 2007).*
12.1 Computation of Ratio of Earnings to Fixed Charges.
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 Agreement
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: April 4, 2007