Nike 2006 Annual Report Download - page 26

Income Taxes
Fiscal 2006 Fiscal 2005
FY06 vs.
FY05
Change Fiscal 2004
FY05 vs.
FY04
Change
Effective Tax Rate .................. 35.0% 34.9% 10 bps 34.8% 10 bps
Fiscal 2006 Compared to Fiscal 2005
Our effective tax rate for fiscal 2006 was consistent with the rate reported for fiscal 2005.
During the second quarter of fiscal 2006, our CEO and Board of Directors approved a domestic
reinvestment plan as required by the American Jobs Creation Act of 2004 (the “Act”) to repatriate $500 million
of foreign earnings in fiscal 2006. The Act creates a temporary incentive for U.S. multinational corporations to
repatriate accumulated income earned outside the U.S. by providing an 85% dividend received deduction for
certain dividends from controlled foreign corporations. A $500 million repatriation was made during the quarter
ending May 31, 2006 comprised of both foreign earnings for which U.S. taxes has previously been provided and
foreign earnings that had been designated as permanently reinvested. Accordingly, the provisions made did not
have a material impact on the Company’s income tax expense or effective tax rate for the year.
Fiscal 2005 Compared to Fiscal 2004
Our effective tax rate for fiscal 2005 was slightly higher than the fiscal 2004 rate primarily due to decreases
in tax credits partially offset by lower taxes on foreign earnings in fiscal 2005.
During the fourth quarter of fiscal 2005, we decided to repatriate $500 million of foreign earnings during
fiscal 2006 under the Act. As discussed above, because we elected to repatriate a combination of foreign earnings
for which U.S. taxes had previously been provided and foreign earnings that had been designated as permanently
reinvested, the provisions made did not have a material impact on our income tax expense or our effective tax
rate for fiscal 2005.
Futures Orders
Worldwide futures and advance orders for footwear and apparel scheduled for delivery from June through
November 2006 were 5.0% higher than such orders reported for the comparable period of fiscal 2005. 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 from changes in
currency exchange rates did not have a significant impact on this reported growth versus the same period last
year. Slightly higher average selling prices for both footwear and apparel contributed approximately 1 percentage
point of the growth in overall futures and advance orders. The remaining 4 percentage points of the increase were
due to volume increases for both footwear and apparel. 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.
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