Nike 10-Q 2009
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 2008
Commission file number - 001-10635
(Exact name of registrant as specified in its charter)
One Bowerman Drive, Beaverton, Oregon 97005-6453
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code(503) 671-6453
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in rule 12b-2 of the Exchange Act.
Large accelerated filer ý Accelerated filer ¨
Non-accelerated filer ¨ Smaller Reporting Company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ¨No ý
Shares of Common Stock outstanding as of November 30, 2008 were:
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies:
Basis of presentation:
The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim period. The year-end condensed consolidated balance sheet data as of May 31, 2008 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The interim financial information and notes thereto should be read in conjunction with the Company’s latest Annual Report on Form 10-K. The results of operations for the three and six months ended November 30, 2008 are not necessarily indicative of results to be expected for the entire year.
Recently Adopted Accounting Standards:
On June 1, 2008, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value Measurements" ("FAS 157") for financial assets and liabilities, which clarifies the meaning of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined under FAS 157 as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the assets or liabilities in an orderly transaction between market participants on the measurement date. Subsequent changes in fair value of these financial assets and liabilities are recognized in earnings or other comprehensive income when they occur. The effective date of the provisions of FAS 157 for non-financial assets and liabilities, except for items recognized at fair value on a recurring basis, was deferred by Financial Accounting Standards Board ("FASB") Staff Position FAS 157-2 ("FSP FAS 157-2") and are effective for the fiscal year beginning June 1, 2009. The Company is currently evaluating the impact of the provisions for non-financial assets and liabilities. The adoption of FAS 157 for financial assets and liabilities did not have an impact on the Company's consolidated financial position or results of operations. For additional information on the fair value of financial assets and liabilities, see Note 5 – Fair Value Measurements.
Also effective June 1, 2008, the Company adopted SFAS No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities" ("FAS 159") which allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. As of November 30, 2008, the Company has not elected the fair value option for any additional financial assets and liabilities beyond those already prescribed by accounting principles generally accepted in the United States.
In October 2008, the FASB issued Staff Position No. FAS 157-3, “Determining the Fair Value of a Financial Asset in a Market That Is Not Active ("FSP FAS 157-3").” FSP FAS 157-3 clarifies the application of FAS 157 in a market that is not active and defines additional key criteria in determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS 157-3 applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with FAS 157. FSP FAS 157-3 was effective upon issuance and the application of FSP FAS 157-3 did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Standards:
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("FAS 141(R)") and SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" ("FAS 160"). These standards aim to improve, simplify, and converge international standards of accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The provisions of FAS 141(R) and FAS 160 are effective for the fiscal year beginning June 1, 2009. The Company is currently evaluating the impact of the provisions of FAS 141(R) and FAS 160.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. The provisions of FAS 161 are effective for the quarter ending February 28, 2009. The Company does not expect that the adoption will have a material impact on the Company’s consolidated financial position or results of operations.
In April 2008, the FASB issued Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets. ("FSP FAS 142-3")”. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS 141(R), and other U.S. generally accepted accounting principles. The provisions of FSP FAS 142-3 are effective for the fiscal year beginning June 1, 2009. The Company is currently evaluating the impact of the provisions of FSP FAS 142-3.
NOTE 2 - Inventories:
Inventory balances of $2,419.1 million and $2,438.4 million at November 30, 2008 and May 31, 2008, respectively, were substantially all finished goods.
NOTE 3 - Identifiable Intangible Assets and Goodwill:
The following table summarizes the Company’s identifiable intangible assets and goodwill balances as of November 30, 2008 and May 31, 2008.
The effect of foreign exchange fluctuations for the six month period ended November 30, 2008 reduced goodwill and unamortized intangible assets by approximately $72.0 million and $85.5 million, respectively, resulting from the strengthening of the U.S. dollar in relation to the British pound sterling.
Amortization expense, which is included in selling and administrative expense, was $2.3 million and $2.4 million for the three month periods ended November 30, 2008 and 2007, respectively, and $4.5 million and $5.0 million for the six month periods ended November 30, 2008 and 2007, respectively. The estimated amortization expense for intangible assets subject to amortization for the remainder of fiscal year 2009 and each of the years ending May 31, 2010 through May 31, 2013 are as follows: 2009: $3.8 million; 2010: $8.4 million; 2011: $7.9 million; 2012: $7.3 million; 2013: $5.4 million.
NOTE 4 - Accrued Liabilities:
Accrued liabilities include the following:
1 Other consists of various accrued expenses and no individual item accounted for more than 5% of the balance at November 30, 2008 and May 31, 2008.
NOTE 5 – Fair Value Measurements:
Effective June 1, 2008, the Company adopted FAS 157, "Fair Value Measurements" for financial assets and liabilities. FAS 157 establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). FAS 157 is applied under existing accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements.
The levels of hierarchy are described below:
The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Financial assets and liabilities are classified in their entirety based on the most stringent level of input that is significant to the fair value measurement.
The following table presents information about the Company's financial assets and liabilities measured at fair value on a recurring basis as of November 30, 2008 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.
Derivative financial instruments include foreign currency forwards, option contracts and interest rate swaps. The fair value of these derivatives contracts is determined using observable market inputs such as the forward pricing curve, currency volatilities, currency correlations, and interest rates, and considers nonperformance risk of the Company and that of its counterparties. Adjustments relating to these risks were not material for the period ending November 30, 2008.
Available-for-sale securities are primarily comprised of investments in U.S. Treasury and agency securities, corporate commercial paper and bonds. These securities are valued using market prices on both active markets (level 1) and less active markets (level 2). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily-available pricing sources for comparable instruments.
The Company had no material level three measurements as of November 30, 2008.
NOTE 6 – Income Taxes:
The effective tax rate for the six months ended November 30, 2008 was 27.0%. Reflected in the effective tax rate for the six month period ended November 30, 2008 is a reduction attributable to a settlement of prior year foreign taxes and the retroactive reinstatement of the research and development tax credit. The Tax Extenders and Alternative Minimum Tax Relief Act of 2008 which was signed into law during the current quarter reinstated the U.S. federal research and development tax credit retroactive to January 1, 2008. As a result, the effective tax rate includes a retroactive tax benefit in the second quarter of fiscal 2009. Also reflected in the effective tax rate for the six months ended November 30, 2008 is a reduction in our on-going effective tax rate resulting from our operations outside of the United States; our tax rates on those operations are generally lower than the U.S. statutory rate.
As of November 30, 2008, the total gross unrecognized tax benefits, excluding related interest and penalties were $283.1 million, $75.5 million of which would affect the Company’s effective tax rate if recognized in future periods. Total gross unrecognized tax benefits, excluding interest and penalties, as of May 31, 2008 was $251.1 million, $60.6 million of which would affect the Company’s effective tax rate if recognized in future periods. The liability for payment of interest and penalties increased $15.3 million during the six months ended November 30, 2008. As of November 30, 2008, accrued interest and penalties related to uncertain tax positions were $88.5 million (excluding federal benefit).
The Company is subject to taxation primarily in the U.S., China and the Netherlands as well as various state and other foreign jurisdictions. While we believe we have adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than our accrued position. The Company has concluded substantially all U.S. federal income tax matters through fiscal year 2004. The Company is currently under audit by the Internal Revenue Service for the 2005, 2006 and 2007 tax years. The Company’s major foreign jurisdictions, China and the Netherlands, have concluded substantially all income tax matters through calendar year 1997 and fiscal year 2002, respectively. It is reasonably possible that the Internal Revenue Service audit for the 2005 and 2006 tax years will be completed during the next twelve months, which could result in a decrease in our balance of unrecognized tax benefits. We do not anticipate that total gross unrecognized tax benefits will change significantly as a result of full or partial settlement of audits within the next twelve months.
NOTE 7 - Comprehensive Income:
Comprehensive income, net of taxes, is as follows:
NOTE 8 - Stock-Based Compensation:
A committee of the Board of Directors grants stock options and restricted stock under the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”). The committee has granted substantially all stock options at 100% of the market price on the date of grant. Substantially all stock option grants outstanding under the 1990 Plan were granted in the first quarter of each fiscal year, vest ratably over four years, and expire 10 years from the date of grant. In addition to the 1990 Plan, the Company gives employees the right to purchase shares at a discount to the market price under employee stock purchase plans (“ESPPs”).
The Company accounts for stock-based compensation in accordance with SFAS No. 123R “Share-Based Payment” (“FAS 123R”). Under FAS 123R, the Company estimates the fair value of options granted under the 1990 Plan and employees’ purchase rights under the ESPPs using the Black-Scholes option pricing model. The Company recognizes this fair value as selling and administrative expense over the vesting period using the straight-line method.
The following table summarizes the Company’s total stock-based compensation expense:
1 In accordance with FAS 123R, accelerated stock option expense is recorded for employees eligible for accelerated stock option vesting upon retirement. Accelerated stock option expense was $0.3 million and $0.7 million for the three months ended November 30, 2008 and 2007, respectively, and $55.6 million and $39.2 million for the six months ended November 30, 2008 and 2007, respectively.
As of November 30, 2008, the Company had $118.1 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized as selling and administrative expense over a weighted average period of 2.4 years.
The weighted average fair value per share of the options granted during the six months ended November 30, 2008 and 2007 as computed using the Black-Scholes pricing model was $17.12 and $13.86, respectively. The weighted average assumptions used to estimate these fair values are as follows:
Expected volatility is estimated based on the implied volatility in market traded options on the Company’s common stock with a term greater than one year, along with other factors. The weighted average expected life of options is based on an analysis of historical and expected future exercise patterns. The interest rate is based on the U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options.
NOTE 9 - Earnings Per Common Share:
The following represents a reconciliation from basic earnings per share to diluted earnings per share. Options to purchase an additional 13.9 million and 6.8 million shares of common stock were outstanding for the three months ended November 30, 2008 and 2007, respectively, and 13.8 million and 6.8 million shares of common stock were outstanding for the six months ended November 30, 2008 and 2007, respectively, but were not included in the computation of diluted earnings per share because the options were antidilutive.
NOTE 10 - Operating Segments:
The Company’s operating segments are evidence of the structure of the Company’s internal organization. The major segments are defined by geographic regions for operations participating in NIKE brand sales activity excluding NIKE Golf and NIKE Bauer Hockey. Each NIKE brand geographic segment operates predominantly in one industry: the design, production, marketing and selling of sports and fitness footwear, apparel, and equipment. The “Other” category shown below primarily consists of the activities of Cole Haan, Converse Inc., Hurley International LLC, NIKE Golf and Umbro Ltd. in the three and six month periods ended November 30, 2008 and Cole Haan, Converse Inc., Exeter Brands Group LLC (whose primary business was the Starter brand business which was sold on December 17, 2007), Hurley International LLC, NIKE Bauer Hockey (which was sold on April 17, 2008) and NIKE Golf in the three and six month periods ended November 30, 2007. Activities represented in the "Other" category are considered immaterial for individual disclosure based on the aggregation criteria in SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information.”
Where applicable, “Corporate” represents items necessary to reconcile to the consolidated financial statements, which generally include corporate activity and corporate eliminations.
Net revenues, as shown below, represent sales to external customers for each segment. Intercompany revenues have been eliminated and are immaterial for separate disclosure. The Company evaluates performance of individual operating segments based on pre-tax income. On a consolidated basis, this amount represents income before income taxes as shown in the Unaudited Condensed Consolidated Statements of Income. Reconciling items for pre-tax income represent corporate costs that are not allocated to the operating segments for management reporting including corporate activity, stock-based compensation expense, certain currency exchange rate gains and losses on transactions, and intercompany eliminations for specific income statement items in the Unaudited Condensed Consolidated Statements of Income.
Accounts receivable, net, inventories and property, plant and equipment, net for operating segments are regularly reviewed and therefore provided below.
Certain prior year amounts have been reclassified to conform to fiscal 2009 presentation.
NOTE 11 - Commitments and Contingencies:
At November 30, 2008, the Company had letters of credit outstanding totaling $153.5 million. These letters of credit were issued primarily for the purchase of inventory.
There have been no other significant subsequent developments relating to the commitments and contingencies reported on the Company’s latest Annual Report on Form 10-K.
NOTE 12 — Acquisition and Divestitures:
On March 3, 2008, the Company completed its acquisition of 100% of the outstanding shares of Umbro, a leading United Kingdom-based global soccer brand, for a purchase price of 290.5 million British pounds sterling in cash (approximately $576.4 million), inclusive of direct transaction costs. The acquisition of Umbro was accounted for as a purchase business combination in accordance with SFAS No. 141 “Business Combinations.” The purchase price was allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the date of acquisition, with the remaining purchase price recorded as goodwill. The valuation of these tangible and identifiable intangible assets and liabilities may be adjusted in future periods, subject to the availability of additional information during the allocation period regarding a pre-acquisition legal contingency.
On December 17, 2007, the Company completed the sale of the Starter brand business to Iconix Brand Group, Inc. for $60.0 million in cash. This transaction resulted in a gain of $28.6 million during the year ended May 31, 2008.
On April 17, 2008, the Company completed the sale of NIKE Bauer Hockey Corp. for $189.2 million in cash to a group of private investors (“the Buyer”). The sale resulted in a net gain of $32.0 million recorded during the year ended May 31, 2008. This gain included the recognition of a $46.3 million cumulative foreign currency translation adjustment previously included in accumulated other comprehensive income. As part of the terms of the sale agreement, the Company granted the Buyer a royalty free limited license for the use of certain NIKE trademarks for a transitional period of approximately two years. The Company deferred $41.0 million of the sale proceeds related to this license agreement, to be recognized over the license period.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the second quarter of fiscal 2009, our revenues grew 6% to $4.6 billion, net income increased 9% to $391.0 million and we delivered diluted earnings per share of $0.80, a 13% increase compared to the second quarter of fiscal 2008.
Income before income taxes grew 1% for the second quarter, as a result of revenue growth and improved gross margins, offset by an increase in selling and administrative expenses driven by investments in company owned retail, rapidly growing emerging markets, non-NIKE branded businesses and normal wage inflation. A decrease in interest income earned on cash and short-term investments was also a factor in income before income taxes growing at a slower rate than revenues.
Net income and diluted earnings per share for the second quarter of fiscal 2009 were positively affected by a year-over-year decrease in our effective tax rate from 30.3% to 24.9%. The effective tax rate for the second quarter of fiscal 2009 reflects a reduction in the ongoing effective tax rate on operations outside of the U.S., the receipt of a foreign tax settlement and reinstatement of the U.S. research and development tax credit signed into law during the second quarter of fiscal 2009.
The deteriorating macroeconomic environment has caused significant volatility in global financial markets and has put significant pressure on discretionary consumer spending worldwide. While we believe that our Company is well positioned from a business and financial perspective, we are not immune to global economic conditions. These conditions could affect our business in a number of direct and indirect ways, including lower revenues from slowing consumer/customer demand for our products, reduced profit margins and /or increased costs, changes in interest and currency exchange rates, lack of credit availability and business disruptions due to difficulties experienced by suppliers and customers. We are taking steps we believe prudent and necessary to identify and manage potential exposures over the short and long term. These steps include reductions in planned selling and administrative expenses, including the implementation of a hiring freeze and reductions in planned spending for travel, meetings and demand creation, as well as tighter inventory purchasing and working capital management. We have also increased our focus on monitoring the financial health of suppliers and customers. Notwithstanding these efforts, our future performance is subject to the inherent uncertainty presented by the evolving macroeconomic conditions and our continued actions to respond to these conditions.
Results of Operations
Consolidated Operating Results
Changes in foreign currency exchange rates increased revenues by 1 percentage point for the second quarter and 4 percentage points for the first six months of fiscal 2009. Excluding the effects of changes in currency exchange rates, all three of our international NIKE Brand regions delivered revenue growth in the second quarter, while our NIKE Brand U.S. region and our businesses classified as “Other” reported revenue declines. The NIKE Brand footwear and apparel businesses grew for the quarter while revenues for NIKE Brand equipment declined. For the NIKE Brand, all three product groups and all four geographic regions delivered revenue growth in the year-to-date-period. Our international regions contributed 5 and 6 percentage points of the consolidated revenue growth in the second quarter and year-to-date periods, respectively. Revenue in the U.S. Region decreased consolidated revenue growth by less than 1 percentage point in the second quarter, and the U.S. region contributed 1 percentage point of the consolidated revenue growth for the year-to-date period. Other businesses were comprised primarily of results from Cole Haan, Converse Inc., Hurley International LLC, NIKE Golf and Umbro Ltd. in fiscal 2009 and Cole Haan, Converse Inc., Exeter Brands Group LLC (consisting primarily of the Starter brand business which was sold on December 17, 2007), Hurley International LLC, Nike Bauer Hockey Corp. (which was sold on April 17, 2008) and NIKE Golf in fiscal 2008.
By product group, our NIKE Brand footwear business reported revenue growth of 8% and contributed $168 million of incremental revenue for the second quarter of fiscal 2009. Our NIKE Brand apparel and equipment businesses grew 8% and 1%, respectively, during the second quarter of fiscal 2009, and combined added $108 million of incremental revenue. For the first six months of fiscal 2009, our NIKE Brand footwear business grew 14% and contributed $627 million of incremental revenue, while our NIKE Brand apparel and equipment businesses grew 13% and 8%, respectively, and combined added $383 million of incremental revenue.
For the second quarter of fiscal 2009, the primary factors contributing to the increase in gross margins versus the prior year period were improved year-on-year hedge rates, most notably in the Europe, Middle East and Africa (“EMEA”) region, partially offset by higher warehousing costs, increased discounts on in-line product, primarily apparel, and increased inventory obsolescence reserves. For the year-to-date period, the increase in gross margins was primarily the result of improved year-on-year hedge rates, primarily in the EMEA region, and an improved sales mix of higher margin footwear products, most notably in the EMEA region, partially offset by higher warehousing costs in the U.S.
Selling and Administrative Expense
1 Demand creation consists of advertising and promotion expenses, including costs of endorsement contracts.
Changes in foreign currency exchange rates had a minimal effect on selling and administrative expenses in the second quarter and increased selling and administrative expenses 3 percentage points for the first six months of fiscal 2009.
Excluding changes in exchange rates, operating overhead increased 10% and 12% during the second quarter and first six months of fiscal 2009, respectively, versus the comparable prior year periods. These increases were primarily attributable to investments in growth drivers such as NIKE-owned retail primarily in the U.S., EMEA and Asia Pacific regions, infrastructure for emerging markets in the EMEA and Asia Pacific regions and non-NIKE brand businesses. Normal wage inflation also contributed to the growth across all regions.
On a constant-currency basis, demand creation expense increased 4% and 22% during the second quarter and first six months of fiscal 2009, respectively, compared to the same periods in the prior year. The increase in the second quarter of fiscal 2009 was primarily attributable to an increase in investments in athlete and team endorsements. The increase in the first six months of fiscal 2009 was primarily attributable to strategic investments in demand creation, including first quarter spending around the 2008 Olympics in Beijing and the European Football Championships, and increased investments in athlete and team endorsements across all regions.
For the third and fourth quarter of fiscal 2009, we will continue to take steps to reduce selling and administrative spending levels while shifting resources to fund initiatives that are critical to the achievement of our long-term growth goals. We expect our selling and administrative expenses will grow at a mid-single digit rate in the third quarter of fiscal 2009 as compared to the same period in the prior year, and decline by a double digit percentage in the fourth quarter of 2009 as compared to the same period in the prior year, reflecting lower demand creation and operating overhead spending. Our future selling and administrative expense levels may vary from our current expectations due to changes in the rapidly evolving macroeconomic environment and our reaction to those changes.
Other income (expense), net is comprised primarily of gains and losses associated with the conversion of non-functional currency receivables and payables, the re-measurement of foreign currency derivative instruments, disposals of fixed assets, as well as other unusual or non-recurring transactions that are outside the normal course of business. For both the second quarter and first six months of fiscal 2009, other income (expense), net was primarily comprised of recognition of the deferred gain on the sale of the NIKE Bauer Hockey business and foreign currency hedge gains and losses.
Foreign currency hedge gains and losses reported in other income (expense), net are reflected in the Corporate line in our segment presentation of pre-tax income in the Notes to Unaudited Condensed Consolidated Financial Statements (Note 10 — Operating Segments).
For the second quarter and year-to-date periods of fiscal 2009, we estimate that the combination of foreign currency hedge gains and losses in other income (expense), net and the favorable translation of foreign currency-denominated profits from our international businesses resulted in a year-over-year increase in consolidated income before income taxes of approximately $25 million and $96 million, respectively.
Our effective tax rate for the second quarter of fiscal 2009 was 5.4 percentage points lower than the prior year period, due primarily to a reduction in the ongoing effective tax rate on operations outside of the U.S., the receipt of a foreign tax settlement and reinstatement of the U.S. research and development tax credit signed into law during the second quarter of fiscal year 2009. We estimate that our effective tax rate for fiscal year 2009 will be approximately 28%.
The effective tax rate for the first six months of fiscal 2009 was 5.3 percentage points higher than the effective tax rate for the comparable period in fiscal 2008, due primarily to a one-time tax benefit realized in the first quarter of fiscal 2008. In the years prior to fiscal 2008, several of our international entities generated losses for which we did not recognize the corresponding tax benefits, as the realization of those benefits was uncertain. In the first quarter of fiscal 2008, we took the steps necessary to realize these benefits, resulting in a one-time tax benefit of $105.4 million.
Worldwide futures and advance orders for NIKE Brand footwear and apparel, scheduled for delivery from December 2008 through April 2009, were 1% lower than such orders reported for the comparable period of fiscal 2008. This futures growth rate is calculated based upon our forecasts of the actual exchange rates under which our revenues will be translated during this period, which approximate current spot rates. The net effect of changes in foreign currency exchange rates contributed approximately 7 percentage points to the futures decline versus the same period in the prior year. Excluding this currency impact, unit sales volume increases for footwear were the primary growth driver in overall futures and advance orders.
The reported futures and advance orders growth rate is not necessarily indicative of our expectation of revenue growth during this period. This is due to year-over-year changes in shipment timing, and because the mix of orders can shift between advance/futures and at-once orders. In addition, exchange rate fluctuations as well as differing levels of order cancellations and discounts can cause differences in the comparisons between advance/futures orders and actual revenues. Moreover, a significant portion of our revenue is not derived from futures and advance orders, including at-once and closeout sales of NIKE Brand footwear and apparel, wholesale sales NIKE Brand of equipment, Cole Haan, Converse, Hurley, NIKE Golf, Umbro and retail sales across all brands.
The breakdown of revenues is as follows:
The breakdown of income before income taxes (“pre-tax income”) is as follows:
The following discussion includes disclosure of pre-tax income for our operating segments. We have reported pre-tax income for each of our operating segments in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information.” As discussed in Note 10 — Operating Segments in the accompanying Notes to Unaudited Condensed Consolidated Financial Statements, certain corporate costs are not included in pre-tax income of our operating segments.
For the second quarter and the first six months of fiscal 2009, the increase in U.S. footwear revenue was primarily attributable to low-single digit percentage growth in average selling price per pair compared to the same periods in the prior year. The increase in average selling price per pair was attributable to strategic price increases, increased sales mix of higher priced NIKE brand sportswear, running and Brand Jordan products, and improved pricing on close-out products.
Average selling price per unit for U.S. apparel declined in both the second quarter and first six months of fiscal 2009 as compared to the same periods in the prior year, primarily as the result of a higher mix of close-out sales. Unit sales also decreased slightly in the second quarter of fiscal 2009 reflecting a more challenging retail environment, resulting in a decrease in the U.S. apparel revenues in the second quarter. For the first six months of fiscal 2009, the increase in unit sales more than offset the decrease in average selling price per unit, resulting in a year-over-year increase in U.S. apparel revenues.
Pre-tax income for the U.S. Region declined in both the second quarter and first six months of fiscal 2009. In the second quarter of fiscal 2009, the decline was primarily the result of lower gross margins, principally for apparel, and higher operating overhead expenses, due largely to the expansion of NIKE-owned retail. In addition to these factors, profitability for the first six months of fiscal 2009 also reflected higher demand creation spending.
For the EMEA Region, changes in currency exchange rates contributed 2 and 10 percentage points of the revenue growth during the second quarter and first six months of fiscal 2009, respectively. Excluding changes in currency exchange rates, most markets within the region increased revenues during the quarter and year-to-date period. The U.K. grew 2% and 4% for the second quarter and year-to date period, respectively, while the emerging markets in the region grew 21% and 30% for the second quarter and year-to-date period respectively, driven by strong results in Russia. These results more than offset lower revenues in Southern Europe.
Excluding changes in exchange rates, footwear revenues increased 4% and 7% during the second quarter and first six months of fiscal 2009 compared to the same periods in the prior year. The increase in footwear revenue was attributable to high single-digit percentage growth in unit sales, partially offset by a slight decrease in average selling price per pair. The increase in unit sales was primarily driven by higher demand for our NIKE brand sportswear and kids products. The slight decrease in average selling price per pair resulted from a shift in product mix from higher priced to lower priced models, most notably within kids and NIKE brand sportswear products.
Excluding changes in exchange rates, apparel revenues increased 4% and 2% for the second quarter and first six months of fiscal 2009 compared to the same periods in the prior year due to double-digit increases in unit sales partially offset by lower average selling prices as a result of a higher mix of close-out sales.
In the second quarter and first six months of fiscal 2009, pre-tax income for EMEA grew at a faster rate than revenue, as favorable foreign currency translation and higher gross margins more than offset higher selling and administrative expenses.
Asia Pacific Region