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, 2001 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 .
___ ___
Common Stock shares outstanding as of February 28, 2001 were:
_________________
Class A 99,148,499
Class B 172,049,290
-----------
271,197,789
===========
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
NIKE, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
Feb. 28, May 31,
2001 2000
________ _______
(in millions)
ASSETS
Current assets:
Cash and equivalents $ 185.9 $ 254.3
Accounts receivable 1,669.7 1,567.2
Inventories (Note 4) 1,505.4 1,446.0
Deferred income taxes 112.7 111.5
Income taxes receivable - 2.2
Prepaid expenses 187.1 215.2
________ ________
Total current assets 3,660.8 3,596.4
Property, plant and equipment 2,537.0 2,393.8
Less accumulated depreciation 915.4 810.4
________ ________
1,621.6 1,583.4
Identifiable intangible assets and goodwill 400.6 410.9
Deferred income taxes and other assets 283.2 266.2
________ ________
$5,966.2 $5,856.9
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $ 50.1
Notes payable 879.4 924.2
Accounts payable 482.6 543.8
Accrued liabilities 486.1 621.9
Income taxes payable 96.9 -
________ ________
Total current liabilities 1,945.0 2,140.0
Long-term debt 452.9 470.3
Deferred income taxes and other liabilities 112.3 110.3
Commitments and contingencies (Note 6) -- --
Redeemable preferred stock 0.3 0.3
Shareholders' equity:
Common stock at stated value:
Class A convertible-99.1 and
99.2 shares outstanding 0.2 0.2
Class B-172.0 and 170.4 shares
outstanding 2.6 2.6
Capital in excess of stated value 428.9 369.0
Unearned stock compensation (12.5) (11.7)
Accumulated other comprehensive income (123.4) (111.1)
Retained earnings 3,159.9 2,887.0
________ ________
Total shareholders' equity 3,455.7 3,136.0
________ ________
$5,966.2 $5,856.9
======== ========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Year to Date Ending
February 28 and 29, February 28 and 29,
___________________ ___________________
2001 2000 2001 2000
____ ____ ____ ____
(in millions, except per share data)
Revenues $2,170.1 $2,161.6 $7,005.5 $6,722.4
_________ _________ _________ _________
Costs and expenses:
Cost of sales 1,341.5 1,286.4 4,238.1 4,059.0
Selling and administrative 660.2 632.4 2,034.4 1,883.8
Interest 14.0 13.9 46.1 30.6
Other (income) expense 6.2 (0.2) 19.7 23.5
_________ _________ _________ __________
2,021.9 1,932.5 6,338.3 5,996.9
_________ _________ _________ __________
Income before income taxes 148.2 229.1 667.2 725.5
Income taxes 50.8 83.8 240.2 272.4
_________ __________ _________ __________
Net income $ 97.4 $ 145.3 $ 427.0 $ 453.1
========= ========== ========= ==========
Basic earnings per common share $ 0.36 $ 0.53 $ 1.58 $ 1.63
(Note 3) ========= ========= ========= ==========
Diluted earnings per common share $ 0.35 $ 0.52 $ 1.56 $ 1.61
(Note 3) ========= ========= ========= ==========
Dividends declared per common share $ 0.12 $ 0.12 $ 0.36 $ 0.36
========= ========= ========= ==========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
February 28 and 29,
_________________
2001 2000
____ ____
(in millions)
Cash provided (used) by operations:
Net income $ 427.0 $453.1
Income charges (credits) not
affecting cash:
Depreciation 144.6 138.3
Deferred income taxes (1.3) (3.5)
Amortization and other 22.4 29.1
Changes in other working capital
components (264.7) (179.3)
_______ _______
Cash provided by operations 328.0 437.7
_______ _______
Cash provided (used) by investing activities:
Additions to property, plant and
equipment (227.5) (329.6)
Disposals of property, plant and
equipment 7.7 16.3
Increase in other assets (32.6) (40.8)
Increase in other liabilities 6.5 5.3
_______ _______
Cash used by investing activities (245.9) (348.8)
_______ _______
Cash provided (used) by financing activities:
Reductions in long-term debt
including current portion (50.4) (1.6)
(Decrease)increase in notes payable (44.8) 383.6
Proceeds from exercise of options 53.9 29.5
Repurchase of stock (39.0) (483.7)
Dividends on common stock (97.2) (100.5)
_______ _______
Cash used by financing activities (177.5) (172.7)
_______ _______
Effect of exchange rate changes on cash 27.0 45.1
Net decrease in cash and equivalents (68.4) (38.7)
Cash and equivalents, May 31, 2000 and 1999 254.3 198.1
_______ _______
Cash and equivalents, February 28 and 29, 2001
and 2000 $ 185.9 $159.4
======= =======
Non-cash investing and financing activity:
Assumption of long-term debt to acquire
property, plant, and equipment $ - $108.9
======= =======
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
NOTES TO 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 presentation of
the results of operations for the interim period(s). The interim financial
information and notes thereto should be read in conjunction with the
Company's latest annual report to shareholders. The results of operations
for the nine (9) months ended February 28, 2001 are not necessarily
indicative of results to be expected for the entire year.
Certain prior year amounts have been reclassified to conform to fiscal
year 2001 presentation. These changes had no impact on previously reported
results of operations or shareholders' equity.
NOTE 2 - Comprehensive Income:
____________________
Comprehensive income, net of taxes, is as follows:
Three Months Ended Nine Months Ended
February 28 and 29, February 28 and 29,
__________________ __________________
2001 2000 2001 2000
____ ____ ____ ____
(in millions)
Net Income $ 97.4 $145.3 $427.0 $453.1
Change in Cumulative
Translation Adjustment 19.7 (6.3) (8.5) (21.8)
Change in Unrealized
Gain/Loss in Securities (1.5) 7.6 (3.8) 7.6
_______ _______ _______ _______
Total Comprehensive Income $115.6 $146.6 $414.7 $438.9
======= ======= ======= =======
NOTE 3 - Earnings per common share:
_________________________
The following represents a reconciliation from basic earnings per share to
diluted earnings per share. Options to purchase 9.1 million and 5.5 million
shares of common stock were outstanding at February 28, 2001 and February 29,
2000, respectively but were not included in the computation of diluted earnings
per share because the options' exercise prices were greater than the average
market price of common shares and, therefore, the effect would be antidilutive.
Three Months Ended Nine Months Ended
February 28 and 29, February 28 and 29,
__________________ __________________
2001 2000 2001 2000
____ ____ ____ ____
(in millions, except per share data)
Determination of shares:
Average common shares
outstanding 270.9 274.1 270.2 277.6
Assumed conversion of
dilutive stock options
and awards 3.7 2.8 3.7 3.6
______ ______ ______ ______
Diluted average common
shares outstanding 274.6 276.9 273.9 281.2
====== ====== ====== ======
Basic earnings per
common share $ 0.36 $ 0.53 $1.58 $1.63
====== ====== ====== ======
Diluted earnings per
common share $ 0.35 $ 0.52 $1.56 $1.61
====== ====== ====== ======
NOTE 4 - Inventories:
___________
Inventories by major classification are as follows:
Feb. 28, May 31,
2001 2000
________ ________
(in millions)
Finished goods $1,478.1 $1,416.6
Work-in-progress 16.8 17.3
Raw materials 10.5 12.1
________ ________
$1,505.4 $1,446.0
======== ========
NOTE 5 - Operating Segments:
__________________
The Company's major operating segments are defined by geographic regions
for subsidiaries participating in NIKE Brand sales activity. Other Brands as
shown below represent activity for Cole-Haan Holdings, Inc., Bauer NIKE
Hockey, Inc., and NIKE IHM, Inc. and are considered immaterial for individual
disclosure. In prior years, the Company's operations in Africa were included
in the Americas region, but effective June 1, 2000, these operations are
included in the EMEA (Europe, Middle East, and Africa) region. Africa
information and certain other prior year segment information has been
reclassified to conform with current year presentation. Where applicable,
"Corporate" represents items necessary to reconcile to the consolidated
financial statements which generally include corporate activity and corporate
eliminations. The segments are evidence of the structure of the enterprise's
internal organization. Each NIKE Brand geographic segment operates
predominantly in one industry: the design, production, marketing and selling
of sports and fitness footwear, apparel, and equipment.
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 Contribution Profit before Corporate Allocations,
Interest Expense and Income Taxes. On a consolidated basis, this amount
represents Income Before Taxes less Interest Expense as shown in the
Consolidated Statement of Income. Other reconciling items for Contribution
Profit represent corporate costs that are not allocated to the operating
segments for management reporting and intercompany eliminations for specific
income statement items.
Accounts receivable, inventory, and fixed assets for operating segments
are regularly reviewed and therefore provided:
Three Months Ended Nine Months Ended
February 28 and 29, February 28 and 29,
__________________ __________________
2001 2000 2001 2000
____ ____ ____ ____
Net Revenue
USA $1,088.7 $1,161.1 $3,571.6 $3,571.4
EMEA 609.9 571.0 1,897.5 1,801.9
ASIA PACIFIC 275.0 254.0 807.6 687.6
AMERICAS 109.4 97.6 407.1 357.8
OTHER BRANDS 87.1 77.9 321.7 303.7
_________ _________ _________ ________
$2,170.1 $2,161.6 $7,005.5 $6,722.4
========= ========= ======== ========
Contribution Profit
USA $ 185.8 $ 231.6 $ 682.9 $ 698.1
EMEA 95.0 116.2 314.9 333.7
ASIA PACIFIC 51.3 38.2 160.4 106.7
AMERICAS 6.3 8.1 65.5 49.4
OTHER BRANDS (2.5) 16.4 31.5 56.2
CORPORATE (173.7) (167.5) (541.9) (488.0)
_________ _________ __________ ________
$ 162.2 $ 243.0 $ 713.3 $ 756.1
========= ========= ========== ========
Feb. 28, May 31,
2001 2000
_________ __________
Accounts Receivable, net
USA $ 645.5 $ 564.8
EMEA 605.3 529.9
ASIA PACIFIC 150.7 200.8
AMERICAS 131.6 123.0
OTHER BRANDS 107.6 121.0
CORPORATE 29.0 27.7
_________ _________
$1,669.7 $1,567.2
========= =========
Inventories, net
USA $ 721.5 $ 736.5
EMEA 370.7 357.4
ASIA PACIFIC 153.8 115.9
AMERICAS 71.0 65.5
OTHER BRANDS 156.5 141.4
CORPORATE 31.9 29.3
_________ _________
$1,505.4 $1,446.0
======== =========
Property, Plant and Equipment, net
USA $ 267.4 $ 271.6
EMEA 221.8 240.4
ASIA PACIFIC 416.6 426.4
AMERICAS 15.9 18.2
OTHER BRANDS 111.9 114.4
CORPORATE 588.0 512.4
_________ _________
$1,621.6 $1,583.4
========= =========
NOTE 6 - Commitments and contingencies:
_____________________________
At February 28, 2001, the Company had letters of credit outstanding
totaling $601.6 million. These letters of credit were issued for the
purchase of inventory.
There have been no other significant subsequent developments
relating to the commitments and contingencies reported on the
Company's most recent Form 10-K.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Operating Results
_________________
Net income for the third quarter of fiscal year 2001 was $97.4 million, a
33% decrease from fiscal year 2000 third quarter earnings of $145.3 million.
Revenues were essentially flat with the prior year, gross margin declined 5%,
and selling and administrative expenses increased 4%. Revenue and gross
margin were affected by lower demand in the U.S. footwear business, supply
chain disruptions, and the weakness of the euro against the U.S. dollar,
factors which are discussed further below.
Fiscal year-to-date net income was $427.0 million, a 6% decrease from the
prior year. Although year-to-date revenues were 4% above the year-ago period,
gross margin declined as a percentage of revenue while selling and
administrative expense and interest expense increased 8% and 51%,
respectively.
Quarterly diluted earnings per share decreased 33% to $0.35, and year-to-
date diluted earnings per share decreased 3% to $1.56. The percentage decline
in year-to-date earnings per share was lower than the decline in year-to-date
net income due to share repurchases in the fourth quarter of fiscal year 2000
and the first three quarters of fiscal year 2001, which reduced the number of
shares outstanding.
Consolidated revenues were essentially flat for the quarter and grew 4%
on a year-to-date basis. Had foreign exchange rates remained constant with
the prior year, revenues would have grown 4% in the quarter and 8% in the
year-to-date period. The lower real dollar growth rates primarily reflected
the effect of the continued strength of the U.S. dollar against the euro.
U.S. NIKE brand revenues, which represented 52% of total Nike brand
revenues for the quarter, decreased 6% in the quarter and were flat for the
year-to-date period, reflecting lower footwear revenues. Lower demand,
particularly in the mid-range price segment, and supply chain disruptions
resulting from the implementation of a new global demand and supply planning
system, drove the decrease in footwear revenues. The supply chain disruptions
resulted in product excesses as well as product shortages and late deliveries
in the third quarter. We expect that these disruptions will continue to
affect revenues through the first half of fiscal year 2002 as we continue to
liquidate excess inventories created by the supply chain disruptions.
While U.S. footwear revenues decreased, both U.S apparel and U.S.
equipment revenues increased during the quarter, by 11% and 50%, respectively.
On a year-to-date basis, U.S. apparel improved by 7% and U.S. equipment
improved by 56%, reflecting increased demand in both of these businesses.
International revenues represented 48% of NIKE brand revenues in the
third quarter, and increased 8% as compared to the third quarter of fiscal
year 2000. International revenues improved 9% on a year-to-date basis. In
constant dollars, international revenues increased 17% for the quarter and 19%
for the year-to-date period. Third quarter revenues grew in all three
international regions, EMEA (Europe, the Middle East, and Africa), Asia
Pacific, and the Americas (Canada, Mexico, Central and South America) and in
each NIKE brand business unit-footwear, apparel, and equipment.
In EMEA, quarterly revenues increased 18% in constant dollars, reflecting
footwear revenue growth of 17%, apparel revenue growth of 18%, and equipment
revenue growth of 18%. Reported revenues for the quarter and year-to-date
period grew 7% and 5%, respectively. In Asia Pacific, third quarter revenues
grew 16% in constant dollars, reflecting footwear revenue growth of 13%,
apparel revenue growth of 17%, and equipment revenue growth of 35%. Reported
revenues for the quarter and year-to-date period increased 8% and 17%,
respectively. In the Americas region, quarterly revenues increased 15% in
constant dollars; footwear revenues grew 9%, apparel revenues grew 17%, and
equipment revenues grew 158%. Reported revenues for the quarter and year-to-
date period increased 12% and 14%, respectively.
Compared to fiscal year 2000, revenue from non-Nike brands (including
Bauer NIKE Hockey and Cole Haan) increased 12% for the quarter and 6% for the
year-to-date period.
The breakdown of revenues follows:
Three Months Ended Year to Date Ending
February 28 and 29, February 28 and 29,
___________________ __________________
% %
2001 2000 change 2001 2000 change
______ ______ _______ ______ ______ _______
(in millions)
U.S.A. REGION
FOOTWEAR $734.3 $858.9 -15% $2,374.3 $2,522.8 -6%
APPAREL 278.9 251.8 11% 951.4 890.8 7%
EQUIPMENT AND OTHER 75.5 50.4 50% 245.9 157.8 56%
_______ _______ ________ ________
TOTAL U.S.A. 1,088.7 1,161.1 -6% 3,571.6 3,571.4 0%
EMEA REGION
FOOTWEAR 334.8 313.3 7% 1,012.0 944.6 7%
APPAREL 235.0 219.4 7% 749.7 729.2 3%
EQUIPMENT AND OTHER 40.1 38.3 5% 135.8 128.1 6%
_______ _______ ________ ________
TOTAL EMEA 609.9 571.0 7% 1,897.5 1,801.9 5%
ASIA PACIFIC REGION
FOOTWEAR 159.4 151.1 5% 464.7 404.2 15%
APPAREL 87.5 80.5 9% 268.1 226.2 19%
EQUIPMENT AND OTHER 28.1 22.4 25% 74.8 57.2 31%
_______ _______ ________ ________
TOTAL ASIA PACIFIC 275.0 254.0 8% 807.6 687.6 17%
AMERICAS REGION
FOOTWEAR 70.0 65.8 6% 272.3 247.8 10%
APPAREL 33.7 29.5 14% 115.9 101.8 14%
EQUIPMENT AND OTHER 5.7 2.3 148% 18.9 8.2 130%
_______ _______ ________ ________
TOTAL AMERICAS 109.4 97.6 12% 407.1 357.8 14%
_______ _______ ________ ________
TOTAL NIKE BRAND 2,083.0 2,083.7 0% 6,683.8 6,418.7 4%
OTHER BRANDS 87.1 77.9 12% 321.7 303.7 6%
_______ _______ ________ ________
TOTAL REVENUES $2,170.1 $2,161.6 0% $7,005.5 $6,722.4 4%
======== ======== ======== ========
The gross margin percentage for the third quarter of fiscal year 2001 was
38.2% compared to 40.5% in the third quarter of fiscal year 2000. Factors
contributing to the lower gross margin percentage were as follows:
1) A higher mix of close-out sales as well as lower pricing margins achieved
on close-outs, primarily in footwear. The higher mix of close-outs and
lower close-out pricing margins were due in part to the supply chain
disruptions discussed above, which resulted in excess inventory that we
are currently liquidating.
2) Higher fixed design, production, and distribution costs per each unit
sold, due to lower than expected revenues during the period.
3) The effect of the change in foreign exchange rates, most notably the
weakening of the euro against the U.S. dollar.
For the year-to-date period, the gross margin percentage was 39.5% in the
current year versus 39.6% in the prior year. This decrease reflected the
third quarter factors above, offset by year-to-date improvements in apparel
margins due to fewer apparel close-outs and higher apparel net pricing
margins. Currently, prices for leather, a significant raw material for our
footwear business, are rising due in part to European cattle diseases. If
these prices continue to rise, fiscal year 2002 gross margins may be
negatively affected.
Selling and administrative expenses were 30.4% of third quarter revenues,
compared to 29.3% in fiscal year 2000. Year-to-date selling and
administrative expenses were 29.0% of revenues compared to 28.0% in the prior
year. Marketing and operational initiatives drove the higher level of selling
and administrative costs in the quarter. Significant marketing initiatives in
the quarter included new sponsorships of European soccer clubs as well as
advertising related to the launch of our new Shox product and our women's
initiative. Operational initiatives included continued expansion of Nike-
owned retail outlets, the development of e-commerce applications, and
investments in systems and processes supporting our worldwide supply chain.
In addition to these factors, selling and administrative expenses for the
year-to-date period also reflected increased marketing activity relating to
the 2000 Summer Olympics and the 2000 European Soccer Championships in the
first and second quarters of the fiscal year.
Current year third quarter interest expense of $14.0 million was
consistent with fiscal year 2000 third quarter expense of $13.9 million.
However, on a year-to-date basis, fiscal year 2001 interest expense increased
51% over fiscal year 2000, from $30.6 million to $46.1 million. Higher
average levels of debt in the first three quarters of 2001 compared to the
first three quarters of 2000 created the additional expense. We increased
debt during the second half of fiscal 2000, primarily to finance inventory
previously financed by Nissho Iwai American Corporation, fund capital
expenditures, and repurchase stock. See the Liquidity and Capital Resources
discussion following for more information on debt balances.
Included in other income/expense are interest income, profit sharing
expense, foreign currency conversion gains and losses, goodwill amortization,
and various nonrecurring charges. Other income/expense was a net expense of
$6.2 million in the third quarter of fiscal year 2001 versus net income of
$0.2 million in the third quarter of fiscal year 2000. The additional expense
was due to various nonrecurring charges in the current fiscal year, none of
which were individually significant. Year-to-date, other income/expense was a
net expense of $19.7 million in the current year versus net expense of $23.5
million in the comparable period of the prior year. Foreign exchange gains
resulting from hedging and translation of assets and liabilities drove the
reduction of the net expense in the current year-to-date period.
In the third quarter, we adjusted our year-to-date tax rate to 36.0%,
consistent with our estimate of our full year effective tax rate. The current
year-to-date rate compares to a rate of 37.5% for the comparable year-ago
period, and reflects increased utilization of tax loss carryforwards of
certain foreign operations, additional benefits due to increased amounts of
research tax credits, and lower taxes on a portion of foreign earnings that
have been permanently invested offshore. Our effective tax rate for the third
quarter was 34.3% compared to 36.6% in the prior year, reflecting the
adjustment.
Futures Orders
Worldwide futures and advance orders for NIKE brand athletic footwear and
apparel scheduled for delivery from March through July 2001 totaled $3.8
billion, essentially flat as compared with the same period last year. On a
constant dollar basis, worldwide futures and advance orders for this period
were 3% higher in the current year than in the prior year. These orders and
the relative change in these orders between years are not necessarily
indicative of the change in revenues that we will experience for subsequent
periods. This is due to potential shifts in the mix of advance orders in
relation to at-once orders, and varying cancellation rates. Foreign currency
exchange rate fluctuations can also cause differences in the comparisons.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the
European Union established permanent, fixed conversion rates between their
existing currencies and the European Union's new common currency, the euro.
During the transition period ending December 31, 2001, public and private
parties may pay for goods and services using either the euro or the
participating country's legacy currency. Beginning January 1, 2002, euro
denominated bills and coins will be issued; the legacy currencies will be
completely withdrawn from circulation on June 30, 2002.
We have had a dedicated project team working on the euro transition
strategy since January 1998. We have made modifications to information
technology systems supporting marketing, order management, purchasing,
invoicing, payroll, and cash management functions, in order to make them euro
compliant. All major systems have been converted and are euro compliant, well
ahead of the end of the transitional period.
We believe the introduction of the euro may create a move towards a
greater level of wholesale price harmonization, although differing country
costs and value added tax rates will continue to result in price differences
at the retail level. Over the past year and a half, we have been actively
working to assess and, where necessary, adjust pricing practices to operate
effectively in this new environment.
The costs of adapting our systems and practices to the implementation of
the euro were generally related to the modification of existing systems and
totaled approximately $8 million. These costs were expensed as incurred,
primarily in fiscal year 2000. NIKE believes that the conversion to the euro
will not have a material impact on our financial condition or results of
operations.
Recently Issued Accounting Standard
Effective June 1, 2001, we will adopt Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" (FAS 133).
As required upon adoption of FAS 133, we will record a one-time transition
adjustment in the first quarter of fiscal year 2002 on both our income
statement and balance sheet. The transition adjustment on the income
statement will primarily represent the acceleration of option premium cost
recognition as compared to current practice. FAS 133 requires that option
premium costs be expensed over the life of the option while our current
practice is to expense these costs over the period the underlying exposure
affects earnings. The transition adjustment on the balance sheet will
represent the initial recognition of the fair values of hedge derivatives
outstanding on the adoption date and any realized gains or losses on effective
hedges for which the underlying exposure has not yet affected earnings. We
expect to apply cash flow hedge accounting as permitted by FAS 133.
Accordingly, the offset to recognizing the initial fair value of outstanding
hedge derivatives and realized hedge gains and losses will be recorded to
other comprehensive income.
Since the transition adjustment to our balance sheet will be based on
both future fair values and future transactions, it is not possible to
estimate the amount of this transition adjustment on our balance sheet. We
are able, however, to make an estimate of the transition adjustment to the
income statement based on derivative transactions that we have entered into
through February 28, 2001. Under our current accounting practice, these costs
would have been expensed throughout fiscal year 2002. We estimate this
transition adjustment to be a charge to net income in the first quarter of
fiscal year 2002 of approximately $0.10 per share. The actual transition
adjustment will depend on future transactions that may occur between February
28, 2001 and May 31, 2001, as well as changes in market rates between these
two dates. In addition, under FAS 133, some premium costs of options entered
into in fiscal year 2002, but intended to hedge fiscal year 2003 transactions,
will be charged to expense in fiscal year 2002. Under our current accounting
practice, these costs would have been charged to expense in fiscal year 2003.
Liquidity and Capital Resources
Cash provided by operations for the nine-month period ended February 28,
2001 was $328.0 million, which was a decrease of $109.7 million from the same
period last year. Year-to-date net income decreased $26.1 million compared
to last year, while our investment in operating working capital increased by
$85.4 million ($264.7 million for the nine months ended February 28, 2001
versus $179.3 million for the nine-month period ended February 29, 2000).
Total cash used by investing activities during the current year-to-date
period was $245.9 million, $102.9 million less than for the prior year period.
A significant portion of this total expenditure was for computer equipment and
software, driven by our supply chain initiative; investments in new retail
outlets; the continued expansion of our world headquarters; and the continued
development of new distribution facilities in Japan.
Net cash used by financing activities for the nine months ended February
28, 2001 was $177.5 million. This amount included uses of cash for dividends
to shareholders, a reduction of short-term debt, payment of a maturing note
payable, and stock repurchases. These uses of cash were partially offset by
proceeds from employee stock option exercises.
We believe that cash flow generated by operations, together with access
to external sources of funds, will be adequate to meet our anticipated capital
needs. We maintain significant short and long-term lines of credit with
banks, which, along with cash on hand, provide adequate operating liquidity.
Liquidity is also provided by our commercial paper program, under which there
was $745.6 million outstanding at February 28, 2001.
In the third quarter of fiscal year 2001, we purchased a total of 0.5
million shares of NIKE's Class B common stock for $19.5 million. These
purchases were made under a four-year, $1 billion share repurchase program
authorized by our Board of Directors at the beginning the current fiscal year.
Funding for repurchases has, and is expected to continue to come primarily
from operating cash flow. The timing and the amount of shares purchased will
be dictated by working capital needs and stock market conditions.
Dividends per share of common stock for the third quarter of fiscal year
2001 remained at $0.12 per share, the same level as the previous year.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes to the disclosure made in the Annual
Report on Form 10-K for the fiscal year ended May 31, 2000 regarding this
matter.
Special Note Regarding Forward-Looking Statements
and Analyst Reports
Certain written and oral statements 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 ("the Act"). 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 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 S.E.C., 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; the
size, timing and mix of purchases of NIKE's products; 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; 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,
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 impact 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 material changes from the information previously
reported under Item 3 of the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 2000.
Item 6. Exhibits and Reports on Form 8-K:
(a) EXHIBITS:
3.1 Restated Articles of Incorporation, as amended (incorporated by
reference from Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended August 31, 1995).
3.2 Third Restated Bylaws, as amended (incorporated by reference
from Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 31, 1995).
4.1 Restated Articles of Incorporation, as amended (see Exhibit 3.1).
4.2 Third Restated Bylaws, as amended (see Exhibit 3.2).
4.3 Form of Indenture between the Company and The First National Bank
of Chicago, as Trustee (incorporated by reference from Exhibit
4.01 to Amendment No. 1 to Registration Statement No. 333-15953
filed by the Company on November 26, 1996).
10.1 Credit Agreement dated as of November 17, 2000 among NIKE, Inc.,
Bank of America, N.A., individually and as Agent, and the other banks
party thereto (incorporated by reference from Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2000).*
10.2 Form of non-employee director Stock Option Agreement (incorporated by
reference from Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended November 30, 2000).*
10.3 Form of Indemnity Agreement entered into between the Company and
each of its officers and directors (incorporated by reference from
the Company's definitive proxy statement filed in connection with
its annual meeting of shareholders held on September 21, 1987).
10.4 NIKE, Inc. Restated Employee Incentive Compensation Plan
(incorporated by reference from Registration Statement No. 33-29262
on Form S-8 filed by the Company on June 16, 1989).*
10.5 NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference
from the Company's definitive proxy statement filed in connection
with its annual meeting of shareholders held on September 18, 2000).*
10.6 NIKE, Inc. Executive Performance Sharing Plan (incorporated
by reference from the Company's definitive proxy statement filed
in connection with its annual meeting of shareholders held on
September 18, 2000).*
10.7 NIKE, Inc. Long-Term Incentive Plan (incorporated by reference
from the Company's definitive proxy statement filed in connection
with its annual meeting of shareholders held on September 22, 1997).*
10.8 Collateral Assignment Split-Dollar Agreement between NIKE, Inc.
and Philip H. Knight dated March 10, 1994 (incorporated by
reference from Exhibit 10.7 to the Company's Annual Report on
Form 10-K for he fiscal year ended May 31, 1994).*
12.1 Computation of Ratio of Earnings to Charges.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
Reports on Form 8-K filed during the fiscal quarter ending February 28,
2001: February 27, 2001 Item 5. Other Events. Press release regarding
3rd quarter earnings.
.
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
BY:/s/ Donald W. Blair
________________________
Donald W. Blair
Chief Financial Officer
DATED: April 16, 2001