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 August 31, 1999 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 August 31, 1999 were:
_________________
Class A 100,670,071
Class B 179,370,967
-----------
280,041,038
===========
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
NIKE, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
Aug. 31, May 31,
1999 1999
________ _______
(in millions)
ASSETS
Current assets:
Cash and equivalents $ 226.2 $ 198.1
Accounts receivable 1,701.2 1,540.1
Inventories (Note 4) 1,229.4 1,199.3
Deferred income taxes 117.5 120.6
Income taxes receivable - 15.9
Prepaid expenses 183.0 190.9
________ ________
Total current assets 3,457.3 3,264.9
Property, plant and equipment 2,301.2 2,001.3
Less accumulated depreciation 775.8 735.5
________ ________
1,525.4 1,265.8
Identifiable intangible assets and goodwill 422.5 426.6
Deferred income taxes and other assets 299.1 290.4
________ ________
$5,704.3 $5,247.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 50.9 $ 1.0
Notes payable 488.7 419.1
Accounts payable 488.0 373.2
Accrued liabilities 678.8 653.6
Income taxes payable 101.4 -
________ ________
Total current liabilities 1,807.8 1,446.9
Long-term debt 462.2 386.1
Deferred income taxes and other liabilities 81.0 79.8
Commitments and contingencies (Note 7) -- --
Redeemable preferred stock 0.3 0.3
Shareholders' equity:
Common stock at stated value:
Class A convertible-100.7 and
101.7 shares outstanding 0.2 0.2
Class B-179.4 and 181.6 shares
outstanding 2.7 2.7
Capital in excess of stated value 335.9 334.1
Accumulated other comprehensive income (80.4) (68.9)
Retained earnings 3,094.6 3,066.5
________ ________
3,353.0 3,334.6
________ ________
$5,704.3 $5,247.7
======== ========
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
August 31, 1999
__________________
1999 1998
____ ____
(in millions, except per share data)
Revenues $2,501.1 $2,504.8
_________ _________
Costs and expenses:
Cost of sales 1,534.7 1,562.6
Selling and administrative 626.5 652.6
Interest 10.0 14.2
Other expense 7.0 4.6
_________ _________
2,178.2 2,234.0
________ __________
Income before income taxes 322.9 270.8
Income taxes 122.7 107.0
________ ________
Net income $ 200.2 $ 163.8
========= =========
Basic earnings per common share $ 0.71 $ 0.57
(Note 3) ========= =========
Diluted earnings per common share $ 0.70 $ 0.56
(Note 3) ========= =========
Dividends declared per common share $ 0.12 $ 0.12
========= =========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
August 31,
_________________
1999 1998
____ ____
(in millions)
Cash provided (used) by operations:
Net income $ 200.2 $163.8
Income charges (credits) not
affecting cash:
Depreciation 43.5 57.2
Deferred income taxes (8.4) (1.7)
Amortization and other 18.1 (0.6)
Changes in other working capital
components 62.7 150.2
_______ _______
Cash provided by operations 316.1 368.9
_______ _______
Cash provided (used) by investing activities:
Additions to property, plant and
equipment (285.7) (85.6)
Disposals of property, plant and
equipment 6.3 3.6
Increase in other assets (9.1) (9.6)
Increase (decrease) in other liabilities 0.1 (6.4)
_______ _______
Cash used by investing activities (288.4) (98.0)
_______ _______
Cash provided (used) by financing activities:
Additions to long-term debt 108.9 -
Reductions in long-term debt
including current portion (0.3) (0.4)
Increase (decrease) in notes payable 69.6 (131.9)
Proceeds from exercise of options 5.1 6.4
Repurchase of stock (130.1) (43.3)
Dividends - common and preferred (33.9) (34.4)
_______ _______
Cash provided (used) by financing activities 19.3 (203.6)
_______ _______
Effect of exchange rate changes on cash (18.9) (8.1)
Net increase in cash and equivalents 28.1 59.2
Cash and equivalents, May 31, 1999 and 1998 198.1 108.6
_______ _______
Cash and equivalents, August 31, 1999
and 1998 $ 226.2 $167.8
======= =======
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 three (3) months ended August 31, 1999 are not necessarily
indicative of results to be expected for the entire year.
Year 2000 costs:
Costs associated with the Company's efforts around Year 2000 issues are
expensed as incurred, unless they relate to the purchase of hardware and
software, and software development, in which case they are capitalized.
Capitalized software and hardware costs are depreciated from three to five
years.
NOTE 2 - Comprehensive Income:
__________________
Comprehensive income, net of taxes, is as
follows:
Three Months Ended
August 31,
__________________
1999 1998
____ ____
(in millions)
Net Income $200.2 $163.8
Change in Cumulative
Translation Adjustment (11.5) (5.1)
_______ _______
Total Comprehensive Income $188.7 $158.7
======= =======
NOTE 3 - Net income per common share:
___________________________
Basic and diluted earnings per share are calculated in accordance with SFAS
128, "Earnings per Share." This standard requires that basic earnings per
share be calculated using the average common shares outstanding. Diluted
earnings per share are calculated by taking into consideration the dilutive
effect of issued and outstanding stock options. The following represents a
reconciliation from basic earnings per share to diluted earnings per share:
Three Months Ended
August 31,
__________________
1999 1998
____ ____
(in millions, except per share data)
Determination of shares:
Average common shares
outstanding 281.1 286.7
Assumed conversion of
stock options 4.4 5.3
______ ______
Diluted average common
shares outstanding 285.5 292.0
====== ======
Basic earnings per
common share $ 0.71 $ 0.57
====== ======
Diluted earnings per
common share $ 0.70 $ 0.56
====== ======
NOTE 4 - Inventories:
___________
Inventories by major classification are as follows:
Aug. 31, May 31,
1999 1999
________ ________
(in millions)
Finished goods $1,166.1 $1,132.7
Work-in-progress 46.5 44.8
Raw materials 16.8 21.8
________ ________
$1,229.4 $1,199.3
======== ========
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 non-NIKE brand subsidiaries (Cole-Haan
Holdings, Inc., Bauer NIKE Hockey, Inc., and NIKE IHM, Inc.) and are considered
immaterial for individual disclosure. Where applicable, "Corporate and Other"
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
August 31, 1999
__________________
1999 1998
____ ____
Net Revenue
USA $1,331.7 $1,357.1
EURORE 717.8 680.9
ASIA PACIFIC 190.9 191.4
AMERICAS 143.6 152.6
OTHER BRANDS 117.1 122.8
_________ _________
$2,501.1 $2,504.8
========= =========
Contribution Profit
USA $ 274.3 $ 286.0
EUROPE 151.9 127.1
ASIA PACIFIC 24.0 7.7
AMERICAS 20.4 27.0
OTHER BRANDS 20.0 5.1
CORPORATE & OTHER (157.7) (167.9)
_________ _________
$ 332.9 $ 285.0
========= =========
Aug. 31, May 31,
1999 1998
_________ __________
Accounts Receivable, net
USA $ 564.8 $ 578.2
EUROPE 703.3 551.6
ASIA PACIFIC 133.0 141.5
AMERICAS 132.8 119.2
OTHER BRANDS 132.6 104.6
CORPORATE & OTHER 34.7 45.0
_________ _________
$1,701.2 $1,540.1
========= =========
Inventories, net
USA $ 604.3 $ 565.5
EUROPE 278.2 316.3
ASIA PACIFIC 90.3 81.5
AMERICAS 82.5 73.1
OTHER BRANDS 140.7 137.5
CORPORATE & OTHER 33.4 25.4
_________ _________
$1,229.4 $1,199.3
======== =========
Property, Plant and Equipment, net
USA $ 287.8 $ 293.0
EUROPE 292.6 271.4
ASIA PACIFIC 372.3 148.0
AMERICAS 21.0 21.5
OTHER BRANDS 109.7 111.7
CORPORATE & OTHER 442.0 420.2
_________ _________
$1,525.4 $1,265.8
========= =========
Note 6 - Restructuring Charges:
1999 Charge
During fiscal 1999, a $60.1 million charge was taken due to further cost
realignment programs. The charge (shown below in tabular format) was primarily
for costs of severing employees, including severance packages, lease
abandonments and the write down of assets no longer in use. Employees were
terminated in Europe, Asia Pacific, and in the United States, and included
employees affected by the Company's shift to outsourcing certain of its
information technology functions. The total number of employees terminated was
1,291, with 840 having left the Company as of August 31, 1999.
Also included in the charge was a $20.2 write-off of certain assets
related to the change in strategies around the Company's warehouse distribution
facilities in the United States.
The remaining accrual balance will be relieved throughout fiscal 2000 and
early 2001, as leases expire and severance payments are completed.
Detail of the 1999 restructuring charge is as follows:
(in millions)
FY99 FY99
DESCRIPTION CASH/NON- RESTRUCTURING ACTIVITY RESERVE ACTIVITY RESERVE
CASH CHARGE BALANCE AT BALANCE AT
5/31/99 8/31/99
____________________________________________________________________________________________________________
ELIMINATION OF JOB
RESPONSIBILITES $(39.9) $21.9 $(18.0) $4.1 $(13.9)
Severance packages cash (28.0) 11.7 (16.3) 3.8 (12.5)
Lease cancellations &
commitments cash (2.4) 1.6 (0.8) 0.1 (0.7)
Write-down of assets non-cash (7.8) 7.8 - - -
Other cash/non- (1.7) 0.8 (0.9) 0.2 (0.7)
cash
____________________________________________________________________________________________________________
CHANGE IN WAREHOUSE
DISTRIBUTION STRATEGY $(20.2) $20.2 $ - $ - $ -
Write-down of assets non-cash (20.2) 20.2 - - -
____________________________________________________________________________________________________________
Effect of foreign currency
translation - 0.1 $0.1 $(0.4) $(0.3)
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
TOTAL $(60.1) $42.2 $(17.9) $3.7 $(14.2)
____________________________________________________________________________________________________________
<Table/
1998 Charge
During the fourth quarter of fiscal 1998 the Company recorded a
restructuring charge of $129.9 million as a result of certain of the Company's
actions to better align its cost structure with expected revenue growth rates.
The restructuring activities (shown below in tabular format) primarily related
to: 1) the elimination of job responsibilities company-wide, resulting in costs
to sever employees and related asset write-downs and lease abandonments related
to the affected employees; 2) the relocation of, and elimination of, certain job
responsibilities of the Asia Pacific headquarters in Hong Kong, resulting in
reduction in workforce, lease abandonments and other costs of downsizing the
Hong Kong headquarters; 3) the downsizing of the Company's Japan distribution
center, resulting in the write-down of assets no longer in use; 4) the
cancellation of certain non-strategic long-term endorsement contracts, resulting
in one-time termination fees; and 5) the decision to exit certain manufacturing
operations of the Bauer subsidiary, resulting in the reduction in manufacturing
related jobs, the write-down of assets no longer in use, and the estimated loss
on divestiture of certain manufacturing plants.
Employees were terminated from almost all areas of the Company, including
marketing, sales and administrative areas. The total number of employees
terminated was 1,208, with 1,203 having left the Company as of August 31, 1999.
No increases to the 1998 restructuring charge have been made. A total of
$15 million of the restructuring charge was reversed in fiscal year 1999.
During the first quarter of fiscal year 2000 continuing cash payments were made
against the reserve liability as shown in the table below. The remaining
accrual will be relieved throughout fiscal 2000, as lease and severance
payments, some of which are paid on a monthly basis, are completed.
Detail of the 1998 restructuring charge is as follows:
(in millions)
FY98 FY99
DESCRIPTION CASH/NON- RESTRUCTURING ACTIVITY RESERVE ACTIVITY RESERVE
CASH CHARGE BALANCE AT BALANCE AT
5/31/99 8/31/99
___________________________________________________________________________________________________________
ELIMINATION OF JOB
RESPONSIBILITES COMPANY-
WIDE $(49.8) $46.5 $ (3.3) $ 1.0 $(2.3)
Severance packages cash (29.1) 28.2 (0.9) 0.3 (0.6)
Lease cancellations &
commitments cash (10.8) 8.4 (2.4) 0.7 (1.7)
Write-down of assets non-cash (9.6) 9.6 - - -
Other cash (0.3) 0.3 - - -
___________________________________________________________________________________________________________
DOWNSIZING THE ASIA PACIFIC
HEADQUARTERS IN HONG KONG $(13.1) 13.0 $(0.1) $0.1 $ -
Severance packages cash (4.6) 4.6 - - -
Lease cancellations &
commitments cash (5.5) 5.4 (0.1) 0.1 -
Write-down of assets non-cash (3.0) 3.0 - - -
____________________________________________________________________________________________________________
DOWNSIZING THE JAPAN
DISTRIBUTION CENTER $(31.6) $30.5 $(1.1) $1.1 $ -
Write-off of assets non-cash (12.5) 12.5 - - -
Software development costs cash/non (19.1) 18.0 (1.1) 1.1 -
cash
____________________________________________________________________________________________________________
CANCELLATION OF ENDORSEMENT
CONTRACTS cash $(5.6) $5.3 $(0.3) $ - $(0.3)
____________________________________________________________________________________________________________
EXITING CERTAIN MANUFACTURING
OPERATIONS AT BAUER $(22.7) $21.7 $(1.0) $0.3 $(0.7)
Write-down of assets non-cash (14.7) 14.7 - - -
Divestiture of manufacturing
facilities non-cash (5.2) 5.2 - - -
Lease cancellations &
commitments cash (1.6) 0.9 (0.7) 0.2 (0.5)
Severance packages cash (1.2) 0.9 (0.3) 0.1 (0.2)
____________________________________________________________________________________________________________
OTHER $(7.1) 6.4 $(0.7) $0.2 $(0.5)
Cash cash (0.6) 0.6 - - -
Non-cash non-cash (6.5) 5.8 (0.7) 0.2 (0.5)
____________________________________________________________________________________________________________
Effect of foreign currency
translation - $0.2 $0.2 $(0.5) $(0.3)
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
TOTAL $(129.9) $123.6 $(6.3) $2.2 $(4.1)
____________________________________________________________________________________________________________
</TABLE
NOTE 7 - Commitments and contingencies:
_____________________________
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 first quarter of fiscal year 2000 was $200.2 million, a
22% increase compared to the $163.8 million in the prior year's first quarter.
The increase in net income was primarily a result of a full percentage point
increase in overall gross margins and lower selling and administrative spending,
both in total dollars and as a percentage of revenues. Overall revenues were
flat with last year's first quarter and while close-out sales represented about
the same percentage of total sales each quarter, the margins those sales
generated increased by more than 500 basis points, leading directly to the
overall increase in gross margins for the quarter.
Revenues in the U.S. decreased 2% for the quarter compared to last year.
Footwear revenues were up 3% due to a 2% increase in pairs sold and a relatively
flat average selling price. Running, our largest U.S. footwear category,
increased 17% in the quarter. Other strong performing categories included
soccer, up 28%, Jordan Brand, up 61% and Branded Athletic, up 32%. U.S. apparel
revenues decreased 11% for the quarter. Our two largest apparel categories in
the U.S., Branded Athletic and Kids, decreased 16% and increased 6%,
respectively. Most other apparel categories showed decreases for the quarter,
with the exception of Basketball and Jordan Brand, with increases of 57% and
97%, respectively. Gross margins in the U.S. region were down slightly from the
prior year, principally due to the need to airfreight footwear product to meet
customers' product delivery needs.
Revenues in the Europe region increased 5%, 10% had the dollar remained
constant with that of the prior year. Footwear and apparel sales were equally
strong, each increasing 6% for the quarter, 11% and 10%, respectively, on a
constant dollar basis. Our three largest countries, in terms of revenue levels,
outside of the U.S., the United Kingdom, France and Italy, increased 5%, 7% and
14%, respectively, on a constant dollar basis. Gross margins in the region
increased two percentage points due to increased pricing margins on in-line
products.
Revenues in the Asia Pacific region were flat for the first quarter
compared to last year. Had the dollar remained constant, revenues would have
decreased 8%. On a constant dollar basis, footwear revenues increased 7% over
last year while apparel revenues decreased 29%. In both footwear and apparel,
the close-out product sales decreased significantly compared to last year,
representing a much lower percentage of total sales. This was directly
attributable to our successful efforts in the prior year to liquidate the high
levels of inventories. Given this change in mix to more in-line sales, overall
gross margin percentages in the region increased 600 basis points.
Revenues in the Americas region, which includes Canada, Mexico, South
America and Africa, decreased 6% to $143.6 million. Had the dollar remained
constant, revenues would have declined 3%. Canada, the largest country in the
region, had a 10% decrease in constant dollar revenues, while Mexico increased
14%. Gross margins in the region also declined due to higher freight costs and
higher comparisons in the prior year due to the strength of certain currencies.
Other Brands' revenue, which includes Bauer NIKE Hockey, Cole Haan and NIKE
IHM (which includes what was formally Tetra Plastics), decreased 5% for the
quarter.
The breakdown of revenues follows:
Three Months Ended
August 31,
___________________
%
1999 1998 change
______ ______ _______
(in millions)
U.S.A. REGION
FOOTWEAR $941.0 $917.4 3%
APPAREL 332.0 374.7 -11%
EQUIPMENT AND OTHER 58.7 65.0 -10%
_______ _______
TOTAL U.S.A. 1,331.7 1,357.1 -2%
EUROPE REGION
FOOTWEAR 375.3 354.2 6%
APPAREL 328.4 310.8 6%
EQUIPMENT AND OTHER 14.1 15.9 -11%
_______ _______
TOTAL EUROPE 717.8 680.9 5%
ASIA PACIFIC REGION
FOOTWEAR 123.2 106.3 16%
APPAREL 62.5 79.4 -21%
EQUIPMENT AND OTHER 5.2 5.7 -9%
_______ _______
TOTAL ASIA PACIFIC 190.9 191.4 0%
AMERICAS REGION
FOOTWEAR 100.6 102.6 -2%
APPAREL 38.6 47.0 -18%
EQUIPMENT AND OTHER 4.4 3.0 47%
_______ _______
TOTAL AMERICAS 143.6 152.6 -6%
_______ _______
TOTAL NIKE BRAND 2,384.0 2,382.0 0%
OTHER & OTHER BRANDS 117.1 122.8 -5%
_______ _______
TOTAL REVENUES $2,501.1 $2,504.8 0%
======== ========
Selling and administrative expenses decreased 4% from last year's first
quarter and dropped to 25% of revenues, down from 26.1%. This quarter
represents the fifth straight comparable quarter decline in total spending. The
reductions in spending came primarily from marketing and advertising areas, as
last year's first quarter included costs surrounding the World Cup with no
corresponding event this fiscal year. Wage related expenses increased 2.5% over
last year.
Interest expense decreased for the quarter, compared to last year,
primarily due to our restructured agreement with Nissho Iwai Corporation
(discussed further below), offset by increased short term debt. Other expense
increased slightly over the prior year, mainly due to increased profit share
expense and costs associated with the shutdown of one of our screenprint
facilities.
Our tax expense for the quarter decreased to an effective rate of 38%,
compared to 39.5% last year. The drop was primarily due to reduced state taxes
and the utilization of tax loss carryforwards of certain foreign operations that
have recently turned profitable.
Worldwide futures and advance orders for NIKE brand athletic footwear and
apparel scheduled for delivery between September 1999 and January 2000 totaled
$3.2 billion, 2% higher than such orders for the same period last year. These
orders and the percentage change in these orders 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. Finally exchange rate fluctuations will
also cause differences in the comparisons.
Restructuring charges
1999 Charge
During fiscal year 1999, a $60.1 million restructuring charge was incurred
as a result of certain actions taken to better align our cost structure with
expected revenue growth rates. The charge (shown below in tabular format) was
primarily for costs of severing employees, including severance packages, lease
abandonments and the write down of assets no longer in use. Two major areas
that were affected by the reduction in force include our information technology
functions, primarily in the U.S., as we shifted to an outsource agreement for
certain areas, and European customer service and accounting, where we are in the
process of consolidating functions from individual countries to our European
headquarters. Outside of these two areas, employees were terminated from
various other areas around the Company, including our Asia Pacific region. The
total number of employees terminated was 1,291, with 840 having left as of
August 31, 1999.
The second major component of the 1999 charge was a write-off of certain
equipment, hardware and software development costs at one of our U.S.
distribution centers due to a change in strategy around how we flow product for
a specific type of business.
No increases to the 1999 charge occurred during the first quarter. The
primary activity was due to cash payments of severance and lease obligations.
1998 Charge
During the fourth quarter of fiscal 1998, we recorded a restructuring
charge of $129.9 million as a result of certain of our actions to better align
our overall cost structure and organization with planned revenue levels. The
restructuring activities (shown below in tabular format) primarily related to:
1) the elimination of job responsibilities company-wide, resulting in costs to
sever employees and related asset write-downs and lease abandonments related to
the affected employees; 2) the relocation of, and elimination of, certain job
responsibilities of the Asia Pacific headquarters in Hong Kong, resulting in
reduction in workforce, lease abandonments and other costs of downsizing the
Hong Kong headquarters; 3) the downsizing of the Company's Japan distribution
center, resulting in the write-down of assets no longer in use; 4) the
cancellation of certain non-strategic long-term endorsement contracts, resulting
in one-time termination fees; and 5) the decision to exit certain manufacturing
operations of the Bauer subsidiary, resulting in the reduction in manufacturing
related jobs, the write-down of assets no longer in use and the estimated loss
on divestiture of certain manufacturing plants.
No increases to the 1998 restructuring charge have been made. A total of
$15 million of the restructuring charge was reversed in fiscal year 1999.
During the first quarter of fiscal year 2000 continuing cash payments were made
against the reserve liability as shown in the table below. As of August 31,
1999, there were a total of 1,208 employees terminated in the original plan
announced in the fourth quarter of fiscal 1998, with 1,203 having left as of
that date.
Detail of the 1999 restructuring charge is as follows:
(in millions)
FY99 FY99
DESCRIPTION CASH/NON- RESTRUCTURING ACTIVITY RESERVE ACTIVITY RESERVE
CASH CHARGE BALANCE AT BALANCE AT
5/31/99 8/31/99
____________________________________________________________________________________________________________
ELIMINATION OF JOB
RESPONSIBILITES $(39.9) $21.9 $(18.0) $4.1 $(13.9)
Severance packages cash (28.0) 11.7 (16.3) 3.8 (12.5)
Lease cancellations &
commitments cash (2.4) 1.6 (0.8) 0.1 (0.7)
Write-down of assets non-cash (7.8) 7.8 - - -
Other cash/non- (1.7) 0.8 (0.9) 0.2 (0.7)
cash
____________________________________________________________________________________________________________
CHANGE IN WAREHOUSE
DISTRIBUTION STRATEGY $(20.2) $20.2 $ - $ - $ -
Write-down of assets non-cash (20.2) 20.2 - - -
____________________________________________________________________________________________________________
Effect of foreign currency
translation - 0.1 $0.1 $(0.4) $(0.3)
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
TOTAL $(60.1) $42.2 $(17.9) $3.7 $(14.2)
____________________________________________________________________________________________________________
<Table/>
Detail of the 1998 restructuring charge is as follows:
(in millions)
FY98 FY99
DESCRIPTION CASH/NON- RESTRUCTURING ACTIVITY RESERVE ACTIVITY RESERVE
CASH CHARGE BALANCE AT BALANCE AT
5/31/99 8/31/99
___________________________________________________________________________________________________________
ELIMINATION OF JOB
RESPONSIBILITES COMPANY-
WIDE $(49.8) $46.5 $ (3.3) $ 1.0 $(2.3)
Severance packages cash (29.1) 28.2 (0.9) 0.3 (0.6)
Lease cancellations &
commitments cash (10.8) 8.4 (2.4) 0.7 (1.7)
Write-down of assets non-cash (9.6) 9.6 - - -
Other cash (0.3) 0.3 - - -
___________________________________________________________________________________________________________
DOWNSIZING THE ASIA PACIFIC
HEADQUARTERS IN HONG KONG $(13.1) 13.0 $(0.1) $0.1 $ -
Severance packages cash (4.6) 4.6 - - -
Lease cancellations &
commitments cash (5.5) 5.4 (0.1) 0.1 -
Write-down of assets non-cash (3.0) 3.0 - - -
____________________________________________________________________________________________________________
DOWNSIZING THE JAPAN
DISTRIBUTION CENTER $(31.6) $30.5 $(1.1) $1.1 $ -
Write-off of assets non-cash (12.5) 12.5 - - -
Software development costs cash/non (19.1) 18.0 (1.1) 1.1 -
cash
____________________________________________________________________________________________________________
CANCELLATION OF ENDORSEMENT
CONTRACTS cash $(5.6) $5.3 $(0.3) $ - $(0.3)
____________________________________________________________________________________________________________
EXITING CERTAIN MANUFACTURING
OPERATIONS AT BAUER $(22.7) $21.7 $(1.0) $0.3 $(0.7)
Write-down of assets non-cash (14.7) 14.7 - - -
Divestiture of manufacturing
facilities non-cash (5.2) 5.2 - - -
Lease cancellations &
commitments cash (1.6) 0.9 (0.7) 0.2 (0.5)
Severance packages cash (1.2) 0.9 (0.3) 0.1 (0.2)
____________________________________________________________________________________________________________
OTHER $(7.1) 6.4 $(0.7) $0.2 $(0.5)
Cash cash (0.6) 0.6 - - -
Non-cash non-cash (6.5) 5.8 (0.7) 0.2 (0.5)
____________________________________________________________________________________________________________
Effect of foreign currency
translation - $0.2 $0.2 $(0.5) $(0.3)
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
TOTAL $(129.9) $123.6 $(6.3) $2.2 $(4.1)
____________________________________________________________________________________________________________
</TABLE
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, with the legacy currencies being completely withdrawn from
circulation on June 30, 2002.
We have had a dedicated project team working on euro strategy since January
1998. We are in the process of making modifications to information technology
systems including marketing, order management, purchasing, invoicing, payroll,
and cash management. Many of our systems are already euro compliant. Our plan
is to have most systems converted to euro compliance by the end of calendar year
2000, 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 price harmonization although differing country costs and value added
tax rates will continue to result in price differences at a retail level. We
have a process in place to analyze price trends among countries. Currency
exchange and hedging costs could be reduced, due to the introduction of the
euro.
The costs of implementing the euro are generally related to modification of
existing systems, and are estimated to be approximately $14 million. These
costs will be expensed as incurred. We believe that the conversion to the euro
will not be material to our financial condition or results of operations.
Year 2000 Readiness Disclosure
The Year 2000 issue (the "Year 2000" or "Y2K" issue) is the result of
computer programs using two digits rather than four to define the applicable
year. Such software may recognize a date using "00" as the year 1900 or some
other year, rather than the year 2000. This could result in system failures or
miscalculations leading to disruptions in NIKE's activities and operations. If
we, our significant suppliers or customers fail to make necessary modifications,
conversions and contingency plans on a timely basis, the Year 2000 issue could
have a material adverse effect on our financial condition, results of operations
or liquidity.
STATE OF READINESS
Project Categories
In May 1997, NIKE established a corporate-wide project team to oversee,
monitor and coordinate the Company-wide Year 2000 effort. Our Year 2000 project
focuses on three areas: (1) information technology ("IT") systems, such as
application software, mainframes, PCs, networks and production control systems;
(2) non-IT systems, such as equipment, machinery, climate control and security
systems, which may contain microcontrollers with embedded technology; and (3)
suppliers and customers.
NIKE uses a four-phase approach to fix or replace non-compliant IT systems:
(1) inventory, assessment of risks and impact and prioritization of
projects:
- Tier 1-critical (vital to business operations)
- Tier 2-high priority (important to business operations)
- Tier 3-moderate priority (minor disruption to operations
expected if non-compliant)
- Tier 4-low priority (will not disrupt operations even if non-
compliant);
(2) remediation (fix, replace or develop contingency plans for
non-compliant systems);
(3) testing (validation) and implementation; and
(4) completion and auditing results where appropriate.
When appropriate, we have engaged the services of independent consultants to
analyze and develop testing standards, quality assurance and contingency plans.
We use our internal auditing department to review Year 2000 compliance and have
consulted with external independent consultants to evaluate and review those
results.
IT Projects
By early 1999, we had identified 148 major internal IT remediation projects
worldwide. Of the 148 projects, we have completed and tested 144 as Year 2000
compliant as of September 30, 1999. Of the remaining 4, all of which are
classified as Tier 3, three will be completed by October 31, 1999, and one will
be completed by November 30, 1999. NIKE plans to continue integrated testing
through the end of the year. In addition, we have halted (or "frozen") new
installations and upgrades of all operational systems as of October 1, 1999 and
continuing through January 2000 or until we determine the risk for system
failure has passed.
Non-IT Projects
By early 1999, we had identified 27 major internal non-IT remediation
projects worldwide. We designated all 27 of these projects as high priority.
These include facilities that are critical to NIKE's business operations,
potentially including equipment, machinery, climate control and security systems
at regional headquarters, key distribution centers, and in countries with
significant sales. All of these projects have been completed and tested as Year
2000 compliant. All other non-IT projects are classified as non-priority non-IT
projects, which include climate control, security and mechanical systems in all
other facilities. To the extent that these non-priority non-IT projects may not
be completed by December 31, 1999, we do not expect that any non-compliance or
failure of these systems, individually or in the aggregate, will have a material
adverse effect on NIKE's manufacturing, distribution, inventory control or the
management and collection of our accounts receivable.
Suppliers and Customers
We have focused our Year 2000 compliance efforts on our significant
suppliers and customers - those that are material to our business - and are
assessing the Year 2000 readiness of these significant suppliers and customers.
We have assessed the Year 2000 readiness of 469 of our suppliers, 163 of which
we consider to be significant suppliers. We have also assessed the Year 2000
readiness of 151 customers, 59 of which we consider to be significant customers.
We have relationships with significant suppliers and customers in most of the
locations in which we operate. The level of preparedness of our significant
suppliers and customers varies greatly from operation to operation and country
to country. NIKE relies on suppliers to timely deliver a broad range of goods
and services worldwide, including raw materials, footwear, apparel, accessories,
equipment, advertising, transportation services, banking services,
telecommunications and utilities. Moreover, our suppliers rely on countless
other suppliers, over which we may have little or no influence regarding Year
2000 compliance.
We have sent surveys to all of our significant suppliers and customers to
determine the extent to which we may be affected by those third parties' Y2K
preparedness plans. A substantial majority of our significant suppliers and
customers have not responded to our surveys, have not provided assurance of
their Year 2000 readiness, or have not responded with sufficient detail for us
to determine their Year 2000 readiness. In the absence of adequate responses,
have made independent assessments of our significant suppliers and customers and
the countries in which they operate. These assessments included direct contact
and discussions with persons coordinating Y2K compliance efforts for our
significant suppliers and customers. We also researched regulatory filings and
other public information available to NIKE provided by our significant suppliers
and customers and, in general, countries in which they operate. We have
identified as higher risk many of the countries that have been widely identified
by government agencies and public reports as being significantly behind in their
Y2K status.
CONTINGENCY PLANS
Having completed remediation and testing of most major projects, our
"worst-case scenario" would be a failure of multiple significant suppliers to
supply merchandise or services for a prolonged period of time that would
materially impair our ability to ship product in a timely and reliable manner to
our customers. Although the occurrence of this scenario could have a material
adverse effect on NIKE, we do not have a basis to determine at this time whether
such a scenario is reasonably likely to occur. We believe that suppliers and
customers present the area of greatest risk to disruption of our operations
because of our limited ability to influence actions of third parties or to
estimate the level and impact of their noncompliance throughout the extended
supply chain.
We have developed contingency plans for our significant suppliers and
customers. In addition, we have developed contingency plans that assume some
estimated level of noncompliance by, or business disruption to, certain other
suppliers and customers on a case-by-case basis. We will continue to modify the
contingency plans as conditions change throughout 1999.
The contingency plans for our suppliers and customers include, where
appropriate, (1) booking orders and manufacturing and shipping products before
anticipated business disruptions, (2) shifting production capacity from
facilities that NIKE determines to be at high risk of noncompliance or business
disruption, (3) consolidating finance vendors and (4) temporarily discontinuing
business with suppliers determined to be high risk of noncompliance or business
disruption and finding alternative suppliers.
We have also completed contingency plans for our Tier 1 IT systems. These
plans include, where appropriate, (1) manual work processes, (2) storing
additional sets of backup data before critical process dates, (3) off-site
system recovery, and (4) temporarily shifting production software from one
hardware system to another. In addition, personnel we deem essential to system
operation and recovery are scheduled to be available during high-risk periods.
We continually update our assessments and revise our contingency plans for
our significant suppliers and customers as we receive additional information
from them concerning their Y2K preparedness. However, judgments regarding
contingency plans - such as how to develop them and to what extent - are subject
to many variables and uncertainties. There can be no assurance that NIKE will
correctly anticipate the level, impact or duration of noncompliance by its
suppliers and customers. As a result, there is no certainty that our
contingency plans will be sufficient to mitigate the impact of noncompliance by
suppliers and customers and some material adverse effect to NIKE may result from
one or more third parties regardless of our contingency plans. The failure of
any contingency plans could have a material adverse effect on NIKE's financial
condition, results of operations or liquidity.
COSTS
As of August 31, 1999, NIKE estimates that total costs related to the Year
2000 issue will be approximately $100 to $110 million, of which approximately
$97 million have been incurred. Of the $97 million, approximately $40 million
are external expenses, $18 million internal costs and $39 million replacement
projects. Approximately $10 million of the non-replacement expenses will be
capitalized; the remainder has been expensed as incurred. NIKE funds Year 2000
costs through operating cash flows. We presently believe that the total cost of
achieving Year 2000 compliant systems will not be material to our financial
condition, liquidity or results of operations.
Estimates of time, cost and risk estimates are based on currently available
information. Developments that could affect estimates include, but are not
limited to: the availability and cost of trained personnel; the ability to
locate and correct all relevant computer code and systems; cooperation and Year
2000 readiness of our suppliers and customers (and their suppliers and
customers); and the ability to correctly anticipate risks and implement suitable
contingency plans in the event of system failures at NIKE or with our suppliers
and customers (and their suppliers and customers).
The above section, even if incorporated by reference into other documents
or disclosures, is a Year 2000 Readiness Disclosure as defined under the Year
2000 Information and Readiness Disclosure Act of 1998.
Liquidity and Capital Resources
Our financial position remained strong at August 31, 1999. Compared to May
31, 1999 shareholders' equity increased slightly to $3.4 billion. Working
capital decreased 9% to $1.6 billion and the current ratio was 1.91:1 at August
31, 1999 compared to 2.26:1 at May 31, 1999.
Cash provided by operations was $316.1 million, a decrease of $53 million
compared to the first quarter of last year. While net income increased $36.4
million in the first quarter of fiscal 2000 compared with the same period in the
prior year, cash provided by operations was negatively affected by the
comparable quarter on quarter decrease of $88 million in the change in other
working capital components. The primary reasons for the reduction relate to:
1) the effect of prior years liquidation of high inventory levels company wide,
which resulted in a significant reduction in inventory during the first quarter
of the prior year compared with a slight increase in inventory during the first
quarter of fiscal 2000; 2) cash collections were less in quarter one of fiscal
2000 compared to the same period last year due to lower levels of revenue in
quarter four of fiscal 1999 compared with the same period in the prior year; 3)
a significant increase in the change in account payables and other current
liabilities compared with the prior year given increased levels of operations
and the timing of payments, most notably income taxes payable.
The increase in overall inventories of $30.1 million includes approximately
$100 million of in-transit inventory at August 31, 1999 not previously
recognized. During the first quarter of fiscal 2000, we signed a new inventory
supply agreement with our trading partner, Nissho Iwai Corporation, which
changed the effective date of ownership for inventory purchases in the USA.
Under the new agreement, we will now recognize inventory 15 to 25 days earlier
than in the past. The new agreement allows us to take over certain of the
inventory financing duties from Nissho to take advantage of more favorable
interest rates.
Additions to property, plant and equipment for the first quarter of fiscal
2000 were $286 million. Approximately $200 million related to the purchase of
our distribution facility in Japan, discussed below. The other single largest
expenditure related to the continued expansion of our world headquarters.
During the first quarter we finalized the purchase of our distribution
facility in Japan from Nissho Iwai Corporation. We financed the purchase by
assuming Nissho's loans with the Japanese Development Bank representing
approximately one-half of the total purchase and obtaining short term debt for
the remainder.
We believe that significant funds generated by operations, together with
access to sufficient sources of funds, will adequately meet our anticipated
operating, global infrastructure expansion and capital needs. Significant short
and long-term lines of credit are maintained 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 $291 million outstanding at
August 31, 1999.
Dividends per share of common stock for the first quarter of fiscal 2000
remained at $.12 per share, the same level as the previous year.
As of August 31, 1999, we purchased a total of 11.4 million shares of
NIKE's Class B common stock for $497 million in the open market since the $1
billion share repurchase program was approved in December 1997. During the
first quarter of fiscal 2000, we purchased a total of 2.7 million shares for
$142 million. Funding has, and is expected to continue to, come from operating
cash flow in conjunction with short-term borrowings. The timing and the amount
of shares purchased will be dictated by working capital needs and stock market
conditions.
Special Note Regarding Forward-Looking Statements
and Reports 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 (including the current Asian economic problems); 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; disruptions due to Year 2000
noncompliance by NIKE, its suppliers or customers (or their suppliers or
customers); 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, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on September 22,
1999. The shareholders elected for the ensuing year all of management's
nominees for the Board of Directors and ratified the appointment of Price
waterhouseCoopers LLP as independent accountants for fiscal 2000.
The voting results are as follows:
Election of Directors
Votes Cast
For Withheld Broker Non-Votes
Directors
Elected by holders of
Class A Common Stock:
Ralph D. DeNunzio 96,428,692 -0- -0-
Richard K. Donahue 96,428,692 -0- -0-
Douglas G. Houser 96,428,692 -0- -0-
John E. Jaqua 96,428,692 -0- -0-
Philip H. Knight 96,428,692 -0- -0-
Charles W. Robinson 96,428,692 -0- -0-
A. Michael Spence 96,428,692 -0- -0-
John R. Thompson, Jr. 96,428,692 -0- -0-
Elected by holders of
Class B Common Stock:
Thomas E. Clarke 155,634,130 2,931,088 -0-
Jill K. Conway 156,340,084 2,225,134 -0-
Delbert J. Hayes 156,092,021 2,473,197 -0-
Broker
For Against Abstain Non-Votes
Proposal 2 -
Ratify the appointment
of PricewaterhouseCoopers LLP
as independent accountants:
Class A and Class B
Common Stock Voting
Together 254,430,946 90,362 510,750 -0-
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 September 15, 1995 among NIKE, Inc.,
Bank of America National Trust & Savings Association,
individually and as Agent, and the other banks party thereto
(incorporated by reference from the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended August 31, 1995).
10.2 Form of non-employee director Stock Option Agreement (incorporated
by reference from Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1993).*
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 22, 1997).*
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, 1995).*
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.
27 Financial Data Schedule.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fiscal quarter ending
August 31, 1999.
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/Robert E. Harold
________________________
Robert E. Harold
Interim Chief Financial Officer
DATED: October 15, 1999