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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FOR QUARTERLY REPORTS UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended August 31, 2002
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, 2002 were:
_______________
Class A 98,095,361
Class B 167,184,833
_______________
265,280,194
===============
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NIKE, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
August 31, May 31,
2002 2002
________ _______
(in millions)
ASSETS
Current assets:
Cash and equivalents $ 430.0 $ 575.5
Accounts receivable 2,028.0 1,807.1
Inventories (Note 5) 1,424.8 1,373.8
Deferred income taxes 171.6 140.8
Prepaid expenses and other current assets 249.9 260.5
________ ________
Total current assets 4,304.3 4,157.7
Property, plant and equipment 2,814.9 2,741.7
Less accumulated depreciation 1,189.1 1,127.2
________ ________
1,625.8 1,614.5
Identifiable intangible assets and goodwill (Note 2) 184.8 438.7
Deferred income taxes and other assets 241.0 232.1
________ ________
$6,355.9 $6,443.0
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5.6 $ 55.3
Notes payable 217.4 425.2
Accounts payable 486.6 504.4
Accrued liabilities 917.5 768.3
Income taxes payable 159.5 83.0
________ ________
Total current liabilities 1,786.6 1,836.2
Long-term debt 736.3 625.9
Deferred income taxes and other liabilities 160.2 141.6
Commitments and contingencies (Note 7) -- --
Redeemable preferred stock 0.3 0.3
Shareholders' equity:
Common stock at stated value:
Class A convertible-98.1 and
98.1 shares outstanding 0.2 0.2
Class B-167.2 and 168.0 shares
outstanding 2.6 2.6
Capital in excess of stated value 543.8 538.7
Unearned stock compensation (3.7) (5.1)
Accumulated other comprehensive income (241.3) (192.4)
Retained earnings 3,370.9 3,495.0
________ ________
Total shareholders' equity 3,672.5 3,839.0
________ ________
$6,355.9 $6,443.0
======== ========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended
August 31,
___________________
2002 2001
____ ____
(in millions, except per share data)
Revenues $2,796.3 $2,613.7
_________ _________
Costs and expenses:
Cost of sales 1,639.2 1,584.8
Selling and administrative 799.0 696.2
Interest 10.5 13.0
Other expense, net 13.5 5.5
_________ _________
2,462.2 2,299.5
_________ _________
Income before income taxes and cumulative
effect of accounting change 334.1 314.2
Income taxes 116.9 110.0
_________ _________
Income before cumulative effect of
accounting change 217.2 204.2
Cumulative effect of accounting change,
net of income taxes 266.1 5.0
_________ _________
Net (loss)/income $ (48.9) $ 199.2
========= =========
Basic (loss) earnings per common share (Note 4):
Before accounting change 0.82 0.76
Cumulative effect of accounting change (1.00) (.02)
_________ _________
(0.18) 0.74
========= =========
Diluted (loss) earnings per common share (Note 4):
Before accounting change 0.81 0.75
Cumulative effect of accounting change (.99) (.02)
_________ _________
(0.18) 0.73
========= =========
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,
_________________
2002 2001
____ ____
(in millions)
Cash provided (used) by operations:
Net (loss) income $ (48.9) $ 199.2
Income charges (credits) not
affecting cash:
Cumulative effect of accounting change 266.1 5.0
Depreciation 56.4 53.7
Deferred income taxes -- (12.5)
Amortization and other 2.1 4.4
Income tax benefit from exercise of stock
options 1.1 2.1
Changes in other working capital
components (102.7) (16.5)
_______ _______
Cash provided by operations 174.1 235.4
_______ _______
Cash provided (used) by investing activities:
Additions to property, plant and
equipment (43.7) (57.3)
Disposals of property, plant and
equipment 4.8 1.2
(Increase) decrease in other assets (12.4) 4.3
Increase in other liabilities 1.2 --
_______ _______
Cash used by investing activities (50.1) (51.8)
_______ _______
Cash provided (used) by financing activities:
Proceeds from long-term debt issuance 90.1 249.3
Reductions in long-term debt
including current portion (51.4) (1.3)
Decrease in notes payable (207.8) (305.3)
Proceeds from exercise of options 4.9 4.5
Repurchase of stock (53.1) (5.1)
Dividends on common stock (31.9) (32.2)
_______ _______
Cash used by financing activities (249.2) (90.1)
_______ _______
Effect of exchange rate changes on cash (20.3) (32.6)
Net (decrease) increase in cash and equivalents (145.5) 60.9
Cash and equivalents, May 31, 2002 and 2001 575.5 304.0
_______ _______
Cash and equivalents, August 31, 2002
and 2001 $ 430.0 $ 364.9
======== ========
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. The interim financial
information and notes thereto should be read in conjunction with the
Company's latest Annual Report on Form 10-K. The results of operations
for the three (3) months ended August 31, 2002 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 2003 presentation. These changes had no impact on previously reported
results of operations or shareholders' equity.
NOTE 2 - Identifiable Intangible Assets and Goodwill:
___________________________________________
Adoption of FAS 142
The Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets," (FAS 142) effective June 1, 2002. In
accordance with FAS 142, goodwill and intangible assets with indefinite lives
will no longer be amortized but instead will be measured for impairment at
least annually, or when events indicate that an impairment exists. Intangible
assets that are determined to have definite lives will continue to be
amortized over their useful lives.
As required by FAS 142, the Company performed impairment tests on
goodwill and other intangible assets with indefinite lives, which consisted
only of certain trademarks, as of June 1, 2002. As a result of the impairment
tests, the Company recorded a $266.1 million cumulative effect of accounting
change. Under FAS 142, goodwill impairment exists if the net book value of a
reporting unit exceeds its estimated fair value. The Company estimated the
fair value of its reporting units by using a combination of discounted cash
flow analyses and comparisons with the market values of similar publicly-
traded companies.
Included in the Company's $266.1 million impairment charge was a $178.5
million charge related to the impairment of the goodwill associated with the
Bauer NIKE Hockey ("Bauer") and Cole Haan reporting units. These reporting
units are reflected in the Company's "Other" operating segment. Since the
Company's purchase of Bauer in 1995, the hockey equipment and apparel markets
have not grown as fast as expected and the in-line skate market has contracted
significantly. As a result, we determined that the goodwill acquired at Bauer
had been impaired. The goodwill impairment at Cole Haan reflected the
significantly lower fair value calculated on the basis of reduced operating
income in the year following the September 11, 2001 terrorist attacks.
The remaining $87.6 million of the impairment charge relates to
trademarks associated with Bauer. Under FAS 142, impairment of an indefinite-
lived asset exists if the net book value of the asset exceeds its fair value.
The Company estimated the fair value of trademarks using the relief-from-
royalty approach, which is a standard form of discounted cash flow analysis
typically used for the valuation of trademarks. The impairment of the Bauer
trademarks reflects the same circumstances as described above related to the
Bauer goodwill impairment.
The following table summarizes the Company's identifiable intangible
assets and goodwill balances as of August 31 and May 31, 2002:
August 31, 2002 May 31, 2002
______________________ ______________________
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
________ ____________ ________ ____________
(in millions)
Intangible assets subject to
amortization:
Patents $ 23.6 $ (9.2) $ 23.1 $ (8.8)
Trademarks 12.9 (10.2) 12.0 (9.8)
Other 7.5 (0.5) 7.5 (0.2)
_________ _________ _________ _________
Total $ 44.0 $ (19.9) $ 42.6 $ (18.8)
========= ========= ========= =========
Carrying Carrying
Amount Amount
________ ________
Intangible assets not subject to
amortization:
Goodwill $ 66.1 $ 232.7
Trademarks 94.6 182.2
_________ _________
Total $ 160.7 $ 414.9
========= =========
Amortization expense, which is included in selling and administrative
expense, was $1.1 million during the quarter ended August 31, 2002. The
estimated amortization expense for intangible assets subject to amortization
for each of the succeeding years ended May 31, 2003 through May 31, 2007 are
as follows: 2003: $3.2 million; 2004: $2.8 million; 2005: $2.6 million; 2006:
$2.5 million; 2007: $2.0 million.
The results for the quarter ended August 31, 2001 do not reflect the
provisions of FAS 142. The reported net income before cumulative effect of
accounting change was $204.2 million for the quarter ended August 31, 2001.
Had the Company adopted FAS 142 on June 1, 2001 we would have recorded net
income before cumulative accounting change of $207.5 million as a result of
not recording $2.2 million in goodwill amortization and $1.1 million in
trademark amortization, and basic and diluted earnings per common share before
accounting change would have increased $0.01.
NOTE 3 - Comprehensive (Loss) Income:
___________________________
Comprehensive (loss) income, net of taxes, is as follows:
Three Months Ended
August 31,
__________________
2002 2001
____ ____
(in millions)
Net (Loss) Income $(48.9) $199.2
Other Comprehensive (Loss) Income:
Change in cumulative translation
adjustment and other 12.3 18.1
Recognition in net (loss) income of previously
deferred unrealized loss on securities,
due to accounting change -- 3.4
Changes due to cash flow hedging
instruments:
Initial recognition of net deferred gain
as of June 1, 2001 due to accounting
change -- 53.4
Loss on hedge derivatives (84.2) (36.3)
Reclassification to net (loss) income of
previously deferred gains and losses
related to hedge derivative instruments 23.0 (6.6)
_______ _______
Other Comprehensive (Loss) Income (48.9) 32.0
_______ _______
Total Comprehensive (Loss) Income $(97.8) $231.2
======= =======
NOTE 4 - Earnings (Loss) Per Common Share:
________________________________
The following represents a reconciliation from basic (loss) earnings per
share to diluted (loss) earnings per share. Options to purchase 4.3 million
and 8.1 million shares of common stock were outstanding at August 31, 2002 and
August 31, 2001, respectively, but were not included in the computation of
diluted (loss) 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
August 31,
__________________
2002 2001
____ ____
(in millions, except per share data)
Determination of shares:
Average common shares
outstanding 265.3 268.6
Assumed conversion of
dilutive stock options
and awards 3.8 3.0
______ ______
Diluted average common
shares outstanding 269.1 271.6
====== ======
Basic (loss) earnings per common share:
Before cumulative effect of
accounting change 0.82 0.76
Cumulative effect of
accounting change (1.00) (.02)
_______ _______
$(0.18) $ 0.74
======= =======
Diluted (loss) earnings per common share:
Before cumulative effect of
accounting change 0.81 0.75
Cumulative effect of
accounting change (.99) (.02)
_______ _______
$(0.18) $ 0.73
======= =======
NOTE 5 - Inventories:
___________
Inventories by major classification are as follows:
Aug. 31, May 31,
2002 2002
________ ________
(in millions)
Finished goods $1,398.4 $1,348.2
Work-in-progress 12.8 13.0
Raw materials 13.6 12.6
________ ________
$1,424.8 $1,373.8
======== ========
NOTE 6 - Operating Segments:
__________________
The Company's operating segments are evidence of the structure of the
Company's internal organization. The major segments are defined by geographic
regions with operations participating in NIKE brand sales activity. Each NIKE
brand geographic segment operates predominantly in one industry: the design,
production, marketing and selling of sports and fitness footwear, apparel, and
equipment. The "Other" category shown below represents activities of Cole Haan
Holdings, Inc., Bauer NIKE Hockey, Inc., Hurley International LLC, NIKE Golf,
and NIKE IHM, Inc., which are considered immaterial for individual disclosure.
In prior years, operating activity for NIKE Golf was classified within
each region. Effective June 1, 2002, NIKE Golf revenues and income from the
Company's largest golf markets have been reclassified to the Other category,
which reflects that the Company has begun managing these operations as a
separate business. Certain NIKE Golf inventories, receivables, and property,
plant, and equipment continue to be managed by the regions, and as a result,
no reclassifications for these balances have been made. NIKE Golf information
for the applicable prior year period has been reclassified to conform to the
current year presentation.
Where applicable, "Corporate" represents items necessary to reconcile to
the consolidated financial statements, which generally include corporate
activity and corporate eliminations.
Net revenues as shown below represent sales to external customers for
each segment. Intercompany revenues have been eliminated and are immaterial
for separate disclosure. The Company evaluates performance of individual
operating segments based on management pre-tax income. On a consolidated
basis, this amount represents Income before income taxes and cumulative effect
of accounting change as shown in the Condensed Consolidated Statement of
Operations. Reconciling items for management pre-tax income represent
corporate costs that are not allocated to the operating segments for
management reporting and intercompany eliminations for specific items in the
Condensed Consolidated Statement of Operations.
Accounts receivable, inventory, and property, plant, and equipment for
operating segments are regularly reviewed and therefore provided below:
Three Months Ended
August 31,
__________________
2002 2001
____ ____
Net Revenue
USA $1,282.7 $1,263.3
EUROPE, MIDDLE EAST, AFRICA 869.3 752.9
ASIA PACIFIC 308.4 249.1
AMERICAS 142.3 160.1
OTHER 193.6 188.3
_________ _________
$2,796.3 $2,613.7
========= =========
Management Pre-Tax Income
USA $ 283.3 $ 280.1
EUROPE, MIDDLE EAST, AFRICA 162.1 131.6
ASIA PACIFIC 50.9 45.0
AMERICAS 25.2 26.9
OTHER (8.4) 8.0
CORPORATE (179.0) (177.4)
_________ _________
$ 334.1 $ 314.2
========= =========
Aug. 31, May 31,
2002 2002
_________ __________
Accounts Receivable, net
USA $ 729.0 $ 654.3
EUROPE, MIDDLE EAST, AFRICA 779.9 570.8
ASIA PACIFIC 170.9 189.6
AMERICAS 118.2 125.3
OTHER 210.6 248.3
CORPORATE 19.4 18.8
_________ _________
$2,028.0 $1,807.1
========= =========
Inventories, net
USA $ 603.0 $ 613.5
EUROPE, MIDDLE EAST, AFRICA 393.0 336.5
ASIA PACIFIC 138.0 149.0
AMERICAS 57.3 62.9
OTHER 220.5 201.5
CORPORATE 13.0 10.4
_________ _________
1,424.8 $1,373.8
========= =========
Property, Plant and Equipment, net
USA $ 234.9 $ 241.2
EUROPE, MIDDLE EAST, AFRICA 217.2 212.2
ASIA PACIFIC 391.2 378.4
AMERICAS 11.7 12.4
OTHER 111.6 113.0
CORPORATE 659.2 657.3
_________ _________
$1,625.8 $1,614.5
========= =========
NOTE 7 - Commitments and Contingencies:
_____________________________
At August 31, 2002, the Company had letters of credit outstanding
totaling $682.7 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
Critical Accounting Policies
_________________________
Our discussion and analysis of our financial condition and results of
operations following are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities.
We believe that the estimates, assumptions and judgments involved in the
accounting policies described below have the greatest potential impact on our
financial statements, so we consider these to be our critical accounting
policies. Because of the uncertainty inherent in these matters, actual results
could differ from the estimates we use in applying the critical accounting
policies. Certain of these critical accounting policies affect working capital
account balances, including the policies for revenue recognition, the reserve
for uncollectible accounts receivable, inventory reserves, and contingent
payments under endorsement contracts. These policies require that we make
estimates in the preparation of our financial statements as of a given date.
However, since our business cycle is relatively short, actual results related
to these estimates are generally known within the six-month period following
the financial statement date. Thus, these policies generally affect only the
timing of reported amounts across two to three quarters.
Within the context of these critical accounting policies, we are not
currently aware of any reasonably likely events or circumstances that would
result in materially different amounts being reported.
Revenue Recognition
We record wholesale revenues when title passes and the risks and rewards
of ownership have passed to the customer, based on the terms of sale. Title
passes generally upon shipment or upon receipt by the customer depending on
the country of the sale and the agreement with the customer. Retail store
revenues are recorded at the time of sale.
In some instances, we ship product directly from our supplier to the
customer. In these cases, we recognize revenue when the product is delivered
to the customer. Our revenues may fluctuate in cases when our customers delay
accepting shipment of product for periods up to several weeks.
In certain countries outside of the U.S., precise information regarding
the date of receipt by the customer is not readily available. In these cases,
we estimate the date of receipt by the customer based upon historical delivery
times by geographic location. On the basis of our tests of actual
transactions, we have no indication that these estimates have been materially
inaccurate historically.
As part of our revenue recognition policy, we record estimated sales
returns and miscellaneous claims from customers as reductions to revenues at
the time revenues are recorded. We base our estimates on historical rates of
product returns and claims, and specific identification of outstanding claims
and outstanding returns not yet received from customers. Actual returns and
claims in any future period are inherently uncertain and thus may differ from
our estimates. If actual or expected future returns and claims were
significantly greater or lower than the reserves we had established, we would
record a reduction or increase to net revenues in the period in which we made
such determination.
Reserve for Uncollectible Accounts Receivable
We make ongoing estimates relating to the collectibility of our accounts
receivable and maintain a reserve for estimated losses resulting from the
inability of our customers to make required payments. In determining the
amount of the reserve, we consider our historical level of credit losses and
make judgments about the creditworthiness of significant customers based on
ongoing credit evaluations. Since we cannot predict future changes in the
financial stability of our customers, actual future losses from uncollectible
accounts may differ from our estimates. If the financial condition of our
customers were to deteriorate, resulting in their inability to make payments,
a larger reserve might be required. In the event we determined that a smaller
or larger reserve was appropriate, we would record a credit or a charge to
selling and administrative expense in the period in which we made such a
determination.
Inventory Reserves
We also make ongoing estimates relating to the market value of
inventories, based upon our assumptions about future demand and market
conditions. If we estimate that the net realizable value of our inventory is
less than the cost of the inventory recorded on our books, we record a reserve
equal to the difference between the cost of the inventory and the estimated
market value. This reserve is recorded as a charge to cost of sales. If
changes in market conditions result in reductions in the estimated market
value of our inventory below our previous estimate, we would increase our
reserve in the period in which we made such a determination and record a
charge to cost of sales.
Contingent Payments under Endorsement Contracts
A significant portion of our demand creation (advertising and promotion)
expense relates to payments under endorsement contracts. In general,
endorsement payments are expensed uniformly over the term of the contract.
However, certain contract elements may be accounted for differently, based
upon the facts and circumstances of each individual contract.
Certain contracts provide for contingent payments to endorsers based upon
specific achievements in their sports (e.g. winning a championship). We record
selling and administrative expense for these amounts when the endorser
achieves the specific goal.
Certain contracts provide for payments based upon endorsers maintaining a
level of performance in their sport over an extended period of time (e.g.
maintaining a top ranking in a sport for a year). These amounts are reported
in selling and administrative expense when we determine that it is probable
that the specified level of performance will be maintained throughout the
period. In these instances, to the extent that actual payments to the endorser
differ from our estimate due to changes in the endorser's athletic
performance, increased or decreased selling and administrative expense may be
reported in a future period.
Certain contracts provide for royalty payments to endorsers based upon a
predetermined percentage of sales of particular products. We expense these
payments in cost of sales as the related sales are made. In certain contracts,
we offer minimum guaranteed royalty payments. For contractual obligations for
which we estimate that we will not meet the minimum guaranteed amount of
royalty fees through sales of product, we record in selling and administrative
expense the minimum guaranteed payment amount uniformly over the remaining
royalty term.
Property, Plant and Equipment
Property, plant and equipment, including buildings, equipment, and
computer hardware and software is recorded at cost (including, in some cases,
the cost of internal labor) and is depreciated over its estimated useful life.
Changes in circumstances (such as technological advances or changes to our
business operations) can result in differences between the actual and
estimated useful lives. In those cases where we determine that the useful life
of a long-lived asset should be shortened, we increase depreciation expense
over the remaining useful life to depreciate the asset's net book value to its
salvage value.
When events or circumstances indicate that the carrying value of
property, plant and equipment may be impaired, we estimate the future
undiscounted cash flows to be derived from the asset to determine whether or
not a potential impairment exists. If the carrying value exceeds our estimate
of future undiscounted cash flows, we then calculate the impairment as the
excess of the carrying value of the asset over our estimate of its fair market
value. Any impairment charges are recorded as other expense. We estimate
future undiscounted cash flows using assumptions about our expected future
operating performance. Our estimates of undiscounted cash flows may change in
future periods due to, among other things, technological changes, economic
conditions, or changes to our business operations. Such changes may result in
impairment charges in the period in which such changes in estimates are made.
Goodwill and Other Intangible Assets
We adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets, (FAS 142) effective for the first quarter of
fiscal 2003. In accordance with FAS 142, goodwill and intangible assets with
indefinite lives will no longer be amortized but instead will be measured for
impairment at least annually, or when events indicate that an impairment
exists. As required by FAS 142, in our impairment tests for goodwill and
other indefinite-lived intangible assets, we compare the estimated fair value
of goodwill and other intangible assets to the carrying value. If the
carrying value exceeds our estimate of fair value, we calculate impairment as
the excess of the carrying value over our estimate of fair value. Our
estimates of fair value utilized in goodwill and other indefinite-lived
intangible asset tests may be based upon a number of factors, including our
assumptions about the expected future operating performance of our reporting
units. Our estimates may change in future periods due to, among other things,
technological change, economic conditions, or changes to our business
operations. Such changes may result in impairment charges recorded in future
periods.
As discussed further below, upon adoption of FAS 142 this quarter, we
recorded an impairment charge related to goodwill and other indefinite-lived
intangible assets of $266.1 million. This charge is shown on our statement of
operations as the cumulative effect of accounting change. In future periods,
any goodwill impairment charges would be classified as a separate line item on
our statement of operations as part of income from continuing operations.
Other indefinite-lived intangible asset impairment charges would be classified
as other expense, also as part of income from continuing operations.
Intangible assets that are determined to have definite lives will
continue to be amortized over their useful lives and are measured for
impairment only when events or circumstances indicate the carrying value may
be impaired. In these cases, we estimate the future undiscounted cash flows
to be derived from the asset to determine whether or not a potential
impairment exists. If the carrying value exceeds our estimate of future
undiscounted cash flows, we then calculate the impairment as the excess of the
carrying value of the asset over our estimate of its fair value. Any
impairment charges would be classified as other expense.
Hedge Accounting for Derivatives
We use forward exchange contracts and option contracts to hedge certain
anticipated foreign currency exchange transactions, as well as any resulting
receivable or payable balance. When specific criteria required by SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," have been
met, changes in fair values of hedge contracts relating to anticipated
transactions are recorded in other comprehensive income rather than current
earnings until the underlying hedged transaction affects current earnings. In
most cases, this results in gains and losses on hedge derivatives being
released from other comprehensive income into current earnings some time after
the maturity of the derivative. One of the criteria for this accounting
treatment is that the forward exchange contract amount should not be in excess
of specifically identified anticipated transactions. By their very nature, our
estimates of anticipated transactions may fluctuate over time and may
ultimately vary from actual transactions. When anticipated transaction
estimates or actual transaction amounts decrease below hedged levels, or when
the timing of transactions changes significantly, we are required to
reclassify at least a portion of the cumulative changes in fair values of the
related hedge contracts from other comprehensive income to other
income/expense during the quarter in which such changes occur. Once an
anticipated transaction estimate or actual transaction amount decreases below
hedged levels, we make adjustments to the related hedge contract in order to
reduce the amount of the hedge contract to that of the revised anticipated
transaction.
Taxes
We record valuation allowances against our deferred tax assets, when
necessary, in accordance with SFAS No. 109, "Accounting for Income Taxes."
Realization of deferred tax assets (such as net operating loss
carryforwards)is dependent on future taxable earnings and is therefore
uncertain. At least quarterly, we assess the likelihood that our deferred tax
asset balance will be recovered from future taxable income. To the extent we
believe that recovery is not likely, we establish a valuation allowance
against our deferred tax asset, increasing our income tax expense in the year
such determination is made.
In addition, we have not recorded U.S. income tax expense for foreign
earnings that we have declared as indefinitely reinvested offshore, thus
reducing our overall income tax expense. The amount of earnings designated as
indefinitely reinvested offshore is based upon the actual deployment of such
earnings in our offshore assets and our expectations of the future cash needs
of our U.S. and foreign entities. Income tax considerations are also a factor
in determining the amount of foreign earnings to be repatriated.
We take a conservative approach in determining the amount of foreign
earnings to declare as reinvested offshore. As required by U.S. generally
accepted accounting principles, the presumption is that such earnings will be
repatriated in the future. In order to overcome this presumption, we carefully
review all factors which drive the ultimate disposition of such foreign
earnings, and apply stringent standards to overcoming the presumption of
repatriation. Despite this conservative approach, because the determination
involves our future plans and expectations of future events, the possibility
exists that amounts declared as indefinitely reinvested offshore may
ultimately be repatriated in the event the actual cash needs of our U.S.
entities exceed our current expectations or the actual cash needs of our
foreign entities are less than expected. This would result in additional
income tax expense in the year of such determination. Conversely, this
conservative approach may result in accumulated foreign earnings (for which
U.S. income taxes have been provided) being determined in the future to be
indefinitely reinvested offshore. In this case, our income tax expense would
be reduced in the year of such determination.
On an interim basis, we estimate what our effective tax rate will be for
the full fiscal year and record a quarterly income tax provision in accordance
with the anticipated annual rate. As the fiscal year progresses, we
continually refine our estimate based upon actual events and earnings by
jurisdiction during the year. This continual estimation process periodically
results in a change to our expected effective tax rate for the fiscal year.
When this occurs, we adjust the income tax provision during the quarter in
which the change in estimate occurs so that the year-to-date provision equals
the expected annual rate.
Other Contingencies
In the ordinary course of business, we are involved in legal proceedings
involving contractual and employment relationships, product liability claims,
trademark rights, and a variety of other matters. We record contingent
liabilities resulting from claims against us when it is probable that a
liability has been incurred and the amount of the loss is reasonably
estimable. We disclose contingent liabilities when there is a reasonable
possibility that the ultimate loss will exceed the recorded liability.
Estimating probable losses requires analysis of multiple factors, in some
cases including judgments about the potential actions of third party claimants
and courts. Therefore, actual losses in any future period are inherently
uncertain. Currently, we do not believe that any of our pending legal
proceedings or claims will have a material impact on our financial position or
results of operations. However, if actual or estimated probable future losses
exceed our recorded liability for such claims, we would record additional
charges as other expense during the period in which the actual loss or change
in estimate occurred.
Operating Results
_________________
Income before cumulative effect of accounting change for the first
quarter of fiscal 2003 increased 6.4% versus the first quarter of fiscal 2002.
A 7.0% increase in revenues, a 200 basis point increase in our gross margin
percentage, and slightly lower interest expense drove the increase in net
income. These improvements were partially offset by increased selling and
administrative expense as a percentage of revenues and slightly higher net
other expense. Our effective tax rate was flat as compared to the first
quarter of fiscal 2002. Diluted earnings per share before accounting change
improved 8.0%, from $0.75 to $0.81, a slightly higher rate than net income,
due to share repurchases over the past year. As discussed further below, in
the first quarter of fiscal 2003, we recorded a $266.1 million charge for the
cumulative effect of implementing Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets." In the first quarter of
fiscal 2002, we recorded a $5.0 million charge for the cumulative effect of
implementing Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities".
Growth in our international regions drove the 7.0% increase in
consolidated revenues. (Had foreign exchange rates remained constant with the
prior year, the increase in consolidated revenues for the quarter would have
been 4.5%.) Together, the international regions grew reported revenues 13.6%
(8.1% in constant dollars) and represented 47.2% of total company revenues.
In the Europe, Middle East, and Africa (EMEA) region, revenues increased
15.5% in reported dollars and 4.7% in constant dollars. The higher amount in
reported dollars reflected a significant strengthening of the euro versus the
U.S. dollar as compared to last year. The constant dollar growth was achieved
in all three business units, footwear, apparel, and equipment. Our emerging
businesses in Central and Eastern Europe drove the constant dollar increase in
the first quarter of fiscal 2003, reflecting our investments in these emerging
markets in recent years.
In Asia Pacific, reported revenues increased 23.8%, representing 22.4%
growth in constant dollars and continuing a recent trend of strong growth
across this region. As in recent quarters, each of our three business units
experienced growth on stronger demand across most countries in Asia Pacific.
Reported revenues for the Americas region decreased 11.1% and increased
2.3% in constant dollars.
The U.S. region also contributed to the consolidated revenue growth,
increasing revenues 1.5%. Growth in the apparel business fueled the revenue
increase, while footwear and equipment revenues were essentially flat as
compared to last year. Stronger wholesale revenues were attained in each of
the U.S. business units, while each was negatively affected by weaker results
from NIKE-owned retail stores as compared to the prior-year period. Retail
revenues have remained at relatively low levels since the terrorist attacks on
September 11th last year. In footwear, wholesale sales of in-line footwear
increased significantly, but these gains were offset by a significant decrease
in close-out sales. The growth of in-line footwear sales reflected an
increase in pairs sold, partially offset by a lower average price per pair.
The decrease in close-out sales reflected our successful effort to tighten
inventories over the past year and relatively high levels of close-out sales
in the first quarter of fiscal 2002 due to supply chain systems disruptions
that occurred in the third quarter of fiscal 2001.
The breakdown of revenues follows. "Other" as shown below includes
revenues from Bauer NIKE Hockey, Inc., Cole Haan Holdings, Inc, Hurley
International LLC, and NIKE Golf. Revenues from these operating units grew
2.8% as compared to the first quarter of fiscal 2002. Beginning this quarter,
the revenues from NIKE Golf operations in our largest golf markets have been
excluded from the revenues of the regions and reported in the Other category,
reflecting that we have begun managing these operations as a separate
business. This NIKE Golf information for the prior year period has been
reclassified to conform to the current year presentation. The inclusion of
NIKE Golf in Other revenue this quarter did not have a significant impact on
the reported growth.
Three Months Ended
August 31,
___________________
%
2002 2001 change
______ ______ ______
(in millions)
U.S.A. REGION
FOOTWEAR $865.1 $862.9 -%
APPAREL 328.7 310.6 6%
EQUIPMENT AND OTHER 88.9 89.8 -1%
_______ _______
TOTAL U.S.A. 1,282.7 1,263.3 2%
EMEA REGION
FOOTWEAR 492.7 425.5 16%
APPAREL 310.7 272.7 14%
EQUIPMENT AND OTHER 65.9 54.7 20%
_______ _______
TOTAL EMEA 869.3 752.9 15%
ASIA PACIFIC REGION
FOOTWEAR 180.7 162.2 11%
APPAREL 99.0 64.3 54%
EQUIPMENT AND OTHER 28.7 22.6 27%
_______ _______
TOTAL ASIA PACIFIC 308.4 249.1 24%
AMERICAS REGION
FOOTWEAR 93.0 98.2 -5%
APPAREL 38.6 49.7 -22%
EQUIPMENT AND OTHER 10.7 12.2 -12%
_______ _______
TOTAL AMERICAS 142.3 160.1 -11%
_______ _______
2,602.7 2,425.4 7%
OTHER 193.6 188.3 3%
_______ _______
TOTAL REVENUES $2,796.3 $2,613.7 7%
======== ========
As previously disclosed, we expect U.S. sales to Foot Locker, Inc. ("Foot
Locker") for the second and third quarters of fiscal 2003 will be
significantly below prior year levels. This is a result of both lower orders
from Foot Locker and limitations we have imposed on this customer's purchase
of certain products. Although we do not yet have visibility to orders beyond
February 2003, we believe this trend will likely continue until we begin to
compare our results to lower prior year Foot Locker orders beginning in the
second quarter of fiscal 2004. We are continuing to work with Foot Locker to
develop a plan for our business together that enables both companies to
achieve their strategic objectives. At the same time, we are also pursuing
incremental sales with other retailers to offset the decline in revenues from
Foot Locker. Although we do not expect to fully offset the revenue loss from
Foot Locker in the short term, we believe we will ultimately succeed in
realigning distribution of our products in the U.S. to meet consumer demand
and generate profitable revenue growth.
Worldwide futures and advance orders for our footwear and apparel
scheduled for delivery from September 2002 to January 2003 were 2.5% higher
than such orders booked in the comparable period of fiscal 2002. The
percentage growth in these orders is not necessarily indicative of our
expectation of revenue growth in subsequent periods. This is because the mix
of orders can shift between advance/futures and at-once orders. In addition,
exchange rate fluctuations as well as differing levels of order cancellations
can cause differences in the comparisons between future orders and actual
revenues. Moreover, a significant portion of our revenues is not derived from
futures orders, including wholesale sales of equipment, U.S. licensed team
apparel, Bauer NIKE Hockey, Cole Haan, NIKE Golf, Hurley International LLC,
and retail sales across all brands.
We are currently experiencing some delays in delivering retailer orders
for footwear and apparel product in the U.S. These delivery issues are the
result of the recent closure of West Coast ports and apparel sourcing issues
due to production scheduling and factory deliveries. Before and during the
port closure, we developed and executed contingency plans to minimize the
impact of such an occurrence on our business. However, since the majority of
the product we sell in the U.S. moves through these ports, and shippers could
not divert product already in transit, we expect that the port closure and
subsequent transportation backlog will create additional delivery delays and
increase our airfreight costs. These delivery delays may affect the timing of
revenues, or if more prolonged, may result in order cancellations. However,
at this time we are unable to fully assess the impact of these factors on our
future financial results. Since the labor issues leading to the port closures
have not yet been resolved, it is unclear when the current backlog will be
eliminated and the ports will return to normal operation.
In the first quarter of fiscal 2003, our quarterly gross margin
percentage improved 200 basis points as compared to the prior year period,
from 39.4% to 41.4%, our largest quarterly gross margin percentage in recent
history. Each of our regional businesses achieved a higher margin percentage
this quarter than this same quarter last year. On a global basis,
significantly higher margins were achieved in both footwear and apparel.
Improvements in footwear and apparel were the result of long-term initiatives
to lower sourcing and distribution costs. In addition, the higher gross
margin percentage resulted in part from a higher mix of sales of classic
footwear models which are generally more profitable than our more complex
performance models.
Selling and administrative expense increased as a percentage of revenues
from 26.6% to 28.6% in the first quarter of fiscal 2003 versus the first
quarter of fiscal 2002. Demand creation expense was $322.2 million in the
first quarter of fiscal 2003 as compared to $257.1 million in fiscal 2002.
The primary driver of this increase was spending in fiscal 2003 for our World
Cup 2002 marketing campaign, which occurred primarily in our international
regions. This increase also reflected the relatively low amount of spending
in the first quarter of last year as we limited demand creation spending in
order to focus spending on the World Cup campaign, which began late in fiscal
2002. Operating overhead increased 8.6% between the first quarter of fiscal
2003 and the first quarter of fiscal 2002 due to several factors. These
included: overhead costs associated with new NIKE-owned retail stores in EMEA
and Asia, the conversion of independent distributorships to NIKE-owned
businesses in certain European countries, investments in our NIKE Golf
business infrastructure, and overhead costs associated with our recently
acquired Hurley business.
First quarter interest expense decreased from $13.0 million in fiscal
2002 to $10.5 million in fiscal 2003, a decline of 19.2%. The decrease
reflected both lower interest rates and lower average debt levels, as we have
continued to use operating free cash flow to reduce debt.
Other expense, net, for the first quarter of fiscal 2003 was $13.5
million compared to $5.5 million for the same quarter of last year.
Significant amounts included in other expense, net, were interest income,
profit sharing expense, and certain foreign currency gains and losses.
Our effective tax rate in the first quarter of fiscal 2003 was 35.0%,
which was consistent with the first quarter of fiscal 2002 but higher than our
full year rate for fiscal 2002 of 34.3%. This increase compared to fiscal
2002 reflects our expectation of higher taxes on foreign earnings due to
increasing taxable income at foreign subsidiaries.
As described above, during the first quarter of fiscal 2003 we adopted
FAS 142. Upon adoption of FAS 142, we recorded a $266.1 million charge
related to the impairment of goodwill and trademarks associated with Bauer
NIKE Hockey and the goodwill of Cole Haan, reflecting that the fair values we
estimated for these assets were less than the carrying values. In addition,
the adoption of this accounting standard resulted in a reduction to goodwill
and intangible asset amortization of $3.3 million in the first quarter of
fiscal 2003 as compared to fiscal 2002. See the accompanying Notes to
Condensed Consolidated Financial Statements for further information.
Recently Issued Accounting Standards
________________________________
In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" (FAS 144). This statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" (FAS 121), and amends Accounting
Principles Board Statement No. 30, "Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" (APB 30). FAS 144 requires that long-lived assets
that are to be disposed of by sale be measured at the lower of book value or
fair value less costs to sell. FAS 144 retains the fundamental provisions of
FAS 121 for (a) recognition and measurement of the impairment of long-lived
assets to be held and used and (b) measurement of long-lived assets to be
disposed of by sale. This statement also retains APB 30's requirement that
companies report discontinued operations separately from continuing
operations. All provisions of FAS 144 were effective for us on June 1, 2002.
The adoption of FAS 144 did not have an impact on our consolidated financial
position or results of operations and we do not expect any impact in the
foreseeable future.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities" (FAS 146). This statement
supercedes Emerging Issues Task Force (EITF) Issue No. 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)". FAS 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF 94-3, a
liability is recognized at the date an entity commits to an exit plan. FAS
146 also establishes that the liability should initially be measured and
recorded at fair value. The provisions of FAS 146 will be effective for any
exit and disposal activities initiated after December 31, 2002.
Liquidity and Capital Resources
_______________________________
Cash provided by operations was $174.1 million in the first quarter of
fiscal 2003, which compared to $235.4 million in the first quarter of fiscal
2002. Our primary source of operating cash flow in the current quarter was
income before accounting change of $217.2 million. Cash provided by
operations was less than that of last year due to a greater increase of
working capital during the current quarter.
Total cash used by investing activities during the current quarter was
$50.1 million, compared to $51.8 million in the prior year period. These
amounts primarily reflected capital expenditures. The most significant capital
expenditures in both periods were related to computer equipment and software,
driven by our supply chain initiative, and continued investment in NIKE-owned
retail stores, primarily outside the U.S.
Net cash used by financing activities for the first quarter was $249.2
million, up from $90.1 million in the same quarter in fiscal 2002. Consistent
between years, these amounts included uses of cash to reduce short-term debt
and to repay current maturities of long-term debt, dividends to shareholders,
and share repurchases. These uses of cash were partially offset by proceeds
from long-term debt issuances and the exercise of employee stock options.
The share repurchases were part of a $1 billion share repurchase program
that began in fiscal 2001. In the current quarter, we purchased approximately
947,000 shares of NIKE's Class B common stock for $44.5 million. We expect to
fund this program from operating free cash flow. The timing and the amount of
shares purchased will be dictated by our capital needs and stock market
conditions.
In October 2001, we filed a shelf registration statement with the
Securities and Exchange Commission (SEC) for $1.0 billion. In May 2002, we
commenced a medium-term note program under the shelf registration that allows
us to issue up to $500.0 million in medium-term notes, as our capital needs
dictate. As described in our most recent Form 10-K, during the first quarter
of fiscal 2003, we issued a total of $90.0 million in notes under this
program. The notes have coupon rates that range from 4.80% to 5.66%. The
maturities range from July 9, 2007 to August 7, 2012. For $75.0 million of the
notes, we simultaneously entered into interest rate swap agreements whereby we
receive fixed interest payments at the same rate as the notes and pay variable
interest payments based on the six-month London Inter Bank Offering Rate
(LIBOR) plus a spread. Each swap has the same notional amount and maturity
date as its respective note. After issuance of these notes, $910.0 million
remains available to be issued under our shelf registration. We may issue
additional notes under the shelf registration in the near future depending on
working capital and general corporate needs.
No amounts are currently outstanding under our two bank facilities under
which we have total availability of $1.1 billion. The terms of these
facilities have not changed from those described in our Form 10-K as of May
31, 2002. We are in full compliance with each of these covenants and believe
it is unlikely we will fail to meet any of these covenants in the future.
Liquidity is also provided by our commercial paper program, under which
there was $132.9 million and $338.3 million outstanding at August 31, 2002 and
May 31, 2002, respectively.
Our long-term unsecured debt ratings remain at A and A2 from Standard and
Poor's Corporation ("S&P") and Moody's Investor Services ("Moody's"),
respectively. Our short-term debt ratings remain at A1 and P1 from S&P and
Moody's, respectively.
We currently believe that cash generated by operations, together with
access to external sources of funds as described above, will be sufficient to
meet our operating and capital needs.
Dividends per share of common stock for the first quarter of fiscal 2003
remained at $.12 per share, the same level as the previous year.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information previously
reported under Item 7A of the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 2002.
Item 4. CONTROLS AND PROCEDURES
a) Within the 90-day period prior to the date of this report, the
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 13a-14 of the
Securities Exchange Act of 1934 (the "Exchange Act"). Based
upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's Exchange Act
filings.
b) There have been no significant changes in the Company's internal
controls or in other factors which could significantly affect internal
controls subsequent to the date the Company carried out its
evaluation.
Special Note Regarding Forward-Looking Statements
and Analyst Reports
Certain written and oral statements, other than purely historical
information including estimates, projections, statements relating to NIKE's
business plans, objectives and expected operating results, and the assumptions
upon which those statements are based, made or incorporated by reference from
time to time by NIKE or its representatives in this report, other reports,
filings with the Securities and Exchange Commission, press releases,
conferences, or otherwise, are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements include, without
limitation, any statement that may predict, forecast, indicate, or imply
future results, performance, or achievements, and may contain the words
"believe," "anticipate," "expect," "estimate," "project," "will be," "will
continue," "will likely result," or words or phrases of similar meaning.
Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from the forward-looking statements. The
risks and uncertainties are detailed from time to time in reports filed by
NIKE with the 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;
difficulties in anticipating or forecasting changes in consumer preferences,
consumer demand for NIKE products, and the various market factors described
above; difficulties in implementing, operating, and maintaining NIKE's
increasingly complex information systems and controls, including, without
limitation, the systems related to demand and supply planning, and inventory
control; fluctuations and difficulty in forecasting operating results,
including, without limitation, the fact that advance "futures" orders may not
be indicative of future revenues due to the changing mix of futures and at-
once orders; the ability of NIKE to sustain, manage or forecast its growth and
inventories; the size, timing and mix of purchases of NIKE's products; new
product development and introduction; the ability to secure and protect
trademarks, patents, and other intellectual property performance and
reliability of products; customer service; adverse publicity; the loss of
significant customers or suppliers; dependence on distributors; business
disruptions; increased costs of freight and transportation to meet delivery
deadlines; changes in business strategy or development plans; general risks
associated with doing business outside the United States, including, without
limitation, exchange rate fluctuations, import duties, tariffs, quotas and
political and economic instability; changes in government regulations;
liability and other claims asserted against NIKE; the ability to attract and
retain qualified personnel; and other factors referenced or incorporated by
reference in this report and other reports.
The risks included here are not exhaustive. Other sections of this report
may include additional factors which could adversely affect NIKE's business
and financial performance. Moreover, NIKE operates in a very competitive and
rapidly changing environment. New risk factors emerge from time to time and it
is not possible for management to predict all such risk factors, nor can it
assess the impact of all such risk factors on NIKE's business or the extent to
which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements.
Given these risks and uncertainties, investors should not place undue reliance
on forward-looking statements as a prediction of actual results.
Investors should also be aware that while NIKE does, from time to time,
communicate with securities analysts, it is against NIKE's policy to disclose
to them any material non-public information or other confidential commercial
information. Accordingly, shareholders should not assume that NIKE agrees with
any statement or report issued by any analyst irrespective of the content of
the statement or report. Furthermore, NIKE has a policy against issuing or
confirming financial forecasts or projections issued by others. Thus, to the
extent that reports issued by securities analysts contain any projections,
forecasts or opinions, such reports are not the responsibility of NIKE.
Part II - Other Information
..
Item 1. Legal Proceedings:
There have been no 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, 2002.
Item 4.
Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on September 18,
2002. The shareholders elected for the ensuing year all of management's
nominees for the Board of Directors, approved the extension of and amendments
to the NIKE, Inc. Long-Term Incentive Plan, and ratified the appointment of
PricewaterhouseCoopers LLP as independent accountants for fiscal 2003.
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 97,805,701 -0- -0-
Richard K. Donahue 97,805,701 -0- -0-
Douglas G. Houser 97,805,701 -0- -0-
Jeanne P. Jackson 97,805,701 -0- -0-
John E. Jaqua 97,805,701 -0- -0-
Philip H. Knight 97,805,701 -0- -0-
Charles W. Robinson 97,805,701 -0- -0-
A. Michael Spence 97,805,701 -0- -0-
John R. Thompson, Jr. 97,805,701 -0- -0-
Elected by holders of
Class B Common Stock:
Thomas E. Clarke 109,595,139 26,765,154 -0-
Jill K. Conway 133,891,441 2,468,852 -0-
Delbert J. Hayes 126,724,695 9,635,598 -0-
Broker
For Against Abstain Non-Votes
Proposal 2 -
Approval of the extension
of and amendments to the
NIKE, Inc. Long-Term
Incentive Plan:
Class A and Class B
Common Stock Voting
Together 229,938,163 3,107,854 1,119,972 -0-
Proposal 3 -
Ratify the appointment
of PricewaterhouseCoopers LLP
as independent accountants:
Class A and Class B
Common Stock Voting
Together 222,928,043 10,242,985 994,962 -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 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).
4.4 Form of Officers' Certificate relating to the Company's 6.375% Notes
and form of 6.375% Note (incorporated by reference to Exhibits 4.1 and
4.2 of the Company's Form 8-K dated December 10, 1996).
4.5 Form of Officers' Certificate relating to the Company's 5.5% Notes and
form of 5.5% Note (incorporated by reference to Exhibits 4.2 and 4.3
of the Company's Form 8-K dated August 17, 2001).
4.6 Form of Officers' Certificate relating to the Company's Fixed Rate
Medium-Term Notes and Company's Floating Rate Medium-Term Notes, form
of Fixed Rate Note and form of Floating Rate Note (incorporated by
Reference to Exhibits 4.2, 4.3 and 4.4 of the Company's Form 8-K dated
May 29, 2002).
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 First Amendment to Credit Agreement dated as of November 16, 2001
(incorporated by reference from Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended November
30, 2001).
10.3 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).*
10.4 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).
10.5 NIKE, Inc. 1990 Stock Incentive Plan.*
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 the
fiscal year ended May 31, 1994).*
10.9 Covenant Not To Compete And Non-Disclosure Agreement between NIKE,
Inc. and Thomas E. Clarke dated August 31, 1994 (incorporated by
Reference from Exhibit 10.8 to the Company's Quarterly Report on From
10-Q for the fiscal quarter ended August 31, 2001).*
10.10 Covenant Not To Compete And Non-Disclosure Agreement between NIKE,
Inc. and Mark G. Parker dated October 6, 1994 (incorporated by
Reference from Exhibit 10.9 to the Company's Quarterly Report on From
10-Q for the fiscal quarter ended August 31, 2001).*
10.11 NIKE, Inc. Deferred Compensation Plan dated January 1, 2000
(incorporated by reference from Exhibit 10.10 to the Company's
Quarterly Report on From 10-Q for the fiscal quarter ended August 31,
2001).*
10.12 Employment Agreement, and Covenant Not To Compete And Non-Disclosure
Agreement between NIKE, Inc. and Mindy F. Grossman dated September 6,
2000 (incorporated by reference from Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 2002).*
12.1 Computation of Ratio of Earnings to Charges.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the fiscal quarter ending
August 31, 2002:
August 14, 2002: Item 9. Regulation FD Disclosure. Certification of the
Annual Report on Form 10-K by the Chief Executive Officer and Chief Financial
Officer.
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: October 15, 2002
CERTIFICATIONS
I, Philip H. Knight, certify that:
1. I have reviewed this quarterly report on Form 10-Q of NIKE, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 15, 2002
____________________
/s/ Philip H. Knight
____________________
Philip H. Knight
Chief Executive Officer
I, Donald W. Blair, certify that:
1. I have reviewed this quarterly report on Form 10-Q of NIKE, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
d) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 15, 2002
____________________
/s/ Donald W. Blair
____________________
Donald W. Blair
Chief Financial Officer