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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 November 30, 2003
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 is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
___ ___
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 November 30, 2003 were:
_______________
Class A 90,804,466
Class B 172,318,918
_______________
263,123,384
===============
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NIKE, Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, May 31,
2003 2003
________ ________
(in millions)
ASSETS
Current assets:
Cash and equivalents $ 968.9 $ 634.0
Accounts receivable 2,010.4 2,101.1
Inventories (Note 2) 1,592.0 1,514.9
Deferred income taxes 212.7 221.8
Prepaid expenses and other current assets 236.8 266.2
________ ________
Total current assets 5,020.8 4,738.0
Property, plant and equipment 3,082.1 2,988.8
Less accumulated depreciation 1,476.1 1,368.0
________ ________
Property, plant and equipment, net 1,606.0 1,620.8
Identifiable intangible assets, net (Notes 3 and 7) 368.5 118.2
Goodwill (Notes 3 and 7) 132.3 65.6
Deferred income taxes and other assets 248.9 229.4
________ ________
Total Assets $7,376.5 $6,772.0
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 206.1 $ 205.7
Notes payable 142.4 75.4
Accounts payable 533.1 572.7
Accrued liabilities 992.7 1,054.2
Income taxes payable 121.7 107.2
________ ________
Total current liabilities 1,996.0 2,015.2
Long-term debt 649.6 551.6
Deferred income taxes and other liabilities (Note 7) 363.3 214.2
Commitments and contingencies (Note 9) -- --
Redeemable preferred stock 0.3 0.3
Shareholders' equity:
Common stock at stated value:
Class A convertible-90.8 and
97.8 shares outstanding 0.2 0.2
Class B-172.3 and 165.8 shares
outstanding 2.6 2.6
Capital in excess of stated value 727.4 589.0
Unearned stock compensation (7.0) (0.6)
Accumulated other comprehensive loss (159.6) (239.7)
Retained earnings 3,803.7 3,639.2
________ ________
Total shareholders' equity 4,367.3 3,990.7
________ ________
Total liabilities and shareholders' equity $7,376.5 $6,772.0
======== ========
The accompanying Notes to Unaudited Condensed Consolidated Financial
Statements are an integral part of this statement.
NIKE, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
November 30, November 30,
___________________ _________________
2003 2002 2003 2002
____ ____ ____ ____
(in millions, except per share data)
Revenues $2,837.1 $2,514.7 $5,862.0 $5,311.0
Cost of sales 1,637.5 1,504.6 3,360.9 3,143.8
_________ _________ _________ _________
Gross Margin 1,199.6 1,010.1 2,501.1 2,167.2
Selling and administrative 902.5 761.9 1,772.1 1,566.5
Interest expense, net 8.1 7.1 15.6 14.5
Other expense, net 14.3 11.5 38.1 22.5
_________ _________ _________ _________
Income before income taxes and cumulative
effect of accounting change 274.7 229.6 675.3 563.7
Income taxes 95.6 77.6 235.0 194.5
_________ _________ _________ _________
Income before cumulative effect of
accounting change 179.1 152.0 440.3 369.2
Cumulative effect of accounting change,
net of income taxes -- -- -- 266.1
_________ _________ _________ _________
Net income $ 179.1 $ 152.0 $ 440.3 $ 103.1
========= ========= ========= =========
Basic earnings per common share (Note 6):
Before accounting change $ 0.68 $ 0.57 $ 1.67 $ 1.39
Cumulative effect of accounting change -- -- -- (1.00)
_________ _________ _________ _________
$ 0.68 $ 0.57 $ 1.67 $ 0.39
========= ========= ========= =========
Diluted earnings per common share (Note 6):
Before accounting change $ 0.66 $ 0.57 $ 1.64 $ 1.38
Cumulative effect of accounting change -- -- -- (0.99)
_________ _________ _________ _________
$ 0.66 $ 0.57 $ 1.64 $ 0.39
========= ========= ========= =========
Dividends declared per common share $ 0.20 $ 0.14 $ 0.34 $ 0.26
========= ========= ========= =========
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
are an integral part of this statement.
NIKE, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
November 30,
_________________
2003 2002
____ ____
(in millions)
Cash provided (used) by operations:
Net income $ 440.3 $ 103.1
Income charges (credits) not
affecting cash:
Cumulative effect of accounting change -- 266.1
Depreciation 123.2 114.4
Deferred income taxes 12.1 0.1
Amortization and other 35.2 7.5
Income tax benefit from exercise of stock
options 19.4 2.2
Changes in other working capital
components, net of the effect of the
acquisition of subsidiary 138.9 (93.4)
________ ________
Cash provided by operations 769.1 400.0
________ ________
Cash provided (used) by investing activities:
Additions to property, plant and
equipment (88.0) (86.6)
Disposals of property, plant and
equipment 3.2 7.2
Increase in other assets (9.7) (29.3)
(Decrease) increase in other liabilities (0.3) 1.1
Acquisition of subsidiary, net of cash
acquired (288.9) --
________ ________
Cash used by investing activities (383.7) (107.6)
________ ________
Cash provided (used) by financing activities:
Proceeds from long-term debt issuance 101.8 90.1
Reductions in long-term debt
including current portion (3.0) (52.9)
Decrease in notes payable (0.3) (163.5)
Proceeds from exercise of options and
other stock issuances 115.3 11.3
Repurchase of stock (195.5) (97.3)
Dividends on common stock (73.7) (63.8)
________ ________
Cash used by financing activities (55.4) (276.1)
________ ________
Effect of exchange rate changes on cash 4.9 (36.0)
Net increase (decrease) in cash and equivalents 334.9 (19.7)
Cash and equivalents, May 31, 2003 and 2002 634.0 575.5
________ ________
Cash and equivalents, November 30, 2003
and 2002 $ 968.9 $ 555.8
======== ========
The accompanying Notes to Unaudited Condensed Consolidated Financial
Statements are an integral part of this statement.
NIKE, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies:
___________________________________________
Basis of presentation:
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) which
are, in the opinion of management, necessary for a fair 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 six (6) months ended November 30, 2003 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 2004 presentation. These changes had no impact on previously reported
results of operations or shareholders' equity.
NOTE 2 - Inventories:
___________
Inventories by major classification are as follows:
Nov. 30, May 31,
2003 2003
________ ________
(in millions)
Finished goods $1,568.8 $1,484.1
Work-in-progress 8.0 15.2
Raw materials 15.2 15.6
________ ________
$1,592.0 $1,514.9
======== ========
NOTE 3 - Identifiable Intangible Assets and Goodwill:
___________________________________________
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
annually in the fourth quarter, 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.
The following table summarizes the Company's identifiable intangible
assets and goodwill balances as of November 30, 2003 and May 31, 2003:
November 30, 2003 May 31, 2003
______________________ ______________________
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
________ ____________ ________ ____________
(in millions)
Amortized intangible assets:
Patents $ 25.5 $ (11.1) $ 24.9 $ (10.4)
Trademarks 13.3 (11.0) 12.9 (10.6)
Other 16.8 (6.4) 7.5 (1.1)
_________ _________ _________ _________
Total $ 55.6 $ (28.5) $ 45.3 $ (22.1)
========= ========= ========= =========
Unamortized intangible assets:
Goodwill $ 132.3 $ 65.6
Trademarks 341.4 95.0
_________ _________
Total $ 473.7 $ 160.6
========= =========
Amortization expense, which is included in selling and administrative
expense, was $5.5 million and $0.8 million for the three-month periods ended
November 30, 2003 and November 30, 2002, respectively, and $6.4 million and
$1.9 million for the six-month periods ended November 30, 2003 and November
30, 2002, respectively. The estimated amortization expense for intangible
assets subject to amortization for each of the succeeding years ended May 31,
2004 through May 31, 2008 are as follows: 2004: $11.9 million; 2005: $3.2
million; 2006: $2.9 million; 2007: $2.4 million; 2008: $2.2 million.
During the second quarter ended November 30, 2003 the Company completed
the acquisition of Converse Inc. As a result, $66.7 million was allocated
to goodwill, $246.2 million was allocated to unamortized trademarks and $8.6
million was allocated to other amortized intangible assets. See note 7 for
additional information related to the acquisition.
The change in the book value of goodwill, which relates to the Company's
Other operating segment, for the six months ended November 30, 2003
is as follows:
May 31, 2003 $ 65.6
Acquisition of Subsidiary 66.7
_____
November 30, 2003 $ 132.3
=====
NOTE 4 - Comprehensive Income:
___________________________
Comprehensive income, net of taxes, is as follows:
Three Months Ended Six Months Ended
November 30, November 30,
__________________ ________________
2003 2002 2003 2002
____ ____ ____ ____
(in millions)
Net Income $179.1 $152.0 $440.3 $103.1
Other Comprehensive Income (Loss):
Change in cumulative translation
adjustment and other 75.7 4.9 16.5 17.2
Changes due to cash flow hedging
instruments:
Net loss on hedge derivatives (104.2) (8.3) (17.7) (92.5)
Reclassification to net income of
previously deferred (gains) and losses
related to hedge derivative instruments 34.8 24.9 81.3 47.9
_______ _______ _______ _______
Other Comprehensive Income (Loss) 6.3 21.5 80.1 (27.4)
_______ _______ _______ _______
Total Comprehensive Income $185.4 $173.5 $520.4 $ 75.7
======= ======= ======= =======
NOTE 5 - Stock-Based Compensation:
_________________________
The Company uses the intrinsic value method to account for stock-based
compensation in accordance with Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees" as permitted by Statement of
Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock-Based
Compensation" (FAS 123). The Company's policy is to grant stock options with
an exercise price equal to the market value at the date of grant, and
accordingly, no compensation expense is recognized.
If the Company had accounted for stock options issued to employees in
accordance with FAS 123, the Company's pro forma net income and pro forma
earnings per share would have been reported as follows:
Three Months Ended Six Months Ended
November 30, November 30,
__________________ ________________
2003 2002 2003 2002
____ ____ ____ ____
(in millions, except per share data)
Net Income as reported $179.1 $152.0 $440.3 $103.1
Add: Stock-based compensation expense included
in reported net income, net of tax -- -- -- --
Deduct: Total stock-based employee compensation
expense under fair value based method for all
awards, net of tax (12.1) (11.2) (23.3) (19.7)
_______ _______ _______ _______
Pro forma net income $167.0 $140.8 $417.0 $ 83.4
======= ======= ======= =======
Earnings per share:
Basic - as reported 0.68 0.57 1.67 0.39
Basic - pro forma 0.63 0.53 1.58 0.31
Diluted - as reported 0.66 0.57 1.64 0.39
Diluted - pro forma 0.63 0.53 1.57 0.31
The pro forma effects of applying FAS 123 may not be representative of
the effects on reported net income and earnings per share for future periods
since options vest over several years and additional awards are made each
year.
NOTE 6 - Earnings Per Common Share:
_________________________
The following represents a reconciliation from basic earnings per share
to diluted earnings per share. Options to purchase 1.0 million and 12.0
million shares of common stock were outstanding at November 30, 2003 and
November 30, 2002, respectively, but were not included in the computation of
diluted earnings per share because the options' exercise prices were
greater than the average market price of common shares and, therefore, the
effect would be antidilutive.
Three Months Ended Six Months Ended
November 30, November 30,
__________________ ________________
2003 2002 2003 2002
____ ____ ____ ____
(in millions, except per share data)
Determination of shares:
Average common shares
outstanding 263.3 264.7 263.1 265.0
Assumed conversion of
dilutive stock options
and awards 6.2 2.8 5.2 3.3
_______ _______ _______ _______
Diluted average common
shares outstanding 269.5 267.5 268.3 268.3
======= ======= ======= =======
Basic earnings per common share:
Before cumulative effect of
accounting change $ 0.68 $ 0.57 $ 1.67 $ 1.39
Cumulative effect of
accounting change -- -- -- (1.00)
_______ _______ _______ _______
$ 0.68 $ 0.57 $ 1.67 $ 0.39
======= ======= ======= =======
Diluted earnings per common share:
Before cumulative effect of
accounting change $ 0.66 $ 0.57 $ 1.64 $ 1.38
Cumulative effect of
accounting change -- -- -- (0.99)
_______ _______ _______ _______
$ 0.66 $ 0.57 $ 1.64 $ 0.39
======= ======= ======= =======
NOTE 7 - Acquisition:
___________
On September 4, 2003, the Company acquired 100 percent of the equity
shares of Converse Inc. ("Converse"). Converse designs, distributes, and
markets high performance and casual athletic footwear and apparel. The
acquisition has been accounted for under the purchase method of accounting in
accordance with SFAS No. 141, "Business Combinations". The cash purchase
price, including acquisition costs, was approximately $310 million. The
results of Converse's operations have been included in the consolidated
financial statements since the date of acquisition as part of the Company's
Other operating segment.
All assets and liabilities of Converse have been recorded in the Company's
consolidated balance sheet based on their estimated fair values at the date of
acquisition. Identifiable intangible assets and goodwill relating to the
purchase approximated $254.8 and $66.7 million, respectively. Identifiable
intangible assets include $246.2 million for trademarks that have an indefinite
life, and $8.6 million of other intangible assets that are being amortized over
nine months. Deferred taxes of $105.1 million have been provided for the
purchase of the identifiable intangible assets, which is the primary reason for
goodwill. The pro forma effect of the acquisition on the combined results of
operations was not significant.
NOTE 8 - 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 Converse Inc., beginning September 4, 2003, which are considered
immaterial for individual disclosure.
Where applicable, "Corporate" represents items necessary to reconcile to
the consolidated financial statements, which generally include corporate
activity and corporate eliminations. Effective June 1, 2003 the assets,
liabilities, and operating expenses of NIKE IHM, Inc., which primarily
manufactures NIKE Air components, have been reclassified to the Corporate
category from Other, reflecting current management of these operations. NIKE
IHM, Inc. information for the applicable prior year period has been
reclassified to conform to the current year presentation.
Net revenues as shown below represent sales to external customers for
each segment. Intercompany revenues have been eliminated and are immaterial
for separate disclosure. The Company evaluates performance of individual
operating segments based on pre-tax income. On a consolidated basis, this
amount represents Income before income taxes and cumulative effect of
accounting change as shown in the Unaudited Condensed Consolidated Statements
of Income. Reconciling items for pre-tax income represent corporate costs
that are not allocated to the operating segments for management reporting
including certain currency exchange rate gains and losses on transactions
and intercompany eliminations for specific items in the Unaudited Condensed
Consolidated Statements of Income.
Accounts receivable, inventory, and property, plant, and equipment for
operating segments are regularly reviewed and therefore provided below:
Three Months Ended Six Months Ended
November 30, November 30,
__________________ _________________
2003 2002 2003 2002
_____ _____ _____ _____
Net Revenue
USA $1,085.6 $1,032.6 $2,339.5 $2,315.2
EUROPE, MIDDLE EAST, AFRICA 848.9 781.2 1,862.4 1,650.6
ASIA PACIFIC 412.7 350.4 761.0 658.2
AMERICAS 156.1 133.5 309.8 275.8
OTHER 333.8 217.0 589.3 411.2
_________ _________ _________ _________
$2,837.1 $2,514.7 $5,862.0 $5,311.0
========= ========= ========= =========
Pre-Tax Income
USA $ 193.4 $ 173.0 $ 489.0 $ 456.9
EUROPE, MIDDLE EAST, AFRICA 139.4 125.0 344.0 287.3
ASIA PACIFIC 98.7 83.9 175.5 134.6
AMERICAS 31.4 28.5 55.7 53.7
OTHER 7.3 0.5 4.1 (10.8)
CORPORATE (195.5) (181.3) (393.0) (358.0)
_________ _________ _________ _________
$ 274.7 $ 229.6 $ 675.3 $ 563.7
========= ========= ========= =========
Nov. 30, May 31,
2003 2003
_________ _________
Accounts Receivable, net
USA $ 590.3 $ 609.5
EUROPE, MIDDLE EAST, AFRICA 687.2 792.6
ASIA PACIFIC 269.0 245.6
AMERICAS 136.2 130.0
OTHER 289.7 282.0
CORPORATE 38.0 41.4
_________ _________
$2,010.4 $2,101.1
========= =========
Inventories, net
USA $ 606.8 $ 640.6
EUROPE, MIDDLE EAST, AFRICA 407.3 383.4
ASIA PACIFIC 156.1 143.5
AMERICAS 86.4 84.2
OTHER 309.9 239.4
CORPORATE 25.5 23.8
_________ _________
$1,592.0 $1,514.9
========= =========
Property, Plant and Equipment, net
USA $ 204.8 $ 215.7
EUROPE, MIDDLE EAST, AFRICA 232.0 241.4
ASIA PACIFIC 401.9 386.3
AMERICAS 11.2 11.0
OTHER 95.4 82.1
CORPORATE 660.7 684.3
_________ _________
$1,606.0 $1,620.8
========= =========
NOTE 9 - Commitments and Contingencies:
_____________________________
At November 30, 2003, the Company had letters of credit outstanding
totaling $479.7 million. These letters of credit were issued primarily for
the purchase of inventory.
There have been no other significant subsequent developments
relating to the commitments and contingencies reported on the
Company's most recent Form 10-K.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Critical Accounting Policies
_________________________
Our discussion and analysis of our financial condition and results of
operations 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 in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of our most recent
Annual Report on Form 10-K 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.
Operating Results
_________________
Consolidated Operating Results
- Revenue for the second quarter of fiscal 2004 was $2.8 billion, a 13%
increase versus the second quarter of fiscal 2003. Revenue for the
first six months of fiscal 2004 was $5.9 billion, up 10% versus the
same period of fiscal 2003.
- Gross margin for the second quarter of fiscal 2004 was 42.3% of
revenues, up from 40.2% for the second quarter of the prior year.
Gross margin for the first six months of fiscal 2004 was 42.7%, up
from 40.8% for the first six months of the prior year.
- Selling and administrative expense for the second quarter of fiscal
2004 increased 18% versus the second quarter of the prior year, to
$902.5 million, and was 31.8% as a percentage of revenues versus
30.3% for the second quarter of the prior year. Selling and
administrative expense for the first six months of fiscal 2004
increased 13% versus the first six months of the prior year, and was
30.2% as a percentage of revenues versus 29.5% for the first six
months of the prior year.
- Net income for the second quarter of fiscal 2004 was $179.1 million,
an 18% increase versus the second quarter of fiscal 2003. Net income
for the first six months of fiscal 2004 was $440.3 million, up 19%
versus the first six months of the prior year before the cumulative
effect of accounting change in the first quarter of the prior year.
Net income for the first six months of the prior year after the
cumulative effect of the accounting change was $103.1 million.
- Diluted earnings per share for the second quarter of fiscal 2004 were
$0.66, up 16% versus the second quarter of the prior year. Diluted
earnings per share for the first six months of fiscal 2004 were
$1.64, a 19% increase before the cumulative effect of an accounting
change in the first quarter of the prior year. Diluted earnings per
share for the first six months of the prior year after the cumulative
effect of the accounting change were $0.39.
Revenue from our international regions increased 12% for the second
quarter and 13% for the first six months of fiscal 2004 which contributed 6
percentage points and 7 percentage points of growth, respectively, to
consolidated revenue. All of the second quarter growth and all but one
percentage point of the six month growth from our international regions can be
attributable to changes in currency exchange rates, primarily the euro.
As previously disclosed in our quarterly report on Form 10-Q for the
quarter ended November 30, 2002, in the prior year we accelerated
approximately $66 million of deliveries from the third quarter to the second
quarter as we prepared to implement new supply chain systems in our Europe,
Middle East and Africa (EMEA) Region. This shift in the timing of shipments
in the prior year reduced international revenue growth comparisons for the
second quarter and first six months of fiscal 2004 by 6 percentage points and
3 percentage points, respectively; the impact on consolidated revenue growth
was 3 percentage points and 1 percentage point, respectively.
The acquisition of Converse during the quarter contributed 2 percentage
points of consolidated revenue growth in the second quarter and one percentage
point of growth for the first six months of fiscal 2004. See Note 7 -
Acquisitions for additional information related to the acquisition. Revenue
growth in the U.S. Region contributed 2 percentage points of consolidated
revenue growth in the second quarter and 40 basis points (0.40 percentage
points) of growth for the first six months of fiscal 2004. The remaining
increase in consolidated revenue is due to growth in our Other segment, in
addition to that of Converse as noted above. See further discussion of
revenues in Operating Segments below.
In the second quarter of fiscal 2004, our consolidated gross margin
percentage improved 210 basis points versus the prior year, from 40.2% to
42.3%. For the first six months of fiscal 2004, our consolidated gross margin
percentage improved 190 basis points compared to the first six months of the
prior year, from 40.8% to 42.7%. The primary factors contributing to the
improved gross margin percentages for the second quarter and year-to-date
periods were as follows:
(1) A reduced level of closeout sales as a percentage of total sales,
improved margins on those closeout sales, and an improved mix of
product in inventory, primarily in the U.S. and EMEA regions.
These factors represent approximately 90 basis points of
improvement for the quarter, and 70 basis points of improvement
for the year-to-date period.
(2) Higher pricing margins for in-line products (i.e. current product
offerings), due to lower air freight, lower product costs from
manufacturing efficiencies and reduced material costs, and a
higher mix of sales of classic footwear models. These factors
represent approximately 60 basis points of improvement for the
quarter and 40 basis points of improvement year-to-date.
(3) Changes in currency exchange rates, primarily the Euro, represent
30 basis points and 40 basis points of improvement for the quarter
and year-to-date periods, respectively.
Second quarter selling and administrative expense, comprised of demand
creation and operating overhead, grew 18% versus the prior year quarter.
Year-to-date fiscal 2004 selling and administrative expense increased 13% over
the prior year period. Demand creation expense grew 25% to $340.6 million in
the second quarter of fiscal 2004 while year-to-date demand creation expense
increased 12% to $664.7 million. Seven percentage points of the increase for
the second quarter and 6 percentage points of the year-to-date increase were
due to changes in currency exchange rates. Excluding the impact of currency,
the increase in demand creation spending for the second quarter is
attributable to higher spending for advertising primarily in the U.S., EMEA,
and Asia Pacific regions (8 percentage point impact) and higher spending on
endorsement contracts primarily related to basketball in the U.S. and soccer
in EMEA (5 percentage point impact). The addition of Converse also had a 3
percentage point impact on demand creation for the quarter. The overall
increase in demand creation for the year-to-date period was due to the second
quarter factors as explained above.
Operating overhead for the second quarter of fiscal 2004 was $561.9
million, a 15% increase over the second quarter of fiscal 2003. For the first
six months of fiscal 2004, operating overhead increased 14% to $1,107.4
million. Currency exchange rates contributed 4 percentage points of the
increase for the second quarter, and 5 percentage points of the increase for
the first six months. The addition of Converse accounted for 3 percentage
points of growth for the second quarter and 2 points of growth year-to-date.
Excluding the effects of currency and Converse, operating overhead increases
for the quarter were mainly attributable to: a) higher net bad debt expense (3
percentage points); b) increased costs to support the growth of our NIKE Golf,
Cole Haan, Bauer NIKE Hockey and Hurley businesses (2 percentage points); and
c) normal wage increases and some added infrastructure, including costs around
our worldwide supply chain initiative, necessary to support the global
business growth. The overall increase in operating overhead for the year-to-
date period was consistent with those of the quarter.
Other expense, net, was $14.3 million for the second quarter of fiscal
2004 compared to $11.5 million in the second quarter of fiscal 2003. Other
expense, net, for the first six months of fiscal 2004 was $38.1 million
compared to $22.5 million for the same period of fiscal 2003. Beginning this
fiscal year, interest income and profit sharing expense previously included in
other expense, net, are included in interest expense, net, and selling and
administrative, respectively. The presentation of prior year amounts has been
adjusted to conform to the current classification. The most significant
component of other expense, net, comprising approximately 45% of this year's
quarterly and year-to-date net expense, is foreign currency losses primarily
hedge losses on intercompany charges to a European subsidiary, whose
functional currency is the euro. These losses are reflected in the Corporate
line in our segment presentation of pre-tax income in Note 8 - Operating
Segments. The hedge losses reflected that the euro has strengthened
considerably since we entered into these hedge contracts.
In the second quarter and the first six months of fiscal 2004, net
foreign currency losses in other expense, net, were more than offset by
favorable translation of foreign currency denominated profits, most
significantly in EMEA. Our estimate of the net impact of these losses and the
favorable translation is a $30 million addition to consolidated income before
income taxes compared to the prior year second quarter and $64 million
compared to the first six months of the prior year. Consistent with our
existing policies, we have also hedged a portion of anticipated intercompany
charges for the balance of fiscal 2004. As the euro has strengthened since
these hedge contracts were executed, we expect to continue to incur some hedge
losses for the balance of fiscal 2004. However, at current exchange rates, we
expect the net impact of the hedge losses and the offsetting positive
translation impact will result in a net benefit to fiscal 2004 consolidated
net income versus the prior year.
Our effective tax rate for the first six months of fiscal 2004 was 34.8%,
relatively consistent with the first six months of fiscal 2003 rate of 34.5%,
but higher than the full year rate for fiscal 2003 of 34.1%. This increase
compared to fiscal 2003 anticipates higher taxes on foreign earnings.
Included in net income for the first six months of fiscal 2003 was a
$266.1 million charge for the cumulative effect of implementing Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets,"
(FAS 142). This 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. See the Notes to Consolidated Financial Statements (Note 4 -
Identifiable Intangible Assets and Goodwill) in our Annual Report on Form 10-K
as of May 31, 2003 for further information.
Operating Segments
Our largest international region, EMEA, reported 9% revenue growth for
the second quarter of fiscal 2004 compared to fiscal 2003 and 13% revenue
growth in the first six months of fiscal 2004. All business units experienced
growth in revenues for the quarter and six-month periods. The second quarter
growth reflected a 15 percentage point improvement and the year-to-date period
reflected a 17 percentage point improvement due to changes in currency
exchange rates. As discussed above, in the prior year we accelerated
approximately $66 million of deliveries into the second quarter from the third
quarter in advance of implementing new supply chain systems in Europe. This
shift reduced comparable revenue growth for the quarter by 9 percentage points
and by 4 percentage points for the year-to-date period. If we remove the
effects of currency and shipment timing in the prior year, fiscal 2004 revenue
for the EMEA Region would have grown approximately three percent in the second
quarter, primarily due to increased footwear volume, and would have been flat
for the first six months.
EMEA pre-tax income for the second quarter of fiscal 2004 was $139.4
million, up 12% versus the prior year quarter. For the first six months of
fiscal 2004, pretax income grew 20% to $344.0 million. For the quarter and the
six month periods, higher revenues and gross margin improvements drove the
increase, more than offsetting incremental selling and administrative costs.
The improved gross margins were primarily the result of a lower level of
closeout sales and higher closeout margins, and changes in currency exchange
rates. See further discussion regarding gross margins and selling and
administrative costs in Consolidated Operating Results.
In the Asia Pacific Region, revenues increased 18% year-over-year in the
second quarter of fiscal 2004 and increased 16% year-over-year in the first
six months of fiscal 2004. Five percentage points of growth for both the
second quarter and the first six months were due to changes in currency
exchange rates. Excluding the currency benefit, sales in each Asia Pacific
business unit grew for both the quarter and year-to-date periods. The
region's revenue growth was primarily attributed to volume increases.
Significant revenue increases in China and Korea, driven by expansion of
retail distribution and strong consumer demand, as well as continued growth in
Japan were key growth drivers for the quarter and year-to-date periods.
Pre-tax income for the Asia Pacific Region increased to $98.7 million in
the second quarter of fiscal 2004, up from $83.9 million in the second quarter
of fiscal 2003, and increased from $134.6 million to $175.5 million in the
fiscal 2004 year-to-date period. For the quarter, higher revenues and gross
margin improvements drove the increase, more than offsetting incremental
selling and administrative costs. The higher gross margins were attributable
to improved in-line margins across footwear, apparel and equipment. For the
six-month period, gross margins improved, while selling and administrative
spending declined as a percent of revenue as a result of lower demand creation
expenses versus the prior year investment in marketing the 2002 World Cup.
See further discussion regarding gross margins and selling and administrative
costs in Consolidated Operating Results.
In the Americas Region, revenues increased 17% for the second quarter of
fiscal 2004, with 8 percentage points of the growth due to changes in currency
exchange rates, while the year-to-date fiscal 2004 revenues increased 12% with
5 percentage points of the growth due to changes in currency exchange rates.
Excluding the currency effects, the revenue growth for the quarter and year-
to-date periods was driven by stronger consumer demand in South and Central
America. Sales in Mexico were up slightly, but sales were down in Canada due
to lower consumer demand. Excluding the currency exchange rate impact, the
region experienced sales growth for the quarter and year-to-date periods for
footwear and equipment, slightly offset by a small decrease in apparel.
In the second quarter of fiscal 2004, pre-tax income for the Americas
Region increased 10% from the prior year quarter, to $31.4 million. Year-to-
date fiscal 2004 pre-tax income increased 4% to $55.7 million. The increase in
pre-tax income was attributable to higher revenues partially offset by reduced
gross margins and higher selling and administrative costs. The reduced gross
margins are due to less favorable wholesale pricing in Mexico and less
favorable currency rates on product purchases in Mexico and Brazil. See
further discussion regarding selling and administrative costs in Consolidated
Operating Results.
In the U.S. Region, revenues for the second quarter of fiscal 2004 grew
5% versus the second quarter of fiscal 2003, and revenues for the first six
months of fiscal 2004 grew 1% versus the year-ago period. In the second
quarter, footwear revenue increased 5% and apparel revenue increased 8%, while
equipment revenue was down 6%. For the first six months of fiscal 2004,
footwear revenue was down 1% and equipment revenue was down 5%, while apparel
revenue increased 7%. The increase in apparel sales for the second quarter
and six month periods was primarily driven by increased consumer demand for
team licensed apparel.
The increase in footwear revenue for the quarter was due to approximately
a 4 percentage point increase in average wholesale selling price, as the sales
of $100 and over (suggested retail price) product grew and closeout product
sales declined compared to the prior year second quarter. Growth in NIKE
retail volume also contributed to the overall footwear improvement in the
quarter. The year-to-date fiscal 2004 decline in footwear revenue of 1% was
primarily due to a decrease in wholesale volume resulting from the impact of
our redistribution strategy, which included reduced orders from our largest
customer (Foot Locker) and reduced premium product offerings to them. These
redistribution changes were previously disclosed in our Annual Report on Form
10-K as of May 31, 2003. The reduction in footwear sales to Foot Locker was
partially offset by growth in sales to other wholesale customers and increased
sales through NIKE-owned retail stores.
During the quarter, the company announced plans to execute joint
marketing programs with Foot Locker to develop innovative retail presentations
of NIKE performance products at select Foot Locker locations in the U.S.
beginning with the Fall 2004 season. As part of those programs, additional
premium product offerings will be available to select Foot Locker locations
beginning May 2004. As these plans are executed, we expect our footwear sales
with Foot Locker to increase. However, since our total revenue is derived
from sales to many customers, growth in sales to Foot Locker may not translate
directly to growth in overall footwear revenue. See further information
regarding worldwide futures and advance orders below.
For the second quarter, U.S. Region pre-tax income was $193.4 million, a
12% increase versus the second quarter of fiscal 2003. Pre-tax income for the
first six months of fiscal 2004 increased 7% to $489.0 million. For the
quarter and year-to-date periods, higher revenues and gross margins drove the
increase, more than offsetting higher selling and administrative costs. The
improved gross margins were primarily the result of higher in-line product
margins, including reduced air freight, and improved margins on closeout
sales. See further discussion regarding gross margins and selling and
administrative costs in Consolidated Operating Results.
Other revenues and pre-tax income for the second quarter of fiscal 2004
include results from Bauer NIKE Hockey, Inc., Cole Haan Holdings, Inc.,
Converse Inc., Hurley International LLC, and NIKE Golf. Other revenues grew
54% in the second quarter of fiscal 2004 compared to fiscal 2003 and grew 43%
in the first six months of fiscal 2004 versus the prior year period. The
addition of Converse contributed 28 percentage points of the increase for the
quarter and 15 percentage points of the increase for the first six months.
The remaining increase is due to growth in each of the other businesses, most
significantly NIKE Golf and Cole Haan.
Other pre-tax income improved to $7.3 million in the second quarter of
fiscal 2004 from $0.5 million in fiscal 2003 and improved to $4.1 million in
the year-to-date fiscal 2004 period from a loss of $10.8 million in the same
period of last year. The addition of Converse combined with improved results
from NIKE Golf and Cole Haan drove the year-over-year improvement.
The breakdown of revenues follows:
Three Months Ended Six Months Ended
November 30, November 30
___________________ ____________________
% %
2003 2002 change 2003 2002 change
______ ______ _______ ______ ______ ______
(in millions)
U.S. REGION
FOOTWEAR $ 624.0 $ 596.1 5% $1,446.4 $1,461.1 -1%
APPAREL 398.3 369.5 8% 744.8 698.2 7%
EQUIPMENT 63.3 67.0 -6% 148.3 155.9 -5%
________ ________ ________ ________
TOTAL U.S. 1,085.6 1,032.6 5% 2,339.5 2,315.2 1%
EMEA REGION
FOOTWEAR 472.5 436.7 8% 1,062.5 929.4 14%
APPAREL 324.9 294.9 10% 666.8 605.7 10%
EQUIPMENT 51.5 49.6 4% 133.1 115.5 15%
________ ________ ________ ________
TOTAL EMEA 848.9 781.2 9% 1,862.4 1,650.6 13%
ASIA PACIFIC REGION
FOOTWEAR 205.6 170.0 21% 408.4 350.5 17%
APPAREL 174.5 151.1 15% 287.8 250.0 15%
EQUIPMENT 32.6 29.3 11% 64.8 57.7 12%
________ ________ ________ ________
TOTAL ASIA PACIFIC 412.7 350.4 18% 761.0 658.2 16%
AMERICAS REGION
FOOTWEAR 103.7 83.0 25% 206.8 176.0 18%
APPAREL 41.9 40.5 3% 81.3 79.1 3%
EQUIPMENT 10.5 10.0 5% 21.7 20.7 5%
________ ________ ________ ________
TOTAL AMERICAS 156.1 133.5 17% 309.8 275.8 12%
________ ________ ________ ________
2,503.3 2,297.7 9% 5,272.7 4,899.8 8%
OTHER 333.8 217.0 54% 589.3 411.2 43%
________ ________ ________ ________
TOTAL REVENUES $2,837.1 $2,514.7 13% $5,862.0 $5,311.0 10%
======== ======== ======== ========
The previous discussion includes disclosure of "pre-tax income" for our
operating segments. We have reported pre-tax income for each of our operating
segments in accordance with Statement of Financial Accounting Standard No.
131, "Disclosures about Segments of an Enterprise and Related Information." As
discussed in Note 8 - Operating Segments in the attached Notes to Consolidated
Financial Statements, certain corporate costs are not included in pre-tax
income of our operating segments.
Worldwide futures and advance orders for our footwear and apparel
scheduled for delivery from December 2003 through April 2004 were 9.7% higher
than such orders reported in the comparable period of fiscal 2003. Four points
of this reported increase were due to changes in currency exchange rates
versus the same period last year. As always, the reported futures orders
growth is not necessarily indicative of our expectation of revenue growth
during this period. This is because the mix of orders can shift between
advance/futures and at-once orders. In addition, exchange rate fluctuations as
well as differing levels of order cancellations can cause differences in the
comparisons between futures orders and actual revenues. Moreover, a
significant portion of our revenue is not derived from futures orders,
including wholesale sales of equipment, U.S. licensed team apparel, Bauer NIKE
Hockey, Cole Haan, Converse, NIKE Golf, Hurley, and retail sales across all
brands.
Liquidity and Capital Resources
____________________________
Cash Flow Activity
Cash provided by operations was $769.1 million in the first six months of
fiscal 2004, compared to $400.0 million in the first six months of fiscal
2003. Our primary source of operating cash flow in the current period was net
income of $440.3 million. In addition to the improvement in net income, the
year-over-year increase in cash provided by operations was attributable to
changes in our investment in working capital. In the first six months of
fiscal 2003, our net investment in working capital increased partially due to
increased accounts receivable resulting from the accelerated shipping in
EMEA as previously discussed. In the first six months of fiscal 2004, our net
investment in working capital improved due to a reduction in accounts
receivable resulting from improved account management combined with more
normal shipping patterns.
Total cash used by investing activities during the first six months of
fiscal 2004 was $383.7 million, compared to $107.6 million in the prior year
period. The acquisition of Converse represents the most significant use of cash
during the period. The remaining investing activities are consistent with the
prior year and primarily reflect capital expenditures on computer equipment and
software to support both normal business operations as well as our supply chain
systems upgrade, continued investment in NIKE-owned retail stores, and selected
warehouse improvements.
During the first six months of fiscal 2004, the principal uses of cash
for financing activities were share repurchases and dividends, partially
offset by proceeds from the exercise of stock options. These financing
activities were higher than the prior year partially due to an increase in the
market price of the company stock, which increased stock option exercises and
provided additional cash flows to be utilized in the share repurchase program.
The share repurchases were part of a $1 billion share repurchase program
that began in fiscal 2001. In the current quarter, we purchased approximately
1.6 million shares of NIKE's Class B common stock for $100.5 million, bringing
purchases for the first six months of fiscal 2004 to 3.3 million shares for
$190.0 million. To date under the program, we have purchased 15.6 million
shares for $775.7 million. We expect to continue to fund this program from
operating cash flow. The timing and the amount of shares purchased will be
dictated by our capital needs and stock market conditions.
As a result of the above, our cash balance increased by $334.9 million
during the first six months of fiscal 2004.
Long-term Financial Obligations and Other Commercial Commitments
As a result of modifications and additions to outstanding endorsement
contracts and the impact of changes in foreign exchange rates on such
obligations, the cash payments due under our endorsement contracts have
changed from what was previously reported in our Annual Report on Form 10-K
as of May 31, 2003.
Significant endorsement contracts entered into through the date of
this report are as follows:
Cash Payments Due During the Year Ended May 31,
_______________________________________________
Remaining
Description of Commitment 2004 2005 2006 2007 2008 Thereafter Total
_________________________ ______ ______ ______ ______ ______ __________ _______
(In millions)
Endorsement Contracts 197.2 323.6 275.8 266.0 166.1 405.7 1,634.4
The amounts listed for endorsement contracts represent approximate amounts
of base compensation and minimum guaranteed royalty fees we are obligated to
pay athlete and sport team endorsers of our products. Actual payments under
some contracts may be higher than the amounts listed as these contracts provide
for bonuses to be paid to the endorsers based upon athletic achievements and/or
royalties on product sales in future periods. Actual payments under some
contracts may also be lower as a limited number of contracts include provisions
for reduced payments if athlete performance declines in future periods.
There has not been a material change to any of our other long-term
contractual obligations from what was previously reported in our Annual Report
on Form 10-K as of May 31, 2003.
Capital Resources
In October 2001, we filed a shelf registration statement with the
securities and Exchange Commission (SEC) under which $1.0 billion in debt
securities may be issued. 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. We entered into this program
to provide additional liquidity to meet our working capital and general
corporate cash requirements. During the second quarter, we issued three notes
under the medium-term note program totaling $100 million. Two of the notes
totaling $50 million have fixed interest rates of 5.15% and mature on October
15, 2015. The other $50 million note has an interest coupon rate of 4.70% and
matures on October 1, 2013. For each of the 5.15% notes maturing October 15,
2015, we have 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. The swaps have the same notional amounts and maturity dates as the
notes, and are accounted for as fair value hedges under Statement of Financial
Accounting Standards (FAS) No. 133. For the 4.70% note maturing October 1, 2013
we have entered into an interest rate swap agreement whereby we receive fixed
interest payments at the same rate as the note and pay variable interest
payments based on the six-month LIBOR plus a spread for a term of three years.
This swap has the same notional amount as the note, but expires October 2,
2006. Accordingly, the swap does not qualify for fair value hedge accounting,
so changes in the fair value of this swap are recorded to net income each
period. After issuance of these notes, $310.0 million remains available to be
issued under our medium-term note program, and another $500.0 million remains
available to be issued under our shelf registration statement. We may issue
additional notes under the shelf registration in fiscal 2004 depending on
general corporate needs.
On November 20, 2003 we put in place a new 5-year $750 million revolving
credit facility with a group of banks. The maturity date is November 20, 2008
and the facility can be extended for one additional year on the anniversary
date. We currently have no amounts outstanding under the facility. Our previous
credit facility totaled $1 billion, and was made up of a $500 million 364 day
facility and a $500 million multi-year facility. Based on our current long-
term senior unsecured debt ratings of A and A2 from Standard and Poor's
Corporation and Moody's Investor Services, respectively, the interest rate
charged on any outstanding borrowings would be the prevailing LIBOR plus 0.22%.
The facility fee is 0.08% of the total commitment.
If our long-term debt rating were to decline, the facility fee and
interest rate under our committed credit facility would increase. Conversely,
if our long-term debt rating were to improve, the facility fee and interest
rate would decrease. Changes in our long-term debt rating would not trigger
acceleration of maturity of any then outstanding borrowings or any future
borrowings under the committed credit facilities. Under this committed credit
facility, we have agreed to various covenants. These covenants include limits
on our disposal of fixed assets and the amount of debt secured by liens we may
incur, and set a minimum capitalization ratio. In the event we were to have any
borrowings outstanding under these facilities, failed to meet any covenant, and
were unable to obtain a waiver from a majority of the banks, any borrowings
would become immediately due and payable. As of November 30, 2003, we were in
full compliance with each of these covenants and believe it is unlikely we will
fail to meet any of these covenants in the foreseeable future.
Liquidity is also provided by our commercial paper program, under which
there was no amount outstanding at November 30, 2003 or May 31, 2003. We
currently have short-term debt ratings of A1 and P1 from Standard and Poor's
Corporation and Moody's Investor Services, 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 in the foreseeable future.
Dividends declared per share of common stock for the second quarter of
fiscal 2004 were $0.20 per share, which reflected a $0.06 increase compared to
the previous quarterly dividend.
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, 2003.
Item 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
Exchange Act reports is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules
and forms and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.
The Company carries out a variety of on-going procedures, under the
supervision and with the participation of the Company's management, including
the Chief Executive Officer and the Company's Chief Financial Officer, to
evaluate the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of November 30, 2003. Based on the
foregoing, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective
at the reasonable assurance level.
There has been no change in the Company's internal controls over
financial reporting during the Company's most recent fiscal quarter that has
materially affected, or is reasonable likely to materially affect, the
Company's internal controls over financial reporting.
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
In October 2003, the Multnomah County Circuit Court for the State of
Oregon entered a stipulation dismissing with prejudice the shareholder
derivative lawsuit, Metivier v. DeNunzio, et al., 0104-04339, pursuant to a
settlement agreement. As part of the settlement, we agreed to pay $400,000 to
plaintiffs for attorney fees. Also as part of the settlement, another related
shareholder derivative lawsuit, Lendman v. Knight, et al., CV-01-1153-AS, in
the U.S. District Court for the District of Oregon, was dismissed with
prejudice (which means the plaintiff cannot refile the action).
There have been no other significant developments from the information
previously reported under Item 4 of the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 2003.
Item 4.
Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on September 22,
2003. The shareholders elected for the ensuing year all of management's
nominees for the Board of Directors, approved the amendment to the NIKE, Inc.
1990 Stock Incentive Plan, and ratified the appointment of
PricewaterhouseCoopers LLP as independent accountants for fiscal 2004.
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:
Thomas E. Clarke 97,386,687 3 -0-
Ralph D. DeNunzio 97,386,687 3 -0-
Richard K. Donahue 97,186,687 200,003 -0-
Delbert J. Hayes 97,386,687 3 -0-
Douglas G. Houser 97,386,687 3 -0-
Jeanne P. Jackson 97,386,687 3 -0-
Philip H. Knight 97,386,687 3 -0-
Charles W. Robinson 97,386,687 3 -0-
John R. Thompson, Jr. 97,186, 687 200,003 -0-
Elected by holders of
Class B Common Stock:
Jill K. Conway 138,066,352 3,482,703 -0-
Alan B. Graf, Jr. 124,178,601 17,370,454 -0-
John E. Jaqua 132,097,292 9,451,763 -0-
A. Michael Spence 124,113,224 17,435,831 -0-
Broker
For Against Abstain Non-Votes
Proposal 2 -
Approval of the amendments
to the NIKE, Inc. 1990
Stock Incentive Plan:
Class A and Class B
Common Stock Voting
Together 153,849,747 65,362,232 1,376,452 19,656,241
Proposal 3 -
Ratify the appointment
of PricewaterhouseCoopers LLP
as independent accountants:
Class A and Class B
Common Stock Voting
Together 218,820,704 20,047,516 1,241,948 -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 Credit Agreement dated as of November 20, 2003 among NIKE,
Inc., Bank of America, N.A., individually and as Agent, and
the other banks party thereto.
10.1 NIKE, Inc. 1990 Stock Incentive Plan Non-Statutory Stock
Option Agreement.*
12.1 Computation of Ratio of Earnings to Fixed Charges.
31.1 Rule 13(a)-14(a) Certification of Chief Executive Officer.
31.2 Rule 13(a)-14(a) Certification of Chief Financial Officer.
32.1 Section 1350 Certificate of Chief Executive Officer.
32.2 Section 1350 Certificate of Chief Financial Officer.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
The following reports on Form 8-K were furnished during the fiscal quarter
ending November 30, 2003:
September 18, 2003: Item 7. Financial Statements and Exhibits. Item 12.
Results of Operations and Financial Condition. First Quarter Earnings Release.
September 25, 2003: Item 7. Financial Statements and Exhibits. Item 12.
Results of Operations and Financial Condition. Transcript of Earnings
Conference Call.
The following reports on Form 8-K were filed during the fiscal quarter ending
November 30, 2003:
September 4, 2003: Item 5. Other Events. Press Release: NIKE, Inc. Completes
Acquisition of Converse Inc.
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: January 12, 2004