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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 February 29, 2004
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 February 29, 2004 were:
_______________
Class A 77,856,384
Class B 186,136,627
_______________
263,993,011
===============
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NIKE, Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
February 29, May 31,
2004 2003
________ ________
(in millions)
ASSETS
Current assets:
Cash and equivalents $ 914.7 $ 634.0
Accounts receivable, less allowance
for doubtful accounts of $110.3 and $87.9 2,033.9 2,101.1
Inventories (Note 2) 1,667.6 1,514.9
Deferred income taxes 218.5 221.8
Prepaid expenses and other current assets 364.9 266.2
________ ________
Total current assets 5,199.6 4,738.0
Property, plant and equipment 3,162.8 2,988.8
Less accumulated depreciation 1,551.4 1,368.0
________ ________
Property, plant and equipment, net 1,611.4 1,620.8
Identifiable intangible assets, net (Notes 3 and 7) 366.0 118.2
Goodwill (Notes 3 and 7) 134.7 65.6
Deferred income taxes and other assets 292.6 229.4
________ ________
Total Assets $7,604.3 $6,772.0
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 6.2 $ 205.7
Notes payable 165.2 75.4
Accounts payable 567.0 572.7
Accrued liabilities 1,048.3 1,054.2
Income taxes payable 157.9 107.2
________ ________
Total current liabilities 1,944.6 2,015.2
Long-term debt 694.3 551.6
Deferred income taxes and other liabilities (Note 7) 401.9 214.2
Commitments and contingencies (Note 9) -- --
Redeemable preferred stock 0.3 0.3
Shareholders' equity:
Common stock at stated value:
Class A convertible-77.9 and
97.8 shares outstanding 0.2 0.2
Class B-186.1 and 165.8 shares
outstanding 2.6 2.6
Capital in excess of stated value 808.1 589.0
Unearned stock compensation (6.3) (0.6)
Accumulated other comprehensive loss (Note 4) (139.8) (239.7)
Retained earnings 3,898.4 3,639.2
________ ________
Total shareholders' equity 4,563.2 3,990.7
________ ________
Total liabilities and shareholders' equity $7,604.3 $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 Nine Months Ended
February 29 and 28, February 29 and 28,
____________________ ____________________
2004 2003 2004 2003
____ ____ ____ ____
(in millions, except per share data)
Revenues $2,904.0 $2,400.9 $8,766.0 $7,711.9
Cost of sales 1,682.1 1,424.9 5,043.0 4,568.7
_________ _________ _________ _________
Gross Margin 1,221.9 976.0 3,723.0 3,143.2
Selling and administrative 892.0 758.1 2,664.1 2,324.6
Interest expense, net 5.5 7.0 21.1 21.4
Other expense, net 17.2 23.5 55.3 46.1
_________ _________ _________ _________
Income before income taxes and cumulative
effect of accounting change 307.2 187.4 982.5 751.1
Income taxes 106.9 62.7 341.9 257.2
_________ _________ _________ _________
Income before cumulative effect of
accounting change 200.3 124.7 640.6 493.9
Cumulative effect of accounting change,
net of income taxes -- -- -- 266.1
_________ _________ _________ _________
Net income $ 200.3 $ 124.7 $ 640.6 $ 227.8
========= ========= ========= =========
Basic earnings per common share (Note 6):
Before accounting change $ 0.76 $ 0.47 $ 2.43 $ 1.87
Cumulative effect of accounting change -- -- -- (1.01)
_________ _________ _________ _________
$ 0.76 $ 0.47 $ 2.43 $ 0.86
========= ========= ========= =========
Diluted earnings per common share (Note 6):
Before accounting change $ 0.74 $ 0.47 $ 2.38 $ 1.84
Cumulative effect of accounting change -- -- -- (0.99)
_________ _________ _________ _________
$ 0.74 $ 0.47 $ 2.38 $ 0.85
========= ========= ========= =========
Dividends declared per common share $ 0.20 $ 0.14 $ 0.54 $ 0.40
========= ========= ========= =========
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
Nine Months Ended
February 29 and 28,
_____________________
2004 2003
____ ____
(in millions)
Cash provided (used) by operations:
Net income $ 640.6 $ 227.8
Income charges not affecting cash:
Cumulative effect of accounting change -- 266.1
Depreciation 188.1 176.5
Deferred income taxes 28.5 0.7
Amortization and other 47.6 9.4
Income tax benefit from exercise of stock
options 30.9 2.6
Changes in other working capital
components, net of the effect of
acquisition of subsidiary 35.6 (252.6)
________ ________
Cash provided by operations 971.3 430.5
________ ________
Cash provided (used) by investing activities:
Additions to property, plant and
equipment (143.1) (138.6)
Disposals of property, plant and
equipment 3.8 9.6
Increase in other assets (33.9) (40.3)
(Decrease) increase in other liabilities (0.9) 1.1
Acquisition of subsidiary, net of cash
acquired (289.1) --
________ ________
Cash used by investing activities (463.2) (168.2)
________ ________
Cash provided (used) by financing activities:
Proceeds from long-term debt issuance 138.1 90.2
Reductions in long-term debt
including current portion (204.9) (54.4)
Increase (decrease) in notes payable 14.6 (208.0)
Proceeds from exercise of options and
other stock issuances 188.9 15.4
Repurchase of stock (240.5) (125.7)
Dividends on common stock (126.3) (100.8)
________ ________
Cash used by financing activities (230.1) (383.3)
________ ________
Effect of exchange rate changes on cash 2.7 (11.3)
Net increase (decrease) in cash and equivalents 280.7 (132.3)
Cash and equivalents, May 31, 2003 and 2002 634.0 575.5
________ ________
Cash and equivalents, February 29 and 28, 2004
and 2003 $ 914.7 $ 443.2
======== ========
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 nine (9) months ended February 29, 2004 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:
Feb. 29, May 31,
2004 2003
________ ________
(in millions)
Finished goods $1,640.3 $1,484.1
Work-in-progress 10.2 15.2
Raw materials 17.1 15.6
________ ________
$1,667.6 $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
are no longer amortized but instead are 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 continue
to be amortized over their useful lives.
The following table summarizes the Company's identifiable intangible
assets balances as of February 29, 2004 and May 31, 2003:
February 29, 2004 May 31, 2003
______________________ ______________________
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
________ ____________ ________ ________ ____________ ________
(in millions)
Amortized intangible assets:
Patents $ 26.7 $ (11.5) $ 15.2 $ 24.9 $ (10.4) $ 14.5
Trademarks 13.7 (11.2) 2.5 12.9 (10.6) 2.3
Other 16.9 (10.1) 6.8 7.5 (1.1) 6.4
_________ _________ ________ _________ _________ _________
Total $ 57.3 $ (32.8) $ 24.5 $ 45.3 $ (22.1) $ 23.2
========= ========= ========= =========
Unamortized intangible assets - Trademarks $ 341.5 $ 95.0
_________ _________
Identifiable intangible assets, net $ 366.0 $ 118.2
========= =========
Amortization expense, which is included in selling and administrative
expense, was $4.3 million and $0.9 million for the three-month periods ended
February 29, 2004 and February 28, 2003, respectively, and $10.7 million and
$2.7 million for the nine-month periods ended February 29, 2004 and February
28, 2003, 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: $12.0 million; 2005: $3.4
million; 2006: $3.1 million; 2007: $2.5 million; 2008: $2.3 million.
During the second quarter ended November 30, 2003 the Company completed
the acquisition of Converse Inc. As a result, $69.1 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 nine months ended February 29, 2004
is as follows (in millions):
Goodwill - May 31, 2003 $ 65.6
Acquisition of Subsidiary 69.1
_______
Goodwill - February 29, 2004 $ 134.7
=======
NOTE 4 - Comprehensive Income:
___________________________
Comprehensive income, net of taxes, is as follows:
Three Months Ended Nine Months Ended
February 29 and 28, February 29 and 28,
_____________________ _____________________
2004 2003 2004 2003
____ ____ ____ ____
(in millions)
Net Income $200.3 $124.7 $640.6 $227.8
Other Comprehensive Income (Loss):
Change in cumulative translation
adjustment and other 33.7 49.4 50.2 66.6
Changes due to cash flow hedging
instruments:
Net loss on hedge derivatives (72.2) (85.7) (89.9) (178.2)
Reclassification to net income of
previously deferred (gains) and losses
related to hedge derivative instruments 58.3 31.7 139.6 79.6
_______ _______ _______ _______
Other Comprehensive Income (Loss) 19.8 (4.6) 99.9 (32.0)
_______ _______ _______ _______
Total Comprehensive Income $220.1 $120.1 $740.5 $195.8
======= ======= ======= =======
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 Nine Months Ended
February 29 and 28, February 29 and 28,
____________________ _____________________
2004 2003 2004 2003
____ ____ ____ ____
(in millions, except per share data)
Net Income as reported $200.3 $124.7 $640.6 $227.8
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 (11.8) (11.3) (35.2) (31.0)
_______ _______ _______ _______
Pro forma net income $188.5 $113.4 $605.4 $196.8
======= ======= ======= =======
Earnings per share:
Basic - as reported 0.76 0.47 2.43 0.86
Basic - pro forma 0.72 0.43 2.30 0.74
Diluted - as reported 0.74 0.47 2.38 0.85
Diluted - pro forma 0.70 0.43 2.28 0.74
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 0.1 million and 12.0
million shares of common stock were outstanding at February 29, 2004 and
February 28, 2003, respectively, but were not included in the computation of
diluted earnings per share because the options' exercise prices were
greater than the average market price of common shares and, therefore, the
effect would be antidilutive.
Three Months Ended Nine Months Ended
February 29 and 28, February 29 and 28,
_____________________ _____________________
2004 2003 2004 2003
____ ____ ____ ____
(in millions, except per share data)
Determination of shares:
Average common shares
outstanding 263.5 263.9 263.2 264.6
Assumed conversion of
dilutive stock options
and awards 7.6 2.8 6.1 3.1
_______ _______ _______ _______
Diluted average common
shares outstanding 271.1 266.7 269.3 267.7
======= ======= ======= =======
Basic earnings per common share:
Before cumulative effect of
accounting change $ 0.76 $ 0.47 $ 2.43 $ 1.87
Cumulative effect of
accounting change -- -- -- (1.01)
_______ _______ _______ _______
$ 0.76 $ 0.47 $ 2.43 $ 0.86
======= ======= ======= =======
Diluted earnings per common share:
Before cumulative effect of
accounting change $ 0.74 $ 0.47 $ 2.38 $ 1.84
Cumulative effect of
accounting change -- -- -- (0.99)
_______ _______ _______ _______
$ 0.74 $ 0.47 $ 2.38 $ 0.85
======= ======= ======= =======
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 $69.1 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. A deferred tax liability of $105.1 million has 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 Nine Months Ended
February 29 and 28, February 29 and 28,
_____________________ _____________________
2004 2003 2004 2003
_____ _____ _____ _____
Net Revenue
U.S. $1,169.5 $1,127.9 $3,509.0 $3,443.1
EUROPE, MIDDLE EAST, AFRICA 880.0 645.8 2,742.4 2,296.4
ASIA PACIFIC 402.4 331.6 1,163.4 989.8
AMERICAS 135.0 107.4 444.8 383.2
OTHER 317.1 188.2 906.4 599.4
_________ _________ _________ _________
$2,904.0 $2,400.9 $8,766.0 $7,711.9
========= ========= ========= =========
Pre-Tax Income
U.S. $ 238.8 $ 211.9 $ 727.8 $ 668.8
EUROPE, MIDDLE EAST, AFRICA 172.8 80.5 516.8 367.8
ASIA PACIFIC 86.9 80.1 262.4 214.7
AMERICAS 16.1 18.3 71.8 72.0
OTHER 3.1 (13.1) 7.2 (23.9)
CORPORATE (210.5) (190.3) (603.5) (548.3)
_________ _________ _________ _________
$ 307.2 $ 187.4 $ 982.5 $ 751.1
========= ========= ========= =========
Feb. 29, May 31,
2004 2003
_________ _________
Accounts Receivable, net
U.S. $ 642.7 $ 609.5
EUROPE, MIDDLE EAST, AFRICA 703.0 792.6
ASIA PACIFIC 262.2 245.6
AMERICAS 121.6 130.0
OTHER 279.6 282.0
CORPORATE 24.8 41.4
_________ _________
$2,033.9 $2,101.1
========= =========
Inventories, net
U.S. $ 574.6 $ 640.6
EUROPE, MIDDLE EAST, AFRICA 469.4 383.4
ASIA PACIFIC 171.4 143.5
AMERICAS 89.3 84.2
OTHER 331.9 239.4
CORPORATE 31.0 23.8
_________ _________
$1,667.6 $1,514.9
========= =========
Property, Plant and Equipment, net
U.S. $ 199.3 $ 215.7
EUROPE, MIDDLE EAST, AFRICA 240.4 241.4
ASIA PACIFIC 402.5 386.3
AMERICAS 11.4 11.0
OTHER 97.7 82.1
CORPORATE 660.1 684.3
_________ _________
$1,611.4 $1,620.8
========= =========
NOTE 9 - Commitments and Contingencies:
_____________________________
At February 29, 2004, the Company had letters of credit outstanding
totaling $624.8 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
_________________
Consolidated Operating Results
Three Months Ended Nine Months Ended
February 29 and 28, February 29 and 28,
___________________ ____________________
% %
2004 2003 change 2004 2003 change
______ ______ _______ ______ ______ ______
(in millions, except per share data)
Revenues $2,904.0 $2,400.9 21% $8,766.0 $7,711.9 14%
Cost of sales 1,682.1 1,424.9 18% 5,043.0 4,568.7 10%
Gross Margin 1,221.9 976.0 25% 3,723.0 3,143.2 18%
42.1% 40.7% 42.5% 40.8%
Selling and administrative 892.0 758.1 18% 2,664.1 2,324.6 15%
30.7% 31.6% 30.4% 30.1%
Income before cumulative
effect of accounting change 200.3 124.7 61% 640.6 493.9 30%
Net Income 200.3 124.7 61% 640.6 227.8 181%
Diluted Earnings per share -
before accounting change 0.74 0.47 57% 2.38 1.84 29%
Diluted Earnings per share 0.74 0.47 57% 2.38 0.85 180%
Eight percentage points of our consolidated third quarter revenue growth
and 7 percentage points of the nine month growth can be attributable to
changes in currency exchange rates, primarily the stronger euro.
As previously disclosed in our quarterly report on Form 10-Q for the
quarter ended February 28, 2003, in fiscal 2003 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 prior year
shipments accounted for about 3 percentage points of the consolidated revenue
growth for the third quarter of fiscal 2004. Also in the EMEA Region, our
Spring 2004 Footwear selling season began in January, one month earlier than
in 2003. As a result, relative to last year, we estimate that approximately
$26 million of revenue moved into this year's fiscal third quarter from the
fourth quarter, accounting for about 1 percentage point of consolidated
revenue growth in the third quarter.
Converse, which was acquired during the second quarter of fiscal 2004,
contributed 3 percentage points of consolidated revenue growth in the third
quarter and 2 percentage points of growth for the first nine months of fiscal
2004. See Note 7 - Acquisitions for additional information related to the
acquisition.
In the third quarter of fiscal 2004, our consolidated gross margin
percentage improved 140 basis points versus the prior year, from 40.7% to
42.1%. For the first nine months of fiscal 2004, our consolidated gross margin
percentage improved 170 basis points compared to the first nine months of the
prior year, from 40.8% to 42.5%. The primary factors contributing to the
improved gross margin percentages for the third quarter and year-to-date
periods were as follows:
(1) Changes in hedge rates, primarily the euro, represent 50 basis
points and 40 basis points of improvement for the quarter and
year-to-date period, respectively. We expect improved hedge
rates, primarily the euro, will have a positive impact on gross
margins into next fiscal year.
(2) Improved profitability on closeout sales, primarily in the U.S.
and EMEA regions, due to a combination of improved closeout
pricing margins and the level of closeout sales as a
percentage of total sales, partially offset by increased
obsolescence reserves due to a less favorable mix of product
remaining in closeout inventory. These factors represent
approximately 20 basis points of improvement for the quarter and
60 basis points of improvement for the year-to-date period.
(3) Higher in-line pricing margins (net revenue for current product
offerings minus landed product cost) represent approximately 20
basis points of improvement for the quarter and 30 basis points of
improvement year-to-date. This is primarily due to lower air
freight, lower product costs (due to manufacturing efficiencies
and reduced material costs), and a higher mix of sales of classic
footwear models in the U.S. Region.
(4) The remaining increase was due to various factors, the most
significant of which were improved gross margins for Nike Retail
in the U.S. Region and improved margins for Nike Golf. These two
items contributed a combined 40 basis points of improvement for
the quarter and 20 basis points of improvement year-to-date.
Third 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 15% over
the prior year period. Demand creation expense grew 14% to $308.4 million in
the third quarter of fiscal 2004 while year-to-date demand creation expense
increased 12% to $973.2 million. Seven percentage points of the increase in
demand creation for the third quarter and year-to-date period was due to
changes in currency exchange rates. Excluding the impact of currency, the
increase in demand creation spending for the third quarter was attributable to
higher spending in the Asia Pacific region, primarily advertising (4
percentage point impact), and higher spending on endorsement contracts in the
U.S. and EMEA regions primarily related to basketball and soccer, respectively
(2 percentage point impact). The addition of Converse also had a 1 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 third quarter
factors as explained above.
Operating overhead for the third quarter of fiscal 2004 was $583.6
million, a 20% increase over the third quarter of fiscal 2003. For the first
nine months of fiscal 2004, operating overhead increased 16% to $1,690.9
million. Currency exchange rates contributed 6 percentage points of the
increase for the third quarter, and 5 percentage points of the increase for
the first nine months. The addition of Converse accounted for 3 percentage
points of growth for the third 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) increased incentive-based
compensation for employees(5 percentage points); (b) increased costs to
support the growth of our NIKE Golf, Cole Haan, Bauer NIKE Hockey and Hurley
businesses (3 percentage points); (c) higher net bad debt expense (2
percentage points); and (d) normal wage increases and some added
infrastructure, including costs related to our worldwide supply chain
initiative and additional factory outlet stores in the EMEA Region, necessary
to support global business growth. The factors causing the overall increase in
operating overhead for the year-to-date period were consistent with those of
the quarter as explained above.
Other expense, net, was $17.2 million for the third quarter of fiscal
2004 compared to $23.5 million in the third quarter of fiscal 2003. Other
expense, net, for the first nine months of fiscal 2004 was $55.3 million
compared to $46.1 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 expense, 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 55% of
this year's quarterly and 47% of this year's year-to-date net expense, was
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 third quarter and the first nine 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 $41 million addition to consolidated income before
income taxes compared to the prior year third quarter and $106 million
compared to the first nine 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 and into fiscal 2005. 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 and into fiscal
2005. 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 and fiscal 2005 consolidated net income versus the
prior year.
Our effective tax rate for the first nine months of fiscal 2004 was
34.8%, which is higher than the first nine months of fiscal 2003 rate
of 34.2%, and 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 nine 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
The breakdown of revenues follows:
Three Months Ended Nine Months Ended
February 29 and 28, February 29 and 28,
___________________ ____________________
% %
2004 2003 change 2004 2003 change
______ ______ _______ ______ ______ ______
(in millions)
U.S. REGION
FOOTWEAR $ 772.8 $ 761.4 1% $2,219.2 $2,222.5 0%
APPAREL 329.3 307.1 7% 1,074.1 1,005.3 7%
EQUIPMENT 67.4 59.4 13% 215.7 215.3 0%
________ ________ ________ ________
TOTAL U.S. 1,169.5 1,127.9 4% 3,509.0 3,443.1 2%
EMEA REGION
FOOTWEAR 537.7 363.1 48% 1,600.2 1,292.5 24%
APPAREL 284.1 239.4 19% 950.9 845.1 13%
EQUIPMENT 58.2 43.3 34% 191.3 158.8 20%
________ ________ ________ ________
TOTAL EMEA 880.0 645.8 36% 2,742.4 2,296.4 19%
ASIA PACIFIC REGION
FOOTWEAR 214.2 185.8 15% 622.6 536.3 16%
APPAREL 150.1 115.6 30% 437.9 365.6 20%
EQUIPMENT 38.1 30.2 26% 102.9 87.9 17%
________ ________ ________ ________
TOTAL ASIA PACIFIC 402.4 331.6 21% 1,163.4 989.8 18%
AMERICAS REGION
FOOTWEAR 89.2 69.1 29% 296.0 245.1 21%
APPAREL 36.0 29.8 21% 117.3 108.9 8%
EQUIPMENT 9.8 8.5 15% 31.5 29.2 8%
________ ________ ________ ________
TOTAL AMERICAS 135.0 107.4 26% 444.8 383.2 16%
________ ________ ________ ________
2,586.9 2,212.7 17% 7,859.6 7,112.5 11%
OTHER 317.1 188.2 68% 906.4 599.4 51%
________ ________ ________ ________
TOTAL REVENUES $2,904.0 $2,400.9 21% $8,766.0 $7,711.9 14%
======== ======== ======== ========
The discussion following 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.
For our largest international region, EMEA, currency exchange rates
contributed 21 and 18 percentage points of revenue growth for the quarter and
year-to-date period, respectively. Also, 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 accounted for approximately 10 percentage points of EMEA's
revenue growth for the quarter. In addition, the Spring footwear selling
season began in January this year versus February in 2003. As a result, we
estimate that approximately $26 million of revenue moved into the third
quarter from the fourth quarter, relative to last year. If we remove the
effects of currency and shipment timing discussed above, fiscal 2004 revenue
for the EMEA Region would have grown approximately 1 percentage point in both
the third quarter and the first nine months, primarily due to increased
footwear volume led by soccer product.
EMEA pre-tax income for the third quarter of fiscal 2004 was $172.8
million, up 115% versus the prior year quarter. For the first nine months of
fiscal 2004, pretax income grew 41% to $516.8 million. For the quarter and the
nine 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 improved year-over-
year hedge rates and a lower proportion of closeout sales versus the
prior year. See further discussion regarding gross margins and selling and
administrative costs in Consolidated Operating Results.
In the Asia Pacific Region, revenues increased 21% year-over-year in the
third quarter of fiscal 2004 and increased 18% year-over-year in the first
nine months of fiscal 2004. Ten percentage points of growth for the third
quarter and 6 percentage points for the first nine months were due to changes
in currency exchange rates. Excluding the currency benefit, sales in each Asia
Pacific product 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 Japan, driven by
expansion of retail distribution and strong consumer demand, were key growth
drivers for the quarter and year-to-date periods.
Pre-tax income for the Asia Pacific Region increased to $86.9 million in
the third quarter of fiscal 2004, up 8% versus the third quarter of fiscal
2003, and increased 22% to $262.4 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, primarily due to additional demand creation spending and higher
operating overhead in Japan and China. The higher gross margins were primarily
attributable to the benefit of better hedge rates on product purchases,
partially offset by lower profitability of closeouts. For the nine-month
period, gross margins improved, while selling and administrative expenses
increased slightly as a percent of revenue. See further discussion regarding
gross margins and selling and administrative expenses in Consolidated
Operating Results.
In the Americas Region, revenues increased 26% for the third quarter of
fiscal 2004, with 11 percentage points of the growth due to changes in
currency exchange rates, while year-to-date fiscal 2004 revenues increased 16%
with 7 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 primarily by stronger consumer demand in South
and Central America. Excluding the currency exchange rate impact, the region
experienced sales growth for the quarter and year-to-date periods across all
three product business units.
In the third quarter of fiscal 2004, pre-tax income for the Americas
Region decreased 12% from the prior year quarter, to $16.1 million. Year-to-
date fiscal 2004 pre-tax income was flat at $71.8 million. The decrease in
pre-tax income was attributable to reduced gross margins and higher selling
and administrative costs. The reduced gross margins were due to weaker
currency rates in Mexico, Brazil, and Argentina as well as lower in-line and
closeout profitability and higher distribution costs. See further discussion
regarding selling and administrative costs in Consolidated Operating Results.
In the U.S. Region, revenues for the third quarter of fiscal 2004 grew
4% versus the third quarter of fiscal 2003, and revenues for the first nine
months of fiscal 2004 grew 2% versus the year-ago period. In the third
quarter, footwear revenue increased 1% and apparel revenue increased 7%,
while equipment revenue increased 13%. For the first nine months of fiscal
2004, footwear and equipment revenues were flat, while apparel revenue
increased 7%. The increase in apparel sales for the third quarter was
primarily driven by growth in sport performance product. For the nine month
period, increased consumer demand for team licensed apparel also contributed
significantly to the overall apparel growth.
The increase in footwear revenue of 1% for the quarter was due to an
increase in average wholesale selling price of approximately 4 percentage
points, as sales grew for products with a suggested retail price over $100.
The revenue impact of higher average prices was partially offset in the
quarter by a decline in overall unit volume. Year-to-date fiscal 2004 footwear
revenue was flat due to an increase in average wholesale selling price of 2
percentage points offset by a similar decrease in unit 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 changes were previously disclosed in our Annual Report on Form 10-
K as of May 31, 2003. On a year-to-date basis, the reduction in footwear
sales to Foot Locker was mostly offset by increased sales to other customers.
During the second 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 third quarter, U.S. Region pre-tax income was $238.8 million, a
13% increase versus the third quarter of fiscal 2003. Pre-tax income for the
first nine months of fiscal 2004 increased 9% to $727.8 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 pricing
margins, improved margins on wholesale closeout sales, and expanded retail
margins. See further discussion regarding gross margins and selling and
administrative costs in Consolidated Operating Results.
Other revenues and pre-tax income for the third 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
68% in the third quarter of fiscal 2004 compared to fiscal 2003 and grew 51%
in the first nine months of fiscal 2004 versus the prior year period. The
addition of Converse contributed 39 percentage points of the Other revenue
increase for the quarter and 22 percentage points of the increase for the
first nine 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 $3.1 million in the third quarter of
fiscal 2004 from a loss of $13.1 million in fiscal 2003 and improved to $7.2
million in the year-to-date fiscal 2004 period from a loss of $23.9 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.
Worldwide futures and advance orders for our footwear and apparel
scheduled for delivery from March through July 2004 were 9.9% 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 $971.3 million in the first nine months
of fiscal 2004, compared to $430.5 million in the first nine months of fiscal
2003. Our primary source of operating cash flow in the current period was net
income of $640.6 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 nine months of
fiscal 2004, our net investment in working capital decreased primarily due to
a reduction in accounts receivable resulting from improved account management
through better utilization of supply chain systems, especially in the EMEA
Region.
Total cash used by investing activities during the first nine months of
fiscal 2004 was $463.2 million, compared to $168.2 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
warehouse improvements.
During the first nine months of fiscal 2004, the principal uses of cash
for financing activities were share repurchases, dividends, and payments of
long-term debt offset by proceeds from the exercise of stock options and debt
issuance. Net cash used by financing activities was higher in fiscal 2003
primarily due to increased repayments of short-term debt in that period.
The share repurchases were part of a $1 billion share repurchase program
that began in fiscal 2001. In the current quarter, we purchased approximately
0.8 million shares of NIKE's Class B common stock for $53.6 million, bringing
purchases for the first nine months of fiscal 2004 to 4.1 million shares for
$245.6 million. To date under the program, we have purchased 16.4 million
shares for $829.3 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 $280.7 million
during the first nine 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 $ 104.3 340.1 295.6 306.6 189.7 493.8 $1,730.1
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 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 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. As previously disclosed, during the second
quarter, we issued three notes under the medium-term note program totaling
$100 million. Two of those notes totaling $50 million have fixed coupon
interest rates of 5.15% and mature on October 15, 2015. The other $50 million
note has a fixed coupon interest rate of 4.70% and matures on October 1, 2013.
During the third quarter, we issued a $35 million note under the program with
a fixed coupon interest rate of 5.15% that matures on October 15, 2015.
Subsequent to the third quarter, we issued one additional note for $15
million that also has a fixed coupon interest rate of 5.15% and matures on
October 15, 2015. For each of the notes 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, except for the swap for the $50 million note maturing October 1, 2013.
The swap for that note has the same notional amount and fixed coupon interest
rate 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,
$260 million remains available to be issued under our medium-term note
program, and another $500 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 February 29, 2004, 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 February 29, 2004 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 in the third quarter of
fiscal 2004 were $0.20 per share.
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.
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 February 29, 2004. 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
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 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).
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 February 29, 2004:
December 18, 2003: Item 7. Financial Statements and Exhibits. Item 12.
Results of Operations and Financial Condition. First Quarter Earnings Release.
December 21, 2003: Item 7. Financial Statements and Exhibits. Item 12.
Results of Operations and Financial Condition. Transcript of Earnings
Conference Call.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NIKE, Inc.
An Oregon Corporation
BY:/s/ Donald W. Blair
________________________
Donald W. Blair
Chief Financial Officer
DATED: April 8, 2004