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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, 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 November 30, 2004 were:
_______________
Class A 77,581,484
Class B 186,481,859
_______________
264,063,343
===============
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NIKE, Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, May 31,
2004 2004
________ ________
(in millions)
ASSETS
Current assets:
Cash and equivalents $1,181.8 $ 828.0
Short-term investments 476.2 400.8
Accounts receivable, net 2,125.8 2,120.2
Inventories (Note 2) 1,692.4 1,633.6
Deferred income taxes 184.2 165.0
Prepaid expenses and other current assets 390.3 364.4
________ ________
Total current assets 6,050.7 5,512.0
Property, plant and equipment 3,294.5 3,132.3
Less accumulated depreciation 1,671.0 1,545.4
________ ________
Property, plant and equipment, net 1,623.5 1,586.9
Identifiable intangible assets, net (Note 3) 407.8 366.3
Goodwill (Note 3) 135.4 135.4
Deferred income taxes and other assets 340.9 291.0
________ ________
Total assets $8,558.3 $7,891.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 6.5 $ 6.6
Notes payable 144.4 146.0
Accounts payable 650.7 763.8
Accrued liabilities (Note 4) 1,020.8 974.4
Income taxes payable 180.8 118.2
________ ________
Total current liabilities 2,003.2 2,009.0
Long-term debt 699.0 682.4
Deferred income taxes and other liabilities 513.5 418.2
Commitments and contingencies (Note 9) -- --
Redeemable preferred stock 0.3 0.3
Shareholders' equity:
Common stock at stated value:
Class A convertible-77.6 and
77.6 shares outstanding 0.1 0.1
Class B-186.5 and 185.5 shares
outstanding 2.7 2.7
Capital in excess of stated value 1,094.5 887.8
Unearned stock compensation (4.4) (5.5)
Accumulated other comprehensive loss (Note 5) (2.6) (86.3)
Retained earnings 4,252.0 3,982.9
________ ________
Total shareholders' equity 5,342.3 4,781.7
________ ________
Total liabilities and shareholders' equity $8,558.3 $7,891.6
======== ========
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,
____________________ __________________
2004 2003 2004 2003
____ ____ ____ ____
(in millions, except per share data)
Revenues $3,148.3 $2,837.1 $6,710.1 $5,862.0
Cost of sales 1,760.2 1,637.5 3,736.2 3,360.9
_________ _________ _________ _________
Gross margin 1,388.1 1,199.6 2,973.9 2,501.1
Selling and administrative 973.2 902.5 2,046.8 1,772.1
Interest expense, net 3.7 8.1 8.5 15.6
Other expense, net 8.2 14.3 10.1 38.1
_________ _________ _________ _________
Income before income taxes 403.0 274.7 908.5 675.3
Income taxes 141.1 95.6 319.8 235.0
_________ _________ _________ _________
Net income $ 261.9 $ 179.1 $ 588.7 $ 440.3
========= ========= ========= =========
Basic earnings per common share (Note 7) $ 0.99 $ 0.68 $ 2.24 $ 1.67
========= ========= ========= =========
Diluted earnings per common share (Note 7) $ 0.97 $ 0.66 $ 2.18 $ 1.64
========= ========= ========= =========
Dividends declared per common share $ 0.25 $ 0.20 $ 0.45 $ 0.34
========= ========= ========= =========
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,
_____________________
2004 2003
____ ____
(in millions)
Cash provided (used) by operations:
Net income $ 588.7 $ 440.3
Income charges not affecting cash:
Depreciation 117.8 123.2
Deferred income taxes 22.2 16.3
Amortization and other 19.6 35.2
Income tax benefit from exercise of stock
options 36.7 19.4
Changes in certain working capital
components, net of the effect of
acquisition of subsidiary:
Decrease in accounts receivable 90.0 187.3
Decrease (increase) in inventories 38.7 (21.9)
Decrease (increase) in prepaid expenses
and other current assets 31.9 (35.6)
(Decrease) increase in accounts payable,
accrued liabilities and income taxes payable (190.1) 8.8
________ ________
Cash provided by operations 755.5 773.0
________ ________
Cash provided (used) by investing activities:
Purchases of short-term investments (701.2) --
Maturities of short-term investments 625.0 --
Additions to property, plant and
equipment (124.8) (88.0)
Disposals of property, plant and
equipment 6.3 3.2
Increase in other assets (12.1) (9.7)
Decrease in other liabilities (2.9) (0.3)
Acquisition of subsidiary, net of cash
acquired (47.2) (288.9)
________ ________
Cash used by investing activities (256.9) (383.7)
________ ________
Cash provided (used) by financing activities:
Proceeds from long-term debt issuance -- 101.8
Reductions in long-term debt
including current portion (5.9) (3.0)
Decrease in notes payable (17.3) (5.0)
Proceeds from exercise of options and
other stock issuances 174.0 115.3
Repurchase of stock (203.7) (195.5)
Dividends on common stock (105.2) (73.7)
________ ________
Cash used by financing activities (158.1) (60.1)
________ ________
Effect of exchange rate changes on cash 13.3 5.7
________ ________
Net increase in cash and equivalents 353.8 334.9
Cash and equivalents, May 31, 2004 and 2003 828.0 634.0
________ ________
Cash and equivalents, November 30, 2004
and 2003 $1,181.8 $ 968.9
========= ========
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, 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 2005 presentation. These changes had no impact on previously reported
results of operations or shareholders' equity.
Recently Issued Accounting Pronouncements:
In November 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 151, "Inventory Costs,
an amendment of ARB No. 43, Chapter 4" (FAS 151). FAS 151 clarifies that
abnormal inventory costs such as costs of idle facilities, excess freight and
handling costs, and wasted materials (spoilage) are required to be recognized
as current period charges. The provisions of FAS 151 are effective for the
fiscal year beginning June 1, 2006. The Company is currently evaluating the
provisions of FAS 151 and does not expect that the adoption will have a
material impact on the Company's consolidated financial position or results of
operations.
In December 2004, the FASB issued SFAS No. 123R "Share-Based Payment".
See Note 6 for further discussion.
NOTE 2 - Inventories:
___________
Inventories by major classification are as follows:
Nov. 30, May 31,
2004 2004
________ ________
(in millions)
Finished goods $1,687.1 $1,609.7
Work-in-progress 2.8 10.6
Raw materials 2.5 13.3
________ ________
$1,692.4 $1,633.6
======== ========
NOTE 3 - Identifiable Intangible Assets and Goodwill:
___________________________________________
The following table summarizes the Company's identifiable intangible
assets and goodwill balances as of November 30, 2004 and May 31, 2004:
November 30, 2004 May 31, 2004
______________________ ______________________
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
________ ____________ ________ ________ ____________ ________
(in millions)
Amortized intangible assets:
Patents $ 29.6 $ (12.6) $ 17.0 $ 27.9 $ (11.9) $ 16.0
Trademarks 54.2 (13.6) 40.6 14.1 (11.5) 2.6
Other 21.6 (12.9) 8.7 17.0 (10.8) 6.2
_________ _________ ________ _________ _________ _________
Total $ 105.4 $ (39.1) $ 66.3 $ 59.0 $ (34.2) $ 24.8
========= ========= ========= =========
Unamortized intangible assets - Trademarks $ 341.5 $ 341.5
_________ _________
Identifiable intangible assets, net $ 407.8 $ 366.3
========= =========
Goodwill $ 135.4 $ 135.4
========= =========
Amortization expense, which is included in selling and administrative
expense, was $2.8 million and $5.5 million for the three-month periods ended
November 30, 2004 and 2003, respectively, and $4.4 million and $6.4 million
for the six-month periods ended November 30, 2004 and November 30, 2003. The
estimated amortization expense for intangible assets subject to amortization
for each of the succeeding years ended May 31, 2005 through May 31, 2009 are
as follows: 2005: $9.4 million; 2006: $8.9 million; 2007: $7.9 million; 2008:
$7.4 million; 2009: $6.4 million.
On August 11, 2004, the Company acquired Official Starter LLC and
Official Starter Properties LLC (collectively "Official Starter") for $47.2
million, including acquisition costs, net of cash acquired. The Exeter Brands
Group LLC, a wholly-owned subsidiary of the Company, was formed soon
thereafter to develop the Company's business in retail channels serving value-
conscious consumers and operate the Official Starter business. As a result of
the acquisition, $39.0 million was allocated to amortized trademarks and $4.6
million was allocated to other amortized intangible assets. The weighted
average amortization period is nine years in total and approximately 10 years
and three years for amortized trademarks and other amortized intangible
assets, respectively. The results of Starter's operations have been included
in the consolidated financial statements since the date of acquisition as part
of the Company's Other operating segment. The pro forma effect of the
acquisition on the combined results of operations was not significant.
NOTE 4 - Accrued Liabilities:
____________________
Accrued liabilities include the following:
November 30, 2004 May 31, 2004
_______________ ____________
(in millions)
Fair value of derivatives $ 186.5 $ 141.3
Compensation and benefits 254.3 339.0
Accrued taxes 78.8 87.5
Endorser compensation 97.7 86.9
Dividends payable 66.0 52.6
Other1 337.5 267.1
________ ________
$1,020.8 $ 974.4
======== ========
1 Other consists of various accrued expenses and no individual item accounted
for more than $60 million of the balance at November 30, 2004 and May 31, 2004.
NOTE 5 - Comprehensive Income:
_____________________
Comprehensive income, net of taxes, is as follows:
Three Months Ended Six Months Ended
November 30, November 30,
_____________________ __________________
2004 2003 2004 2003
____ ____ ____ ____
(in millions)
Net income $261.9 $179.1 $588.7 $440.3
Other comprehensive income:
Change in cumulative translation
adjustment and other 130.7 75.7 116.6 16.5
Changes due to cash flow hedging
instruments:
Net loss on hedge derivatives (115.5) (104.2) (108.6) (17.7)
Reclassification to net income of
previously deferred (gains) and losses
related to hedge derivative instruments 25.3 34.8 75.7 81.3
_______ _______ _______ _______
Other comprehensive income 40.5 6.3 83.7 80.1
_______ _______ _______ _______
Total comprehensive income $302.4 $185.4 $672.4 $520.4
======= ======= ======= =======
NOTE 6 - 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. The Company also has an
Employee Stock Purchase Plan (ESPP) that qualifies as a non-compensatory
employee stock purchase plan under Section 423 of the Internal Revenue Code,
and accordingly, no compensation expense is recognized.
If the Company had accounted for stock options and ESPP purchase rights
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,
____________________ __________________
2004 2003 2004 2003
____ ____ ____ ____
(in millions, except per share data)
Net income as reported $261.9 $179.1 $588.7 $440.3
Add: Stock-based compensation expense included
in reported net income, net of tax 0.3 -- 0.3 --
Deduct: Total stock-based employee compensation
expense under fair value based method for all
awards, net of tax (17.3) (12.1) (31.4) (23.3)
_______ _______ _______ _______
Pro forma net income $244.9 $167.0 $557.6 $417.0
======= ======= ======= =======
Earnings per share:
Basic - as reported $ 0.99 $ 0.68 $ 2.24 $1.67
Basic - pro forma 0.93 0.63 2.12 1.58
Diluted - as reported 0.97 0.66 2.18 1.64
Diluted - pro forma 0.91 0.63 2.09 1.57
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.
On December 16, 2004, the FASB finalized SFAS No. 123R "Share-Based
Payment," which will be effective for interim or annual reporting periods
beginning after June 15, 2005. The new standard will require us to expense
stock options and the FASB believes the use of a binomial lattice model for
option valuation is capable of more fully reflecting certain characteristics
of employee share options. The Company has begun a process to analyze how the
utilization of a binomial lattice model could impact the valuation of our
options. The effect of expensing stock options on our results of operations
using the Black-Scholes model is presented in the table above.
NOTE 7 - 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 shares of
common stock were outstanding at November 30, 2003, 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. There were no such antidilutive
options outstanding at November 30, 2004.
Three Months Ended Six Months Ended
November 30, November 30,
_____________________ ___________________
2004 2003 2004 2003
____ ____ ____ ____
(in millions, except per share data)
Determination of shares:
Average common shares
outstanding 263.3 263.3 263.0 263.1
Assumed conversion of
dilutive stock options
and awards 7.8 6.2 7.5 5.2
_______ _______ _______ _______
Diluted average common
shares outstanding 271.1 269.5 270.5 268.3
======= ======= ======= =======
Basic earnings per common share $ 0.99 $ 0.68 $ 2.24 $ 1.67
======= ======= ======= =======
Diluted earnings per common share $ 0.97 $ 0.66 $ 2.18 $ 1.64
======= ======= ======= =======
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 Incorporated, Bauer NIKE Hockey, Inc., Hurley International LLC, NIKE
Golf, Converse Inc. (beginning September 4, 2003), and Exeter Brands Group LLC
(beginning August 11, 2004), that are considered immaterial for individual
disclosure based on the aggregation criteria in SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information".
Where applicable, "Corporate" represents items necessary to reconcile to
the consolidated financial statements, which generally include corporate
activity and corporate eliminations.
Net revenues as shown below represent sales to external customers for
each segment. Intercompany revenues have been eliminated and are immaterial
for separate disclosure. The Company evaluates performance of individual
operating segments based on pre-tax income. On a consolidated basis, this
amount represents income before income taxes 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, inventories, and property, plant and equipment for
operating segments are regularly reviewed and therefore provided below.
Certain NIKE Golf receivables, inventories and property, plant and equipment
are managed by the regions and as a result, are included in the region's
balances.
Three Months Ended Six Months Ended
November 30, November 30,
__________________ _________________
2004 2003 2004 2003
_____ _____ _____ _____
Net Revenue
U.S. $1,132.0 $1,083.0 $2,533.7 $2,332.0
EUROPE, MIDDLE EAST, AFRICA 961.1 847.8 2,119.0 1,859.4
ASIA PACIFIC 483.5 412.0 889.5 760.0
AMERICAS 189.3 154.3 351.0 305.4
OTHER 382.4 340.0 816.9 605.2
_________ _________ _________ _________
$3,148.3 $2,837.1 $6,710.1 $5,862.0
========= ========= ========= =========
Pre-tax Income
U.S. $ 232.6 $ 192.4 $ 554.5 $ 485.8
EUROPE, MIDDLE EAST, AFRICA 197.6 138.2 444.0 341.0
ASIA PACIFIC 112.0 98.1 175.4 174.5
AMERICAS 44.5 31.2 65.2 55.5
OTHER 20.8 6.7 61.1 2.4
CORPORATE (204.5) (191.9) (391.7) (383.9)
_________ _________ _________ _________
$ 403.0 $ 274.7 $ 908.5 $ 675.3
========= ========= ========= =========
Nov. 30, May 31,
2004 2004
_________ _________
Accounts Receivable, net
U.S. $ 608.3 $ 616.6
EUROPE, MIDDLE EAST, AFRICA 718.1 724.1
ASIA PACIFIC 307.3 272.9
AMERICAS 181.7 132.1
OTHER 277.6 327.8
CORPORATE 32.8 46.7
_________ _________
$2,125.8 $2,120.2
========= =========
Inventories, net
U.S. $ 559.8 $ 570.6
EUROPE, MIDDLE EAST, AFRICA 488.2 477.9
ASIA PACIFIC 221.1 163.9
AMERICAS 75.8 78.3
OTHER 310.0 305.5
CORPORATE 37.5 37.4
_________ _________
$1,692.4 $1,633.6
========= =========
Property, Plant and Equipment, net
U.S. $ 193.0 $ 193.0
EUROPE, MIDDLE EAST, AFRICA 245.7 232.0
ASIA PACIFIC 407.9 379.7
AMERICAS 14.8 12.7
OTHER 90.7 86.9
CORPORATE 671.4 682.6
_________ _________
$1,623.5 $1,586.9
========= =========
NOTE 9 - Commitments and Contingencies:
_____________________________
At November 30, 2004, the Company had letters of credit outstanding
totaling $542.5 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.
NOTE 10 - Income Taxes:
____________
The American Jobs Creation Act (the "Act") was signed into law by the
President on October 22, 2004. The Act creates a temporary incentive for U.S.
multinational corporations to repatriate accumulated income earned outside the
U.S. by providing an 85% dividend received deduction for certain dividends
from controlled foreign corporations. According to the Act, the amount of
eligible repatriation is limited to $500 million or the amount described as
permanently reinvested earnings outside the U.S. in the most recent audited
financial statements filed with the Securities and Exchange Commission on or
before June 30, 2003. Whether the Company will ultimately take advantage of
the provision depends on a number of factors including potential forthcoming
Congressional actions, Treasury regulations and development of a qualified
reinvestment plan. At this time, the Company has not made any changes to our
position on reinvestment of certain foreign earnings.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
In the second quarter of fiscal 2005, our revenues grew 11% to $3.1
billion, net income grew 46% to $261.9 million and we delivered diluted
earnings per share of $0.97, a 47% increase versus the second quarter of
fiscal 2004. For the quarter, our consolidated gross margin percentage
increased 180 basis points to 44.1% as gross margins increased in every region
and for our Other businesses as a whole. The international regions accounted
for just over half of the gross margin improvement, driven primarily by
foreign currency transaction benefits, partially offset by the impact of
higher inventories in Europe and Asia. Relatively low demand creation
(advertising and promotion) spending and favorable foreign currency
translation also added to our overall profitability in the second quarter.
During the quarter, we also increased our return on invested capital and
increased the level of dividends as compared to the second quarter of fiscal
2004. Our year-to-date results continue to reflect the positive impact of the
Converse acquisition, although acquisitions did not have a material impact on
second quarter results.
Results of Operations
Three Months Ended Six Months Ended
November 30, November 30,
___________________ __________________
% %
2004 2003 change 2004 2003 change
______ ______ ________ ______ ______ ________
(in millions, except per share data)
Revenues $3,148.3 $2,837.1 11% $6,710.1 $5,862.0 14%
Cost of sales 1,760.2 1,637.5 7% 3,736.2 3,360.9 11%
Gross margin 1,388.1 1,199.6 16% 2,973.9 2,501.1 19%
44.1% 42.3% 44.3% 42.7%
Selling and administrative 973.2 902.5 8% 2,046.8 1,772.1 16%
30.9% 31.8% 30.5% 30.2%
Net income 261.9 179.1 46% 588.7 440.3 34%
Diluted earnings per share 0.97 0.66 47% 2.18 1.64 33%
Consolidated Operating Results
Three percentage points of our consolidated second quarter revenue growth
and two percentage points of the six-month growth were attributable to changes
in currency exchange rates, primarily the stronger euro. Excluding the impact
of changes in foreign currency, revenue growth in our international regions
contributed 5 percentage points of the consolidated revenue growth for the
second quarter and first six months of fiscal 2005, as all three of our
international regions posted higher revenues. The U.S. Region contributed 2
and 3 percentage points of the consolidated revenue growth for the second
quarter and first six months of fiscal 2005, respectively. Sales in our Other
businesses drove the balance of the improvement for the quarter and year-to-
date periods. Converse, a component of the Other businesses, was acquired at
the beginning of the second quarter of fiscal 2004 and contributed 2
percentage points to the overall revenue growth for the year-to-date period.
In the second quarter of fiscal 2005, our consolidated gross margin
percentage improved 180 basis points versus the prior year quarter, from 42.3%
to 44.1%. For the first six months of fiscal 2005, our consolidated gross
margin percentage improved 160 basis points versus the prior year period, from
42.7% to 44.3%. The primary factors contributing to the improved gross margin
percentages for the second quarter and year-to-date periods were as follows:
(1) Higher gross margins in our international regions accounted for
100 basis points of the overall margin improvement in the second
quarter and 90 basis points year-to-date. This improvement was
driven by changes in currency hedge rates, primarily the euro,
partially offset by the impact of higher inventories in Europe and
Asia (as discussed below). On a consolidated basis, the gross
impact of currency changes was approximately 160 basis points and
140 basis points of the year-over-year improvement for the second
quarter and year-to-date periods, respectively. As a majority of
product purchases for the remainder of fiscal 2005 and the first
half of fiscal 2006 have been hedged, we expect a positive impact
on our gross margin percentage throughout fiscal 2005 and into the
first half of fiscal 2006 due to improved year-over-year hedge
rates, primarily for the euro.
(2) Higher apparel inventories in Europe and footwear inventories in
Asia resulted in increased closeout sales, lower closeout pricing
margins and increased obsolescence reserves. These factors resulted
in a reduction in the gross margin percentage for the quarter and
year-to-date periods of about 40 and 30 basis points, respectively.
(3) Higher gross margins in the US accounted for about 40 basis points
and 30 basis points of the consolidated gross margin improvement for
the second quarter and first six months, respectively. While gross
margins for all three product business units improved for the
quarter and six-month periods, the majority of the improvement was
driven by higher footwear in-line pricing margins (net revenue for
current product offerings minus product costs), lower third-party
royalties driven by the expiration of the NBA license agreement and
a lower level of closeout sales as a percentage of total sales.
(4) Improved gross margin percentages in our Other businesses
represented 20 basis points of improvement for the quarter and 30
basis points improvement year-to-date. The addition of Exeter
Brands and Converse drove the majority of the gross margin
improvement. Both Exeter Brands and the international portion of
Converse's business operate on a licensing model, which carries
higher gross margins and lower operating expenses than the balance
of our Other businesses.
Second quarter selling and administrative expense, comprised of demand
creation and operating overhead, grew 8% versus the prior year quarter. Year-
to-date fiscal 2005 selling and administrative expense increased 16% over the
prior year period.
Demand creation expense grew 3% to $350.6 million in the second quarter
of fiscal 2005 while year-to-date demand creation expense increased 23% to
$817.2 million. Three percentage points of the increase in demand creation
for the second quarter and year-to date periods were due to changes in
currency exchange rates. Excluding the impact of currency, there was no change
in demand creation expense in the second quarter of fiscal 2005 compared to
the prior year period as investment in demand creation for fiscal 2005 was
focused in the first quarter around the summer's global sporting events.
Excluding the impact of currency, the increase in demand creation spending for
the first six months of fiscal 2005 was attributable to increased spending
primarily in the U.S., Europe, Middle East and Africa (EMEA) and Asia Pacific
regions for advertising around the summer's global sporting events (8
percentage point impact), higher sports marketing spending primarily on
endorsement contracts (6 percentage point impact), and incremental investment
in retail development programs (4 percentage point impact).
Operating overhead for the second quarter and first six months of fiscal
2005 grew 11% year-over-year, to $622.6 million and $1,229.6 million
respectively. Currency exchange rates contributed 3 percentage points of the
increase for the second quarter and 2 percentage points of the increase for
the first six months. Excluding the effects of currency, operating overhead
increases for the quarter and year-to-date periods were mainly attributable to
higher personnel costs due to increased headcount, higher wages and benefits,
and incentive based compensation reflecting our sales and profit growth (5
percentage points), implementation of new systems and infrastructure to
support the growth of emerging markets in Asia and Central Europe (2
percentage points) and investments in NIKE-owned retail stores (1 percentage
point for the quarter and 2 percentage points for the year-to-date period).
Other expense, net, was $8.2 million for the second quarter of fiscal
2005, down from $14.3 million in the second quarter of fiscal 2004. Other
expense, net, for the first six months of fiscal 2005 was $10.1 million
compared to $38.1 million for the same period of fiscal 2004. The most
significant component of other expense, net, were net foreign currency
losses. These losses are reflected in the Corporate line in our segment
presentation of pre-tax income in Notes to Unaudited Condensed Consolidated
Financial Statements (Note 8 - Operating Segments). Although second quarter
foreign currency losses were slightly higher than the prior year, the year-
over-year improvement in other expense, net, for the first six months was
mainly due to lower foreign currency losses. Also contributing to the year-
over-year improvement in other expense, net, were net losses on asset
disposals recorded in the second quarter and first six months of fiscal 2004,
including a loss of $5.3 million for our basis in undeveloped land gifted to
the NIKE Foundation in the first quarter of the prior year.
In the second quarter and first six months of fiscal 2005, net foreign
currency losses in other expense, net, were more than offset by favorable
translation of foreign currency denominated profits, most significantly in
EMEA. We estimate that the net impact of these losses and the favorable
translation was a year-over-year increase in consolidated income before income
taxes of $17 million and $39 million for the quarter and six month period,
respectively. Consistent with our Financial Risk Management Program, we have
also hedged a portion of anticipated intercompany charges and investments in
U.S. Dollar denominated debt securities classified as available-for-sale for
the balance of fiscal 2005 and into fiscal 2006. If current exchange rates
remain constant, we would expect the net impact of the foreign currency losses
and the offsetting positive translation impact to result in a net benefit to
fiscal 2005 and fiscal 2006 consolidated net income, although at a
significantly lower level than the benefit realized throughout fiscal 2004.
See further discussion in our Annual Report on Form 10-K as of May 31, 2004.
In the second quarter of fiscal 2005, we adjusted our year-to-date
effective tax rate to 35.2%, our estimate of our effective rate for all of
fiscal 2005. This rate is higher than the 34.8% rate reported for the second
quarter and full year of fiscal 2004 primarily due to a lower level of
expected research tax credits in the current fiscal year.
Our effective tax rate was not affected by the American Jobs Creation Act
(the "Act"), which was signed into law by the President on October 22, 2004.
The Act creates a temporary incentive for U.S. multinational corporations to
repatriate accumulated income earned outside the U.S. by providing an 85%
dividend received deduction for certain dividends from controlled foreign
corporations. According to the Act, the amount of eligible repatriation is
limited to $500 million or the amount described as permanently reinvested
earnings outside the U.S. in the most recent audited financial statements
filed with the Securities and Exchange Commission on or before June 30, 2003.
Whether the Company will ultimately take advantage of this provision depends
on a number of factors including potentially forthcoming Congressional
actions, Treasury regulations and development of a qualified reinvestment
plan. At this time, we have not made any changes to our position on
reinvestment of certain foreign earnings.
Worldwide futures and advance orders for our footwear and apparel
scheduled for delivery from December 2004 through April 2005 were 9.1% higher
than such orders reported for the comparable period of fiscal 2004. Changes in
currency exchange rates did not have a net impact on the increase versus the
same period last year. Higher average selling prices for footwear across all
regions contributed 2 points of the growth in overall futures and advance
orders. The remaining increase was due to volume increases for both footwear
and apparel. 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, Exeter Brands and retail sales across all brands.
Operating Segments
The breakdown of revenues follows:
Three Months Ended Six Months Ended
November 30, November 30
___________________ ____________________
% %
2004 2003 change 2004 2003 change
______ ______ _______ ______ ______ ______
(in millions)
U.S. REGION
FOOTWEAR $ 680.0 $ 624.0 9% $1,601.4 $1,446.4 11%
APPAREL 384.7 398.3 -3% 776.0 744.8 4%
EQUIPMENT 67.3 60.7 11% 156.3 140.8 11%
________ ________ ________ ________
TOTAL U.S. 1,132.0 1,083.0 5% 2,533.7 2,332.0 9%
EMEA REGION
FOOTWEAR 531.8 472.5 13% 1,195.1 1,062.5 12%
APPAREL 370.0 324.9 14% 779.7 666.8 17%
EQUIPMENT 59.3 50.4 18% 144.2 130.1 11%
________ ________ ________ ________
TOTAL EMEA 961.1 847.8 13% 2,119.0 1,859.4 14%
ASIA PACIFIC REGION
FOOTWEAR 236.6 205.6 15% 455.2 408.4 11%
APPAREL 207.8 174.5 19% 356.6 287.8 24%
EQUIPMENT 39.1 31.9 23% 77.7 63.8 22%
________ ________ ________ ________
TOTAL ASIA PACIFIC 483.5 412.0 17% 889.5 760.0 17%
AMERICAS REGION
FOOTWEAR 129.8 103.6 25% 244.6 206.5 18%
APPAREL 46.9 41.3 14% 82.4 79.9 3%
EQUIPMENT 12.6 9.4 34% 24.0 19.0 26%
________ ________ ________ ________
TOTAL AMERICAS 189.3 154.3 23% 351.0 305.4 15%
________ ________ ________ ________
2,765.9 2,497.1 11% 5,893.2 5,256.8 12%
OTHER 382.4 340.0 12% 816.9 605.2 35%
________ ________ ________ ________
TOTAL REVENUES $3,148.3 $2,837.1 11% $6,710.1 $5,862.0 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 accompanying Notes to
Unaudited Condensed Consolidated Financial Statements, certain corporate costs
are not included in pre-tax income of our operating segments.
For our largest international region, EMEA, changes in currency exchange
rates accounted for 8 and 7 percentage points of the reported revenue growth
for the second quarter and first six months of fiscal 2005, respectively. If
we remove the effects of currency, second quarter revenue for the EMEA Region
would have grown approximately 5 percentage points and the year-to-date
revenue would have grown approximately 7 percentage points. Excluding the
benefit from changes in currency exchange rates, the increase over the prior
year quarter and year-to-date periods was primarily driven by increased unit
sales of footwear (led by soccer, followed by active life and training
products) and apparel (led by active life products for the quarter and sport
performance products for the year-to-date period). Excluding the
effect of changes in foreign currency, revenue growth for the second quarter
and year-to-date periods was led by sales increases in Italy and the emerging
markets in Central Europe, Turkey, Russia and Greece. These increases were
partially offset in the second quarter by lower sales in France and for the
first six months by lower sales in both France and Germany versus the same
period last year.
For the EMEA Region, futures orders scheduled for delivery from December
2004 through April 2005 were 6 percentage points higher than such orders for
the comparable period of fiscal 2004. Changes in currency exchange rates
contributed 1 percentage point of this growth. Excluding the changes in
currency exchange rates, the growth was driven by an increase in the region's
wholesale footwear unit orders and to a lesser extent an increase in the
footwear average selling price per pair.
EMEA pre-tax income for the second quarter of fiscal 2005 was $197.6
million, up 43% versus the prior year quarter. For the first six months of
fiscal 2005, pre-tax income grew 30% to $444.0 million. For the quarter and
the six-month periods, higher revenues and gross margin improvements drove the
increase, more than offsetting increased selling and administrative costs. The
improved gross margins, which contributed 80 basis points and 70 basis points
of growth to the second quarter and year-to-date consolidated gross margin
percentage, respectively, were primarily the result of improved year-over-year
hedge rates partially offset by reduced margins on closeouts sales, a higher
percentage of closeout sales and higher obsolescence reserves, most notably in
our Apparel business.
In the Asia Pacific Region, 3 and 4 percentage points of revenue growth
for the second quarter and first six months of fiscal 2005, respectively, were
due to changes in currency exchange rates. Excluding the benefit from changes
in currency exchange rates, sales in each Asia Pacific business unit
(footwear, apparel and equipment) grew for both the quarter and year-to-date
periods versus the same periods last year. Significant revenue increases in
China (driven by expansion of retail distribution and strong consumer demand)
and continued growth in Japan were key growth drivers for the quarter and
year-to-date periods partially offset by lower sales in Korea and Australia.
Pre-tax income for the Asia Pacific Region increased 14% versus the
second quarter of fiscal 2004 to $112.0 million, and increased 1% to $175.4
million in the fiscal 2005 year-to-date period. For the quarter, higher
revenues and gross margin improvements were partially offset by increased
selling and administrative costs, primarily due to additional demand creation
spending for the expansion of market coverage in China, and investments in
operating overhead due to the implementation of new supply chain systems in
the region. For the first six months of fiscal 2005, higher revenues and gross
margin improvements were mostly offset by increased selling and administrative
costs primarily due to additional demand creation spending (for the Athens
Olympics and expansion of market coverage in China), and investments in
operating overhead (due to the implementation of new supply chain systems in
the region). The higher gross margins, which contributed 10 basis points and
20 basis points of growth to the second quarter and year-to-date growth in the
consolidated gross margin percentage, respectively, were primarily
attributable to the benefit of better year-over-year hedge rates, partially
offset by lower profitability on both in-line and closeout products.
In the Americas Region, 1 percentage point of the revenue growth for the
second quarter was due to changes in currency exchange rates. For the first
six months of fiscal 2005, revenue growth included a 1 percentage point
decline due to changes in currency exchanges rates. Excluding the currency
effects, revenue growth for the quarter was driven by higher sales in South
America, Mexico and Canada. For the first six months of fiscal 2005, revenue
growth was driven by higher sales in South America and Mexico. Excluding the
currency exchange rate impact, sales in each Americas business unit grew for
both the quarter and year-to-date periods versus the same period last year.
In the second quarter of fiscal 2005, pre-tax income for the Americas
Region increased 43% from the prior year quarter, to $44.5 million. Year-to-
date fiscal 2005 pre-tax income increased 17% to $65.2 million. The increase
in pre-tax income for the second quarter was attributable to higher revenues
and an improved gross margin percentage partially offset by higher selling and
administrative costs, primarily due to increased operational overhead
spending. As investments in demand creation for the region was focused in the
first quarter, pre-tax profitability for the second quarter grew at a rate
significantly higher than that of the year-to-date period. For the year-to-
date period higher revenues were partially offset by higher selling and
administrative costs. The improved gross margin percentage contributed 10
basis points to the growth of the consolidated gross margin percentage for the
second quarter and did not have an impact on the year-to-date consolidated
gross margin percentage.
In the U.S. Region, the increase in US footwear revenue was due to an
increase in average selling price per pair accounting for 8 and 6 percentage
points of the U.S. footwear growth for the second quarter and first six months
of fiscal 2005, respectively, and an increase in unit sales of 1 and 5
percentage points for the second quarter and six-month periods, respectively.
The increase in average selling price per pair for the second quarter and
first six months of fiscal 2005 was primarily due to a larger percentage of
sales of performance products with a suggested retail price over $100.
The decrease in apparel sales for the second quarter was primarily driven
by decreases in licensed apparel primarily due to the expiration of our
license agreement with the NBA and a shift in consumer preference towards
branded apparel. This decrease was partially offset by growth in branded
apparel led by sport performance and women's products. For the year-to-date
period, growth in branded apparel more than offset the decreases in licensed
apparel. For the remainder of fiscal 2005, we expect licensed apparel to
continue to be below prior year levels due to the expiration of the agreement
with the NBA, but expect growth in revenue from branded apparel.
For the U.S. Region, futures orders scheduled for delivery from December
2004 through April 2005 increased 10% versus the same period of the prior
year. Futures orders increased due to both increased unit orders and average
selling price per unit for wholesale footwear and apparel. As discussed above,
these reported futures do not cover all components of our overall revenues,
such as U.S. licensed apparel (expected to decrease as noted above),
equipment, closeouts, at-once orders and retail sales. As a result, revenue
growth for the December through April period may not track precisely in line
with the reported futures growth.
For the second quarter, U.S. Region pre-tax income was $232.6 million, a
21% increase versus the second quarter of fiscal 2004. Pre-tax income for the
first six months of fiscal 2005 increased 14% to $554.5 million. For the
quarter, higher revenues, gross margin percentage improvements and lower
selling and administrative costs drove the increase. For the year-to-date
period, higher revenues and improved gross margin percentage were partially
offset by higher selling and administrative costs, primarily first quarter
demand creation spending around the summer's global sporting events. The
improved gross margins, which contributed 40 basis points and 30 basis of
growth to the consolidated gross margin percentage for the second quarter and
first six months of fiscal 2005, respectively, were primarily the result of
higher footwear in-line pricing margins, lower third-party royalties driven by
the expiration of the NBA license agreement and a lower level of closeout
sales as a percentage of total sales.
Other revenues and pre-tax income for the second quarter and first six
months of fiscal 2005 include results from Bauer NIKE Hockey, Inc., Cole Haan
Holdings Incorporated, Converse Inc., Hurley International LLC, NIKE Golf, and
Exeter Brands Group LLC. Exeter Brands Group LLC is a wholly owned subsidiary
of NIKE, Inc., formed in the first quarter of fiscal 2005 to develop the
Company's business in retail channels serving value-conscious consumers and
operate the business obtained in the acquisition of Official Starter
Properties LLC and Official Starter LLC (collectively "Official Starter"). For
the second quarter, the increase in Other revenues was primarily driven by
growth at Cole Haan. For the first six months, growth at both Cole Haan and
the acquisition of Converse at the beginning of the second quarter of fiscal
2004 drove the year-over-year increase.
Other pre-tax income improved to $20.8 million in the second quarter of
fiscal 2005 from $6.7 million in fiscal 2004 and improved to $61.1 million in
the year-to-date period from $2.4 million in the same period of last year.
For the second quarter, improved results from Converse, Cole Haan and the
addition of Exeter Brands drove most of the year-over-year improvement. The
addition of Converse in the second quarter of fiscal 2004, which contributed 7
percentage points to the year-to-date consolidated pre-tax income growth,
combined with improved results from most of the Other businesses to drive the
year-over-year improvement. Gross margin improvements in our Other businesses
contributed 20 basis points and 30 basis points of growth to the consolidated
gross margin percentage for the quarter and year-to-date periods,
respectively.
Liquidity and Capital Resources
Cash Flow Activity
Cash provided by operations was $755.5 million in the first six months of
fiscal 2005, compared to $773.0 million in the first six months of fiscal
2004. Our primary source of operating cash flow in the current period was net
income of $588.7 million compared to $440.3 million in the first six months of
last year, partially offset by a net increase in our investment in working
capital primarily driven by lower accounts payable and accrued liabilities.
Changes in accounts payable and accrued liabilities resulted in a use of cash
to the Company due to timing of vendor payments and inventory receipts
compared to a slight source of cash in the same period of the prior year. For
the first six months of fiscal 2005, lower accounts receivable provided cash
to the Company as we continue to improve management of accounts receivable,
although at a lower level than that realized in the first six months of fiscal
2004. See further discussion in our Annual Report on Form 10-K as of May 31,
2004.
In the current quarter, we purchased approximately 0.6 million shares of
NIKE's Class B common stock for $48.6 million, bringing purchases for the
first six months of fiscal 2005 and to date under the program to 2.8 million
shares for $203.7 million. The share repurchases were part of a $1.5 billion
share repurchase program that was approved by the Board of Directors in June
2004. 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.
Dividends declared per share of common stock in the second quarter of
fiscal 2005 were $0.25 per share, which reflected a $0.05 increase compared to
the previous quarterly dividend.
Capital Resources
The company maintains a $750 million multi-year revolving credit facility
with a group of banks. The maturity date is November 20, 2008 and the company
can seek to have the facility extended for one additional year on the
anniversary date. On the most recent anniversary date, the company elected not
to extend the facility for one additional year, effectively changing the term
to 4 years. All other terms and conditions are unchanged from those described
in our Annual Report on Form 10-K as of May 31, 2004. No amounts are currently
outstanding under the facility.
Our long-term senior unsecured debt ratings remain at A and A2 from
Standard and Poor's Corporation and Moody's Investor Services, respectively.
Liquidity is also provided by our commercial paper program, under which
there was no amount outstanding at November 30, 2004 or May 31, 2004. 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 and in our Annual Report
on Form 10-K as of May 31, 2004, will be sufficient to meet our operating and
capital needs in the foreseeable future.
Recently Issued Accounting Standards
In November 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 151, "Inventory Costs,
an amendment of ARB No. 43, Chapter 4" (FAS 151). FAS 151 clarifies that
abnormal inventory costs such as costs of idle facilities, excess freight and
handling costs, and wasted materials (spoilage) are required to be recognized
as current period charges. The provisions of SFAS No. 151 are effective for our
fiscal year beginning June 1, 2006. We are currently evaluating the provisions
of FAS 151 and do not expect that the adoption will have a material impact on
our consolidated financial position or results of operations.
On December 16, 2004, the FASB finalized SFAS No. 123R "Share Based
Payment," which will be effective for interim or annual reporting periods
beginning after June 15, 2005. The new standard will require us to expense
stock options and the FASB believes the use of a binomial lattice model for
option valuation is capable of more fully reflecting certain characteristics of
employee share options. We have begun a process to analyze how the utilization
of a binomial lattice model could impact the valuation of our options. The
effect of expensing stock options on our results of operations using the Black-
Scholes model is presented in the accompanying Notes to Unaudited Condensed
Consolidated Financial Statements (Note 6 - Stock-Based Compensation).
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, 2004.
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 Company's 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. 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 as of November 30, 2004.
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 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, 2004.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
The following table presents a summary of share repurchases made by NIKE
during the quarter ended November 30, 2004 under the four-year $1.5 billion
share repurchase program authorized by our Board of Directors and announced in
June 2004.
Total Number of Maximum Dollar Value
Shares Purchased as of Shares that May
Total Number Average Part of Publicly Yet Be Purchased
Of Shares Price Paid Announced Plans Under the Plans
Period Purchased Per Share or Programs or Programs
______ ____________ __________ ___________________ ____________________
(in millions)
September 1 - 30, 2004 411,100 $ 76.78 411,100 $ 1,313.3
October 1 - 31, 2004 215,200 $ 79.02 215,200 $ 1,296.3
November 1 - 30, 2004 --- --- --- $ 1,296.3
_________ _______ _________
Total 626,300 $ 77.55 626,300
========= ======= =========
Item 4.
Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on September 20,
2004. The shareholders elected for the ensuing year all of management's
nominees for the Board of Directors and ratified the appointment of
PricewaterhouseCoopers LLP as independent accountants for fiscal 2005.
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 75,768,261 -0- -0-
Ralph D. DeNunzio 75,768,261 -0- -0-
Delbert J. Hayes 75,768,261 -0- -0-
Douglas G. Houser 75,768,261 -0- -0-
Philip H. Knight 75,768,261 -0- -0-
John R. Thompson, Jr. 75,568,261 200,000 -0-
Elected by holders of
Class B Common Stock:
Jill K. Conway 162,549,581 3,088,759 -0-
Alan B. Graf, Jr. 160,814,388 4,823,952 -0-
Jeanne P. Jackson 157,094,082 8,544,258 -0-
Broker
For Against Abstain Non-Votes
Proposal 2 -
Ratify the appointment
of PricewaterhouseCoopers LLP
as independent accountants:
Class A and Class B
Common Stock Voting
Together 236,748,105 3,490,408 1,167,087 -0-
Item 6. 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 Current Report on Form 8-K
filed November 18, 2004).
4.1 Restated Articles of Incorporation, as amended (see Exhibit
3.1).
4.2 Third Restated Bylaws, as amended (see Exhibit 3.2).
10.1 NIKE, Inc. 1990 Stock Incentive Plan (incorporated by
reference from Exhibit to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended August
31, 2004).*
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.
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
/s/ Donald W. Blair
________________________
Donald W. Blair
Chief Financial Officer
DATED: December 22, 2004