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, 2000 Commission file number - 1-10635
NIKE, Inc.
(Exact name of registrant as specified in its charter)
OREGON 93-0584541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Bowerman Drive, Beaverton, Oregon 97005-6453
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 671-6453
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days
Yes X No .
___ ___
Common Stock shares outstanding as of November 30, 2000 were:
_________________
Class A 99,198,499
Class B 170,456,096
-----------
269,654,595
===========
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
NIKE, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
Nov. 30, May 31,
2000 2000
________ _______
(in millions)
ASSETS
Current assets:
Cash and equivalents $ 325.5 $ 254.3
Accounts receivable 1,509.1 1,567.2
Inventories (Note 4) 1,373.6 1,446.0
Deferred income taxes 113.2 111.5
Income taxes receivable - 2.2
Prepaid expenses 183.3 215.2
________ ________
Total current assets 3,504.7 3,596.4
Property, plant and equipment 2,482.8 2,393.8
Less accumulated depreciation 873.0 810.4
________ ________
1,609.8 1,583.4
Identifiable intangible assets and goodwill 404.2 410.9
Deferred income taxes and other assets 258.8 266.2
________ ________
$5,777.5 $5,856.9
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $ 50.1
Notes payable 924.3 924.2
Accounts payable 335.5 543.8
Accrued liabilities 519.6 621.9
Income taxes payable 67.8 -
________ ________
Total current liabilities 1,847.2 2,140.0
Long-term debt 466.2 470.3
Deferred income taxes and other liabilities 112.4 110.3
Commitments and contingencies (Note 6) -- --
Redeemable preferred stock 0.3 0.3
Shareholders' equity:
Common stock at stated value:
Class A convertible-99.2 and
99.2 shares outstanding 0.2 0.2
Class B-170.5 and 170.4 shares
outstanding 2.6 2.6
Capital in excess of stated value 391.7 369.0
Unearned stock compensation (14.0) (11.7)
Accumulated other comprehensive income (142.9) (111.1)
Retained earnings 3,113.8 2,887.0
________ ________
3,351.4 3,136.0
________ ________
$5,777.5 $5,856.9
======== ========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<S> <C> <C> <C> <C>
Three Months Ended Year to Date Ending
November 30, November 30,
__________________ _________________
2000 1999 2000 1999
____ ____ ____ ____
(in millions, except per share data)
Revenues $2,198.7 $2,059.7 $4,835.5 $4,560.8
_________ _________ _________ _________
Costs and expenses:
Cost of sales 1,327.3 1,238.0 2,896.6 2,772.6
Selling and administrative 673.1 624.8 1,374.2 1,251.4
Interest 16.7 6.7 32.1 16.7
Other (income) expense (6.4) 16.8 13.6 23.7
_________ _________ _________ __________
2,010.7 1,886.3 4,316.5 4,064.4
_________ _________ _________ __________
Income before income taxes 188.0 173.4 519.0 496.4
Income taxes 68.6 65.9 189.4 188.6
_________ __________ _________ __________
Net income $ 119.4 $ 107.5 $ 329.6 $ 307.8
========= ========== ========= ==========
Basic earnings per common share $ 0.44 $ 0.39 $ 1.22 $ 1.10
(Note 3) ========= ========= ========= ==========
Diluted earnings per common share $ 0.44 $ 0.38 $ 1.21 $ 1.09
(Note 3) ========= ========= ========= ==========
Dividends declared per common share $ 0.12 $ 0.12 $ 0.24 $ 0.24
========= ========= ========= ==========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended
November 30,
_________________
2000 1999
____ ____
(in millions)
Cash provided (used) by operations:
Net income $ 329.6 $307.8
Income charges (credits) not
affecting cash:
Depreciation 92.5 91.0
Deferred income taxes (2.0) (0.8)
Amortization and other 14.8 20.4
Changes in other working capital
components (128.9) 147.7
_______ _______
Cash provided by operations 306.0 566.1
_______ _______
Cash provided (used) by investing activities:
Additions to property, plant and
equipment (151.3) (244.6)
Disposals of property, plant and
equipment 6.0 6.1
Increase in other assets (6.6) (13.8)
Increase in other liabilities 6.4 3.5
_______ _______
Cash used by investing activities (145.5) (248.8)
_______ _______
Cash provided (used) by financing activities:
Additions in long-term debt 0.1 0.1
Reductions in long-term debt
including current portion (50.4) (1.4)
Increase in notes payable - 149.8
Proceeds from exercise of options 14.9 27.2
Repurchase of stock (39.0) (371.1)
Dividends - common and preferred (64.8) (67.5)
_______ _______
Cash used by financing activities (139.2) (262.9)
_______ _______
Effect of exchange rate changes on cash 49.9 .5
Net increase in cash and equivalents 71.2 54.9
Cash and equivalents, May 31, 2000 and 1999 254.3 198.1
_______ _______
Cash and equivalents, November 30, 2000
and 1999 $ 325.5 $253.0
======= =======
Non-cash investing and financing activity:
Assumption of long-term debt to acquire
property, plant, and equipment $ - $108.9
======= =======
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of significant accounting policies:
___________________________________________
Basis of presentation:
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) which
are, in the opinion of management, necessary for a fair presentation of
the results of operations for the interim period(s). The interim financial
information and notes thereto should be read in conjunction with the
Company's latest annual report to shareholders. The results of operations
for the six (6) months ended November 30, 2000 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 2001 presentation. These changes had no impact on previously reported
results of operations or shareholders' equity.
NOTE 2 - Comprehensive Income:
__________________
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Comprehensive income, net of taxes, is as
follows:
Three Months Ended Six Months Ended
November 30, November 30,
__________________ _________________
2000 1999 2000 1999
____ ____ ____ ____
(in millions)
Net Income $119.4 $107.5 $329.6 $307.8
Change in Cumulative
Translation Adjustment (15.5) (4.0) (28.2) (15.5)
Change in Unrealized
Loss in Securities .2 - (3.6) -
_______ _______ _______ _______
Total Comprehensive Income $104.1 $103.5 $297.8 $292.3
======= ======= ======= =======
</TABLE>
NOTE 3 - Net income per common share:
___________________________
Basic and diluted earnings per share are calculated in accordance with
SFAS 128, "Earnings per Share." This standard requires that basic earnings
per share be calculated using the average common shares outstanding. Diluted
earnings per share are calculated by taking into consideration the dilutive
effect of issued and outstanding stock options. Options to purchase 9.7
million and 5.4 million shares of common stock were outstanding at November
30, 2000 and November 30, 1999, 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. The following represents a
reconciliation from basic earnings per share to diluted earnings per share:
Three Months Ended Six Months Ended
November 30, November 30,
__________________ _________________
2000 1999 2000 1999
____ ____ ____ ____
(in millions, except per share data)
Determination of shares:
Average common shares
outstanding 269.8 277.3 269.8 279.2
Assumed conversion of
dilutive stock options
and awards 3.4 3.9 3.7 4.2
______ ______ ______ ______
Diluted average common
shares outstanding 273.2 281.2 273.5 283.4
====== ====== ====== ======
Basic earnings per
common share $ 0.44 $ 0.39 $1.22 $1.10
====== ====== ====== ======
Diluted earnings per
common share $ 0.44 $ 0.38 $1.21 $1.09
====== ====== ====== ======
NOTE 4 - Inventories:
___________
Inventories by major classification are as follows:
Nov. 30, May 31,
2000 2000
________ ________
(in millions)
Finished goods $1,350.4 $1,416.6
Work-in-progress 12.8 17.3
Raw materials 10.4 12.1
________ ________
$1,373.6 $1,446.0
======== ========
NOTE 5 - Operating Segments:
The Company's major operating segments are defined by geographic regions
for subsidiaries participating in NIKE Brand sales activity. Other Brands as
shown below represent activity for Cole-Haan Holdings, Inc., Bauer NIKE
Hockey, Inc., and NIKE IHM, Inc. and are considered immaterial for individual
disclosure. In prior years, the Company's operations in Africa were included
in the Americas region, but effective June 1, 2000, these operations are
included in the EMEA (Europe, Middle East, and Africa) region. Africa
information and certain other prior year segment information has been
reclassified to conform with current year presentation. Where applicable,
"Corporate" represents items necessary to reconcile to the consolidated
financial statements which generally include corporate activity and corporate
eliminations. The segments are evidence of the structure of the enterprise's
internal organization. Each NIKE Brand geographic segment operates
predominantly in one industry: the design, production, marketing and selling
of sports and fitness footwear, apparel, and equipment.
Net revenues as shown below represent sales to external customers for
each segment. Intercompany revenues have been eliminated and are immaterial
for separate disclosure. The Company evaluates performance of individual
operating segments based on Contribution Profit before Corporate Allocations,
Interest Expense and Income Taxes. On a consolidated basis, this amount
represents Income Before Taxes less Interest Expense as shown in the
Consolidated Statement of Income. Other reconciling items for Contribution
Profit represent corporate costs that are not allocated to the operating
segments for management reporting and intercompany eliminations for specific
income statement items.
Accounts receivable, inventory, and fixed assets for operating segments
are regularly reviewed and therefore provided:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
November 30, November 30,
__________________ _________________
2000 1999 2000 1999
____ ____ ____ ____
Net Revenue
USA $1,131.1 $1,078.6 $2,483.0 $2,410.3
EMEA 512.1 500.4 1,287.6 1,231.0
ASIA PACIFIC 292.1 242.6 532.6 433.5
AMERICAS 147.6 129.4 297.7 260.2
OTHER BRANDS 115.8 108.7 234.6 225.8
_________ _________ _________ ________
$2,198.7 $2,059.7 $4,835.5 $4,560.8
========= ========= ======== ========
Contribution Profit
USA $ 208.6 $ 193.7 $ 497.2 $ 466.5
EMEA 70.2 66.0 219.9 217.5
ASIA PACIFIC 68.6 44.4 109.0 68.4
AMERICAS 32.2 20.5 59.1 41.3
OTHER BRANDS 15.3 19.9 34.0 39.9
CORPORATE (190.2) (164.4) (368.0) (320.5)
_________ _________ __________ ________
$ 204.7 $ 180.1 $ 551.2 $ 513.1
========= ========= ========== ========
Nov. 30, May 31,
2000 2000
_________ __________
Accounts Receivable, net
USA $ 556.9 $ 564.8
EMEA 473.8 529.9
ASIA PACIFIC 164.8 200.8
AMERICAS 156.1 123.0
OTHER BRANDS 129.8 121.0
CORPORATE 27.7 27.7
_________ _________
$1,509.1 $1,567.2
========= =========
Inventories, net
USA $ 692.0 $ 736.5
EMEA 312.7 357.4
ASIA PACIFIC 129.9 115.9
AMERICAS 65.9 65.5
OTHER BRANDS 143.5 141.4
CORPORATE 29.6 29.3
_________ _________
$1,373.6 $1,446.0
======== =========
Property, Plant and Equipment, net
USA $ 269.9 $ 271.6
EMEA 214.4 240.4
ASIA PACIFIC 431.4 426.4
AMERICAS 16.6 18.2
OTHER BRANDS 111.6 114.4
CORPORATE 565.9 512.4
_________ _________
$1,609.8 $1,583.4
========= =========
</TABLE>
NOTE 6 - Commitments and contingencies:
_____________________________
At November 30, 2000, the Company had letters of credit outstanding
totaling $804.4 million. These letters of credit were issued for the
purchase of inventory.
There have been no other significant subsequent developments
relating to the commitments and contingencies reported on the
Company's most recent Form 10-K.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Operating Results
_________________
Net income for the second quarter of fiscal year 2001 was $119.4 million,
an 11% increase over the $107.5 million reported in the second quarter of
fiscal year 2000. Fiscal year-to-date net income increased 7% to $329.6
million. The increase in net income for the second quarter was driven by a 7%
increase in revenues and by favorable other income/expense results. These
factors were partially offset by a 30 basis point reduction in gross margin
percentage, increased selling and administrative expenses and higher interest
expense. The 7% increase in year-to-date net income was driven by a 6% increase
in revenues, a 90 basis point improvement in gross margin percentage and
foreign exchange gains reported in other income/expense. These factors were
partially offset by increased selling and administrative expenses, and higher
interest expense. Diluted earnings per share increased 16% in the quarter and
11% year-to-date. Due to share repurchases, fewer shares were outstanding at
the end of the second quarter of fiscal 2001 than at the end of the year-ago
quarter. As a result, earnings per share grew faster than net income.
Had foreign currency exchange rates remained constant, increases in
revenues for the quarter and fiscal year-to-date of 7% and 6%, respectively,
would have been 12% and 10%, respectively. The lower real dollar increases
primarily reflected the impact of the continued strength of the U.S. dollar
against the euro.
Each geographic region achieved revenue growth in the quarter and in the
first half of the fiscal year. The U.S. region, which represents 54% of NIKE
brand revenues, grew 5% in the quarter and 3% year-to-date. For the quarter,
U.S. footwear revenues declined 2% while apparel revenues grew 13%. Year-to-
date, U.S. footwear revenues declined 1% while apparel revenues grew 5%. U.S.
equipment revenues grew 63% and 59%, respectively, for the second quarter and
year-to-date periods. Equipment revenues represented approximately 7% of U.S.
region revenues during these periods. Second quarter revenues in the U.S.
reflect footwear declines in the moderate price segments, but better
performance in the athletic specialty and urban accounts; apparel sales
recovery and growth, particularly in the team replica and women's apparel
business; and strong equipment sales growth driven by the increased popularity
of our golf balls, bags and socks.
International regions accounted for 46% of NIKE brand revenues in the
second quarter, up from 45% in the second quarter of the previous fiscal year.
Footwear, apparel and equipment revenues increased in all international
regions during the quarter and fiscal year-to-date. For the quarter, revenues
in the Europe, Middle East and Africa ("EMEA") region grew 2%, reflecting a 23%
increase in constant dollars partially offset by the effects of the weak euro.
Year-to-date, revenues in this region grew 5%, an increase of 21% in constant
dollars. These results reflected growth in the footwear, apparel and equipment
businesses, driven by the strength of our brand across the region. In the
Asia Pacific region, revenues grew 20% in the quarter, an increase of 22% in
constant dollars. Year-to-date, revenues in this region grew 23%, an increase
of 21% in constant dollars. These results reflected strong footwear, apparel
and equipment sales in most countries in the region. Revenue growth in Japan
was especially strong. In the Americas region, revenues grew 14% both in real
and constant dollars in the quarter. Year-to-date revenues in this region were
also 14% higher this year, 15% on a constant dollar basis. The strength of the
brand in Mexico and across the region, combined with the conversion benefits of
the 1999 of Brazil footwear sales from distributors to direct NIKE sales, drove
this revenue growth.
Compared to last year, other brands revenue (which includes Bauer NIKE
Hockey and Cole Haan) increased 7% for the quarter and 4% for the fiscal
year-to-date period.
The breakdown of revenues follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Year to Date Ending
November 30, November 30,
___________________ _________________
% %
2000 1999 change 2000 1999 change
______ ______ _______ ______ ______ _______
(in millions)
U.S.A. REGION
FOOTWEAR $705.0 $722.9 -2% $1,640.0 $1,663.9 -1%
APPAREL 346.6 307.0 13% 672.5 639.0 5%
EQUIPMENT AND OTHER 79.5 48.7 63% 170.5 107.4 59%
_______ _______ ________ ________
TOTAL U.S.A. 1,131.1 1,078.6 5% 2,483.0 2,410.3 3%
EMEA REGION
FOOTWEAR 253.3 246.2 3% 677.2 631.3 7%
APPAREL 218.0 215.2 1% 514.7 509.8 1%
EQUIPMENT AND OTHER 40.8 39.0 5% 95.7 89.9 6%
_______ _______ ________ ________
TOTAL EMEA 512.1 500.4 2% 1,287.6 1,231.0 5%
ASIA PACIFIC REGION
FOOTWEAR 153.3 130.9 17% 305.3 253.1 21%
APPAREL 115.9 96.0 21% 180.6 145.7 24%
EQUIPMENT AND OTHER 22.9 15.7 46% 46.7 34.7 35%
_______ _______ ________ ________
TOTAL ASIA PACIFIC 292.1 242.6 20% 532.6 433.5 23%
AMERICAS REGION
FOOTWEAR 100.8 89.9 12% 202.3 181.9 11%
APPAREL 40.0 36.5 10% 82.2 72.3 14%
EQUIPMENT AND OTHER 6.8 3.0 127% 13.2 6.0 120%
_______ _______ ________ ________
TOTAL AMERICAS 147.6 129.4 14% 297.7 260.2 14%
_______ _______ ________ ________
TOTAL NIKE BRAND 2,082.9 1,951.0 7% 4,600.9 4,335.0 6%
OTHER BRANDS 115.8 108.7 7% 234.6 225.8 4%
_______ _______ ________ ________
TOTAL REVENUES $2,198.7 $2,059.7 7% $4,835.5 $4,560.8 6%
======== ======== ======== ========
</TABLE>
The gross margin percentage for the second quarter was 39.6% compared to
39.9% in the second quarter of the previous fiscal year. The primary driver of
this reduction was foreign exchange rates. Our international revenues are
primarily denominated in foreign currencies whereas a substantial portion of
our product costs are denominated in U.S. dollars. We hedge most significant
foreign exchange exposures through foreign exchange contracts, but the entire
impact of foreign exchange rates, positive or negative, may not immediately
affect the prices we charge customers. For the second quarter, foreign exchange
rates adversely affected results in the EMEA region; however this was partially
offset by positive exchange rate effects in the Asia Pacific and Americas
regions.
On a global basis, footwear experienced gross margin percentage
reductions while apparel experienced improved gross margins in the quarter.
Equipment gross margins did not change significantly. Foreign exchange rates
were the most significant factor generating reductions in footwear gross
margins. Although some apparel is purchased locally and therefore not subject
to foreign currency fluctuations, apparel margins were still negatively
affected by changes in foreign exchange rates. However, fewer close-outs,
improved retail margins, and higher net pricing margins (largely the result
of a better product mix in EMEA) drove a net improvement in worldwide apparel
margins for the quarter.
The fiscal year-to-date gross margin percentage was 40.1%, compared to
39.2% for the same period in the previous fiscal year. This increase is
attributable to improvements in the U.S., Asia Pacific and America regions
offset by lower margins for the EMEA region. The effect of foreign exchange
rates was the most significant factor on regional gross margins for this
period. On a global basis, apparel gross margins improved while equipment
reported reduced gross margins. Footwear gross margins did not change
significantly. The factors leading to the improvements in apparel gross
margins for the fiscal year-to-date period were the same as described above.
The equipment gross margin percentage was adversely affected by higher close-
outs and lower net pricing margins.
Selling and administrative expenses increased for both the quarter and
fiscal year-to-date period compared to the prior year. For the quarter, these
expenses were up 8% to $673.1 million, and year-to-date they were up 10% to
$1,374.2 million. The increases, for both the quarter and the year-to-date
period, were driven primarily by incremental spending for marketing and
operational initiatives undertaken to achieve future revenue growth and
profitability. Marketing initiatives focused on the 2000 Summer Olympics, the
2000 European Soccer Championships, and soccer investments in the Americas
region, where we have increased our on-field presence through additional club
and individual player sponsorships. Operational initiatives included
continued expansion of new retail outlets; the development of e-commerce;
investments in systems and processes supporting our worldwide supply chain;
and expansion of NIKE distribution to territories formerly served by
independent distributors. Partially offsetting these increases was a
reduction in bad debt expense.
Second quarter interest expense increased by $10.0 million versus last
year, to $16.7 million. Fiscal year-to-date interest expense increased $15.4
million versus last year, to $32.1 million. The increases in current quarter
and year-to-date interest costs were due to higher average levels of debt in
the first half of fiscal 2001 versus the prior year. The Company increased
debt during the second half of fiscal 2000, primarily to fund capital
expenditures, repurchase stock, and finance inventory previously financed by
our trading partner, Nissho Iwai American Corporation. See the Liquidity and
Capital Resources discussion following for more information on debt balances.
Other income/expense for the quarter was net income of $6.4 million,
compared to net expense for the same quarter of last year of $16.8 million.
Year-to-date, other income/expense was net expense of $13.6 million, compared
to $23.7 million in the prior year. The improvement for both the quarter and
year-to-date is primarily attributable to gains from hedging intercompany
charges and net gains from the impact of foreign currency exchange rate
fluctuations on recorded assets and liabilities. These assets and liabilities
include amounts due to and from third parties, intercompany assets and
liabilities, and foreign exchange contracts. The hedging of intercompany
charges generally produces
gains in an environment where the U.S. dollar is strengthening, and losses in
an environment where the U.S. dollar is weakening, based on how and when the
intercompany charges are computed and ultimately paid. The effects of
fluctuations between the British pound and the euro, and between the euro and
the U.S. dollar, were the most significant.
Our tax rate for the quarter and year-to-date was 36.5%. This rate
compares to 38.0% for the quarter and year-to-date period in the prior year.
This decrease was primarily due to increased utilization of tax loss
carryforwards of certain foreign operations and lower taxes on a portion of
foreign earnings that have been permanently reinvested offshore.
Futures Orders
Worldwide futures and advance orders for NIKE brand athletic footwear
and apparel scheduled for delivery between December 2000 and April 2001
totaled $3.6 billion, 1% lower than the same period last year. On a constant
dollar basis, worldwide futures and advance orders for these same periods were
3% higher in the current year. These orders and the relative change in these
orders between years are not necessarily indicative of the change in revenues
that we will experience for subsequent periods. This is due to potential
shifts in the mix of advance orders in relation to at-once orders, and varying
cancellation rates. Foreign currency exchange rate fluctuations can also cause
differences in the comparisons.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the
European Union established permanent, fixed conversion rates between their
existing currencies and the European Union's new common currency, the euro.
During the transition period ending December 31, 2001, public and private
parties may pay for goods and services using either the euro or the
participating country's legacy currency. Beginning January 1, 2002, euro
denominated bills and coins will be issued; the legacy currencies will be
completely withdrawn from circulation on June 30, 2002.
We have had a dedicated project team working on the euro transition
strategy since January 1998. We have made modifications to information
technology systems supporting marketing, order management, purchasing,
invoicing, payroll, and cash management functions, in order to make them euro
compliant. All major systems have been converted and are euro compliant, well
ahead of the end of the transitional period.
We believe the introduction of the euro may create a move towards a
greater level of wholesale price harmonization, although differing country
costs and value added tax rates will continue to result in price differences
at the retail level. Over the past year and a half, we have been actively
working to assess and, where necessary, adjust pricing practices to operate
effectively in this new environment.
The costs of adapting our systems and practices to the implementation of
the euro were generally related to the modification of existing systems and
total approximately $8 million. These costs were expensed as incurred. NIKE
believes that the conversion to the euro will not have a material impact on
our financial condition or results of operations.
Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). In May 1999, the Financial
Accounting Standards Board delayed the required implementation date by one
year, extending our implementation date to June 1, 2001. In June 2000, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities--an Amendment of FASB Statement No. 133" (FAS 138). FAS
133, as amended, will require us to recognize all derivatives on the balance
sheet at fair value. We will record changes in the fair value of derivatives
in current earnings or other comprehensive income, depending on the intended
use of the derivative and any resulting designation. We will recognize the
ineffective portion of all hedges in current-period earnings. Management is
in the process of determining the complete effect that the adoption of FAS 133
will have on NIKE's results of operations and financial position. The
significance of the FAS 133 transition adjustment is contingent upon the fair
values of derivatives outstanding on adoption date and the impact the changes
in accounting will have on balances recorded as of the transition date.
Because this information is based on future market rates and both current and
future transactions, no determination of the materiality of the adjustment can
be made at this time.
Liquidity and Capital Resources
Our financial position remained strong at November 30, 2000. Compared to
May 31, 2000, shareholders' equity increased by 7% to $3.4 billion. Working
capital increased 14% to $1.7 billion and the current ratio was 1.90:1 at
November 30, 2000 compared to 1.68:1 at May 31, 2000. The increase in working
capital and the increase in current ratio resulted primarily from lower
current liabilities than at May 31, 2000.
Cash provided by operations for the six-month period ended November 30,
2000 was $306.0 million, which was a decrease of $260.1 million from the same
period last year, despite increased net income of $21.8 million in the current
period. The decrease in operating cash flow occurred due to variances in our
working capital. During the six-month period ended November 30, 2000 other
working capital components increased $128.9 million whereas in the six-month
period ended November 30, 1999 other working capital components decreased by
$147.7 million.
Total cash flows used by investing activities during the six month
period were $145.5 million. A significant portion of this total expenditure
was for computer equipment and software, driven by our supply chain
initiative; investments in new retail outlets; and the continued expansion of
our world headquarters.
Net cash flows used by financing activities for the six months ended
November 30, 2000 were $139.2 million. This amount included uses of cash for
stock repurchases, dividends to shareholders and payment of a maturing note
payable. This was partially offset by proceeds from employee stock option
exercises.
We believe that the significant cash flow generated by operations,
together with access to external sources of funds, will be adequate to meet
our anticipated capital needs. We maintain significant short and long-term
lines of credit with banks, which, along with cash on hand, provide adequate
operating liquidity. Liquidity is also provided by our commercial paper
program, under which there was $735.1 million outstanding at November 30,
2000. During the second quarter, we entered into a new $1.25 billion committed
credit facility with a group of banks: $750.0 million has a maturity of 364
days from the borrowing date and $500.0 million has a maturity of five years
from the borrowing date. To date, we have not borrowed against the facility.
Each year both facilities can be extended for an additional year. Our
long-term debt rating is now A2 and A by Moody's Investor Service and
Standard and Poor's Corporation, respectively.
In the second quarter of fiscal year 2001, we purchased a total of 0.9
million shares of NIKE's Class B common stock for $33 million. These purchases
were made under a four-year, $1 billion share repurchase program authorized by
our Board of Directors at the beginning the current fiscal year. Funding for
repurchases has, and is expected to continue to come primarily from operating
cash flow. The timing and the amount of shares purchased will be dictated by
working capital needs and stock market conditions.
Dividends per share of common stock for the second quarter of fiscal year
2001 remained at $0.12 per share, the same level as the previous year.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes to the disclosure made in the Annual
Report on Form 10-K for the fiscal year ended May 31, 2000 regarding this
matter.
Special Note Regarding Forward-Looking Statements
and Analyst Reports
Certain written and oral statements made or incorporated by reference
from time to time by NIKE or its representatives in this report, other
reports, filings with the Securities and Exchange Commission, press releases,
conferences, or otherwise, are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 ("the Act"). Forward-
looking statements include, without limitation, any statement that may predict,
forecast, indicate, or imply future results, performance, or achievements, and
may contain the words "believe," "anticipate," "expect," "estimate," "project,"
"will be," "will continue," "will result," or words or phrases of similar
meaning. Forward-looking statements involve risks and uncertainties which may
cause actual results to differ materially from the forward-looking statements.
The risks and uncertainties are detailed from time to time in reports filed
by NIKE with the S.E.C., including Forms 8-K, 10-Q, and 10-K, and include,
among others, the following: international, national and local general
economic and market conditions; the size and growth of the overall athletic
footwear, apparel, and equipment markets; intense competition among designers,
marketers, distributors and sellers of athletic footwear, apparel, and
equipment for consumers and endorsers; demographic changes; changes in
consumer preferences; popularity of particular designs, categories of
products, and sports; seasonal and geographic demand for NIKE products; the
size, timing and mix of purchases of NIKE's products; fluctuations and
difficulty in forecasting operating results, including, without limitation,
the fact that advance "futures" orders may not be indicative of future
revenues due to the changing mix of futures and at-once orders; the ability
of NIKE to sustain, manage or forecast its growth and inventories; new product
development and introduction; the ability to secure and protect trademarks,
patents, and other intellectual property; performance and reliability of
products; customer service; adverse publicity; the loss of significant
customers or suppliers; dependence on distributors; business disruptions;
increased costs of freight and transportation to meet delivery deadlines;
changes in business strategy or development plans; general risks associated
with doing business outside the United States, including, without limitation,
import duties, tariffs, quotas and political and economic instability; changes
in government regulations; liability and other claims asserted against NIKE;
the ability to attract and retain qualified personnel; and other factors
referenced or incorporated by reference in this report and other reports.
The risks included here are not exhaustive. Other sections of this
report may include additional factors which could adversely impact NIKE's
business and financial performance. Moreover, NIKE operates in a very
competitive and rapidly changing environment. New risk factors emerge from
time to time and it is not possible for management to predict all such risk
factors, nor can it assess the impact of all such risk factors on NIKE's
business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-
looking statements. Given these risks and uncertainties, investors should not
place undue reliance on forward-looking statements as a prediction of actual
results.
Investors should also be aware that while NIKE does, from time to time,
communicate with securities analysts, it is against NIKE's policy to disclose
to them any material non-public information or other confidential commercial
information. Accordingly, shareholders should not assume that NIKE agrees with
any statement or report issued by any analyst irrespective of the content of
the statement or report. Furthermore, NIKE has a policy against issuing or
confirming financial forecasts or projections issued by others. Thus, to the
extent that reports issued by securities analysts contain any projections,
forecasts or opinions, such reports are not the responsibility of NIKE.
Part II - Other Information
.
Item 1. Legal Proceedings:
There have been no material changes from the information previously
reported under Item 3 of the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 2000.
Item 6. Exhibits and Reports on Form 8-K:
(a) EXHIBITS:
3.1 Restated Articles of Incorporation, as amended (incorporated by
reference from Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended August 31, 1995).
3.2 Third Restated Bylaws, as amended (incorporated by reference
from Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 31, 1995).
4.1 Restated Articles of Incorporation, as amended (see Exhibit 3.1).
4.2 Third Restated Bylaws, as amended (see Exhibit 3.2).
4.3 Form of Indenture between the Company and The First National Bank
of Chicago, as Trustee (incorporated by reference from Exhibit
4.01 to Amendment No. 1 to Registration Statement No. 333-15953
filed by the Company on November 26, 1996).
10.1 Credit Agreement dated as of November 17, 2000 among NIKE, Inc.,
Bank of America, N.A., individually and as Agent, and the other banks
party thereto.
10.2 Form of non-employee director Stock Option Agreement.
10.3 Form of Indemnity Agreement entered into between the Company and
each of its officers and directors (incorporated by reference from
the Company's definitive proxy statement filed in connection with
its annual meeting of shareholders held on September 21, 1987).
10.4 NIKE, Inc. Restated Employee Incentive Compensation Plan
(incorporated by reference from Registration Statement No. 33-29262
on Form S-8 filed by the Company on June 16, 1989).*
10.5 NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference
from the Company's definitive proxy statement filed in connection
with its annual meeting of shareholders held on September 18, 2000).*
10.6 NIKE, Inc. Executive Performance Sharing Plan (incorporated
by reference from the Company's definitive proxy statement filed
in connection with its annual meeting of shareholders held on
September 18, 2000).*
10.7 NIKE, Inc. Long-Term Incentive Plan (incorporated by reference
from the Company's definitive proxy statement filed in connection
with its annual meeting of shareholders held on September 22, 1997).*
10.8 Collateral Assignment Split-Dollar Agreement between NIKE, Inc.
and Philip H. Knight dated March 10, 1994 (incorporated by
reference from Exhibit 10.7 to the Company's Annual Report on
Form 10-K for he fiscal year ended May 31, 1994).*
12.1 Computation of Ratio of Earnings to Charges.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fiscal quarter ending
November 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NIKE, Inc.
An Oregon Corporation
BY:/s/ Donald W. Blair
________________________
Donald W. Blair
Chief Financial Officer
DATED: January 16, 2001
