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, 2001 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, 2001 were:
_______________
Class A 98,621,904
Class B 169,404,495
___________
268,026,399
===========
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
NIKE, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
November 30, May 31,
2001 2001
________ _______
(in millions)
ASSETS
Current assets:
Cash and equivalents $ 459.8 $ 304.0
Accounts receivable 1,659.9 1,621.4
Inventories (Note 5) 1,435.8 1,424.1
Deferred income taxes 100.9 113.3
Prepaid expenses and other current assets 242.5 162.5
________ ________
Total current assets 3,898.9 3,625.3
Property, plant and equipment 2,648.8 2,552.8
Less accumulated depreciation 1,021.8 934.0
________ ________
1,627.0 1,618.8
Identifiable intangible assets and goodwill 391.0 397.3
Deferred income taxes and other assets 275.8 178.2
________ ________
$6,192.7 $5,819.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 55.4 $ 5.4
Notes payable 543.6 855.3
Accounts payable 379.2 432.0
Accrued liabilities 625.5 472.1
Income taxes payable 73.6 21.9
________ ________
Total current liabilities 1,677.3 1,786.7
Long-term debt 624.0 435.9
Deferred income taxes and other liabilities 119.4 102.2
Commitments and contingencies (Note 7) -- --
Redeemable preferred stock 0.3 0.3
Shareholders' equity:
Common stock at stated value:
Class A convertible-98.6 and
99.1 shares outstanding 0.2 0.2
Class B-169.4 and 169.5 shares
outstanding 2.6 2.6
Capital in excess of stated value 472.2 459.4
Unearned stock compensation (8.2) (9.9)
Accumulated other comprehensive income (110.0) (152.1)
Retained earnings 3,414.9 3,194.3
________ ________
Total shareholders' equity 3,771.7 3,494.5
________ ________
$6,192.7 $5,819.6
======== ========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Six Months Ended
November 30, November 30,
__________________ _________________
2001 2000 2001 2000
____ ____ ____ ____
(in millions, except per share data)
Revenues $2,336.8 $2,198.7 $4,950.5 $4,835.5
_________ _________ _________ _________
Costs and expenses:
Cost of sales 1,441.4 1,327.3 3,026.2 2,896.6
Selling and administrative 677.7 673.1 1,374.0 1,374.2
Interest 12.3 16.7 25.2 32.1
Other (income) expense, net 6.5 (6.4) 12.0 13.6
_________ _________ _________ _________
2,137.9 2,010.7 4,437.4 4,316.5
_________ _________ _________ _________
Income before income taxes and cumulative
effect of accounting change 198.9 188.0 513.1 519.0
Income taxes 69.6 68.6 179.6 189.4
_________ __________ _________ _________
Income before cumulative effect of
accounting change 129.3 119.4 333.5 329.6
Cumulative effect of accounting change,
net of income taxes - - 5.0 -
_________ __________ _________ _________
Net income $ 129.3 $ 119.4 $ 328.5 $ 329.6
========= ========== ======== =========
Basic earnings per common share (Note 4):
Before accounting change 0.48 0.44 1.24 1.22
Cumulative effect of accounting change - - (0.02) -
_________ __________ ________ _________
$ 0.48 $ 0.44 $ 1.22 $ 1.22
========= ========== ======== =========
Diluted earnings per common share (Note 4):
Before accounting change 0.48 0.44 1.23 1.21
Cumulative effect of accounting change - - (0.02) -
_________ __________ ________ _________
$ 0.48 $ 0.44 $ 1.21 $ 1.21
========= ========= ======== =========
Dividends declared per common share $ 0.12 $ 0.12 $ 0.24 $ 0.24
========= ========= ======== =========
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,
_________________
2001 2000
____ ____
(in millions)
Cash provided (used) by operations:
Net income $ 328.5 $ 329.6
Income charges (credits) not
affecting cash:
Depreciation 107.0 92.5
Deferred income taxes (6.2) (2.0)
Amortization and other 32.7 14.8
Changes in other working capital
components (4.8) (128.9)
_______ _______
Cash provided by operations 457.2 306.0
_______ _______
Cash provided (used) by investing activities:
Additions to property, plant and
equipment (121.0) (151.3)
Disposals of property, plant and
equipment 7.4 6.0
Increase in other assets (6.1) (6.6)
Increase in other liabilities 3.6 6.4
_______ _______
Cash used by investing activities (116.1) (145.5)
_______ _______
Cash provided (used) by financing activities:
Proceeds from long-term debt issuance 249.3 0.1
Reductions in long-term debt
including current portion (3.4) (50.4)
Decrease in notes payable (311.7) -
Proceeds from exercise of options 10.9 14.9
Repurchase of stock (44.7) (39.0)
Dividends on common stock (64.4) (64.8)
_______ _______
Cash used by financing activities (164.0) (139.2)
_______ _______
Effect of exchange rate changes on cash (21.3) 49.9
Net increase in cash and equivalents 155.8 71.2
Cash and equivalents, May 31, 2001 and 2000 304.0 254.3
_______ _______
Cash and equivalents, November 30, 2001
and 2000 $ 459.8 $ 325.5
======= ========
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 periods. 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, 2001 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 2002 presentation. These changes had no impact on previously reported
results of operations or shareholders' equity.
NOTE 2 - Financial Risk Management and Derivatives:
_________________________________________
In addition to the financial risks discussed in Note 2 to our Condensed
Consolidated Financial Statements in our Form 10-Q for the period ended August
31, 2001, the Company is exposed to the risk of changes in the fair value of
certain fixed-rate debt attributable to changes in interest rates.
As discussed in the previous quarter, in August 2001 the Company issued a
$250 million corporate bond, maturing in August 2006, with a fixed interest
rate of 5.5%. In November 2001 the Company entered into interest rate swap
agreements totaling $250 million and maturing in August 2006, whereby the
Company receives fixed interest payments at 5.5% and pays variable interest
payments based on the London Inter Bank Offering Rate (LIBOR) plus a spread.
LIBOR for the swap agreements resets every three months, beginning in February
2002. At November 30, 2001, the interest rates on the swap agreements were
approximately 3.4%.
The interest rate swap agreements are designated as fair value hedges of
the $250 million corporate bond and meet the shortcut method requirements
under Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities". Accordingly, interest expense
on the corporate bond is recorded based on the variable rates paid under the
interest rate swap agreements, and changes in the fair values of the interest
rate swap agreements exactly offset changes in the fair value of the corporate
bond. The critical terms of the interest rate swap agreements exactly match
the critical terms of the corporate bond. Therefore, the swaps are perfectly
effective.
The fair values of the interest rate swap agreements are classified in
the Company's balance sheet at November 30, 2001 as other long-term
liabilities and totaled a $7.4 million unrealized loss. As noted above, this
unrealized loss is exactly offset by an unrealized gain of $7.4 million on the
corporate bond, which is classified as long-term debt.
NOTE 3 - Comprehensive Income:
____________________
Comprehensive income, net of taxes, is as follows:
Three Months Ended Six Months Ended
November 30, November 30,
__________________ _________________
2001 2000 2001 2000
____ ____ ____ ____
(in millions)
Net Income $129.3 $119.4 $328.5 $329.6
Other Comprehensive Income:
Change in cumulative foreign currency
translation adjustment (24.8) (15.5) (6.7) (28.2)
Change in unrealized gain/loss
in securities - 0.2 - (3.6)
Recognition in net income of previously
deferred unrealized loss on securities,
due to accounting change - - 3.4 -
Changes due to cash flow hedging
instruments:
Initial recognition of net deferred
gain as of June 1, due to accounting
change - - 53.4 -
Net deferred gain 38.1 - 1.8 -
Reclassification to net income of
previously deferred net gains (3.2) - (9.8) -
_______ _______ _______ _______
Net change due to cash flow hedging
Instruments 34.9 - 45.4 -
_______ _______ _______ _______
Total Comprehensive Income $139.4 $104.1 $370.6 $297.8
======= ======= ======= =======
NOTE 4 - Earnings Per Common Share:
_________________________
The following represents a reconciliation from basic earnings per share
to diluted earnings per share. Options to purchase 7.7 million and 9.7
million shares of common stock were outstanding at November 30, 2001 and
November 30, 2000, respectively, but were not included in the computation of
diluted earnings per share because the options' exercise prices were greater
than the average market price of common shares and, therefore, the effect
would be antidilutive.
Three Months Ended Six Months Ended
November 30, November 30,
__________________ _________________
2001 2000 2001 2000
____ ____ ____ ____
(in millions, except per share data)
Determination of shares:
Average common shares
outstanding 268.1 269.8 268.3 269.8
Assumed conversion of
dilutive stock options
and awards 3.5 3.4 3.3 3.7
______ ______ ______ ______
Diluted average common
shares outstanding 271.6 273.2 271.6 273.5
====== ======= ====== ======
Basic earnings per common share:
Before cumulative effect of
accounting change 0.48 0.44 1.24 1.22
Cumulative effect of
accounting change - - (0.02) -
_______ _______ _______ _______
$ 0.48 $ 0.44 $ 1.22 $ 1.22
======= ======= ======= =======
Diluted earnings per common share:
Before cumulative effect of
accounting change 0.48 0.44 1.23 1.21
Cumulative effect of
accounting change - - (0.02) -
_______ _______ _______ _______
$ 0.48 $ 0.44 $ 1.21 $ 1.21
======= ======= ======= =======
NOTE 5 - Inventories:
___________
Inventories by major classification are as follows:
Nov. 30, May 31,
2001 2001
________ ________
(in millions)
Finished goods $1,415.2 $1,399.4
Work-in-progress 12.6 15.1
Raw materials 8.0 9.6
________ ________
$1,435.8 $1,424.1
======== ========
NOTE 6 - Operating Segments:
__________________
The Company's major operating segments are defined by geographic regions
for subsidiaries participating in NIKE brand sales activity. "Other" as shown
below represents activity for Cole-Haan Holdings, Inc., Bauer NIKE
Hockey, Inc., and NIKE IHM, Inc., which are considered immaterial for
individual disclosure. Where applicable, "Corporate" represents items
necessary to reconcile to the consolidated financial statements, which
generally include corporate activity and corporate eliminations. The segments
are evidence of the structure of the Company'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 management pre-tax income. On a consolidated
basis, this amount represents Income before income taxes and cumulative effect
of accounting change as shown in the Condensed Consolidated Statement of
Income. Reconciling items for management pre-tax income represent corporate
costs that are not allocated to the operating segments for management
reporting and intercompany eliminations for specific income statement items.
Accounts receivable, inventory, and fixed assets for operating segments
are regularly reviewed and therefore provided:
Three Months Ended Six Months Ended
November 30, November 30,
__________________ _________________
2001 2000 2001 2000
____ ____ ____ ____
(in millions)
Net Revenue
USA $1,161.5 $1,131.1 $2,466.5 $2,483.0
EUROPE, MIDDLE EAST, AFRICA 582.9 512.1 1,341.9 1,287.6
ASIA PACIFIC 324.6 292.1 588.3 532.6
AMERICAS 154.3 147.6 314.4 297.7
OTHER 113.5 115.8 239.4 234.6
_________ _________ _________ ________
$2,336.8 $2,198.7 $4,950.5 $4,835.5
========= ========= ======== ========
Management Pre-Tax Income
USA $ 226.8 $ 206.1 $ 504.8 $ 491.9
EUROPE, MIDDLE EAST, AFRICA 55.0 60.6 190.9 201.6
ASIA PACIFIC 78.9 64.8 128.1 101.4
AMERICAS 27.9 30.0 54.8 54.8
OTHER (1.9) 13.7 6.2 30.7
CORPORATE (187.8) (187.2) (371.7) (361.4)
_________ _________ __________ ________
$ 198.9 $ 188.0 $ 513.1 $ 519.0
========= ========= ========== ========
Nov. 30, May 31,
2001 2001
_________ __________
Accounts Receivable, net
USA $ 663.5 $ 622.5
EUROPE, MIDDLE EAST, AFRICA 484.2 512.5
ASIA PACIFIC 177.7 194.8
AMERICAS 181.4 144.7
OTHER 128.2 118.6
CORPORATE 24.9 28.3
_________ _________
$1,659.9 $1,621.4
========= =========
Inventories, net
USA $ 731.2 $ 744.2
EUROPE, MIDDLE EAST, AFRICA 334.5 298.3
ASIA PACIFIC 140.4 125.8
AMERICAS 76.1 72.4
OTHER 133.8 156.4
CORPORATE 19.8 27.0
_________ _________
$1,435.8 $1,424.1
======== =========
Property, Plant and Equipment, net
USA $ 259.2 $ 263.5
EUROPE, MIDDLE EAST, AFRICA 203.7 208.2
ASIA PACIFIC 393.7 403.5
AMERICAS 14.7 15.4
OTHER 109.6 113.4
CORPORATE 646.1 614.8
_________ _________
$1,627.0 $1,618.8
========= =========
NOTE 7 - Commitments and Contingencies:
_____________________________
At November 30, 2001, the Company had letters of credit outstanding
totaling $883.7 million. These letters of credit were issued for the
purchase of inventory.
There have been no other significant subsequent developments
relating to the commitments and contingencies reported on the
Company's most recent Form 10-K.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Operating Results
_________________
Net income for the second quarter of fiscal 2002 was $129.3 million, an
8.3% increase compared to net income reported in the second quarter of fiscal
2001. The increase in net income for the quarter reflected a 5.8% increase in
pre-tax income. The increase in quarterly pre-tax income was driven by a 6.3%
increase in revenues, from $2,198.7 million to $2,336.8 million, as well as
lower selling and administrative expense as a percentage of revenues and lower
interest expense. A decrease in our gross margin percentage from 39.6% to
38.3% and higher other expense partially offset these improvements to pre-tax
income.
Quarterly net income improved at a higher rate than pre-tax income due to
a 1.5 point reduction in our effective tax rate. Quarterly earnings per share
improved 9.1%, from $0.44 to $0.48, a slightly higher rate than net income due
to share repurchases over the past year.
Year-to-date net income in fiscal 2002 (excluding a loss of $5.0 million
related to the cumulative effect of an accounting change) was $333.5 million,
an increase of 1.2% over the same period in fiscal 2001. Slower revenue
growth on a year-to-date basis drove year-to-date net income growth down as
compared to the growth in net income in the second quarter.
Consolidated revenues increased 6.3% for the quarter. Had foreign
exchange rates remained constant, the increase in revenues for the quarter
would have been 7.6%.
Most of our revenue growth occurred in our international regions, which
accounted for 45.4% of total company revenues in the second quarter of fiscal
2002, compared to 43.2% in the second quarter of fiscal 2001. Revenues from
our international regions reported in U.S. dollars increased 11.6%, a 14.6%
increase in constant dollars. In the Europe, Middle East, and Africa (EMEA)
region, quarterly reported revenues increased 13.8%, or 10.6% in constant
dollars. Strong growth in EMEA footwear revenues, which posted a 24.4%
increase in the quarter, drove the result. This increase was due to higher
prices and higher unit sales, as well as a higher-priced product mix as
compared to the second quarter of last year.
In the Asia Pacific region, quarterly reported revenues increased 11.2%
in the second quarter but 22.5% in constant dollars, reflecting significant
Asian currency weakness compared to the U.S. dollar year-over-year. We
achieved revenue growth in all business units in the region during the
quarter, reflecting increasingly strong demand for NIKE brand products.
In the Americas region, reported revenues were up 4.5% in the second
quarter, which represented 12.9% growth in constant dollars. Current
uncertain economic conditions in Argentina may negatively affect revenues in
this region during the remainder of the fiscal year, although we do not expect
that the negative effect will be significant to our consolidated operating
results.
Revenues in the U.S. region were up 2.5% in the second quarter of fiscal
2002. Growth in the U.S. apparel and equipment businesses drove the revenue
increase for the region. U.S. apparel revenues increased 9.9% in the second
quarter, as increased demand for NIKE brand apparel more than offset declines
in licensed apparel sales due to the expiration of our agreement with the
National Football League. Close-out sales of apparel increased during the
quarter due to our decision to manage apparel inventory levels more
aggressively, improving storage efficiency in our warehouses and minimizing
the amount of inventory converted into the new supply chain systems
implemented in December. U.S. equipment revenues grew 14.3% in the second
quarter, driven by growth in sales of golf products as well as bags, socks,
and sports accessories. In addition, a portion of the U.S. revenue increase
reflected early shipments of footwear, apparel, and equipment products prior
to our warehouse shutdown in November, due to the implementation of new U.S.
supply chain systems at the beginning of December.
U.S. NIKE brand footwear revenues decreased 2.2%, reflecting a slight
increase in in-line sales, offset by a drop in close-out sales. These results
represent an improvement over the last quarter, when U.S. footwear sales
decreased 7.0% as compared to the previous year.
Consolidated revenues increased 2.4% for the year-to-date period. Had
foreign exchange rates remained constant, the increase in revenues for the
year-to-date period would have been 5.1%. Year-to-date revenue growth was not
as strong as the second quarter revenue growth primarily due to the drop in
sales of U.S. footwear in the first quarter of this year compared to the first
quarter of last year.
The uncertain economic conditions following the terrorist attacks of
September 11, 2001 negatively affected U.S. NIKE brand revenues in the second
quarter, particularly at NIKE-owned retail stores and wholesale sales of
equipment. (Our apparel and footwear wholesale businesses were not affected
as severely because a large portion of their second quarter revenues derived
from orders placed several months in advance, prior to the September 11
attacks.) In addition, revenues from our Cole Haan business were also
negatively affected, most significantly at company-owned retail stores.
Although significant uncertainty continues to exist with respect to the future
prospects for the U.S. and world economies, we continue to expect earnings
growth for the full fiscal year.
The breakdown of revenues follows. "Other" as shown below includes
revenues from our subsidiaries Bauer NIKE Hockey, Inc. and Cole-Haan Holdings,
Inc.
Three Months Ended Six Months Ended
November 30, November 30,
___________________ _________________
% %
2001 2000 change 2001 2000 change
______ ______ _______ ______ ______ _______
(in millions)
U.S.A. REGION
FOOTWEAR $689.6 $705.0 -2% $1,559.3 $1,640.0 -5%
APPAREL 381.0 346.6 10% 705.2 672.5 5%
EQUIPMENT AND OTHER 90.9 79.5 14% 202.0 170.5 18%
_______ _______ ________ ________
TOTAL U.S.A. 1,161.5 1,131.1 3% 2,466.5 2,483.0 -1%
EMEA REGION
FOOTWEAR 315.2 253.3 24% 741.8 677.2 10%
APPAREL 228.9 218.0 5% 504.7 514.7 -2%
EQUIPMENT AND OTHER 38.8 40.8 -5% 95.4 95.7 0%
_______ _______ ________ ________
TOTAL EMEA 582.9 512.1 14% 1,341.9 1,287.6 4%
ASIA PACIFIC REGION
FOOTWEAR 164.4 153.3 7% 331.5 305.3 9%
APPAREL 131.0 115.9 13% 201.0 180.6 11%
EQUIPMENT AND OTHER 29.2 22.9 28% 55.8 46.7 19%
_______ _______ ________ ________
TOTAL ASIA PACIFIC 324.6 292.1 11% 588.3 532.6 10%
AMERICAS REGION
FOOTWEAR 100.1 100.8 -1% 199.2 202.3 -2%
APPAREL 45.6 40.0 14% 95.3 82.2 16%
EQUIPMENT AND OTHER 8.6 6.8 26% 19.9 13.2 51%
_______ _______ ________ ________
TOTAL AMERICAS 154.3 147.6 5% 314.4 297.7 6%
_______ _______ ________ ________
TOTAL NIKE BRAND 2,223.3 2,082.9 7% 4,711.1 4,600.9 2%
OTHER 113.5 115.8 -2% 239.4 234.6 2%
_______ _______ ________ ________
TOTAL REVENUES $2,336.8 $2,198.7 6% $4,950.5 $4,835.5 2%
======== ======== ======== ========