SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FOR QUARTERLY REPORTS UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended February 28, 2002 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 February 28, 2002 were:
_______________
Class A 98,183,961
Class B 170,251,332
___________
268,435,293
===========
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
NIKE, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
February 28, May 31,
2002 2001
(unaudited)
________ _______
(in millions)
ASSETS
Current assets:
Cash and equivalents $ 349.6 $ 304.0
Accounts receivable 1,814.3 1,621.4
Inventories (Note 4) 1,432.6 1,424.1
Deferred income taxes 93.8 113.3
Prepaid expenses 260.4 162.5
________ ________
Total current assets 3,950.7 3,625.3
Property, plant and equipment 2,646.9 2,552.8
Less accumulated depreciation 1,059.8 934.0
________ ________
1,587.1 1,618.8
Identifiable intangible assets and goodwill 387.2 397.3
Deferred income taxes and other assets 320.0 178.2
________ ________
$6,245.0 $5,819.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 55.0 $ 5.4
Notes payable 477.8 855.3
Accounts payable 372.9 432.0
Accrued liabilities 670.9 472.1
Income taxes payable 57.5 21.9
________ ________
Total current liabilities 1,634.1 1,786.7
Long-term debt 615.2 435.9
Deferred income taxes and other liabilities 127.5 102.2
Commitments and contingencies (Note 6) -- --
Redeemable preferred stock 0.3 0.3
Shareholders' equity:
Common stock at stated value:
Class A convertible-98.2 and
99.1 shares outstanding 0.2 0.2
Class B-170.3 and 169.5 shares
outstanding 2.7 2.6
Capital in excess of stated value 504.8 459.4
Unearned stock compensation (6.6) (9.9)
Accumulated other comprehensive income (130.3) (152.1)
Retained earnings 3,497.1 3,194.3
________ ________
Total shareholders' equity 3,867.9 3,494.5
________ ________
$6,245.0 $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 Nine Months Ended
February 28, February 28,
(unaudited) (unaudited)
__________________ _________________
2002 2001 2002 2001
____ ____ ____ ____
(in millions, except per share data)
Revenues $2,260.3 $2,170.1 $7,210.8 $7,005.5
_________ _________ _________ _________
Costs and expenses:
Cost of sales 1,376.8 1,341.5 4,403.0 4,238.1
Selling and administrative 682.5 660.2 2,056.4 2,034.4
Interest expense 12.1 14.0 37.4 46.1
Other (income) expense, net (0.1) 6.2 11.8 19.7
_________ _________ _________ _________
2,071.3 2,021.9 6,508.6 6,338.3
_________ _________ _________ _________
Income before income taxes and cumulative
effect of accounting change 189.0 148.2 702.2 667.2
Income taxes 62.7 50.8 242.3 240.2
_________ __________ _________ _________
Income before cumulative effect of
accounting change 126.3 97.4 459.9 427.0
Cumulative effect of accounting change,
net of income taxes - - 5.0 -
_________ __________ _________ _________
Net income $ 126.3 $ 97.4 $ 454.9 $ 427.0
========= ========== ======== =========
Basic earnings per common share (Note 3):
Before accounting change 0.47 0.36 1.71 1.58
Cumulative effect of accounting change - - (0.02) -
_________ __________ ________ _________
$ 0.47 $ 0.36 $ 1.69 $ 1.58
========= ========== ======== =========
Diluted earnings per common share (Note 3):
Before accounting change 0.46 0.35 1.69 1.56
Cumulative effect of accounting change - - (0.02) -
_________ __________ ________ _________
$ 0.46 $ 0.35 $ 1.67 $ 1.56
========= ========= ======== =========
Dividends declared per common share $ 0.12 $ 0.12 $ 0.36 $ 0.36
========= ========= ======== =========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
February 28,
(unaudited)
_________________
2002 2001
____ ____
(in millions)
Cash provided (used) by operations:
Net income $ 454.9 $ 427.0
Income charges (credits) not
affecting cash:
Depreciation 164.0 144.6
Deferred income taxes (3.9) (1.3)
Amortization and other 46.5 22.4
Income tax benefit from exercise of
Stock options 11.3 29.5
Changes in other working capital
components (153.4) (264.7)
_______ _______
Cash provided by operations 519.4 357.5
_______ _______
Cash provided (used) by investing activities:
Additions to property, plant and
equipment (173.2) (227.5)
Disposals of property, plant and
equipment 11.8 7.7
Increase in other assets (59.4) (32.6)
Increase in other liabilities 6.5 6.5
_______ _______
Cash used by investing activities (214.3) (245.9)
_______ _______
Cash provided (used) by financing activities:
Proceeds from long-term debt issuance 328.0 -
Reductions in long-term debt
including current portion (78.9) (50.4)
Decrease in notes payable (377.5) (44.8)
Proceeds from exercise of options 32.5 24.4
Repurchase of stock (56.8) (39.0)
Dividends on common stock (96.6) (97.2)
_______ _______
Cash used by financing activities (249.3) (207.0)
_______ _______
Effect of exchange rate changes on cash (10.2) 27.0
Net increase (decrease) in cash and equivalents 45.6 (68.4)
Cash and equivalents, May 31, 2001 and 2000 304.0 254.3
________ _______
Cash and equivalents, February 28, 2002
and 2001 $ 349.6 $ 185.9
======= ========
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 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 nine (9) months ended February 28, 2002 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 - Comprehensive Income:
____________________
Comprehensive income, net of taxes, is as follows:
Three Months Ended Nine Months Ended
February 28, February 28,
(unaudited) (unaudited)
__________________ _________________
2002 2001 2002 2001
____ ____ ____ ____
(in millions)
Net Income $126.3 $ 97.4 $454.9 $427.0
Other Comprehensive Income:
Change in cumulative foreign currency
translation adjustment (35.8) 19.7 (42.5) (8.5)
Change in unrealized gain/loss
in securities - (1.5) - (3.8)
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 20.6 - 22.4 -
Reclassification to net income of
previously deferred net gains (5.1) - (14.9) -
_______ _______ _______ _______
Net change due to cash flow hedging
Instruments 15.5 - 60.9 -
_______ _______ _______ _______
Total Comprehensive Income $ 106.0 $ 115.6 $ 476.7 $414.7
======= ======= ======= =======
NOTE 3 - Earnings Per Common Share:
_________________________
The following represents a reconciliation from basic earnings per share
to diluted earnings per share. Options to purchase 4.5 million and 9.1
million shares of common stock were outstanding at February 28, 2002 and
February 28, 2001, respectively, but were not included in the computation of
diluted earnings per share because the options' exercise prices were greater
than the average market price of common shares and, therefore, the effect
would be antidilutive.
Three Months Ended Nine Months Ended
February 28, February 28,
(unaudited) (unaudited)
__________________ _________________
2002 2001 2002 2001
____ ____ ____ ____
(in millions, except per share data)
Determination of shares:
Average common shares
outstanding 268.4 270.9 268.3 270.2
Assumed conversion of
dilutive stock options
and awards 5.0 3.7 3.9 3.7
______ ______ ______ ______
Diluted average common
shares outstanding 273.4 274.6 272.2 273.9
====== ====== ====== ======
Basic earnings per common share:
Before cumulative effect of
accounting change 0.47 0.36 1.71 1.58
Cumulative effect of
accounting change - - (0.02) -
_______ _______ _______ _______
$ 0.47 $ 0.36 $ 1.69 $ 1.58
======= ======= ======= =======
Diluted earnings per common share:
Before cumulative effect of
accounting change 0.46 0.35 1.69 1.56
Cumulative effect of
accounting change - - (0.02) -
_______ _______ _______ _______
$ 0.46 $ 0.35 $ 1.67 $ 1.56
======= ======= ======= =======
NOTE 4 - Inventories:
___________
Inventories by major classification are as follows:
Feb. 28, May 31,
2002 2001
(unaudited)
________ ________
(in millions)
Finished goods $1,407.1 $1,399.4
Work-in-progress 17.0 15.1
Raw materials 8.5 9.6
________ ________
$1,432.6 $1,424.1
======== ========
NOTE 5 - 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 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 Nine Months Ended
February 28, February 28,
(unaudited) (unaudited)
__________________ _________________
2002 2001 2002 2001
____ ____ ____ ____
(in millions)
Net Revenue
USA $1,146.7 $1,088.7 $3,613.2 $3,571.6
EUROPE, MIDDLE EAST, AFRICA 606.2 609.9 1,948.1 1,897.5
ASIA PACIFIC 302.6 275.0 890.9 807.6
AMERICAS 112.0 109.4 426.4 407.1
OTHER 92.8 87.1 332.2 321.7
_________ _________ _________ ________
$2,260.3 $2,170.1 $7,210.8 $7,005.5
========= ========= ======== ========
Management Pre-Tax Income
USA $ 214.3 $ 181.5 $ 719.1 $ 673.5
EUROPE, MIDDLE EAST, AFRICA 111.2 86.3 302.1 287.9
ASIA PACIFIC 61.6 47.5 188.0 149.0
AMERICAS 13.2 4.5 68.1 59.3
OTHER (1.9) (4.0) 4.4 26.7
CORPORATE (209.4) (167.6) (579.5) (529.2)
_________ _________ __________ _________
$ 189.0 $ 148.2 $ 702.2 $ 667.2
========= ========= ========== ========
Feb. 28, May 31,
2002 2001
(unaudited)
_________ __________
Accounts Receivable, net
USA $ 841.9 $ 622.5
EUROPE, MIDDLE EAST, AFRICA 546.9 512.5
ASIA PACIFIC 165.9 194.8
AMERICAS 128.5 144.7
OTHER 107.5 118.6
CORPORATE 23.6 28.3
_________ _________
$1,814.3 $1,621.4
========= =========
Inventories, net
USA $ 694.4 $ 744.2
EUROPE, MIDDLE EAST, AFRICA 359.1 298.3
ASIA PACIFIC 162.0 125.8
AMERICAS 82.0 72.4
OTHER 123.7 156.4
CORPORATE 11.4 27.0
_________ _________
$1,432.6 $1,424.1
======== =========
Property, Plant and Equipment, net
USA $ 254.6 $ 263.5
EUROPE, MIDDLE EAST, AFRICA 197.7 208.2
ASIA PACIFIC 361.4 403.5
AMERICAS 12.9 15.4
OTHER 107.0 113.4
CORPORATE 653.5 614.8
_________ _________
$1,587.1 $1,618.8
========= =========
NOTE 6 - Commitments and Contingencies:
_____________________________
At February 28, 2002, the Company had letters of credit outstanding
totaling $748.9 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
Critical Accounting Policies
____________________________
Our discussion and analysis of our financial condition and results of
operations following 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 below 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, which would
result in materially different amounts being reported.
Revenue Recognition
___________________
We record wholesale revenues when title passes and the risks and rewards
of ownership have passed to the customer, based on the terms of sale. Retail
store revenues are recorded at the time of sale. For wholesale shipments,
title generally passes either upon shipment of goods from our warehouse or
upon receipt of goods by the customer, depending on the sales terms in effect
in each country in which we operate.
In some instances, we ship product directly from our supplier to the
customer. In these cases, we recognize revenue when the product is delivered
to the customer. Our revenues may fluctuate in cases when our customers delay
accepting shipment of product for periods up to several weeks.
In certain countries outside of the U.S., precise information regarding
the date of receipt by the customer is not readily available. In these cases,
we estimate the date of receipt by the customer based upon historical delivery
times by geographic location. On the basis of our tests of actual
transactions, we have no indication that these estimates have been materially
inaccurate historically.
As part of our revenue recognition policy, we record estimated sales
returns and miscellaneous claims from customers as reductions to revenues at
the time revenues are recorded. We base our estimates on historical rates of
product returns and claims, and specific identification of outstanding claims
and outstanding returns not yet received from customers. In the past, actual
returns and claims have not exceeded our reserves. However, actual returns
and claims in any future period are inherently uncertain and thus may differ
from our estimates. If actual or expected future returns and claims were
significantly greater than the reserves we had established, we would record a
reduction to net revenues in the period in which we made such determination.
Reserve for Uncollectible Accounts Receivable
_____________________________________________
We make ongoing estimates relating to the collectibility of our accounts
receivable and maintain a reserve for estimated losses resulting from the
inability of our customers to make required payments. In determining the
amount of the reserve, we consider our historical level of credit losses and
make judgments about the creditworthiness of significant customers based on
ongoing credit evaluations. Historically, losses from uncollectible accounts
have not exceeded our reserves. Since we cannot predict future changes in the
financial stability of our customers, actual future losses from uncollectible
accounts may differ from our estimates. If the financial condition of our
customers were to deteriorate, resulting in their inability to make payments,
a larger reserve might be required. In the event we determined that a smaller
or larger reserve was appropriate, we would record a credit or a charge to
selling and administrative expense in the period in which we made such a
determination.
Inventory Reserves
__________________
We also make ongoing estimates relating to the market value of
inventories, based upon our assumptions about future demand and market
conditions. If we estimate that the net realizable value of our inventory is
less than the cost of the inventory recorded on our books, we record a reserve
equal to the difference between the cost of the inventory and the estimated
market value. This reserve is recorded as a charge to cost of sales. If
changes in market conditions result in reductions in the estimated market
value of our inventory below our previous estimate, we would increase our
reserve in the period in which we made such a determination and record a
charge to cost of sales.
Contingent Payments under Endorsement Contracts
_______________________________________________
A significant portion of our demand creation (marketing and promotion)
expense relates to payments under endorsement contracts. In general,
endorsement payments are expensed uniformly over the term of the contract.
However, certain other contract elements may be accounted for differently,
based upon the facts and circumstances of each individual contact.
Certain contracts provide for contingent payments to endorsers based upon
specific achievements in their sports (e.g. winning a championship). We
record selling and administrative expense for these amounts when the endorser
achieves the specific goal.
Certain contracts provide for payments based upon endorsers maintaining a
level of performance in their sport over an extended period of time (e.g.
maintaining a top ranking in a sport for a year). These amounts are reported
in selling and administrative expense when we determine that it is probable
that the specified level of performance will be maintained throughout the
period. In these instances, to the extent that actual payments to the
endorser differ from our estimate due to changes in the endorser's athletic
performance, increased or decreased selling and administrative expense may be
reported in a future period.
Certain contracts provide for royalty payments to endorsers based upon a
predetermined percentage of sales of particular products. We expense these
payments in cost of sales as the related sales are made. In certain
contracts, we offer minimum guaranteed royalty payments. For contractual
obligations for which we estimate that we will not meet the minimum guaranteed
amount of royalty fees through sales of product, we record in selling and
administrative expense the minimum guaranteed payment amount uniformly over
the remaining royalty term.
Property, plant and equipment and other long-lived assets
_________________________________________________________
Property, plant and equipment, including buildings, equipment, and
computer hardware and software, is recorded at cost and is depreciated over
its estimated useful life. Changes in circumstances (such as technological
advances or changes to our business operations) can result in differences
between the actual and estimated useful lives. In those cases where we
determine that the useful life of a long-lived asset should be shortened, we
increase depreciation expense over the remaining useful life to depreciate the
asset's net book value to its salvage value.
Under current accounting standards, when circumstances indicate that the
carrying value of a long-lived asset may be impaired, we estimate the future
undiscounted cash flows to be derived from the asset to determine whether or
not a potential impairment exists. If the carrying value exceeds our estimate
of future undiscounted cash flows, we then calculate the impairment as the
excess of the carrying value of the asset over our estimate of its fair market
value. Any impairment charges are recorded as other expense. We estimate
future undiscounted cash flows using assumptions about our expected future
operating performance. Our estimates of undiscounted cash flows may differ
from actual cash flows due to, among other things, technological changes,
economic conditions, or changes to our business operations. We have
determined that the carrying value of our long-lived assets (including
property, plant, and equipment, goodwill, and other intangible assets) is not
impaired under current accounting standards. However, as of June 1, 2002, as
discussed following, we will adopt Statement of Financial Accounting Standard
No. 142, "Goodwill and Other Intangible Assets." Upon adoption, we expect to
record an impairment charge related to the goodwill and other intangible
assets of our subsidiaries Bauer NIKE Hockey, Inc. and Cole-Haan Holdings,
Inc.
Hedge Accounting for Derivatives
________________________________
We use forward exchange contracts and option contracts to hedge certain
anticipated foreign currency exchange transactions, as well as any resulting
receivable or payable balance. When specific criteria required by Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities," have been met, changes in fair values of
hedge contracts relating to anticipated transactions are recorded in other
comprehensive income rather than current earnings. One of these criteria is
that the forward exchange contract amount should not be in excess of
specifically identified anticipated transactions. By their very nature, our
estimates of anticipated transactions may fluctuate over time and may
ultimately vary from actual transactions. When anticipated transaction
estimates or actual transaction amounts decrease below hedged levels, or when
the timing of transactions changes significantly, we are required to
reclassify at least a portion of the cumulative changes in fair values of the
related hedge contracts from other comprehensive income to current earnings
during the quarter in which such changes occur. Once an anticipated
transaction estimate or actual transaction amount decreases below hedged
levels, we make adjustments to the related hedge contract in order to reduce
the amount of the hedge contract to that of the revised anticipated
transaction.
Taxes
_____
We record valuation allowances against our deferred tax assets, when
necessary, in accordance with Statement of Financial Accounting Standard No.
109, "Accounting for Income Taxes." Realization of deferred tax assets (such
as net operating loss carryforwards) is dependent on future taxable earnings
and is therefore uncertain. At least quarterly, we assess the likelihood that
our deferred tax asset balance will be recovered from future taxable income.
To the extent we believe that recovery is not likely, we establish a valuation
allowance against our deferred tax asset, increasing our income tax expense in
the period such determination is made.
In addition, we have not recorded U.S. federal income tax expense for
foreign earnings that we have indefinitely reinvested offshore, thus reducing
our overall income tax expense. The amount of earnings designated as
indefinitely reinvested offshore is based upon our estimate of the future cash
needs of our U.S. and foreign based entities. In the event actual cash needs
of our U.S.-based entities exceed our estimates, or the actual cash needs of
our foreign-based entities are less than our estimates, we might repatriate
these designated earnings to the U.S. Income tax expense would increase
during the period in which we determined that the earnings would no longer be
indefinitely reinvested offshore. When these earnings are actually
repatriated, they would be subject to U.S. taxation; at that time we would
record a current income tax liability.
On an interim basis, we estimate what our effective tax rate will be for
the full fiscal year and record a quarterly income tax provision in accordance
with the anticipated annual rate. As the fiscal year progresses, we
continually refine our estimate based upon actual events and earnings by
jurisdiction during the year. This continual estimation process periodically
results in a change to our expected effective tax rate for the fiscal year.
When this occurs, we adjust the income tax provision during the quarter in
which the change in estimate occurs so that the year-to-date provision equals
the expected annual rate.
Other Contingencies
___________________
In the ordinary course of business, we are involved in legal proceedings
involving contractual and employment relationships, product liability claims
trademark rights, and a variety of other matters. We record contingent
liabilities resulting from claims against us when it is probable that a
liability has been incurred and the amount of the loss is reasonably
estimable. We disclose contingent liabilities when there is a reasonable
possibility that the ultimate loss will exceed the recorded liability.
Estimating probable losses requires analysis of multiple factors, in some
cases including judgments about the potential actions of third party claimants
and courts. Therefore, actual losses in any future period are inherently
uncertain. Currently, we do not believe that any of our pending legal
proceedings or claims will have a material impact on our financial position or
results of operations. However, if actual or estimated probable future losses
exceed our recorded liability for such claims, we would record additional
charges as other expense during the period in which the actual loss or change
in estimate occurred.
Operating Results
_________________
Pretax income for the third quarter of fiscal 2002 increased 27.5% versus
the third quarter of fiscal 2001, driven by a 4.2% increase in revenues (from
$2,170.1 million to $2,260.3 million), a higher gross margin percentage, lower
selling and administrative expense as a percentage of revenues, lower interest
expense, and improved other income/expense. Net income for the third quarter
of fiscal 2002 increased 29.7% versus the third quarter of fiscal 2001 (from
$97.4 million to $126.3 million), a higher growth rate than pre-tax income due
to a 1.1 point reduction in our effective tax rate. Quarterly earnings per
share improved 31.4%, from $0.35 to $0.46, a slightly higher rate than net
income due to share repurchases over the past year.
Excluding a $5.0 million charge related to the cumulative effect of an
accounting change, net income for the first nine months of fiscal 2002
increased 7.7% versus the same period in fiscal 2001. The acceleration in net
income growth in the third quarter was primarily due to faster revenue growth
and a higher gross margin percentage than in the first half of the year, which
was adversely affected by weaker U.S. footwear sales and the uncertain
economic conditions following the terrorist attacks of September 11, 2001.
Consolidated revenues increased 4.2% for the third quarter. Had foreign
exchange rates remained constant, the increase in revenues for the quarter
would have been 6.3%.
The U.S. region contributed significantly to the consolidated revenue
growth, as revenues increased 5.3% versus the same quarter last year. The
U.S. growth reflected an increase in footwear revenues, which resulted from
greater market demand for in-line NIKE brand footwear products across a broad
array of categories and price points. The increase in in-line sales also
reflected a comparison to relatively low revenues during this same quarter
last year resulting from shipment delays and cancellations due to problems in
our implementation of new global demand and supply planning systems.
While in-line sales of U.S. footwear increased, close-out sales and
inventory levels were lower than the third quarter of fiscal 2001, when weaker
than expected sales and supply chain disruptions created higher levels of
close-out inventories.
U.S. apparel revenues increased 1.0% in the third quarter despite the
loss of revenue from the termination of our license agreement with the
National Football League as of May 31, 2001. In addition, this year we
shifted some third quarter revenues to the second quarter as some December
orders were shipped in November in advance of our supply chain system
implementation in the U.S.
In the U.S. equipment business, the introduction of NIKE brand golf clubs
drove the increase in revenues during the quarter.
Revenues from our international regions represented 45.2% of revenues in
the quarter and grew 2.7% as compared to the third quarter last year. In
constant dollars, these revenues grew 7.2%
After a recent history of solid growth, reported revenues in the Europe,
Middle East, and Africa (EMEA) region declined 0.6%, but increased 1.6% in
constant dollars. The EMEA footwear business grew slightly while the apparel
and equipment businesses declined slightly. Both footwear and apparel
revenues weakened in Southern Europe in the face of competition from fashion
brands entering the sportswear market, particularly in Italy. Third quarter
revenues were also affected by certain customers delaying acceptance of
shipments near the end of the quarter. We expect much of that product will be
shipped in the fourth quarter.
The Asia Pacific region reported increased revenues of 10.0% over the
prior year, which represented 19.4% growth in constant dollars. These results
reflected a continuing trend from the second quarter, as we again achieved
strong revenue growth in all business units, reflecting strong demand for NIKE
brand products despite uncertain economic conditions in the region.
Reported revenues for the Americas region increased 2.4%, an 8.2%
increase in constant dollars, despite a significant drop-off in sales in
Argentina. As a result of that country's ongoing economic crisis, we did not
ship product in Argentina during most of January and February; shipments have
since resumed to a very limited number of customers.
Consolidated revenues increased 2.9% 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 5.6%. The acceleration in revenue growth
in the third quarter was primarily due to faster revenue growth in the U.S.
region than in the first half of the year, which was adversely affected by
weaker footwear sales and a slow down in retail sales in the wake of the
terrorist attacks of September 11, 2001. The third quarter rebound in U.S.
region revenue growth was partially offset by slower revenue growth in the
EMEA and Americas regions.
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 Nine Months Ended
February 28, February 28,
___________________ _________________
% %
2002 2001 change 2002 2001 change
______ ______ _______ ______ ______ _______
(in millions)
U.S.A. REGION
FOOTWEAR $784.3 $734.3 7% $2,343.6 $2,374.3 -1%
APPAREL 281.7 278.9 1% 986.9 951.4 4%
EQUIPMENT AND OTHER 80.7 75.5 7% 282.7 245.9 15%
_______ _______ ________ ________
TOTAL U.S.A. 1,146.7 1,088.7 5% 3,613.2 3,571.6 1%
EMEA REGION
FOOTWEAR 340.3 334.8 2% 1,082.1 1,012.0 7%
APPAREL 227.9 235.0 -3% 732.6 749.7 -2%
EQUIPMENT AND OTHER 38.0 40.1 -5% 133.4 135.8 -2%
_______ _______ ________ ________
TOTAL EMEA 606.2 609.9 -1% 1,948.1 1,897.5 3%
ASIA PACIFIC REGION
FOOTWEAR 164.3 159.4 3% 495.8 464.7 7%
APPAREL 106.7 87.5 22% 307.7 268.1 15%
EQUIPMENT AND OTHER 31.6 28.1 12% 87.4 74.8 17%
_______ _______ ________ ________
TOTAL ASIA PACIFIC 302.6 275.0 10% 890.9 807.6 10%
AMERICAS REGION
FOOTWEAR 68.5 66.4 3% 267.7 268.7 0%
APPAREL 34.0 33.7 1% 129.3 115.9 12%
EQUIPMENT AND OTHER 9.5 9.3 2% 29.4 22.5 31%
_______ _______ ________ ________
TOTAL AMERICAS 112.0 109.4 2% 426.4 407.1 5%
_______ _______ ________ ________
TOTAL NIKE BRAND 2,167.5 2,083.0 4% 6,878.6 6,683.8 3%
OTHER 92.8 87.1 7% 332.2 321.7 3%
_______ _______ ________ ________
TOTAL REVENUES $2,260.3 $2,170.1 4% $7,210.8 $7,005.5 3%
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