10-Q 1 0001.txt 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.
CONDENSED CONSOLIDATED STATEMENT OF INCOME 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 ========= ========= ========= ==========
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: __________________
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 ======= ======= ======= =======
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:
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 ========= =========
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:
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% ======== ======== ======== ========
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