An Independent
External Social Audit of
Nike, Inc.
By
Rich Eggett
Joshua Ford
Andy Taylor
Dennis Wright
February 15, 2005
Executive Summary
We find that Nike has made great efforts and found success in meeting the requirements of and
leading the industry in following principles of good corporate citizenship.
Introduction
To some, a person is not really competing, unless that person is using, wearing, hitting,
swinging, or kicking a Nike labeled item. Where once ‘the swoosh’ only graced the sides of
simple walking shoes, now the iconic emblem can be seen everywhere. The latest in a wide
array of sporting goods is the famed Nike One Black golf ball. This golf ball is quickly making
an impact on the PGA tour as much for its distance and playability, as for its marketing appeal.
Consumers love Nike. With sales revenues growing to $12 Billion for the fiscal year end 2004,
and market capitalization nearing $19 Billion, Nike possesses a strangle hold in the sporting
goods and apparel market.
As shown in Table 1, based solely on market share, Nike is the dominant player amongst its
competitors. Nike’s tradition of signing the top athletes and sporting organizations to
exclusively wear and use Nike products is one reason for this success.
Table 1
Selected Financial Data from US based Shoe Manufacturers*
Numbers in Millions, except per share data
Nike
Revenues
Gross Margin
Gross Margin %
Net Income
Cash Dividends
Basic EPS
$
$
Reebok
2004
2003
12,253 $
5,252 $
43%
946
0.74
3.59
10,697 $
4,383 $
41%
474
0.54
2.80
2004
3,785 $
1,498 $
40%
192
3.26
Saucony
2003
2004
3,485 $ 136 $
1,338 $
53 $
38%
39%
157
9
0.33
2.65
1.37
2003
K-Swiss
2004
2003
135 $ 484 $ 429
46 $ 221 $ 193
34%
46%
45%
5
71
50
0.34
0.85
2.04
1.41
* Note
Adidas-Soloman trades on the PNK index, and therefore is not beholden to GAAP
New Balance is a privately held company
ASICS, is traded on the Japanese Stock Market
Converse, Fila, and VANS are no longer traded on the stock exchange
Much of what Nike consumers now accept as common place was initially a conscious decision
by the management of Nike. The company has looked, and continues to look, for ways to
innovate and enter into new sporting arenas. Not only will a participant wear Nike shoes, but
wear Nike socks, shorts, shirts, hats, and wristwatches. The participant will swing a club, hit a
tennis ball, dunk a basketball, carry a bag, and drink from a water bottle, each emblazed with
‘the swoosh’. That swoosh is meant as symbol to everyone that you are not only competent in
your sport, but also an accomplished individual with good taste.
Our Mission
The mission statement on Nike’s website reads;
“To bring inspiration and innovation to every athlete in the world.” Elsewhere it
is noted, “If you have a body, then you are an athlete.”
- Bill Bowerman, co-founder of Nike
While today Nike may appear to be a healthy, respectable organization, this image had to be
earned. Beginning in about 1995, Nike became the poster child of a greedy capitalist businesses
exploiting cheap foreign labor to make a profit. By enduring a media onslaught and public
outcry, one could argue that Nike learned some important lessons in corporate social
responsibility.
The purpose of this document is to provide an independent external social audit of Nike, Inc. As
we assess each area of concern, we have looked internally to Nike’s own stated goals and
practices, externally to independent non-governmental organizations (NGO) and more generally
to public criticism.
Much has already been written about Nike’s involvement in the questionable overseas labor
environment. This audit will not go into great detail about the condition of Nike prior to 2001.
Rather we are assuming that Nike was caught red handed in some unfortunate circumstances in
the past and we will now evaluate whether or not Nike learned its lesson and is deserving of the
good corporate citizen label.
Nike presents a unique situation in that the areas of greatest potential for Nike to fall short in the
course of this social audit lie in its strategy of outsourcing production to low-cost/low-wage
offshore manufacturing. In this situation, Nike’s only direct control comes through the awarding
or canceling of contracts with these manufacturing firms. Nike does, however, bear the burden
of answering to governments, consumers, shareholders, and critics regarding the practices of its
chosen suppliers.
Ethical Business Behavior
First, we look at the current makeup of the board of directors and management’s compensation
package. Despite the fact that by virtue of his percentage of class A shares, Phil Knight (founder
and ex-CEO) can personally choose six of the nine people who sit on the board of directors, Nike
appears to follow modern practices in choosing an independent board. The Corporate
Governance Guidelines states that, “It is the policy of the Board that the Board be comprised of a
majority who qualify as independent directors under the listing standards of the New York Stock
Exchange.” Of the nine directors, only two of them were direct employees of Nike in the past.
Seven members of the board come from various industries such as investment banking, retail
trade and academia.
Executives in the company receive three types of pay. Base pay is comparable with other
executives in both the footwear and apparel industries. They get an Annual Incentive bonus
where executives receive a percentage of the target bonus depending on how the Company’s net
income before taxes measures up against a predetermined goal. Bonuses may exceed the target if
the Company’s performance exceeds the target. Finally the executives are awarded options of
class B stock that vest over a 4 year period of time which is designed to give them an incentive to
enhance the value of the company for the long run.
All direct employees are expected to uphold Nike’s Code of Ethics, which gives clear guidelines
as to how Nike employees are supposed to transact. The code deals with topics from Sexual
Harassment, vendor and supplier relations, safety, social responsibility and more. Subsequent
topics in this audit will examine the code in greater detail.
Assessment
While Phil Knight yields enough individual influence in the company to dramatically alter the
way business gets done, at present, Nike appears well organized with an independent board and
compensation programs that motivate management to do the right thing for the company in the
long run. If the code of ethics is followed and enforced, Nike has a solid groundwork in place
for good corporate social responsibility.
Stakeholder Commitment
A quick review of Nike’s press releases compared to the competition gives an insight into the
company’s feelings about disclosure. It seems Nike’s determination to beating the competition
in all aspects includes public disclosure. In 2004, Nike issued 88 press releases to the public
covering topics from earnings calls to marketing promotions. Reebok by comparison issued 19
in 2004. In 2003, Nike released 75 and Reebok 37 and 2002 Nike put out 75 compared to
Reebok’s 52.
In addition to getting the Nike name into the press by disclosing activities, it appears Nike is
striving to address the concerns of all stakeholders. The company website lists 35 separate
organizations that Nike is working with in the pursuit of viable solutions to the problems that
may arise in balancing business demands with the community, workers and factories, investors
and the environment. The scope of this audit does not attempt to establish the effectiveness of
each organization, but rather to point out that one of the after effects of the intense scrutiny that
Nike received last decade is a visible commitment to improving their organization and trying to
make life better for their stakeholders.
Community
Nike has committed 3 percent of pretax profits to community outreach programs. These
programs include sports facilities in China, leadership training for Native Americans, golf
training for underprivileged children, and sports programs in Holland. Nike also donates both
equipment and cash to a wide variety of group around the entire world (Nike Responsibility,
2004).
Nike also encourages employees to donate time and money. Nike accomplished this by matching
employee contributions dollar for dollar up to $5000, and by encouraging employees to
participate in groups like Habitat for Humanity, bike collections, and paying employees for time
spent doing these activities. In addition to their formal programs and the support provided to
employees who participate in charitable activities, Nike is increasing sales and image by helping
children exercise more often. This program, called NikeGO, supports Boys and Girls clubs
around the US to promote exercise and learning of new sports.
Finally, Nike is donating money to help women and girls around the world through educational
assistance and micro loans. The micro loan program provides over 5000 loans to women in
Vietnam, Indonesia, Thailand and Pakistan for entrepreneurial loans (Exhibit 1). Nike is also
supporting girl’s sports in refugee camps and thereby anticipates that this athletic success will
contribute to the girls gaining respect in educational settings.
Assessment
Critics Claim that the micro loan money is merely an inexpensive way to pretend community
involvement while taking the focus off struggling factories (Connor, 2001). We think, however,
that Nike is providing a beneficial service with these loans and should continue in their effort.
Nike is doing a great job in communities by sponsoring sports programs. This is an excellent
way to serve the community and boost sales at the same time. Although the focus on girls’
education by supporting soccer in refugee camps is, in our opinion only loosely related, the idea
that Nike is thinking about supporting education is a step in the right direction.
Consumers
Financial data shows that consumers are quite brand loyal to Nike as evidenced by their high
market share and growth. However the competition appears to have Nike beat in the product
quality category as measured by recent recalls. Since 1998, Nike had five voluntary recalls on
shoes and one recall on a water bottle. The shoes were recalled because of defective
construction resulting in injury to the wearer or in one case a paint that was used on children’s
shoes had too much lead and posed a health risk. Both Reebok and Adidas only had one shoe
related recall during the same period.
The Better Business bureau reports, “The company (Nike) responded to any complaints
processed by the Bureau in its three-year reporting period by addressing the disputed issues and
exhibiting a good faith effort to resolve the complaints satisfactorily. Complaints concern
product quality.”
The following exhibit shows Nike, Inc.’s US market share as of 2000
US Market Share: Sporting Footwear
Manufacturer
2000
1999
1. Nike
39.20%
48.90%
2. Adidas
3. Reebok
4. New Balance
5. K-Swiss
6. Timberland
7. Asics
8. Saucony
9. Skechers
10. And 1
15.10%
10.90%
9.40%
3.60%
2.90%
2.10%
1.40%
1.40%
1.20%
16.90%
10.90%
3.70%
3.10%
2.10%
1.50%
1.40%
0.9%
0.90%
- Adapted from WSJ Oct 2000
In a review of legal proceedings involving Nike Inc. on Lexis Nexis, we did not find any
consumer related law suits or filings of notable substance for the past few years with the
exception of Nike vs. Kasky which was a suit filed as a response to Nike’s press releases of four
years ago when the company was responding to criticism in the media about its overseas labor
operations. The suit claims that some of the statements could be interpreted as false advertising
under California Law. This case was recently reviewed by the US. Supreme court and basically
dismissed without ruling due to some technicalities in the California court system. Due to the
lack of decision from the US Supreme court, Nike settled with Kasky and is improving its
overseas operations.
Assessment
Of all the topics covered in this audit, the issue of product quality gets the worst review. Nike
has strong brand recognition and a loyal following of consumers, but this can disappear if the
product does not meet consumers’ expectations.
Employees (Labor)
Although rumors had been circulating about Nike’s abuse of third-world country workers since
before 1995, the issue came to a head when, on November 8, 1997, the New York Times ran an
article vilifying Nike as a labor-exploiting organization. The New York Times article detailed
how an independent auditor, Ernst & Young, found appalling labor conditions in a factory near
Ho Chi Minh City in Vietnam. Specifically, the report stated that factory workers had been
exposed to carcinogens that exceeded local legal standards by 177 times, 77% of employees
suffered from respiratory problems, and many people were forced to work 65 hours a week at a
wage of only $10.00 per week.
In response to the allegations, Philip H. Knight outlined measures that Nike would take to
improve the working conditions at the factories. These initiatives include:






All Nike shoe factories regardless of location will abide by the U.S. Occupational Safety
and Health Administration’s (OSHA) standards for indoor air quality.
The minimum age for Nike factory workers would be raised to 18 for footwear factories
and 16 for apparel factories.
Nike will include non-government organizations in its factory monitoring, with
summaries of that monitoring released to the public.
Nike will expand its worker education program, making free high school equivalency
courses available to all workers in Nike footwear factories.
Nike will expand its micro-enterprise loan program to benefit four thousand families in
Vietnam, Indonesia, Pakistan, and Thailand.
Funding university research and open forums on responsible business practices, including
programs at four universities in the 1998–99 academic year.
Nike also posted a press release restating some of these goals and specifying other goals of the
company on October 15, 1998 (Exhibit 1). Since that time, Nike has dedicated many dollars and
hours to reverse public perception. Some of these changes have improved factory conditions
dramatically, while others have only acted as a Band-Aid.
Critics note, however, that more must be done by Nike to improve factory working conditions.
Specifically Nike must first, raise wages, second, promote freedom of association (unions), and
third, improve working environments. According to one critic (Connor, 2002), during 2002 Nike
was still paying wages equal to $2.00 US per day and thereby forcing workers to either go into
debt to support a family or send the children to relatives. Moreover, workers were still afraid to
formally organize a union or even meet together for fear they would lose their jobs. Finally,
critics reported that workers continue to be yelled at and humiliated while working in unsafe
working conditions. Wages, unions, and factory environment are therefore key issues in the Nike
labor debate.
First, Wages at Nike are perhaps the most critical labor issue. Nike realized this in 1998 and
offered the following explanation in regards to paying low wages:
"Another huge issue is the question of a fair wage.
'Americans pay $100 for a pair of shoes that a worker gets
$3 a day to make,' says Kimberly Miyoshi of San
Francisco's Global Exchange. 'They pay Michael Jordan $40
million to endorse them. Can't they find more money to pay
the workers?' The short answer is no. Corporations pay the
going rate for labor wherever they are. And Nike maintains
that the rate is good. Research conducted by Dartmouth
College, for instance, found that Nike subcontractors in
Indonesia and Vietnam paid above subsistence levels,
allowing workers to save a portion of their earnings. TIME
found this to be true at Yueyuan." [Chinese Footwear
factory]
- TIME Magazine, March 30, 1998
The second point that critics raised was fear of meeting together to form unions. This is a
legitimate fear in an environment where hundreds, perhaps thousands of people are waiting to
take your job if you leave. There is no easy solution to this problem, especially when Nike is
only contracting with the factories to buy the shoes, and not managing the factories themselves.
The third point that critics bring up is factory conditions. The problems at the factories are
twofold: (1) workers are humiliated as discipline for policy violations as well as
underperformance, and (2), the environmental conditions of the factories are considered unsafe.
With over 1200 factories scattered around the world, Nike cannot feasibly assure that each
manager is being kind to the workers. However, according to the Fair Labor Association, Nike is
proactively training managers, which may reverse some of the humiliation problems.
Nike has worked hard to improve environmental conditions at factories by imposing
Occupational Safety and Health Administration (OSHA) standards on their factories. Nike has
also moved from petroleum-based adhesives to water-based adhesives and installed indoor air
quality testing in their factories (Exhibit 1).
The Fair Labor Association (FLA) is a multi-stakeholder association of Human Rights groups,
name brand companies (Nike, Eddie Bauer, Nordstrom, etc.), and universities, which conducts
independent monitoring and assessments to insure that items produced by stakeholders are
produced in accordance with FLA standards. In the 2004 annual report, FLA investigated two
major complaints in Nike factories. The first complaint came from a factory in Sri Lanka
regarding workers and managers about a membership affiliation to a labor union. The second
complaint came from a factory in the Dominican Republic, but no information was posted on the
FLA Website regarding this complaint or investigation.
The FLA report also documented and verified that Nike was working hard and making strides in
improving grievance reporting systems, and limiting hours and meeting minimum or industry
standard wages. Under the heading of capacity planning, Nike was training employees and
managers about labor law, reproductive health, personal finance, and safety. Grievance reporting
was improved as employees were given grievance boxes, company hotlines, and access to labor
union offices for consultations. Wages and hours were improved during 2004 as Nike back paid
employees for overtime worked in the past.
Assessment
Nike is a broker and marketing company, not a shoemaker. Nike contracts with factories outside
of the US to produce shoes and apparel and then they market those shoes around the world. We
ask the question, “Is Nike directly responsible for the actions of its suppliers?” In our opinion, no
they are not. However, Nike has the privilege of being in a position to help improve the lives of
many people through its supplier relationships. Moreover, if the general public views Nike as a
parasite sucking the lifeblood from poverty-stricken nations, then the brand image is destroyed,
and Nike’s profits suffer. The result of which would be an inability to help anybody.
Nike is contracting with factories in third-world countries to produce shoes inexpensively. While
critics argue that Nike should raise wages to help the workers live better lives, some critics fail to
see the implications of such actions. In many locations, Nike has long waiting lists of people who
would like to work at the factories, and if the benefits became better, the lists would increase. As
with most privileged jobs, this disparity could result in corruption, and getting a job at Nike
would require more political know-how than skill. Given the criticisms, and Nike’s position as a
profit seeking entity, we feel the best path is to pay the market rate for the required labor. Nike
has committed to do so.
Our assessment of labor at Nike is that wages and hours are still the biggest complaint by critics
of Nike. Although FLA is taking great steps to monitor and improve conditions at the Nike
factories, the fact is that they can only visit each factory once every 10 years. Nike will likely
continue to face criticism in the arena of wages because its business strategy includes seeking out
low-cost producers of its merchandise. While Nike can continue to monitor and improve working
conditions at its supplier’s factories, the problem will likely perpetuate with no viable solution
that will appease critics.
Investors
Nike’s investors should be very pleased. A dollar invested in the company when it went public
in 1987 would have outperformed the S&P 500 by 2400%. Nike currently has about 3 times the
market share of its nearest competitor (Adidas) and in December 2004, the stock hit an all time
high.
In 1998, Nike experienced a slip in their revenues and overall margins. Nike remained profitable,
but revenues stopped growing and even shrank back a bit. For the next several years, the stock
became much more volatile and appeared to stagnate in price. It took until 2001 for revenues to
return to their 1997 levels and have grown steadily since. Whether the slowdown from 1998 to
2001 can be attributed to the anti-sweatshop campaign or not is debatable, but even with the
setback in growth the company paid dividends and bought back shares in order to give a
competitive return to its investors compared to other companies in the industry. Table 2 shows a
comparison of Morningstar Stock Grades for Nike and its competitors.
Table 2
Shareholders seem pleased with the company as evidenced in a review of the annual proxy
statements from 1996 to 2004. The majority of the items brought for shareholder voting were
the normal election of board of directors and validation of the auditors. In the four instances
where shareholders made proposals for consideration in the annual elections, three of them
appeared to come from activist organizations that wanted changes in the monitoring of the
treatment of workers overseas. Two of the shareholders who proposed changes to overseas
monitoring and wage rates owned 100 shares of stock or less. The third was a religious nonprofit organization. The one shareholder proposal not related to controlling overseas suppliers
asked for a change in the eligibility requirements for the board of directors. In all cases,
management’s responses to these recommendations were detailed, thoughtful and consistent with
policies already in place.
The audit revealed an instance of a class action suits brought against the company. Certain
investors accused some of the company’s management of selling stock a couple months before
announcing that revenues were going to come in below estimates. When the earnings release
was announced, the stock lost 20% of its value in one day. In a press release dated 25 Oct. 2002
the company said, “Nike will pay $8.9 million in cash, which will be funded by the Company's
directors and officer’s liability insurance. In the agreement, Nike and the officers and directors
named in the lawsuits do not admit, and continue to deny, any and all allegations of wrongdoing,
and that they will receive a full release of all claims asserted in the litigation.”
Table 3 shows some key financial measures and ratios.
Table 3
Nike, Inc. Key Measures and Ratios
in millions
Net Income
Gross Margin
Profit Margin
Earnings Per Share
Revenue Growth
Free Cash Flow
Return on Assets
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
399.7 553.2 795.8 399.6 451.4 579.1 589.7 663.3
474 945.6
39.8% 39.6% 40.1% 36.5% 37.4% 39.9% 39.0% 39.3% 41.0% 42.9%
8.4% 8.5% 8.7% 4.2% 5.1% 6.4% 6.2% 6.7% 4.4%
7.7%
$ 1.36 $ 1.89 $ 2.68 $ 1.35 $ 1.57 $ 2.07 $ 2.16 $ 2.44 $ 1.77 $ 3.51
35.9% 42.0% 4.0% -8.1% 2.5% 5.5% 4.3% 8.1% 14.5%
100.8 113.6 -142.8
11.6 576.9
340 338.9 798.7 731.5 1300.5
12.7% 14.0% 14.8% 7.4% 8.6% 9.9% 10.1% 10.3% 7.1% 12.0%
Assessment
Nike appears to be open and straightforward with its investors. Back in 1996, before the crux of
the whole anti-sweatshop campaign hit the fan, Nike was already taking steps to improve the
situation and advising investors of their actions. Despite a one-time class action suit against a
controversial, but legal, management decision; Nike appears to openly disclose its operations,
community involvement and financial information.
Suppliers
As mentioned previously, Nike is a broker and a marketing firm. The Employees (Labor)
section describes much of the relations that Nike has with its suppliers. Some additional
information follows.
Nike’s Code of Ethics guides its relationship with its suppliers. The code of ethics states the
following in regards to suppliers:



“NIKE is committed to providing safe and healthy work environments and to being an
environmentally responsible corporate citizen. The NIKE standard is to comply with all
environmental, safety and health laws and regulations.”
“…suppliers are expected to observe the same standards of conduct as Nike employees when
conducting business with or for Nike.”
“NIKE is committed to socially responsible sourcing practices. We are driven to do not only
what is required by law, but also what is expected of a leader. We expect our business
partners to do the same. We do this through the NIKE Code of Conduct, which covers
contractors who manufacture NIKE product. This code calls for our partners’ management
practices to respect the rights of all employees, to minimize the impact on the environment,
provide a safe and healthy work place, and promote the health and well being of all
employees. As a member of the NIKE team, when presented the opportunity, you have a
responsibility to promote compliance with the NIKE Code of Conduct and to report any
instances of non-compliance, of which you become aware, to the Corporate Responsibility
Compliance Group.”
Assessment
Similar to the assessment we gave in the Employees (Labor) section, we find that while Nike is
not directly responsible for the actions of its suppliers, Nike does have a responsibility to
maintain relationships only with those suppliers who are following the guidelines represented in
the Nike Code of Conduct. Nike’s relationships with its suppliers are in general consistent with
the principles established in the Code of Conduct. Nike has demonstrated its willingness to drop
suppliers and/or work with suppliers to correct any violations of the Code.
Environmental Commitment
Response to growing concerns
In the mid 1990’s, Nike began a series of public campaigns to restore credibility to its image.
With reports of sweatshops and poor working conditions, coupled with mounting public pressure
calling for change, Nike began to architect an environment friendly to consumers, shareholders,
and employees
This systematic approach included a wide variety of outreach programs, created in partnerships
with third party, non-bias eco-friendly organizations, designed to instill confidence in consumer
spending as well as in public image. Nike is committed to its consumer base and to continued
pursuit of consumer confidence. To that end, Nike has undertaken a multi-front campaign to
instill this confidence. The following, taken from the Nike website, highlights environmental
goals the company has instituted and methods for attaining these goals.




Reduce emissions from Nike-owned facilities larger than 20,000 sq. ft. and from business
air travel by 13% below 1998 levels by the end of 2005, a partnership with World
Wildlife Federation (WWF)
o Determine baselines for emissions from contract manufacturing facilities
producing Nike-branded footwear and apparel (WWF)
Move toward making footwear this on 100% recyclable
o Developing synthetic and organic materials that are 100% retrievable for future
shoe use
Partner with Business for Social Responsibility (BSR) to come up with ideas and ways to
reduce waste and emissions as part of the logistical delivery of Nike products.
o Established a group with this aim in mind, with 12 other companies, to achieve
this goal
Removal of toxic chemicals from the production of shoes. PVC and other materials,
though widely used in the industry, have been linked to environmental concerns.
o Nike does not use any banned substances, but seeks, and will continue to develop
alternative substances from which to create Nike apparel.
o Additionally by 2010, every Nike cotton apparel garment made globally should
contain at least 5% organic cotton, partnering with Organic Trade Association
(OTA) and Sustainable Cotton Project (SCP)
An independent auditor: The Fair Labor Organization (FLO)
As a measure of confidence for investors and consumers, Nike has formed a partnership with an
independent organization to audit all phases of its activities. The relationship with the Fair Labor
Organization is intended to perform yearly audits of the organization including, but not limited
to, manufacturing, shipping, and workplace environments. The FLO, as its core focus,
independently audits any company by visiting hundreds its locations worldwide and presents its
findings for the benefit of consumers, shareholders, and any interested party.
Each year, the Fair Labor Organization posts its findings. In the past year, the FLO found just
two items of concern in regards to Nike. Nike moved directly to resolve those issues and FLO
has deemed those cases reasonably dealt with and closed. This partnership, and Nike’s
willingness to correct any wrongdoing sends a strong signal to investors and to the public, of
effective meaningful change
Summary
Through the course of this external and independent social audit of Nike, Inc., we find that Nike
meets the requirements of and leads the industry in following principles of good corporate
citizenship.
Financial Data
Income Statement
in millions
Revenue
COGS
Gross Profit
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
4,760.8 6,470.6 9,186.5 9,553.1 8,776.9 8,995.1 9,488.8 9,893.0 10,697.0 12,253.1
2,865.3 3,906.8 5,503.0 6,065.5 5,493.5 5,403.8 5,784.9 6,004.7 6,313.6 7,001.4
1,895.5 2,563.9 3,683.6 3,487.6 3,283.4 3,591.3 3,703.9 3,888.3 4,383.4 5,251.7
Operating Expenses
SG&A
R&D
Other
Operating Income
1,209.8 1,588.6 2,303.7 2,623.8 2,426.6 2,606.4 2,689.7 2,820.4
----------------11.7
36.7
32.3 150.8
66.6
20.7
34.1
3.0
674.1 938.6 1,347.6 713.0 790.2 964.2 980.1 1,064.9
3,137.6
--0.0
1,245.8
3,702.0
--0.0
1,549.7
-122.8
1,123.0
382.9
740.1
266.1
----474.0
-99.7
1,450.0
504.4
945.6
------945.6
2.8
1.8
265.0
3.5
3.5
263.0
Other Income and Expense
Net Int Inc & Other
Earnings Before Taxes
Income Taxes
Earnings After Taxes
Acctg Changes
Disc Operations
Ext Items
Net Income
-24.2
649.9
250.2
399.7
------399.7
-39.5
-52.3
899.1 1,295.2
345.9 499.4
553.2 795.8
------------553.2 795.8
-60.0
653.0
253.4
399.6
------399.6
-44.1
746.1
294.7
451.4
------451.4
-45.0
919.2
340.1
579.1
------579.1
-58.7
-47.6
921.4 1,017.3
331.7 349.0
589.7 668.3
--5.0
--------589.7 663.3
Diluted EPS, Cont Ops$
Diluted EPS$
Shares
1.4
1.4
294.0
1.9
1.9
293.0
1.4
1.4
288.0
1.6
1.6
285.0
2.1
2.1
276.0
2.2
2.2
269.0
Source: Morningstar
2.7
2.7
297.0
2.5
2.4
268.0
Balance Sheet
in millions
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004 Latest Qtr
216.1
262.1
445.4
108.6
198.1
254.3
304.0
575.5
634.0
828.0
1181.8
Short-Term Investments
Accts Rec
Inventory
Other Current Assets
----------------1053.2 1346.1 1754.1 1674.4 1540.1 1567.2 1621.4 1807.1
629.7 931.2 1338.6 1396.6 1199.3 1446.0 1424.1 1373.8
146.9 187.5 292.7 353.0 327.4 328.9 275.8 401.3
--2101.1
1514.9
429.9
400.8
2120.2
1633.6
529.4
476.2
2125.8
1692.4
574.5
Total Current Assets
Net PP&E
Intangibles
Other Long-Term Assets
2045.9 2726.9 3830.9 3532.6 3264.9 3596.4 3625.3 4157.7
554.9 643.5 922.4 1153.1 1265.8 1583.4 1618.8 1614.5
495.9 474.8 464.2 435.8 426.6 410.9 397.3 437.8
46.0 106.4 143.7 275.9 290.4 266.2 178.2 233.0
4679.9
1620.8
183.8
229.4
5512.0
1586.9
501.7
291.0
6050.7
1623.5
543.2
340.9
Total Assets
3142.8 3951.6 5361.2 5397.4 5247.7 5856.9 5819.6 6443.0
6713.9
7891.6
8558.3
Assets
Cash and Equiv
Liabilities and Stockholders' Equity
Accts Payable
Short-Term Debt
Taxes Payable
Accrued Liabilities
Other Short-Term Liabilities
Total Current Liabilities
297.7
429.0
455.0
452.4
687.1
555.4
584.6
481.8
373.2
420.1
543.8
974.3
432.0
860.7
504.4
480.5
572.7
281.1
763.8
152.6
650.7
150.9
35.6
79.3
53.9
28.9
0.0
---
21.9
83.0
107.2
118.2
180.8
345.2
480.4
570.5
608.5
653.6
621.9
472.1
768.3
1054.2
974.4
1020.8
0.0
---
0.0
---
0.0
0.0
---
0.0
---
0.0
---
1107.5 1467.1 1866.9 1703.8 1446.9 2140.0 1786.7 1836.2
2015.2
2009.0
2003.2
Long-Term Debt
10.6
9.6
296.0
379.4
386.1
470.3
435.9
625.9
551.6
682.4
699.0
Other Long-Term Liabilities
60.0
43.6
42.4
52.6
80.1
110.6
102.5
141.9
156.4
418.5
513.8
Total Liabilities
1178.1 1520.2 2205.4 2135.8 1913.1 2720.9 2325.1 2604.0
2723.2
3109.9
3216.0
Total Equity
1964.7 2431.4 3155.8 3261.6 3334.6 3136.0 3494.5 3839.0
3990.7
4781.7
5342.3
Total Liabilities & Equity
3142.8 3951.6 5361.2 5397.4 5247.7 5856.9 5819.6 6443.0
6713.9
7891.6
8558.3
Source: Morningstar
Statement of Cash Flows
in millions
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
399.7
90.2
---
553.2
132.4
---
795.8
168.3
---
399.6
233.5
-113.9
451.4
228.8
37.9
579.1
223.6
36.8
589.7
214.1
79.8
663.3
276.6
15.2
474.0
262.5
50.4
945.6
310.4
19.0
-235.0
254.9
-355.6
330.0
-641.0
323.1
-1.7
517.5
242.9
961.0
-79.6
759.9
-227.1 126.4
656.5 1081.5
130.5
917.4
239.4
1514.4
-154.1
-430.0
2.8
-581.4
-216.4
0.0
-13.6
-230.0
-465.9
0.0
-30.4
-496.3
-505.9
---89.1
-595.0
-384.1
---32.4
-416.5
-419.9
---20.1
-440.0
-317.6
---24.7
-342.3
-282.8
---20.0
-302.8
-185.9
---29.7
-215.6
-213.9
-289.1
-443.5
-946.5
Net Issuance of Stock
-136.8
2.4
26.3
-170.1
-245.4
-622.4
-101.0
-167.4
-152.1
-166.2
Net Issuance of Debt
Dividends
Other
-36.8
-65.4
263.9
-25.3
-78.8
48.0
388.2
-100.9
0.0
99.0
-127.3
-73.0
-1.5
-136.2
-61.0
-1.7
-133.1
505.1
-50.3
-129.7
-68.9
249.6
-128.9
-431.5
34.5
-137.8
-349.8
-52.8
-179.2
-0.3
24.9
-1.1
-302.8
-53.8
-0.2
46.1
313.6
-0.2
183.3
-271.4
12.1
-336.8
-444.1
-10.9
89.5
-252.1
-11.6
56.2
-349.9
85.4
49.7
-478.2
-29.0
271.5
-605.2
-38.1
58.5
-398.5
24.6
194.0
254.9
-154.1
100.8
330.0
-216.4
113.6
323.1
-465.9
-142.8
517.5
-505.9
11.6
961.0
-384.1
576.9
759.9
-419.9
340.0
656.5 1081.5
-317.6 -282.8
338.9 798.7
917.4
-185.9
731.5
1514.4
-213.9
1300.5
Cash Flows From Operating
Activities
Net Income
Depr & Amort
Deferred Taxes
Other
Cash from Operations
Cash Flows From Investing
Activities
Cap Ex
Purchase of Business
Other
Cash from Investing
Cash Flows From Financing
Activities
Cash from Financing
Currency Adj
Change in Cash
Free Cash Flow
Cash from Operations
Cap Ex
Free Cash Flow
Revenue Trends
Nike Inc.
Revenue Trends
14,000
12,253
12,000
10,697
$ Millions
10,000
9,553
9,187
9,489
9,893
8,995
8,777
8,000
6,471
6,000
5,252
4,761
4,383
3,684
4,000
3,591
3,704
3,888
964
980
1065
1246
790
1999
2000
2001
2002
2003
3,488
3,283
713
1998
2,564
1,896
2,000
1348
939
674
1550
0
1997
1996
1995
Operating Income
Gross Profit
Revenue
2004
Historical Stock Price
Nike Inc.
Millions
Historical Stock Price
50
100
90
40
80
60
Volume
30
50
20
40
30
10
20
10
Volume
Closing Price
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
0
1987
0
Stock Price
70
Growth of Nike, Inc. vs. S&P 500
Growth of Nike Inc. vs. S&P 500
100
10
Value of $1 (S&P 500)
Value of $1 (Nike)
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1
Exhibits
Exhibit 1
Press Release Statement by Nike Regarding Its Global Manufacturing Practices – October 15, 1998
Nike shares a common concern for the people who work in its factories and is dedicated to continually improving their
working conditions and lives.
Nike recognizes its responsibility to address the spectrum of labor and development issues brought about by the
globalization of its manufacturing, economic trends and public concerns.
The company urges all of those who are concerned about this issue to judge Nike by its actions not by the charges of some
of its critics, which are at best examples of long-resolved problems.
On May 12th of this year, Nike CEO Philip H. Knight announced a series of new initiatives to further improve factory working
conditions and provide increased opportunities for people who manufacture Nike products. We have made substantial progress
on each of these initiatives.
Wages
Nike values the people who work in its factories and compensates them competitively. Average Nike wages are consistently
higher than the minimum wage requirements set by foreign governments. In addition, Nike factory partners make wage
adjustments based on extraordinary events, such as the current economic crisis in Indonesia where footwear factories recently
raised wages by 15 percent.
It is important to note, however, that wages are just one element of a factory employee's compensation. The company also
has programs in place to provide supplemental education and other advancement opportunities for the more than 500,000
people who manufacture Nike products.
Minimum Age
We immediately increased our minimum age requirements to 18 in our footwear factories and 16 for all other lightmanufacturing facilities.
Environmental Standards
We committed to achieving U.S. Occupational Safety and Health Administration (OSHA) indoor air quality standards for all
Asian footwear factories by year -end. We have completed indoor air quality testing in all but two of our factories, and we are on
target to meet this important commitment. In addition, 95 out of 100 Nike shoes are being manufactured using water-based
adhesives that replace the potentially hazardous petroleum-based solutions that are commonly used in the production of athletic
shoes.
Independent Monitoring
We are in active discussions with several NGO's and international foundations in an effort to create an exciting new model
that combines monitoring, employee assessment and community development efforts. We hope to be able to announce this
ground-breaking process by year end.
Worker Education Program
To date, roughly one-quarter of our footwear factory base, or 12 factories in four countries (China, Thailand, Vietnam and
Indonesia), have begun a supplemental worker educational program. By 2002, we will only order from footwear factories that
offer some form of after-hours education to qualified workers.
Microloans
We are on target to provide 5,000 microloans to women in and around our factories in Vietnam, Indonesia, Thailand and
Pakistan in order to help them create small businesses.
Open Forums
Finally, we are actively funding university research and open forums to explore and respond to issues related to global
manufacturing and responsible business practices. We will be holding our first forum in Bangkok in November on the topic of air
quality.
Despite this progress, changing public perceptions around this issue will not be easy or quick. We believe we are making
good progress and will continue to do so as we fully implement each of the initiatives outlined above.
References
2004 Proxy Statement, when accessed on February 9, 2005
http://www.nike.com/nikebiz/invest/reports/ar_04/2004_proxy.pdf
NIKE, Inc. Corporate Governance Guidelines, when accessed on February 9, 2005
http://www.nike.com/nikebiz/nikebiz.jhtml?page=7&item=guidelines
Nike Code of Conduct, 2004, html when accessed on February 7, 2005:
http://www.nike.com/nikebiz/invest/cg/img/codeofethics.pdf
Press releases for Nike can be viewed at http://www.nike.com/nikebiz/nikebiz.jhtml?page=11
and for Reebok at http://www.reebok.com/useng/ir/press/2005/default.htm
The list of organizations that Nike is involved with in helping find value-added solutions for its
stakeholders can be accessed at http://www.nike.com/nikebiz/nikebiz.jhtml?page=55
Connor, Timothy. “We are not machines,” 2002 published by the Clean Cloths Campaign
Connor, Timothy. “Still Waiting for Nike to Do It,” 2001, Published by Global Exchange ISBN
0-9711443-0-3
Fair Labor Tracking Chart for Nike Vietnam, 2004, html when accessed on February 7, 2005:
http://www.fairlabor.org/all/transparency/charts_2003/07008434_Nike_Vietnam.pdf
Fair Labor – Nike Company Information, 2004, html when accessed on February 7, 2005:
http://www.fairlabor.org/2004report/companies/participating/companyProfile_nike.html
Fair Labor – Nike Compliance Program, 2004, html when accessed on February 7, 2005:
http://www.fairlabor.org/2004report/companies/participating/complianceProgram_nike.html
Fair Labor – Nike Factory Data, 2004, html when accessed on February 7, 2005:
http://www.fairlabor.org/2004report/companies/participating/factoryData_nike.html
Product recall information is available at http://www.recalls.gov
Better Business Bureau: http://www.thebbb.org/commonreport.html?bid=53000149
Nike Responsibility, 2004, html when accessed on February 11, 2005:
http://www.nike.com/nikebiz/gc/r/pdf/Community_Invest_9-26.pdf
See Proxy Statements from Aug 12, 1996, Sep. 28, 1998, and Aug 10, 2001. Form DEF 14A on
file at http://www.sec.gov