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Document 49 of 320.

Copyright 1998 Information Access Company,
a Thomson Corporation Company;
ASAP
Copyright 1998 Capital Cities Media Inc.
WWD

August 17, 1998

SECTION: No. 163, Vol. 175; Pg. 2; ISSN: 0149-5380

IAC-ACC-NO: 21095750

LENGTH: 955 words

HEADLINE: NIKE'S KNIGHT SEES 2-YEAR WAIT FOR ASIA'S RESOLUTION OF CRISIS; Company Profile

BYLINE: Feitelberg, Rosemary

BODY:
NEW YORK -- The Asian economic crisis -- a major drag on Nike's sagging performance -- should turn around in two years, according to Philip H. Knight, chairman and chief executive officer of Nike.

Knight makes that forecast in his letter to shareholders in the firm's just-issued annual report. Meanwhile, the firm's proxy statement shows that the harsh results took a toll on Knight's compensation last year, eliminating his bonus, which in the prior year came to over $ 1 million.

Discussing the Asian situation, Knight said Asia "is the area we were looking to for our strongest growth over the next couple years. "We will not get over $ 2.68 per share [Nike's earnings in the year ended May 31, 1997] until Asia comes back for us. To come back does not mean Asia has to be booming again, but it does mean we need to see the bottom of the slide, so that retailers are again confident enough to order several months in advance."

Asia "remains a big part of our future," he continued. "This is one of the things that is keeping operating expenses at an abnormally high percentage of sales in the region. Still it is a great long-run play. But, how long is long? Well, I'm confident I will personally predict the exact date of the Asia turnaround. It's just a matter of how many predictions that will take.

"For now, I believe we'll see the changes we need in two years, not five," Knight said.

On the past year overall, Knight says it "produced considerable pain." As reported, net income in the year ended May 31 fell 49.8 percent to $ 399.6 million, including a $ 129.9 million restructuring charge, as sales rose 4 percent to $ 9.55 billion.

In the year, Nike laid off 1,600 people, "an agony felt at every corner of the company," he said.

In addition to the Asian financial crisis and layoffs, he cited the competition from "brown shoes," labor practices, resignations and "boring ads" as factors that knocked the company down.

As for Knight's compensation last year, the total dropped some 40 percent to $ 1.68 million from $ 2.81 million, primarily reflecting the lack of a bonus. In the most recent year, Knight received $ 1.1 million in salary and $ 574,802 in other compensation, the bulk of it $ 500,000 toward the premium for life insurance. A year earlier, Knight received salary of $ 1.03 million, a bonus of $ 1.08 million and other compensation of $ 696,188.

Knight, in the annual report, described Nike as "a very well-managed $ 5 billion company" even though it is "a $ 10 billion company that is trying to get to be a $ 15 billion company."

"Management has been stretched too thin," he wrote, noting 40 percent of the company's vice presidents are new.

Overall, the chairman gives the company a C plus for its performance in fiscal '98.

The report also pays considerable attention to the criticism Nike has received regarding the labor practices in its use of overseas factories.

"On our labor practices: Our friends in the media are slowly becoming more knowledgeable," Knight wrote.

"This is good. It means that consumers are actually getting informed rather than just alarmed. This, too, will take time. Meanwhile, the contrasts between us and our competitors and other companies in the needle trade will show more each year," he wrote.

"There is an interesting relationship going on between the Asia economic crisis and the labor practices, which would take many chairman's letters to cover. Instead, let me cut straight to the moral of the story. It is simply not acceptable for America to continue to be 'moated."'

In terms of inventory, which is where "you can really get killed in this industry," Nike "got its bell rung pretty good," the chairman wrote. But now inventories are in line -- several months ahead of its original estimates. As a result, there is more opportunity to improve gross profit margins and, shortly thereafter, to increase futures orders, he added.

Knight admits Nike is not yet a brand name equivalent to Coca-Cola or even Gillette, but "we're not too far behind." The company aims to reach that next level, he said.

Near closing, Knight advises: "You can buy us or not buy us, or hold onto what you've got."

"Either way we're gonna be here, in a small town in Oregon, reaching out to grab our fair share out in Kazakhstan and Queens. If we do it right we will grow. And then, five years from now, I hope people will be shocked when sales dip again. We'll make the ride as exciting and financially rewarding as we can."

Knight also let consumers have their say in the 62-page annual report, reproducing a host of letters and other communiques. And some of them don't have nice things to say.

Take Jason Trennant, who in March wrote to Tom Clarke, president and chief operating officer, to offer some "friendly advice" about the company's current marketing message, "LIGHTEN UP!"

In a two-page spread highlighting e-mail fielded by the company, Knight received this lashing, "How dare you and your marketing jackals manipulate the world's athletic stage for your own ends."

In another spread of e-mail messages, "You suck" is the largest text on the layout.

Another e-mailer said, "Get on the ball and get the stock price back up where I paid for it!" Negative headlines from the press, several on alleged sweatshop practices, are also shown.

For its part, Nike says, "Everyone is entitled to their opinion." The reports notes that during the past year it received 765,000 phone calls from consumers, 82,000 letters and 310,000 e-mails.

There are some compliments, however.

"Nike is a great company. It may have a few downfalls but doesn't everyone else?" said one e-mail.

"Great job -- bad press," another wrote.

LANGUAGE: ENGLISH

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