This excerpt taken from the NKE 10-Q filed Apr 9, 2009.
Liquidity and Capital Resources
Cash Flow Activity
Cash provided by operations was $662.4 million for the first nine months of fiscal 2009, compared to $1,303.8 million for the first nine months of fiscal 2008. Our primary source of operating cash flow for the first nine months of fiscal 2009 was net income of $1,145.3 million offset by investments in working capital. Our investments in working capital increased during the first nine months of fiscal 2009 as compared to the same period in the prior year primarily due to lower accounts payable and accrued liabilities as a result of reduced inventory purchases and selling and administrative expenses. The increase in cash used for working capital is also attributable to higher accounts receivable as a result of a longer collection cycle.
Cash used by investing activities was $201.7 and $27.4 million for the first nine months of fiscal 2009 and fiscal 2008, respectively. The year-over-year change was primarily due to a net purchase of short-term investments of $65.5 million (purchases net of sales and maturities) in the first nine months of fiscal 2009, compared to net sales and maturities of $326.2 million in short-term investments during the first nine months of fiscal 2008, partially offset by an increase from the proceeds of net investment hedge settlements. During the second half of fiscal 2008, we began to use net investment hedges to mitigate the risk of variability in foreign-currency-denominated net investments held by wholly-owned foreign operations. The first settlement of net investment hedges occurred in the fourth quarter of fiscal 2008.
Cash used in financing activities was $657.1 million for the first nine months of fiscal 2009, compared to $906.6 million used in the first nine months of fiscal 2008. The decrease in the first nine months of fiscal 2009 was primarily due to a decrease in share repurchases in order to preserve liquidity given the current financial market conditions.
In the first nine months of fiscal 2009, we purchased 10.6 million shares of NIKEs Class B common stock for $639.0 million. As of February 28, 2009, we have now repurchased 49.2 million shares for $2.7 billion under the $3 billion program approved by our Board of Directors in June 2006. In September 2008, our Board of Directors approved a new $5 billion share repurchase program. The new program will commence upon completion of our current $3 billion share repurchase program. We expect to fund share repurchases from operating cash flow, excess cash, and/or debt. The timing and the amount of shares purchased will be dictated by our capital needs and stock market conditions.
Dividends declared per share of common stock for the third quarter of fiscal 2009 were $0.25, compared to $0.23 in the third quarter of fiscal 2008.
There have been no significant changes to the contractual obligations reported in our Annual Report on Form 10-K as of May 31, 2008 except as follows:
The total liability for uncertain tax positions was $286.7 million, excluding related interest and penalties, at February 28, 2009. It is reasonably possible that the Internal Revenue Service audit for the 2005 and 2006 tax years will be completed during the next twelve months, however, we are unable to make a reliable estimate of the eventual cash flows that may be required to settle these matters. In addition, we are not able to reasonably estimate when or if cash payments of the long-term liability for uncertain tax positions will occur.
In December 2008, we filed a shelf registration statement with the Securities and Exchange Commission for $760 million. As of February 28, 2009 no borrowings had been issued under this shelf registration.
We also have a committed $1.0 billion revolving credit facility in place with a group of banks that is scheduled to mature in December 2012. As of February 28, 2009, no amounts were outstanding under this facility.
Our long-term senior unsecured debt ratings remain at A+ and A1 from Standard and Poor's Corporation and Moody's Investor Services, respectively.
Liquidity is also provided by our $1 billion commercial paper program. As of February 28, 2009, $175 million was outstanding under our commercial paper program at a weighted average interest rate of 0.33%. No amount was outstanding under the program at May 31, 2008.
We currently have short-term debt ratings of A1 and P1 from Standard and Poor's Corporation and Moody's Investor Services, respectively.
During the third quarter, one of the Companys Japanese subsidiaries entered into 4.1 billion yen (approximately $41.6 million) in additional short-term loans to meet general operating needs. As of February 28, 2009, 5.3 billion yen (approximately $53.8 million) in short-term loans remained outstanding. The interest rates on the loans are based on the prevailing Tokyo Interbank Offer Rate of our election plus a spread, resulting in a weighted average all-in rate of 0.65% at February 28, 2009.
The credit markets, including the commercial paper markets in the United States, have continued to experience adverse conditions. While we have not experienced higher interest costs or difficulty accessing the credit markets to date, continuing volatility in the capital markets may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets. Notwithstanding these adverse market conditions, we currently believe that current cash and short-term investment balances and cash generated by operations, together with access to external sources of funds as described above and in our Annual Report on Form 10-K for the fiscal year ended May 31, 2008, will be sufficient to meet our operating and capital needs in the foreseeable future.
Recently Adopted Accounting Standards:
On December 1, 2008, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133 (FAS 161), which provides revised guidance for enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and the related hedged items are accounted for under FAS 133, and how derivative instruments and the related hedged items affect an entitys financial position, financial performance and cash flows. The adoption of FAS 161 did not have an impact on the Company's consolidated financial position or results of operations. For additional information see, Note 10Risk Management and Derivatives in the notes to the unaudited condensed consolidated financial statements.
On June 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (FAS 157) for financial assets and liabilities, which clarifies the meaning of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined under FAS 157 as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the assets or liability in an orderly transaction between market participants on the measurement date. Subsequent changes in fair value of these financial assets and liabilities are recognized in earnings or other comprehensive income when they occur. The effective date of the provisions of FAS 157 for non-financial assets and liabilities, except for items recognized at fair value on a recurring basis, was deferred by FASB Staff Position FAS 157-2 (FSP FAS 157-2) and are effective for the fiscal year beginning June 1, 2009. The Company is currently evaluating the impact of the provisions for non-financial assets and liabilities. The adoption of FAS 157 for financial assets and liabilities did not have an impact on the Company's consolidated financial position or results of operations. See Note 5 Fair Value Measurements in the notes to the unaudited condensed consolidated financial statements for further discussion.
Also effective June 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (FAS 159), which allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. As of February 28, 2009, the company has not elected the fair value option for any additional financial assets and liabilities beyond those already prescribed by accounting principles generally accepted in the United States.
In October 2008, the FASB issued Staff Position No. FAS 157-3, Determining the Fair Value of a Financial Asset in a Market That Is Not Active (FSP FAS 157-3). FSP FAS 157-3 clarifies the application of FAS 157 in a market that is not active and defines additional key criteria in determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS 157-3 applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with FAS 157. FSP FAS 157-3 was effective upon issuance and the application of FSP FAS 157-3 did not have a material impact on our consolidated financial statements.