There are certain rituals of summer. They include golf’s U.S. Open, Wimbledon and the Chairman’s letter. And all three might involve great and gutsy performances. (Okay, I’ll admit I’d rather be sitting courtside than computerside.) When a NIKE athlete wins, so much the better. If a NIKE athlete sweats and grinds and overcomes odds to a mid-pack finish, I can be equally inspired and optimistic. As for fiscal year ’01, we were more gutsy than great. It wasn’t a bad year overall, and like good teams, we closed strong in the fourth quarter. But I think it will be more meaningful in this space to talk not just about the past year but the past four years. During that time we have been a growth company that has not grown. So what kind of investment is this, anyway? Fair question. So this year I will write about that, and explain to you why this failure to grow over the past four years hasn’t really been my fault. At the end of fiscal ’97 we were finishing up a three-year run where literally every bounce went our way. In those three years we went from being a strong company with growing market share and $3 billion in revenues to one with dominant market share and revenues over $9 billion. We were on the thrill ride. A growth company to be sure. In fact, we were candid with the world that our growth was so brisk that it had out-paced our management. In retrospect we were a couple other things as well. We were a footwear company that sold a lot of apparel. And we were a U.S. company selling a lot of stuff around the world. We were understaffed, overworked and euphoric. In our efforts to continue on the growth path, we set out to attack our big challenges: 1. Find more management help. 2. Become a truly global company. To that second point, I expressly recall the cautionary advice from former Board Director, Ken Ohmae. He overlaid our euphoria with this strong dose of reality: the transition to a truly global company takes about 10 years. That was five years ago. So, we focused on management and global maturity, trying to be both a champion and a team rebuilding for the future. We attacked new areas well, but stumbled in spots where we had excelled before. It was as if we got bored with doing the simple things right. All the while we were doing this, our industry was by no means standing still. 1. The U.S. market, which had grown too fast for us to keep up, hit the predictable down side of the cycle. 2. After a period of large-scale retail expansion, the U.S. industry had a major square footage contraction; the most obvious casualty being the bankruptcy of Just for Feet. Lull in the cycle + overbuilt retail = bad math for this growth company. For this non-growth company, too. 3. The Asian economies melted down. Asia was then and is now a market with huge upsides and huge risks. Normally our industry is not significantly impacted by the macro-business cycles. But in 1997–98, Asia proved that if the local economies get bad enough, everybody takes a hit. This includes retailers who, for the better part of a couple years, were just afraid to order. 4. In a period of immense technological change and opportunity, we launched a massive three-year supply chain overhaul, one that we believe was well ahead of anything our competition was doing. In the short run, bringing this new technology to life disrupted our ability to supply the U.S. market, but I continue to believe that a year from now the benefits and foresight of our supply chain effort will be evident to all. Great companies take this mix of events and challenges and grow in spite of them. To be sure, these are problems that management is paid to address. And that part about it not being my fault? That isn’t true. It is admittedly my fault. I just threw that in at the front of the letter in the hope you would read on. Looks like it worked. While we have not been good enough to grow over the past four years in toto, parts of our business tell a different story: 1. We gained market share dramatically in Europe. Brand heat on the Continent is at an all-time high. The only tough part, and it’s a big one, is the consistent weakness of key European currencies, which effectively masked our growth in that region. 2. We have excellent momentum in Asia and Latin America. 3. Under Mindy Grossman’s leadership, we really are becoming an apparel company. 4. We have grown to become a solid number two in soccer, the world’s largest sport. 5. We have become a major player in the world golf market; we’re probably the fastest growing company in that business. But this past year, we forgot to be competitive in mid- and low-priced shoes in the U.S. On top of that, we have not matched orders and production well. What pains me is that we have a 20-year history of doing both these things well. So we find ourselves at a critical junction with any one of these doorways in front of us. 1. Acquiesce to problems in our core U.S. footwear, wring our hands and watch that mainstay of our business slowly decline. 2. Continue to do some things well, some things poorly, and flounder. 3. Fix our problems and grow again. As proved by others in our industry, this list is not as rhetorical as it sounds. As for NIKE, our choice is clear. Four years ago, we had outgrown our ability to manage the business. Today our management group has grown dramatically, in numbers, skill level, and experience. They will drive the revitalization of our core revenue categories. We are midway on our journey to becoming a truly global company. We are creating product that is meaningful beyond the stick-and-ball shores of the U.S. Consumers around the world are seeing and embracing NIKE. More important, they “get it.” Enter door #3. There are no guarantees. Philip H. Knight Chairman of the Board, Chief Executive Officer & President