This year produced considerable pain. Soft markets, sagging futures orders, sliding economies, operating profits down 37 percent. But, the most painful by far was the layoff of 1600 friends and co-workers, people whose lives and plans were changed. It was an agony felt in every corner of the company.

In the process I learned some things. And, I stumbled across a fundamental question: Can you suffer and not hate your job? I can answer that. Absolutely. With that in the pocket, the future is unlimited.

First, we have to look back at 1998, which does not lend itself to a happy chairman's letter. Still, it gives me the chance to tell you what we are really about, in the hopes that when the turnaround comes you can say you saw it coming.

So, when does this turnaround happen? I'm reminded of what Roy Williams said about his 7-footer, Greg Ostertag: "There's a muscle on him somewhere, you just can't see it." We'll have good numbers again; it's just not obvious when. So, what knocked us down in 1998?

Asia ... brown shoes ... labor practices ... resignations ... layoffs ... boring ads. Also, we have been criticized for our headquarters expansion. But understand this: We need a much bigger place to house all our troubles. I used to give us letter grades in certain categories. That process missed an important truth, which is this: The way Nike gets a C+ for the fiscal 1998 is not BBCCDD, but AAFFB.

Most of our troubles are really symptoms of a larger, more difficult problem: We are a very well-managed $5 billion company. Right now, though, we are a $10 billion company trying to get to a $15 billion. Management has been stretched too thin. That's how you get problems.

I have said recently that we are lucky we had a sales downturn right now. Another year of sharply increased sales would have covered up these stress fractures in our structure. Still, most days I wish I wasn't quite that lucky.

In the spring of 1997 when the stock hit $76 and futures orders were at a record high, I really thought there was a chance we could split again at the annual meeting. But, as one middle manager cautioned: "If that happens you will have so many millionaire employees, they'll all leave." This has been one of the problems. We have lost experienced people for whom the stock option program has created lifetime financial security. Add that to the incredibly competitive nature of our industry and you're going to see key contributors leave for other challenges. This is an insight I think the media has missed this year. I can honestly tell you I hope we have that problem again. We won't spend any time trying to fix that one.

The first question you should ask is: What are we doing to upgrade management ? First, for those who are used to TV sitcom problems being solved in 30 minutes, I have bad news. It's going to take some time. Our approach is a simple one: We bring in talented newcomers, push a very good bench along a little faster than planned, and weave it all into a strong culture. This will actually change our culture – a little bit, not a lotta bit – recognizing our greater size and more sizable challenges.

At the end of the day there are no guarantees. If it was easy, everyone would do it. Anyone reading the trade press, or comparing this year's list to last, will see 40% of our vice-presidents are new. Rest assured they are not standing around waiting for the phone to ring.

One drag on earnings that even an approved management group cannot affect is Asia. This 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, our 1997 number, 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 is a big part of this company's heritage, and it remains a big part of our future.

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. We're a company founded by distance runners – some of them pretty slow – so we have a certain amount of patience. Nonetheless, we prefer to be timed by a stopwatch not a calendar. On our labor practices: Our friends in the media are slowly becoming more knowledgeable. 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. There is an interesting relationship going on between the Asia economic crisis and the labor practices issue, 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."

But if we have need for improvement, we have areas that we are proud of, areas that will be significant in our turnaround. The best tool is our product process. Set up over decades, it has been the best in the industry for years. And, in the last six months, it has gotten even better.

Inventory is where you can get really killed in this industry. And, we got our bell rung pretty good in the fiscal '98. But, we responded very quickly to our sales problems so that, as we go to press, our inventories are "in line," several months ahead of our original estimates. The obvious effect is more opportunity for improving gross profit margins and shortly thereafter, increasing futures orders.

Nike continues to be, even in bad times, a creative place. That's a big deal. It's an elusive combination of talent and process that you can't flowchart or program. It is something you build over time and, in our case, something that survives our mistakes and our success. And, it is something that will continue to drive Nike, behind the scenes, unobtrusively creating great products that athletes use to win. These products and the way we present them to the world is our greatest asset, our brand name. Not a brand name equivalent yet to Coca-Cola or even Gillette, but we're not "too far" behind. That's one of our big goals as a company – to reach that next level.

Above all else stands the global passion for sports. Just as Nike cannot affect the resurgence of the Asian economies, nations and exchange rates cannot detail the competitive spirit. Athletes and the world of sports they create continue to enhance the quality of life, and business, for all of us.

In the end, you can buy us or not buy us, or hold on to 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.

When I read the book Into Thin Air, I thought Jon Krakauer was talking about our first 26 years when he said "There are men for whom the unattainable has a special attraction. Their ambitions are strong enough to brush aside the doubts which more cautious men might have."

We would never forgive ourselves having come this far, not to reach for the summit.