SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FOR QUARTERLY REPORTS UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended February 28, 1995 Commission file number - 1-10635
NIKE, Inc.
(Exact name of registrant as specified in its charter)
OREGON 93-0584541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Bowerman Drive, Beaverton, Oregon 97005-6453
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 671-6453
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days
Yes X No .
___ ___
Common Stock shares outstanding as of February 28, 1995 were:
_________________
Class A 26,494,897
Class B 45,700,835
_________________
72,195,732
==========
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
NIKE, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
Feb. 28, May 31,
1995 1994
________ _______
(in thousands)
ASSETS
Current assets:
Cash and equivalents $ 242,747 $ 518,816
Accounts receivable 930,592 703,682
Inventories (Note 3) 627,983 470,023
Deferred income taxes 53,337 37,603
Prepaid expenses 65,304 40,307
__________ _________
Total current assets 1,919,963 1,770,431
Property, plant and equipment 821,018 639,085
Less accumulated depreciation 315,196 233,240
__________ __________
505,822 405,845
Goodwill and other intangibles 493,022 157,187
Other assets 44,526 40,352
__________ __________
$2,963,333 $2,373,815
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,026 $ 3,857
Notes payable 354,840 127,378
Accounts payable 276,330 210,576
Accrued liabilities 257,976 181,889
Income taxes payable 12,960 38,287
__________ __________
Total current liabilities 907,132 561,987
Long-term debt 69,353 12,364
Non-current deferred income taxes 30,530 18,228
Other long-term liabilities 37,671 39,987
Commitments and contingencies (Note 4) - -
Redeemable Preferred Stock 300 300
Shareholders' equity:
Common Stock at stated value (Note 2):
Class A convertible-26,495 and
26,679 shares outstanding 158 159
Class B-45,701 and 46,521 shares
outstanding 2,703 2,704
Capital in excess of stated value 109,069 108,284
Foreign currency translation
adjustment (5,393) (15,123)
Retained earnings 1,811,810 1,644,925
___________ __________
1,918,347 1,740,949
___________ __________
$2,963,333 $2,373,815
========== ==========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Nine Months Ended
February 28, February 28,
__________________ __________________
1995 1994 1995 1994
____ ____ ____ ____
(in thousands, except per share data)
Revenues $1,124,697 $ 871,845 $3,348,798 $2,785,512
_________ _________ _________ _________
Costs and expenses:
Cost of sales 678,404 537,066 2,018,882 1,701,001
Selling and administrative 278,311 231,285 839,478 694,032
Interest 6,257 3,988 14,955 12,500
Other expense (income) 5,376 (3,229) 6,208 (1,051)
________ ________ _________ _________
968,348 769,110 2,879,523 2,406,482
________ ________ _________ _________
Income before income taxes 156,349 102,735 469,275 379,030
Income taxes 61,000 39,500 183,000 149,400
________ ________ _______ _______
Net income $ 95,349 $ 63,235 286,275 229,630
========= ========= ======= =======
Net income per common share(Note 2) $ 1.29 $ 0.85 $ 3.88 $ 3.03
========= ========= ======= =======
Dividends declared per common share $ .25 $ .20 $ 0.70 $ 0.60
========= ========= ======= =======
Average number of common and
common equivalent shares (Note 2) 73,482 75,149 73,694 75,853
========= ========= ======= =======
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
February 28,
_________________
1995 1994
____ ____
(in thousands)
Cash provided (used) by operations:
Net income $286,275 $229,630
Income charges (credits) not
affecting cash:
Depreciation 48,029 45,376
Deferred income taxes and
purchased tax benefits 4,288 (3,719)
Other non-current liabilities (2,316) 3,012
Other 7,760 5,162
Changes in other working capital
components (205,171) 54,042
________ _______
Cash provided by operations 138,865 333,503
________ _______
Cash provided (used) by investing activities:
Acquisition of business:
Net assets acquired (83,346) --
Goodwill and other intangibles acquired (344,474) --
Additions to property, plant and
equipment (96,008) (55,657)
Disposals of property, plant and
equipment 6,671 7,748
Increase in other assets (4,462) (3,795)
_______ _______
Cash used by investing activities (521,619) (51,704)
_______ _______
Cash provided (used) by financing activities:
Additions to long-term debt 1,631 2,140
Reductions in long-term debt
including current portion (5,247) (53,336)
Increase (decrease) in notes payable 221,614 7,337
Proceeds from exercise of options 3,403 2,967
Repurchase of stock (71,214) (92,431)
Dividends - common and preferred (47,367) (45,260)
_______ _______
Cash provided (used) by financing
activities 102,820 (178,583)
_______ _______
Effect of exchange rate changes on cash 3,865 (8,501)
_______ _______
Net (decrease) increase in cash and equivalents (276,069) 94,715
Cash and equivalents, May 31, 1994 and 1993 518,816 291,284
_______ _______
Cash and equivalents, February 28, 1995
and 1994 $242,747 $385,999
======== ========
Supplemental schedule of noncash investing activities:
The Company had a like-kind exchange of certain
equipment during the second quarter of the prior year as follows:
Cost of old equipment $24,057
Accumulated depreciation (14,502)
Cash received 652
_______
Book value of new asset $10,207
=======
The Company acquired a new NIKE subsidiary during the third quarter
of the prior year with net assets of $124,966,000, resulting in an accrued
liability of a similar amount. Approximately $3.5 million was paid in
cash during the 4th quarter of the prior year.
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of significant accounting policies:
___________________________________________
Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) which
are, in the opinion of management, necessary for a fair presentation of
the results of operations for the interim period(s). The interim financial
information and notes thereto should be read in conjunction with the
Company's latest annual report to shareholders. The results of operations
for the nine (9) months ended February 28, 1995 are not necessarily
indicative of results to be expected for the entire year.
NOTE 2 - Net income per common share:
___________________________
Net income per common share is computed based on the weighted average
number of common and common equivalent (stock option) shares outstanding
for the period(s).
NOTE 3 - Inventories:
___________
Inventories by major classification are as follows:
Feb. 28, May 31,
1995 1994
________ ________
(in thousands)
Finished goods $593,141 $465,065
Work-in-process 4,697 2,915
Raw materials 30,145 2,043
________ ________
$627,983 $470,023
======== ========
NOTE 4 - Commitments and contingencies:
_____________________________
There have been no other significant subsequent developments
relating to the commitments and contingencies reported on the
Company's most recent Form 10-K.
NOTE 5 - Acquisition of business:
_______________________
During the quarter, the Company consummated the acquisition of Canstar
Sports Inc. for a cash purchase price including acquisition costs of
approximately $407 million. The purchase has been given effect in the
Consolidated Balance Sheet and the associated Statement of Cash Flows as
of February 28, 1995. The proforma effect of the acquisition on the combined
results of operations for the nine months ended February 28, 1995 and 1994
was not significant.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Operating Results
_________________
The quarter ended February 28, 1995 established a new third quarter
high, with net income increasing 51% as a result of record revenues, gross
margin improvement and selling and administrative expenses reducing as a
percentage of sales. Net income for the period was $95.3 million or $1.29
per share, compared to $63.2 million or $0.85 per share for the same period
in the prior year. The 52% increase in earnings per share as compared to
the 51% increase in net income is primarily due to the Company's share
repurchase program.
Revenues exceeded $1 billion for the first time in a third quarter,
increasing 29% to $1.125 billion compared to $872 million in the prior
year. This is the fourth consecutive quarter with revenues in excess of
$1 billion. United States apparel increased 39% ($33 million), growing at a
slightly faster pace than the U.S. footwear business, which was up 27%
($126 million) over the previous year due to a 21% increase in pairs
shipped and a 5% increase in average selling price. The Company had increases
in all categories of both U.S. footwear and apparel. International revenues
increased $85 million, 33% over last year's third quarter, with growth in
footwear revenues of 29% and apparel revenues of 46%. Favorable exchange
rates contributed $16 million of the increase and new NIKE-owned subsidiaries
in Korea, Argentina, and Austria added $41 million. Other brands, which
include Cole Haan, Tetra Plastics, and Sports Speciatlies, increased
16%. The breakdown of revenues follows:
Three Months Ended Nine Months Ended
Feb. 28 Feb. 28
______________________________ _______________________________
1995 1994 % Change 1995 1994 % Change
____ ____ ___ ____ ____ ___
(in thousands)
U.S. Footwear $ 603,529 $ 477,061 27% $1,714,130 $1,439,824 19%
U.S. Apparel 118,049 85,071 39 310,668 261,632 19
Other Brands 57,413 49,423 16 176,686 169,829 4
__________ __________ ___ _________ _________ ___
Total United States 778,991 611,555 27 2,201,484 1,871,285 18
International
Footwear 262,974 203,702 29 846,264 688,065 23
Apparel 82,732 56,588 46 301,050 226,162 33
__________ __________ ___ _________ _________ ___
Total International 345,706 260,290 33 1,147,314 914,227 26
__________ __________ ___ _________ _________ ___
Total Revenues $1,124,697 $ 871,845 29% $3,348,798 $2,785,512 20%
========== ========== === ========== ========== ====
Consolidated gross margins for the quarter were 39.7% compared to
38.4% last year. The increase was a result of the high volume of revenues
and a smaller percentage of closeout sales in the current year combined with
lower margins in the prior year due to difficulties in other brands,
including Sports Specialties and the decision to discontinue the i.e.
division. The Company continues to place strong emphasis on inventory
management, minimizing foreign exchange risk, and production sourcing in
order to maximize gross profit.
Selling and administrative expenses decreased as a percentage of
revenues from 26.5% during the prior year third quarter to 24.7% in the
current year. On an absolute dollar basis, spending increased $47 million,
or 20%, with new NIKE-owned subsidiaries accounting for $8 million of
the increase. International operations added $24 million of spending, a
result of the new subsidiaries and planned increases in international
infrastructure development. Also, the foreign currency translation impact
increased spending by approximately $6 million. U.S. operations were up
$19 million, primarily in planned marketing expenses. The Company intends
to continue to invest in growth opportunities and to increase marketing
expenses in order to ensure the successful sell-through of the high level
of orders discussed below. As a result, the Company expects selling and
administrative costs as a percentage of revenues for the current year to
approximate the prior year results.
Interest expenses for the quarter increased over the prior year due
to both increased operational short-term borrowings at new NIKE subsidiaries
and other international locations, and increased short-term borrowings
in the U.S. primarily due to increased cash operational needs and the
purchase of Canstar during the third quarter. Other income decreased
$8.6 million mostly due to increases in profit share plan expense, foreign
currency transactions, and goodwill along with shutdown expenses in
connection with the continued consolidation of warehouse facilities in
Europe. These increases were offset partially by increased interest income.
In addition, a gain on insurance proceeds as a result of the flood at Tetra
Plastics increased other income in the prior year.
The Company's effective tax rate for the quarter was 39.0% compared
to 38.4% in the prior year. Last year's third quarter included a reduction
for the tax impact of permanently reinvesting foreign earnings overseas,
as more fully discussed in the Form 10-Q filed for that quarter. The Company
anticipates the tax rate for fiscal 1995 will approximate the 39.1% rate
for the full fiscal year 1994.
Worldwide orders for athletic footwear and apparel scheduled for
delivery from March 1995 through July 1995 were approximately $2.4
billion, 37% higher than such orders booked in the comparable period of
the prior year. This represents a record amount of orders for any period,
and a significant portion of our production capacity will be
devoted to filling these orders, potentially impacting availability of
product for "at once" shipments. These orders are not necessarily indicative
of total revenues for subsequent periods because the mix of advance orders
and "at once" shipments may vary significantly from quarter to quarter and
year to year. Additionally, as international operations continue to shift
to a greater emphasis on futures orders, this mix again may vary. Finally,
exchange rates can cause differences in the comparisons.
Liquidity and Capital Resources
_______________________________
During the quarter, the Company finalized the purchase of all of
the outstanding shares of Canstar Sports Inc. for Canadian $27.50 per
share in cash. See Note 5 for further discussion.
The Company's financial position remained strong. However, working
capital decreased $196 million since May 31, 1994 due to increased
operational borrowings and cash used to purchase Canstar Sports Inc.
The working capital ratio was 2.1:1 at February 28, 1995 compared to
3.2:1 at May 31, 1994.
Cash and equivalents decreased $276 million primarily as a result of
the Canstar Sports Inc. purchase, offset partially by cash provided by
operations. Cash was also used to purchase 1,160,000 additional shares of
NIKE stock under the stock repurchase program announced in July 1993.
Accounts Receivable is at an all-time high, with the increase of
$227 million, or 32%, a direct result of the 42% increase in sales in both
January and February over last May's comparable two month period.
Overall inventories increased $158 million since May 31. Gross U.S.
footwear inventory is down $12 million due to strong demand, however,
international inventories have increased $95 million, $30 million of which
is due to new NIKE-owned subsidiaries with the remaining increase in
preparation for increased demand in the fourth quarter. In addition, Canstar
Sports Inc. added $72 million in inventory.
The debt to equity ratio at February 28, 1995 was .5:1 compared to
.4:1 at May 31, 1994 and .4:1 at February 28, 1994. Management believes that
funds generated by operations, together with currently available resources,
will adequately finance anticipated fiscal 1995 expenditures. At
February 28, 1995, the Company had $300 million available in committed
unused lines of credit.
Part II - Other Information
Item 1. Legal Proceedings:
There have been no material changes from the information previously
reported under Item 3 of the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1994.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
3.1 Restated Articles of Incorporation, as amended (incorporated
by reference from Exhibit 3.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1988 and
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended August 31, 1990).
3.2 Second Restated Bylaws, as amended (incorporated by reference
from Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1993).
4.1 Articles IV, VI, VII, VIII and X of the Restated Articles of
Incorporation, as amended (see Exhibit 3.1).
4.2 Articles II, III, VII, IX and X of the Second Restated Bylaws, as
amended (see Exhibit 3.2).
10.1 Credit Agreement dated as of June 1, 1991 among NIKE, Inc.,
The First National Bank of Chicago, individually and as Agent,
and the other banks party thereto (incorporated by reference
from the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1991).
10.2 Amendment No. 2 to Credit Agreement dated as of November 7, 1994
extending the termination date of the revolving credit facility
in Exhibit 10.1 to November 30, 1996 (incorporated by reference
from the Company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1994.
10.3 Form of non-employee director Stock Option Agreement (incorporated
by reference from Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1993).*
10.4 Form of Indemnity Agreement entered into between the Company and
each of its officers and directors (incorporated by reference from
the Company's definitive proxy statement filed in connection with
its annual meeting of shareholders held on September 21, 1987).
10.5 NIKE, Inc. Restated Employee Incentive Compensation Plan
(incorporated by reference from Registration Statement No. 33-29262
on Form S-8 filed by the Company on June 16, 1989).*
10.6 NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference
from the Company's definitive proxy statement filed in connection
with its annual meeting of shareholders held on September 17, 1990)*
10.7 Collateral Assignment Split-Dollar Agreement between NIKE, Inc.
and Philip H. Knight dated March 10, 1994 (incorporated by
reference from Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1994).*
27 Financial Data Schedule
* Management contract or compensatory plan or arrangement.
(b) The following reports on Form 8-K were filed by the Company during
the third quarter of fiscal 1995:
Form 8-K
December 14, 1994 ITEM 5. OTHER EVENTS. Press release announcing
plans to acquire all of
the outstanding shares of
Canstar Sports Inc.
December 19, 1994 ITEM 5. OTHER EVENTS. Press release announcing
2nd quarter earnings.
January 5, 1995 ITEM 5. OTHER EVENTS. Press release announcing
that the Company and Can-
star Sports Inc. have en-
tered into a Business
Combination Agreement and
the Company has commenced
its tender offer effective
January 16, 1995.
January 31, 1995 ITEM 5. OTHER EVENTS. Press release regarding
Canadian Bureau of Com-
petition Policy issued an
Advance Ruling Certificate
declining to oppose the
Company's proposed acqui-
sition of Canstar Sports
Inc.
February 7, 1995 ITEM 5. OTHER EVENTS. Press release regarding the
Company obtaining all re-
quired regulatory approval
for the acquisition of
Canstar Sports Inc.
February 9, 1995 ITEM 5. OTHER EVENTS. Press release announcing
the Company has taken up
all of the common shares
of Canstar Sports Inc.
deposited under
its tender offer.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NIKE, Inc.
An Oregon Corporation
BY: s/Robert S. Falcone
________________________
Robert S. Falcone
Vice President,
Chief Financial Officer
DATED: April 14, 1995