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 August 31, 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 August 31, 1995 were:
_________________
Class A 25,880,522
Class B 45,603,473
_________________
71,483,995
==========
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
NIKE, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
Aug. 31, May 31,
1995 1995
________ _______
(in thousands)
ASSETS
Current assets:
Cash and equivalents $ 178,556 $ 216,071
Accounts receivable 1,192,172 1,053,237
Inventories (Note 3) 676,417 629,742
Deferred income taxes 68,682 72,657
Prepaid expenses 87,300 74,221
__________ _________
Total current assets 2,203,127 2,045,928
Property, plant and equipment 934,801 891,213
Less accumulated depreciation 352,091 336,334
__________ __________
582,710 554,879
Identifiable intangible assets and goodwill 490,872 495,907
Other assets 46,707 46,031
__________ __________
$3,323,416 $3,142,745
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,237 $ 31,943
Notes payable 325,937 397,100
Accounts payable 367,797 297,656
Accrued liabilities 338,902 345,224
Income taxes payable 109,397 35,612
__________ __________
Total current liabilities 1,145,270 1,107,535
Long-term debt 14,082 10,565
Non-current deferred income taxes 17,921 17,789
Other long-term liabilities 42,952 41,867
Commitments and contingencies (Note 4) - -
Redeemable Preferred Stock 300 300
Shareholders' equity:
Common Stock at stated value (Note 2):
Class A convertible-25,881 and
25,895 shares outstanding 155 155
Class B-45,603 and 45,550 shares
outstanding 2,698 2,698
Capital in excess of stated value 129,621 122,436
Foreign currency translation
adjustment 4,006 1,585
Retained earnings 1,966,411 1,837,815
___________ __________
2,102,891 1,964,689
___________ __________
$3,323,416 $3,142,745
========== ==========
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
August 31,
__________________
1995 1994
____ ____
(in thousands, except per share data)
Revenues $1,614,649 $1,170,355
_________ _________
Costs and expenses:
Cost of sales 967,522 700,447
Selling and administrative 359,525 292,294
Interest 11,377 4,757
Other expense (income) 8,344 (830)
________ ________
1,346,768 996,668
________ ________
Income before income taxes 267,881 173,687
Income taxes 103,100 67,700
________ ________
Net income $ 164,781 $ 105,987
========= =========
Net income per common share(Note 2) $ 2.26 $ 1.43
========= =========
Dividends declared per common share $ .25 $ .20
========= =========
Average number of common and
common equivalent shares (Note 2) 72,926 74,222
========= =========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
August 31,
_________________
1995 1994
____ ____
(in thousands)
Cash provided (used) by operations:
Net income $164,781 $105,987
Income charges (credits) not
affecting cash:
Depreciation 20,039 14,757
Deferred income taxes and
purchased tax benefits 3,157 7,253
Other non-current liabilities 1,085 1,490
Other 6,472 1,650
Changes in other working capital
components (63,305) (13,727)
________ _______
Cash provided by operations 132,229 117,410
________ _______
Cash provided (used) by investing activities:
Acquisition of business:
Net assets acquired -- (10,264)
Goodwill and other intangibles acquired -- (10,347)
Additions to property, plant and
equipment (49,975) (18,077)
Disposals of property, plant and
equipment 1,085 4,222
Decrease (increase) in other assets 1,494 (1,518)
_______ _______
Cash used by investing activities (47,396) (35,984)
_______ _______
Cash (used) provided by financing activities:
Additions to long-term debt 644 213
Reductions in long-term debt
including current portion (26,185) (3,554)
(Increase) decrease in notes payable (71,163) 29,933
Proceeds from exercise of options 7,637 1,405
Repurchase of stock (18,756) --
Dividends - common and preferred (17,893) (14,641)
_______ _______
Cash (used) provided by financing
activities (125,716) 13,356
_______ _______
Effect of exchange rate changes on cash 3,368 450
_______ _______
Net (decrease) increase in cash and equivalents (37,515) 95,232
Cash and equivalents, May 31, 1995 and 1994 216,071 518,816
_______ _______
Cash and equivalents, August 31, 1995
and 1994 $178,556 $614,048
======== ========
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 three (3) months ended August 31, 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:
Aug. 31, May 31,
1995 1995
________ ________
(in thousands)
Finished goods $663,530 $618,521
Work-in-process 1,763 2,157
Raw materials 11,124 9,064
________ ________
$676,417 $629,742
======== ========
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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Operating Results
_________________
The first quarter ended August 31, 1995 established new
record highs for revenues and net income. Revenues increased 38%
to $1.615 billion, compared to $1.170 billion in the prior year's
first quarter. Net income was $165 million, or $2.26 per share,
compared to $106 million, or $1.43 per share for the same period
in the prior year. The 55% increase in net income was due to the
record revenues as well as a decrease in selling and administrative
expenses as a percent of revenues, from 25% in the prior year
to 22.3% in the current year.
Revenues increased $444 million over the record $1.2 billion
reported in the same period of the prior year. U.S. footwear
increased $136 million, or 21%, resulting from an increase of
19% in pairs shipped and a 2% increase in average selling price due
to sales mix. Revenues increased in all U.S. footwear categories.
U.S. apparel was up $88 million over last year's first quarter, an
increase of 93%. International revenues increased $131 million, or
36%, composed of 33% and 48% increases in international (n0n-U.S.)
footwear and apparel revenues, respectively. The international
growth included a 6% increase resulting from new NIKE subsidiaries
and a positive 8% affect from foreign exchange translation. All
other brands, which includes Cole Haan (R), Tetra Plastics, Sports
Specialties and Canstar Sports, increased during the quarter, however
the primary increase was due to $75 million in revenues from Canstar
Sports, which was acquired in the third quarter of the prior fiscal
year. The breakdown of revenues follows:
Three months ended Aug. 31
1995 1994 % Change
(in thousands)
U.S. Footwear $791,568 $655,142 21%
U.S. Apparel 182,483 94,735 93%
_______ _______ __
Total United States 974,051 749,877 30%
International Footwear 366,678 276,462 33%
International Apparel 126,034 85,134 48%
_______ _______ __
Total International 492,712 361,596 36%
Other Brands 147,886 58,882 151%
_______ _______ ___
Total Revenues $1,614,649 $1,170,355 38%
========== ========== ===
Consolidated gross margins were relatively flat at 40.1%
compared to 40.2% in the prior year. Strong demand for NIKE
products combined with sound inventory management resulted in
stable NIKE brand margins. 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 increased $67 million in
absolute dollars over the previous year's first quarter, however, as
a percent of sales decreased 2.7 percentage points to 22.3%. The
largest increase in absolute dollars was $29 million from international,
with $12 million a result of exchange rates, $5 million from new
subsidiaries, and the remainder due to increased levels of operations.
U.S. NIKE brand operations were up $22 million, primarily in planned
marketing expenses. Canstar Sports added $12 million of expenses.
The Company anticipates that total fiscal 1996 selling and
administrative expense as a percent of revenues will
approximate the prior year.
Interest expense for the quarter increased $6.6 million over
the prior year due to increased short term borrowings for both U.S.
and international operations. Other income decreased
$9.2 million, primarily as a result of increased goodwill expense,
increased profit share plan expense and decreased interest income.
Goodwill expense and interest income were most significantly affected
by the acquisition of Canstar Sports.
The Company's effective tax rate for the quarter was 38.5%
compared to 39.0% in the prior year. This is primarily due to
lower taxes provided on non-U.S. earnings. The Company anticipates
the tax rate for fiscal 1996 will approximate 38.5%.
Worldwide orders for NIKE Brand athletic footwear and apparel
scheduled for delivery from September 1995 through January 1996 were
approximately $2.3 billion, 32% higher than such orders booked in
the comparable period of the prior year. 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
The Company's financial position remains strong, with working
capital rising $119 million since May 31, 1995. The working capital
ratio remained the same as of May 31, 1995 at 1.9:1.
Cash and equivalents decreased $38 million from May 31, 1995.
Cash provided by operations was reduced by increases in working capital
components. Other significant uses of cash included
additions to property, plant and equipment, decreases in short
term borrowings and long term debt.
The increase in working capital components was primarily due
to increases in accounts receivable and inventories, offset by
increases in accounts payable and taxes payable. The increase in
accounts receivable of $139 million was due to sales growth in both
July and August over last May's comparable two month period. Overall
inventories increased $47 million in conjunction with levels of
operations, primarily due to U.S. apparel and international footwear
and apparel inventories which have increased $18 million and $58
million, respectively. U.S. footwear inventories decreased $29 million
due to record shipments and timing of inventory receipts. Increases in
accounts payable and taxes payable are a result of the increased level
of operations.
The additions to property, plant and equipment were composed
of normal operational spending, the continued consolidation of European
footwear warehouses, expansion of NIKE Town retail locations and
acquisition of land adjacent to the world headquarters.
The Company also utilized cash to reduce short term debt
outstanding
at May 31, 1995 and to retire long term debt acquired in the purchase
of Canstar Sports.
During the quarter, the Company purchased 200,000 shares of
its own stock under the stock repurchase program announced in
July 1993, bringing the total number of shares purchased in the
program to approximately 5,149,000.
In September of 1995, the Company's Board of Directors announced
a two-for-one stock split following shareholder approval an
increase in the number of authorized Class A and Class B Common
shares. The stock split will be in the form of a 100 percent
stock dividend to be paid on October 30, 1995 to shareholders of
record on October 9, 1995.
The debt to equity ratio at August 31, 1995 was .6:1 compared
to .6:1 at May 31, 1995 and .4:1 at August 31, 1994. Management
believes that funds generated by operations, together with
currently available resources, will adequately finance anticipated
fiscal 1996 expenditures, with the potential exception of the stock
repurchase program discussed above. At August 31, 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, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on September 18,
1995. The shareholders elected for the ensuing year all of management's
nominees for the Board of Directors, and passed by a majority vote Proposal 2
approving the increase in authorized common stock, Proposal 3 approving the
Executive Performance Sharing Plan and Proposal 4 ratifying the appointment of
independent accountants. The voting results are as follows:
Election of Directors
Votes Cast
Director For Withheld
Elected by holders of
Class A Common Stock:
Ralph D. DeNunzio 25,133,498 (99.972%) 7,000
Richard K. Donahue 25,133,498 (99.972%) 7,000
Douglas G. Houser 25,133,498 (99.972%) 7,000
John E. Jaqua 25,133,498 (99.972%) 7,000
Philip H. Knight 25,133,498 (99.972%) 7,000
Kenichi Ohmae 25,133,498 (99.972%) 7,000
Ralph A. Pfeiffer, Jr. 25,133,498 (99.972%) 7,000
Charles W. Robinson 25,133,498 (99.972%) 7,000
A. Michael Spence 25,133,498 (99.972%) 7,000
John R. Thompson, Jr 25,133,498 (99.972%) 7,000 .
Elected by holders of
Class B Common Stock:
William J. Bowerman 38,245,687 (98.748%) 484,860
Thomas E. Clarke 38,266,447 (98.802%) 464,020
Jill K. Conway 38,306,354 (98.905%) 424,113
Delbert J. Hayes 38,260,338 (98.786%) 470,129
For Against Abstain
Proposal 2 -
Approval of the
increase in authorized
shares:
Class A Common Stock 25,133,498 (99.972%) 7,000 0
Class B Common Stock 28,402,266 (73.333%) 10,201,984 127,117
Proposal 3 -
Approval of Executive
Performance Sharing Plan:
Class A Common Stock 25,133,498 (99.972%) 7,000 0
Class B Common Stock 37,513,611 (96.058%) 1,021,352 195,504
Proposal 4 -
Ratification of Appointment
of Accountants:
Class A Common Stock 25,133,498 (99.972%) 7,000 0
Class B Common Stock 38,603,851 (99.673%) 18,287 108,329
Item 6. Exhibits and Reports on Form 8-K:
(a) EXHIBITS:
3.1 Restated Articles of Incorporation, as amended.
3.2 Third Restated Bylaws, as amended.
4.1 Restated Articles of Incorporation, as amended (see Exhibit 3.1).
4.2 Third Restated Bylaws, as amended (see Exhibit 3.2).
10.1 Credit Agreement dated as of September 15, 1995 among NIKE, Inc.,
Bank of America National Trust & Savings Association,
individually and as Agent, and the other banks party thereto.
10.2 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).*
10.3 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).
10.4 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).*
10.5 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).*
10.6 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 he fiscal year ended May 31, 1994).*
10.7 NIKE, Inc. Executive performance Sharing Plan (incorporated by
reference from the Company's definitive proxy statement
filed in connection with its annual meeting of shareholders
held on September 18, 1995).*
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 first quarter of fiscal 1996:
Form 8-K
July 11, 1995 ITEM 5. OTHER EVENTS. Press release
announcing 4th quarter
earnings
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: October 13, 1995