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 November 30, 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 November 30, 1995 were:
_________________
Class A 51,339,669
Class B 91,900,596
_________________
143,240,265
==========
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
NIKE, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
Nov. 30, May 31,
1995 1995
________ _______
(in thousands)
ASSETS
Current assets:
Cash and equivalents $ 204,826 $ 216,071
Accounts receivable 1,184,844 1,053,237
Inventories (Note 3) 710,848 629,742
Deferred income taxes 78,760 72,657
Prepaid expenses 97,436 74,221
__________ _________
Total current assets 2,276,714 2,045,928
__________ _________
Property, plant and equipment 964,364 891,213
Less accumulated depreciation 363,875 336,334
__________ __________
600,489 554,879
Identifiable intangible assets and goodwill 485,725 495,907
Other assets 48,485 46,031
__________ __________
$3,411,413 $3,142,745
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,762 $ 31,943
Notes payable 443,047 397,100
Accounts payable 277,217 297,656
Accrued liabilities 394,805 345,224
Income taxes payable 30,043 35,612
__________ __________
Total current liabilities 1,147,874 1,107,535
Long-term debt 13,728 10,565
Non-current deferred income taxes 17,454 17,789
Other long-term liabilities 34,415 41,867
Commitments and contingencies (Note 4) - -
Redeemable Preferred Stock 300 300
Shareholders' equity:
Common Stock at stated value (Note 2):
Class A convertible-51,340 and
51,790 shares outstanding 153 155
Class B-91,900 and 91,100 shares
outstanding 2,701 2,698
Capital in excess of stated value 141,394 122,436
Foreign currency translation
adjustment (9,705) 1,585
Retained earnings 2,063,099 1,837,815
___________ __________
2,197,642 1,964,689
___________ __________
$3,411,413 $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 Six Months Ended
November 30, November 30,
__________________ __________________
1995 1994 1995 1994
____ ____ ____ ____
(in thousands, except per share data)
Revenues $1,443,027 $1,053,746 $3,057,676 $2,224,101
_________ _________ _________ _________
Costs and expenses:
Cost of sales 875,446 640,031 1,842,968 1,340,478
Selling and administrative 358,583 268,873 718,108 561,167
Interest 7,984 3,941 19,361 8,698
Other expense (income) 8,798 1,662 17,142 832
________ ________ _________ _________
1,250,811 914,507 2,597,579 1,911,175
________ ________ _________ _________
Income before income taxes 192,216 139,239 460,097 312,926
Income taxes 74,000 54,300 177,100 122,000
________ ________ _________ _________
Net income $ 118,216 $ 84,939 $ 282,997 $ 190,926
========= ========= ========== ==========
Net income per common share(Note 2) $ 0.80 $ 0.58 $ 1.93 $ 1.29
========= ========= ========== ==========
Dividends declared per common share $ 0.15 $ 0.13 $ 0.28 $ 0.23
========= ========= ========== ==========
Average number of common and
common equivalent shares (Note 2) 146,994 146,738 146,420 147,596
========= ========= ========== ==========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended
November 30,
_________________
1995 1994
____ ____
(in thousands)
Cash provided (used) by operations:
Net income $282,997 $190,926
Income charges (credits) not
affecting cash:
Depreciation 40,977 31,079
Deferred income taxes and
purchased tax benefits (7,388) (698)
Other non-current liabilities (7,452) 3,410
Other 18,147 5,111
Changes in other working capital
components (215,964) (44,477)
________ _______
Cash provided by operations 111,317 185,351
________ _______
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 (94,730) (59,961)
Disposals of property, plant and
equipment 3,053 5,811
Increase in other assets (2,786) (4,952)
_______ _______
Cash used by investing activities (94,463) (79,713)
_______ _______
Cash (used) provided by financing activities:
Additions to long-term debt 1,012 1,019
Reductions in long-term debt
including current portion (27,118) (4,549)
Increase in notes payable 45,947 484
Proceeds from exercise of options 12,710 1,810
Repurchase of stock (18,756) (59,995)
Dividends paid - common and preferred (35,800) (29,295)
_______ _______
Cash used by financing
activities (22,005) (90,526)
_______ _______
Effect of exchange rate changes on cash (6,094) 12,177
_______ _______
Net (decrease) increase in cash and equivalents (11,245) 27,289
Cash and equivalents, May 31, 1995 and 1994 216,071 518,816
_______ _______
Cash and equivalents, November 30, 1995
and 1994 $204,826 $546,105
======== ========
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 and six months ended November 30, 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).
On October 30, 1995, the Company effected a two-for-one split of the
outstanding Class A and Class B Common Stock in the form of a 100% stock
dividend. The applicable outstanding shares and net income per common share
figures for previous periods have been restated to reflect this change.
NOTE 3 - Inventories:
___________
Inventories by major classification are as follows:
Nov. 30, May 31,
1995 1995
________ ________
(in thousands)
Finished goods $686,725 $618,521
Work-in-process 21,701 9,064
Raw materials 2,422 2,157
________ ________
$710,848 $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
_________________
Net income increased 39.2% and 48.2% for the second quarter ended
and six months ended November 30, 1995, respectively, over the prior
year's comparable periods. Net income for the quarter and six months
ended November 30, 1995 totaled $118.2 million, or $0.80 per share, and
$283.0 million, or $1.93, respectively, compared with $84.9, or $0.58
per share, and $190.9, or $1.29 per share, for the same periods last
year. For the quarter ended November 30, 1995, as compared to
the prior year revenues increased 37% to a record $1.443 billion,
gross margin percentage remained flat at 39.3%, and selling and
administrative expenses was reduced 0.7 percentage points as a
percentage of revenues, to 24.8%. This was the Company's seventh
consecutive quarter of record revenues and fifth consecutive quarter of
record net income, comopared to the same period of the prior year.
Revenues for the quarter increased $389.3 million over the $1.054
billion reported in the same period of the prior year, reflecting
increases in nearly all categories of both footwear and apparel
in the U.S. and internationally. U.S. revenues increased $180.9
million, or 33%, lead by apparel which increased $97.9 million, or 100%,
to $195.8 million compared with the second quarter last year. U.S.
footwear increased $83 million, or 18%, to $538.5 million, resulting
from a 12% increase in pairs shipped and a 6% increase in average
selling price. Revenues from international (non-U.S.) operations
increased $133.3 million, or 30%, to $573.3 million, composed of 29% a
nd 34% increases in international footwear and apparel revenues,
respectively. Comparisons of units and average selling price
is not as meaningful to apparel due to the significant variation of
apparel product mix. Other brands, which includes Cole Haan (R), Tetra
Plastics, Sports Specialties and Canstar Sports, increased $75.0
million. $67.0 million of this increase relates to Canstar Sports,
which was acquired in the third quarter of the prior fiscal year. The
breakdown of revenues follows:
Three Months Ended Six Months Ended
November 30, November 30,
1995 1994 % Change 1995 1994 % Change
____ ____ ___ ____ ____ ___
(in thousands)
U.S. Footwear $ 538,497 $ 455,459 18% $1,330,065 $1,110,601 20%
U.S. Apparel 195,795 97,884 100 378,278 192,619 96
__________ __________ __________ _________
Total United States 734,292 553,343 33 1,708,343 1,303,220 31
__________ __________ __________ _________
International Footwear 394,712 306,828 29 761,390 583,290 31
International Apparel 178,615 133,184 34 304,649 218,318 40
__________ __________ __________ _________
Total International 573,327 440,012 30 1,066,039 801,608 33
__________ __________ __________ _________
Other Brands 135,408 60,391 124 283,294 119,273 138
__________ __________ _________ _________
Total Revenues $1,443,027 $1,053,746 37% $3,057,676 $2,224,101 37%
========== ========== === ========= ========= ===
Consolidated gross margin percentage remained flat at 39.3% and
39.7% for the quarter and six months ended November 30, 1995,
respectively, compared with the same periods last year. Strong demand
for NIKE products worldwide combined with sound inventory management
resulted in continued stable margins. The Company continues to place
strong emphasis on inventory management, minimizing foreign exchange
risk and production sourcing in order to maximize gross profit. Gross
profit percentages for the remaining six months of fiscal year 1996 are
expected to be affected by strong demand for NIKE products offset by
continued increased levels of air freight to meet the delivery dates on
increasing customer orders.
Selling and administrative expenses increased $89.7 million and
$156.9 million for the quarter and six months ended November 30, 1995,
respectively, compared with same periods last year. For the quarter,
U.S. NIKE brand operations accounted for the majority of the increase,
up $57 million, primarily in planned marketing and advertising expenses.
International expenses increased $20 million for the quarter over last
year, with $4 million due to the effect of exchange rate fluctuations.
Canstar Sports added $11 million of expenses. The Company expects to
continue to invest in growth opportunities and to increase marketing
expenses in order to ensure the successful sell-through of the
unprecedented volume of customer orders discussed below. As a
result, the Company expects that selling and administrative expenses as
a percentage of revenues for the remaining six months of the this fiscal
year will increase to levels consistent with the prior year.
Interest expense increased $4.0 million and $10.7 million for the
quarter and six months ended November 30, 1995, respectively, compared
with the same periods last year. The increase is due to increased short
term borrowings in the U.S. and international operations needed to fund
current operations. In the prior year, cash and equivalents
were higher through November 30, as available cash was subsequently used
to fund the third quarter acquisition of Canstar Sports. Other expense
increased $7.1 million and $16.3 million for the quarter and six months
ended November 30, 1995, respectively, compared with the same periods
last year. The increase is primarily due to increased goodwill
amortization resulting from the acquisition of Canstar Sports, and
decreased interest income from lower available cash.
The Company's effective tax rate for both the quarter and six
months ended November 30, 1995 was 38.5%, compared to 39.0% in both of
the prior year's comparable periods. The Company anticipates that the
tax rate will remain at 38.5% for fiscal year 1996.
Worldwide orders for NIKE Brand athletic footwear and apparel
scheduled for delivery from December 1995 through April 1996 are
approximately $2.7 billion, 34% higher than such orders booked in
the comparable period of the prior year. These orders are not
necessarily indicative of total revenues over that period 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 account for
a greater percentage of total revenues and place 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 $190 million since May 31, 1995. In addition, the
working capital ratio increased from 1.8:1 at May 31, 1995 to 2.0:1 at
November 30, 1995.
Cash and equivalents decreased $11.2 million from May 31, 1995.
Cash provided by operations was reduced by changes in other
working capital components discussed below. Other significant uses of
cash included additions to property, plant and equipment, reductions in
long-term debt and dividends paid. The most significant source of
cash was from an increase in notes payable.
The decrease in cash due to other working capital components
was due primarily to increases in accounts receivable and inventories,
offset by increases in accrued liabilities. The increase in accounts
receivable of $131.6 million was due to sales growth in both October
and November over last fiscal year's final two months. Overall
inventories increased $81.1 million in conjunction with levels of
operations. U.S. footwear, U.S. apparel and international footwear
and apparel inventories have increased $20.8 million, $18.5 million
and $30.1 million, respectively. Increases in accrued liabilities
are a result of the increased levels of the Company's operations,
most significantly, international 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 retire long-term debt acquired in
the purchase of Canstar Sports.
Notes payable increased in order to fund the high level of
operations.
During the quarter, the Company announced a 20% increase in the
quarterly cash dividend to $0.15 per share from the previous $0.125
per share.
For the six months ended November 30, 1995, the Company has
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. There were no
purchases during the second quarter.
The debt to equity ratio at November 30, 1995 was .6:1 compared
to .6:1 at May 31, 1995 and .4:1 at November 30, 1994. Management
believes that funds generated by operations, together with
currently available resources, will adequately finance anticipated
fiscal 1996 expenditures. At November 30, 1995, the Company
had $500 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 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 Quarterly Report on Form
10-Q for the first quarter ended August 31, 1995).
3.2 Third Restated Bylaws, as amended (incorporated by referencec from
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
first quarter ended August 31, 1995).
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 (in-
corporated by reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarte rended August 31, 1995).
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
September 18, 1995 ITEM 5. OTHER EVENTS. Press release announcing
first quarter earnings.
November 17, 1995 ITEM 5. OTHER EVENTS. Press release announcing
$.15 per share dividend.
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:
________________________
Robert S. Falcone
Vice President,
Chief Financial Officer
DATED: January 12, 1996