SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 16, 1996
NIKE, INC.
(Exact name of registrant as specified in its charter)
Oregon 1-10635 93-0584541
(State of incorporation) (Commission File (IRS Employer
Number) Identification No.)
One Bowerman Drive, Beaverton, Oregon 97005-6453
(Address of principal executive offices) (Zip Code)
(503) 671-6453
(Registrant's telephone number, including area code)
Item 5. OTHER EVENTS
The Registrant issued the following press release on September 16, 1996:
Beaverton, OR (September 16, 1996) -- NIKE, Inc. (NYSE:NKE) today reported
record revenues and earnings for the Company's first quarter ended August 31,
1996. First quarter net income totaled $226.1 million or $1.53 per share
compared to $182.1 million, or $1.25 per share. Worldwide revenues were $2.28
billion, up 34 percent from $1.70 billion last year.*
The Company also reported worldwide futures orders for athletic footwear
and apparel scheduled for delivery between September 1996 and January 1997
total a record $3.5 billion, 66 percent higher than such orders for the
same period last year. Worldwide futures orders were not materially
impacted by the change in the value of the U.S. dollar compared to year-ago
levels. This significant increase in worldwide orders for the period is due
both to continued growth of NIKE core business and a change in the mix of
futures and "at once" shipments as NIKE futures programs become more
established on a global basis, particularly in apparel.**
The Company also announced that its Board of Directors has approved a
two-for-one stock split in both NIKE Class A and Class B Common shares.
This stock split will be in the form of a 100 percent stock dividend to
be paid on October 23, 1996 to shareholders of record at the close of
business on October 11, 1996.
NIKE Chairman Philip H. Knight stated, "One year ago, we approved a
two-for-one stock split. At that time, I cited the growing power of
the NIKE brand as strong evidence of our outstanding financial performance.
That brand strength, which many thought was nearing its peak last year,
continues to grow unabated in fiscal 1997, propelling NIKE to the best
quarter in our history, record futures orders, and another stock split
for our shareholders.
"The strength of the NIKE brand is clearly evident in the U.S. market
where both our footwear and apparel are experiencing outstanding sell-through
at retail. In footwear, our men's basketball business in the U.S. grew
48 percent in the first quarter, an exceptional number given our dominant
position in that market.
"We continue to gain share in the U.S. in women's footwear, with women's
fitness and women's sports revenues up 45 percent and 68 percent
respectively. The running category remains particularly strong, with
men's running up more than 50 percent for the second consecutive quarter.
"Our apparel business continues to grow rapidly. Despite some delays in
our U.S. apparel shipments in the quarter, our U.S. apparel business
increased 93 percent compared to last year. Our ability to execute at
both the design and production levels, our dominant presence on the
field of play, and our excellence in retail presentation will all help
establish NIKE as the leading brand in the athletic apparel market in
fiscal 1997.**
"NIKE's brand presence outside the U.S. market continues to develop
dramatically. International revenues increased 35 percent compared
to last year, with key European markets such as the United Kingdom,
Italy and Germany showing particular strength. In the Asia Pacific
region, all countries recorded revenue increases in excess of 35 percent.
"As the NIKE brand continues to sell through at record levels, the
percentage of our business being done under our futures program
continues to climb, particularly in U.S. apparel and international
markets. In U.S. footwear, the broad-based strength in futures orders
continues with men's basketball up 55 percent, kids' up 74 percent and
women's sport up 45 percent."
In the first quarter, U.S. athletic footwear and apparel revenues
totaled $1.35 billion, an increase of 39 percent. International
athletic footwear and apparel revenues increased 35 percent to $780.9
million. Had the U.S. dollar remained constant at year-ago levels,
international revenues would have increased 45 percent in the quarter.
Revenues from other brands, which include Bauer, Cole Haan(R), Tetra
Plastics and Sports Specialties, decreased less than one percent to
$146.6 million.
Consolidated gross margins for the quarter were 40.3 percent compared
to 40.4 percent last year. Selling and administrative expenses were
23.2 percent of first quarter revenues, compared to 21.7 percent last year.
NIKE's balance sheet remained very strong. The current ratio at
August 31, 1996 was 1.9 to 1. Cash and short-term investments totaled
$398.1 million. Total U.S. footwear inventory units ended the quarter
down 22 percent compared to May 31, 1996 and up 9 percent from August 31,
1995.
NIKE, Inc., based in Beaverton, Oregon, is the world's leading designer
and marketer of authentic athletic footwear, apparel and accessories
for a wide variety of sports and fitness activities. Wholly-owned NIKE
subsidiaries include Bauer Inc., the world's leading manufacturer of
hockey equipment; Cole Haan, which markets a line of high-quality men's
and women's dress and casual shoes; and Sports Specialties Corporation,
which markets a full line of licensed headwear. All per share data
reflects the Company's previous 2-for-1 stock split which became
effective October 30, 1995. Total revenues for the trailing twelve
months ending August 31, 1996 were $7.07 billion.
*Certain of the Company's international subsidiaries changed their
fiscal years to coincide with the Company's consolidated fiscal year-end
of May. This change, effective June 1, 1996, does not have a material
effect on the annual results of operations. The results reported this
quarter are reflecting the change in the international subsidiaries
year-end and are therefore not comparable to the first quarter results
as reported last year. Comparisons for the first quarter last year are
stated as they would have appeared had the subsidiaries reported on a
same month basis.
** The marked items are forward-looking statements that involve
risks and uncertainties that could cause actual results to differ
materially. These risks and uncertainties are detailed from time
to time in reports filed by NIKE with the S.E.C., including Forms 8-K,
10-Q, and 10-K. Some forward-looking statements in this release
concern futures orders which are not necessarily indicative of total
revenues for subsequent periods due to the mix of futures and "at once"
orders, which may vary significantly from quarter to quarter.
NIKE, Inc.
INCOME STATEMENT Quarter Ending
8/31/96 8/31/95
Revenues $2,281,926 $1,700,020
Cost and Expenses
Cost of Sales 1,362,119 1,013,379
S G & A 529,537 369,043
Interest Expense 12,666 11,251
Other 8,641 10,249
Total Costs 1,912,963 1,403,922
_________ _________
Pre Tax Income 368,963 296,098
Income Taxes 142,900 114,000
_________ _________
Net Income $ 226,063 $ 182,098
Income Per Share $1.53 $1.25
_________ ________
Dividend $0.15 $0.125
Average Shares Outstanding 148,184 145,852
===========================================================================
Divisional Revenues
U.S. Athletic Footwear $1,002,103 $ 791,568
U.S. Athletic Apparel 352,385 182,483
__________ __________
Total U.S. Athletic 1,354,488 974,051
International Footwear 548,538 427,032
International Apparel 232,339 151,051
__________ __________
Total International 780,877 578,083
Other Brands 146,561 147,886
__________ __________
Total $2,281,926 $1,700,020
=========================================================================
Percentage Change
U.S. Athletic Footwear 27% 21%
U.S. Athletic Apparel 93% 93%
__ __
Total U.S. Athletic 39% 30%
International Footwear 28% 30%
International Apparel 54% 30%
__ __
Total International 35% 30%
Other Brands -1% 151%
__ ___
34% 36%
=========================================================================
Balance Sheet
Assets
Cash and Investments $ 398,098 $ 178,556
Accounts Rec 1,627,046 1,192,172
Inventory 909,414 676,417
Deferred Taxes 88,852 68,682
Prepaid Expenses 120,298 87,300
_________ _________
Current Assets 3,143,708 2,203,127
_________ _________
Fixed Assets 1,116,998 934,801
Depreciation 425,420 352,091
_________ _________
Net Fixed Assets 691,578 582,710
_________ _________
Identifiable Intangible Assets and Goodwill 469,332 490,872
Other Assets 121,210 46,707
_________ _________
Total Assets $4,425,828 $3,323,416
========= =========
Liab and Equity
Current L/T Debt $4,175 $3,237
Notes Payable 539,210 325,937
Accounts Payable 416,600 367,797
Accrued Liability 525,738 338,902
Inc Taxes Payable 141,287 109,397
_________ _________
Current Liab 1,627,010 1,145,270
Long Term Debt 107,247 14,082
Non-Curr Deferred Tax 1,764 17,921
Other Long-Term Liab 32,559 42,952
Preferred Stock 300 300
Common Equity 2,656,948 2,102,891
_________ _________
Total Liab & Equity $4,425,828 $3,323,416
ITEM 5. OTHER EVENTS
In September of 1996, the Company announced a two-for-one stock split
in both NIKE 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 23, 1996
to sharholders of record at the close of business on October 11, 1996. The
common shares and the per common share amounts in the Consolidated Financial
Statements and accompanying notes below have been adjusted to reflect this
stock split.
REPORT OF INDEPENDENT ACCOUNTANTS
Portland, Oregon
July 3, 1996, except as to Note 16, which is as of September 24, 1996
To the Board of Directors and
Shareholders of NIKE, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 32 present fairly, in all
material respects, the financial position of NIKE, Inc. and its
subsidiaries at May 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended
May 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
NIKE, INC.
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED MAY 31,
--------------------------------
1996 1995 1994
---------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues $6,470,625 $4,760,834 $3,789,668
Costs and expenses:
Costs of sales 3,906,746 2,865,280 2,301,423
Selling and administrative 1,588,612 1,209,760 974,099
Interest expense (Notes 4 and 5) 39,498 24,208 15,282
Other income/expense, net (Notes 1, 9 and 10) 36,679 11,722 8,270
5,571,535 4,110,970 3,299,074
Income before income taxes 899,090 649,864 490,594
Income taxes (Note 6) 345,900 250,200 191,800
Net income $ 553,190 $ 399,664 $ 298,794
Net income per common share (Notes 1 and 16) $ 1.89 $ 1.36 $ .99
Average number of common and common
equivalent shares (Notes 1 and 16) 293,608 294,012 301,824
The accompanying notes to consolidated financial statements are an integral part of this statement.
NIKE, INC.
CONSOLIDATED BALANCE SHEET
MAY 31,
---------------------
1996 1995
---------- ----------
(IN THOUSANDS)
ASSETS
------
Current Assets:
Cash and equivalents $ 262,117 $ 216,071
Accounts receivable, less allowance for doubtful accounts
of $43,372 and $32,663 1,346,125 1,053,237
Inventories (Note 2) 931,151 629,742
Deferred income taxes (Note 6) 93,120 72,657
Prepaid expenses 94,427 74,221
Total current assets 2,726,940 2,045,928
Property, plant and equipment, net (Notes 3 and 5) 643,459 554,879
Identifiable intangible assets and goodwill (Note 1) 474,812 495,907
Deferred income taxes and other assets 106,417 46,031
Total assets $3,951,628 $3,142,745
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long-term debt (Note 5) $ 7,301 $ 31,943
Notes payable (Note 4) 445,064 397,100
Accounts payable (Note 4) 455,034 297,656
Accrued liabilities 480,407 345,224
Income taxes payable 79,253 35,612
Total current liabilities 1,467,059 1,107,535
Long-term debt (Notes 5 and 13) 9,584 10,565
Deferred income taxes (Note 6) 1,883 17,789
Other liabilities (Note 1) 41,402 41,867
Commitments and contingencies (Notes 11 and 14) -- --
Redeemable Preferred Stock (Note 7) 300 300
Shareholders' equity (Notes 8 and 16):
Common Stock at stated value:
Class A convertible 102,240, and 103,580 shares outstanding 153 155
Class B 185,018 and 182,200 shares outstanding 2,702 2,698
Capital in excess of stated value 154,833 122,436
Foreign currency translation adjustment (16,501) 1,585
Retained earnings 2,290,213 1,837,815
Total shareholders' equity 2,431,400 1,964,689
Total liabilities and shareholders' equity $3,951,628 $3,142,745
The accompanying notes to consolidated financial statements are
an integral part of this statement.
NIKE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED MAY 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
Cash provided (used) by operations:
Net income $553,190 $399,664 $298,794
Income charges (credits) not affecting cash:
Depreciation 97,179 71,113 64,531
Deferred income taxes and purchased tax benefits (73,279) (24,668) (23,876)
Other liabilities (465) (1,359) (3,588)
Amortization and other 35,199 19,125 8,067
Changes in certain working capital components:
(Increase) decrease in inventory (301,409) (69,676) 160,823
(Increase) decrease in accounts receivable (292,888) (301,648) 23,979
(Increase) decrease in other current assets (20,054) (10,276) 6,888
Increase (decrease) in accounts payable, accrued
liabilities and income taxes payable 332,548 172,638 40,845
Cash provided by operations 330,021 254,913 576,463
Cash provided (used) by investing activities:
Additions to property, plant and equipment (216,384) (154,125) (95,266)
Disposals of property, plant and equipment 12,775 9,011 12,650
Additions to other assets (26,376) (6,260) (5,450)
Acquisition of subsidiaries:
Identifiable intangible assets and goodwill -- (345,901) (2,185)
Net assets acquired -- (84,119) (1,367)
Cash used by investing activities (229,985) (581,394) (91,618)
Cash provided (used) by financing activities:
Additions to long-term debt 5,044 2,971 6,044
Reductions in long-term debt including current portion (30,352) (39,804) (56,986)
Increase (decrease) in notes payable 47,964 263,874 (2,939)
Proceeds from exercise of options 21,150 6,154 4,288
Repurchase of stock (18,756) (142,919) (140,104)
Dividends common and preferred (78,834) (65,418) (60,282)
Cash provided (used) by financing activities (53,784) 24,858 (249,979)
Effect of exchange rate changes on cash (206) (1,122) (7,334)
Net (decrease) increase in cash and equivalents 46,046 (302,745) 227,532
Cash and equivalents, beginning of year 216,071 518,816 291,284
Cash and equivalents, end of year $262,117 $216,071 $518,816
Supplemental disclosure of cash flow of information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 32,800 $ 20,200 $ 11,300
Income taxes 359,300 285,400 189,800
Supplemental schedule of non-cash investing activities:
The Company had a like-kind exchange of certain
equipment during the 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 new NIKE subsidiaries
during the year as follows:
Assets acquired --- --- $124,966
Less: cash paid --- --- (3,552)
Liabilities assumed --- --- $121,414
The accompanying notes to consolidated financial statements are an integral part of this
statement.
NIKE, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
CAPITAL
COMMON STOCK IN
--------------------------- EXCESS FOREIGN
CLASS A CLASS B OF CURRENCY
------------- ------------- STATED TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT VALUE ADJUSTMENT EARNINGS TOTAL
------ ------ ------ ------ -------- ----------- ---------- ----------
(IN THOUSANDS)
Balance at May 31, 1993 26,691 $159 49,161 $2,720 $108,451 $(7,790) $1,539,279 $1,642,819
Stock options exercised 167 1 6,287 6,288
Conversion to Class B Common Stock (12) --- 12 --- ---
Repurchase of Class B Common Stock (2,819) (17) (6,454) (133,633) (140,104)
Translation of statements of
international operations (7,333) (7,333)
Net income 298,794 298,794
Dividends on Redeemable Preferred Stock (30) (30)
Dividends on Common Stock (59,485) (59,485)
Balance at May 31, 1994 26,679 159 46,521 2,704 108,284 (15,123) 1,644,925 1,740,949
Stock options exercised 241 2 8,954 8,956
Conversion to Class B Common Stock (784) (4) 784 4 __
Repurchase of Class B Common Stock (2,130) (13) (4,801) (138,106) (142,920)
Stock issued pursuant to
contractual obligations 134 1 9,999 10,000
Translation of statements of
international operations 16,708 16,708
Net income 399,664 399,664
Dividends on Redeemable Preferred Stock (30) (30)
Dividends on Common Stock (68,638) (68,638)
Balance at May 31,1995 25,895 155 45,550 2,698 122,436 1,585 1,837,815 1,964,689
Stock options exercised 756 3 32,848 32,851
Conversion to Clas B Common Stock (655) (2) 655 2 ---
Repurchase of Class B Common Stock (200) (1) (451) (18,304) (18,756)
Two-for-one Stock Split
October 30, 1995 25,880 45,748
Translation of statements of
international operations (18,086) (18,086)
Net Income 553,190 553,190
Dividends on Redeemable
Preferred Stock (30) (30)
Dividends on Common Stock (82,458) (82,458)
Balance at May 31, 1996 51,120 $153 92,509 $2,702 $154,833 $(16,501) $2,290,213 $2,431,400
Balance at May 31, 1996
affected for the October 1996
stock split (Note 16) 102,240 $153 185,018 $2,702 $154,833 $(16,501) $2,290,213 $2,431,400
The accompanying notes to consolidated financial statements are an
integral part of this statement.
NIKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of consolidation:
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions and balances have
been eliminated. To facilitate the timely preparation of the consolidated
financial statements, the accounts of certain international operations have
been consolidated for fiscal years ending in April. The consolidated
financial statements in fiscal 1997 will eliminate the one month lag in
reporting for these international operations. The results of operations of
May 1996 of these entities, which would have previously been reported in
results of fiscal 1997, will be recorded as an adjustment to beginning
retained earnings for fiscal 1997.
Recognition of revenues:
Revenues recognized include sales plus fees earned on sales by licensees.
Advertising:
Advertising production costs are expensed the first time the advertisement is
run. Media (TV and print) placement costs are expensed in the month the
advertising appears. Total advertising and promotion expenses were
$642,500,000, $495,000,000 and $373,100,000 for the years ended May 31, 1996,
1995 and 1994, respectively. Included in prepaid expenses and other assets
was $69,300,000 and $24,300,000 at May 31, 1996 and 1995, respectively,
relating to prepaid advertising and promotion expenses.
Cash and equivalents:
Cash and equivalents represent cash and short-term, highly liquid investments
with original maturities three months or less.
Inventory valuation:
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for substantially all U.S.
inventories. International inventories are valued on a first-in, first-out
(FIFO) basis.
Property, plant and equipment and depreciation:
Property, plant and equipment are recorded at cost. Depreciation for
financial reporting purposes is determined on a straight-line basis for
buildings and leasehold improvements and principally on a declining balance
basis for machinery and equipment, based upon estimated useful lives ranging
from three to thirty-two years.
Identifiable intangible assets and goodwill:
At May 31, 1996 and 1995, the Company had patents, trademarks and other
identifiable intangible assets with a value of $209,586,000 and $209,203,000,
respectively. The Company's excess of purchase cost over the fair value of
net assets of businesses acquired (goodwill) was $327,555,000 and $329,726,000
at May 31, 1996 and 1995, respectively.
Identifiable intangible assets and goodwill are being amortized over their
estimated useful lives on a straight-line basis over five to forty years.
Accumulated amortization was $62,329,000 and $43,022,000 at May 31, 1996 and
1995, respectively. Amortization expense, which is included in other
income/expense, was $21,772,000, $13,176,000 and $8,409,000 for the years
ended May 31, 1996, 1995 and 1994, respectively. Intangible assets are
periodically reviewed by the Company for impairments where the fair value is
less than the carrying value.
Other liabilities:
Other liabilities include amounts with settlement dates beyond one year, and
are primarily composed of long-term deferred endorsement payments of
$21,674,000 and $26,893,000 at May 31, 1996 and 1995, respectively. Deferred
payments to endorsers relate to amounts due beyond contract termination, which
are discounted at various interest rates and accrued over the contract period.
Endorsement contracts:
Accounting for endorsement contracts is based upon specific contract
provisions. Generally, endorsement payments are expensed uniformly over the
term of the contract after giving recognition to periodic performance
compliance provisions of the contracts. Contracts requiring prepayments are
included in prepaid expenses or other assets depending on the length of the
contract.
Foreign currency translation:
Adjustments resulting from translating foreign functional currency financial
statements into U.S. dollars are included in the currency translation
adjustment in shareholders' equity.
Derivatives:
The Company enters into foreign currency contracts in order to reduce the
impact of certain foreign currency fluctuations. Firmly committed
transactions and the related receivables and payables may be hedged with
forward exchange contracts or purchased options. Anticipated, but not yet
firmly committed, transactions may be hedged through the use of purchased
options. Premiums paid on purchased options and any gains are included in
accrued liabilities and are recognized in earnings when the transaction being
hedged is recognized. See Note 14 for further discussion.
Income taxes:
Income taxes are provided currently on financial statement earnings of
international subsidiaries expected to be repatriated. The Company intends to
determine annually the amount of undistributed international earnings to
invest indefinitely in its international operations.
In June 1993, the Company adopted Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes (FAS 109). The adoption of FAS 109
changes the Company's method of accounting for income taxes from the deferred
method (APB 11) to an asset and liability approach. Previously, the Company
deferred the past tax effects of timing differences between financial
reporting and taxable income. The asset and liability approach requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of other assets and liabilities. See Note 6 for further discussion.
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
periods reported.
On October 30, 1995, the Company issued additional shares in connection with a
two-for-one stock split effected in the form of a 100% stock dividend on
outstanding Class A and Class B common stock. The per common share amounts in
the Consolidated Financial Statements and accompanying notes have been
adjusted to reflect this stock split.
Management estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates, including
estimates relating to assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Reclassifications:
Certain prior year amounts have been reclassified to conform to fiscal 1996
presentation. These changes had no impact on previously reported results of
operations or shareholders' equity.
NOTE 2 - INVENTORIES
Inventories by major classification are as follows:
(in thousands)
May 31 1996 1995
Finished goods $906,943 $618,521
Work-in-progress 20,002 9,064
Raw materials 4,206 2,157
$931,151 $629,742
The excess of replacement cost over LIFO cost was $16,023,000 at
May 31, 1996, and $19,512,000 at May 31, 1995.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes the following:
(in thousands)
May 31 1996 1995
Land $ 75,369 $ 68,102
Buildings 246,602 224,586
Machinery and equipment 572,396 470,422
Leasehold improvements 83,678 63,716
Construction in process 69,660 64,387
1,047,705 891,213
Less accumulated depreciation 404,246 336,334
$ 643,459 $554,879
NOTE 4 - SHORT-TERM BORROWINGS AND CREDIT LINES
Notes payable to banks and interest bearing accounts payable
to Nissho Iwai American Corporation (NIAC) are summarized below:
(in thousands)
May 31 1996 1995
Borrowings Interest Rate Borrowings Interest Rate
Banks:
U.S. Operations $ --- ---% $118,609 6%
International Operations 445,064 4-3/8 278,491 5
$445,064 $397,100
NIAC $237,413 5-4/5% $129,480 6%
At May 31, 1995, the Company had no outstanding borrowings under its $300
million unsecured multiple option facility with sixteen banks. On September
15, 1995, the Company terminated this facility and entered into a new $500
million unsecured multiple-option facility with eleven banks, which matures on
October 31, 2000. This agreement contains optional borrowing alternatives
consisting of a committed revolving loan facility and a competitive bid
facility. The interest rate charged on this agreement is determined by the
borrowing option and, under the committed revolving loan facility, is either
the London Interbank Offered Rate (LIBOR) plus .19% or the higher of the Fed
Funds rate plus .50% or the Prime Rate. The agreement provides for annual
fees of .07% of the total commitment. Under the agreement, the Company must
maintain among other things certain minimum specified financial ratios with
which the Company was in compliance at May 31, 1996. At May 31, 1996, there
were no outstanding borrowings under this facility.
Ratings for the Company to issue commercial paper, which is required to be
supported by committed and uncommitted lines of credit, are A1 by Standard and
Poor's Corporation and P1 by Moody's Investor Service. At May 31, 1996 there
were no amounts outstanding and at May 31, 1995 there was $118,609,000
outstanding under these arrangements.
The Company has outstanding loans at interest rates at various spreads above
the banks' cost of funds for financing international operations. Certain of
these loans can be secured by accounts receivable and inventory.
The Company purchases through Nissho Iwai American Corporation(NIAC)
substantially all of the athletic footwear and apparel it acquires from non-
U.S. suppliers. Accounts payable to NIAC are generally due up to 120 days
after shipment of goods from the foreign port. Interest on such accounts
payable accrues at the ninety day LIBOR rate as of the beginning of the month
of the invoice date, plus .30%.
NOTE 5 - LONG-TERM DEBT
Long-term debt includes the following:
(in thousands)
May 31 1996 1995
10.4% senior secured note $ --- $22,244
9.43% capital warehouse lease, payable in
quarterly installments through 2007 7,485 9,078
Other 9,400 11,186
Total 16,885 42,508
Less current maturities 7,301 31,943
$ 9,584 $10,565
The senior secured note was acquired in connection with the acquisition
of Bauer and was liquidated subsequent to May 31, 1995. Amounts of long-term
maturities in each of the five fiscal years 1997 through 2001 respectively,
are $7,301,000, $2,407,000, $2,338,000, $863,000 and $800,000. As of
June 27, 1996, the Company's Japanese subsidiary borrowed 10.5 billion
Japanese yen in a private placement (approximately $100 million) with a
maturity of June 26, 2011. Interest is paid semi-annually at 4.3%. The
agreement provides for early retirement after year ten.
NOTE 6 - INCOME TAXES:
Income before income taxes and the provision for income
taxes are as follows:
(in thousands)
Year Ended May 31 1996 1995 1994
Income before income taxes:
United States $644,755 $467,548 $318,367
Foreign 254,335 182,316 172,227
$899,090 $649,864 $490,594
Provision for income taxes:
Current:
United States
Federal $247,526 $172,127 $121,892
State 42,622 34,764 23,832
Foreign 127,345 75,964 64,034
417,493 282,855 209,758
Deferred:
United States
Federal (33,003) (25,689) (12,931)
State ( 7,657) (2,430) (1,868)
Foreign (30,933) (4,536) (3,159)
(71,593) (32,655) (17,958)
$345,900 $250,200 $191,800
During fiscal 1994 the Company permanently reinvested approximately
$56,000,000 of its undistributed international earnings in certain
international subsidiaries. This resulted in a reduction of $12,800,000
in the 1994 provision for deferred income taxes.
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 was
signed into law, raising corporate rates 1%. This resulted in an increase
of approximately $7,200,000 in tax expense, computed as the impact of the
1% applied retroactively to earnings from January 1, 1993, and also to
deferred taxes in accordance with FAS 109.
The Company adopted FAS 109 during the first quarter of fiscal 1994.
The Company has elected to report the cumulative effect of the FAS 109
adoption as of May 31, 1987. The cumulative effect of $3,207,000 has
been recorded as a reduction in common shareholder's equity for each of
the years subsequent to 1987.
A benefit has been recognized for foreign loss carry forwards of
$96,600,000 and $32,700,000 at May 31, 1996 and 1995 respectively, which
have no expiration. As of May 31, 1996, the Company has utilized all
foreign tax credits.
Deferred tax liabilities (assets) are comprised of the following:
(in thousands)
May 31 1996 1995
Undistributed earnings of foreign subsidiaries $ 3,220 $ 18,164
Other 12,040 15,213
Gross deferred tax liabilities 15,260 33,377
Allowance for doubtful accounts (9,050) (7,952)
Inventory reserves (20,796) (15,645)
Deferred compensation (17,583) (10,221)
Reserves and accrued liabilities (42,870) (30,335)
Tax basis inventory adjustment (12,363) (8,852)
Depreciation (2,594) (1,796)
Foreign loss carry forwards (25,162) (6,000)
Other (12,978) (7,444)
Gross deferred tax assets (143,396) (88,245)
Net deferred tax assets $(128,136) $(54,868)
A reconciliation from the U.S. statutory federal income tax rate to the
effective income tax rate follows:
Year ended May 31, 1996 1995 1994
U.S. Federal statutory 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 2.6 3.2 3.2
Tax benefit from permanent reinvestment
of foreign earnings -- -- (2.6)
Impact of rate increase -- -- 1.5
Other, net .9 .3 2.0
Effective income tax rate 38.5% 38.5% 39.1%
During 1982, the Company purchased future tax benefits for
$15,277,000. Tax benefits of $2,697,000 in excess of the purchase
price have been recognized as of May 31, 1996 and are classified in
non-current deferred income taxes.
NOTE 7 - REDEEMABLE PREFERRED STOCK
NIAC is the sole owner of the Company's authorized Redeemable Preferred Stock,
$1 par value, which is redeemable at the option of NIAC at par value
aggregating $300,000. A cumulative dividend of $.10 per share is payable
annually on May 31 and no dividends may be declared or paid on the Common
Stock of the Company unless dividends on the Redeemable Preferred Stock have
been declared and paid in full. There have been no changes in the Redeemable
Preferred Stock in the three years ended May 31, 1996. As the holder of the
Redeemable Preferred Stock, NIAC does not have general voting rights but does
have the right to vote as a separate class on the sale of all or substantially
all of the assets of the Company and its subsidiaries, on merger,
consolidation, liquidation or dissolution of the Company or on the sale or
assignment of the NIKE trademark for athletic footwear sold in the United
States.
NOTE 8 - COMMON STOCK
The authorized number of shares of Class A Common Stock no par value and Class
B Common Stock no par value are 110,000,000 and 350,000,000, respectively.
The Company announced a two-for-one stock split which was effected in the form
of a 100% stock dividend on outstanding Class A and Class B Common Stock, paid
October 30, 1995. Each share of Class A common Stock is convertible into one
share of Class B Common Stock. Voting rights of Class B Common Stock are
limited in certain circumstances with respect to the election of directors.
The Company's Employee Incentive Compensation Plan (the "1980 Plan") was
adopted in 1980 and expired on December 31, 1990. The 1980 Plan provided for
the issuance of up to 13,440,000 shares of the Company's Class B Common Stock
in connection with the exercise of stock options granted under such plan. No
further grants will be made under the 1980 Plan.
In 1990, the Board of Directors adopted, and the shareholders approved, the
NIKE, Inc. 1990 Stock Incentive Plan (the "1990 Plan"). The 1990 Plan
provides for the issuance of up to 16,000,000 shares of Class B Common Stock in
connection with stock options and other awards granted under such plan. The
1990 Plan authorizes the grant of incentive stock options, non-statutory stock
options, stock appreciation rights, stock bonuses, and the sale of restricted
stock. The exercise price for incentive stock options may not be less than the
fair market value of the underlying shares on the date of grant. The exercise
price for non-statutory stock options and stock appreciation rights, and the
purchase price of restricted stock, may not be less than 75% of the fair
market value of the underlying shares on the date of grant. No consideration
will be paid for stock bonuses awarded under the 1990 Plan. The 1990 Plan is
administered by a committee of the Board of Directors. The committee has the
authority to determine the employees to whom awards will be made, the amount
of the awards, and the other terms and conditions of the awards. As of May
31, 1996, the committee has granted substantially all non-statutory stock
options at 100% of fair market value on the date of grant under the 1990 Plan.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS
No. 123), which is effective for years beginning after December 15, 1995. SFAS
No. 123 encourages, but does not require, companies to recognize compensation
expense for grants of common stock, stock options, and other equity
instruments to employees based upon the fair value of the instruments when
issued. Companies electing not to recognize compensation expense are required
to disclose what net income and earnings per share would have been if the
expense were recognized. At this time, the Company expects to elect the
disclosure option of SFAS No. 123 rather than recognition of compensation
expense.
The following summarizes the stock option transactions under the 1980 and 1990
Plans:
Shares Option Price
(in thousands) Per Share($)
Options outstanding May 31, 1994: 2,354 4-3/4 to 56-7/8
Exercised (223) 4-3/4 to 60-1/2
Surrendered (24) 37-5/8 to 59-3/4
Granted 581 58-7/8 to 74-7/8
Options outstanding May 31, 1995: 2,688 11-17/32 to 74-7/8
Exercised (623) 5-49/64 to 42
Surrendered (50) 26-7/16 to 42
Granted 647 42 to 96-3/8
Stock Split 2,991 5-49/64 to 42
Options outstanding May 31, 1996 5,653 6-9/32 to 96-3/8
Options exercisable at May 31
1995 1,018 11-17/32 to 60-1/2
1996 4,676 6-9/32 to 37-7/16
1996, affected for the October 1996
stock split (Note 16) 9,352 3-9/64 to 18-23/32
In addition to the option plans discussed previously, the Company
has several agreements outside of the plans with certain directors,
endorsers and employees. As of May 31, 1996, 7,734,000 options with exercise
prices ranging from $.417 per share to $23.16 per share had been granted.
The aggregate compensation expenses related to these agreements is $8,133,000
and is being amortized over vesting periods from October 1980 through October
1998. The outstanding agreements expire from February 1998 through September
2005.
The following summarizes transactions outside the option plans for the
three years ended May 31, 1996:
Shares Option Price
(in thousands) Per Share($)
Options outstanding May 31, 1994: 269 4-3/4 to 51
Exercised (18) 4-3/4 to 38-1/4
Surrendered -- --
Granted -- --
Options outstanding May 31, 1995: 251 4-3/4 to 56-1/4
Exercised (133) 4-3/4 to 43-1/4
Surrendered -- --
Granted 95 46-5/16 to 84
Stock Split 198 6-1/4 to 46-5/16
Options outstanding May 31, 1996: 411 6-1/4 to 46-5/16
Options outstanding May 31, 1996 affected for
October 1996 stock split (Note 16 822 3-1/8 to 23-5/32
Options exercisable at May 31:
1995 207 4-3/4 to 56-1/4
1996 160 6-1/4 to 28-3/8
1996, affected for the October 1996
stock split (Note 16) 320 3-1/8 to 14-3/16
NOTE 9 - BENEFIT PLANS:
The Company has a profit sharing plan available to substantially all
employees. The terms of the plan call for annual contributions by the Company
as determined by the Board of Directors. Contributions of $15,500,000,
$11,200,000 and $8,500,000 to the plan are included in other expense in the
consolidated financial statements for the years ended May 31, 1996, 1995 and
1994, respectively.
The Company has a voluntary 401(k) employee savings plan. The Company matches
with Common Stock a portion of employee contributions, vesting that portion
over 5 years. Company contributions to the savings plan were $4,660,000,
$3,363,000 and $3,503,000 for the years ended May 31, 1996, 1995 and 1994,
respectively.
NOTE 10 - OTHER INCOME/EXPENSE, NET
Included in other income/expense for the years ended May 31, 1996, 1995 and
1994, is interest income of $16,083,000, $26,094,000 and $19,064,000,
respectively. The Company recognized $11,412,000 and $7,060,000 in non-
recurring specific obligations associated with the shutdown of certain
facilities in conjunction with the consolidation of European warehouses for
the years ended May 31, 1995 and 1994, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company leases space for its offices, warehouses and retail stores under
leases expiring from one to twenty-one years after May 31, 1996. Rent expense
aggregated $52,483,000, $43,506,000 and $37,677,000 for the years ended May
31, 1996, 1995 and 1994, respectively. Amounts of minimum future annual
rental commitments under non-cancellable operating leases in each of the five
fiscal years 1997 through 2001 are $55,196,000, $54,189,000, $44,196,000,
$40,049,000, $37,025,000, respectively, and $247,320,000 in later years.
Lawsuits arise during the normal course of business. In the opinion of
management, none of the pending lawsuits will result in a significant impact
on the consolidated results of operations or financial position.
NOTE 12 - ACQUISITION OF BAUER INC.
During the third quarter of fiscal 1995, NIKE acquired all the outstanding
shares of Bauer Inc. (formerly Canstar Sports Inc.), the world's largest
hockey equipment manufacturer. The acquisition was accounted for using the
purchase method of accounting. The cash purchase price, including acqusition
costs, was approximately $409 million.
Bauer's assets and liabilities have been recorded in the Company's
consolidated balance sheet at their fair values at the acquisition date.
Identifiable intangible assets and goodwill relating to the purchase
approximated $336 million with estimated useful lives ranging from 5 to 40
years. The amortization period is based on the Company's belief that the
combined company has substantial potential for achieving long-term
appreciation of the fully integrated global company. Bauer will permit the
continued expansion of the current lines of business, as well as the
development of new businesses, which can be used to strategically exploit the
companies' brand names and products on an accelerated basis. NIKE believes
that the combined company will benefit from the acquisition for an
indeterminable period of time of at least 40 years and that therefore a 40-
year amortization period is appropriate. The proforma effect of the
acquisition on the combined results of operations in fiscal 1995 was not
significant.
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated balance sheet for cash and
equivalents and notes payable approximate fair value as reported in the
balance sheet because of their short maturities. The fair value of long-term
debt is estimated using discounted cash flow analyses, based on the Company's
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of the Company's long-term debt at May 31, 1996, is approximately
$9,539,000, compared to a carrying value $9,584,000. See Note 14 for
discussion of derivatives.
NOTE 14 - FINANCIAL RISK MANAGEMENT AND DERIVATIVES
The purpose of the Company's foreign currency hedging activities is to protect
the Company from the risk that the eventual dollar cash flows resulting from
the sale and purchase of products in foreign currencies will be adversely
affected by changes in exchange rates. The Company does not hold or issue
financial instruments for trading purposes. It is the Company's policy to
utilize derivative financial instruments to reduce foreign exchange risks
where internal netting strategies cannot be effectively employed.
Fluctuations in the value of hedging instruments are offset by fluctuations in
the value of the underlying exposures being hedged.
The Company uses forward exchange contracts and purchased options to hedge
certain firm purchases and sales commitments and the related receivables and
payables. Purchased currency options are used to hedge certain anticipated
but not yet firmly committed transactions expected to be recognized within one
year. Hedged transactions are denominated primarily in European currencies,
Japanese yen and Canadian dollar. Premiums paid on purchased options and any
realized gains are included in accrued liabilities and recognized in earnings
when the transaction being hedged is recognized. Deferred option premiums,
net of realized gains, were a liability of $5.1 million and $0.9 million at
May 31, 1996 and 1995, respectively. Gains and losses related to hedges of
firmly committed transactions and the related receivables and payables are
deferred and are recognized in income or as adjustments of carrying amounts
when the offsetting gains and losses are recognized on the hedged transaction.
Net realized and unrealized gains (losses) on forward contracts deferred at
May 31, 1996 and 1995 were $20.7 million and ($11.8) million, respectively.
The estimated fair values of derivatives used to hedge the Company's risks
will fluctuate over time. The fair value of the forward exchange contracts is
estimated by obtaining quoted market prices. The fair value of option
contracts is estimated using option pricing models widely used in the
financial markets. These fair value amounts should not be viewed in
isolation, but rather in relation to the fair values of the underlying hedged
transactions and the overall reduction in the Company's exposure to adverse
fluctuations in foreign exchange rates. The notional amounts of derivatives
summarized below do not necessarily represent amounts exchanged by the parties
and, therefore, are not a direct measure of the exposure to the Company
through its use of derivatives. The amounts exchanged are calculated on the
basis of the notional amounts and the other terms of the derivatives, which
relate to interest rates, exchange rates or other financial indices.
The following table presents the aggregate notional principal amount,
carrying values and fair values of the Company's derivative financial
instruments outstanding at May 31, 1996 and 1995.
(in millions)
May 31, 1996 May 31, 1995
Notional Notional
Principal Carrying Fair Principal Carrying Fair
Amounts Values Values Amounts Values Values
Forward Contracts: $1,422.8 ($2.1) $14.5 $706.2 ($ 1.4) ($13.8)
Purchased Options 280.2 2.6 .5 62.5 1.4 1.3
Total $1,703.0 $ .5 $15.0 $768.7 -- ($12.5)
At May 31, 1996 and May 31, 1995, the Company had no contracts outstanding
with maturities beyond one year. All realized gains/losses deferred at May
31, 1996 will be recognized within one year.
The counterparties to derivative transactions are major financial institutions
with investment grade or better credit ratings; however, this does not
eliminate the Company's exposure to credit risk with these institutions. This
credit risk is generally limited to the unrealized gains in such contracts
should any of these counterparties fail to perform as contracted and is
immaterial to any one institution at May 31, 1996 and 1995. To manage this
risk, the Company has established strict counterparty credit guidelines which
are continually monitored and reported to Senior Management according to
prescribed guidelines. Additionally, the Company utilizes a portfolio of
financial institutions either headquartered or operating in the same countries
the Company conducts its business. As a result, the Company considers the
risk of counterparty default to be minimal.
NOTE 15 - INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREAS
The Company operates predominantly in one industry segment, that
being the design, production, marketing and selling of sports and
fitnes footwear, apparel and accessories. During 1996, 1995 and 1994,
sales to one major customer amounted to approximately 12%, 14% and 14%
of total sales, respectively. The geographic distribution of the
Company's identifiable assets, operating income and revenues are
summarized in the following table:
(in thousands)
Year ended May 31, 1996 1995 1994
Revenues from unrelated entities:
United States $3,964,662 $2,997,864 $2,432,684
Europe 1,334,340 980,444 927,269
Asia/Pacific 735,094 515,652 283,421
Latin America/Canada and other 436,529 266,874 146,294
$6,470,625 $4,760,834 $3,789,668
Inter-geographic revenues:
United States $ 8,153 $ 6,396 $ 3,590
Europe 7,398 5,438 6,514
Asia/Pacific -- -- --
Latin America/Canada and other 67,062 31,449 9,872
$ 82,613 $ 43,283 $ 19,976
Total revenues:
United States $3,972,815 $3,004,260 $2,436,274
Europe 1,341,738 985,882 933,783
Asia/Pacific 735,094 515,652 283,421
Latin America/Canada and other 503,591 298,323 156,166
Less inter-geographic revenues (82,613) (43,283) (19,976)
$6,470,625 $4,760,834 $3,789,668
Operating income:
United States $ 697,094 $ 501,685 $ 344,632
Europe 145,722 113,800 124,242
Asia/Pacific 123,585 64,168 46,753
Latin America/Canada and other 55,851 37,721 19,141
Less corporate, interest and other income
(expense) and eliminations (123,162) (67,510) (44,174)
$ 899,090 $ 649,864 $ 490,594
Assets:
United States $2,371,991 $1,425,932 $1,171,948
Europe 941,522 831,468 487,085
Asia/Pacific 386,485 306,390 197,067
Latin America/Canada and other 188,839 383,263 79,549
Total identifiable assets 3,888,837 2,947,053 1,935,649
Corporate cash and eliminations 62,791 195,692 438,166
Total assets $3,951,628 $3,142,745 $2,373,815
NOTE 16 - OCTOBER 1996 STOCK SPLIT
In September of 1996, the Company announced a two-for-one stock split
in both NIKE 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 23, 1996
to sharholders of record at the close of business on October 11, 1996. The
common shares and the per common share amounts in the Consolidated Financial
Statements and accompanying notes have been adjusted to reflect this stock
split.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the documents
listed below, of our report dated July 3, 1996, except as to Note 16,
which is as of September 24, 1996 which appears in this Form 8-K:
1. Prospectus constituting part of the NIKE, Inc. Registration Statement
on Form S-8 (No. 2-81419);
2. Prospectus constituting part of the NIKE, Inc. Registration Statement
on Form S-8 (No. 33-29262);
3. Prospectus constituting part of the NIKE, Inc. Registration Statement
on Form S-3 (No. 33-43205).
4. Prospectus constituting part of the NIKE, Inc. Registration Statement
on Form S-3 (No. 33-48977); and
5. Prospectus constituting part of the NIKE, Inc. Registration Statement
on Form S-3 (No. 33-41842).
6. Prospectus constituting part of the NIKE, Inc. Registration Statement
on Form S-8 (No. 33-63995).
Price Waterhouse LLP
Portland, Oregon
September 26, 1996
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
NIKE, Inc.
(Registrant)
Date: September 25, 1996
By /s/ Robert S. Falcone
Vice President and
Chief Financial Officer