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, 1996 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, 1996 were:
_________________
Class A 101,731,470
Class B 186,633,670
_________________
288,365,140
==========
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
NIKE, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
Nov. 30, May 31,
1996 1996
________ _______
(in thousands)
ASSETS
Current assets:
Cash and equivalents $ 267,534 $ 262,117
Accounts receivable 1,572,426 1,346,125
Inventories (Note 3) 981,080 931,151
Deferred income taxes 104,820 93,120
Prepaid expenses 145,096 94,427
__________ _________
Total current assets 3,070,956 2,726,940
__________ _________
Property, plant and equipment 1,200,747 1,047,705
Less accumulated depreciation 442,990 404,246
__________ __________
757,757 643,459
Identifiable intangible assets and goodwill 471,394 474,812
Other assets 121,048 106,417
__________ __________
$4,421,155 $3,951,628
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,214 $ 7,301
Notes payable 432,517 445,064
Accounts payable 465,686 455,034
Accrued liabilities 521,351 480,407
Income taxes payable 42,774 79,253
__________ __________
Total current liabilities 1,465,542 1,467,059
Long-term debt 98,970 9,584
Non-current deferred income taxes 1,802 1,883
Other long-term liabilities 34,832 41,402
Commitments and contingencies (Note 4) - -
Redeemable Preferred Stock 300 300
Shareholders' equity:
Common Stock at stated value (Note 2):
Class A convertible-101,731 and
102,240 shares outstanding 152 153
Class B-186,634 and 185,018 shares
outstanding 2,704 2,702
Capital in excess of stated value 179,973 154,833
Foreign currency translation
adjustment (1,716) (16,501)
Retained earnings 2,638,596 2,290,213
___________ __________
2,819,709 2,431,400
___________ __________
$4,421,155 $3,951,628
========== ==========
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,
__________________ __________________
1996 1995* 1996 1995*
____ ____ ____ ____
(in thousands, except per share data)
Revenues $2,107,034 $1,356,758 $4,388,960 $3,056,778
_________ _________ _________ _________
Costs and expenses:
Cost of sales 1,277,628 828,129 2,639,747 1,841,508
Selling and administrative 530,453 353,715 1,059,990 722,758
Interest 10,228 8,527 22,894 19,778
Other expense (income) (147) 7,375 8,494 17,624
________ ________ _________ _________
1,818,162 1,197,746 3,731,125 2,601,668
________ ________ _________ _________
Income before income taxes 288,872 159,012 657,835 455,110
Income taxes 112,000 61,200 254,900 175,200
________ ________ _________ _________
Net income $ 176,872 $ 97,812 $ 402,935 $ 279,910
========= ========= ========== ==========
Net income per common share(Note 2) $ 0.60 $ 0.34 $ 1.36 $ .96
========= ========= ========== ==========
Dividends declared per common share $ 0.10 $ 0.08 $ 0.18 $ 0.14
========= ========= ========== ==========
Average number of common and
common equivalent shares (Note 2) 297,022 293,988 296,693 292,840
========= ========= ========== ==========
*For comparable purposes with 1996, results for the three and six months
ended November 30, 1995 have been adjusted to reflect the elimination of
the one month lag in reporting by certain of the Company's international
operations. See further discussion under Note 5.
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,
_________________
1996 1995
____ ____
(in thousands)
Cash provided (used) by operations:
Net income $402,935 $279,910
Income charges (credits) not
affecting cash:
Depreciation 58,199 41,629
Deferred income taxes and
purchased tax benefits (5,910) (10,513)
Other 23,642 10,185
Changes in other working capital
components (353,850) (228,501)
________ _______
Cash provided by operations 125,016 92,710
________ _______
Cash (used) provided by investing activities:
Additions to property, plant and
equipment (187,579) (96,111)
Disposals of property, plant and
equipment 19,353 3,533
Increase in other assets (25,476) (2,770)
Decrease in other liabilities (9,652) --
_______ _______
Cash used by investing activities (203,354) (95,348)
_______ _______
Cash provided (used) by financing activities:
Additions to long-term debt 99,789 1,012
Reductions in long-term debt
including current portion (10,023) (27,103)
(Decrease) increase in notes payable (27,710) 58,670
Proceeds from exercise of options 13,242 12,709
Repurchase of stock -- (18,756)
Dividends paid - common and preferred (43,153) (35,800)
_______ _______
Cash provided (used) by financing
activities 32,145 (9,268)
_______ _______
Effect of exchange rate changes on cash 8,606 (9,169)
_______ _______
Effect of May 1996 cash flow activity for certain
subsidiaries (Note 5) 43,004 --
_______ _______
Net (decrease) increase in cash and equivalents 5,417 (21,075)
Cash and equivalents, May 31, 1996 and 1995 262,117 220,935
_______ _______
Cash and equivalents, November 30, 1996
and 1995 $267,534 $199,860
======== ========
*For comparable purposes with 1996, results for the six months ended November
30, 1995 have been adjusted to reflect the elimination of the one month lag in
reporting by certain of the Company's international operations. See further
discussion under Note 5.
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) and six (6) months ended November 30, 1996 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 23, 1996 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.
NOTE 3 - Inventories:
___________
Inventories by major classification are as follows:
Nov. 30, May 31,
1996 1996
________ ________
(in thousands)
Finished goods $902,547 $874,700
Work-in-process 44,737 28,940
Raw materials 33,796 27,511
________ ________
$981,080 $931,151
======== ========
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 - Change in year-end of certain subsidiaries:
__________________________________________
Prior to fiscal year 1997, certain of the Company's international
operations reported their results of operations on a one month lag
which allowed more time to compile results. The Company has taken steps
to improve its internal reporting procedures that has allowed for
more timely reporting of these operations. Beginning in the first
quarter of fiscal year 1997, the one month lag was eliminated. As a
result, the May 1996 loss from operations for these entities of
$4.1 million was recorded directly to retained earnings in the first
quarter of the current year. The change affected the previously reported
quarterly periods for these operations and thus, the income satement and
cash flow statement have been presented to show comparable results for the
quarter and year as if the change had occurred in the prior year. The effect
of the change is not material to the consolidated balance sheet and as a
result the balance sheet as of May 31, 1996 has not been adjusted.
NOTE 6 - Subsequent Event:
______________
In December of 1996, the Company issued $200 million seven-year notes
maturing December 1, 2003, with a stated rate of 6.375%.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Operating Results
_________________
Net income increased 81% over the prior year's second quarter,
rising to $176.9 million, or $0.60 per share, from $97.8 million, or
$0.34 per share last year. Year-to-date net income increased 44% to
$402.9 million, $3 million more than the Company's net income for the
entire 1995 fiscal year. Revenues were $2.1 billion, up 55% for the
quarter and 44% year-to-date. This quarter is the ninth straight
quarter of double digit increases in total revenues. Gross margin
percentage increased slightly for both the quarter and year-to-
date, while selling and administrative expenses decreased as a
percentage of revenues for the quarter, but increased as a percentage
of revenues on a year-to-date basis.
Revenues for the quarter increased $750.3 million over
the $1.4 billion reported in the same period of the prior year.
U.S. revenues increased $459.9 million, or 63%, for the second quarter,
and $840.3 million, or 49%, on a year-to-date basis. U.S. apparel
increased 93% over last year's second quarter and has increased more
than 85% in each of the last six quarters. U.S. footwear increased
$277.8 million, or 52%, over last year's second quarter due to a 48%
increase in pairs sold and a 4% increase in average selling price.
Increases can be seen in almost all categories, the most significant
being men's basketball up 38%, men's running up 90%, men's cross-
training up 57%, and women's fitness up 79%. For the quarter
international revenues increased $292.2 million, or 60%, with strong
growth in both footwear and apparel. Year-to-date, international
revenues increased $495.0 million, or 46%. All regions showed double
digit increases for the quarter with Europe up 42%, comprised of a 37%
increase in footwear and a 53% increase in apparel; Asia Pacific was up
96%, with a 111% growth rate in footwear and a 73% increase in apparel;
and the Americas region was up 45%, increasing 25% in footwear and 135%
in apparel. Japan, now the largest country outside the U.S. in
revenues, increased 171% in the quarter and 111% for the year. The
impact of exchange rates on the quarter's revenue was a decrease of $38
million, or 8%. For the year, rates have decreased revenues by $93
million, or 9%. Other brands, which includes Cole Haan (R), Tetra
Plastics, Sports Specialties and Bauer Inc., decreased slightly, $1.8
million, (1%), for the quarter and $3.1 million, (1%), year-to-date.
The breakdown of revenues follows:
Three Months Ended Six Months Ended
November 30, November 30,
1996 1995(1) % Change 1996 1995(1) % Change
____ ____ ___ ____ ____ ___
(in thousands)
U.S. Footwear $ 816,283 $ 538,497 52% $1,818,386 $1,330,065 37%
U.S. Apparel 377,870 195,795 93 730,255 378,278 93
__________ __________ __________ _________
Total United States 1,194,153 734,292 63 2,548,641 1,708,343 49
__________ __________ __________ _________
International Footwear 517,229 330,162 57 1,065,767 757,194 41
International Apparel 262,021 156,896 67 494,360 307,947 61
__________ __________ __________ _________
Total International 779,250 487,058 60 1,560,127 1,065,141 46
__________ __________ __________ _________
Other Brands 133,631 135,408 (1) 280,192 283,294 (1)
__________ __________ _________ _________
Total Revenues $2,107,034 $1,356,758 55% $4,388,960 $3,056,778 44%
========== ========== === ========= ========= ===
(1) For comparable purposes with 1996, results for the three and six months
ended November 30, 1995 have been adjusted to reflect the elimination of
the one month lag in reporting by certain of the Company's international
operations. See further discussion under Note 5.
Consolidated gross margin percentage was 39.4% for the quarter
compared to 39.0% for last year's second quarter. Year-to-date margins
are at 39.9% compared to 39.8% for last year. The increase in gross
margin percentage is primarily attributed to footwear price increases
taking effect in this quarter as well as changes to product and customer
mix during the period. 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 remainder of fiscal year 1997 are expected to be affected by
both strong demand for NIKE products and increased pricing levels,
offset by increased levels of air freight to meet the delivery dates or
increasing customer orders. At this time, Management expects the
percentage for the full year to be up only slightly from last fiscal
year's percentage.*
Selling and administrative expenses increased $177 million over the
previous year's second quarter and $337 million year-to-date. As a
percentage of revenues, expenses have decreased to 25.2% for the
quarter, down from 26.1% for the same period last year. On a
year-to-date basis, expenses have increased to 24.2%, up from 23.6%.
For the quarter, the revenue growth outstripped the expenses,
resulting in a lower percentage, however, increased spending on
advertising and marketing, as well as increased infrastructure costs,
make up the majority of both the dollar and percentage increases. At
this time, Management expects selling and administrative expenses as a
percentage of revenues for the year will approximate the prior year.*
Interest expense increased for both the quarter and year-to-date
over the prior year due to increased short-term borrowings for growing
operations, mostly in Europe and Asia Pacific. Other expense decreased
$7.5 million for the quarter and $9.1 million year-to-date primarily due
to decreased conversion loss on foreign transactions, gains on the
disposal of fixed assets, and income earned from a promotional event in
Japan.
The Company's effective tax rate for the year-to-date was 38.75%
compared to 38.5% in the prior year. The slight increase is due
primarily to higher state income taxes on U.S. earnings. At this time,
Management anticipates the tax rate for fiscal 1997 will remain at
approximately 38.75%.*
Worldwide orders for NIKE Brand athletic footwear and apparel
scheduled for delivery from December 1996 through April 1997 were
approximately $4.1 billion, 54% higher than such orders booked in the
comparable period of the prior year. These orders and the percentage
growth in these orders are not necessarily indicative of the growth in
revenues which the Company will experience for the subsequent periods.
This is because the mix of advance futures and "at once" orders has
shifted significantly toward futures orders as the NIKE brand becomes
more established in all areas, specifically in the U.S. apparel business
and in international regions. The mix of advance orders to "at once"
orders will continue to vary as the U.S. apparel business and
international operations continue to account for a greater percentage of
total revenues and as each places a greater emphasis on futures
programs.* Finally, exchange rates can cause differences in the
comparisons.*
As further explained in Note 5, prior to fiscal year 1997, certain
of the Company's international operations reported their results of
operations on a one month lag in order to allow more time for compiling
results. The Company has taken steps to improve its internal reporting
procedures which have allowed for more timely reporting of these
operations. Beginning in the first quarter of fiscal year 1997, the one
month lag was eliminated. As a result, the May 1996 operational results
for these entities of a $4.1 million loss was recorded to retained
earnings in the first quarter of the current year. The change affected
the previously reported quarterly periods for these operations, and
thus, the income statement and cash flow statement have been adjusted in
order to show comparable results for the previous periods as if the
change had occurred in the prior year. Throughout this discussion,
comparisons to last year are also stated as they would have appeared had
these entities reported on a same month basis.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remains strong at November 30, 1996.
Since May 31, 1996, total assets grew $470 million to approximately $4.4
billion and shareholder's equity increased $388 million to $2.8 billion.
Working capital increased $346 million, and the Company's current ratio
increased to 2.10:1 at November 30, 1996 from 1.86:1 at May 31, 1996.
Cash provided by operations included year-to-date net income of $403
million plus the year-to-date non-cash depreciation charge of $58 million.
Cash used by changes in other working capital components totaled $354 million
due, in large part, to increases in accounts receivable and inventory. Since
May 31, 1996, accounts receivable increased $226 million (17%) due to the high
level of revenues compared to the same period in the prior year. Inventory
levels increased $50 million from May 31, as total international inventory
increased $52 million in order to support revenue volume. Inventory turns
increased to 5.56 at November 30, 1996 from 5.01 at May 31, 1996.
Cash used in investing activities totaled $203 million for the first six
months of fiscal 1997. Additions to property, plant and equipment totaled
$188 million with the most significant components related to the continued
consolidation of European footwear warehouses, the overall expansion of U.S.
operations and the continued expansion of NIKE Town retail locations in
the U.S.
Cash provided from financing activities included an increase from
May 31, 1996 of $100 million in long-term debt due, primarily, to the
Company's Japanese subsidiary borrowing 10.5 billion yen in the first
quarter. Cash was used to decrease notes payable by $28 million and to
pay dividends totaling $43 million.
During the quarter, the Company announced a 33% increase in the
quarterly cash dividend to $.10 per share from the previous $.075 per share.
The Company's commercial paper program requires the support of committed
and uncommitted lines of credit. There was $6 million outstanding under
this program at November 30, 1996. The Company has $500 million available in
committed unused lines of credit and, at November 30, 1996, no amounts were
outstanding under this credit facility. NIKE's debt-to-equity ratio at
November 30, 1996 remained constant from May 31 at .6:1.
In December of 1996, the Company issued $200 million of seven-year notes,
maturing December 1, 2003 (see Note 6). The proceeds from the sale of the
notes, received December 13, 1996, will be used for general corporate purposes
including, without limitation, refinancing, in part, short-term debt.
Management believes that funds generated by operations, together with
currently available resources and long-term debt arrangements,will
continue to adequately finance anticipated fiscal 1997 expenditures.*
*The marked items are forward-looking statements that involve risks and
uncertainties detailed from time to time in reports filed by NIKE with the
S.E.C., including Forms 8-K, 10-Q, and 10-K.
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, 1996.
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 quarter 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).*
10.8 NIKE, Inc. Supplemental Executive Savings Plan *
12.1 Computation of Ratio of Earnings to Fixed Charges
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 1997:
Form 8-K
September 16, 1996 ITEM 5 OTHER EVENTS Press release announcing
the first quarter earnings,
and a restatement of con-
solidated financial state-
ments and accompanying
notes.
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: January 14, 1997