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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MAY 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-10635
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NIKE, INC.
(Exact name of Registrant as specified in its charter)
OREGON 93-0584541
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
ONE BOWERMAN DRIVE
BEAVERTON, OREGON 97005-6453
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (503) 671-6453
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(Title of each class) (Name of each exchange on which
Class B Common Stock registered)
New York Stock Exchange
Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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 [ ]
As of July 21, 1995, the aggregate market value of the Registrant's Class A
Common Stock held by nonaffiliates of the Registrant was $102,628,783 and the
aggregate market value of the Registrant's Class B Common Stock held by
nonaffiliates of the Registrant was $3,841,420,956.
As of July 21, 1995, the number of shares of the Registrant's Class A Common
Stock outstanding was 25,893,522 and the number of shares of the Registrant's
Class B Common Stock outstanding was 45,635,745.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts of Registrant's Proxy Statement dated August 7, 1995 for the annual
meeting of shareholders to be held on September 18, 1995 are incorporated by
reference into Part III of this Report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
<PAGE>
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NIKE, INC.
ANNUAL REPORT
ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
PART I
ITEM 1. BUSINESS
General....................................................... 1
Products...................................................... 1
Sales and Marketing........................................... 1
United States Market.......................................... 2
International Markets......................................... 2
Significant Customers......................................... 2
Orders........................................................ 3
Product Research and Development.............................. 3
Manufacturing................................................. 3
Trade Legislation............................................. 4
Competition................................................... 5
Trademarks and Patents........................................ 5
Employees..................................................... 5
Executive Officers of the Registrant.......................... 5
ITEM 2. PROPERTIES.................................................... 7
ITEM 3. LEGAL PROCEEDINGS............................................. 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS....................................................... 9
ITEM 6. SELECTED FINANCIAL DATA....................................... 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.................... 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...................................... 26
PART III (Except for the information set forth under "Executive
Officers of the Registrant" in Item I above, Part III is
incorporated by reference from the Proxy Statement for the
NIKE, Inc. 1995 annual meeting of shareholders.).............. 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-
K............................................................. 27
SIGNATURES............................................................... S-1
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
NIKE, Inc. was incorporated in 1968 under the laws of the state of Oregon.
As used herein, the terms "NIKE" and the "Company" refer to NIKE, Inc. and
its predecessors, subsidiaries and affiliates, unless the context indicates
otherwise.
The Company's principal business activity involves the design, development
and worldwide marketing of high quality footwear, apparel, and accessory
products. The Company sells its products to approximately 14,000 retail
accounts in the United States and through a mix of independent distributors,
licensees and subsidiaries in approximately 110 countries around the world.
Virtually all of the Company's products are manufactured by independent
contractors. Most footwear products are produced outside the United States,
while apparel products are produced both in the United States and abroad.
PRODUCTS
NIKE's athletic footwear products are designed primarily for specific
athletic use, although a large percentage of the products are worn for
casual or leisure purposes. The Company places considerable emphasis on high
quality construction and innovative design. Basketball, fitness, running,
and children's shoes are currently the top-selling product categories
and are expected to continue to lead in product sales in the near future.
However, the Company also markets shoes designed for outdoor activities,
tennis, golf, soccer, baseball, football, bicycling, volleyball,
wrestling, cheerleading, aquatic activities and other athletic and
recreational uses.
The Company sells active sports apparel covering each of the above
categories, as well as athletic bags and accessory items. NIKE apparel and
accessories are designed to complement the Company's athletic footwear
products, feature the same trademarks and are sold through the same marketing
and distribution channels. The Company often markets footwear, apparel and
accessories in "collections" of similar design or for specific purposes.
The Company also sells a line of dress and casual footwear and
accessories for men, women and children under the brand name Cole Haan(R)
through its wholly-owned subsidiary, Cole Haan Holdings Incorporated.
The Company markets a line of headwear with licensed team logos under
the brand name "Sports Specialties", through its wholly-owned
subsidiary, Sports Specialties Corporation. The Company also sells
small amounts of various plastic products to other manufacturers through
its wholly-owned subsidiary, Tetra Plastics, Inc.
In February 1995 the Company acquired Canstar Sports Inc., the world's
largest hockey equipment manufacturer. Canstar manufactures and distributes
ice skates under the Bauer, Micron, Mega, Daoust and Lange brand names;
in-line roller skates and protective gear under the Bauer brand name; Cooper
and Flak hockey protective equipment; Cooper and Bauer hockey sticks; Bauer
hockey jerseys and accessories; and Tuuk, ICM and John Wilson skate blades.
Canstar also offers a full selection of products for street, roller and
field hockey.
SALES AND MARKETING
The table below sets forth certain information regarding the Company's
United States and international (non-U.S.) revenues for the last three
fiscal years.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
May 31, May 31, May 31,
1995 %chg. 1994 %chg. 1993 %chg.
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
United States footwear $2,309,400 24% $1,868,900 (5)% $1,968,500 13%
United States apparel 423,900 25 338,500 (6) 360,500 (2)
Total United States 2,733,300 24 2,207,400 (5) 2,329,000 10
International footwear 1,244,300 25 998,200 (5) 1,049,100 21
International apparel 472,700 32 358,800 2 353,100 32
Total International 1,717,000 27 1,357,000 (3) 1,402,200 24
Other brands 310,600 38 225,300 13 199,800 26
Total NIKE $4,760,900 26% $3,789,700 (4)% $3,931,000 15%
</TABLE>
<PAGE>
Financial information about United States and international operations
appears in Note 15 of the consolidated financial statements on page 26.
The Company experiences moderate fluctuations in aggregate sales volume
during the year. However, the mix of product sales may vary considerably
from time to time as a result of changes in seasonal and geographic
demand for particular types of footwear and apparel.
Because NIKE is a consumer products company, the relative popularity of
various sports and fitness activities and changing design trends affect
the demand for the Company's products and, consequently, the types of
products the Company offers. The Company must therefore respond
appropriately to trends and shifts in consumer preferences by
adjusting the mix of existing product offerings, developing new products,
styles, and categories, and influencing sports and fitness preferences
through agressive marketing.
UNITED STATES MARKET
During fiscal 1995, sales to the Company's approximately 16,000
retail accounts in the United States accounted for approximately 63
percent of total revenues. The domestic retail account base includes a mix
of department stores, footwear stores, sporting goods stores, skating,
tennis and golf shops and other retail accounts. During fiscal year
1995, NIKE's three largest customers accounted for approximately 34
percent of sales in the United States.
NIKE makes substantial use of its innovative "futures" ordering program,
which allows retailers to order five to six months in advance of delivery
with the guarantee that 90 percent of their orders will be delivered within
a set time period at a fixed price. In fiscal year 1995, 88 percent of the
Company's domestic footwear shipments (excluding Cole Haan(R)) were made
under the futures program, compared to 81 percent in fiscal 1994 and 83
percent in fiscal 1993.
The Company utilizes 17 NIKE sales offices for the solicitation
of sales in the United States. The Company also utilizes 10 independent
sales representatives for the sale of specialty products, such as golf,
cycling, water sports and outdoor wear. In addition, the Company
operates 61 wholly-owned retail outlets, 33 of which carry primarily
B-grade and close-out merchandise, 18 of which are Cole Haan(R) stores, 4
of which are high-profile NIKETOWN stores designed to showcase the
Company's products, and 4 of which are employee-only stores.
The Company's domestic distribution centers for footwear are located in
Beaverton, Oregon, Wilsonville, Oregon, Memphis, Tennessee, Greenland, New
Hampshire and Yarmouth, Maine. Apparel products are shipped from the Memphis
distribution center and from Greenville, North Carolina. Sports Specialties
headwear is shipped from Irvine, California, and Canstar Sports Inc.
products are distributed from Swanton and St. Albans, Vermont.
INTERNATIONAL MARKETS
The Company currently markets its products in approximately 110 countries
outside of the United States through independent distributors, licensees,
subsidiaries and branch offices. NIKE operates 32 distribution centers in
Europe, Asia, Canada, Latin America, and Australia, and also distributes
through independent distributors and licensees. During fiscal 1995, sales
of NIKE brand products to the Company's approximately 35,000 international
(non-U.S.) retail accounts accounted for 37 percent of total revenues in
fiscal 1995, compared to 36 percent in fiscal 1994 and 36 percent in fiscal
1993. In fiscal 1993, the Company initiated a futures ordering program for
European retailers similar to the United States futures program described
above. Outside of the United States, NIKE's three largest customers
accounted for approximately 6 percent of non-U.S. sales.
International branch offices and subsidiaries of NIKE are located in
Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, Costa Rica,
Denmark, Finland, France, Germany, Hong Kong, Indonesia, Italy, Japan,
Korea, Malaysia, Mexico, New Zealand, Norway, Peoples Republic of China,
Portugal, Spain, Sweden, Singapore, Switzerland, Taiwan, Thailand, The
Netherlands, the United Kingdom, and Vietnam.
2
<PAGE>
SIGNIFICANT CUSTOMERS
Foot Locker, a chain of retail stores specializing in athletic footwear and
apparel, accounted for approximately 14 percent of global net sales of NIKE
brand products during fiscal 1995. No other customer accounted for 10 percent
or more of net sales during fiscal 1995.
ORDERS
As of May 31, 1995, the Company's worldwide orders for athletic footwear
and apparel totaled $2.5 billion, compared to $1.8 billion as of
May 31, 1994.Such orders are scheduled for delivery from June through
November of 1995. Based upon historical data, the Company expects that
approximately 95 percent of these orders will be filled in that time period,
although the orders may be cancelable.
PRODUCT RESEARCH AND DEVELOPMENT
The Company believes that its research and development efforts are a
key factor in its past and future success. Technical innovation in the
design of footwear and apparel receive continued emphasis as NIKE strives
to produce products that reduce or eliminate injury, aid athletic performance
and maximize comfort.
In addition to its own staff of specialists in the areas of biomechanics,
exercise physiology, engineering, industrial design and related fields,
NIKE also utilizes research committees and advisory boards made up of
athletes, coaches, trainers, equipment managers, orthopedists, podiatrists
and other experts who consult with the Company and review designs, materials
and concepts for product improvement. Employee athletes wear-test and
evaluate products during the design and development process.
In fiscal 1995, NIKE spent approximately $28.8 million on product research,
development and evaluation, compared to $24.6 million in 1994 and $22.6
million in 1993.
MANUFACTURING
In fiscal 1995, approximately 47 percent of the Company's total apparel
production for sale to the United States market was manufactured in the
United States by independent contract manufacturers, most of which are
located in the southern states. The remainder was manufactured by
independent contractors in Asia and South America, most of which are
located in Bangladesh, Hong Kong, Indonesia, Malaysia, Peru, Singapore,
Sri Lanka, Taiwan, and Thailand. Substantially all of NIKE's apparel
production for sale to the international market was manufactured outside
the U.S.
Virtually all of the Company's footwear (exclusive of Cole Haan(R)
brand footwear) is produced outside of the United States. In fiscal 1995,
contract suppliers in Indonesia, the People's Republic of China, South
Korea, Taiwan and Thailand accounted for approximately 31 percent, 31
percent, 16 percent, 8 percent, and 14 percent, respectively, of total
footwear production. The Company also has manufacturing agreements with
independent factories in Argentina, Brazil, Hungary, Italy and Mexico.
The largest single supplier outside of the United States accounted for
approximately 9 percent of total 1995 footwear production.
The principal materials used in the Company's footwear products are
natural and synthetic rubber, vinyl and plastic compounds, foam cushioning
materials, nylon, leather, canvas, and a polyurethane film used to make
AIR-SOLE(R) cushioning components. NIKE and its contractors and suppliers
buy raw materials in bulk. Most raw materials are available in the
countries where manufacturing takes place. NIKE has thus far experienced
little difficulty in satisfying its raw material requirements. Tetra
Plastics, Inc., a wholly-owned subsidiary of NIKE, is the Company's sole
supplier of the material from which the AIR-SOLE(R) cushioning components
used in footwear are made.
The Company's international operations are subject to the usual risks
of doing business abroad, such as possible revaluation of currencies,
export duties, quotas, restrictions on the transfer of funds and, in
certain parts of the world, political instability. See "Trade Legislation"
below. NIKE has not, to date, been materially affected by any such risk,
but cannot predict the likelihood of such developments occurring. The
Company believes that it has the ability to develop, over a period of
time, adequate alternative sources of supply for the products obtained
from its present suppliers outside of the United States. If events
prevented the Company from acquiring products from its suppliers in a
particular country, the Company's footwear operations could be
temporarily disrupted and the Company could experience an adverse financial
impact. However, the Company believes that it could eliminate any such
disruption within a period of no more than 12 months, and that any adverse
impact would, therefore, be of a short-term nature. The Company believes that
its principal competitors are subject to similar risks.
3
<PAGE>
All Company products manufactured overseas and imported into the United
States are subject to duties collected by the United States Customs Service.
Customs information submitted by the Company is routinely subject to review
by the Customs Service. The Company is unable to predict whether additional
United States customs duties, quotas or other restrictions may be imposed on
the importation of its products in the future. The enactment of any such
duties, quotas or restrictions could result in increases in the cost of such
products generally and might adversely affect the sales or profitability of
the Company and the imported footwear industry as a whole.
Since 1972, Nissho Iwai American Corporation ("NIAC"), a subsidiary of
Nissho Iwai Corporation, a large Japanese trading company, has performed
significant financing and export-import services for the Company. The
Company purchases through NIAC substantially all of the athletic footwear
and apparel it acquires from overseas suppliers. The Company's agreements
with NIAC extend through 2000, and the Company expects that the relationship
will be continued beyond that date.
TRADE LEGISLATION
In 1995, President Clinton extended to June 1996, "most favored nation"
(MFN), non-discriminatory trading status to the People's Republic of China
(China). Under U.S.law, MFN status for China is extended annually. The United
States has extended MFN status to China each year since 1980. China is a
material source of footwear production for the Company. A revocation of
MFN status would result in a substantial increase in tariff rates on goods
imported from China, and, therefore could adversely affect the Company's
operations. While the United States continues to have foreign policy as well
as human rights concerns with China, the Clinton Administration continues to
oppose using China's MFN status as a means of addressing these concerns.
However, even if NIKE's Chinese sources were affected by a change in
China's MFN status, the Company believes that the impact of such change would
not have a long term, material adverse impact on the Company's business.
Certain countries within the European Community have for some time main-
tained quotas restricting the importation of footwear manufactured in
China. With respect to such quotas, see the discussion in Item 7 below.
In 1994, the United States, Mexico, and Canada implemented a North America
Free Trade Agreement (NAFTA). Benefits to the Company include a phased
elimination of duties on footwear and apparel produced and imported from
Mexico, and the implementation and enforcement of new Mexican laws pro-
tecting the intellectual property rights of United States companies doing
business in Mexico. While the Company currently purchases no apparel
and only a fraction of its Cole Haan(R) shoes from Mexico, NAFTA may permit
NIKE to economically source some products from Mexico.
In April 1994, the 125 member nations of the General Agreement on Tariffs
and Trade (GATT), including the United States, signed a new pact to govern
world trade. The new agreement, which was approved by Congress in December
1995 and became effective January 1, 1995 for most countries, should provide
better international market access opportunities for U.S. goods and services.
The agreement, among other things, significantly cuts global tariffs on many
products, reduces or eliminates numerous non-tariff measures (such as quotas
and discriminatory product standards), establishes stronger rules on the
imposition of duties relating to the anti-dumping and subsidies codes,
provides greater protection for intellectual property rights, and creates a
strengthened dispute settlement procedure. NIKE believes that the
new agreement, once fully implemented by all countries, will reduce many
of the obstacles to international trade and benefit the Company.
In July 1995, President Clinton officially restored diplomatic relations
between the United States and Vietnam. The President's action is a step
toward possible restoration of full trade relations including the United
States granting non-discriminatory MFN trading status to Vietnam which
would result in lower tariffs between the two countries. The Company
is currently sourcing some footwear products from factories in
Vietnam. MFN trading status for Vietnam could expand production and
marketing opportunities for NIKE in Vietnam.
4
<PAGE>
COMPETITION
The athletic footwear and apparel industry is keenly competitive in
the United States and on a worldwide basis. NIKE competes internationally
with an increasing number of specialized athletic shoe companies, apparel
companies, and large companies having diversified lines of athletic shoes
and apparel, including Reebok, Adidas and others. The intense competition
and the rapid changes in technology and consumer preferences in the
athletic shoe and apparel markets constitute significant risk factors in
the Company's operations.
NIKE is the largest supplier of athletic footwear in the world. Perfor-
mance and reliability of shoes and apparel, new product development, price,
product identity through marketing and promotion, and customer support
and service are important aspects of competition in the athletic footwear
and apparel industry. The Company believes that it is competitive in all
of these areas.
TRADEMARKS AND PATENTS
NIKE utilizes trademarks on nearly all of its products and believes that
having distinctive marks that are readily identifiable is an important
factor in creating a market for its goods, in identifying the Company and
in distinguishing its goods from the goods of others. The Company considers
its NIKE(R) and Swoosh(R) design trademarks to be among its most valuable
assets and has registered these trademarks in over 100 countries. In
addition, the Company owns other trademarks which it utilizes in marketing
its products. NIKE continues to vigorously protect its trademarks against
infringement.
The Company has an exclusive, worldwide license to make and sell footwear
using patented "Air" technology. The process utilizes pressurized gas
encapsulated in polyurethane. Some of the NIKE Air patents will expire
in 1997, enabling competitors to use certain types of NIKE Air technology.
The Company also has a number of patents covering components and features
used in various athletic and leisure shoes. Management believes that NIKE's
success depends upon skills in design, research and development, production
and marketing rather than upon its patent position. However, it has
followed a policy of filing applications for United States and foreign
patents on inventions and designs that it deems valuable.
EMPLOYEES
The Company had approximately 14,240 employees at May 31, 1995.
Management considers its relationship with its employees to be excellent.
None of the Company's employees are represented by a union. There has never
been a material interruption of operations due to labor disagreements.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of July 31, 1995 are as follows:
Philip H. Knight, Chief Executive Officer--Mr. Knight, 57, a director
since 1968, is Chief Executive Officer and Chairman of the Board of
Directors of NIKE. Mr. Knight is a co-founder of the Company and, except
for the period from June 1983 through September 1984, served as its
President from 1968 to 1990. Prior to 1968, Mr. Knight was a certified
public accountant with Price Waterhouse and Coopers & Lybrand and was an
Assistant Professor of Business Administration at Portland State University.
5
<PAGE>
William J. Bowerman--Mr. Bowerman, 84, a director since 1968, has served
as Deputy Chairman of the Board and Senior Vice President of NIKE since
1980. Mr. Bowerman is a co-founder of the Company and served as Vice
President from 1968 to 1980. From 1949 to 1972, Mr. Bowerman was head track
coach at the University of Oregon, and he served as coach of the United
States Olympic track team in 1972.
Harry C. Carsh, Vice President and General Manager, Sports and
Fitness--Mr. Carsh, 56, joined the Company in 1977, and was elected
Vice President in 1984 and appointed General Manager in 1993. Mr. Carsh
has held executive positions in accounting, manufacturing and European
marketing. He has served as Vice President in charge of the International
Division, Vice President of Operations, and is currently Vice President and
General Manager, Sports and Fitness. Prior to joining the Company, he
served for four years as Vice President of Finance for Lancet Medical
Industries. Mr. Carsh is a certified public accountant.
Thomas E. Clarke, President and Chief Operating Officer--Dr.Clarke, 44,
a director since 1994, joined the Company in 1980 . Dr. Clarke has held
various positions with the Company, primarily in research, design,
development and marketing. He was appointed divisional vice president in
charge of marketing in 1987. He was elected Vice President in 1989 and
appointed General Manager in 1990. Dr. Clarke holds a Doctorate degree in
biomechanics.
Gary DeStefano, Vice President, Sales--Mr. DeStefano, 38, has been
employed by the Company since 1982, with primary responsibilities in
sales and customer service. Mr. DeStefano was appointed Director of
Domestic Sales in 1990 and was appointed divisional Vice President in
charge of domestic sales in 1992.
Elizabeth G. Dolan, Vice President, Corporate Communications and
Marketing--Ms. Dolan, 38, has been employed by the Company since 1988,
when she joined the Company as Director of Public Relations. Ms. Dolan
was appointed Vice President of Corporate Communications in 1990 and was
elected Vice President of Marketing in 1994. Prior to joining the Company,
Ms. Dolan was Director of Public Relations at Cartier, Inc. in New York.
Robert S. Falcone, Vice President and Chief Financial Officer--Mr.
Falcone, 48, has been employed by the Company since 1990. Mr. Falcone joined
the Company as Director of Acquisitions. From May, 1991 through November,
1991, he also served as interim Director of Human Resources, and he was
elected Vice President and Chief Financial Officer in 1992. Prior to
joining the Company, Mr. Falcone worked for 21 years as a certified public
accountant for Price Waterhouse.
David Kottkamp, Vice President and General Manager, International
Division--Mr. Kottkamp, 53, has been employed by the Company since 1978.
He has held positions in the areas of apparel, Canadian operations and
European operations. He was appointed divisional Vice President in 1988,
and General Manager in 1992.
Mark G. Parker, Vice President and General Manager, Consumer Product
Marketing--Mr. Parker, 39, has been employed by the Company since 1979
with primary responsibilities in product research, design and development.
Mr. Parker was appointed divisional Vice President in charge of development
in 1987, elected Vice President in 1989, and appointed General Manager in
January 1993.
6
<PAGE>
Lindsay D. Stewart, Vice President Legal and Corporate Affairs and
Assistant Secretary--Mr. Stewart, 48, joined the Company as Assistant
Corporate Counsel in 1981. Mr. Stewart became Corporate Counsel in 1983.
He was elected Vice President and General Counsel in 1991. Prior to joining
the Company, Mr. Stewart was in private practice and an attorney for
Georgia-Pacific Corporation.
David B. Taylor, Vice President--Mr. Taylor, 40, has been employed by
the Company since 1977, with primary responsibilities in production. Mr.
Taylor was appointed divisional Vice President in charge of production in
1988, and was elected Vice President in 1989.
ITEM 2. PROPERTIES
Following is a summary of principal properties owned or leased by the
Company. The Company's leases expire at various dates throughout the
year 2009.
U.S. ADMINISTRATIVE OFFICES:
Beaverton, Oregon (7 locations)-- SALES OFFICES AND SHOWROOMS:
one owned and 6 leased
United States (16 locations)--1
Wilsonville, Oregon--owned owned and 15 leased
Greenland, New Hampshire--owned Florence, Italy--leased
Memphis, Tennessee (2 locations)-
-one owned and one leased DISTRIBUTION FACILITIES:
Yarmouth, Maine (2 locations)--
owned Greenland, New Hampshire--owned
Wilsonville, Oregon (2 locations)--1
INTERNATIONAL ADMINISTRATIVE owned and 1 leased
OFFICES: Memphis, Tennessee (2 locations)--1
owned and 1 leased
Europe (The Netherlands)--leased Yarmouth, Maine (4 locations)--2
Italy--leased owned and 2 leased
Switzerland--leased Swanton, Vermont--leased
Beaverton, Oregon--leased St. Albans, Vermont--leased
Asia (Hong Kong)--leased Canada (5 locations)--leased
Latin America (Argentina, Brazil Latin America (3 locations)--leased
Chile and Mexico)--leased Europe (15 locations)--leased
Canada (2 locations)--leased Asia (9 locations)--leased
Victoria, Australia--leased
INTERNATIONAL PRODUCTION OFFICES:
Asia (7 locations)--leased
South America (3 locations)--
leased
MANUFACTURING FACILITIES: RETAIL OUTLETS:
Lewiston, Maine--leased United States (61 locations)--
Livermore Falls, Maine--owned 58 leased and 3 owned
East Corinth, Maine--leased Florence, Italy--leased
Cambridge, Ontario--leased Toronto, Canada--leased
St. Jerome, Quebec--leased Victoria, Australia--leased
Cambridge, Ontario--leased Troyes, France--leased
Granby, Quebec--leased
Sanford, Maine--owned Undeveloped Land:
Beaverton, Oregon--leased
Greenville, North Carolina-- Beaverton, Oregon--176 acres--owned
leased
Irvine, California--leased
Earth City, Missouri--leased
Chesterfield, Missouri--leased
7
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the Company's business, to which the
Company is a party or of which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the 1995 fiscal
year to a vote of security holders, through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Class B Common Stock is listed on the New York Stock
Exchange and the Pacific Stock Exchange and trades under the symbol NKE.
At July 21, 1995 there were 6,803 holders of record of the Company's
Class B Common Stock and 28 holders of record of the Company's Class A
Common Stock. The Class A Common Stock is not publicly traded but each share
is convertible upon request of the holder into one share of Class B Common
Stock.
Reference is made to the table entitled "Selected Quarterly Financial
Data" in Item 6, which sets forth, for the periods indicated, the range
of high and low closing sales prices on the New York Stock Exchange, as
adjusted to reflect the 2-for-1 stock split that became effective in
October of 1990. Such table also sets forth the amount and frequency of all
cash dividends declared on the Company's common stock for the 1994 and 1995
fiscal years.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(in thousands, except per share data and financial ratios)
1995 1994 1993 1992 1991 1990 1989 1988
Year Ended May 31:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $4,760,834 $3,789,668 $3,930,984 $3,405,211 $3,003,610 $2,235,244 $1,710,803 $1,203,440
Gross margin 1,895,554 1,488,245 1,543,991 1,316,122 1,153,080 851,072 635,972 400,060
Gross margin % 39.8% 39.3% 39.3% 38.7% 38.4% 38.1% 37.2% 33.2%
Net income 399,664 298,794 365,016 329,218 287,046 242,958 167,047 101,695
Net income per common
share 5.44 3.96 4.74 4.30 3.77 3.21 2.22 1.35
Average number of common and
common equivalent shares 73,503 75,456 77,063 76,602 76,067 75,668 75,144 75,278
Cash dividends declared per
common share 0.95 0.80 0.75 0.59 0.52 0.38 0.27 0.20
Cash flow from operations 254,913 576,463 265,292 435,838 11,122 127,075 169,441 19,019
Price range of common stock
High 80-5/8 74-3/4 90-1/4 77-3/8 54-1/2 41-1/2 19-7/8 13-1/4
Low 56-1/4 43-1/8 55 35-1/8 26 19 11-9/16 7
At May 31:
Cash and equivalents $ 216,071 $ 518,816 $ 291,284 $ 260,050 $ 119,804 $ 90,449 $ 85,749 $ 75,357
Inventories 629,742 470,023 592,986 471,202 586,594 309,476 222,924 198,470
Working capital 938,393 1,208,444 1,165,204 964,291 662,645 561,642 419,599 295,937
Total assets 3,142,745 2,373,815 2,186,269 1,871,667 1,707,236 1,093,358 824,216 707,901
Long-term debt 10,565 12,364 15,033 69,476 29,992 25,941 34,051 30,306
Redeemable Preferred Stock 300 300 300 300 300 300 300 300
Common shareholders' equity 1,964,689 1,740,949 1,642,819 1,328,488 1,029,582 781,012 558,597 408,567
Year-end stock price 78-7/8 59 72-1/2 58 39-3/4 39-1/4 19 12-1/8
Market capitalization
at May 31 5,635,190 4,318,800 5,499,273 4,379,574 2,993,020 2,942,679 1,417,381 899,741
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1995 1994 1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,170,355 $1,107,878 $1,053,746 $ 805,789 $1,124,697 $871,845 $1,412,036 $1,004,156
Gross margin 469,908 440,071 413,715 309,661 446,293 334,779 565,638 403,734
Gross margin% 40.2% 39.7% 39.3% 38.4% 39.7% 38.4% 40.1% 40.2%
Net income 105,987 114,100 84,939 52,295 95,349 63,235 113,389 69,164
Net income per
common share 1.43 1.49 1.16 0.69 1.29 0.85 1.56 0.93
Dividends declared
per common share 0.20 0.20 0.25 0.20 0.25 0.20 0.25 0.20
Price range of
common stock
High 66-5/8 74-3/4 66-3/8 54-3/8 76-1/2 52-7/8 80-5/8 61-7/8
Low 56-1/4 49-3/8 58-1/8 43-1/4 63-5/8 43-1/8 70-7/8 50-1/2
</TABLE>
All per common share amounts have been adjusted to reflect the 2-for-1
stock split paid October 5, 1990. The Company's Class B Common Stock is
listed on the New York and Pacific Exchanges and trades under the symbol
NKE. At May 31, 1995, there were approximately 67,000 shareholders.
Years 1993 and prior have been restated to reflect the implementation of
Statement of Financial Accounting Standard No. 109 - Accounting for
Income Taxes (see Notes 1 and 6).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
HIGHLIGHTS
Fiscal year 1995 was a record year, with milestones achieved for almost
all income statement categories:
- -Revenues exceeded $4 billion for the first time, increasing
approximately $1 billion, up 25.6% over last year and 21.1% over the
previous high in fiscal year 1993. All four quarters exceeded $1 billion
each in revenues for the first time in the Company's history.
- -Gross margins established a new record, increasing .5% over the
previous high of 39.3% achieved in both 1994 and 1993.
- -Selling and administrative costs decreased .3% as a percent of
revenues from the previous year.
- -Net income rose to a record $399.7 million, an increase of 33.8% over
fiscal 1994 and 9.5% over the previous record established in fiscal
1993. Due to the share repurchase program, earnings per share increases
were even higher with 37.4% and 14.8% increases over fiscal 1994 and
fiscal 1993, respectively.
- -The momentum appears to continue with record futures orders for the
next six months of $2.5 billion reported, up 35% over the prior year.
RESULTS OF OPERATIONS
Significantly higher revenues and improved gross margins, along
with a reduced percentage of revenues in selling and administrative
costs, were the primary factors in the record results for fiscal 1995 as
compared to 1994. Fiscal 1994 experienced the first decline in seven
years primarily as a result of decreased revenues and increased selling
and administrative expenses as compared with the previous record year in
fiscal 1993. During 1995, the Company was able to gain market share in
the United States (U.S.) in spite of a rather mature market, where
industry sources expected only a 3 to 5% market growth rate. The Company
believes this was a result of both superior design and products,
expansion of product categories and intensive marketing efforts. The
Company's international markets are less mature than in the U.S. and
offer more potential for growth. Accordingly, the Company has continued
to invest in international infrastructure in order to capitalize on this
potential and has seen higher selling and administrative expenses as a
result. Through its aggressive worldwide marketing efforts and global
infrastructure spending, the Company is positioning itself to continue
to expand markets and gain market share on a worldwide basis.
9
<PAGE
The Company experienced revenue growth in fiscal 1995 across all of
the breakout categories (see chart), with the most significant increase
in U.S. footwear, which grew $440.5 million, or 24%, as a result of 22%
more pairs shipped at a 2% increase in average selling price per pair.
Men's basketball business continues to dominate the category with
revenues up 12% for the year. Women's fitness grew 26%, women's sport
was up 45% and outdoor increased 48% over the prior year. International
brand revenues also increased significantly, growing $360 million, or
27% as a result of a $246.1 million (25%) increase in international
footwear revenues and a $113.9 million (32%) increase in international
apparel revenues. International revenues were increased 7% as a result
of the foreign currency translation impact. While European revenues
remained relatively constant in spite of decreases in France and
Germany, the Asia Pacific and Americas regions were up substantially
with 81% and 61% increases, respectively. Asia Pacific growth was
primarily a result of Japan and newly owned NIKE Korea, while the
Americas region was up primarily as a result of newly owned NIKE
Argentina and improved revenues in Canada. U.S. apparel revenues
rebounded strongly, up $85.4 million (25%), and other brands - which
includes Cole Haan,- Tetra Plastics, Inc., Sports Specialties Corp.
and newly acquired Canstar Sports Inc. - grew $85.3 million primarily
due to the addition of Canstar.
The 4% decline in fiscal 1994 revenues was attributable to decreases
in sales of U.S. and international footwear and U.S. apparel. The 5%
U.S. footwear decrease was a result of a 2% drop in pairs shipped and a
3% decline in average selling price per pair, and was attributed
primarily to a 22% reduction in basketball category revenues offset
partially by gains in cross-training, outdoor and women's fitness
categories. International decreased as a result of reduced footwear
revenues offset slightly by increased apparel revenues. The decline
was a result of poor economies in Europe. This was partially offset by
growth in revenues from Asia Pacific and Latin America, with the largest
contributor being the addition of NIKE Japan in the third quarter of
fiscal 1994.
The breakdown of revenues follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
May 31, May 31, May 31,
1995 %chg. 1994 %chg. 1993 %chg.
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
United States footwear $2,309,400 24% $1,868,900 (5)% $1,968,500 13%
United States apparel 423,900 25 338,500 (6) 360,500 (2)
Total United States 2,733,300 24 2,207,400 (5) 2,329,000 10
International footwear 1,244,300 25 998,200 (5) 1,049,100 21
International apparel 472,700 32 358,800 2) 353,100 32
Total International 1,717,000 27 1,357,000 (3) 1,402,200 24
Other brands 310,600 38 225,300 13 199,800 26
Total NIKE $4,760,900 26% $3,789,700 (4)% $3,931,000 15%
</TABLE>
Gross margin increased to 39.8% in fiscal 1995 as compared to 39.3% in
both 1994 and 1993. Gross margin improvement can be attributed to strong
consumer demand for NIKE brand products (resulting in lower closeout
levels and increased revenues to cover fixed operating costs), internally
controlled close-out distribution, a solid inventory position and strong
inventory management, and the Company's innovative advance futures order
program. Fiscal 1995 margin was up across all footwear and apparel
categories except for certain other brands. Similarly, 1994 margin was up
in the NIKE brand categories, reduced by margins in other brands.
International margin increased in 1995 over 1994 and 1993, where
improvement was noted in the second half of 1994 as a result of lower
closeouts and improved inventory position over the first half of 1994 and
all of 1993. The Company continues to place strong emphasis on inventory
management, minimizing foreign exchange risk, and production sourcing in
order to maximize gross profit.
Total selling and administrative expenses as a percentage of revenues
decreased to 25.4% as compared to 25.7% in 1994 and 23.5% in 1993. The
reduction can be attributed primarily to the increase in revenues. The
increase in absolute dollar terms was primarily a result of U.S.
marketing, new NIKE-owned international subsidiaries and Canstar and
international infrastructure expenses. The increase in 1994 over 1993 was
attributed to new NIKE-owned international operations and planned growth
in international infrastructure. The Company plans to continue to invest
in growth opportunities and worldwide marketing.
10
<PAGE>
Consolidated interest expense increased approximately $9 million as a
result of significant operational and investment cash needs financed with
short term borrowings. During the prior year, the Company was in a high net
cash position that resulted in lower short-term operating borrowing needs,
and the Company also reduced its long-term debt with the repayment of
$50 million in long-term notes at the beginning of fiscal 1994.
Other (income)/expense rose $3.5 million in expense over 1994 primarily
as a result of increased goodwill amortization and additional non-recurring
specific obligations related to the shutdown of certain facilities in
conjunction with the consolidation of European warehouses discussed in
the prior year. These were offset partially by increased interest income
resulting from higher interest rates and excess cash in the first half of
the year.
The effective tax rate decreased to 38.5% from 39.1% in 1994 and 38.6%
in 1993. The decrease was primarily the result of lower taxes provided on
non-U.S. earnings. Fiscal 1994's effective rate increased due to the U.S.
federal tax increase of 1%, which was applied retroactively, and the
Company's subsequent implementation of Financial Accounting Standards
Board (FASB) Statement 109, which required the application of the 1%
increase to deferred taxes. This increase was partially offset by the
Company's decision to permanently reinvest more foreign earnings overseas,
reducing tax expense by the U.S. tax previously recognized. The Company
anticipates the effective rate for fiscal 1996 will approximate the rate for
1995.
Worldwide orders for NIKE brand footwear and apparel scheduled for
delivery between June and November, 1995, are approximately $2.5
billion, 35% higher than such orders in the comparable period of the
prior year. These orders are not necessarily indicative of total revenues
for the subsequent periods because the mix of advance orders and "at once"
shipments may vary significantly from quarter to quarter and year to year.
Additionally, as international operations continue to shift to a greater
emphasis on futures orders, this mix may again vary. Finally, exchange rate
fluctuations can also cause differences in comparisons.
The Company operates globally, giving rise to exposures of market risks
from changes in foreign currency exchange rates. The Company uses
highly liquid foreign currency spot, forward and purchased options with
high credit quality financial institutions in order to minimize the effects
of fluctuations on the Company's foreign currency transactions. The Company
only transacts foreign exchange contracts to hedge underlying economic
exposures and does not transact in derivatives for trading or speculative
purposes. Where possible, the Company nets its foreign exchange exposures
to take advantage of natural offsets that occur in the normal course of
business. Firmly committed transactions are hedged with forward exchange
contracts. Anticipated, but not yet firmly committed transactions, may be
hedged through the use of purchased options. Additional information
concerning the Company's hedging activities is presented in Note 14 to the
Consolidated Financial Statements.
The results of operations were favorably affected by weakening of the
U.S. dollar in comparision to foreign currencies. Generally, a weaker U.S.
dollar will result in higher translation of operating results in these
financial statements than would a stronger U.S. dollar.
The Company's international operations are subject to the usual
risks of doing business abroad, such as the imposition of import quotas or
anti-dumping duties. In this regard, the European Union (the "EU") has
imposed quotas that restrict the importation into the EU of certain footwear
manufactured in The People's Republic of China (the "PRC"). Such quotas are
applicable throughout all of the Member States that comprise the EU.
While such quotas have required the Company to limit the quantities of
footwear sourced in the PRC, they included an exemption for higher value
special technology sports footwear and have not had a material adverse
impact on the Company's business.
In February, 1995, the EU Commission, at the request of the European
footwear manufacturers, initiated two anti-dumpting investigations
covering certain footwear imported from the PRC, Indonesia and Thailand.
The investigations expressly exclude certain athletic footwear (as
defined in the Notices of Initiation of Anti-Dumping Proceedings). The
Company believes that most of its footwear sourced in the target countries
fits within these exclusions and, therefore, that it will not be materially
affected by these investigations. However, to some degree, the language
of the exclusions is not sufficiently precise to preclude the possibility
of varying interpretations by the EU Commission and the national customs
authorities of the Member States (e.g. as to the meaning of terms such as
"sports footwear" or "footwear designed for a sporting activity"). As of
the end of the 1995 fiscal year, the Company is unable to predict the
likelihood that the EU Commission will ultimately impose anti-dumping
duties on any of the footwear covered by the investigations, or the
amount of any such duties. If the EU Commission were to impose such
duties on some of the Company's footwear, it is possible that the Company
would consider shifting some production to other countries in order to
maintain competitive prices. The Company believes that it is prepared to
deal effectively with any such duties that may arise and that any adverse
impact would be of a short-term nature.
The Company continues to closely monitor international trade
restrictions and to develop contingency plans. The Company believes that
its major competitors would be similarly impacted by any such restrictions.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remains extremely strong at May 31,
1995. Total assets exceeded $3 billion for the first time and shareholder's
equity increased $224 million to approximately $2 billion. Cash and
equivalents decreased $303 million (58%) primarily as a result of the
purchase of Canstar in the amount of $409 million and increased operational
cash needs. Working capital decreased $270 million as a result of increased
notes and accounts payable and accrued liabilities, lower cash and
equivalents (as discussed previously), offset by increased inventories
and accounts receivable. The Company's current ratio was 1.8 at May 31,
1995, compared to 3.2 at May 31, 1994, decreasing primarily due to the
addition of NIKE-brand subsidiaries with assets substantially equivalent
to liabilities and the use of cash to purchase Canstar, converting a
current asset (cash) to long-term assets.
Inventory levels have increased $160 million since May 31, 1994,
primarily due to the addition of Canstar and new NIKE-brand subsidiaries.
U.S. footwear and apparel and international inventories also increased in
anticipation of the high level of futures orders for the next quarter.
Accounts receivable increased $350 million (50%) due to the high level of
fourth quarter revenues (41% higher than the previous year) as well as the
addition of NIKE-brand subsidiaries and Canstar.
Cash provided by operations was $255 million in 1995 compared to
$576 million and $265 million in 1994 and 1993, respectively. The increase
in 1994 was a result of decreased inventory levels, offset partially by
decreases in net income and non-cash charges.
Additions to property, plant and equipment for fiscal 1995 were $154
million, with the most significant component related to the consolidation
of European footwear warehouses. Total property, plant and equipment
increased in excess of this amount due to Canstar and new NIKE-brand
subsidiaries. Additions to property, plant and equipment of $95 million
and $97 million in fiscal 1994 and 1993, respectively, were related to the
expansion of existing U.S. headquarters and U.S. and international warehouse
facilities to satisfy increased capacity needs, along with investments in
management information systems and new NIKE retail locations. Anticipated
capital expenditures for fiscal 1996 approximate $177 million, with the
primary components consisting of the continued consolidation of European
footwear warehouses and expansion of NIKE TOWN retail locations.
Funding is expected to be provided primarily by operations.
Current liabilities increased $546 million, with a significant portion
of the increase due to the addition of Canstar and new NIKE-brand
subsidiaries which added operationally related debt, including notes
and accounts payable and accrued liabilities. Additionally, operating
cash needs increased due to the high level of revenues and orders, combined
with the reduction in excess cash which was used to purchase Canstar.
Additional investing activities in 1995 included the acquisition of
Canstar and certain international distributors, including Korea, and in
1994 included the acquisition of NIKE Japan.
During fiscal 1994, the Company announced that the Executive Committee of
its Board of Directors, acting within limits set by the Board, authorized
a plan to repurchase a maximum of $450 million of NIKE Class B Common
Stock over a period of up to three years. Funding has, and is expected to
continue to come from operating cash in potential combination with
occasional short or medium-term borrowings. The timing and the amount of
shares purchased will be dictated by working capital needs and stock market
conditions. As of May 31, 1995, the Company had repurchased 4.9 million
shares at a total cost of $282.9 million.
Dividends per share of common stock for fiscal 1995 rose $.15 over fiscal
1994 to $.95 per share. The Company has declared a dividend in every quarter
since February 1984. Based upon current projected earnings and cash flow
requirements, the Company anticipates continuing a dividend and reviews
the amount at the second-quarter board meeting. The Company's policy
continues to target an annual dividend in the range of 15% to 25% of
trailing twelve-month earnings.
12
<PAGE>
The Company's commercial paper program, rated A1 by Standard and Poor's
Corporation and P1 by Moody's Investors Service, requires the support of
committed and uncommitted lines of credit. There was $118,609,000
outstanding under this program at May 31, 1995 and no amounts outstanding
at May 31, 1994. Additionally, no amounts were outstanding at May 31,
1995 and 1994, under a committed $300 million multiple option credit
facility. (See Note 4 of the Consolidated Financial Statements for further
details concerning the Company's short-term borrowing.) NIKE's debt-to-
equity ratio was 0.6:1, 0.4:1 and 0.3:1 at May 31, 1995, 1994 and 1993,
respectively.
Management believes that funds generated by operations, together with
currently available resources, will adequately finance anticipated fiscal
1996 expenditures, with the potential exception of the stock repurchase
program discussed above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Financial Reporting
Management of NIKE, Inc. is responsible for the information and
representations contained in this report. The financial statements have
been prepared in conformity with the generally accepted accounting
principles we considered appropriate in the circumstances and include some
amounts based on our best estimates and judgments. Other financial
information in this report is consistent with these financial statements.
The Company's accounting systems include controls designed to reasonably
assure that assets are safeguarded from unauthorized use or disposition and
which provide for the preparation of financial statements in conformity with
generally accepted accounting principles. These systems are supplemented by
the selection and training of qualified financial personnel and an
organizational structure providing for appropriate segregation of duties.
An Internal Audit department reviews the results of its work with the
Audit Committee of the Board of Directors, presently consisting of three
outside directors of the Company. The Audit Committee is responsible for
recommending to the Board of Directors the appointment of the independent
accountants and reviews with the independent accountants, management and
the internal audit staff, the scope and the results of the annual
examination, the effectiveness of the accounting control system and other
matters relating to the financial affairs of the Company as they deem
appropriate. The independent accountants and the internal auditors have
full access to the Committee, with and without the presence of management,
to discuss any appropriate matters.
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Portland, Oregon
July 6, 1995
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 29 present fairly, in all
material respects the financial position of NIKE, Inc. and its subsidiaries
at May 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended May 31, 1995, 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
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.
PRICE WATERHOUSE LLP
Portland, Oregon
July 6, 1995
14
<PAGE>
NIKE, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues $4,760,834 $3,789,668 $3,930,984
Costs and expenses:
Costs of sales 2,865,280 2,301,423 2,386,993
Selling and administrative 1,209,760 974,099 922,261
Interest expense (Notes 3, 4 and 5) 24,208 15,282 25,739
Other (income)/expense, net (Notes 1, 9 and 10) 11,722 8,270 1,475
4,110,970 3,299,074 3,336,468
Income before income taxes 649,864 490,594 594,516
Income taxes (Note 6) 250,200 191,800 229,500
Net income $0,399,664 $0,298,794 $0,365,016
Net income per common share (Note 1) $ 5.44 $ 3.96 $ 4.74
Average number of common and common
equivalent shares (Note 1) 73,503 75,456 77,063
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
15
<PAGE>
NIKE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MAY 31,
---------------------
1995 1994
---------- ----------
(IN THOUSANDS)
ASSETS
------
<S> <C> <C>
Current Assets:
Cash and equivalents $0,216,071 $0,518,816
Accounts receivable, less allowance for doubtful accounts
of $32,663 and $28,291 1,053,237 703,682
Inventories (Note 2) 629,742 470,023
Deferred income taxes (Note 6) 72,657 37,603
Prepaid expenses 74,221 40,307
Total current assets 2,045,928 1,770,431
Property, plant and equipment, net (Notes 3 and 5) 554,879 405,845
Identifiable intangible assets and goodwill (Note 1) 495,907 163,036
Other assets 46,031 34,503
Total assets $3,142,745 $2,373,815
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<C> <C>
Current Liabilities:
Current portion of long-term debt (Note 5) $0,031,943 $ 3,857
Notes payable (Note 4) 397,100 127,378
Accounts payable (Note 4) 297,656 210,576
Accrued liabilities 345,224 181,889
Income taxes payable 35,612 38,287
Total current liabilities 1,107,535 561,987
Long-term debt (Notes 5 and 13) 10,565 12,364
Non-current deferred income taxes (Note 6) 17,789 18,228
Other non-current liabilities (Note 1) 41,867 39,987
Commitments and contingencies (Notes 11 and 14) __ __
Redeemable Preferred Stock (Note 7) 300 300
Shareholders' equity (Note 8):
Common Stock at stated value:
Class A convertible - 25,895,and 26,679 shares outstanding 155 159
Class B - 45,550 and 46,521 shares outstanding 2,698 2,704
Capital in excess of stated value 122,436 108,284
Foreign currency translation adjustment 1,585 (15,123)
Retained earnings 1,837,815 1,644,925
Total shareholders' equity 1,964,689 1,740,949
Total liabilities and shareholders' equity $3,142,745 $2,373,815
The accompanying notes to consolidated financial statements are an integral part of this
statement.
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this statement.
16
<PAGE>
NIKE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash provided (used) by operations:
Net income $399,664 $298,794 $365,016
Income charges (credits) not affecting cash:
Depreciation 71,113 64,531 60,393
Deferred income taxes and purchased tax benefits (24,668) (23,876) 4,310
Other non-current liabilities (1,359) (3,588) 19,847
Amortization and other 19,125 8,067 12,951
Changes in certain working capital components:
(Increase) decrease in inventory (69,676) 160,823 (97,471)
(Increase) decrease in accounts receivable (301,648) 23,979 (62,538)
(Increase) decrease in other current assets (10,276) 6,888 (5,133)
Increase (decrease) in accounts payable, accrued
liabilities and income taxes payable 172,638 40,845 (32,083)
Cash provided by operations 254,913 576,463 265,292
Cash provided (used) by investing activities:
Additions to property, plant and equipment (154,125) (95,266) (97,041)
Disposals of property, plant and equipment 9,011 12,650 5,006
Acquisition of subsidiaries:
Identifiable intangible assets and goodwill (345,901) (2,185) (52,003)
Net assets acquired (84,119) (1,367) (25,858)
Additions to other non-current assets (6,260) (5,450) (3,036)
Cash used by investing activities (581,394) (91,618) (172,932)
Cash provided (used) by financing activities:
Additions to long-term debt 2,971 6,044 1,536
Reductions in long-term debt including current portion (39,804) (56,986) (5,817)
Increase (decrease) in notes payable 263,874 (2,939) (2,017)
Proceeds from exercise of options 6,154 4,288 7,055
Repurchase of stock (142,919) (140,104) ---
Dividends - common and preferred (65,418) (60,282) (53,017)
Cash provided (used) by financing activities 24,858 (249,979) (52,260)
Effect of exchange rate changes on cash (1,122) (7,334) (8,866)
Net (decrease) increase in cash and equivalents (302,745) 227,532 31,234
Cash and equivalents, beginning of year 518,816 291,284 260,050
Cash and equivalents, end of year $216,071 $518,816 $291,284
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this statement.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Supplemental disclosure of cash flow of information:
Cash paid during the year for:
Interest (net of amount capitalized) $020,200 $011,300 $020,800
Income taxes 285,400 189,800 235,200
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.
</TABLE>
17
<PAGE>
NIKE, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1992 26,919 $161 48,591 $2,716 $93,799 $ 686 $1,231,126 $1,328,488
Stock options exercised 342 2 14,652 14,654
Conversion to Class B Common Stock (228) (2) 228 2 ---
Translation of statements of
international operations (8,476) (8,476)
Net income 365,016 365,016
Dividends on Redeemable Preferred Stock (30) (30)
Dividends on Common Stock (56,833) (56,833)
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
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of this statement.
18
<PAGE>
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.
Recognition of revenues:
Revenues recognized include sales plus fees earned on sales by licensees.
Avertising:
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.
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, 1995 and 1994 the Company had patents, trademarks and other
identifiable intangible assets with a value of $200,369,000 and $11,738,000,
respectively. At May 31, 1995 and 1994 the Company's excess of purchase cost
over the fair value to net assets of businesses acquired (goodwill) was
$338,560,000 and $182,212,000, respectively. Identifiable intangible assets
and goodwill are being amortized over their estimated useful lives on a
straight-line basis over five to forty years. Amortization expense was
$13,176,000, $8,409,000 and $5,863,000 for the years ended May 31, 1995,
1994, and 1993, respectively. Amortization is included in other
income/expense. Accumulated amortization was $43,022,000 and $30,914,000 at
May 31, 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 non-current liabilities:
Other non-current liabilities include amounts with settlement dates
beyond one year, and are primarily composed of long-term deferred
endorsement payments of $26,893,000 and $33,586,000 at May 31, 1995 and
1994, 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.
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.
19
<PAGE>
Derivatives:
The Company enters into foreign currency contracts in order to
reduce the impact of certain foreign currency fluctuations. Firmly
committed transactions are hedged with forward exchange contracts.
Anticipated, but not yet firmly committed, transactions may be hedged
through the use of purchased options. Gains and losses related to hedges
of firmly committed transactions are deferred and are recognized in income
or as adjustments of carrying amounts when the hedged transaction occurs.
Premiums paid on purchased options are included in other assets and are
recognized in income in the same period as the hedged transaction. 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
FAS109 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.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the
1995 presentation. These changes had no impact on previously reported
results of operations or shareholders' equity.
NOTE 2 - INVENTORIES
<TABLE>
<CAPTION>
Inventories by major classification are as follows:
(in thousands)
May 31 1995 1994
<S> <C> <C>
Finished goods $618,521 $465,065
Work-in-progress 9,064 2,915
Raw materials 2,157 2,043
$629,742 $470,023
</TABLE>
The excess of replacement cost over LIFO cost approximated $19,512,000
at May 31, 1995, and $19,367,000 at May 31, 1994. During 1994, certain
inventory quantities were reduced resulting in liquidations, which were
not material, of LIFO inventory quantities carried at different costs
prevailing in prior years as compared with the cost of those years
purchases.
20
<PAGE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes the following:
<TABLE>
<CAPTION>
(in thousands)
May 31 1994 1995
<S> <C> <C>
Land $068,102 $059,761
Buildings 224,586 154,731
Machinery and equipment 470,422 317,782
Leasehold improvements 63,716 54,383
Construction in process 64,387 52,428
891,213 639,085
Less accumulated depreciation 336,334 233,240
$554,879 $405,845
</TABLE>
Capitalized interest expense relating to construction of the Company's
world headquarters and other projects was $261,000, $270,000 and $767,000
for the fiscal years ended May 31, 1995, 1994 and 1993, respectively.
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:
<TABLE>
<CAPTION>
(in thousands)
May 31 1995 1994
Borrowings Interest Rate Borrowings Interest Rate
<S> <C> <C> <C> <C>
Banks:
U.S. Operations $118,609 6% $ 6,462 4-7/8%
International Operations 278,491 5% 120,916 4-3/4 %
$397,100 $127,378
NIAC $129,480 6% $118,274 4-2/3%
</TABLE>
At May 31, 1995 and 1994, NIKE had no outstanding borrowings under its
$300 million unsecured multiple option facility with sixteen banks,
which matures on November 30, 1997. 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 Prime Rate or
London Interbank Offered Rate (LIBOR) plus .30%. The agreement provides
for annual fees of .125% of the total commitment. Under the agreement,
the Company must maintain, among other things, certain minimum specified
financial ratios and balances. Domestic subsidiaries had $0 and $6,462,000
outstanding at May 31, 1995, and May 31, 1994, respectively, under
unsecured, uncommitted short-term credit agreements.
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, 1995 there was $118,609,000 outstanding and at May 31, 1994
there were no amounts 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 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 115 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%.
21
<PAGE>
NOTE 5 - LONG-TERM DEBT
Long-term debt includes the following:
(in thousands)
May 31 1995 1994
10.4% senior secured note $22,244 $ __
9.43% capital warehouse lease, payable in
quarterly installments through 2007 9,078 9,098
Other 11,186 7,123
Total 42,508 16,221
Less current maturities 31,943 3,857
$10,565 $12,364
The senior secured note was acquired in connection with the acquisition
of Canstar and was liquidated subsequent to year-end.Amounts of long-term
maturities in each of the five fiscal years 1996 through 2000 respectively,
are $31,943,000, $1,606,000, $1,402,000, $1,130,000 and $956,000.
NOTE 6 - INCOME TAXES:
Income before income taxes and the provision for income
taxes are as follows:
<TABLE>
<CAPTION>
(in thousands)
Year Ended May 31 1995 1994 1993
<S> <C> <C> <C>
Income before income taxes:
United States $467,548 $318,367 $372,996
Foreign 182,316 172,227 221,520
$649,864 $490,594 $594,516
Provision for income taxes:
Current:
United Sates
Federal $172,127 $121,892 $126,071
State 34,764 23,832 26,425
Foreign 75,964 64,034 74,866
$282,855 209,758 227,362
Deferred:
United States
Federal (25,689) (12,931) 1,741
State (2,430) (1,868) 1,229
Foreign (4,536) (3,159) (832)
(32,655) (17,958) 2,138
$250,200 $191,800 $229,500
</TABLE>
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.
22
<PAGE>
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. There was no impact on the results of
operations previously reported for the years 1987 through 1993. The
adoption of FAS 109 had no effect on income taxes, the provision for
income taxes, and the effective tax rates for the years ended May 31,
1993.
As of May 31, 1995, the Company has utilized all foreign tax credits.
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
(in thousands)
May 31 1995 1994
<S> <C> <C>
Undistributed earnings of foreign subsidiaries $018,164 $016,405
Acquired tax benefits 4,229 5,554
LIFO inventory 2,087 2,504
Acquisition basis adjustment 1,281 1,361
Depreciation 3,401 2,896
Reserves and accrued liabilities 3,158 332
Inventory reserves 567 1,744
Other 490 1,213
Gross deferred tax liabilities 33,377 32,009
Allowance for doubtful accounts (7,952) (6,795)
Inventory reserves (15,645) (13,071)
Deferred compensation (10,221) (6,724)
Reserves and accrued liabilities (36,335) (10,592)
Tax basis inventory adjustment (8,852) (7,100)
Depreciation (1,796) (1,408)
Other (7,444) (5,694)
Gross deferred tax assets (88,245) (51,384)
$(54,868) $(19,375)
</TABLE>
A reconciliation from the U.S. statutory federal income tax rate to the
effective income tax rate follows:
<TABLE>
<CAPTIONN>
Year ended May 31, 1995 1994 1993
<S> <C> <C> <C>
U.S. Federal statutory 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 3.2 3.2 3.3
Tax benefit from permanent reinvestment
of foreign earnings -- (2.6) --
Impact of rate increase -- 1.5 --
Other, net .3 2.0 1.3
Effective income tax rate 38.5% 39.1% 38.6%
</TABLE>
During 1982, the Company purchased future tax benefits for
$15,277,000. Tax benefits of $4,229,000 in excess of the purchase
price have been recognized as of May 31, 1995 and are classified in
non-current deferred income taxes.
NOTE 7 - REDEEMABLE PREFERRED STOCK
Nissho Iwai American Corporation (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, 1995. 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.
23
<PAGE>
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 60,000,000 and 150,000,000,
respectively. 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 3,360,000 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 4,000,000 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, 1995, 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 following summarizes the stock option transactions under the 1980
Plan and 1990 Plan for the three fiscal years ended May 31, 1995:
<TABLE>
<CAPTION>
Shares Option Price
(in thousands) Per Share($)
<S> <C> <C.
Options outstanding May 31, 1993: 2,124 4.75 to 82.13
Exercised (161) 4.75 to 56.25
Surrendered (101) 20.41 to 82.13
Granted 492 50.13 to 56.88
Options outstanding May 31, 1994: 2,354 4.75 to 56.88
Exercised (222) 4.75 to 60.50
Surrendered (24) 37.625 to 59.75
Granted 580 58.875 to 74.875
Options outstanding May 31, 1995: 2,688 11.53 to 74.875
Options exercisable at May 31:
1994 917 4.75 to 38.25
1995 1,018 11.53 to 60.50
</TABLE>
24
<PAGE>
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, 1995, 1,018,000 options with exercise
prices ranging from $.417 per share to $76.25 per share had been granted.
The aggregate compensation expenses related to these agreements is $5,670,000
and is being amortized over vesting periods from October 1980 through October
1998. The outstanding agreements expire from February 1998 through September
2005.The following summarizes transactions outside the option plans for the
three years ended May 31, 1995:
<TABLE>
<CAPTION>
Shares Option Price
(in thousands) Per Share($)
<S> <C> <C>
Options outstanding May 31, 1993: 265 4.75 to 76.25
Exercised (6) 4.75 to 12.50
Surrendered (20) 71.75 to 76.25
Granted 30 48.13 to 51.00
Options outstanding May 31, 1994: 269 4.75 to 51.00
Exercised (18) 4.75 to 38.25
Surrendered -- --
Granted -- --
Options outstanding May 31, 1995: 251 4.75 to 56.25
Options exercisable at May 31:
1994 193 4.75 to 56.25
1995 207 4.75 to 56.25
</TABLE>
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 $11,200,000, $8,500,000 and $10,300,000 to the plan are included in
other expense in the consolidated financial statements for the years ended
May 31, 1995, 1994 and 1993, respectively.The Company has a voluntary
401(k) employee savings plan. The Company matches a portion of employee
contributions vesting that portion over 5 years. Company contributions to
the savings plan were $3,363,000, $3,503,000 and $3,150,000 for the years
ended May 31, 1995, 1994 and 1993, respectively.
NOTE 10 - OTHER INCOME/NET:
Included in other income for the years ended May 31, 1995, 1994
and 1993, is interest income of $26,094,000, $19,064,000 and $15,377,000,
respectively. During the two fiscal years ending May 31, 1995 and 1994
the Company recognized $11,412,000 and $7,060,000, respectively in non-
recurring specific obligations associated with the shutdown of certain
facilities in conjunction with the consolidation of European warehouses.
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
The Company leases space for its offices, warehouses and retail
stores under leases expiring from one to fifteen years after May 31,
1995. Rent expense aggregated $43,506,000, $37,677,000 and $33,195,000
for the years ended May 31, 1995, 1994 and 1993, respectively. Amounts
of minimum future annual rental commitments under non-cancellable
operating leases in each of the five fiscal years 1996 through 2000 are
$41,062,000, $42,572,000, $38,544,000, $34,955,000, $24,689,000,
respectively, and $237,699,000 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.
25
<PAGE>
NOTE 12 - ACQUISITION OF CANSTAR SPORTS INC.:
During the third quarter of fiscal 1995, NIKE acquired all the
outstanding shares of 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.
Canstar'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 10
to 40 years. The amortization period is based on NIKE's belief that the
combined company has substantial potential for achieving long-term
appreciation of the fully integrated global company. Canstar 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 was not significant.
26
<PAGE>
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, 1995, is approximately $9,891,000, compared to a carrying
value $10,565,000. 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 net cash
inflows 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 enters into forward exchange contracts to hedge certain firm
purchases and sales commitments and purchases currency options to hedge
certain anticipated but not yet firmly committed transactions denominated
in foreign currencies. Premiums paid on purchased options are included in
other assets and liabilities and recognized in earnings when the future
obligation being hedged is recognized. Deferred gains and losses on forward
exchange contracts are recognized in earnings when the future purchases and
sales being hedged are recognized. 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 trans-actions 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 of 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 amounts,
carrying values and fair values of the Company's derivative financial
instruments outstanding at May 31, 1995 and 1994 (in millions).
<TABLE>
<CAPTION>
May 31, 1995 May 31, 1994
Notional Notional
Principal Carrying Fair Principal Carrying Fair
Amounts Values Values Amounts Values Values
<S> <C> <C> <C> <C> <C> <C>
Forward Contracts: $706.2 ($12.2) ($13.8) $376.7 $ - ($13.2)
Purchased Options 62.5 1.4 1.3 - - -
Total $768.7 ($13.8 ($12.5) $376.7 - ($13.2)
</TABLE>
Net unrealized losses deferred at May 31, 1995 and 1994 were approximately
$11.4 and $13.2 million, respectively. At May 31, 1995 and May 31, 1994,
the Company had no contracts outstanding with maturities beyond one year.
The counterparties to derivative transactions are major financial institutions
with investment grade or better credit ratings; however, the Company is
exposed 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. 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.
27
<PAGE>
NOTE 15 - INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREA:
The Company operates predominantly in one industry segment, that
being the design, production, marketing and selling of sports and fitness
footwear, apparel and accessories. During 1995, 1994 and 1993, sales to
one major customer amounted to approximately 14% of total sales in those
years. The geographic distributions of the Company's identifiable assets,
operating income and revenues are summarized in the following tables.
<TABLE>
<CAPTION>
(in thousands)
Year ended May 31, 1995 1994 1993
Revenues from unrelated entities:
<C> <C> <C>
United States $2,997,864 $2,432,684 $2,528,848
Europe 980,444 927,269 1,085,683
Asia/Pacific 515,652 283,421 178,196
Latin America/Canada and other 266,874 146,294 138,257
$4,760,834 $3,789,668 $3,930,984
Inter-geographic revenues:
United States $6,396 $ 3,590 $ 3,583
Europe -- -- --
Asia/Pacific -- -- --
Latin America/Canada and other 25,764 8,092 9,350
$32,160 $ 11,682 $ 12,933
Total revenues:
United States $3,004,260 $2,436,274 $2,532,431
Europe 980,444 927,269 1,085,683
Asia/Pacific 515,652 283,421 178,196
Latin America/Canada and other 292,638 154,386 147,607
Less inter-geographic revenues (32,160) (11,682) (12,933)
$4,760,834 $3,789,668 $3,930,984
Operating income:
United States $ 501,685 $ 344,632 $ 401,096
Europe 113,800 124,242 177,716
Asia/Pacific 64,168 46,753 36,624
Latin America/Canada and other 37,721 19,141 28,612
Less corporate, interest and other income
(expense) and eliminations (67,510) (44,174) (49,532)
$ 649,864 $ 490,594 $ 594,516
Assets:
United States $1,425,932 $1,171,948 $1,347,507
Europe 831,468 487,085 429,660
Asia/Pacific 306,390 197,067 67,868
Latin America/Canada and other 383,263 79,549 60,212
Total identifiable assets 2,947,053 1,935,649 1,905,247
Corporate cash and eliminations 195,692 438,162 282,216
Total assets $3,142,745 $2,373,815 $2,187,463
</TABLE>
28
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change of accountants nor any disagreements with
accountants on any matter of accounting principles or practices or
financial statement disclosure required to be reported under this Item.
26
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company has filed with the Securities and Exchange Commission its
definitive proxy statement dated August 7, 1995 for the annual meeting
of shareholders to be held on September 18, 1995. The information
required by this Item with respect to the Company's directors is
incorporated herein by reference from pages 3 through 6 and
10 of such proxy statement. Information called for by this Item with
respect to the Company's executive officers is set forth under "Executive
Officers of the Registrant" in Item 1 of this Report.
The information required by Items 11-13 of Part III is incorporated
herein by reference from the indicated pages of the Company's definitive
Proxy Statement dated August 7, 1995 for its 1995 annual meeting of
shareholders.
<TABLE>
<CAPTION>
PROXY
STATEMENT
PAGE NO.
---------
<S> <C>
ITEM 11. EXECUTIVE COMPENSATION..................................... 8, 12-21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGE-
MENT....................................................... 8-11
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 20-21
</TABLE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
<TABLE>
<CAPTION>
FORM 10-K
PAGE NO.
---------
<S> <C>
1. FINANCIAL STATEMENTS:
Report of Independent Accountants................................ 14
Consolidated Statement of Income for each of the three years
ended May 31, 1995.............................................. 15
Consolidated Balance Sheet at May 31, 1995 and 1994.............. 16
Consolidated Statement of Cash Flows for each of
the three years ended May 31, 1995.............................. 17
Consolidated Statement of Shareholders' Equity for each of the
three years ended May 31, 1995.................................. 18
Notes to Consolidated Financial Statements....................... 19
2. FINANCIAL STATEMENT SCHEDULES:
VIII--Valuation and Qualifying Accounts.......................... F-1
IX--Short-Term Borrowings........................................ F-2
X--Supplementary Income Statement Information.................... F-3
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
29
<PAGE>
3. EXHIBITS:
3.1 Restated Articles of Incorporation, as amended (incorporated by
reference from Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1988 and Exhibit 4.1
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1990).
3.2 Second Restated Bylaws, as amended (incorporated by reference
from Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1993).
4.1 Articles IV, VI, VII, VIII and X of the Restated Articles of
Incorporation, as amended (see Exhibit 3.1).
4.2 Articles II, III, VII, IX and X of the Second Restated Bylaws, as
amended (see Exhibit 3.2).
10.1 Credit Agreement dated as of June 1, 1991 among NIKE, Inc.,
The First National Bank of Chicago, individually and as Agent,
and the other banks party thereto (incorporated by reference
from the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1991).
10.2 Amendment to Credit Agreement dated as of January 1, 1994
extending the termination date of the revolving credit in
Exhibit 10.1 facility to November 30, 1995 (incorporated
by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1995).
10.3 Form of non-employee director Stock Option Agreement (incorporated
by refernce from Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1993).*
10.4 Form of Indemnity Agreement entered into between the Company and
each of its officers and directors (incorporated by reference from
the Company's definitive proxy statement filed in connection with
its annual meeting of shareholders held on September 21, 1987).
10.5 NIKE, Inc. Restated Employee Incentive Compensation Plan
(incorporated by reference from Registration Statement No. 33-29262
on Form S-8 filed by the Company on June 16, 1989).*
10.6 NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference
from the Company's definitive proxy statement filed in connection
with its annual meeting of shareholders held on September 17, 1990).*
10.7 Collateral Assignment Split-Dollar Agreement between NIKE, Inc.
and Philip H. Knight dated March 10, 1994 (incorporated by
reference from Exhibit 10.7 to the Company's Annual Report on
Form 10-K for he fiscal year ended May 31, 1994.*
21 Subsidiaries of the Registrant.
23 Consent of Price Waterhouse, independent certified public accountants
(set forth on page F-4 of this Annual Report on Form 10-K).
*Management contract or compensatory plan or arrangement.
Upon written request to Investor Relations, NIKE, Inc., One Bowerman
Drive, Beaverton, Oregon 97005-6453, the Company will furnish share-
holders with a copy of any Exhibit upon payment of $.10 per page, which
represents the Company's reasonable expenses in furnishing such Exhibits.
(B) The following reports on Form 8-K were filed by the Company during
the last quarter of fiscal 1995:
March 16, 1995 Item 5. Other Events Press Release regarding
third quarter earnings
release.
April 24, 1994 Item 2. Acquisition or Reporting consummation of
Disposition of Assets purchase of outstanding
shares of Canstar Sports Inc.
Item 7. Financial State- Pro Forma Condensed
ments, Pro Forma Combined Balance Sheet
Financial Information
and Exhibits
30
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE CHARGED BALANCE
AT TO COSTS CHARGED WRITE-OFFS AT END
BEGINNING AND TO OTHER NET OF OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RECOVERIES PERIOD
----------- --------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
For the year ended May 31,
1993:
Allowance for doubtful ac-
counts...................... $20,046 $12,370 $ 212 $13,181 $19,447
Other assets................. 0 -- -- -- 0
------- ------- -------- ------- -------
$20,046 $12,370 $ 212 $13,181 $19,447
======= ======= ======== ======= =======
For the year ended May 31,
1994
Allowance for doubtful
accounts................... $19,447 $16,321 $ (23) $ 7,454 $28,291
..Other assets................ 0 0
.............................. ------- ------- --------- ------- -------
.............................. $19,447 $16,321 $ (23) $ 7,454 $28,291
======= ======= ========= ======= =======
For the year ended May 31,
1995
Allowance for doubtful
accounts................... $28,291 $12,544 $ 3,122 $11,294 $32,663
Other assets................ 0 0
.............................. ------- ------- ------- ------- -------
.................................$28,291 $12,544 $ 3,122 $11,294 $32,633
======= ======= ======= ======= =======
</TABLE>
- --------
F-1
<PAGE>
SCHEDULE IX
SHORT-TERM BORROWINGS(1)
(IN THOUSANDS)
<TABLE>
CAPTION>
WEIGHTED
AVERAGE
MAXIMUM AVERAGE INTEREST
BALANCE WEIGHTED AMOUNT AMOUNT RATE
AT END AVERAGE OUTSTANDING OUTSTANDING DURING
OF INTEREST DURING THE DURING THE THE
PERIOD RATE PERIOD(2) PERIOD(3) PERIOD(3)
-------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
For the year ended May 31,
1993:
Notes payable to banks:
For domestic opera-
tions................ $ 4,597 4 1/2% $ 82,808 $ 10,853 3 1/3%
For foreign opera-
tions................ 103,568 8 1/3 150,312 120,253 8 1/3
------- ------- -------
$108,165 $233,120 $131,106
======= ======= =======
Accounts payable to
NIAC................... $ 57,542 3 1/2% $ 67,233 $ 59,893 3 4/5%
======= ======= =======
For the year ended May 31,
1994:
Notes Payable to banks:
For domestic opera-
tions $ 6,462 4 7/8% $115,505 $ 32,944 3 1/3%
For foreign opera-
tions 120,916 4 3/4 127,299 76,831 4 3/4
------- ------- -------
$127,378 $242,804 $109,775
======= ======= =======
Accounts payable to
NIAC $118,274 4 2/3% $118,274 $ 71,856 3 7/8%
======= ======= =======
For the year ended May 31,
1995:
Notes payable to banks:
For domestic opera-
tions $118,609 6% $217,212 $ 49,277 6 1/2%
For foreign opera-
tions 278,491 5 278,491 157,941 5 1/8
------- ------- -------
$397,100 495,703 207,218
======= ======= =======
Accounts payable to
NIAC $129,480 6% $142,483 $118,032 6%
======= ======= =======
</TABLE>
- --------
Notes:
(1) For information pertaining to the general terms of short-term
borrowings, see Note 4 to the Consolidated Financial Statements.
(2) Represents the maximum amount of short-term borrowing outstanding at a
month-end during the respective period.
(3) The average amount outstanding during the period is calculated by
dividing the total of principal outstanding at each month-end by 12.
The weighted average interest rate during the period is calculated by
dividing the interest expense for the year by the average amount
outstanding.
(4) NIAC refers to Nissho Iwai American Corporation, a subsidiary of
Nissho Iwai Corporation, a Japanese trading company.
F-2
<PAGE>
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31
--------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Charged to costs and expenses:
Advertising and promotions........................ $383,513 $373,126 $495,006
</TABLE>
The other required categories of expenses have not been shown because
they do not exceed one percent of revenues.
F-3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the documents
listed below, of our report dated July 6, 1995, which appears on Page 14
of this Annual Report on Form 10-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).
Price Waterhouse LLP
Portland, Oregon
August 29, 1995
F-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
Date: August 29, 1995
/s/ Philip H. Knight
By _______________________________
Philip H. Knight,
Chairman of the Board and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Principal Executive Officer and
Director:
Date: August 29, 1995 /s/ Philip H. Knight
By _______________________________
Philip H. Knight
Chairman of the Board and
Chief Executive Officer
Principal Financial and
Accounting Officer:
Date: August 29, 1995 /s/ Robert S. Falcone
By _______________________________
Robert S. Falcone
Vice President and Chief Financial
Officer
S-1
<PAGE>
DIRECTORS:
Date: August 29, 1995
By /s/ William J. Bowerman
William J. Bowerman
Director
Date: August 29, 1995
By /s/ Jill K. Conway
Jill K. Conway
Director
Date: August 29, 1995
By /s/ Ralph D. DeNunzio
Ralph D. DeNunzio
Director
Date: August 29, 1995
By /s/ Richard K. Donahue
Richard K. Donahue
Director
Date: August 29, 1995
By /s/ Delbert J. Hayes
Delbert J. Hayes
Director
Date: August 29, 1995
By /s/ Douglas G. Houser
Douglas G. Houser
Director
Date: August 29, 1995
By /s/ John E. Jaqua
John E. Jaqua
Director
Date: August 29, 1995
By Ralph A. Pfeiffer, Jr.
Ralph A. Pfeiffer, Jr.
Director
Date: August 29, 1995
By /s/ Charles W. Robinson
Charles W. Robinson
Director
Date: August 29, 1995
By /s/ John R. Thompson, Jr.
John R. Thompson, Jr.
Director
S-2
<PAGE>
Exhibit 21
Subsidiaries of the Registrant.
NIKE, Inc. has 32 wholly-owned subsidiaries, four of which operate in the
United States, and 28 of which operate in foreign countries. All of the
subsidiaries, except for Tetra Plastics, Inc., carry on the same line of
business, namely the design, marketing, distribution and sale of athletic
and leisure footwear, apparel, accessories, and related equipment. Tetra
Plastics, Inc., a Missouri corporation, manufactures and sells various
types of plastics.
