SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FOR QUARTERLY REPORTS UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended August 31, 1996 Commission file number - 1-10635
NIKE, Inc.
(Exact name of registrant as specified in its charter)
OREGON 93-0584541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Bowerman Drive, Beaverton, Oregon 97005-6453
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 671-6453
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days
Yes X No .
___ ___
Common Stock shares outstanding as of August 31, 1996 were:
_________________
Class A 50,990,185
Class B 93,019,323
____________
144,009,508
===========
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
NIKE, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
Aug. 31, May 31,
1996 1996
________ _______
(in thousands)
ASSETS
Current assets:
Cash and equivalents $ 398,098 $ 262,117
Accounts receivable 1,627,046 1,346,125
Inventories (Note 3) 909,414 931,151
Deferred income taxes 88,852 93,120
Prepaid expenses 120,298 94,427
__________ _________
Total current assets 3,143,708 2,726,940
Property, plant and equipment 1,116,998 1,047,705
Less accumulated depreciation 425,420 404,246
__________ __________
691,578 643,459
Identifiable intangible assets and goodwill 469,332 474,812
Deferred income taxes and other assets 121,210 106,417
__________ __________
$4,425,828 3,951,628
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,175 $ 7,301
Notes payable 539,210 445,064
Accounts payable 416,600 455,034
Accrued liabilities 525,738 480,407
Income taxes payable 141,287 79,253
__________ __________
Total current liabilities 1,627,010 1,467,059
Long-term debt 107,247 9,584
Deferred income taxes 1,764 1,883
Other liabilities 32,559 41,402
Commitments and contingencies (Note 4) -- --
Redeemable Preferred Stock 300 300
Shareholders' equity:
Common Stock at stated value (Note 2):
Class A convertible-50,990 and
51,120 shares outstanding 152 153
Class B-93,019 and 92,509 shares
outstanding 2,704 2,702
Capital in excess of stated value 170,712 154,833
Foreign currency translation
adjustment (7,190) (16,501)
Retained earnings 2,490,570 2,290,213
___________ __________
2,656,948 2,431,400
___________ __________
$4,425,828 $3,951,628
========== ==========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
August 31,
__________________
1996 1995*
____ ____
(in thousands, except per share data)
<S> <C> <C>
Revenues $2,281,926 $1,700,020
_________ _________
Costs and expenses:
Cost of sales 1,362,119 1,013,379
Selling and administrative 529,537 369,043
Interest 12,666 11,251
Other expense (income) 8,641 10,249
________ ________
1,912,963 1,403,922
________ ________
Income before income taxes 368,963 296,098
Income taxes 142,900 114,000
________ ________
Net income $ 226,063 $ 182,098
========= =========
Net income per common share(Note 2) $ 1.53 $ 1.25
========= =========
Dividends declared per common share $ .15 $ .125
========= =========
Average number of common and
common equivalent shares (Note 2) 148,184 145,852
========= =========
</TABLE>
*For comparable purposes with 1996, results for the three months ended
August 31, 1995 have been adjusted to reflect the elimination of the
one month lag in reporting by certain of the Company's international
operations. See further discussion under Note 5.
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
August 31,
_________________
1996 1995*
____ ____
(in thousands)
<S> <C> <C>
Cash provided (used) by operations:
Net income $226,063 $182,098
Income charges (credits) not
affecting cash:
Depreciation 27,012 20,185
Deferred income taxes and
purchased tax benefits 5,984 199
Other 13,306 7,048
Changes in other working capital
components (250,952) (86,391)
________ _______
Cash provided by operations 21,413 123,139
________ _______
Cash (used) provided by investing activities:
Additions to property, plant and
equipment (74,260) (55,986)
Disposals of property, plant and
equipment 7,525 1,779
(Increase) decrease in other assets (16,211) 1,631
(Decrease) in other liabilities (9,651) --
_______ _______
Cash used by investing activities (92,597) (52,576)
_______ _______
Cash provided (used) by financing activities:
Additions to long-term debt 98,808 644
Reductions in long-term debt
including current portion (2,263) (26,183)
Increase (decrease) in notes payable 78,983 (52,700)
Proceeds from exercise of options 9,381 7,637
Repurchase of stock -- (18,756)
Dividends - common and preferred (21,547) (17,893)
_______ _______
Cash provided (used) by financing
activities 163,362 (107,251)
_______ _______
Effect of exchange rate changes on cash 799 (544)
_______ _______
Effect of May 1996 cash flow activity for certain
subsidiaries (Note 5) 43,004 --
_______ _______
Net increase (decrease) in cash and equivalents 135,981 (37,232)
Cash and equivalents, May 31, 1996 and 1995 262,117 220,935
_______ _______
Cash and equivalents, August 31, 1996
and 1995 $398,098 $183,703
======== ========
</TABLE>
* For comparable purposes with 1996, results for the three months ended
August 31, 1995 have been adjusted to reflect the elimination of the one
month lag in reporting by certain of the Company's international operations.
See further discussion under Note 5.
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of significant accounting policies:
___________________________________________
Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) which
are, in the opinion of management, necessary for a fair presentation of
the results of operations for the interim period(s). The interim financial
information and notes thereto should be read in conjunction with the
Company's latest annual report to shareholders. The results of operations
for the three (3) months ended August 31, 1996 are not necessarily
indicative of results to be expected for the entire year.
NOTE 2 - Net income per common share:
___________________________
Net income per common share is computed based on the weighted average
number of common and common equivalent (stock option) shares outstanding
for the period(s).
On October 30, 1995 the Company issued additional shares in connection
with a two-for-one stock split effected in the form of a 100% stock dividend
on outstanding Class A and Class B common stock. The per common share amounts
in the Consolidated Financial Statements and accompanying notes have been
adjusted to reflect this stock split.
In September of 1996, the Company's Board of Directors announced a
two-for-one stock split in the form of a 100 percent stock dividend to
be paid on October 23, 1996 to shareholders of record on October 11, 1996.
NOTE 3 - Inventories:
___________
Inventories by major classification are as follows:
Aug. 31, May 31,
1996 1996
________ ________
(in thousands)
Finished goods $864,081 $906,943
Work-in-process 40,419 20,002
Raw materials 4,914 4,206
________ ________
$909,414 $931,151
======== ========
NOTE 4 - Commitments and contingencies:
_____________________________
There have been no other significant subsequent developments
relating to the commitments and contingencies reported on the
Company's most recent Form 10-K.
NOTE 5 - Change in year-end of certain subsidiaries:
__________________________________________
Prior to fiscal year 1997, certain of the Company's international
operations reported their results of operations on a one month lag
which allowed more time to compile results. The Company has taken steps
to improve its internal reporting procedures that has allowed for
more timely reporting of these operations. Beginning in the first
quarter of fiscal year 1997, the one month lag was eliminated. As a
result, the May 1996 loss from operations for these entities of
$4.1 million was recorded directly to retained earnings. The change
affected the quarterly reporting periods for these operations and thus the
income statement and cash flow statement have been presented to show
comparable results for the quarter as if the change would have occurred
in the prior year. The effect of the change is not material to the
consolidated balance sheet and as a result the balance sheet as of
May 31, 1996 has not been adjusted.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Operating Results
_________________
Net income increased 24% over the prior year's first quarter
to $226.1 million, or $1.53 per share, from $182.1 million, or
$1.25 per share. Revenues totaled $2.28 billion, up 34% from $1.70
billion in last year's first quarter, the first time that revenues
exceeded $2 billion in one quarter. This period also marks the eighth
straight quarter of double digit increases in total revenues. Gross
margin percentage remained consistent with the prior year's first
quarter. Selling and administrative expenses were 23.2% of
revenue compared to 21.7% in the prior year.
Revenues for the quarter increased $581.9 million over the $1.7
billion reported in the same period of the prior year. U.S. revenues
increased $380 million, or 39%. U.S. apparel increased 93% over last
year's first quarter, the second consecutive quarter that U.S. apparel
exceeded $200 million in revenues and the first time revenues
exceeded $1 billion on a trailing twelve month basis. U.S. footwear
increased $210.5 million, or 26.6%, over last year due to a 24% increase
in pairs sold and a 3% increase in average selling price. These
increases were primarily due to men's basketball, up 48%, and women's
business, up 38%. Golf increased 124%. For the quarter, international
revenue increased $202.8 million, or 35%, over last year. All regions
showed double digit increases with Europe up 29%, Asia Pacific up 50%
and the Americas region up 36%. The effect of exchange rates decreased
the quarter's international revenues $55 million, or 10%, compared to
the prior year. Other brands, which includes Cole Haan (R), Tetra
Plastics, Sports Specialties and Bauer Inc., decreased slightly, $1.3
million, or 1%. The breakdown of revenues follows:
Three months ended Aug. 31,
1996 1995(1) % Change
(in thousands)
U.S. Footwear $1,002,103 $ 791,568 27%
U.S. Apparel 352,385 182,483 93%
_________ _______ __
Total United States 1,354,488 974,051 39%
International Footwear 548,538 427,032 28%
International Apparel 232,339 151,051 54%
_______ _______ __
Total International 780,877 578,083 35%
Other Brands 146,561 147,886 (1)%
_______ _______ ___
Total Revenues $2,281,926 $1,700,020 34%
========== ========== ===
(1) For comparable purposes with 1996, results for the three months ended
August 31, 1995 have been adjusted to reflect the elimination of the
one month lag in reporting by certain of the Company's international
operations. See further discussion under Note 5.
Consolidated gross margin percentage remained relatively flat at
40.3% for the quarter compared to 40.4% for last year's first quarter,
due to continued strong demand for NIKE products worldwide combined
with sound inventory management. The Company continues to place strong
emphasis on inventory management, minimizing foreign exchange risk and
production sourcing in order to maximize gross profit. Gross profit
percentages for the remainder of fiscal year 1997 are expected to be
affected by strong demand for NIKE products offset by continued
increased levels of air freight to meet the delivery dates on increasing
customer orders. The gross profit percentage for the full year is
expected to approximate last fiscal year's percentage.*
Selling and administrative expenses increased $160 million over
the previous year's first quarter and increased as a percent of sales
to 23.2%, compared to 21.7% in last year's first quarter. The majority
of the increase in absolute dollars and percentage increases occurred in
the U.S. and Europe due to planned marketing and advertising
expenditures relating to the Olympics and the European soccer
championships. It is expected that selling and administrative expenses
as a percentage of revenues for the fiscal year will approximate last
year's level.*
Interest expense increased slightly over the prior
year due to increased short term borrowings for increased operations.
The Company's Japanese subsidiary entered into a new long-term debt
arrangement, as further discussed below.
The Company's effective tax rate for the first quarter was 38.7%
compared to 38.5% in the prior year's first quarter. The slight
increase was due to higher tax on foreign earnings. The Company
anticipates the tax rate for fiscal 1997 will remain at
approximately 38.7%.*
Worldwide future and advance orders for NIKE Brand athletic
footwear and apparel scheduled for delivery from September 1996
through January 1997 were approximately $3.5 billion, 66% higher than
such orders booked in the comparable period of the prior year.* These
orders and the percentage growth in these orders are not necessarily
indicative of the growth in revenues which the Company will experience
for the subsequent periods. This is because the mix of advance futures
and "at once" orders has shifted significantly toward furtures orders as
the NIKE brand became more established in all areas, specifically in the
U.S. apparel business and in international regions. The mix of advance
orders to "at once" orders will continue to vary as the U.S. apparel
business and international operations continue to account for a greater
percentage of total revenues and place a greater emphasis on futures
programs.* Finally, exchange rates can cause differences in the
comparisons.
As further explained in Note 5, prior to fiscal year 1997, certain
of the Company's international operations reported their results of
operations on a one month lag which allowed more time to compile
results. The Company has taken steps to improve its internal reporting
procedures that has allowed for more timely reporting of these
operations. Beginning in the first quarter of fiscal year 1997, the one
month lag was eliminated. The May 1996 loss from operations for these
entities of $4.1 million was recorded directly to retained earnings.
The income statement and cash flow statement for the quarter ended
August 31, 1995 have been presented as if these entities reported on
a same month basis. There was no unusual activity in the month of May
1996 for the entities affected by the change to concurrent month reporting.
The cash flow for the month was impacted mainly by changes in working
capital components due to increased operations.
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
The Company's financial position remains strong at August 31, 1996.
Since May 31, 1996, total assets grew $474 million to approximately $4.4
billion and shareholder's equity increased $226 million to nearly $2.7
billion. Working capital increased $257 million as a result of higher
levels of cash and equivalents and accounts receivable offset by increased
notes payable, accrued liabilities and income taxes payable. The Company's
current ratio increased compared to May 31, 1996 from 1.86:1 to 1.93:1.
Since May 31, 1996, cash and equivalents increased $136 million (52%)
and accounts receivable increased $281 million (21%) due to the high
level of first quarter revenues compared to the same period in the prior
year. Inventory levels decreased $22 million from May 31, the most
significant change coming from U.S. footwear which decreased $47 million
due to the large selling season.
Current liabilities increased $160 million from May 31, 1996, with
the most significant increases occurring in notes payable ($94 million)
and accrued liabilities ($45 million) due to higher a level of operations
and income taxes payable ($62 million) due to timing of tax payments.
Additions to property, plant and equipment for the first quarter of
fiscal 1997 were $74 million with the most significant components
related to the continued consolidation of European footwear warehouses,
the expansion of NIKE Town retail locations and the expansion of warehouses
in the U.S.
Long-term debt increased $98 million from May 31, 1996. The increase
was due almost entirely to the Company's Japanese subsidiary which borrowed
10.5 billion Japanese yen in a private placement with a maturity of
June 26, 2011.
Dividends per share of common stock for the first quarter of fiscal
1997 was $.15 per share compared to $.125 per share for the first
quarter of fiscal 1996.
In September of 1996, the Company's Board of Directors announced a
two-for-one stock split in the form of a 100 percent stock dividend to
be paid on October 23, 1996 to shareholders of record on October 11, 1996.
The Company's commercial paper program requires the support of
committed and uncommitted lines of credit. There was $88 million
outstanding under this program at August 31, 1996. The Company has
$500 million available in committed unused lines of credit and, at
August 31, 1996, no amounts were outstanding under this credit facility.
NIKE's debt-to-equity ratio at August 31, 1996 was .7:1, compared to
.6:1 at May 31, 1996.
Management believes that funds generated by operations, together
with currently available resources and anticipated long-term debt
arrangements, will continue to adequately finance anticipated fiscal
1997 expenditures.*
*The marked items are forward-looking statements that involve risks
and uncertainties detailed from time to time in reports filed by
NIKE with the S.E.C., including Forms 8-K, 10-Q, and 10-K.
Part II - Other Information
Item 1. Legal Proceedings:
There have been no material changes from the information previously
reported under Item 3 of the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on September 16,
1996. The shareholders elected for the ensuing year all of management's
nominees for the Board of Directors, ratified the appointment of Price
Waterhouse LLP as independent accountants for fiscal 1997, and defeated the
shareholder proposal regarding monitoring of Indonesian subcontractors.
The voting results are as follows:
Election of Directors
Votes Cast
For Withheld Broker Non-Votes
Directors
Elected by holders of
Class A Common Stock:
Ralph D. DeNunzio 50,333,571 -0- -0-
Richard K. Donahue 50,333,571 -0- -0-
Douglas G. Houser 50,333,571 -0- -0-
John E. Jaqua 50,333,571 -0- -0-
Philip H. Knight 50,333,571 -0- -0-
Kenichi Ohmae 50,333,571 -0- -0-
Ralph A. Pfeiffer, Jr. 50,333,571 -0- -0-
Charles W. Robinson 50,333,571 -0- -0-
A. Michael Spence 50,333,571 -0- -0-
John R. Thompson, Jr. 50,333,571 -0- -0-
Elected by holders of
Class B Common Stock:
William J. Bowerman 78,556,851 789,884 -0-
Thomas E. Clarke 78,572,406 774,329 -0-
Jill K. Conway 78,774,975 571,760 -0-
Delbert J. Hayes 78,593,917 752,818 -0-
Broker
For Against Abstain Non-Votes
Proposal 2 -
Ratification of
Appointment
of Accountants:
Class A and Class B
Common Stock Voting
Together 129,533,063 56,649 90,594 -0-
Proposal 3 -
Shareholer Proposal
regarding
subcontractors:
Class A and Class B
Common Stock Voting
Together 3,642,906 111,258,271 5,849,783 8,929,346
Item 6. Exhibits and Reports on Form 8-K:
(a) EXHIBITS:
3.1 Restated Articles of Incorporation, as amended (incorporated by
reference from Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended August 31, 1995).
3.2 Third Restated Bylaws, as amended (incorporated by reference
from Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 31, 1995).
4.1 Restated Articles of Incorporation, as amended (see Exhibit 3.1).
4.2 Third Restated Bylaws, as amended (see Exhibit 3.2).
10.1 Credit Agreement dated as of September 15, 1995 among NIKE, Inc.,
Bank of America National Trust & Savings Association,
individually and as Agent, and the other banks party thereto
(incorporated by reference from the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended August 31, 1995).
10.2 Form of non-employee director Stock Option Agreement (incorporated
by reference from Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1993).*
10.3 Form of Indemnity Agreement entered into between the Company and
each of its officers and directors (incorporated by reference from
the Company's definitive proxy statement filed in connection with
its annual meeting of shareholders held on September 21, 1987).
10.4 NIKE, Inc. Restated Employee Incentive Compensation Plan
(incorporated by reference from Registration Statement No. 33-29262
on Form S-8 filed by the Company on June 16, 1989).*
10.5 NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference
from the Company's definitive proxy statement filed in connection
with its annual meeting of shareholders held on September 17, 1990).*
10.6 Collateral Assignment Split-Dollar Agreement between NIKE, Inc.
and Philip H. Knight dated March 10, 1994 (incorporated by
reference from Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1994).*
10.7 NIKE, Inc. Executive Performance Sharing Plan (incorporated
by reference from the Company's definitive proxy statement filed
in connection with its annual meeting of shareholders held on
September 18, 1995).*
27 Financial Data Schedule.
* Management contract or compensatory plan or arrangement.
(b) The following report on Form 8-K was filed by the Company during
the first quarter of fiscal 1997:
July 9, 1996 ITEM 5. OTHER EVENTS. Press release
announcing 4th quarter
earnings
The following report on Form 8-K was filed by the Company after
the first quarter of fiscal 1997, but before this Form 10-Q:
September 26, 1996 ITEM 5. OTHER EVENTS Press release
announcing 1st quarter
earnings, stock split
and 1996 financial
statements restated to
reflect the stock
split.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NIKE, Inc.
An Oregon Corporation
BY: s/Robert S. Falcone
________________________
Robert S. Falcone
Vice President,
Chief Financial Officer
DATED: October 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE AUGUST 31, 1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> AUG-31-1996
<CASH> 398,098
<SECURITIES> 0
<RECEIVABLES> 1,627,046
<ALLOWANCES> 53,822
<INVENTORY> 909,414
<CURRENT-ASSETS> 3,143,708
<PP&E> 1,116,998
<DEPRECIATION> 425,420
<TOTAL-ASSETS> 4,425,828
<CURRENT-LIABILITIES> 1,627,010
<BONDS> 107,247
<COMMON> 2,856
0
300
<OTHER-SE> 2,654,092
<TOTAL-LIABILITY-AND-EQUITY> 4,425,828
<SALES> 2,281,926
<TOTAL-REVENUES> 2,281,926
<CGS> 1,362,119
<TOTAL-COSTS> 1,362,119
<OTHER-EXPENSES> 534,480
<LOSS-PROVISION> 3,698
<INTEREST-EXPENSE> 12,666
<INCOME-PRETAX> 368,963
<INCOME-TAX> 142,900
<INCOME-CONTINUING> 226,063
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 226,063
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.53
</TABLE>
