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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, 1996
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 22, 1996, the aggregate market value of the Registrant's Class A
Common Stock held by nonaffiliates of the Registrant was $232,368,900 and the
aggregate market value of the Registrant's Class B Common Stock held by
nonaffiliates of the Registrant was $9,097,477,000.
As of July 22, 1996, the number of shares of the Registrant's Class A Common
Stock outstanding was 51,119,985 and the number of shares of the Registrant's
Class B Common Stock outstanding was 92,676,298
DOCUMENTS INCORPORATED BY REFERENCE:
Parts of Registrant's Proxy Statement dated August 12, 1996 for the annual
meeting of shareholders to be held on September 16, 1996 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........................................... 2
United States Market.......................................... 2
International Markets......................................... 3
Significant Customers......................................... 3
Orders........................................................ 3
Product Research and Development.............................. 3
Manufacturing................................................. 3
Trade Legislation............................................. 4
Competition................................................... 5
Trademarks and Patents........................................ 5
Employees..................................................... 6
Executive Officers of the Registrant.......................... 6
ITEM 2. PROPERTIES.................................................... 8
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....................................... 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.................... 15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...................................... 32
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.).............. 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-
K............................................................. 32
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 18,000 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, cross-training,
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 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 Bauer Inc., formerly Canstar Sports
Inc., the world's largest hockey equipment manufacturer. Bauer manufactures
and distributes ice skates, skate blades, in-line roller skates, protective
gear, hockey sticks, and hockey jerseys and accessories under the Bauer(R)
brand name. Bauer also offers a full selection of products for
street, roller and field hockey.
1
<PAGE>
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>
<S> <C> <C> <C> <C> <C> <C>
Year Ended May 31, 1996 %CHG 1995 %CHG 1994 % CHG
United States Footwear $2,772,500 20% $2,309,400 24% $1,868,900 (5)%
United States Apparel 842,500 99 423,900 25 338,500 (6)
Total United States 3,615,000 32 2,733,300 24 2,207,400 (5)
International Footwear 1,682,300 35 1,244,300 25 998,200 (5)
International Apparel 651,400 38 472,700 32 358,800 2
Total International 2,333,700 36 1,717,000 27 1,357,000 (3)
Other Brands 521,900 68 310,600 38 225,300 13
Total NIKE $6,470,600 36% $4,760,900 26% $3,789,700 (4)%
</TABLE>
Financial information about United States and international operations
appears in Note 15 of the consolidated financial statements on page 31.
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
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 1996, sales to the Company's approximately 18,000
retail accounts in the United States accounted for approximately 64
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
1996, NIKE's three largest customers accounted for approximately 24
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 1996, 88 percent of the
Company's domestic footwear shipments (excluding Cole Haan(R) and Bauer (R))
were made under the futures program, compared to 88 percent in fiscal 1995 and
81 percent in fiscal 1994. The Company is implementing a similar futures
program for apparel.
The Company utilizes 18 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 78 wholly-owned retail outlets, 33 of which carry primarily
B-grade and close-out merchandise, 31 of which are Cole Haan(R) stores, 5
of which are high-profile NIKETOWN stores designed to showcase the
Company's products, and 5 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. Cole Haan footwear
and Bauer Inc. products are distributed primarily from Greenland, New
Hampshire, and Sports Specialties headwear is shipped from Irvine, California.
2
<PAGE>
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 28 distribution centers in
Europe, Asia, Canada, Latin America, and Australia, and also distributes
through independent distributors and licensees. The Company estimates that
its products are sold through approximately 34,000 retail accounts outside
the United States. International (non-U.S.) sales accounted for 36 percent
of total revenues in fiscal 1996, compared to 37 percent in fiscal 1995 and
36 percent in fiscal 1994. The Company has 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 international 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, The Netherlands, Norway, Peoples
Republic of China, The Philippines, Singapore, Spain, Sweden, Switzerland,
Taiwan, Thailand, the United Kingdom, and Vietnam. The Company operates
12 wholly-owned retail outlets outside the United States, two of which are
employee-only stores.
SIGNIFICANT CUSTOMERS
Foot Locker, a chain of retail stores specializing in athletic footwear and
apparel, accounted for approximately 12 percent of global net sales of NIKE
brand products during fiscal 1996. No other customer accounted for 10 percent
or more of net sales during fiscal 1996.
ORDERS
As of May 31, 1996, the Company's worldwide orders for athletic footwear
and apparel totaled $3.9 billion, compared to $2.5 billion as of
May 31, 1995. Such orders are scheduled for delivery from June through
November of 1996. 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, apparel, and athletic equipment 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 1996, NIKE spent approximately $46.8 million on product research,
development and evaluation, compared to $28.8 million in 1995, and $24.6
million in 1994.
MANUFACTURING
In fiscal 1996, approximately 56 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, The Philippines,
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.
3
<PAGE>
Virtually all of the Company's footwear (exclusive of Cole Haan(R))
is produced outside of the United States. In fiscal 1996, contract suppliers
in Indonesia, the People's Republic of China, South Korea, Taiwan, Thailand,
and Vietnam accounted for approximately 38 percent, 34 percent, 11 percent,
5 percent, 10 percent, and 2 percent, respectively, of total NIKE brand
footwear production. The Company also has manufacturing agreements
with independent factories in Argentina, Brazil, Italy and Mexico.
The largest single supplier accounted for approximately 9 percent of
total 1996 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.
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 and apparel 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 May 1996, President Clinton extended to June 1997, "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 and the Congress have opposed 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.
4
<PAGE>
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 the 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 a portion 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 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.
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 footwear 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.
5
<PAGE>
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 early 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, designs and improvements that it deems valuable.
EMPLOYEES
The Company had approximately 17,200 employees at May 31, 1996.
Management considers its relationship with its employees to be excellent.
With the exception of Bauer Inc., the Company's employees are not
represented by a union. Of Bauer's North American employees, approximately
50 percent or fewer than 1,200, are covered by four union collective
bargaining agreements with four separate bargaining units, and all of
Bauer's approximately 200 employees in Italy are covered by one of two
union collective bargaining agreements. The collective bargaining agreements
expire on various dates in 1996 and 1997. 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, 1996 are as follows:
Philip H. Knight, Chief Executive Officer--Mr. Knight, 58, 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 LLP and Coopers & Lybrand and was an
Assistant Professor of Business Administration at Portland State University.
Harry C. Carsh, Vice President and General Manager, Sports and
Fitness--Mr. Carsh, 57, 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, 45,
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, 39, 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, divisional Vice President in charge of domestic
sales in 1992, and Vice President of Sales in June 1996.
Elizabeth G. Dolan, Vice President, Corporate Communications and
Marketing--Ms. Dolan, 39, 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.
6
<PAGE>
Robert S. Falcone, Vice President and Chief Financial Officer--Mr.
Falcone, 49, 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 LLP.
Stephen D. Gomez, Vice President, Apparel - Mr. Gomez, 41 has been
employed by the Company since 1981, with primary responsibilities in
apparel. He was appointed General Manager of European Apparel in 1987,
and Apparel Marketing Director in 1989. Mr. Gomez was appointed
divisional Vice President in charge of Appparel in 1992, and was
elected Vicce President of Apparel in June 1996.
David Kottkamp, Vice President and General Manager, International
Division--Mr. Kottkamp, 54, 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, 40, 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 1993.
Lindsay D. Stewart, Vice President Legal and Corporate Affairs and
Assistant Secretary--Mr. Stewart, 49, 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, 41, 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.
7
<PAGE>
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 (13 locations)-- SALES OFFICES AND SHOWROOMS:
one owned and 12 leased
United States (22 locations)--2
Wilsonville, Oregon--owned owned and 20 leased
Greenland, New Hampshire (2 locations) Toronto, Ontario--leased
-- 1 owned and 1 leased Europe (20 locations)--1 owned
Memphis, Tennessee (2 locations)- and 19 leased
- 1 owned and 1 leased Asia and Australia (10 locations)
Yarmouth, Maine--owned --leased
Charlotte, North Carolina--leased Latin America (3 locations)--leased
Irvine, California--leased Africa (2 locations)--leased
INTERNATIONAL ADMINISTRATIVE OFFICES: DISTRIBUTION FACILITIES:
Mississauga, Ontario--leased Greenland, New Hampshire--owned
Thornhill, Ontario--leased Wilsonville, Oregon (2 locations)--1
Montreal, Quebec--leased owned and 1 leased
Europe (14 locations)--leased Memphis, Tennessee (2 locations)--1
Asia and Australia (9 locations) owned and 1 leased
--leased Yarmouth, Maine--owned
Latin America (3 locations)--leased Irvine, California -- leased
Canada (8 locations)--2 owned and
6 leased
Latin America (4 locations)--leased
Europe (9 locations)--3 owned and
6 leased
Asia and Australia (16 locations)
--leased
INTERNATIONAL PRODUCTION OFFICES:
Asia (9 locations)--leased
South America (3 locations)--
leased
Florence, Italy--leased
MANUFACTURING FACILITIES:
Beaverton, Oregon (2 locations)
--leased
Greenville, North Carolina
(2 locations)--leased
Livermore Falls, Maine--owned
Sanford, Maine--owned
Cambridge, Ontario (2 locations)
--1 owned and 1 leased
Toronto, Ontario--leased
Vars, Ontario--leased
Granby, Quebec--leased
St. Jerome, Quebec--leased
Montebelluna, Italy--owned
Zdar nad Sazavou, Czech
Republic--owned
Earth City, Missouri--leased
Chesterfield, Missouri--leased
RETAIL OUTLETS:
United States (78 locations)--75 leased and 3 owned
Toronto, Ontario--leased
Europe (7 locations)--leased
Asia and Australia (4 locations)--leased
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 1996 fiscal
year to a vote of security holders, through the solicitation of proxies or
otherwise.
8
<PAGE>
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 22, 1996 there were 8,225 holders of record of the Company's
Class B Common Stock and 31 holders of record of the Company's Class A
Common Stock. These figures do not include beneficial owners who hold
shares in nominee name. 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, and the 2-for-1 stock split that became effective in
October of 1995. Such table also sets forth the amount and frequency of all
cash dividends declared on the Company's common stock for the 1995 and 1996
fiscal years.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(in thousands, except per share data and financial ratios)
1996 1995 1994 1993 1992 1991 1990 1989 1988
Year Ended May 31:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $6,470,625 $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 2,563,879 1,895,554 1,488,245 1,543,991 1,316,122 1,153,080 851,072 635,972 400,060
Gross margin % 39.6% 39.8% 39.3% 39.3% 38.7% 38.4% 38.1% 37.2% 33.2%
Net income 553,190 399,664 298,794 365,016 329,218 287,046 242,958 167,047 101,695
Net income per common share 3.77 2.72 1.98 2.37 2.15 1.89 1.61 1.11 0.68
Average number of common and
common equivalent shares 146,804 147,006 150,912 154,126 153,204 152,134 151,336 150,288 150,556
Cash dividends declared per
common share 0.58 0.48 0.40 0.38 0.30 0.26 0.19 0.14 0.10
Cash flow from operations 330,021 254,913 576,463 265,292 435,838 11,122 127,075 169,441 19,019
Price range of common stock
High 104-1/8 40-5/16 37-3/8. 45-1/8 38-11/16 27-1/4 20-3/4 9-15/16. 6-5/8
Low 39-1/16 28-1/8 21-9/16 27-1/2 17-9/16. 13 9-1/2 5-25/32 3-1/2
At May 31
Cash and equivalents $ 262,117 $ 216,071 $ 518,816 $ 291,284 $ 260,050 $ 119,804 $ 90,449 $ 85,749 $ 75,357
Inventories 931,151 629,742 470,023 592,986 471,202 586,594 309,476 222,924 198,470
Working capital 1,259,881 938,393 1,208,444 1,165,204 964,291 662,645 561,642 419,599 295,937
Total assets 3,951,628 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 9,584 10,565 12,364 15,033 69,476 29,992 25,941 34,051 30,306
Redeemable Preferred Stock 300 300 300 300 300 300 300 300 300
Common shareholders'
equity 2,431,400 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 100-3/8 39-7/16 29-1/2 36-1/4 29 19-7/8 19-5/8 9-1/2 6-1/16
Market capitalization 14,416,792 5,635,190 4,318,800 5,499,273 4,379,574 2,993,020 2,942,679 1,417,381 899,741
Financial Ratios:
Return on equity 25.2% 21.6% 17.7% 24.5% 27.9% 31.7% 36.3% 34.5% 27.4%
Return on assets 15.6% 14.5% 13.1% 18.0% 18.4% 20.5% 25.3% 21.8% 16.7%
Inventory turns 5.0 5.2 4.3 4.5 3.9 4.1 5.2 5.1 5.0
Current ratio at May 31 1.9 1.8 3.2 3.6 3.3 2.1 3.1 2.9 2.2
Price/Earnings ratio at May 31 26.6 14.5 14.9 15.3 13.5 10.5 12.2 8.6 9.0
Geographic Revenues:
United States $3,964,662 $2,997,864 $2,432,684 $2,528,848 $2,270,880 $2,141,461 $1,755,496 $1,362,148 $ 900,417
Europe 1,334,340 980,444 927,269 1,085,683 919,763 664,747 334,275 241,380 233,402
Asia/Pacific 735,094 515,652 283,421 178,196 75,732 56,238 29,332 32,027 21,058
Canada, Latin America,
and other 436,529 266,874 146,294 138,257 138,836 141,164 116,141 75,248 48,563
Total Revenues $6,470,625 $4,760,834 $3,789,668 $3,930,984 $3,405,211 $3,003,610 $2,235,244 $1,710,803 $1,203,440
</TABLE>
All per common share data has been adjusted to reflect the 2-for-1
stock splits paid October 30, 1995 and October 5, 1990. The Company's
Class B Common Stock is listed on the New York and Pacific Stock
Exchanges and trades under the symbol NKE. At May 31, 1996, there were
approximately 77,000 shareholders. Years 1993 and prior have been re-
stated to reflect the implementation of Statement and Financial Accounting
Standard No. 109 - Accounting for Income Taxes (see Notes 1 and 6 to the
Consolidated Financial Statements).
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1996 1995 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,614,649 $1,170,355 $1,443,027 $1,053,746 $1,491,611 $1,124,697 $1,921,338 $1,412,036
Gross Margin 647,127 469,908 567,581 413,715 589,235 446,293 759,936 565,638
Gross Margin % 40.1% 40.2% 39.3% 39.3% 39.5% 39.7% 39.6% 40.1%
Net Income 164,781 105,987 118,216 84,939 113,749 95,349 156,444 113,389
Net Income per
Common Share 1.13 0.71 0.80 0.58 0.78 0.65 1.06 0.78
Dividends Declared per
Common Share 0.125 0.10 0.15 0.125 0.15 0.125 0.15 0.125
Price Range of Common Stock
High 48-3/8 33-5/16 62-5/8 33-3/16 71-3/8 38-1/4 104-1/8 40-5/16
Low 39-1/16 28-1/8 45-5/16 29-1/16 57-7/8 31-13/16 65-3/8 35-7/16
ADJUSTED*
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1996 1995 1996 1995 1996 1995 1996 1995
Revenues $1,700,020 $1,253,532 $1,356,758 $ 976,016 $1,582,039 $1,207,934 $1,852,067 $1,351,132
Gross Margin 686,641 506,618 528,629 376,631 628,723 487,386 731,514 534,364
Gross Margin % 40.4% 40.4% 39.0% 38.6% 39.7% 40.3% 39.5% 39.5%
Net Income 182,098 121,367 97,812 69,331 133,874 119,746 133,727 91,184
Net Income per
Common Share 1.25 0.82 0.67 0.47 0.91 0.81 0.91 0.63
</TABLE>
*Quarterly figures have been adjusted to reflect the Company's operations
reported on a same-month basis for certain international entities which
were previously consolidated using an April 30 year end. See further
discussion in Note 1 to the Consolidated Financial Statements.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Highlights
Fiscal year 1996 was a record year for the Company and demonstrated the
continuing strength of the NIKE brand on a global scale:
- - Net income increased to $553.2 million, an increase of 38.4% over the
previous year's record $399.7 million.
- Revenues increased 35.9% to a record and industry leading $6.5 billion.
Fourth quarter revenues reached $1.9 billion, an increase of 36% over the
prior year and 19% over the previous record quarter, which was established
in the first quarter of this fiscal year.
- Gross margins remained strong at 39.6% of revenues, compared with the
previous year's NIKE record of 39.8%.
- Selling and administrative costs decreased 0.8% as a percent of revenues
from the previous year.
- The strength of the brand continues with advance and futures orders
scheduled for delivery over the next six months up a record 55% over the
same period last year.*
RESULTS OF OPERATIONS
Significant growth in worldwide revenues and improved leverage of selling and
administrative costs were the primary factors contributing to record earnings
for fiscal year 1996 as compared to 1995. Fiscal 1995 also experienced record
results, driven primarily by increased revenues, improved gross margins, and a
reduced percentage of revenues in selling and administrative costs, compared
with fiscal year 1994. Revenues and net income have now increased nine and
seven consecutive quarters, respectively. During fiscal 1996, the Company
continued to gain market share in United States footwear, in spite of a rather
mature market. Industry sources expected only moderate market growth rates of
5 to 7%. U.S. apparel experienced significant revenue growth during a
sluggish period for the industry and marketplace. Outside the U.S., the
markets in which the Company operates are less mature and offer tremendous
potential for growth.* The Company continues to invest in infrastructure and
local marketing to capitalize on these opportunities and balance the strength
of the global NIKE brand. 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.*
The Company experienced revenue growth in fiscal 1996 in all breakout
categories (see chart). The most significant increase in absolute dollars was
U.S. footwear, which grew $463.2 million, or 20.1%, as a result of 19% more
pairs shipped and a 0.9% increase in average selling price per pair. Men's
basketball, women's fitness and men's training comprise approximately half of
the U.S. footwear category in terms of total revenues, and individually
increased 7%, 29% and 25%, respectively, over the prior year. The men's
running and kids' categories increased significantly over the prior year,
improving 28% and 26%, respectively. U.S. apparel increased $418.6 million,
or 99%, experiencing growth in all categories and demonstrating the strength
of the NIKE brand. International (non-U.S.) brand revenues also increased
significantly, growing $616.7 million, or 35.9%, as a result of increases of
$438.0 million (35.2%) and $178.7 million (37.8%) in footwear and apparel,
respectively, over the prior year. International revenues were increased 1.2%
as a result of the foreign currency translation impact. All NIKE regions
outside the U.S. experienced revenue increases greater than 30%. Europe
increased 33%, Asia Pacific, 41%, and the Americas, 35%. The most significant
increases were in Japan, Italy, United Kingdom, Korea and Canada. Other
brands which include Cole Haan(R), Tetra Plastics, Inc., Sports Specialties
Corp., and Bauer Inc. (formerly Canstar Sports Inc.) increased $211.3
million, or 68%, over the prior year. Bauer, which was acquired at the end of
the Company's third quarter of the prior year, contributed $173.7 million of
the increase.
11
<PAGE>
During fiscal 1995, the Company experienced revenue growth over 1994 in all
categories, 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 continued 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 1994. International brand
revenues also increased significantly, growing $360 million, or 27%, as a
result of a $246.1 million (25%) increase in footwear revenues and a $113.9
million (32%) increase in apparel. 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 Korea, for which NIKE acquired the distribution operations in
fiscal 1995, while the Americas region was up primarily as a result of
Argentina, also acquired in fiscal 1995, and improved revenues in Canada.
U.S. apparel rebounded strongly in 1995, up $85.4 million (25%), and other
brands grew $85.3 million, primarily due to the acquisition of Bauer.
The breakdown of revenues follows:
(in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year Ended May 31, 1996 %CHG 1995 %CHG 1994 % CHG
United States Footwear $2,772,500 20% $2,309,400 24% $1,868,900 (5)%
United States Apparel 842,500 99 423,900 25 338,500 (6)
Total United States 3,615,000 32 2,733,300 24 2,207,400 (5)
International Footwear 1,682,300 35 1,244,300 25 998,200 (5)
International Apparel 651,400 38 472,700 32 358,800 2
Total International 2,333,700 36 1,717,000 27 1,357,000 (3)
Other Brands 521,900 68 310,600 38 225,300 13
Total NIKE $6,470,600 36% $4,760,900 26% $3,789,700 (4)%
</TABLE>
Gross margins were 39.6% in fiscal 1996 compared to 39.8% in 1995 and 39.3% in
1994. Gross margins remained strong in fiscal 1996 and, similar to 1995, can
be attributed to the high demand for NIKE products, internally controlled
close-out distribution, a solid inventory position along with strong inventory
management, and the Company's innovative advance futures order program. The
slight reduction in gross margins compared with 1995 was primarily driven by
increased costs of air freight to meet delivery dates on increasing customer
orders, and increased footwear product costs not fully recovered through the
selling price. These higher expenses were partially offset by improved
apparel margins due to significant increases in revenues and a reduction in
close-outs as a percentage of total revenues.
Total selling and administrative expenses as a percentage of revenues
decreased to 24.6% as compared to 25.4% in 1995 and 25.7% in 1994. The
reduction can be attributed primarily to the significant increase in
revenues. The increase in absolute dollars was $378.9 million, or 31%. U.S.
operations increased $160.5 million and international increased $176.3
million, largely a result of increased sales and marketing spending as well as
infrastructure to support growth outside the U.S. Bauer accounted for $33
million of the increase. The increase of $235.7 million in 1995 over 1994 was
attributed to the acquisition of formerly independent international operations
and planned growth in international infrastructure. The Company intends to
continue to invest in growth opportunities and worldwide marketing and
advertising in order to ensure the successful sell-through of the high level
of orders discussed below.*
Interest expense increased $15.3 million due primarily to the higher levels of
short term borrowings needed to fund current operations. In 1995, average
cash and equivalents were higher, as available cash was used to fund the
acquisition of Bauer. Interest expense during 1995 increased $9 million over
1994 as a result of significant operational and investment cash needs financed
with short term borrowings, lower net cash position compared with 1994, and
the reduction of long-term debt with the repayment of $50 million in long-term
notes which occurred at the beginning of fiscal 1994.
12
<PAGE>
Other income/expense rose $25 million in expense over 1995, primarily as a
result of increased goodwill amortization from the acquisition of Bauer, a
reduction in interest income due to a net lower cash position compared with
the prior year, and increased profit share expense due to increased earnings.
These were partially offset by the absence of non-recurring specific
obligations which occurred in the prior year related to the shutdown of
certain facilities in conjunction with the consolidation of European
warehouses. In the prior year, other income/expense rose $3.5 million in
expense over 1994, primarily as a result of increased goodwill amortization
and additional non-recurring charges discussed above, offset partially by
increased interest income resulting from higher interest rates and excess cash
in the first half of the year.
The fiscal 1996 effective tax rate remained constant with 1995 at 38.5%, and
was 39.1% in 1994. In 1996, the rate was affected by a non-recurring state
tax credit offset by increased taxes on foreign earnings. The decrease in
1995 compared with 1994 was primarily the result of lower taxes provided on
non-U.S. earnings. Fiscal 1994's effective tax 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 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 tax rate for
fiscal 1997 to approximate the rate for 1996.*
Worldwide futures and advance orders for NIKE brand athletic footwear and
apparel scheduled for delivery from June through November, 1996, were
approximately $3.9 billion, 55% higher than such orders booked in the
comparable period of the prior year.* These orders and the percentage growth
in these orders are not necessarily indicative of the growth in revenues which
the Company will experience for the subsequent periods. This is because the
mix of advance futures and "at once" orders has shifted significantly toward
futures orders as the NIKE brand 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.
Since the Company operates globally, it is exposed to market risks from
changes in foreign currency exchange rates. In order to minimize the effect
of fluctuations on the Company's foreign currency transactions, the Company
uses highly liquid foreign currency spot, forward and purchased options with
high credit quality financial institutions.* 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 and the related receivables and payables may be hedged with
forward exchange contracts or purchased options.* Anticipated, but not yet
firmly committed transactions, may be hedged through the use of purchased
options.* Additional information concerning the Company's hedging activities
is presented in Note 14 to the Consolidated Financial Statements.
Generally, a weaker U.S. dollar in comparison to foreign currencies, will
result in higher translation of operating results in these financial
statements than would a stronger U.S. dollar. The net effect of translations
on the 1996 results of operations was minimal while its effect on 1995 was
favorable.
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 February, 1995, the EU Commission, at the request of the European
footwear manufacturers, initiated two anti-dumping investigations covering
certain footwear imported from the People's Republic of China (the "PRC"),
Indonesia and Thailand. The investigations expressly exclude certain types of
sports 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 for sale in the EU fits within these exclusions and,
therefore, that it will not be materially affected by the results of these
anti-dumping investigations.* However, the above mentioned exclusions are
subject to interpretation and/or amendment by the EU customs authorities
(e.g., as to the meaning of terms such as "footwear designed for a sporting
activity").
As of the end of the 1996 fiscal year, the Company is unable to estimate 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. However, the most recent information obtained by the Company
concerning this matter suggests that provisional anti-dumping measures will
probably be imposed by late 1996 and that, in the case of China and Indonesia,
these may entail the imposition of substantial duties.
In the event that any of the Company's footwear were deemed to not be covered
by the above mentioned exclusions and hence, were affected by such duties, the
Company could consider, in addition to its possible legal remedies, shifting
the production of such footwear to other countries in order to maintain
competitive pricing.* The Company believes that it is prepared to deal
effectively with any such anti-dumping measures 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 adopt its multi-
country sourcing strategy and contingency plans. The Company believes that its
major competitors would be similarly impacted by any such restrictions.*
13
<PAGE>
As discussed further in Note 1 to the Consolidated Financial Statements,
beginning in fiscal year 1997, the Company will eliminate the one month lag in
reporting of certain international operations, in order to coincide with the
consolidated fiscal year end. This change will not have a material effect on
the annual results of operations, however, quarterly results will change as
certain reporting periods will shift one month.* The Selected Quarterly Data
section includes adjusted quarterly data as if the change had been in effect
in fiscal years 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remains extremely strong at May 31, 1996.
Total assets grew over $800 million to approximately $3.9 billion and
shareholder's equity increased $467 million to approximately $2.4 billion.
Cash and equivalents increased $46 million (21%). Working capital increased
$321 million as a result of higher levels of all current assets, offset by
increased notes payable, accounts payable, and accrued liabilities, primarily
a result of the increases in operations. The Company's current ratio
increased only slightly compared to May 31, 1995.
Inventory levels have increased $301 million since May 31, 1995, primarily due
to increases in U.S. apparel and international inventories to support the high
level of futures orders for the next quarter.* Accounts receivable increased
$293 million (28%) due to the high level of fourth quarter revenues (36%
higher than the previous year). Prepaid expenses have increased $20 million
primarily due to advance payments relating to the July 1996 summer Olympics.
Net deferred tax assets increased by $73.2 million from $54.9 million at May
31, 1995 to $128.1 million at May 31, 1996. The increase is primarily
attributable to a reduction of $14.9 million of deferred tax liabilities
associated with undistributed earnings of foreign subsidiaries, and increases
in deferred tax assets related to: foreign loss carry forwards ($19.2
million), reserves and accrued liabilities ($12.5 million) and deferred
compensation ($7.4 million). The change related to undistributed earnings of
foreign subsidiaries is attributable to a net increase in unremitted foreign
earnings from subsidiaries in higher taxed jurisdictions. The increase in
deferred tax assets related to foreign loss carry forwards is due to tax
losses in certain individual jurisdictions incurred as a result of initial
investments required to centralize the Company's European operations. (See
Note 6 to the Consolidated Financial Statements for a further breakdown of the
Company's deferred tax balances.) Other assets were also increased by
prepayments on certain long-term endorsement contracts.
Current liabilities increased $360 million, with the most significant
increases occurring in accounts payable ($157 million) and accrued liabilities
($135 million). The increase in accounts payable relates to higher levels of
operations and inventory purchases. Accrued liabilities increased due to
higher levels of employee benefit accruals and other accruals relating to the
higher level of operations.
Additions to property, plant and equipment for fiscal 1996 were $216 million,
with the most significant components related to the continued consolidation of
European footwear warehouses and the expansion of NIKE Town retail locations
in the U.S. Additions to property, plant and equipment of $154 million and
$95 million in fiscal 1995 and 1994, respectively, related to the expansion of
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 1997 approximate $400
million, with the primary components consisting of the expansion of existing
world headquarters, new NIKE Town retail locations, expanded warehousing in
the U.S. and other countries and improved information systems.* Funding is
expected to be provided by operations, short term borrowing capacity and long-
term debt.* Additional investing activities in 1995 included the acquisition
of Bauer and certain international distributors, including Korea.
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 NIKE Class B Common Stock over a
period of up to three years. During fiscal 1996, the Board of Directors voted
to extend the program until July 1, 1999. Funding has, and is expected to
continue to, come from operating cash flow in 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, 1996, the Company had repurchased 5.1 million
shares at a total cost of $301.7 million.
14
<PAGE>
Dividends per share of common stock for fiscal 1996 rose $.10 over fiscal 1995
to $.58 per share. Dividend declaration in all four quarters has been
consistent since February 1984. Based upon current projected earnings and
cash flow requirements, the Company anticipates continuing a dividend and
reviewing its amount during the second fiscal 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.*
The Company's commercial paper program requires the support of committed and
uncommitted lines of credit. There was $0 and $118 million outstanding under
this program at May 31, 1996 and 1995, respectively. Additionally, no amounts
were outstanding at May 31, 1996 and 1995, under unsecured multiple option
credit facilities of $500 million and $300 million, respectively. See Note 4
to the Consolidated Financial Statements for further details concerning the
Company's short-term borrowing. NIKE's debt-to-equity ratio at May 31, 1996
was consistent with May 31, 1995 at .6:1, and was .4:1 at May 31, 1994.
Management believes that funds generated by operations, together with
currently available resources and anticipated long-term debt arrangements,
will 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
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.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Portland, Oregon
July 3, 1996
To the Board of Directors and
Shareholders of NIKE, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 32 present fairly, in all
material respects, the financial position of NIKE, Inc. and its
subsidiaries at May 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended
May 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
16
<PAGE>
NIKE, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------
1996 1995 1994
---------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues $6,470,625 $4,760,834 $3,789,668
Costs and expenses:
Costs of sales 3,906,746 2,865,280 2,301,423
Selling and administrative 1,588,612 1,209,760 974,099
Interest expense (Notes 4 and 5) 39,498 24,208 15,282
Other income/expense, net (Notes 1, 9 and 10) 36,679 11,722 8,270
5,571,535 4,110,970 3,299,074
Income before income taxes 899,090 649,864 490,594
Income taxes (Note 6) 345,900 250,200 191,800
Net income $ 553,190 $ 399,664 $ 298,794
Net income per common share (Note 1) $ 3.77 $ 2.72 $ 1.98
Average number of common and common
equivalent shares (Note 1) 146,804 147,006 150,912
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
17
<PAGE>
NIKE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MAY 31,
---------------------
1996 1995
---------- ----------
(IN THOUSANDS)
ASSETS
------
<S> <C> <C>
Current Assets:
Cash and equivalents $ 262,117 $ 216,071
Accounts receivable, less allowance for doubtful accounts
of $43,372 and $32,663 1,346,125 1,053,237
Inventories (Note 2) 931,151 629,742
Deferred income taxes (Note 6) 93,120 72,657
Prepaid expenses 94,427 74,221
Total current assets 2,726,940 2,045,928
Property, plant and equipment, net (Notes 3 and 5) 643,459 554,879
Identifiable intangible assets and goodwill (Note 1) 474,812 495,907
Deferred income taxes and other assets 106,417 46,031
Total assets $3,951,628 $3,142,745
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<C> <C>
Current Liabilities:
Current portion of long-term debt (Note 5) $ 7,301 $ 31,943
Notes payable (Note 4) 445,064 397,100
Accounts payable (Note 4) 455,034 297,656
Accrued liabilities 480,407 345,224
Income taxes payable 79,253 35,612
Total current liabilities 1,467,059 1,107,535
Long-term debt (Notes 5 and 13) 9,584 10,565
Deferred income taxes (Note 6) 1,883 17,789
Other liabilities (Note 1) 41,402 41,867
Commitments and contingencies (Notes 11 and 14) -- --
Redeemable Preferred Stock (Note 7) 300 300
Shareholders' equity (Note 8):
Common Stock at stated value:
Class A convertible 51,120, and 51,790 shares outstanding 153 155
Class B 92,509 and 91,100 shares outstanding 2,702 2,698
Capital in excess of stated value 154,833 122,436
Foreign currency translation adjustment (16,501) 1,585
Retained earnings 2,290,213 1,837,815
Total shareholders' equity 2,431,400 1,964,689
Total liabilities and shareholders' equity $3,951,628 $3,142,745
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this statement.
18
<PAGE>
NIKE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash provided (used) by operations:
Net income $553,190 $399,664 $298,794
Income charges (credits) not affecting cash:
Depreciation 97,179 71,113 64,531
Deferred income taxes and purchased tax benefits (73,279) (24,668) (23,876)
Other liabilities (465) (1,359) (3,588)
Amortization and other 35,199 19,125 8,067
Changes in certain working capital components:
(Increase) decrease in inventory (301,409) (69,676) 160,823
(Increase) decrease in accounts receivable (292,888) (301,648) 23,979
(Increase) decrease in other current assets (20,054) (10,276) 6,888
Increase (decrease) in accounts payable, accrued
liabilities and income taxes payable 332,548 172,638 40,845
Cash provided by operations 330,021 254,913 576,463
Cash provided (used) by investing activities:
Additions to property, plant and equipment (216,384) (154,125) (95,266)
Disposals of property, plant and equipment 12,775 9,011 12,650
Additions to other assets (26,376) (6,260) (5,450)
Acquisition of subsidiaries:
Identifiable intangible assets and goodwill -- (345,901) (2,185)
Net assets acquired -- (84,119) (1,367)
Cash used by investing activities (229,985) (581,394) (91,618)
Cash provided (used) by financing activities:
Additions to long-term debt 5,044 2,971 6,044
Reductions in long-term debt including current portion (30,352) (39,804) (56,986)
Increase (decrease) in notes payable 47,964 263,874 (2,939)
Proceeds from exercise of options 21,150 6,154 4,288
Repurchase of stock (18,756) (142,919) (140,104)
Dividends common and preferred (78,834) (65,418) (60,282)
Cash provided (used) by financing activities (53,784) 24,858 (249,979)
Effect of exchange rate changes on cash (206) (1,122) (7,334)
Net (decrease) increase in cash and equivalents 46,046 (302,745) 227,532
Cash and equivalents, beginning of year 216,071 518,816 291,284
Cash and equivalents, end of year $262,117 $216,071 $518,816
Supplemental disclosure of cash flow of information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 32,800 $ 20,200 $ 11,300
Income taxes 359,300 285,400 189,800
Supplemental schedule of non-cash investing activities:
The Company had a like-kind exchange of certain
equipment during the year as follows:
Cost of old equipment --- --- $ 24,057
Accumulated depreciation --- --- (14,502)
Cash received --- --- 652
Book value of new asset --- --- $ 10,207
The Company acquired new NIKE subsidiaries
during the year as follows:
Assets acquired --- --- $124,966
Less: cash paid --- --- (3,552)
Liabilities assumed --- --- $121,414
The accompanying notes to consolidated financial statements are an integral part of this
statement.
</TABLE>
19
<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, 1993 26,691 $159 49,161 $2,720 $108,451 $(7,790) $1,539,279 $1,642,819
Stock options exercised 167 1 6,287 6,288
Conversion to Class B Common Stock (12) --- 12 --- ---
Repurchase of Class B Common Stock (2,819) (17) (6,454) (133,633) (140,104)
Translation of statements of
international operations (7,333) (7,333)
Net income 298,794 298,794
Dividends on Redeemable Preferred Stock (30) (30)
Dividends on Common Stock (59,485) (59,485)
Balance at May 31, 1994 26,679 159 46,521 2,704 108,284 (15,123) 1,644,925 1,740,949
Stock options exercised 241 2 8,954 8,956
Conversion to Class B Common Stock (784) (4) 784 4 __
Repurchase of Class B Common Stock (2,130) (13) (4,801) (138,106) (142,920)
Stock issued pursuant to
contractual obligations 134 1 9,999 10,000
Translation of statements of
international operations 16,708 16,708
Net income 399,664 399,664
Dividends on Redeemable Preferred Stock (30) (30)
Dividends on Common Stock (68,638) (68,638)
Balance at May 31,1995 25,895 155 45,550 2,698 122,436 1,585 1,837,815 1,964,689
Stock options exercised 756 3 32,848 32,851
Conversion to Clas B Common Stock (655) (2) 655 2 ---
Repurchase of Class B Common Stock (200) (1) (451) (18,304) (18,756)
Two-for-one Stock Split
October 30, 1995 25,880 45,748
Translation of statements of
international operations (18,086) (18,086)
Net Income 553,190 553,190
Dividends on Redeemable
Preferred Stock (30) (30)
Dividends on Common Stock (82,458) (82,458)
Balance at May 31, 1996 51,120 $153 92,509 $2,702 $154,833 $(16,501) $2,290,213 $2,431,400
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of this statement.
20
<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. The consolidated
financial statements in fiscal 1997 will eliminate the one month lag in
reporting for these international operations. The results of operations of
May 1996 of these entities, which would have previously been reported in
results of fiscal 1997, will be recorded as an adjustment to beginning
retained earnings for fiscal 1997.
Recognition of revenues:
Revenues recognized include sales plus fees earned on sales by licensees.
Advertising:
Advertising production costs are expensed the first time the advertisement is
run. Media (TV and print) placement costs are expensed in the month the
advertising appears. Total advertising and promotion expenses were
$642,500,000, $495,000,000 and $373,100,000 for the years ended May 31, 1996,
1995 and 1994, respectively. Included in prepaid expenses and other assets
was $69,300,000 and $24,300,000 at May 31, 1996 and 1995, respectively,
relating to prepaid advertising and promotion expenses.
Cash and equivalents:
Cash and equivalents represent cash and short-term, highly liquid investments
with original maturities three months or less.
Inventory valuation:
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for substantially all U.S.
inventories. International inventories are valued on a first-in, first-out
(FIFO) basis.
Property, plant and equipment and depreciation:
Property, plant and equipment are recorded at cost. Depreciation for
financial reporting purposes is determined on a straight-line basis for
buildings and leasehold improvements and principally on a declining balance
basis for machinery and equipment, based upon estimated useful lives ranging
from three to thirty-two years.
Identifiable intangible assets and goodwill:
At May 31, 1996 and 1995, the Company had patents, trademarks and other
identifiable intangible assets with a value of $209,586,000 and $209,203,000,
respectively. The Company's excess of purchase cost over the fair value of
net assets of businesses acquired (goodwill) was $327,555,000 and $329,726,000
at May 31, 1996 and 1995, respectively.
Identifiable intangible assets and goodwill are being amortized over their
estimated useful lives on a straight-line basis over five to forty years.
Accumulated amortization was $62,329,000 and $43,022,000 at May 31, 1996 and
1995, respectively. Amortization expense, which is included in other
income/expense, was $21,772,000, $13,176,000 and $8,409,000 for the years
ended May 31, 1996, 1995 and 1994, respectively. Intangible assets are
periodically reviewed by the Company for impairments where the fair value is
less than the carrying value.
21
<PAGE>
Other liabilities:
Other liabilities include amounts with settlement dates beyond one year, and
are primarily composed of long-term deferred endorsement payments of
$21,674,000 and $26,893,000 at May 31, 1996 and 1995, respectively. Deferred
payments to endorsers relate to amounts due beyond contract termination, which
are discounted at various interest rates and accrued over the contract period.
Endorsement contracts:
Accounting for endorsement contracts is based upon specific contract
provisions. Generally, endorsement payments are expensed uniformly over the
term of the contract after giving recognition to periodic performance
compliance provisions of the contracts. Contracts requiring prepayments are
included in prepaid expenses or other assets depending on the length of the
contract.
Foreign currency translation:
Adjustments resulting from translating foreign functional currency financial
statements into U.S. dollars are included in the currency translation
adjustment in shareholders' equity.
Derivatives:
The Company enters into foreign currency contracts in order to reduce the
impact of certain foreign currency fluctuations. Firmly committed
transactions and the related receivables and payables may be hedged with
forward exchange contracts or purchased options. Anticipated, but not yet
firmly committed, transactions may be hedged through the use of purchased
options. Premiums paid on purchased options and any gains are included in
accrued liabilities and are recognized in earnings when the transaction being
hedged is recognized. See Note 14 for further discussion.
Income taxes:
Income taxes are provided currently on financial statement earnings of
international subsidiaries expected to be repatriated. The Company intends to
determine annually the amount of undistributed international earnings to
invest indefinitely in its international operations.
In June 1993, the Company adopted Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes (FAS 109). The adoption of FAS 109
changes the Company's method of accounting for income taxes from the deferred
method (APB 11) to an asset and liability approach. Previously, the Company
deferred the past tax effects of timing differences between financial
reporting and taxable income. The asset and liability approach requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of other assets and liabilities. See Note 6 for further discussion.
Net income per common share:
Net income per common share is computed based on the weighted average number
of common and common equivalent (stock option) shares outstanding for the
periods reported.
On October 30, 1995, the Company issued additional shares in connection with a
two-for-one stock split effected in the form of a 100% stock dividend on
outstanding Class A and Class B common stock. The per common share amounts in
the Consolidated Financial Statements and accompanying notes have been
adjusted to reflect this stock split.
Management estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates, including
estimates relating to assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Reclassifications:
Certain prior year amounts have been reclassified to conform to fiscal 1996
presentation. These changes had no impact on previously reported results of
operations or shareholders' equity.
22
<PAGE>
NOTE 2 - INVENTORIES
<TABLE>
<CAPTION>
Inventories by major classification are as follows:
(in thousands)
May 31 1996 1995
<S> <C> <C>
Finished goods $906,943 $618,521
Work-in-progress 20,002 9,064
Raw materials 4,206 2,157
$931,151 $629,742
</TABLE>
The excess of replacement cost over LIFO cost was $16,023,000 at
May 31, 1996, and $19,512,000 at May 31, 1995.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes the following:
<TABLE>
<CAPTION>
(in thousands)
May 31 1996 1995
<S> <C> <C>
Land $ 75,369 $ 68,102
Buildings 246,602 224,586
Machinery and equipment 572,396 470,422
Leasehold improvements 83,678 63,716
Construction in process 69,660 64,387
1,047,705 891,213
Less accumulated depreciation 404,246 336,334
$ 643,459 $554,879
</TABLE>
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 1996 1995
Borrowings Interest Rate Borrowings Interest Rate
<S> <C> <C> <C> <C>
Banks:
U.S. Operations $ --- ---% $118,609 6%
International Operations 445,064 4-3/8 278,491 5
$445,064 $397,100
NIAC $237,413 5-4/5% $129,480 6%
</TABLE>
23
<PAGE>
At May 31, 1995, the Company had no outstanding borrowings under its $300
million unsecured multiple option facility with sixteen banks. On September
15, 1995, the Company terminated this facility and entered into a new $500
million unsecured multiple-option facility with eleven banks, which matures on
October 31, 2000. This agreement contains optional borrowing alternatives
consisting of a committed revolving loan facility and a competitive bid
facility. The interest rate charged on this agreement is determined by the
borrowing option and, under the committed revolving loan facility, is either
the London Interbank Offered Rate (LIBOR) plus .19% or the higher of the Fed
Funds rate plus .50% or the Prime Rate. The agreement provides for annual
fees of .07% of the total commitment. Under the agreement, the Company must
maintain among other things certain minimum specified financial ratios with
which the Company was in compliance at May 31, 1996. At May 31, 1996, there
were no outstanding borrowings under this facility.
Ratings for the Company to issue commercial paper, which is required to be
supported by committed and uncommitted lines of credit, are A1 by Standard and
Poor's Corporation and P1 by Moody's Investor Service. At May 31, 1996 there
were no amounts outstanding and at May 31, 1995 there was $118,609,000
outstanding under these arrangements.
The Company has outstanding loans at interest rates at various spreads above
the banks' cost of funds for financing international operations. Certain of
these loans can be secured by accounts receivable and inventory.
The Company purchases through Nissho Iwai American Corporation(NIAC)
substantially all of the athletic footwear and apparel it acquires from non-
U.S. suppliers. Accounts payable to NIAC are generally due up to 120 days
after shipment of goods from the foreign port. Interest on such accounts
payable accrues at the ninety day LIBOR rate as of the beginning of the month
of the invoice date, plus .30%.
NOTE 5 - LONG-TERM DEBT
Long-term debt includes the following:
(in thousands)
May 31 1996 1995
10.4% senior secured note $ --- $22,244
9.43% capital warehouse lease, payable in
quarterly installments through 2007 7,485 9,078
Other 9,400 11,186
Total 16,885 42,508
Less current maturities 7,301 31,943
$ 9,584 $10,565
The senior secured note was acquired in connection with the acquisition
of Bauer and was liquidated subsequent to May 31, 1995. Amounts of long-term
maturities in each of the five fiscal years 1997 through 2001 respectively,
are $7,301,000, $2,407,000, $2,338,000, $863,000 and $800,000. As of
June 27, 1996, the Company's Japanese subsidiary borrowed 10.5 billion
Japanese yen in a private placement (approximately $100 million) with a
maturity of June 26, 2011. Interest is paid semi-annually at 4.3%. The
agreement provides for early retirement after year ten.
24
<PAGE>
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 1996 1995 1994
<S> <C> <C> <C>
Income before income taxes:
United States $644,755 $467,548 $318,367
Foreign 254,335 182,316 172,227
$899,090 $649,864 $490,594
Provision for income taxes:
Current:
United States
Federal $247,526 $172,127 $121,892
State 42,622 34,764 23,832
Foreign 127,345 75,964 64,034
417,493 282,855 209,758
Deferred:
United States
Federal (33,003) (25,689) (12,931)
State ( 7,657) (2,430) (1,868)
Foreign (30,933) (4,536) (3,159)
(71,593) (32,655) (17,958)
$345,900 $250,200 $191,800
</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.
The Company adopted FAS 109 during the first quarter of fiscal 1994.
The Company has elected to report the cumulative effect of the FAS 109
adoption as of May 31, 1987. The cumulative effect of $3,207,000 has
been recorded as a reduction in common shareholder's equity for each of
the years subsequent to 1987.
A benefit has been recognized for foreign loss carry forwards of
$96,600,000 and $32,700,000 at May 31, 1996 and 1995 respectively, which
have no expiration. As of May 31, 1996, the Company has utilized all
foreign tax credits.
25
<PAGE>
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
(in thousands)
May 31 1996 1995
<S> <C> <C>
Undistributed earnings of foreign subsidiaries $ 3,220 $ 18,164
Other 12,040 15,213
Gross deferred tax liabilities 15,260 33,377
Allowance for doubtful accounts (9,050) (7,952)
Inventory reserves (20,796) (15,645)
Deferred compensation (17,583) (10,221)
Reserves and accrued liabilities (42,870) (30,335)
Tax basis inventory adjustment (12,363) (8,852)
Depreciation (2,594) (1,796)
Foreign loss carry forwards (25,162) (6,000)
Other (12,978) (7,444)
Gross deferred tax assets (143,396) (88,245)
Net deferred tax assets $(128,136) $(54,868)
</TABLE>
A reconciliation from the U.S. statutory federal income tax rate to the
effective income tax rate follows:
<TABLE>
<CAPTION>
Year ended May 31, 1996 1995 1994
<S> <C> <C> <C>
U.S. Federal statutory 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 2.6 3.2 3.2
Tax benefit from permanent reinvestment
of foreign earnings -- -- (2.6)
Impact of rate increase -- -- 1.5
Other, net .9 .3 2.0
Effective income tax rate 38.5% 38.5% 39.1%
</TABLE>
During 1982, the Company purchased future tax benefits for
$15,277,000. Tax benefits of $2,697,000 in excess of the purchase
price have been recognized as of May 31, 1996 and are classified in
non-current deferred income taxes.
NOTE 7 - REDEEMABLE PREFERRED STOCK
NIAC is the sole owner of the Company's authorized Redeemable Preferred Stock,
$1 par value, which is redeemable at the option of NIAC at par value
aggregating $300,000. A cumulative dividend of $.10 per share is payable
annually on May 31 and no dividends may be declared or paid on the Common
Stock of the Company unless dividends on the Redeemable Preferred Stock have
been declared and paid in full. There have been no changes in the Redeemable
Preferred Stock in the three years ended May 31, 1996. As the holder of the
Redeemable Preferred Stock, NIAC does not have general voting rights but does
have the right to vote as a separate class on the sale of all or substantially
all of the assets of the Company and its subsidiaries, on merger,
consolidation, liquidation or dissolution of the Company or on the sale or
assignment of the NIKE trademark for athletic footwear sold in the United
States.
26
<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 110,000,000 and 350,000,000, respectively.
The Company announced a two-for-one stock split which was effected in the form
of a 100% stock dividend on outstanding Class A and Class B Common Stock, paid
October 30, 1995. Each share of Class A common Stock is convertible into one
share of Class B Common Stock. Voting rights of Class B Common Stock are
limited in certain circumstances with respect to the election of directors.
The Company's Employee Incentive Compensation Plan (the "1980 Plan") was
adopted in 1980 and expired on December 31, 1990. The 1980 Plan provided for
the issuance of up to 6,720,000 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 8,000,000 shares of Class B Common Stock in
connection with stock options and other awards granted under such plan. The
1990 Plan authorizes the grant of incentive stock options, non-statutory stock
options, stock appreciation rights, stock bonuses, and the sale of restricted
stock. The exercise price for incentive stock options may not be less than the
fair market value of the underlying shares on the date of grant. The exercise
price for non-statutory stock options and stock appreciation rights, and the
purchase price of restricted stock, may not be less than 75% of the fair
market value of the underlying shares on the date of grant. No consideration
will be paid for stock bonuses awarded under the 1990 Plan. The 1990 Plan is
administered by a committee of the Board of Directors. The committee has the
authority to determine the employees to whom awards will be made, the amount
of the awards, and the other terms and conditions of the awards. As of May
31, 1996, the committee has granted substantially all non-statutory stock
options at 100% of fair market value on the date of grant under the 1990 Plan.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS
No. 123), which is effective for years beginning after December 15, 1995. SFAS
No. 123 encourages, but does not require, companies to recognize compensation
expense for grants of common stock, stock options, and other equity
instruments to employees based upon the fair value of the instruments when
issued. Companies electing not to recognize compensation expense are required
to disclose what net income and earnings per share would have been if the
expense were recognized. At this time, the Company expects to elect the
disclosure option of SFAS No. 123 rather than recognition of compensation
expense.
The following summarizes the stock option transactions under the 1980 and 1990
Plans:
<TABLE>
<CAPTION>
Shares Option Price
(in thousands) Per Share($)
<S> <C> <C.
Options outstanding May 31, 1994: 2,354 4-3/4 to 56-7/8
Exercised (223) 4-3/4 to 60-1/2
Surrendered (24) 37-5/8 to 59-3/4
Granted 581 58-7/8 to 74-7/8
Options outstanding May 31, 1995: 2,688 11-17/32 to 74-7/8
Exercised (623) 5-49/64 to 42
Surrendered (50) 26-7/16 to 42
Granted 647 42 to 96-3/8
Stock Split 2,991 5-49/64 to 42
Options outstanding May 31, 1996 5,653 6-9/32 to 96-3/8
Options exercisable at May 31
1995 1,018 11-17/32 to 60-1/2
1996 4,676 6-9/32 to 37-7/16
</TABLE>
In addition to the option plans discussed previously, the Company
has several agreements outside of the plans with certain directors,
endorsers and employees. As of May 31, 1996, 3,867,000 options with exercise
prices ranging from $.417 per share to $46.31 per share had been granted.
The aggregate compensation expenses related to these agreements is $8,133,000
and is being amortized over vesting periods from October 1980 through October
1998. The outstanding agreements expire from February 1998 through September
2005.
27
<PAGE>
The following summarizes transactions outside the option plans for the
three years ended May 31, 1996:
<TABLE>
<CAPTION>
Shares Option Price
(in thousands) Per Share($)
<S> <C> <C>
Options outstanding May 31, 1994: 269 4-3/4 to 51
Exercised (18) 4-3/4 to 38-1/4
Surrendered -- --
Granted -- --
Options outstanding May 31, 1995: 251 4-3/4 to 56-1/4
Exercised (133) 4-3/4 to 43-1/4
Surrendered -- --
Granted 95 46-5/16 to 84
Stock Split 198 6-1/4 to 46-5/16
Options outstanding May 31, 1996: 411 6-1/4 to 46-5/16
Options exercisable at May 31:
1995 207 4-3/4 to 56-1/4
1996 160 6-1/4 to 28-3/8
</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 $15,500,000,
$11,200,000 and $8,500,000 to the plan are included in other expense in the
consolidated financial statements for the years ended May 31, 1996, 1995 and
1994, respectively.
The Company has a voluntary 401(k) employee savings plan. The Company matches
with Common Stock a portion of employee contributions, vesting that portion
over 5 years. Company contributions to the savings plan were $4,660,000,
$3,363,000 and $3,503,000 for the years ended May 31, 1996, 1995 and 1994,
respectively.
NOTE 10 - OTHER INCOME/EXPENSE, NET
Included in other income/expense for the years ended May 31, 1996, 1995 and
1994, is interest income of $16,083,000, $26,094,000 and $19,064,000,
respectively. The Company recognized $11,412,000 and $7,060,000 in non-
recurring specific obligations associated with the shutdown of certain
facilities in conjunction with the consolidation of European warehouses for
the years ended May 31, 1995 and 1994, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company leases space for its offices, warehouses and retail stores under
leases expiring from one to twenty-one years after May 31, 1996. Rent expense
aggregated $52,483,000, $43,506,000 and $37,677,000 for the years ended May
31, 1996, 1995 and 1994, respectively. Amounts of minimum future annual
rental commitments under non-cancellable operating leases in each of the five
fiscal years 1997 through 2001 are $55,196,000, $54,189,000, $44,196,000,
$40,049,000, $37,025,000, respectively, and $247,320,000 in later years.
Lawsuits arise during the normal course of business. In the opinion of
management, none of the pending lawsuits will result in a significant impact
on the consolidated results of operations or financial position.
28
<PAGE>
NOTE 12 - ACQUISITION OF BAUER INC.
During the third quarter of fiscal 1995, NIKE acquired all the outstanding
shares of Bauer Inc. (formerly Canstar Sports Inc.), the world's largest
hockey equipment manufacturer. The acquisition was accounted for using the
purchase method of accounting. The cash purchase price, including acqusition
costs, was approximately $409 million.
Bauer's assets and liabilities have been recorded in the Company's
consolidated balance sheet at their fair values at the acquisition date.
Identifiable intangible assets and goodwill relating to the purchase
approximated $336 million with estimated useful lives ranging from 5 to 40
years. The amortization period is based on the Company's belief that the
combined company has substantial potential for achieving long-term
appreciation of the fully integrated global company. Bauer will permit the
continued expansion of the current lines of business, as well as the
development of new businesses, which can be used to strategically exploit the
companies' brand names and products on an accelerated basis. NIKE believes
that the combined company will benefit from the acquisition for an
indeterminable period of time of at least 40 years and that therefore a 40-
year amortization period is appropriate. The proforma effect of the
acquisition on the combined results of operations in fiscal 1995 was not
significant.
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated balance sheet for cash and
equivalents and notes payable approximate fair value as reported in the
balance sheet because of their short maturities. The fair value of long-term
debt is estimated using discounted cash flow analyses, based on the Company's
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of the Company's long-term debt at May 31, 1996, is approximately
$9,539,000, compared to a carrying value $9,584,000. See Note 14 for
discussion of derivatives.
NOTE 14 - FINANCIAL RISK MANAGEMENT AND DERIVATIVES
The purpose of the Company's foreign currency hedging activities is to protect
the Company from the risk that the eventual dollar cash flows resulting from
the sale and purchase of products in foreign currencies will be adversely
affected by changes in exchange rates. The Company does not hold or issue
financial instruments for trading purposes. It is the Company's policy to
utilize derivative financial instruments to reduce foreign exchange risks
where internal netting strategies cannot be effectively employed.
Fluctuations in the value of hedging instruments are offset by fluctuations in
the value of the underlying exposures being hedged.
The Company uses forward exchange contracts and purchased options to hedge
certain firm purchases and sales commitments and the related receivables and
payables. Purchased currency options are used to hedge certain anticipated
but not yet firmly committed transactions expected to be recognized within one
year. Hedged transactions are denominated primarily in European currencies,
Japanese yen and Canadian dollar. Premiums paid on purchased options and any
realized gains are included in accrued liabilities and recognized in earnings
when the transaction being hedged is recognized. Deferred option premiums,
net of realized gains, were a liability of $5.1 million and $0.9 million at
May 31, 1996 and 1995, respectively. Gains and losses related to hedges of
firmly committed transactions and the related receivables and payables are
deferred and are recognized in income or as adjustments of carrying amounts
when the offsetting gains and losses are recognized on the hedged transaction.
Net realized and unrealized gains (losses) on forward contracts deferred at
May 31, 1996 and 1995 were $20.7 million and ($11.8) million, respectively.
The estimated fair values of derivatives used to hedge the Company's risks
will fluctuate over time. The fair value of the forward exchange contracts is
estimated by obtaining quoted market prices. The fair value of option
contracts is estimated using option pricing models widely used in the
financial markets. These fair value amounts should not be viewed in
isolation, but rather in relation to the fair values of the underlying hedged
transactions and the overall reduction in the Company's exposure to adverse
fluctuations in foreign exchange rates. The notional amounts of derivatives
summarized below do not necessarily represent amounts exchanged by the parties
and, therefore, are not a direct measure of the exposure to the Company
through its use of derivatives. The amounts exchanged are calculated on the
basis of the notional amounts and the other terms of the derivatives, which
relate to interest rates, exchange rates or other financial indices.
29
<PAGE>
The following table presents the aggregate notional principal amount,
carrying values and fair values of the Company's derivative financial
instruments outstanding at May 31, 1996 and 1995.
(in millions)
<TABLE>
<CAPTION>
May 31, 1996 May 31, 1995
Notional Notional
Principal Carrying Fair Principal Carrying Fair
Amounts Values Values Amounts Values Values
<S> <C> <C> <C> <C> <C> <C>
Forward Contracts: $1,422.8 ($2.1) $14.5 $706.2 ($ 1.4) ($13.8)
Purchased Options 280.2 2.6 .5 62.5 1.4 1.3
Total $1,703.0 $ .5 $15.0 $768.7 -- ($12.5)
</TABLE>
At May 31, 1996 and May 31, 1995, the Company had no contracts outstanding
with maturities beyond one year. All realized gains/losses deferred at May
31, 1996 will be recognized within one year.
The counterparties to derivative transactions are major financial institutions
with investment grade or better credit ratings; however, this does not
eliminate the Company's exposure to credit risk with these institutions. This
credit risk is generally limited to the unrealized gains in such contracts
should any of these counterparties fail to perform as contracted and is
immaterial to any one institution at May 31, 1996 and 1995. To manage this
risk, the Company has established strict counterparty credit guidelines which
are continually monitored and reported to Senior Management according to
prescribed guidelines. Additionally, the Company utilizes a portfolio of
financial institutions either headquartered or operating in the same countries
the Company conducts its business. As a result, the Company considers the
risk of counterparty default to be minimal.
30
<PAGE>
NOTE 15 - INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREAS
The Company operates predominantly in one industry segment, that
being the design, production, marketing and selling of sports and
fitnes footwear, apparel and accessories. During 1996, 1995 and 1994,
sales to one major customer amounted to approximately 12%, 14% and 14%
of total sales, respectively. The geographic distribution of the
Company's identifiable assets, operating income and revenues are
summarized in the following table:
<TABLE>
<CAPTION>
(in thousands)
Year ended May 31, 1996 1995 1994
Revenues from unrelated entities:
<C> <C> <C>
United States $3,964,662 $2,997,864 $2,432,684
Europe 1,334,340 980,444 927,269
Asia/Pacific 735,094 515,652 283,421
Latin America/Canada and other 436,529 266,874 146,294
$6,470,625 $4,760,834 $3,789,668
Inter-geographic revenues:
United States $ 8,153 $ 6,396 $ 3,590
Europe 7,398 5,438 6,514
Asia/Pacific -- -- --
Latin America/Canada and other 67,062 31,449 9,872
$ 82,613 $ 43,283 $ 19,976
Total revenues:
United States $3,972,815 $3,004,260 $2,436,274
Europe 1,341,738 985,882 933,783
Asia/Pacific 735,094 515,652 283,421
Latin America/Canada and other 503,591 298,323 156,166
Less inter-geographic revenues (82,613) (43,283) (19,976)
$6,470,625 $4,760,834 $3,789,668
Operating income:
United States $ 697,094 $ 501,685 $ 344,632
Europe 145,722 113,800 124,242
Asia/Pacific 123,585 64,168 46,753
Latin America/Canada and other 55,851 37,721 19,141
Less corporate, interest and other income
(expense) and eliminations (123,162) (67,510) (44,174)
$ 899,090 $ 649,864 $ 490,594
Assets:
United States $2,371,991 $1,425,932 $1,171,948
Europe 941,522 831,468 487,085
Asia/Pacific 386,485 306,390 197,067
Latin America/Canada and other 188,839 383,263 79,549
Total identifiable assets 3,888,837 2,947,053 1,935,649
Corporate cash and eliminations 62,791 195,692 438,166
Total assets $3,951,628 $3,142,745 $2,373,815
</TABLE>
31
<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.
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 12, 1996 for the annual meeting
of shareholders to be held on September 16, 1996. The information
required by this Item with respect to the Company's directors is
incorporated herein by reference from pages 3 through 6, 10 and
11 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 12, 1996 for its 1996 annual meeting of
shareholders.
<TABLE>
<CAPTION>
PROXY
STATEMENT
PAGE NO.
---------
<S> <C>
ITEM 11. EXECUTIVE COMPENSATION..................................... 7-8, 11-21
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................................ 16
Consolidated Statement of Income for each of the three years
ended May 31, 1996.............................................. 17
Consolidated Balance Sheet at May 31, 1996 and 1995.............. 18
Consolidated Statement of Cash Flows for each of
the three years ended May 31, 1996.............................. 19
Consolidated Statement of Shareholders' Equity for each of the
three years ended May 31, 1996.................................. 20
Notes to Consolidated Financial Statements....................... 21-31
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.
32
<PAGE>
3. 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 refernce from Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1993).*
10.3 Form of Indemnity Agreement entered into between the Company and
each of its officers and directors (incorporated by reference from
the Company's definitive proxy statement filed in connection with
its annual meeting of shareholders held on September 21, 1987).
10.4 NIKE, Inc. Restated Employee Incentive Compensation Plan
(incorporated by reference from Registration Statement No. 33-29262
on Form S-8 filed by the Company on June 16, 1989).*
10.5 NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference
from the Company's definitive proxy statement filed in connection
with its annual meeting of shareholders held on September 17, 1990).*
10.6 Collateral Assignment Split-Dollar Agreement between NIKE, Inc.
and Philip H. Knight dated March 10, 1994 (incorporated by
reference from Exhibit 10.7 to the Company's Annual Report on
Form 10-K for he fiscal year ended May 31, 1994).*
10.7 NIKE, Inc. Executive Performance Sharing Plan (incorporated
by reference from the Company's definitive proxy statement filed
in connection with its annual meeting of shareholders held on
September 18, 1995).*
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 29, 1996 Item 5. Other Events Press Release regarding
third quarter earnings
release.
33
<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,
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
======= ======= ======= ======= =======
For the year ended May 31,
1996
Allowance for doubtful
accounts................... $32,663 $20,527 ($ 1,144) $ 8,674 $43,372
Other assets................ 0 0
.............................. ------- ------- ------- ------- -------
.................................$32,663 $20,527 ($ 1,144) $ 8,674 $43,372
======= ======= ======= ======= =======
</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,
1994:
Notes Payable to banks:
U.S. Operations $ 6,462 4 7/8% $115,505 $ 32,944 3-1/3%
International Operations 120,916 4 3/4 127,299 76,831 4-3/4
------- ------- -------
$127,378 $242,804 $109,775
======= ======= =======
Interest bearing 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:
U.S. Operations $118,609 6% $217,212 $ 49,277 6-1/2%
International Operations 278,491 5 278,491 157,941 5-1/8
------- ------- -------
$397,100 $495,703 $207,218
======= ======= =======
Interest bearing accounts
payable to NIAC $129,480 6% $142,483 $118,032 6%
======= ======= =======
For the year ended May 31,
1996:
Noted payable to banks:
U.S. Operations $ -- --% $138,479 $ 64,554 6-1/3%
International Operations 445,064 4-3/8 481,344 356,822 3-6/7
------- ------- -------
$445,064 $619,823 $421,376
======= ======= =======
Interest bearing accounts
payable to NIAC $237,413 5-4/5% $237,413 $186,161 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
--------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Charged to costs and expenses:
Advertising and promotions........................ $373,126 $495,006 $642,499
</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 3, 1996, which appears on Page 15
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).
6. Prospectus constituting part of the NIKE, Inc. Registration Statement
on Form S-8 (No. 33-63995).
Price Waterhouse LLP
Portland, Oregon
August 29, 1996
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, 1996
/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, 1996 /s/ Philip H. Knight
By _______________________________
Philip H. Knight
Chairman of the Board and
Chief Executive Officer
Principal Financial and
Accounting Officer:
Date: August 29, 1996 /s/ Robert S. Falcone
By _______________________________
Robert S. Falcone
Vice President and Chief Financial
Officer
DIRECTORS:
Date: August 29, 1996
By /s/ William J. Bowerman
William J. Bowerman
Director
Date: August 29, 1996
By /s/ Jill K. Conway
Jill K. Conway
Director
Date: August 29, 1996
By /s/ Ralph D. DeNunzio
Ralph D. DeNunzio
Director
S-1
<PAGE>
Date: August 29, 1996
By /s/ Richard K. Donahue
Richard K. Donahue
Director
Date: August 29, 1996
By /s/ Delbert J. Hayes
Delbert J. Hayes
Director
Date: August 29, 1996
By /s/ Douglas G. Houser
Douglas G. Houser
Director
Date: August 29, 1996
By /s/ John E. Jaqua
John E. Jaqua
Director
Date: August 29, 1996
By Ralph A. Pfeiffer, Jr.
Ralph A. Pfeiffer, Jr.
Director
Date: August 29, 1996
By /s/ Charles W. Robinson
Charles W. Robinson
Director
Date: August 29, 1996
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE MAY 31, 1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 262,117
<SECURITIES> 0
<RECEIVABLES> 1,346,125
<ALLOWANCES> 43,372
<INVENTORY> 931,151
<CURRENT-ASSETS> 2,726,940
<PP&E> 1,047,705
<DEPRECIATION> 404,246
<TOTAL-ASSETS> 3,951,628
<CURRENT-LIABILITIES> 1,467,059
<BONDS> 9,584
<COMMON> 2,855
0
300
<OTHER-SE> 2,428,545
<TOTAL-LIABILITY-AND-EQUITY> 3,951,628
<SALES> 6,470,625
<TOTAL-REVENUES> 6,470,625
<CGS> 3,906,746
<TOTAL-COSTS> 3,906,746
<OTHER-EXPENSES> 1,604,764
<LOSS-PROVISION> 20,527
<INTEREST-EXPENSE> 39,498
<INCOME-PRETAX> 899,090
<INCOME-TAX> 345,900
<INCOME-CONTINUING> 553,190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 553,190
<EPS-PRIMARY> 3.77
<EPS-DILUTED> 3.77
</TABLE>
