SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FOR QUARTERLY REPORTS UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended February 28, 1997 Commission file number - 1-10635
NIKE, Inc.
(Exact name of registrant as specified in its charter)
OREGON 93-0584541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Bowerman Drive, Beaverton, Oregon 97005-6453
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 671-6453
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days
Yes X No .
___ ___
Common Stock shares outstanding as of February 28, 1997 were:
Class A 101,711,498
Class B 187,018,047
___________
288,729,545
===========
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
NIKE, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
Feb. 28, May 31,
1997 1996
________ _______
(in thousands)
ASSETS
Current assets:
Cash and equivalents $ 300,801 $ 262,117
Accounts receivable 1,850,310 1,346,125
Inventories (Note 3) 1,089,143 931,151
Deferred income taxes 109,660 93,120
Prepaid expenses 150,586 94,427
__________ _________
Total current assets 3,500,500 2,726,940
__________ _________
Property, plant and equipment 1,294,483 1,047,705
Less accumulated depreciation 465,691 404,246
__________ __________
828,792 643,459
Identifiable intangible assets and goodwill 467,497 474,812
Deferred income taxes and other assets 147,712 106,417
__________ __________
$4,944,501 $3,951,628
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,641 $ 7,301
Notes payable 527,393 445,064
Accounts payable 511,802 455,034
Accrued liabilities 506,859 480,407
Income taxes payable 55,146 79,253
__________ __________
Total current liabilities 1,603,841 1,467,059
Long-term debt (Note 6) 289,375 9,584
Deferred income taxes and other liabilities 36,486 43,285
Commitments and contingencies (Note 4) - -
Redeemable Preferred Stock 300 300
Shareholders' equity:
Common Stock at stated value (Note 2):
Class A convertible-101,712 and
102,240 shares outstanding 152 153
Class B-187,018 and 185,018 shares
outstanding 2,705 2,702
Capital in excess of stated value 191,164 154,833
Foreign currency translation
adjustment (26,376) (16,501)
Retained earnings 2,846,854 2,290,213
___________ __________
3,014,499 2,431,400
___________ __________
$4,944,501 $3,951,628
========== ==========
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28 & 29, February 28 & 29,
__________________ __________________
1997 1996* 1997 1996*
____ ____ ____ ____
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $2,423,648 $1,582,039 $6,812,608 $4,638,817
_________ _________ _________ _________
Costs and expenses:
Costs of sales 1,435,427 953,316 4,075,174 2,794,824
Selling and administrative 577,579 387,534 1,637,569 1,110,292
Interest expense 15,793 12,086 38,687 31,864
Other (income)/expense, net 7,716 11,429 16,210 29,053
_________ ________ _________ _________
2,036,515 1,364,365 5,767,640 3,966,033
_________ __________ _________ _________
Income before income taxes 387,133 217,674 1,044,968 672,784
Income taxes 150,000 83,800 404,900 259,000
________ ________ _________ _________
Net income $ 237,133 $ 133,874 $ 640,068 $ 413,784
========= ========= ========== ==========
Net income per common share(Note 2) $ 0.80 $ 0.45 $ 2.16 $ 1.41
========= ========= ========== ==========
Dividends declared per common share $ 0.10 $ 0.08 $ 0.28 $ 0.21
========= ========= ========== ==========
Average number of common and
common equivalent shares (Note 2) 297,368 294,212 296,915 292,984
========= ========= ========== ==========
</TABLE>
*For comparable purposes with 1996, results for the three and nine months
ended February 29, 1996 have been adjusted to reflect the elimination of
the one month lag in reporting by certain of the Company's international
operations. See further discussion under Note 5.
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
February 28 & 29,
_________________
1997 1996*
____ ____
(in thousands)
<S> <C> <C>
Cash provided (used) by operations:
Net income $ 640,068 $ 413,784
Income charges (credits) not
affecting cash:
Depreciation 94,777 65,347
Deferred income taxes (13,806) (21,303)
Other 37,092 15,157
Changes in other working capital
components (701,328) (363,246)
________ _______
Cash provided by operations 56,803 109,739
________ _______
Cash provided (used) by investing activities:
Additions to property, plant and
equipment (317,580) (146,618)
Disposals of property, plant and
equipment 23,218 5,386
Increase in other assets (55,626) (3,465)
Decrease in other liabilities (10,859) --
________ _______
Cash used by investing activities (360,847) (144,697)
_______ ________
Cash (used) provided by financing activities:
Additions to long-term debt 300,135 1,793
Reductions in long-term debt (11,044) (27,735)
Increase in notes payable 67,166 176,419
Proceeds from exercise of options 18,133 15,765
Repurchase of stock -- (18,756)
Dividends paid - common and preferred (71,991) (57,295)
_______ ________
Cash provided by financing
activities 302,399 90,191
_______ ________
Effect of exchange rate changes on cash (2,675) (5,258)
_______ ________
Effect of May 1996 Cash Flow Activity for certain
subsidiaries (Note 5) 43,004 --
_______ ________
Net increase in cash and equivalents 38,684 49,975
Cash and equivalents, May 31, 1996 and 1995 262,117 220,935
_______ _______
Cash and equivalents February 28 & 29, 1997
and 1996 $300,801 $270,910
======== =======
</TABLE>
*For comparable purposes with 1996, results for the nine months ended
February 29, 1996 have been adjusted to reflect the elimination of
the one month lag in reporting by certain of the Company's international
operations. See further discussion under Note 5.
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of this statement.
NIKE, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of significant accounting policies:
___________________________________________
Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) which
are, in the opinion of management, necessary for a fair presentation of
the results of operations for the interim period(s). The interim financial
information and notes thereto should be read in conjunction with the
Company's latest annual report to shareholders. The results of operations
for the three and nine months ended February 28, 1997 are not necessarily
indicative of results to be expected for the entire year.
NOTE 2 - Net income per common share:
___________________________
Net income per common share is computed based on the weighted average
number of common and common equivalent (stock option) shares outstanding
for the period(s).
During the second quarter, the Company issued additional shares in
connection with a two-for-one stock split effected in the form of a 100%
stock dividend on outstanding Class A and Class B common stock. The per
common share amounts in the Consolidated Financial Statements and
accompanying notes have been adjusted to reflect this stock split.
NOTE 3 - Inventories:
___________
Inventories by major classification are as follows:
Feb. 28, May 31,
1997 1996
________ ________
(in thousands)
Finished goods $ 999,801 $874,700
Work-in-process 50,471 28,940
Raw materials 38,871 27,511
_________ ________
$1,089,143 $931,151
========= ========
NOTE 4 - Commitments and contingencies:
_____________________________
There have been no other significant subsequent developments
relating to the commitments and contingencies reported on the
Company's most recent Form 10-K.
NOTE 5 - Change in year-end of certain subsidiaries:
__________________________________________
Prior to fiscal year 1997, certain of the Company's international
operations reported their results of operations on a one month lag
which allowed more time to compile results. The Company has taken steps
to improve its internal reporting procedures that has allowed for
more timely reporting of these operations. Beginning in the first
quarter of fiscal year 1997, the one month lag was eliminated. As a
result, the May 1996 loss from operations for these entities of
$4.1 million was recorded directly to retained earnings in the first
quarter of the current year. The income and cash flow statements
have been presented to show comparable results for the quarter and
year as if the change had occurred in the prior year. The effect
of the change is not material to the consolidated balance sheet and as a
result the balance sheet as of May 31, 1996 has not been adjusted.
NOTE 6 - Long-term debt:
______________
In December of 1996, the Company issued $200 million seven-year
notes, maturing December 1, 2003. The proceeds were subsequently
swapped into Dutch Guilder and loaned to a European subsidiary. Interest
on the loan is paid semi-annually at a fixed Dutch Guilder rate of 5.64%.
As of June 27, 1996, the Company's Japanese subsidiary borrowed 10.5
billion Japanese yen in a private placement with a maturity of June 26,
2011. Interest is paid semi-annually at 4.3%. The agreement provides
for early retirement after year ten.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULT OF OPERATIONS
AND FINANCIAL CONDITION
Operating Results
_________________
Net income increased 77% over the prior year's third quarter and 55% on
a year-to-date basis. For the quarter, in comparison to last years third
quarter, the increase in net income was attributed primarily to an
increase in revenues of 53% (to a record $2.4 billion), an increase in
gross margin percentage from 39.7% to 40.8% and improved leverage of
selling and administrative costs as a percentage of revenues. For the
nine months ended February 28, 1997, net income was up 55% over the
same period last year, driven by an increase in revenues of 47% and
an improved gross margin percentage.
NIKE brand revenues increases for the quarter and year-to-date, compared
with the same periods last year, were driven by the strength of the brand on
a global basis. U.S apparel increases for the quarter and year-to-date were
driven by increases in training, accessories and kids' categories. U.S.
footwear for the quarter increased $313.6 million or 47%, due to an increase
of 34% pairs sold and an 10% increase in average selling prices. Nearly every
footwear category experienced increases. For the year, the largest category
increases in terms of total dollars were men's basketball, up 47%, women's
fitness, up 60%, kids' footwear, up 60%, and men's running, up 73%. Other
categories showing large percentage increases included golf and soccer.
All regions outside the U.S. experienced significant revenue increases
for the quarter and year-to-date. For the quarter, Europe increased 62%,
(footwear up 48% and apparel up 105%), Asia Pacific increased 76% (footwear
up 69% and apparel up 95%) and the Americas increased 64% (footwear up 51%
and apparel up 131%). The top two countries, in terms of revenue, Japan and
United Kingdom, increased 86% and 94%, respectively. Each would have
increased more than 100% had exchange rates remained the same as the
prior year. The total impact of exchange rates on the quarter's revenue
was to decrease it by $64 million, or 11%. For the year, rates have decreased
revenues by $157 million, or 10%.
The breakdown of revenues follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28 & 29, February 28 & 29,
1997 1996* % Change 1997 1996* % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
U.S. Footwear $ 982,166 $ 668,545 47% $2,800,552 $1,998,610 40%
U.S. Apparel 356,316 218,512 63 1,086,571 596,790 82
__________ __________ __________ __________
Total United States 1,338,482 887,057 51 3,887,123 2,595,400 50
International Footwear 689,064 445,228 55 1,754,831 1,202,422 46
International Apparel 293,821 144,083 104 788,181 452,030 74
__________ __________ __________ __________
Total International 982,885 589,311 67 2,543,012 1,654,452 54
__________ __________ __________ __________
Other Brands 102,281 105,671 (3) 382,473 388,965 (2)
__________ __________ __________ __________
Total Revenues $2,423,648 $1,582,039 53% $6,812,608 $4,638,817 47%
========== ========== ========== ==========
</TABLE>
*For comparable purposes with 1996, results for the three and nine
months ended February 29, 1996 have been adjusted and reflect the
elimination of the one month lag in reporting by certain of the Company's
international operations. See further discussion under Note 5.
The increase in gross margin percentage for the quarter compared with
the same period last year is most significantly attributable to the U.S.
Footwear and Europe businesses. The increase in U.S. Footwear's gross margin
percentage is due primarily to price increases and changes to product mix.
Europe continues to experience the benefits of centralized distribution
centers. Gross profit percentages for the remainder of fiscal year 1997 are
expected to continue to be affected by both strong demand for NIKE products
and increased prices compared with last year, offset by increased levels of
air freight to meet the delivery dates on increasing customer orders. At
this time, Management expects the percentage for the full year to be more
in line with last fiscal year's percentage.*
The reduction in selling and administrative expenses as a percentage of
revenues for the quarter can be attributed primarily to the significant
increase in revenues. The largest areas of spending increases relate to
advertising, marketing and infrastructure costs. At this time, Management
expects selling and administrative expenses as a percentage of revenues for
the remainder of the year to be at levels slightly higher than the prior
year.*
Interest expense increased for both the quarter and year-to-date over
the prior year due to increased short term borrowings and new long-term debt
in the U.S. and Japan in order to fund growing operations. Other
(income)/expense, net decreased due to increased interest income and less
conversion loss on foreign transactions, offset by increased profit share
expense.
The Company's effective tax rate for the year-to-date was 38.75%
compared to 38.5% in the prior year. The slight increase is due primarily
to higher state income taxes on U.S. earnings. At this time, Management
anticipates the tax rate for fiscal 1997 will remain at approximately
38.75%.*
Worldwide orders for NIKE Brand athletic footwear and apparel
scheduled for delivery from March 1997 through July 1997 were approximately
$4.3 billion, 34% 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.*
As further explained in Note 5, prior to fiscal year 1997, certain of
the Company's international operations reported their results of operations
on a one month lag which allowed more time to compile results. The Company
has taken steps to improve its internal reporting procedures that has
allowed for more timely reporting of these operations. Beginning in the
first quarter of fiscal year 1997, the one month lag was eliminated. As
a result, the May 1996 results of operations for these entities of $4.1
million loss was recorded to retained earnings. The income statement and
cash flow has been presented to show comparable results for the quarter as
if the change would have occurred in the prior year. Throughout this
discussion, comparisons for last year are stated as they would have appeared
had these entities reported on a same month basis.
Liquidity and Capital Resources
_______________________________
The Company's financial position remains strong at February 28, 1997.
Since May 31, 1996, total assets grew $993 million to $4.9 billion and
shareholders' equity increased $583 million to $3.0 billion. Working capital
increased $637 million, and the Company's current ratio increased to 2.2 at
February 28, 1997 from 1.9 at May 31, 1996.
Changes in other working capital components totaled $701 million, due
primarily to significant increases in accounts receivable and inventory.
Since May 31, 1996, accounts receivable increased $504 million or 37%,
due to higher levels of revenues compared with the fourth quarter of the
prior year. Inventory levels increased $158 million from May 31, consistent
with the growth of the business. U.S. inventory levels increased $57 million
on U.S. footwear's $44 million increase. U.S. footwear inventory turns
increased to 9.1 from 8.1 at May 31,1996. Outside of the U.S., inventory
increased $92 million in the Asia Pacific region, the majority of the
increase coming from the Company's Japanese subsidiary due to revenue
growth. Consolidated inventory turns increased to 5.3 compared to 5.0 at
May 31, 1996. All other components of working capital changed only slightly
compared to May 31, 1996. An increase in other current assets was offset by
an increase in accounts payable due to timing of payments.
Additions to property, plant and equipment in the U.S. totaled $206
million for the first three quarters of fiscal 1997 due to the continued
overall expansion of U.S. operations which included warehouse locations
and the continued development of NIKE Town retail stores. Additions to
property, plant and equipment outside of the U.S. accounted for $86 million
of the $318 million total. The most significant increase relates to
expansion of the European warehouses. In addition to the increases in
property, plant and equipment, other assets increased from May 31, 1996,
due primarily to advance payments made in fiscal 1997 for long-term
endorsement contracts.
Cash was provided from financing activities through an increase of
$289 million in long-term debt to fund growing operations, including
infrastructure. In December, 1996, the Company issued $200 million
seven-year notes, maturing December 1, 2003. The proceeds were subsequently
swapped into Dutch Guilders and then loaned to a European subsidiary. Proceeds
from this intercompany loan will be used by the subsidiary to retire
short-term debt. This debt issuance, along with the 10.5 billion Japanese
yen (approximately $100 million) borrowed by the Company's Japanese
subsidiary in the first quarter, account for the majority of the increase
in long-term debt.
The Company's commercial paper program requires the support of
committed and uncommitted lines of credit. The Company borrows against
its commercial paper program and, at February 28, 1997, there was $158
million outstanding. The Company has $500 million available in committed,
unused lines of credit and, at quarter-end, no amounts were outstanding
under this credit facility. NIKE's debt-to-equity ratio at February 28,
1997 remained constant from May 31 at 0.6.
Management believes that funds generated by operations, together with
currently available resources and long-term debt arrangements, will
continue to adequately finance anticipated fiscal 1997 expenditures.*
*The marked items are forward-looking statements that involve risks and
uncertainties detailed from time to time in reports filed by NIKE with
the S.E.C., including Forms 8-K, 10-Q, and 10-K.
Part II - Other Information
Item 1. Legal Proceedings:
There have been no material changes from the information previously
reported under Item 3 of the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1996.
Item 6. Exhibits and Reports on Form 8-K:
(a) EXHIBITS:
3.1 Restated Articles of Incorporation, as amended (incorporated by
reference from Exhibit 3.1 to the Company's Quarterly Report on Form
10-Q for the first quarter ended August 31, 1995).
3.2 Third Restated Bylaws, as amended (incorporated by referencec from
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
first quarter ended August 31, 1995).
4.1 Restated Articles of Incorporation, as amended (see Exhibit 3.1).
4.2 Third Restated Bylaws, as amended (see Exhibit 3.2).
10.1 Credit Agreement dated as of September 15, 1995 among NIKE, Inc.,
Bank of America National Trust & Savings Association,
individually and as Agent, and the other banks party thereto (in-
corporated by reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 31, 1995).
10.2 Form of non-employee director Stock Option Agreement (incorporated
by reference from Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1993).*
10.3 Form of Indemnity Agreement entered into between the Company and
each of its officers and directors (incorporated by reference from
the Company's definitive proxy statement filed in connection with
its annual meeting of shareholders held on September 21, 1987).
10.4 NIKE, Inc. Restated Employee Incentive Compensation Plan
(incorporated by reference from Registration Statement No. 33-29262
on Form S-8 filed by the Company on June 16, 1989).*
10.5 NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference
from the Company's definitive proxy statement filed in connection
with its annual meeting of shareholders held on September 17, 1990).*
10.6 Collateral Assignment Split-Dollar Agreement between NIKE, Inc.
and Philip H. Knight dated March 10, 1994 (incorporated by
reference from Exhibit 10.7 to the Company's Annual Report on
Form 10-K for he fiscal year ended May 31, 1994).*
10.7 NIKE, Inc. Executive Performance Sharing Plan (incorporated by
reference from the Company's definitive proxy statement
filed in connection with its annual meeting of shareholders
held on September 18, 1995).*
10.8 NIKE, Inc. Supplemental Executive Savings Plan (incorporated by
reference from Exhibit 10.7 to the Company's Quarterly Report
on Form 10-Q for the quarter ended November 30, 1996).*
12.1 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule.
* Management contract or compensatory plan or arrangement.
(b) The following reports on Form 8-K were filed by the Company during
the first quarter of fiscal 1997:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NIKE, Inc.
An Oregon Corporation
BY: /s/ Robert S. Falcone
Robert S. Falcone
Vice President,
Chief Financial Officer
DATED: April 14, 1997
NIKE, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Nine Months Ended
February 28 and 29,
_________________________
1997 1996*
______ ______
(in thousands)
Net income $ 640,068 $ 413,784
Income taxes 404,900 259,000
_________ _________
Income before income taxes 1,044,968 672,784
_________ _________
Add fixed charges
Interest expense (A) 40,857 31,864
Interest component of leases (B) 19,329 12,756
_________ _________
Total fixed charges 60,186 44,620
_________ _________
Earnings before income taxes and
fixed charges (C) $1,102,984 $ 717,404
========= =========
Ratio of earnings to total fixed
charges 18.33 16.08
========= =========
*For comparable purposes with 1996, results for the nine months ended
February 29, 1996 have been adjusted to reflect the elimination of
the one month lag in reporting by certain of the Company's international
operations.
(A) Interest expense includes both expensed and capitalized.
(B) Interest component of leases includes one-third of rental expense,
which approximates the interest component of operating leases.
(C) Earnings before income taxes and fixed charges is exclusive of
capitalized interest.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FEBRUARY 28, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 300,801
<SECURITIES> 0
<RECEIVABLES> 1,850,310
<ALLOWANCES> 61,219
<INVENTORY> 1,089,143
<CURRENT-ASSETS> 3,500,500
<PP&E> 1,294,483
<DEPRECIATION> 465,691
<TOTAL-ASSETS> 4,944,501
<CURRENT-LIABILITIES> 1,603,841
<BONDS> 289,375
<COMMON> 2,857
0
300
<OTHER-SE> 3,011,642
<TOTAL-LIABILITY-AND-EQUITY> 4,944,501
<SALES> 6,812,608
<TOTAL-REVENUES> 6,812,608
<CGS> 4,075,174
<TOTAL-COSTS> 4,075,174
<OTHER-EXPENSES> 1,630,746
<LOSS-PROVISION> 23,033
<INTEREST-EXPENSE> 38,687
<INCOME-PRETAX> 1,044,968
<INCOME-TAX> 404,900
<INCOME-CONTINUING> 640,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 640,068
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.16
</TABLE>
