SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q FOR QUARTERLY REPORTS UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the Quarter Ended August 31, 1995 Commission file number - 1-10635 NIKE, Inc. (Exact name of registrant as specified in its charter) OREGON 93-0584541 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Bowerman Drive, Beaverton, Oregon 97005-6453 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (503) 671-6453 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes X No . ___ ___ Common Stock shares outstanding as of August 31, 1995 were: _________________ Class A 25,880,522 Class B 45,603,473 _________________ 71,483,995 ========== PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements NIKE, Inc. CONDENSED CONSOLIDATED BALANCE SHEET Aug. 31, May 31, 1995 1995 ________ _______ (in thousands) ASSETS Current assets: Cash and equivalents $ 178,556 $ 216,071 Accounts receivable 1,192,172 1,053,237 Inventories (Note 3) 676,417 629,742 Deferred income taxes 68,682 72,657 Prepaid expenses 87,300 74,221 __________ _________ Total current assets 2,203,127 2,045,928 Property, plant and equipment 934,801 891,213 Less accumulated depreciation 352,091 336,334 __________ __________ 582,710 554,879 Identifiable intangible assets and goodwill 490,872 495,907 Other assets 46,707 46,031 __________ __________ $3,323,416 $3,142,745 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 3,237 $ 31,943 Notes payable 325,937 397,100 Accounts payable 367,797 297,656 Accrued liabilities 338,902 345,224 Income taxes payable 109,397 35,612 __________ __________ Total current liabilities 1,145,270 1,107,535 Long-term debt 14,082 10,565 Non-current deferred income taxes 17,921 17,789 Other long-term liabilities 42,952 41,867 Commitments and contingencies (Note 4) - - Redeemable Preferred Stock 300 300 Shareholders' equity: Common Stock at stated value (Note 2): Class A convertible-25,881 and 25,895 shares outstanding 155 155 Class B-45,603 and 45,550 shares outstanding 2,698 2,698 Capital in excess of stated value 129,621 122,436 Foreign currency translation adjustment 4,006 1,585 Retained earnings 1,966,411 1,837,815 ___________ __________ 2,102,891 1,964,689 ___________ __________ $3,323,416 $3,142,745 ========== ========== The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of this statement. NIKE, Inc. CONDENSED CONSOLIDATED STATEMENT OF INCOME <TABLE> <CAPTION> Three Months Ended August 31, __________________ 1995 1994 ____ ____ (in thousands, except per share data) <S> <C> <C> Revenues $1,614,649 $1,170,355 _________ _________ Costs and expenses: Cost of sales 967,522 700,447 Selling and administrative 359,525 292,294 Interest 11,377 4,757 Other expense (income) 8,344 (830) ________ ________ 1,346,768 996,668 ________ ________ Income before income taxes 267,881 173,687 Income taxes 103,100 67,700 ________ ________ Net income $ 164,781 $ 105,987 ========= ========= Net income per common share(Note 2) $ 2.26 $ 1.43 ========= ========= Dividends declared per common share $ .25 $ .20 ========= ========= Average number of common and common equivalent shares (Note 2) 72,926 74,222 ========= ========= </TABLE> The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of this statement. NIKE, Inc. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS <TABLE> <CAPTION> Three Months Ended August 31, _________________ 1995 1994 ____ ____ (in thousands) <S> <C> <C> Cash provided (used) by operations: Net income $164,781 $105,987 Income charges (credits) not affecting cash: Depreciation 20,039 14,757 Deferred income taxes and purchased tax benefits 3,157 7,253 Other non-current liabilities 1,085 1,490 Other 6,472 1,650 Changes in other working capital components (63,305) (13,727) ________ _______ Cash provided by operations 132,229 117,410 ________ _______ Cash provided (used) by investing activities: Acquisition of business: Net assets acquired -- (10,264) Goodwill and other intangibles acquired -- (10,347) Additions to property, plant and equipment (49,975) (18,077) Disposals of property, plant and equipment 1,085 4,222 Decrease (increase) in other assets 1,494 (1,518) _______ _______ Cash used by investing activities (47,396) (35,984) _______ _______ Cash (used) provided by financing activities: Additions to long-term debt 644 213 Reductions in long-term debt including current portion (26,185) (3,554) (Increase) decrease in notes payable (71,163) 29,933 Proceeds from exercise of options 7,637 1,405 Repurchase of stock (18,756) -- Dividends - common and preferred (17,893) (14,641) _______ _______ Cash (used) provided by financing activities (125,716) 13,356 _______ _______ Effect of exchange rate changes on cash 3,368 450 _______ _______ Net (decrease) increase in cash and equivalents (37,515) 95,232 Cash and equivalents, May 31, 1995 and 1994 216,071 518,816 _______ _______ Cash and equivalents, August 31, 1995 and 1994 $178,556 $614,048 ======== ======== </TABLE> The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of this statement. NIKE, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - Summary of significant accounting policies: ___________________________________________ Basis of Presentation: The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim period(s). The interim financial information and notes thereto should be read in conjunction with the Company's latest annual report to shareholders. The results of operations for the three (3) months ended August 31, 1995 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). NOTE 3 - Inventories: ___________ Inventories by major classification are as follows: Aug. 31, May 31, 1995 1995 ________ ________ (in thousands) Finished goods $663,530 $618,521 Work-in-process 1,763 2,157 Raw materials 11,124 9,064 ________ ________ $676,417 $629,742 ======== ======== 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. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Operating Results _________________ The first quarter ended August 31, 1995 established new record highs for revenues and net income. Revenues increased 38% to $1.615 billion, compared to $1.170 billion in the prior year's first quarter. Net income was $165 million, or $2.26 per share, compared to $106 million, or $1.43 per share for the same period in the prior year. The 55% increase in net income was due to the record revenues as well as a decrease in selling and administrative expenses as a percent of revenues, from 25% in the prior year to 22.3% in the current year. Revenues increased $444 million over the record $1.2 billion reported in the same period of the prior year. U.S. footwear increased $136 million, or 21%, resulting from an increase of 19% in pairs shipped and a 2% increase in average selling price due to sales mix. Revenues increased in all U.S. footwear categories. U.S. apparel was up $88 million over last year's first quarter, an increase of 93%. International revenues increased $131 million, or 36%, composed of 33% and 48% increases in international (n0n-U.S.) footwear and apparel revenues, respectively. The international growth included a 6% increase resulting from new NIKE subsidiaries and a positive 8% affect from foreign exchange translation. All other brands, which includes Cole Haan (R), Tetra Plastics, Sports Specialties and Canstar Sports, increased during the quarter, however the primary increase was due to $75 million in revenues from Canstar Sports, which was acquired in the third quarter of the prior fiscal year. The breakdown of revenues follows: Three months ended Aug. 31 1995 1994 % Change (in thousands) U.S. Footwear $791,568 $655,142 21% U.S. Apparel 182,483 94,735 93% _______ _______ __ Total United States 974,051 749,877 30% International Footwear 366,678 276,462 33% International Apparel 126,034 85,134 48% _______ _______ __ Total International 492,712 361,596 36% Other Brands 147,886 58,882 151% _______ _______ ___ Total Revenues $1,614,649 $1,170,355 38% ========== ========== === Consolidated gross margins were relatively flat at 40.1% compared to 40.2% in the prior year. Strong demand for NIKE products combined with sound inventory management resulted in stable NIKE brand margins. The Company continues to place strong emphasis on inventory management, minimizing foreign exchange risk, and production sourcing in order to maximize gross profit. Selling and administrative expenses increased $67 million in absolute dollars over the previous year's first quarter, however, as a percent of sales decreased 2.7 percentage points to 22.3%. The largest increase in absolute dollars was $29 million from international, with $12 million a result of exchange rates, $5 million from new subsidiaries, and the remainder due to increased levels of operations. U.S. NIKE brand operations were up $22 million, primarily in planned marketing expenses. Canstar Sports added $12 million of expenses. The Company anticipates that total fiscal 1996 selling and administrative expense as a percent of revenues will approximate the prior year. Interest expense for the quarter increased $6.6 million over the prior year due to increased short term borrowings for both U.S. and international operations. Other income decreased $9.2 million, primarily as a result of increased goodwill expense, increased profit share plan expense and decreased interest income. Goodwill expense and interest income were most significantly affected by the acquisition of Canstar Sports. The Company's effective tax rate for the quarter was 38.5% compared to 39.0% in the prior year. This is primarily due to lower taxes provided on non-U.S. earnings. The Company anticipates the tax rate for fiscal 1996 will approximate 38.5%. Worldwide orders for NIKE Brand athletic footwear and apparel scheduled for delivery from September 1995 through January 1996 were approximately $2.3 billion, 32% higher than such orders booked in the comparable period of the prior year. These orders are not necessarily indicative of total revenues for subsequent periods because the mix of advance orders and "at once" shipments may vary significantly from quarter to quarter and year to year. Additionally, as international operations continue to shift to a greater emphasis on futures orders, this mix again may vary. Finally, exchange rates can cause differences in the comparisons. Liquidity and Capital Resources The Company's financial position remains strong, with working capital rising $119 million since May 31, 1995. The working capital ratio remained the same as of May 31, 1995 at 1.9:1. Cash and equivalents decreased $38 million from May 31, 1995. Cash provided by operations was reduced by increases in working capital components. Other significant uses of cash included additions to property, plant and equipment, decreases in short term borrowings and long term debt. The increase in working capital components was primarily due to increases in accounts receivable and inventories, offset by increases in accounts payable and taxes payable. The increase in accounts receivable of $139 million was due to sales growth in both July and August over last May's comparable two month period. Overall inventories increased $47 million in conjunction with levels of operations, primarily due to U.S. apparel and international footwear and apparel inventories which have increased $18 million and $58 million, respectively. U.S. footwear inventories decreased $29 million due to record shipments and timing of inventory receipts. Increases in accounts payable and taxes payable are a result of the increased level of operations. The additions to property, plant and equipment were composed of normal operational spending, the continued consolidation of European footwear warehouses, expansion of NIKE Town retail locations and acquisition of land adjacent to the world headquarters. The Company also utilized cash to reduce short term debt outstanding at May 31, 1995 and to retire long term debt acquired in the purchase of Canstar Sports. During the quarter, the Company purchased 200,000 shares of its own stock under the stock repurchase program announced in July 1993, bringing the total number of shares purchased in the program to approximately 5,149,000. In September of 1995, the Company's Board of Directors announced a two-for-one stock split following shareholder approval an increase in the number of authorized Class A and Class B Common shares. The stock split will be in the form of a 100 percent stock dividend to be paid on October 30, 1995 to shareholders of record on October 9, 1995. The debt to equity ratio at August 31, 1995 was .6:1 compared to .6:1 at May 31, 1995 and .4:1 at August 31, 1994. Management believes that funds generated by operations, together with currently available resources, will adequately finance anticipated fiscal 1996 expenditures, with the potential exception of the stock repurchase program discussed above. At August 31, 1995, the Company had $300 million available in committed unused lines of credit. 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, 1995. Item 4. Submission of Matters to a Vote of Security Holders The Company's annual meeting of shareholders was held on September 18, 1995. The shareholders elected for the ensuing year all of management's nominees for the Board of Directors, and passed by a majority vote Proposal 2 approving the increase in authorized common stock, Proposal 3 approving the Executive Performance Sharing Plan and Proposal 4 ratifying the appointment of independent accountants. The voting results are as follows: Election of Directors Votes Cast Director For Withheld Elected by holders of Class A Common Stock: Ralph D. DeNunzio 25,133,498 (99.972%) 7,000 Richard K. Donahue 25,133,498 (99.972%) 7,000 Douglas G. Houser 25,133,498 (99.972%) 7,000 John E. Jaqua 25,133,498 (99.972%) 7,000 Philip H. Knight 25,133,498 (99.972%) 7,000 Kenichi Ohmae 25,133,498 (99.972%) 7,000 Ralph A. Pfeiffer, Jr. 25,133,498 (99.972%) 7,000 Charles W. Robinson 25,133,498 (99.972%) 7,000 A. Michael Spence 25,133,498 (99.972%) 7,000 John R. Thompson, Jr 25,133,498 (99.972%) 7,000 . Elected by holders of Class B Common Stock: William J. Bowerman 38,245,687 (98.748%) 484,860 Thomas E. Clarke 38,266,447 (98.802%) 464,020 Jill K. Conway 38,306,354 (98.905%) 424,113 Delbert J. Hayes 38,260,338 (98.786%) 470,129 For Against Abstain Proposal 2 - Approval of the increase in authorized shares: Class A Common Stock 25,133,498 (99.972%) 7,000 0 Class B Common Stock 28,402,266 (73.333%) 10,201,984 127,117 Proposal 3 - Approval of Executive Performance Sharing Plan: Class A Common Stock 25,133,498 (99.972%) 7,000 0 Class B Common Stock 37,513,611 (96.058%) 1,021,352 195,504 Proposal 4 - Ratification of Appointment of Accountants: Class A Common Stock 25,133,498 (99.972%) 7,000 0 Class B Common Stock 38,603,851 (99.673%) 18,287 108,329 Item 6. Exhibits and Reports on Form 8-K: (a) EXHIBITS: 3.1 Restated Articles of Incorporation, as amended. 3.2 Third Restated Bylaws, as amended. 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. 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).* 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 1996: Form 8-K July 11, 1995 ITEM 5. OTHER EVENTS. Press release announcing 4th quarter earnings SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NIKE, Inc. An Oregon Corporation BY: s/Robert S. Falcone ________________________ Robert S. Falcone Vice President, Chief Financial Officer DATED: October 13, 1995