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 November 30, 1996 Commission file number - 1-10635 NIKE, Inc. (Exact name of registrant as specified in its charter) OREGON 93-0584541 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Bowerman Drive, Beaverton, Oregon 97005-6453 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (503) 671-6453 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes X No . ___ ___ Common Stock shares outstanding as of November 30, 1996 were: _________________ Class A 101,731,470 Class B 186,633,670 _________________ 288,365,140 ========== PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements NIKE, Inc. CONDENSED CONSOLIDATED BALANCE SHEET Nov. 30, May 31, 1996 1996 ________ _______ (in thousands) ASSETS Current assets: Cash and equivalents $ 267,534 $ 262,117 Accounts receivable 1,572,426 1,346,125 Inventories (Note 3) 981,080 931,151 Deferred income taxes 104,820 93,120 Prepaid expenses 145,096 94,427 __________ _________ Total current assets 3,070,956 2,726,940 __________ _________ Property, plant and equipment 1,200,747 1,047,705 Less accumulated depreciation 442,990 404,246 __________ __________ 757,757 643,459 Identifiable intangible assets and goodwill 471,394 474,812 Other assets 121,048 106,417 __________ __________ $4,421,155 $3,951,628 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 3,214 $ 7,301 Notes payable 432,517 445,064 Accounts payable 465,686 455,034 Accrued liabilities 521,351 480,407 Income taxes payable 42,774 79,253 __________ __________ Total current liabilities 1,465,542 1,467,059 Long-term debt 98,970 9,584 Non-current deferred income taxes 1,802 1,883 Other long-term liabilities 34,832 41,402 Commitments and contingencies (Note 4) - - Redeemable Preferred Stock 300 300 Shareholders' equity: Common Stock at stated value (Note 2): Class A convertible-101,731 and 102,240 shares outstanding 152 153 Class B-186,634 and 185,018 shares outstanding 2,704 2,702 Capital in excess of stated value 179,973 154,833 Foreign currency translation adjustment (1,716) (16,501) Retained earnings 2,638,596 2,290,213 ___________ __________ 2,819,709 2,431,400 ___________ __________ $4,421,155 $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 Six Months Ended November 30, November 30, __________________ __________________ 1996 1995* 1996 1995* ____ ____ ____ ____ (in thousands, except per share data) <S> <C> <C> <C> <C> Revenues $2,107,034 $1,356,758 $4,388,960 $3,056,778 _________ _________ _________ _________ Costs and expenses: Cost of sales 1,277,628 828,129 2,639,747 1,841,508 Selling and administrative 530,453 353,715 1,059,990 722,758 Interest 10,228 8,527 22,894 19,778 Other expense (income) (147) 7,375 8,494 17,624 ________ ________ _________ _________ 1,818,162 1,197,746 3,731,125 2,601,668 ________ ________ _________ _________ Income before income taxes 288,872 159,012 657,835 455,110 Income taxes 112,000 61,200 254,900 175,200 ________ ________ _________ _________ Net income $ 176,872 $ 97,812 $ 402,935 $ 279,910 ========= ========= ========== ========== Net income per common share(Note 2) $ 0.60 $ 0.34 $ 1.36 $ .96 ========= ========= ========== ========== Dividends declared per common share $ 0.10 $ 0.08 $ 0.18 $ 0.14 ========= ========= ========== ========== Average number of common and common equivalent shares (Note 2) 297,022 293,988 296,693 292,840 ========= ========= ========== ========== </TABLE> *For comparable purposes with 1996, results for the three and six months ended November 30, 1995 have been adjusted to reflect the elimination of the one month lag in reporting by certain of the Company's international operations. See further discussion under Note 5. The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of this statement. NIKE, Inc. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS <TABLE> <CAPTION> Six Months Ended November 30, _________________ 1996 1995 ____ ____ (in thousands) <S> <C> <C> Cash provided (used) by operations: Net income $402,935 $279,910 Income charges (credits) not affecting cash: Depreciation 58,199 41,629 Deferred income taxes and purchased tax benefits (5,910) (10,513) Other 23,642 10,185 Changes in other working capital components (353,850) (228,501) ________ _______ Cash provided by operations 125,016 92,710 ________ _______ Cash (used) provided by investing activities: Additions to property, plant and equipment (187,579) (96,111) Disposals of property, plant and equipment 19,353 3,533 Increase in other assets (25,476) (2,770) Decrease in other liabilities (9,652) -- _______ _______ Cash used by investing activities (203,354) (95,348) _______ _______ Cash provided (used) by financing activities: Additions to long-term debt 99,789 1,012 Reductions in long-term debt including current portion (10,023) (27,103) (Decrease) increase in notes payable (27,710) 58,670 Proceeds from exercise of options 13,242 12,709 Repurchase of stock -- (18,756) Dividends paid - common and preferred (43,153) (35,800) _______ _______ Cash provided (used) by financing activities 32,145 (9,268) _______ _______ Effect of exchange rate changes on cash 8,606 (9,169) _______ _______ Effect of May 1996 cash flow activity for certain subsidiaries (Note 5) 43,004 -- _______ _______ Net (decrease) increase in cash and equivalents 5,417 (21,075) Cash and equivalents, May 31, 1996 and 1995 262,117 220,935 _______ _______ Cash and equivalents, November 30, 1996 and 1995 $267,534 $199,860 ======== ======== </TABLE> *For comparable purposes with 1996, results for the six months ended November 30, 1995 have been adjusted to reflect the elimination of the one month lag in reporting by certain of the Company's international operations. See further discussion under Note 5. The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of this statement. NIKE, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - Summary of significant accounting policies: ___________________________________________ Basis of Presentation: The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim period(s). The interim financial information and notes thereto should be read in conjunction with the Company's latest annual report to shareholders. The results of operations for the three (3) and six (6) months ended November 30, 1996 are not necessarily indicative of results to be expected for the entire year. NOTE 2 - Net income per common share: ___________________________ Net income per common share is computed based on the weighted average number of common and common equivalent (stock option) shares outstanding for the period(s). On October 23, 1996 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: Nov. 30, May 31, 1996 1996 ________ ________ (in thousands) Finished goods $902,547 $874,700 Work-in-process 44,737 28,940 Raw materials 33,796 27,511 ________ ________ $981,080 $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 change affected the previously reported quarterly periods for these operations and thus, the income satement and cash flow statement 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 - Subsequent Event: ______________ In December of 1996, the Company issued $200 million seven-year notes maturing December 1, 2003, with a stated rate of 6.375%. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Operating Results _________________ Net income increased 81% over the prior year's second quarter, rising to $176.9 million, or $0.60 per share, from $97.8 million, or $0.34 per share last year. Year-to-date net income increased 44% to $402.9 million, $3 million more than the Company's net income for the entire 1995 fiscal year. Revenues were $2.1 billion, up 55% for the quarter and 44% year-to-date. This quarter is the ninth straight quarter of double digit increases in total revenues. Gross margin percentage increased slightly for both the quarter and year-to- date, while selling and administrative expenses decreased as a percentage of revenues for the quarter, but increased as a percentage of revenues on a year-to-date basis. Revenues for the quarter increased $750.3 million over the $1.4 billion reported in the same period of the prior year. U.S. revenues increased $459.9 million, or 63%, for the second quarter, and $840.3 million, or 49%, on a year-to-date basis. U.S. apparel increased 93% over last year's second quarter and has increased more than 85% in each of the last six quarters. U.S. footwear increased $277.8 million, or 52%, over last year's second quarter due to a 48% increase in pairs sold and a 4% increase in average selling price. Increases can be seen in almost all categories, the most significant being men's basketball up 38%, men's running up 90%, men's cross- training up 57%, and women's fitness up 79%. For the quarter international revenues increased $292.2 million, or 60%, with strong growth in both footwear and apparel. Year-to-date, international revenues increased $495.0 million, or 46%. All regions showed double digit increases for the quarter with Europe up 42%, comprised of a 37% increase in footwear and a 53% increase in apparel; Asia Pacific was up 96%, with a 111% growth rate in footwear and a 73% increase in apparel; and the Americas region was up 45%, increasing 25% in footwear and 135% in apparel. Japan, now the largest country outside the U.S. in revenues, increased 171% in the quarter and 111% for the year. The impact of exchange rates on the quarter's revenue was a decrease of $38 million, or 8%. For the year, rates have decreased revenues by $93 million, or 9%. Other brands, which includes Cole Haan (R), Tetra Plastics, Sports Specialties and Bauer Inc., decreased slightly, $1.8 million, (1%), for the quarter and $3.1 million, (1%), year-to-date. The breakdown of revenues follows: <TABLE> <CAPTION> Three Months Ended Six Months Ended November 30, November 30, 1996 1995(1) % Change 1996 1995(1) % Change ____ ____ ___ ____ ____ ___ (in thousands) <S> <C> <C> <C> <C> <C> <C> U.S. Footwear $ 816,283 $ 538,497 52% $1,818,386 $1,330,065 37% U.S. Apparel 377,870 195,795 93 730,255 378,278 93 __________ __________ __________ _________ Total United States 1,194,153 734,292 63 2,548,641 1,708,343 49 __________ __________ __________ _________ International Footwear 517,229 330,162 57 1,065,767 757,194 41 International Apparel 262,021 156,896 67 494,360 307,947 61 __________ __________ __________ _________ Total International 779,250 487,058 60 1,560,127 1,065,141 46 __________ __________ __________ _________ Other Brands 133,631 135,408 (1) 280,192 283,294 (1) __________ __________ _________ _________ Total Revenues $2,107,034 $1,356,758 55% $4,388,960 $3,056,778 44% ========== ========== === ========= ========= === </TABLE> (1) For comparable purposes with 1996, results for the three and six months ended November 30, 1995 have been adjusted to reflect the elimination of the one month lag in reporting by certain of the Company's international operations. See further discussion under Note 5. Consolidated gross margin percentage was 39.4% for the quarter compared to 39.0% for last year's second quarter. Year-to-date margins are at 39.9% compared to 39.8% for last year. The increase in gross margin percentage is primarily attributed to footwear price increases taking effect in this quarter as well as changes to product and customer mix during the period. The Company continues to place strong emphasis on inventory management, minimizing foreign exchange risk and production sourcing in order to maximize gross profit. Gross profit percentages for the remainder of fiscal year 1997 are expected to be affected by both strong demand for NIKE products and increased pricing levels, offset by increased levels of air freight to meet the delivery dates or increasing customer orders. At this time, Management expects the percentage for the full year to be up only slightly from last fiscal year's percentage.* Selling and administrative expenses increased $177 million over the previous year's second quarter and $337 million year-to-date. As a percentage of revenues, expenses have decreased to 25.2% for the quarter, down from 26.1% for the same period last year. On a year-to-date basis, expenses have increased to 24.2%, up from 23.6%. For the quarter, the revenue growth outstripped the expenses, resulting in a lower percentage, however, increased spending on advertising and marketing, as well as increased infrastructure costs, make up the majority of both the dollar and percentage increases. At this time, Management expects selling and administrative expenses as a percentage of revenues for the year will approximate the prior year.* Interest expense increased for both the quarter and year-to-date over the prior year due to increased short-term borrowings for growing operations, mostly in Europe and Asia Pacific. Other expense decreased $7.5 million for the quarter and $9.1 million year-to-date primarily due to decreased conversion loss on foreign transactions, gains on the disposal of fixed assets, and income earned from a promotional event in Japan. 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 December 1996 through April 1997 were approximately $4.1 billion, 54% 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 becomes 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 as each places 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 in order to allow more time for compiling results. The Company has taken steps to improve its internal reporting procedures which have 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 operational results for these entities of a $4.1 million loss was recorded to retained earnings in the first quarter of the current year. The change affected the previously reported quarterly periods for these operations, and thus, the income statement and cash flow statement have been adjusted in order to show comparable results for the previous periods as if the change had occurred in the prior year. Throughout this discussion, comparisons to last year are also 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 November 30, 1996. Since May 31, 1996, total assets grew $470 million to approximately $4.4 billion and shareholder's equity increased $388 million to $2.8 billion. Working capital increased $346 million, and the Company's current ratio increased to 2.10:1 at November 30, 1996 from 1.86:1 at May 31, 1996. Cash provided by operations included year-to-date net income of $403 million plus the year-to-date non-cash depreciation charge of $58 million. Cash used by changes in other working capital components totaled $354 million due, in large part, to increases in accounts receivable and inventory. Since May 31, 1996, accounts receivable increased $226 million (17%) due to the high level of revenues compared to the same period in the prior year. Inventory levels increased $50 million from May 31, as total international inventory increased $52 million in order to support revenue volume. Inventory turns increased to 5.56 at November 30, 1996 from 5.01 at May 31, 1996. Cash used in investing activities totaled $203 million for the first six months of fiscal 1997. Additions to property, plant and equipment totaled $188 million with the most significant components related to the continued consolidation of European footwear warehouses, the overall expansion of U.S. operations and the continued expansion of NIKE Town retail locations in the U.S. Cash provided from financing activities included an increase from May 31, 1996 of $100 million in long-term debt due, primarily, to the Company's Japanese subsidiary borrowing 10.5 billion yen in the first quarter. Cash was used to decrease notes payable by $28 million and to pay dividends totaling $43 million. During the quarter, the Company announced a 33% increase in the quarterly cash dividend to $.10 per share from the previous $.075 per share. The Company's commercial paper program requires the support of committed and uncommitted lines of credit. There was $6 million outstanding under this program at November 30, 1996. The Company has $500 million available in committed unused lines of credit and, at November 30, 1996, no amounts were outstanding under this credit facility. NIKE's debt-to-equity ratio at November 30, 1996 remained constant from May 31 at .6:1. In December of 1996, the Company issued $200 million of seven-year notes, maturing December 1, 2003 (see Note 6). The proceeds from the sale of the notes, received December 13, 1996, will be used for general corporate purposes including, without limitation, refinancing, in part, short-term debt. 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 rended 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 * 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: Form 8-K September 16, 1996 ITEM 5 OTHER EVENTS Press release announcing the first quarter earnings, and a restatement of con- solidated financial state- ments and accompanying notes. 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: January 14, 1997