01—Abstract
Summary
Summary of the 10-K filed August 30, 1995. Cited figures are marked; the original filing is the authoritative source.
NIKE's fiscal 1995 10-K (year ended May 31, 1995) reports a record year: revenues rose 25.6% to $4.76 billiona, the first time above $4 billion, and net income climbed 33.8% to $399.7 million.
Diluted-style EPS rose 37.4% to $5.44b per share, helped by a share repurchase program. Gross margin reached a record 39.8%, up from 39.3%, and selling and administrative expenses fell to 25.4% of revenues from 25.7%. Growth was broad-based: U.S. revenues rose 24% to $2.73 billion, and international revenues rose 27% to $1.72 billion.
The company also gained U.S. market share in a mature market where industry growth was expected at only 3 to 5%. The balance sheet grew substantially but became more leveraged. Total assets passed $3 billionc, driven largely by the roughly $409 million cash acquisition of Canstar Sports, the world's largest hockey equipment maker.
Cash fell 58% to $216 milliond, the current ratio dropped to 1.8 from 3.2, and short-term notes payable rose to $397 million. Accounts receivable rose 50% and inventories rose about 33%. Operating cash flow fell sharply to $255 million from $576 million, largely because of the receivables build.
Management still described the balance sheet as extremely strong, with long-term debt of only about $10.6 million. Forward-looking indicators were positive. Orders for June through November 1995 delivery totaled $2.5 billion, up 35%.
The company expects roughly 95% of those orders to ship in that window, though they may be cancelable. Management guided to a fiscal 1996 effective tax rate near 38.5%, planned about $177 million in capital expenditures, and kept its dividend policy at 15% to 25% of trailing earnings. Risks flagged include possible EU anti-dumping duties on footwear from China, Indonesia, and Thailand, the uncertain renewal of China's most-favored-nation trade status, and the expiration of some Air patents in 1997.
02—Key points
Key Highlights
- Record fiscal 1995 revenues of $4.76 billion, up 25.6%, the first year above $4 billion.
- Net income rose 33.8% to a record $399.7 million; EPS rose 37.4% to $5.44, aided by share buybacks.
- Gross margin hit a record 39.8%, while selling and administrative expenses fell to 25.4% of revenues.
- Canstar Sports acquisition for about $409 million added hockey equipment brands such as Bauer and CCM-related lines, and drove much of the rise in assets and short-term debt.
- Liquidity tightened: cash fell 58% to $216 million, the current ratio fell to 1.8 from 3.2, and operating cash flow dropped to $255 million from $576 million.
- Forward orders of $2.5 billion for June–November 1995 delivery were up 35%, signaling continued demand momentum.
- Concentration and trade risks: Foot Locker accounted for about 14% of NIKE brand sales, and China MFN status and EU anti-dumping investigations create sourcing exposure.
03—Questions
Frequently Asked Questions
How strong was NIKE's revenue and earnings growth in fiscal 1995?
Revenues grew 25.6% to $4.76 billion and net income grew 33.8% to $399.7 million, both records. EPS grew 37.4% to $5.44, a larger gain than net income because of share repurchases. Growth came from both the U.S. (up 24%) and international markets (up 27%).
Why did cash flow and liquidity decline despite record profits?
Operating cash flow fell to $255 million from $576 million mainly because accounts receivable rose $301 million on strong fourth-quarter sales. Cash also went toward the $409 million Canstar acquisition, and short-term notes payable rose to $397 million. Long-term debt remained very low at about $10.6 million.
What does the $2.5 billion order backlog mean for future revenue?
Orders for June through November 1995 delivery were $2.5 billion, up 35%. Management expects about 95% to ship in that window, but notes that orders may be cancelable and that they are not a precise predictor of total revenue, since the mix of advance orders and at-once shipments varies.
What are the main risks to NIKE's sourcing and trade position?
Footwear production is concentrated in Indonesia, China, South Korea, Taiwan and Thailand. Risks include the annual renewal of China's MFN tariff status, EU quotas and anti-dumping investigations covering Chinese, Indonesian and Thai footwear, and currency or political disruption. Management believes it could shift production within about 12 months and that the impact would be short-term.
Is the dividend and share buyback program sustainable?
The dividend rose to $0.95 per share from $0.80, and management targets 15% to 25% of trailing earnings. A $450 million repurchase authorization was in progress, with 4.9 million shares bought for $282.9 million through May 31, 1995. Management said buybacks depend on working capital needs and market conditions, and that funding the full program might require outside financing.
04—Continue