Nike 2012 Annual Report Download - page 10

PART I
we fail to anticipate accurately and respond to trends and shifts in consumer
preferences by adjusting the mix of existing product offerings, developing new
products, designs, styles and categories, and influencing sports and fitness
preferences through aggressive marketing, we could experience lower sales,
excess inventories and lower profit margins, any of which could have an
adverse effect on our results of operations and financial condition. In addition,
we market our products globally through a diverse spectrum of advertising
and promotional programs and campaigns, including social media and online
advertising. If we do not successfully market our products or if advertising and
promotional costs increase, these factors could have an adverse effect on our
business, financial condition and results of operation.
We rely on technical innovation and high quality products
to compete in the market for our products.
Technical innovation and quality control in the design and manufacturing
process of footwear, apparel, and athletic equipment is essential to the
commercial success of our products. Research and development plays a key
role in technical innovation. We rely upon specialists in the fields of
biomechanics, exercise physiology, engineering, industrial design and related
fields, as well as research committees and advisory boards made up of
athletes, coaches, trainers, equipment managers, orthopedists, podiatrists,
and other experts to develop and test cutting edge performance products.
While we strive to produce products that help to reduce injury, enhance
athletic performance and maximize comfort, if we fail to introduce technical
innovation in our products, consumer demand for our products could decline,
and if we experience problems with the quality of our products, we may incur
substantial expense to remedy the problems.
Failure to continue to obtain high quality endorsers of our
products could harm our business.
We establish relationships with professional athletes, sports teams and
leagues to evaluate, promote, and establish product authenticity with
consumers. If certain endorsers were to stop using our products contrary to
their endorsement agreements, our business could be adversely affected. In
addition, actions taken by athletes, teams or leagues associated with our
products that harm the reputations of those athletes, teams or leagues could
also harm our brand image with consumers and, as a result, could have an
adverse effect on our sales and financial condition. In addition, poor
performance by our endorsers, a failure to continue to correctly identify
promising athletes to use and endorse our products, or a failure to enter into
cost effective endorsement arrangements with prominent athletes and sports
organizations could adversely affect our brand and result in decreased sales
of our products.
Failure of our contractors or our licensees’ contractors to
comply with our code of conduct, local laws, and other
standards could harm our business.
We work with hundreds of contractors outside of the United States to
manufacture our products, and we also have license agreements that permit
unaffiliated parties to manufacture or contract to manufacture products using
our trademarks. We impose, and require our licensees to impose, on those
contractors a code of conduct and other environmental, health, and safety
standards for the benefit of workers. We also require these contractors to
comply with applicable standards for product safety. However, from time to
time contractors may not comply with such standards or applicable local law
or our licensees may not require their contractors to comply with such
standards or applicable local law. Significant or continuing noncompliance
with such standards and laws by one or more contractors could harm our
reputation or result in a product recall and, as a result, could have an adverse
effect on our sales and financial condition.
Global capital and credit market conditions, and resulting
declines in consumer confidence and spending, could
have a material adverse effect on our business, operating
results, and financial condition.
The uncertain state of the global economy continues to impact businesses
around the world. The current political and economic global environment has
resulted in continued economic unpredictability, particularly in Europe where
there are concerns regarding the increased debt levels of certain countries
and their ability to meet future financial obligations, as well as the overall
stability of the Euro currency. Continuing volatility and disruption in the global
capital and credit markets have led to a tightening of business credit and
liquidity, a contraction of consumer credit, business failures, higher
unemployment, and declines in consumer confidence and spending in many
parts of the world. If global economic and financial market conditions
deteriorate or remain weak for an extended period of time, the following
factors could have a material adverse effect on our business, operating
results, and financial condition:
•Slower consumer spending may result in reduced demand for our
products, reduced orders from retailers for our products, order
cancellations, lower revenues, increased inventories, and lower gross
margins.
•We may be unable to find suitable investments that are safe, liquid, and
provide a reasonable return. This could result in lower interest income or
longer investment horizons. Disruptions to capital markets or the banking
system may also impair the value of investments or bank deposits we
currently consider safe or liquid.
•We may be unable to access financing in the credit and capital markets at
reasonable rates in the event we find it desirable to do so.
•The failure of financial institution counterparties to honor their obligations to
us under credit and derivative instruments could jeopardize our ability to rely
on and benefit from those instruments. Our ability to replace those
instruments on the same or similar terms may be limited under poor market
conditions.
•We conduct transactions in various currencies, which increase our
exposure to fluctuations in foreign currency exchange rates relative to the
U.S. Dollar. Continued volatility in the markets and exchange rates for
foreign currencies and contracts in foreign currencies could have a
significant impact on our reported financial results and condition.
•Continued volatility and availability in the markets and prices for
commodities and raw materials we use in our products and in our supply
chain (such as petroleum) could have a material adverse effect on our costs,
gross margins, and profitability.
•If retailers of our products experience declining revenues, or retailers
experience difficulty obtaining financing in the capital and credit markets to
purchase our products, this could result in reduced orders for our products,
order cancellations, inability of retailers to timely meet their payment
obligations to us, extended payment terms, higher accounts receivable,
reduced cash flows, greater expense associated with collection efforts, and
increased bad debt expense.
•If retailers of our products experience severe financial difficulty, some may
become insolvent and cease business operations, which could reduce the
availability of our products to consumers.
•If contract manufacturers of our products or other participants in our supply
chain experience difficulty obtaining financing in the capital and credit
markets to purchase raw materials or to finance general working capital
needs, it may result in delays or non-delivery of shipments of our products.
Our business is affected by seasonality, which could result
in fluctuations in our operating results and stock price.
We experience moderate fluctuations in aggregate sales volume during the
year. Historically, revenues in the first and fourth fiscal quarters have slightly
exceeded those in the second and third fiscal quarters. 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, apparel
and equipment. In addition, our customers may cancel orders, change
delivery schedules or change the mix of products ordered with minimal notice.
As a result, we may not be able to accurately predict our quarterly sales.
Accordingly, our results of operations are likely to fluctuate significantly from
period to period. This seasonality, along with other factors that are beyond our
control, including general economic conditions, changes in consumer
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