Nike 2013 Annual Report Download - page 6

PART I
International branch offices and subsidiaries of NIKE are located in Argentina,
Australia,Austria,Belgium,Bermuda,Brazil,Canada,Chile,China,Costa
Rica, Croatia, Cyprus, the Czech Republic, Denmark, Finland, France,
Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy,
Japan, Korea, Malaysia, Mexico, New Zealand, the Netherlands, Norway,
the Philippines, Poland, Portugal, Russia, Singapore, Slovakia, Slovenia,
South Africa, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand,
Turkey, the United Arab Emirates, the United Kingdom, Uruguay and
Vietnam.
Significant Customer
No customer accounted for 10% or more of our worldwide net sales during fiscal 2013.
Orders
Worldwide futures orders for NIKE Brand athletic footwear and apparel,
scheduled for delivery from June through November 2013, were $12.1 billion
compared to $11.2 billion for the same period last year. This futures orders
amount is calculated based upon our forecast of the actual exchange rates
under which our revenues will be translated during this period. Reported
futures orders are not necessarily indicative of our expectation of revenues for
this period. This is because the mix of orders can shift between futures and at-
once orders and the fulfillment of certain of these futures orders may fall
outside of the scheduled time period noted above. In addition, foreign
currency exchange rate fluctuations as well as differing levels of discounts,
order cancellations and returns can cause differences in the comparisons
between futures orders and actual revenues. Moreover, a significant portion
of our revenue is not derived from futures orders, including at-once and close-
out sales of NIKE Brand footwear and apparel, sales of NIKE Brand
equipment, sales from our Direct to Consumer operations, and sales from our
Other Businesses.
Product Research and Development
We believe our research and development efforts are a key factor in our
success. Technical innovation in the design and manufacturing process of
footwear, apparel, and athletic equipment receive continued emphasis as
NIKE strives to produce products that help to reduce injury, enhance athletic
performance and maximize comfort.
In addition to NIKE’s own staff of specialists in the areas of biomechanics,
chemistry, exercise physiology, engineering, industrial design, sustainability,
and related fields, we also utilize research committees and advisory boards
made up of athletes, coaches, trainers, equipment managers, orthopedists,
podiatrists, and other experts who consult with us and review designs,
materials, concepts for product and manufacturing process improvements
and compliance with product safety regulations around the world. Employee
athletes, athletes engaged under sports marketing contracts and other
athletes wear-test and evaluate products during the design and development
process.
Manufacturing
Virtually all of our footwear is manufactured outside of the United States by
independent contract manufacturers. In fiscal 2013, contract factories in
Vietnam, China and Indonesia manufactured approximately 42%, 30%, and
26% of total NIKE Brand footwear, respectively. We also have manufacturing
agreements with independent factories in Argentina, Brazil, India, and Mexico
to manufacture footwear for sale primarily within those countries. The largest
single footwear factory with which we have contracted accounted for
approximately 6% of total fiscal 2013 NIKE Brand footwear production.
Almost all of NIKE Brand apparel is manufactured outside of the United States
by independent contract manufacturers located in 28 countries. Most of this
apparel production occurred in China, Vietnam, Thailand, Indonesia, Sri
Lanka, Pakistan, Malaysia, Turkey, Mexico, and Cambodia. The largest single
apparel factory that we have contracted with accounted for approximately
6% of total fiscal 2013 apparel production.
The principal materials used in our footwear products are natural and
synthetic rubber, plastic compounds, foam cushioning materials, nylon,
leather, canvas, and polyurethane films used to make Air-Sole cushioning
components. During fiscal 2013, NIKE IHM, Inc., a wholly-owned subsidiary
of NIKE, Inc., with facilities in Beaverton, Oregon and St. Louis, Missouri, as
well as independent contractors in China and Vietnam, were our largest
suppliers of the Air-Sole cushioning components used in footwear. The
principal materials used in our apparel products are natural and synthetic
fabrics and threads, plastic and metal hardware, and specialized performance
fabrics designed to repel rain and snow, retain heat, or efficiently wick
moisture away from the body. NIKE’s independent contractors and suppliers
buy raw materials in bulk for the manufacturing of our footwear, apparel and
equipment products. Most raw materials are available and purchased by
those independent contractors and suppliers in the countries where
manufacturing takes place. We have thus far experienced little difficulty in
satisfying our raw material requirements.
Since 1972, Sojitz Corporation of America (“Sojitz America”), a large
Japanese trading company and the sole owner of our redeemable preferred
stock, has performed significant import-export financing services for us.
During fiscal 2013, Sojitz America provided financing and purchasing services
for NIKE Brand products sold in Argentina, Uruguay, Canada, Brazil, India,
Indonesia, the Philippines, Malaysia, South Africa, Korea, and Thailand,
excluding products produced and sold in the same country. Approximately
13% of NIKE Brand sales occurred in those countries. Any failure of Sojitz
America to provide these services or any failure of Sojitz America’s banks
could disrupt our ability to acquire products from our suppliers and to deliver
products to our customers in those markets. Such a disruption could result in
canceled orders that would adversely affect sales and profitability. However,
we believe that any such disruption would be short-term in duration due to the
ready availability of alternative sources of financing at competitive rates. Our
current agreements with Sojitz America expire on May 31, 2014.
NIKE, INC. 2013 Annual Report and Notice of Annual Meeting 51
FORM 10-K