Nike 2006 Annual Report Download - page 13

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consumer preferences that cannot be predicted with certainty. Our new products may not receive consumer
acceptance as consumer preferences could shift rapidly to different types of performance or other sports apparel
or away from these types of products altogether, and our future success depends in part on our ability to
anticipate and respond to these changes. If 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.
We rely on technical innovation to compete in the market for our products.
Although design and aesthetics of our products appear to be the most important factor for consumer
acceptance of our products, technical innovation in the design of footwear, apparel, and athletic equipment is also
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 cutting edge performance
products. While we strive to produce products that help to reduce injury, enhance athletic performance and
maximize comfort, failure to introduce technical innovation in our products could result in a decline in consumer
demand for our products.
Failure to continue to obtain high quality endorsers of our products could harm our business.
We establish relationships with professional athletes and sports teams and leagues to evaluate and promote
our products, and establish the authenticity of our products with consumers. If certain of our 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
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 to comply with our code of conduct, local laws, and other standards could harm our
business.
We contract with hundreds of contractors outside of the United States to manufacture NIKE Brand products,
and we impose on those contractors a code of conduct and other environmental, health, and safety standards for
the benefit of workers. However, from time to time contractors may not be in compliance 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 and, as a result, could have an adverse effect on our sales and financial
condition.
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
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