Nike 2006 Annual Report Download - page 14

control, including general economic conditions, changes in consumer preferences, weather conditions,
availability of import quotas and currency exchange rate fluctuations, could adversely affect our business and
cause our results of operations to fluctuate. Our operating margins are also sensitive to a number of factors that
are beyond our control, including shifts in product sales mix, geographic sales trends, and currency exchange rate
fluctuations, all of which we expect to continue. Results of operations in any period should not be considered
indicative of the results to be expected for any future period.
“Futures” orders may not be an accurate indication of our future revenues.
We make substantial use of our “futures” ordering program, which allows retailers to order five to six
months in advance of delivery with the commitment that 90 percent of their orders will be delivered within a set
period at a fixed price. Our futures ordering program allows us to minimize the amount of products we hold in
inventory, purchasing costs, the time necessary to fill customer orders, and the risk of non-delivery. We report
changes in futures orders in our periodic financial reports. Reported futures orders are not necessarily indicative
of our expectation of changes in revenues for any future period. This is because the mix of orders can shift
between advance/futures and at-once orders. In addition, foreign currency exchange rate fluctuations and order
cancellations 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 wholesale sales of equipment,
U.S. licensed team apparel, Cole Haan, Converse, Exeter Brands Group, Hurley, NIKE Bauer Hockey, NIKE
Golf, and retail sales across all brands.
Our “futures” ordering program does not prevent excess inventories or inventory shortages, which could
result in decreased operating margins and harm to our business.
We purchase products from manufacturers outside of our futures ordering program and in advance of
customer orders, which we hold in inventory and re-sell to customers. There is a risk that we may be unable to
sell excess products that we have ordered from manufacturers. Inventory levels in excess of customer demand
may result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly
impair our brand image and have an adverse effect on our operating results and financial condition. Conversely,
if we underestimate consumer demand for our products or if our manufacturers fail to supply the products that we
require at the time we need them, we may experience inventory shortages. Inventory shortages might delay
shipments to customers, negatively impact retailer and distributor relationships, and diminish brand loyalty.
The difficulty in forecasting demand also makes it difficult to estimate our future results of operations and
financial condition from period to period. A failure to accurately predict the level of demand for our products
could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any
certainty in advance.
We may be adversely affected by the financial health of our retailers.
We extend credit to our customers based on an assessment of a customer’s financial circumstances,
generally without requiring collateral. To assist in the scheduling of production and the shipping of seasonal
products, we offer customers the ability to place orders five to six months ahead of delivery under our “futures”
ordering program. These advance orders may be cancelled, and the risk of cancellation may increase when
dealing with financially ailing retailers or retailers struggling with economic uncertainty. In the past, some
customers have experienced financial difficulties, which in turn have had an adverse effect on our business. From
time to time retailers will be more cautious than usual with orders as a result of weakness in the retail economy.
A slowing economy in our key markets could have an adverse effect on the financial health of our customers,
which could in turn have an adverse effect on our results of operations and financial condition.
Failure to adequately protect our intellectual property rights could adversely affect our business.
We utilize trademarks on nearly all of our products and believe that having distinctive marks that are readily
identifiable is an important factor in creating a market for our goods, in identifying us, and in distinguishing our
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