Nike 2011 Annual Report Download - page 5

5NIKE,INC.-Form10-K
PARTI
ITEM1Business
International branch offi ces and subsidiaries of NIKE are located in Argentina,
Australia, Austria, Belgium, Bermuda, Brazil, Canada, Chile, China, Croatia,
Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Greece,
Hong Kong, Hungary, Indonesia, India, Ireland, Israel, Italy, Japan, Korea,
Lebanon, Macau, 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.
Signifi cant Customer
No customer accounted for 10% or more of our net sales during fi scal2011.
Orders
Worldwide futures and advance orders for NIKE Brand athletic footwear and
apparel, scheduled for delivery from Junethrough November2011, were
$10.3billion compared to $8.8billion for the same period lastyear. Thisfutures
and advance order amount is calculated based upon our forecast of the actual
exchange rates under which our revenues will be translated during this period,
which approximate current spot rates. Reported futures and advance orders are
not necessarily indicative of our expectation of revenues for this period. Thisis
because the mix of orders can shift between futures/advance and at-once
orders and the fulfi llment of certain of these futures/advance orders may fall
outside of the scheduled time period noted above. In addition, foreign currency
exchange rate fl uctuations as well as differing levels of order cancellations
and discounts can cause differences in the comparisons between futures and
advance orders and actual revenues. Moreover, a signifi cant portion of our
revenue is not derived from futures and advance 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
past and future success. Technical innovation in the design 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, and related
fi elds, 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 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 produced by factories we contract with outside of
the UnitedStates. In fi scal2011, contract factories in Vietnam, China, Indonesia,
and India manufactured approximately 39%, 33%, 24% and 2% 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 that we have contracted with accounted for approximately 6% of
total fi scal2011 NIKE Brand footwear production. Almost all of NIKE Brand
apparel is manufactured outside of the UnitedStates by independent contract
manufacturers located in 33 countries. Most of this apparel production
occurred in China, Thailand, Vietnam, Malaysia, Sri Lanka, Indonesia, Turkey,
Cambodia, El Salvador, and Mexico. The largest single apparel factory that
we have contracted with accounted for approximately 7% of total fi scal2011
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 fi lms used to make Air-Sole cushioning components. During
fi scal2011, NIKE IHM,Inc., a wholly-owned subsidiary of NIKE, as well as
independent contractors in China and Taiwan, 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, retain heat, or effi ciently transport body moisture. 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 diffi culty 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 signifi cant import-export fi nancing services for us. During fi scal2011,
Sojitz America provided fi nancing and purchasing services for NIKE Brand
products sold in Argentina, Uruguay, Canada, Brazil, India, Indonesia, the
Philippines, Malaysia, South Africa, China, Korea, and Thailand, excluding
products produced and sold in the same country. Approximately 19% 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 jurisdictions. Such a disruption could result in cancelled
orders that would adversely affect sales and profi tability. However, we believe
that any such disruption would be short-term in duration due to the ready
availability of alternative sources of fi nancing at competitive rates. Our current
agreements with Sojitz America expire on May31,2014.