Nike 2014 Annual Report Download - page 12

PART I
or other intellectual property infringement, continued sales of these products
could adversely affect our sales and our brand and result in the shift of
consumer preference away from our products.
The actions we take to establish and protect trademarks, copyrights, trade
secrets, patents, and other intellectual property rights may not be adequate to
prevent imitation of our products by others or to prevent others from seeking
to block sales of our products as violations of proprietary rights.
We may be subject to liability if third parties successfully claim that we infringe
on their trademarks, copyrights, patents, or other intellectual property rights.
Defending infringement claims could be expensive and time-consuming and
might result in our entering into costly license agreements. We also may be
subject to significant damages or injunctions against development, use,
importation, and/or sale of certain products.
We take various actions to prevent confidential information from unauthorized
use and/or disclosure. Such actions include contractual measures such as
entering into non-disclosure agreements and providing confidential
information awareness training. Our controls and efforts to prevent
unauthorized use and/or disclosure of confidential information might not
always be effective. Confidential information that is related to business
strategy, new technologies, mergers and acquisitions, unpublished financial
results, or personal data could be prematurely or inadvertently used and/or
disclosed, resulting in a loss of reputation, or a decline in our stock price, or a
negative impact on our market position, and could lead to damages, fines,
penalties, or injunctions.
In addition, the laws of certain foreign countries may not protect or allow
enforcement of intellectual property rights to the same extent as the laws of
the United States. We may face significant expenses and liability in connection
with the protection of our intellectual property rights outside the United States,
and if we are unable to successfully protect our rights or resolve intellectual
property conflicts with others, our business or financial condition may be
adversely affected.
We are subject to data security and privacy risks that could
negatively affect our results, operations or reputation.
Hackers and data thieves are increasingly sophisticated and operate large-
scale and complex automated attacks. Any breach of our network may result
in the loss of valuable business data, misappropriation of our consumers’ or
employees’ personal information, or a disruption of our business, which could
give rise to unwanted media attention, materially damage our customer
relationships and reputation, and result in lost sales, fines, or lawsuits.
In addition, we must comply with increasingly complex and rigorous
regulatory standards enacted to protect business and personal data. Any
failure to comply with these regulatory standards could subject us to legal and
reputational risks. Misuse of or failure to secure personal information could
also result in violation of data privacy laws and regulations, proceedings
against the Company by governmental entities or others, damage to our
reputation and credibility, and could have a negative impact on revenues and
profits.
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 for the manufacture of products
using our intellectual property. We require the contractors that directly
manufacture our products and our licensees that make products using our
intellectual property (including, indirectly, their contract manufacturers) to
comply with 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. Notwithstanding their
contractual obligations, from time to time contractors may not comply with
such standards or applicable local law or our licensees may fail to enforce
such standards or applicable local law on their contractors. 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.
Our international operations involve inherent risks which
could result in harm to our business.
Virtually all of our athletic footwear and apparel is manufactured outside of the
United States, and the majority of our products are sold outside of the United
States. Accordingly, we are subject to the risks generally associated with
global trade and doing business abroad, which include foreign laws and
regulations, varying consumer preferences across geographic regions,
political unrest, disruptions or delays in cross-border shipments, and changes
in economic conditions in countries in which we manufacture or sell products.
In addition, disease outbreaks, terrorist acts, and military conflict have
increased the risks of doing business abroad. These factors, among others,
could affect our ability to manufacture products or procure materials, our
ability to import products, our ability to sell products in international markets,
and our cost of doing business. If any of these or other factors make the
conduct of business in a particular country undesirable or impractical, our
business could be adversely affected. In addition, many of our imported
products are subject to duties, tariffs, or quotas that affect the cost and
quantity of various types of goods imported into the United States and other
countries. Any country in which our products are produced or sold may
eliminate, adjust, or impose new quotas, duties, tariffs, safeguard measures,
anti-dumping duties, cargo restrictions to prevent terrorism, restrictions on
the transfer of currency, climate change legislation, product safety
regulations, or other charges or restrictions, any of which could have an
adverse effect on our results of operations and financial condition.
Changes in tax laws and unanticipated tax liabilities could
adversely affect our effective income tax rate and
profitability.
We are subject to income taxes in the United States and numerous foreign
jurisdictions. We earn a substantial portion of our income in foreign countries.
If our capital or financing needs in the United States require us to repatriate
earnings from foreign jurisdictions above our current levels, our effective
income tax rates for the affected periods could be negatively impacted.
Current economic and political conditions make tax rules in any jurisdiction,
including the United States, subject to significant change. There have been
proposals to reform U.S. and foreign tax laws that could significantly impact
how U.S. multinational corporations are taxed on foreign earnings. Although
we cannot predict whether or in what form these proposals will pass, several
of the proposals considered, if enacted into law, could have an adverse
impact on our income tax expense and cash flows.
Our effective income tax rate in the future could be adversely affected by a
number of factors, including changes in the mix of earnings in countries with
differing statutory tax rates, changes in the valuation of deferred tax assets
and liabilities, changes in tax laws, the outcome of income tax audits in
various jurisdictions around the world, and any repatriation of non-U.S.
earnings for which we have not previously provided for U.S. taxes.
We and our subsidiaries are engaged in a number of intercompany
transactions across multiple tax jurisdictions. Although we believe that these
transactions reflect the accurate economic allocation of profit and that the
proper transfer pricing documentation is in place, the profit allocation and
transfer pricing terms and conditions (required to be arm’s length) may be
scrutinized by local tax authorities during an audit and any resulting changes
may impact our mix of earnings in countries with differing statutory tax rates.
Portions of our operations are subject to a reduced tax rate or are free of tax
under various tax holidays and rulings that expire in whole or in part from time
to time. These tax holidays and rulings may be extended when certain
conditions are met, or terminated if certain conditions are not met. If the tax
holidays and rulings are not extended, or if we fail to satisfy the conditions of
the reduced tax rate, then our effective tax rate would increase in the future.
We are also subject to the examination of our tax returns by the Internal
Revenue Service and other tax authorities. We regularly assess all of these
matters to determine the adequacy of our tax provision, which is subject to
significant discretion. Although we believe our tax provisions are adequate,
NIKE, INC. 2014 Annual Report and Notice of Annual Meeting 55
FORM 10-K