Nike 2014 Annual Report Download - page 7

PART I
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 2014, Sojitz America provided financing and purchasing services
for NIKE Brand products sold in certain NIKE markets including Argentina,
Uruguay, Canada, Brazil, India, Indonesia, the Philippines, Malaysia, South
Africa, and Thailand, excluding products produced and sold in the same
country. Approximately 8% 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, 2015.
International Operations and Trade
Our international operations and sources of supply are subject to the usual
risks of doing business abroad, such as possible revaluation of currencies,
export and import duties, anti-dumping measures, quotas, safeguard
measures, trade restrictions, restrictions on the transfer of funds, and, in
certain parts of the world, political instability and terrorism. We have not, to
date, been materially affected by any such risk, but cannot predict the
likelihood of such material effects occurring in the future.
In recent years, uncertain global and regional economic conditions have
affected international trade and caused a rise in protectionist actions around
the world. These trends are affecting many global manufacturing and service
sectors, and the footwear and apparel industries, as a whole, are not immune.
Companies in our industry are facing trade protectionism in many different
regions, and in nearly all cases we are working together with industry groups
to address trade issues and reduce the impact to the industry, while
observing applicable competition laws. Notwithstanding our efforts, such
protectionist measures, if implemented, could result in increases in the cost of
our products, which may in turn adversely affect our sales or profitability as
well as the imported footwear and apparel industry as a whole.
We monitor protectionist trends and developments throughout the world that
may materially impact our industry, and we engage in administrative and
judicial processes to mitigate trade restrictions. In Brazil, we are actively
monitoring for dumping investigations against products from China and other
countries that may result in additional anti-dumping measures and could
affect our industry. We are also monitoring for and advocating against other
impediments that may increase customs clearance times for imports of
footwear, apparel, and equipment. Moreover, with respect to trade
restrictions targeting China, which represents an important sourcing and
consumer marketing country for us, we are working with a broad coalition of
global businesses and trade associations representing a wide variety of
sectors to help ensure that any legislation enacted and implemented
(i) addresses legitimate and core concerns, (ii) is consistent with international
trade rules, and (iii) reflects and considers China’s domestic economy and the
important role it has in the global economic community.
Where trade protection measures are implemented, we believe that we have
the ability to develop, over a period of time, adequate alternative sources of
supply for the products obtained from our present suppliers. If events
prevented us from acquiring products from our suppliers in a particular
country, our operations could be temporarily disrupted and we could
experience an adverse financial impact. However, we believe we could abate
any such disruption, and that much of the adverse impact on supply would,
therefore, be of a short-term nature, although alternate sources of supply
might not be as cost-effective and could have an ongoing adverse impact on
profitability.
Competition
The athletic footwear, apparel, and equipment industry is highly competitive
on a worldwide basis. We compete internationally with a significant number of
athletic and leisure footwear companies, athletic and leisure apparel
companies, sports equipment companies, and large companies having
diversified lines of athletic and leisure footwear, apparel, and equipment,
including adidas, V.F. Corp., Puma, Li Ning, and Under Armour, among
others. We also compete with a number of vertical retailers such as lululemon
athletica and Uniqlo. The intense competition and the rapid changes in
technology and consumer preferences in the markets for athletic and leisure
footwear and apparel, and athletic equipment, constitute significant risk
factors in our operations.
NIKE is the largest seller of athletic footwear, apparel, and equipment in the
world. Important aspects of competition in this industry are:
•product quality; performance and reliability; new product innovation and
development; and consumer price/value;
•consumer connection and affinity for brands and products, developed
through marketing and promotion; customer support and service;
identification with prominent and influential athletes, coaches, teams,
colleges, and sports leagues who endorse our brands and use our
products; and active engagement through sponsored sporting events and
clinics; and
•effective distribution of products, with attractive merchandising and
presentation at retail, both in store and online.
We believe that we are competitive in all of these areas.
Trademarks and Patents
We utilize trademarks on nearly all of our products and believe having
distinctive marks that are readily identifiable is an important factor in creating a
market for our goods, in identifying our brands and the Company, and in
distinguishing our goods from the goods of others. We consider our NIKE and
Swoosh Design trademarks to be among our most valuable assets and we
have registered these trademarks in almost 170 jurisdictions. In addition, we
own many other trademarks that we utilize in marketing our products. We
own common law rights in the trade dress of several significant shoe designs
and elements. For certain trade dress, we have sought and obtained federal
trademark registrations.
NIKE has copyright protection in its design, graphics and other original works.
When appropriate, we have sought registrations for this content.
NIKE owns patents, and has a patent license, facilitating its use of “Air”
technologies. The “Air” process utilizes pressurized gas encapsulated in
polyurethane. Some of the early NIKE AIR patents have expired, which may
enable competitors to use certain types of similar technology. Subsequent
NIKE AIR patents will not expire for several years.
We also file and maintain many U.S. and foreign utility patents, as well as
many U.S. and foreign design patents protecting components,
manufacturing techniques, features, and industrial design used in various
athletic and leisure footwear, apparel, athletic equipment, digital devices, and
golf products. These patents expire at various times; and patents issued for
applications filed this calendar year in the United States will last until 2028 for
design patents and until 2034 for utility patents.
50