Nike 2015 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 2015, 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, 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, 2018, and contain a provision allowing us to extend the
agreements to May 31, 2019.
International Operations and Trade
Our international operations and sources of supply are subject to the usual
risks of doing business abroad, such as possible increases in 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,
protectionist measures have resulted in increases in the cost of our products,
and additional measures, if implemented, could adversely affect sales and/or
profitability for NIKE as well as the imported footwear and apparel industry as
awhole.
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 and Argentina, we are
actively participating in dumping investigations against footwear from China
and actively monitoring actions in 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 limit or delay customs
clearance for imports of footwear, apparel and equipment. Moreover, with
respect to trade restrictions targeting China, which represents an important
sourcing country and consumer market 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.
NIKE advocates for trade liberalization for footwear and apparel in a number
of regional and bilateral free trade agreements. The passage of Trade
Promotion Authority in the United States will enable the conclusion of the
Trans-Pacific Partnership (TPP). If ultimately passed, the TPP has the
potential to reduce or eliminate high rates of customs duties for imports into
the United States of NIKE products sourced from TPP countries (primarily
footwear and apparel from Vietnam and apparel from Malaysia). Similarly, the
European Union is close to concluding a free trade agreement with Vietnam
that could lead to duty reduction or elimination for footwear and apparel.
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, Li Ning, lululemon athletica, Puma, V.F. Corp., Under
Armour and UNIQLO, among others. 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 attributes such as 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; social media interaction; 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.
•Effective sourcing and 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 worldwide. 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
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