Nike 2016 Annual Report Download - page 6

PART I
International branch offices and subsidiaries of NIKE are located in Argentina,
Australia, Austria, Belgium, Bermuda, Brazil, Canada, Chile, China, Croatia,
the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong
Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Korea,
Malaysia, Mexico, New Zealand, the Netherlands, Norway, Panama, 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.
Significant Customer
No customer accounted for 10% or more of our worldwide net revenues during fiscal 2016.
Orders
Worldwide futures orders for NIKE Brand athletic footwear and apparel,
scheduled for delivery from June through November 2016, were $14.9 billion
compared with $13.8 billion for the same period last year. NIKE Brand
reported futures include (1) orders from external wholesale customers and (2)
internal orders from our DTC in-line stores and e-commerce operations which
are reflected at prices that are comparable to prices charged to external
wholesale customers. The U.S. Dollar futures orders amount is calculated
based upon our internal forecast of the actual currency exchange rates under
which our revenues will be translated during this period. Reported futures
orders are not necessarily indicative of our expectation of revenues for this
period. This is because the mix of orders can shift between futures and at-
once orders and the fulfillment of certain of these futures orders may fall
outside of the scheduled time period noted above. In addition, foreign
currency exchange rate fluctuations as well as differing levels of order
cancellations, discounts and returns can cause differences in the
comparisons between futures orders and actual revenues. Moreover, a
portion of our revenue is not derived from futures orders, including sales of at-
once and closeout NIKE Brand footwear and apparel, all sales of NIKE Brand
equipment, the difference between retail sales and internal orders from our
Direct to Consumer in-line stores and e-commerce operations, and sales
from our Converse, Hurley and NIKE Golf businesses.
Product Research, Design and Development
We believe our research, design and development efforts are key factors in
our success. Technical innovation in the design and manufacturing process of
footwear, apparel and athletic equipment receive continued emphasis as we
strive to produce products that help to enhance athletic performance, reduce
injury and maximize comfort while reducing waste.
In addition to our own staff of specialists in the areas of biomechanics,
chemistry, exercise physiology, engineering, industrial design, sustainability
and related fields, 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 and manufacturing process 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.
As we continue to develop new technologies, we are simultaneously focused
on the design of innovative products incorporating such technologies
throughout our product categories. Using market intelligence and research,
our various design teams identify opportunities to leverage new technologies
in existing categories responding to consumer preferences. The proliferation
of NIKE Air, Lunar, Zoom, Free, Flywire, Dri-Fit, Flyknit, Flyweave and NIKE+
technologies through Running, NIKE Basketball, the Jordan Brand, Football
(Soccer), Men’s Training, Women’s Training and Sportswear, among others,
typifies our dedication to designing innovative products.
Manufacturing
We are supplied by approximately 142 footwear factories located in 15
countries. The largest single footwear factory accounted for approximately
7% of total fiscal 2016 NIKE Brand footwear production. Virtually all of our
footwear is manufactured outside of the United States by independent
contract manufacturers who often operate multiple factories. In fiscal 2016,
contract factories in Vietnam, China and Indonesia manufactured
approximately 44%, 29% and 21% of total NIKE Brand footwear,
respectively. We also have manufacturing agreements with independent
factories in Argentina, India, Brazil and Mexico to manufacture footwear for
sale primarily within those countries. In fiscal 2016, five footwear contract
manufacturers each accounted for greater than 10% of footwear production
and in aggregate accounted for approximately 69% of NIKE Brand footwear
production.
We are supplied by approximately 394 apparel factories located in 39
countries. The largest single apparel factory accounted for approximately
12% of total fiscal 2016 NIKE Brand apparel production. Virtually all of our
apparel is manufactured outside of the United States by independent contract
manufacturers which often operate multiple factories. In fiscal 2016, contract
factories in China, Vietnam and Indonesia produced approximately 26%,
23% and 9% of total NIKE Brand apparel, respectively. In fiscal 2016, one
apparel contract manufacturer accounted for more than 10% of apparel
production, and the top five contract manufacturers in aggregate accounted
for approximately 39% of NIKE Brand apparel production.
The principal materials used in our footwear products are natural and
synthetic rubber, plastic compounds, foam cushioning materials, natural and
synthetic leather, nylon, polyester and canvas, as well as polyurethane films
used to make NIKE Air-Sole cushioning components. During fiscal 2016,
NIKE IHM, Inc., a wholly-owned subsidiary of NIKE, Inc., with facilities near
Beaverton, Oregon and in St. Charles, Missouri, as well as independent
contractors in China and Vietnam, 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 (both virgin
and recycled); specialized performance fabrics designed to efficiently wick
moisture away from the body, retain heat and repel rain and/or snow; and
plastic and metal hardware. NIKE’s independent contractors and suppliers
buy raw materials 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. NIKE’s independent contract manufacturers and
suppliers have thus far experienced little difficulty in satisfying raw material
requirements for the production of our products.
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 2016, Sojitz America provided financing and purchasing services
for NIKE Brand products sold in certain NIKE markets including Argentina,
NIKE, INC. 2016 Annual Report and Notice of Annual Meeting 59
FORM 10-K