Nike 2012 Annual Report Download - page 5

PART I
International branch offices 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.
Significant Customer
No customer accounted for 10% or more of our net sales during fiscal 2012.
Orders
Worldwide futures orders for NIKE Brand athletic footwear and apparel,
scheduled for delivery from June through November 2012, were $11.2 billion
compared to $10.5 billion for the same period last year. This futures order
amount is calculated based upon our forecast of the actual 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 and discounts can cause differences in the comparisons
between futures orders and actual revenues. Moreover, a significant portion
of our revenue is not derived from futures 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 and manufacturing
process 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
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.
Manufacturing
Virtually all of our footwear is produced by factories we contract with outside
of the United States. In fiscal 2012, contract factories in Vietnam, China and
Indonesia, manufactured approximately 41%, 32% and 25% 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 5% of total
fiscal 2012 NIKE Brand footwear production. Almost all of NIKE Brand
apparel is manufactured outside of the United States by independent contract
manufacturers located in 28 countries. Most of this apparel production
occurred in China, Vietnam, Thailand, Sri Lanka, Malaysia, Indonesia, Turkey,
Cambodia, Mexico, and El Salvador. The largest single apparel factory that
we have contracted with accounted for approximately 8% of total fiscal 2012
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 films used to make Air-Sole cushioning
components. During fiscal 2012, 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 efficiently 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 difficulty 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 significant import-export financing services for us.
During fiscal 2012, Sojitz America provided financing 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 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, 2014.
NIKE, INC. Š2012 Form 10-K 5