nike annual report - erick calderon

NIKE INC,ANNUAL REPORT

2 11

CONTENTSLETTER TO SHARHOLDERS

BUSINESS

RISK FACTORS

SELECTED F INANCIAL DATA

DIRECTORS, EXECUTIVES & CORPORATE GOVERNANCE

SELECTED F INANCIAL DATA

OTHER INFORMATION

CONTROLS AND PROCEDURES

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

EXECUTIVE COMPENSATION

LEGAL PROCEEDINGS

RISK FACTORS

UNRESOLVED STAFF COMMENTS

PROPERTIES

RESERVED

PRINCIPAL ACCOUNTANT FEES AND SERVICES

EXHIBITS AND F INANCIAL STATEMENT SCHEDULES

03 | TO OUR SHAREHOLDERS

President and Chief Executive OfficerNIKE, Inc.

MARKPARKER

NIKE, Inc. is about innovation. That’s the role of a leader. That’s how we serve the athlete, reward our shareholders, and continue to lead our industry. And we’ve done a pretty good job of that. In the last 10 years we more than doubled our revenue. We increased our gross margin more than five percentage points and grew diluted EPS at a compounded rate of 15 percent.

We nearly tripled cash flow from operations, paid out over $ 3 billion in dividends and repurchased over $7 billion in stock. In that same time our market cap more than tripled, driving a 17 percent average annual return to shareholders.

We committed to amplifying our innovation agenda and driving growth at the category, brand and country level:

• NIKE, Inc. Revenue was up 10% to a record $20.9 billion.

• NIKE Brand Revenue was up 10% to a record $18.1 billion.

• Our Other Businesses grew 9% to a record $2.7 billion.

• NIKE Brand Futures orders are up 15%.

• Earnings Per Share grew 14%, coming in at $4.39 – also a new record.

The last 12 months also revealed manychanges in our world. The global economy continues to recover but as we’ve seen, it’s a slow and volatile recovery. Consumers, particularly youth, face nagging unemployment.

Governments are wrestling with the high levels of debt. And rising costs forraw materials, energy and labor are sparking inflation in world economies. We’re not immune to these factors and expect them to exert pressure on our gross margins in the first half of fiscal 2012.

But external forces do not control our destiny. We do. We are well resourced and positioned to navigate the global economy, create competitive separation, and deliver profitable growth.

The developing markets hold enormous opportunity for NIKE, Inc. Within the next 20 years, as much as 65% of the world’s population could be middle class – most of that in China, Ind ia and Brazil.

We’re performing very well in these markets, and we’re ideally positioned to capitalize on their potential. In our more mature developed markets, the economies are recovering at a slower pace. But the strength of our products and brands should enable us to continue to outgrow the market, as we’ve consistently done in North America.

NIKE Inc, Annual Report 2011

TO OUR SHAREHOLDERS | 04

TO OUR SHAREHOLDERS

We deliver amazing products and experiences. This is easy in theory, but tougher in execution.When we launched NIKE Free technology, we knew it would change the industry. But we didn’t know that it would be a $1.5billion business at retail just three years later.

Within our apparel business, we saw significant growth over the last year. For example, NIKE Pro is now the leading Women’s Base Layer brand in the U.S.,and on the Men’s side we’ve taken significant market share and are within 5 points of the lead as of May 2011 .

Our Running category is a great example of how we drive through the category offense. Last year alone we held 132 runsin 28 countries, increased membership in NIKE+ by 40 percent and launched thehottest digital product with the GPS Sport Watch. The result was a currency-neutral revenue increase of 30 percent in our Running category.

We also saw some amazing sport moments and experiences this past year: World Cup, U.S. Open of Surfing, World Basketball Festival and Champions League to name just a few. Millions of athletes used NIKE digital apps to train, and billions of fanswatch our athletes compete around the world.

The appetite for sports is strong and growing, and NIKE is leading the way. We consistently create and commercialize innovative productsand experiences that extend our leadership posit ion. In fact, NIKE, Inc. holds more than twice the number of invention patents than our top five competitors combined, and I believe we’re just getting warmedup. The opportunities to deliver meaningful product innovation have never been greater, and we’ve never been more excited and bet ter prepared to take advantage of those opportunities.

INNOVATE TO SERVE THE ATHLETEU.S. Open Surfing

Carissa Moore dominated the

competition in Huntington Beach to

win the biggest purse in women’s

surfing history.


REVENUE DISTRUBUTION2007 - 2011

REVENUE PERFORMANCE2007 - 2011

Nike Brand (U.S.)Nike Brand (Non U.S.)Other Businesses

2007$16.3 B

2011$20.9 B

Nike Brand (U.S.)Nike Brand (Non U.S.)Other Businesses

Starting in fiscal 2010 the operating segments of the NIKE Brand were restructured into six geographies (North America, Western Europe, Central/ East-ern Europe, Greater China, Japan, and Emerging Markets) from its previous structure of four regions (U.S., EMEA,



2007 2008 2009 2010 2011

$16,326 $18,627 $19,176 $19,014 $20,862

$2.93 $3.74 $3.03 $3.86 $4.39

* 5-Year Compound Annual Growth Rate (CAGR) based on Fiscal Year 2006 Revenue of $14,955 million.


We see huge opportunity to drive growthby executing on our strategy to transformthe marketplace. We’re on the ground aroundthe world– identifying key markets, connectingwith consumers and assessing retail opportunities. We use this knowledge toapply our resources where they make themost difference. In fiscal 2011 we opened more than 100 premium category destinations, like the Field House with Dick’s Sporting Goods, House of Hoops with Foot Locker,and the Running Lab with Finish Line.

We are creating similar momentum with our direct - to - consumer business. We opened nine NIKE Brand Experience and Category Experience stores in the U.S. and Europe. Converse opened stores inNew York and Boston. And NIKE, Inc. e-commerce was up 25 percent on acurrency-neutral basis compared to last year. That’s a big increase, but it pales in comparison to the opportunity we haveto expand e-commerce on all NIKE, Inc.brands.

We also see tremendous opportunity in evolving our operational capabilities. We continually refine our operations – how we create product, how that product ismanufactured, and how we get it into the hands of our retail partners and consumers.

We’ve had some capacity and delivery challenges over the last year. That pointsto the tremendous demand for our product,and the need to be quicker in delivering it. And we’re doing that. We just opened our new China Logistics Center (CLC ). At 120,000 square meters, it’s one of the largestdistribution centers in Asia. And it’s on trackto become the first in China to be LEED certified.

INNOVATE TO GROW THE COMPANYCHINA WAREHOUSE


$2.93 $3.74 $3.03 $3.86 $4.39

18%

127%

* 5-Year Compound Annual Growth Rate (CAGR) based on Fiscal Year2006 diluted EPS of $2.64

** EPS amounts are not directlycomparable as they include non-recurringexpenses and benefits such as impairment and restructuring charges,tax settlements and other items. To see comparable annual EPSamounts please refer to our prior press releases and SEC filings.

* Performance of the S&P 500 and NIKE stock is calculated by comparing the total returns of each assuming the reinvestment of dividends over the time period of 5/31/2006 to 5/28/2011.


STOCK PERFORMANCE

VS. S&P 5002007 - 2011

DILUTED EPS PERFORMANCE2007 - 2011

2007

S&P 500

2008

NIKE

2009 2010 2011


INNOVATE TO INSPIRE THE WORLD


KOBEBRYANT


I think one of the great lessons of the 21stcentury is the need for collaboration. Nobody can solve the big challenges or reach thebig opportunities of the future alone – notgovernments, not companies, not activists.

We all have to work together. This is especiallytrue in sustainability. I believe that any company doing business today has two simple options: embrace sustainability as a core part of your growth strategy, or eventually stop growing.

Last year we reclaimed 13 million plasticbottles from landfills in Japan and Taiwan and turned those bottles into our lightest high-performance football jerseys ever.We put those jerseys on nine national football teams at the World Cup, andthatchanged product creation in Football forever. We’re also working with partners to create new ways for young people everywhere to access sports.

That makes our youth healthier and the future brighter for all of us. We continue to create great energy and impact withThe Girl Effect, the sole focus of the NIKE Foundation. I was in Kenya and Ethiopiaearlier this year and saw first hand theoverwhelming impact of poverty.

I also saw the very real sense of hope and possibility in young girls who are breakingthat cycle. It’s all part of NIKE’s commitment to help build a better world, while we build a better company, and I’m very proud of the progress we’re making.

As a CEO who came up through the product and design world, I know something about the nature of innovation. It’s incredibly valuable, and equally dif ficult. That’s where this company distinguishes itself from all others: innovation. You can look back a year and see NIKE innovation at the World Cup in South Africa and the U.S. Open of Surfing in Huntington Beach, California.

Look forward a year and you’ll see it in London at the Olympics and the NFL in the U.S. You’ll see it in Brazil in 2014 at the World Cup and in 2016 at the next s ummer Olympics, and you’ll see it every day in between.We’re just beginning to tap into some huge, game-changing innov ation: digital integration between athletes and technology, one-of-a-kind customization, o pen source design, and a quantum leap in engineering and manufacturing that closes the loop and opens the door to smarter products and more robust performance. This is the kind of change we’re focused on, and we are relentless about innovating to reach our full potential.

SHAREHOLDER INFORMATIONNIKE, Inc. common stock is listed on the New York Stock Exchange under the trading symbol ‘NKE.’ Copies of the Company’s Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission are available from the Company without charge. To request a copy, please call 800-640-8007 or write to NIKE’s Investor Relations Department at:

NIKE World HeadquartersOne Bowerman DriveBeaverton, Oregon 97005-6453

INDEPENDENT ACCOUNTANTSPricewaterhouseCoopers LLP1300 SW Fifth Avenue, Suite 3100Portland, Oregon 97201

REGISTRAR & STOCK TRANSFER AGENTCommunications concerning shareholder address changes, stock transfers, changes of ownership, lost stock certificates, payment of dividends, dividend check replacements, duplicate mailings, or other account services should be directed to the Company’s Registrar and Stock Transfer Agent at the following address:

Computershare Trust Company N.A.P.O. Box 43078Providence, RI 02940-3078800-756-8200800-952-9245 (Hearing Impaired)

www.computershare.com


IF YOU HAVE A BODYYOU’RE AN ATHLETE.

It started with a handshake between two visionary Oregonians - Bowerman and his University of Oregon runner Phil Knight. They and the people they hired evolved and grew the company that became Nike from a U.S.-based footwear distributor to a global marketer of athletic footwear, apparel and equip-ment that is unrivaled in the world.

*If you have a body, you are an athlete

When Nike co-founder Bill Bowerman made this observation many years zago, he was defining how he viewed the endless possibilities for human potential in sports. He set the tone and direction for a young company created in 1972, called Nike, and today those same words inspire a new generation of Nike employees.

Our goal is to carry on his legacy of innovative thinking, whether to develop products that help athletes of every level of ability reach their potential, or to create business opportunities that set Nike apart from the competition and provide value for our shareholders.

Along the way, Nike has established a strong Brand Portfolio with several wholly-owned subsidiaries: Cole Haan, Converse Inc., Hurley International LLC, NIKE Golf, and Umbro Ltd. Our world headquarters is located near Beaverton, Oregon, a suburb of Portland. So while the Pacific Northwest is the birthplace to Nike, today we operate in more than 160 countries around the globe. Through our suppliers, shippers, retailers and other service providers, we directly or indirectly employ nearly one million people.

That includes more than 35,000 Nike employees across six continents, each of whom make their own contribution to fulfill our mission statement: to bring inspiration and innovation to every athlete* in the world.

13 | OUR MISSION

OUR MISSION

& VISION


OUR MISSION | 14

MANNYPACQUIAO

INSPIRING ATHLETES. BUILDING RELATIONSHIPS.

17 | BUSINESS

Chairman of the Board of directorsNIKE, Inc.

PHILKNIGHT


BUSINESS | 18

BUSINESSNIKE, Inc. was incorporated in 1968 under the laws of the state of Oregon.As used in this report, the terms “we”, “us”, “NIKE” and the “Company”refer to NIKE, Inc. and its predecessors, subsidiaries and affiliates, unless thecontext indicates otherwise. Our ownInternet address is www.nike.com.

On our NIKE Corporate web site, located at www.nikebiz.com, post the following filings as soon as reasonably cable after they are electronically with or furnished Securities and Exchange Commission: our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended. All such filings on our NIKE

Corporate web site are available freeof charge. Also available on the NIKE Corporate web site are the charters ofthe committees of our board of directors, as well as our corporate governance guidelines and code of ethics; copies of any of these docu-ments will be provided in print to any shareholder who submits a request in writing to NIKE Investor Relations, One Bowerman Drive, Beaverton, Oregon 97005-6453.

Our principal business activity is the design, development and worldwidemar-keting and selling of high quality foot-wear, apparel, equipment, and accessory products. NIKE is the largest seller of athletic footwear and athletic apparel in the world. We sell our products to retail accounts, through NIKEowned retail stores and internet sales, which we refer to as our “Direct to Consumer” operations, through a mix of independent

distributors and licensees, in over 170 countries around the world. Virtually all of our products are manufactured by independent contractors.

Virtually all footwear and apparel products are produced outside the United States, while equipment products are produced both in the United States and abroad.

GENERAL

23 | BUSINESS

Our international operations and sources of supply are subject to the usualrisks 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 partsof the world, political instability and terrorism. We have not, to date, beenmaterially affected by any such risk, but cannot predict the likelihood of suchdevelopments occurring.

The global economic recession resulted in a signifi cant slow-down in international trade and a sharp 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 protectionist challenges in many

different regions, and in nearly all cases we are working together to address trade issues to reduce the impact to the industry, while observing applicable competition laws. Notwithstanding our efforts, such actions, if implemented, could result in increases in the cost of our products, which could adversely affect our sales or profi tability and the imported footwear and apparel industry as a whole. Accordingly, we are activelymonitoring the developments.

In 2005, at the request of the European domestic footwear industry, the European Commission (“EC”) initiated investigations into leather footwear imported from China and Vietnam. Together with other companies in our industry, we took the position that Special Technology Athletic Footwear (STAF) (i) should not be withinthe scope of the investigation, and (ii) does not meet the legal requirements

INTERNATIONAL OPERATIONS& TRADE


BUSINESS | 24

of injury and price in an anti-dumping investigation. Our arguments weresuccessful and the EU agreed in October 2006 on defi nitive duties of 16.5%for China and 10% for Vietnam for non-STAF leather footwear, but excludedSTAF from the fi nal measures. Prior to the scheduled expiration in October 2008of the measures imposed on the non-STAF footwear, the domestic industryrequested and the EC agreed to review a petition to extend these restrictionson non-STAF leather footwear. In December 2009, following a review of theongoing restrictions, EU member states voted to extend the measures for anadditional 15 months, until March 31, 2011. In early 2011, the EC declined tofurther extend the measures and since April 1, 2011 these restrictions havebeen terminated. The EC noted that it will be monitoring leather footwearimports from Vietnam and China over the next 12 months and it is hoped

that any increases will not result in renewed trade defense actions.

On February 3, 2010, the Chinese government announced it would seek torefer the EU decision (both on the original measures and subsequent review decision) to the World Trade Organization (“WTO”) for its further review and decision. On May 18, 2010, the Dispute Settlement Body of the WTO agreed to establish a panel to rule on China’s claims against the EU with respect to the above anti-dumping measures. The ruling from the WTO panel is expected in late July or August 2011, after which either party may accept or appeal the findings.

At the request of certain domestic footwear industry participants, both Brazil and Argentina have initiated independent anti-dumping investigations against footwear made in China. Over the last two years, we have been working with a broad coalition of other companies in our industry to challenge these cases on the basis that the athletic footwear being imported from China (i) should not be within the scope of the investigation, and (ii) does not meet the legal requirements of injury and price in an anti-dumping investigation. In the case of Argentina, in 2010, the fi nal determination made by the administering authorities was favorable to us. In the case of Brazil, the administering authorities agreed to impose an anti-dumping duty against nearly all footwear from China, which we believe will impact all brands in the footwear industry.

Although we do not currently expect that this decision will materially affect us, we are working withthe same broad coalition of footwear companies to challenge this decision indomestic Brazilian courts as well as international forums such as the WTO.Many products, including footwear, apparel and equipment products, that weand others in our industry import into Argentina and Brazil are subject to theWTO non-automatic licensing requirements, which means that it may take up to 60 days for those products to clear customs.

From time to time, in addition to these WTO licensing requirements, thesejurisdictions impose further importation restrictions or limitations. As a result,we have experienced delays in our ability to import our products or it has taken longer than the time allowed under the WTO for us to import our products.

To date, our business has not been materially affected by these restrictions or delays. In the future, however, if we are unable to import our products into these jurisdictions due to these or other restrictions or if we experience increasing or more frequent delays beyond the WTO-permitted 60 days to import our products, our business could be materially affected.

In fi scal 2011, non-U.S. sales (including non-U.S. sales of our Other Businesses)accounted for 57% of total revenues, compared to 58% in fi scal 2010 and 2009.

We sell our products to retail accounts, through our own Direct to Consumeroperations, and through a mix of inde-pendent distributors and licenseesaround the world. We estimate that we sell to more than 20,000 retail accountsoutside the United States, excluding sales by independent distributors andlicensees. We operate 16 distribution centers outside of the United States.In many countries and regions, including Canada, Asia, some Latin Americancountries, and Europe, we have a futures ordering program for retailers similarto the United States futures program described above. During fi scal 2011.

International branch offi ces and subsid-iaries 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, SouthAfrica, Spain, Sri Lanka, Sweden, Swit-zerland, Taiwan, Thailand, Turkey,the United Arab Emirates, the United Kingdom, Uruguay and Vietnam.

Worldwide futures and advance orders for NIKE Brand athletic footwear andapparel, scheduled for delivery from June through November 2011, were$10.3 billion compared to $8.8 billion for the same period last year. This futuresand advance order amount is calculated based upon our forecast of the actualexchange rates under which our revenues will be translated during this period, which approximate current spot rates. Reported futures and advance orders are not necessarily indicative of our expectation of revenues for this period. This is because the mix of orders can shift between futures/advance and at-once orders and the fulfi llment of certain of these futures/advance orders may fall outside of the scheduled time period noted above. In addition, foreign currency exchange rate fl uctuations as well as differing levels of order

21 | BUSINESS

ORDERS

U.S. RETAIL STORES

NIKE FACTORY STORES

NIKE STORES

NIKETOWNS

NIKE EMPLOYEE-ONLY STORES

COLE HAAN STORES (INCLUDING FACTORY STORES)

CONVERSE STORES (INCLUDING FACTORY STORES)

HURLEY STORES (INCLUDING FACTORY AND EMPLOYEE STORES)

TOTAL

NUMBERS

150

16

9

3

107

58

20

363

UNITED STATES MARKET * Performance of the S&P 500 and NIKE stock is calculated by comparing the total

returns of each assuming the reinvestment of dividends over the time period of 5/31/2006 to 5/28/2011.

Virtually all of our footwear is produced by factories we contract with outside ofthe United States. In fi scal 2011, contract factories in Vietnam, China, Indonesia, and India manufactured ap-proximately 39%, 33%, 24% and 2% of total NIKE Brand footwear, respectively. We also have manufacturing agreements withindependent factories in Argentina, Brazil, India, and Mexico to manufacture

footwear for sale primarily within those countries. The largest single footwearfactory that we have contracted with ac-counted for approximately 6% oftotal fi scal 2011 NIKE Brand footwear production. Almost all of NIKE Brandapparel is manufactured outside of the United States by independent contractmanufacturers located in 33 countries. Most of this apparel productionoccurred in China, Thailand, Vietnam, Malaysia, Sri Lanka, Indonesia, Turkey,Cambodia, El Salvador, and Mexico. The largest single apparel factory thatwe have contracted with accounted for approximately 7% of total fi scal 2011apparel production.

The principal materials used in our foot-wear products are natural and syntheticrubber, plastic compounds, foam cush-ioning materials, nylon, leather, canvas,and polyurethane fi lms used to make Air-Sole cushioning components. During

fi scal 2011, NIKE IHM, Inc., a wholly-owned subsidiary of NIKE, as well asindependent contractors in China and Taiwan, were our largest suppliers of theAir-Sole cushioning components used in footwear. The principal materials usedin our apparel products are natural and synthetic fabrics and threads, plasticand metal hardware, and specialized performance fabrics designed to repelrain, retain heat, or effi ciently transport body moisture. NIKE’s independentcontractors and suppliers buy raw mate-rials in bulk for the manufacturingof our footwear, apparel and equipment products.

Most raw materials areavailable and purchased by those inde-pendent contractors and suppliers inthe countries where manufacturing takes place. We have thus far experiencedlittle diffi culty in satisfying our raw material requirements.

Since 1972, Sojitz Corporation of Ameri-ca (“Sojitz America”), a large Japanesetrading company and the sole owner of our redeemable preferred stock, hasperformed signifi cant import-export fi nancing services for us. During fiscal 2011, Sojitz America provided fi nancing and purchasing services for NIKE Brandproducts sold in Argentina, Uruguay, Canada, Brazil, India, Indonesia, thePhilippines, Malaysia, South Africa, China, Korea, and Thailand, excludingproducts produced and sold.

Approximately 19% of NIKE Brand sales occurred in those countries. Any failure of Sojitz America to provide these ser-vices or any failure of Sojitz America’s banks could disrupt our ability to acquire products from our suppliers and to de-liver products to our customers in those jurisdictions. Such a disruption could result in cancelled orders that would adversely affect sales and profi tability.

However, we believe that any such dis-ruption would be short-term in duration due to the ready availability of alterna-tive sources of fi nancing at competi-tive rates. Our current agreements with Sojitz America expire on May 31, 2014.

The athletic footwear, apparel, and equipment industry is keenly competitivein the United States and on a worldwide basis. We compete internationallywith a signifi cant number of athletic and leisure shoe companies, athletic andleisure apparel companies, sports equip-ment companies, and large companieshaving diversifi ed lines of athletic and leisure shoes, apparel, and equipment,including Adidas, Puma, and others. The intense competition and the rapidchanges in technology and consumer preferences in the markets for athleticand leisure footwear and apparel, and

athletic equipment, constitute signifi cant risk factors in our operations.

NIKE is the largest seller of athletic foot-wear and athletic apparel in the world.Performance and reliability of shoes, ap-parel, and equipment, new productdevelopment, price, product identity through marketing and promotion,and customer support and service are important aspects of competition inthe athletic footwear, apparel, and equipment industry. To help market ourproducts, we contract with prominent and infl uential athletes, coaches, teams,colleges and sports leagues to endorse our brands and use our products,and we actively sponsor sporting events and clinics. We believe that we arecompetitive in all of these areas.

cancellations and discounts can cause differences in the comparisons between futures and advance orders and actual revenues. Moreover, a signifi cant por-tion of our revenue is not derived from futures and advance 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.


BUSINESS | 22

COMPETITION

MANUFACTURING

We believe our research and development efforts are a key factor in our past and future success. Technical innovation in the design of footwear,apparel, and athletic equipment receive continued emphasis as NIKE strivesto produce products that help to reduce injury, enhance athletic performanceand maximize comfort.

In addition to NIKE’s own staff of specialists in the areas of biomechanics,chemistry, exercise physiology, engineering, industrial design, and related fi elds, 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 improvements and compliance with product safety regulations around the world. Employee athletes, athletes

engaged under sports marketingcontracts and other athletes wear-test and evaluate products during the designand development process.

25 | BUSINESS

Nike Mercurial Vapor Soccer CleatsLighter and Faster! Rewrite the rules of speed. The Nike Mercurial Vapor VII FG Men’s Soccer Cleat improves upon its predecessor with innovative features in a revamped design that’s stronger, faster and lighter.

PRODUCTRESEARCH &DEVELOPEMENT

The athletic footwear, apparel, and equipment industry is keenly competitivein the United States and on a worldwide basis. We compete internationallywith a signifi cant number of athletic and leisure shoe companies, athletic andleisure apparel companies, sports equipment companies, and large companieshaving diversifi ed lines of athletic and leisure shoes, apparel, and equipment,including Adidas, Puma, and others. The intense competition and the rapidchanges in technology and consumer preferences in the markets for athleticand leisure footwear and apparel, and athletic equipment, constitute signifi cantrisk factors in our operations.NIKE is the largest seller of athletic footwear and athletic apparel in the world.Performance and reliability of shoes, apparel, and equipment, new product


BUSINESS | 26

development, price, product identity through marketing and promotion,and customer support and service are important aspects of competition inthe athletic footwear, apparel, and equipment industry. To help market ourproducts, we contract with prominent and infl uential athletes, coaches, teams,colleges and sports leagues to endorse our brands and use our products,and we actively sponsor sporting events and clinics. We believe that we arecompetitive in all of these areas.

We utilize trademarks on nearly all of our products and believe having distinctivemarks that are readily identifi able is an important factor in creating a market forour goods, in identifying our brands and the Company, and in distinguishingour goods from the goods of others. We consider our NIKE® and SwooshDesign® trademarks to be among our

most valuable assets and we haveregistered these trademarks in over 150 countries. In addition, we own manyother trademarks that we utilize in marketing our products. We continue tovigorously protect our trademarks against infringement.NIKE has an exclusive, worldwide license to make and sell footwear usingpatented “Air” technology. The process utilizes pressurized gas encapsulatedin polyurethane. Some of the early NIKE AIR® patents have expired, which mayenable competitors to use certain types of similar technology. SubsequentNIKE AIR® patents will not expire for several years. We also have hundredsof U.S. and foreign utility patents, and thousands of U.S. and foreign designpatents covering components and features used in various athletic and leisureshoes, apparel, and equipment. These patents expire at various times, and

patents issued for applications fi led this year will last from now to 2025 fordesign patents, and from now to 2031 for utility patents. We believe oursuccess depends primarily upon skills in design, research and development,production, and marketing rather than upon our patent position. However,we have followed a policy of fi ling applications for United States and foreignpatents on inventions, designs, and improvements that we deem valuable.

the Emerging Markets geography, wherelocal law requires those employees to be represented by a trade union, andin the United States, where certain employees of Cole Haan are representedby a union. Also, in some countries outside of the United States, local lawsrequire representation for employees by works councils (such as in certaincountries in the European Union, in which they are entitled to information andconsultation on certain Company decisions) or other employee representationby an organization similar to a union, and in certain European countries,we are required by local law to enter into and/or comply with (industry wideor national) collective bargaining agreements. There has never been a materialinterruption of operations due to labor disagreements.

As of May 31, 2011, we had approximately 38,000 employees worldwide, whichincludes retail and part-time employees. Management considers its relationshipwith employees to be excellent. None of our employees is represented by aunion, except for certain employees in

TRADEMARKS

EMPLOYEES

NIKE’s athletic footwear products are designed primarily for specifi c athleticuse, although a large percentage of the products are worn for casual or leisurepurposes. We place considerable em-phasis on high quality construction andinnovation in products designed for men, women and children. Running, training, basketball, soccer, sport-inspired casual shoes, and kids’ shoes are currently our top-selling footwear categories and we expect them to continue to lead in product sales in the near future. We also market footwear designed for baseball, cheerleading, football, golf, lacrosse, outdoor activities, skateboarding, tennis, volleyball, walking, wrestling, and other athletic and recreational uses. We sell sports apparel and accessories covering most of the above categories, sports-inspired lifestyle apparel, as well as athletic bags and accessory items.

NIKE apparel and accessories feature the same trademarks and are sold through the same marketing and distribution channels. We often market footwear, apparel and accessories in “collections” of similar design or for specific purposes. We also market apparel with licensed college and professional team and league logos. We sell a line of performance equipment under the NIKE Brand name, includ-ing bags, socks, sport balls, eyewear, timepieces, electronic devices, bats, gloves, protective equipment, golf clubs, and other equipment designed for sports activities. We also sell small amounts of various plastic products to other manufacturers through our wholly-owned subsidiary, NIKE IHM, Inc.

In addition to the products we sell di-rectly to customers through our Direct to Consumer operations, we have entered into license agreements that permit

unaffiliated parties to manufacture and sell certain apparel, electronic devices and other equipment designed for sports activities. Our wholly-owned subsidiary, Cole Haan (“Cole Haan”), headquartered in New York, New York, designs and distributes dress and casual footwear, apparel and accessories for men and women under the Cole Haan® trademark. Our wholly-owned subsidiary, Converse Inc. (“Converse”), headquar-tered in North Andover, Massachusetts, designs, distributes and licenses athletic and casual footwear, apparel and ac-cessories under the Converse®, Chuck Taylor®, All Star®, One Star®, Star Chevron and Jack Purcell® trademarks.Our wholly-owned subsidiary, Hurley International LLC (“Hurley”), headquar-tered in Costa Mesa, California, designs and distributes a line of action sportsand youth lifestyle apparel and accesso-ries under the Hurley® trademark.Our wholly-owned subsidiary, Umbro

19 | BUSINESS

PRODUCTS

NIKE’s athletic footwear products are designed primarily for specific athletic use, although a large percentage of the products are worn for casual or leisure purposes. We place considerable emphasis on high quality construction and innovation in products designed for men, women and children. Running,training, basketball, soccer, sport-in-spired casual shoes, and kids’ shoesare currently our top-selling footwear categories and we expect them to

risk. We report our NIKE Brand operations based on our internal geographic organization. Each NIKE Brand geography operates predomi-nantly in one industry: the design, development, marketing and selling of athletic footwear, apparel, and equipment. Effective June 1, 2009, we began operating under our new organizational structure for the NIKE Brand, which consists of the following six geographies: North America, Western Europe, Central & Eastern Europe, Greater China, Japan, and Emerging Markets. Previously, NIKEBrand operations were organized into the following four geographic regions:U.S., Europe, Middle East and Africa (collectively, “EMEA”), Asia Pacifi c, and Americas. Our NIKE Brand Direct to Consumer operations are managed within each geographic segment.

the fi rst and fourth fi scal quarters haveslightly exceeded those in the second and third quarters. However, the mix of product sales may vary considerably as a result of changes in seasonal and geographic demand for particular types of footwear, apparel and equipment.

Because NIKE is a consumer products company, the relative popularity of various sports and fi tness activities and changing design trends affectthe demand for our products. We must therefore respond to trends and shiftsin consumer preferences by adjusting the mix of existing product offerings,developing new products, styles and categories, and infl uencing sports andfi tness preferences through aggressive marketing. Failure to respond in a timelyand adequate manner could have a material adverse effect on our sales and profi tability. This is a continuing

Financial information about geographic and segment operations appears in Note 18 of the accompanying Notes to the Consolidated Financial Statementson page 55. We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in


BUSINESS | 20

SALES &MARKETING

In fiscal 2011, sales in the United States including U.S. sales of our OtherBusinesses accounted for approximately 43% of total revenues, compared to42% in fi scal 2010 and 2009. Our Other Businesses were primarily comprisedof our affi liate brands; Cole Haan, Con-verse, Hurley and Umbro (which wasacquired on March 3, 2008); and NIKE. We estimate we sell to more than 20,000 retail accounts in the United States.

The NIKE Brand domesticretail account base includes a mix of footwear stores, sporting goods stores,athletic specialty stores, department stores, skate, tennis and golf shops,and other retail accounts. During fi scal 2011, our three largest customersaccounted for approximately 23% of sales in the United States.

We make substantial use of our “fu-tures” ordering program, which allowsretailers to order fi ve to six months in advance of delivery with the commitmentthat their orders will be delivered within a set time period at a fi xed price.

In fiscal 2011, 87% of our U.S. wholesale footwear shipments (excluding ourOther Businesses) were made under the futures program, compared to 89%in fi scal 2010 and 2009. In fi scal 2011, 60% of our U.S. wholesale apparelshipments (excluding our Other Busi-nesses) were made under the futuresprogram, compared to 62% in fi scal 2010 and 60% in fi scal 2009.

We utilize 18 NIKE sales offi ces to so-licit sales in the United States. We alsoutilize 4 independent sales representa-tives to sell specialty products for golfand 5 for skateboarding and snowboard-

NIKE’s three signifi cant distribution cen-ters in the United States for NIKE Brandproducts, including NIKE Golf, are lo-cated in Memphis, Tennessee. NIKEalso operates and leases one facility in Memphis, Tennessee for NIKE Brandproduct returns.

NIKE Brand apparel and equipment prod-ucts are also shippedfrom our Foothill Ranch, California distri-bution center. Cole Haan productsare distributed primarily from Greenland, New Hampshire, and Converse andHurley products are shipped primarily from Ontario, California.

U.S. MARKET

TO BRING INSPIRATION & INNOVATION TO EVERY ATHLETE IN THE WORLD.

28 | SELECTED FINANCIAL DATA

SELECTEDFINANCIAL DATANIKE designs, develops, markets and sells high quality footwear, apparel,equipment and accessory products worldwide. We are the largest sellerof athletic footwear and apparel in the world. We sell our products to retailaccounts, through NIKE-owned retail stores and internet sales, which we referto as our operations, and through a mix of independent distributors and licensees, worldwide.

Our goal is to deliver value to ourshareholders by building a profi table global portfolio of branded footwear,apparel, equipment and accessories businesses. Our strategy is to achievelong-term revenue growth by creating innovative, “must have” products,building deep personal consumer connections with our brands, and deliveringcompelling retail presentation and experiences.

In addition to achieving long-term revenue growth, we continue to strive todeliver shareholder value:

• Making our supply chain a competitive advantage through operational discipline,

• Reducing product costs through a continued focus on lean manufacturingand product design that strives to eliminate waste,

• I mproving selling and administrative expense productivity by focusing oninvestments that drive economic returns in the form of incremental revenueand gross margin, and leveraging existing infrastructure across our portfolioof brands to eliminate duplicative costs,

• I mproving working capital effi ciency.

• Deploying capital effectively to create value for our shareholders.Through execution of this strategy, our

long-term fi nancial goals continue to be:• High single-digit revenue growth,• Mid-teens earnings per share growth,• I ncreased return on invested capital and accelerated cash fl ows, and• Consistent results through effective management of our diversifi ed portfolioof businesses. Over the past ten years, we have achieved or exceeded all of these financial goals. During this time, NIKE, Inc’s revenues and earnings per share have grown 8% and 15%, respectively, on an annual compounded basis. Our return on invested capital has increased from 14% to 22% and we expanded gross margins by more than 5 percentage points.


SELECTED FINANCIAL DATA | 29

FINANCIAL HISTORY

YEAR ENDED MAY 31,

REVENUES

GROSS MARGIN

GROSS MARGIN %

RESTRUCTURING CHARGES

GOODWILL IMPAIRMENT

INTANGIBLE & OTHER ASSET IMPAIRMENT

NET INCOME

BASIC EARNINGS PER COMMON SHARE

DILUTED EARNINGS PER COMMON SHARE

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

DILUTED WEIGHTED AVERAGE COMMON SHARES

CASH DIVIDENS DECLARED PER COMMON SHARE

CASH FLOW FROM OPERATIONS

PRICE RANGE OF COMMON STOCK

HIGH

LOW

AT MAY 31,

CASH & EQUIVALENTS

SHORT-TERM INVESTMENTS

INVENTORIES

WORKING CAPITOL

TOTAL ASSETS

LONG-TERM DEBT

REDEEMABLE PREFFERED STOCK

SHAREHOLDERS’ EQUITY

YEAR-END STOCK PRICE

MARKET CAPITALIZATION

FINANCIAL RATIOS:

RETURN ON EQUITY

RETURN ON ASSETS

INVENTORY TURNS

CURRENT RATIO AT MAY 31

PRICE / EARNINGS RATIO AT MAY 31

$ 20,862

9,508

45.6%

–

–

–

2,133

4.48

4.39

475.5

485.5

1.20

1,812

92.30

67.21

$ 1,955

2,583

2,715

7,339

14,998

276

0.3

9,843

84.45

39,523

21.8%

14.5%

4.8

2.9

19.2

$ 19,176

8,604

44.9%

195

199

202

1,487

3.07

3.03

484.9

490.7

0.98

1,736

70.28

38.24

$ 2,291

1,164

2,357

6,457

13,250

437

0.3

8,693

57.05

27,698

18.0%

11.6%

4.4

3.0

18.8

$ 19,014

8,800

46.3%

–

–

–

1,907

3.93

3.86

485.5

493.9

1.06

3,164

78.55

50.16

$ 3,079

2,067

2,041

7,595

14,419

446

0.3

9,754

72.38

35,032

20.7%

13.8%

4.6

3.3

18.8

$ 18,627

8,387

45.0%

–

–

–

1,883

3.80

3.74

495.6

504.1

0.875

1,936

70.60

51.50

$ 2,134

624

2,438

5,518

12,443

441

0.3

7,825

68.37

33,557

24.8%

16.3%

4.5

2.7

18.3

$ 20,862

9,508

45.6%

–

–

–

2,133

4.48

4.39

475.5

485.5

1.20

1,812

92.30

67.21

$ 1,955

2,583

2,715

7,339

14,998

276

0.3

9,843

84.45

39,523

21.8%

14.5%

4.8

2.9

19.2

( In millions, except per share data and financial ratios ) 2011 2010 2009 2008 2007

30 | SELECTED FINANACIAL DATA

NIKEBRANDOVERVIEW

SPORTSWEAR

$ 5.1 BILLION +3%

NIKE RUNNING

$ 2.8 BILLION +30%

NIKE BASKETBALL

$ 1.9 BILLION +11%


SELECTED FINANACIAL DATA | 31

NIKE SOCCER

$ 1.8 BILLION +8%

NIKE TRAINING

$ 1.7 BILLION +15%

ACTION SPORTS

$ 470 MILLION +18%

NIKE GOLF

$ 623 MILLION - 4%

nike annual report - erick calderon

Documents

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annual report

new record

significant growth