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NIKE, Inc. Annual Report 2011


mission Our goal is to carry on a 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.


table of contents

Letter to the Shareholders

4

Product Showcase

12

Brand Portfolio

16

Select Financials

22

Board of Directors

30

Shareholder Information

32


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. 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 our cash flow from operations, paid out over $3 billion in dividends and repurchased over $7 billion in 4

stock. In that same time our market cap more than tripled, driving a 17 percent average annual return. At the beginning of fiscal 2011, we committed to amplifying our innovation agenda and driving growth at the category, brand and country level. The last 12 months also revealed many changes 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 high levels of debt. And rising costs for raw 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 fiscaal 2012. But external forces do not control our destiny. We do. We are


letter to the shareholders

5


The number of companies that NIKE Inc. beat in Fortune Magazine’s annual Most Innovative Companies ranking

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 percent of the world’s population could be middle class – most of that in China, India and Brazil. We’re performing very well in these markets, and we’re ideally positioned to capitalize on 6

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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. The key for NIKE, Inc. in any market is to drive innovation at every level – brand, product, retail, operations, events, and communications. That’s at the core of our growth strategy. In

May 2010, I stated a goal for NIKE, Inc. to deliver $27 billion of revenue in fiscal 2015. I’m excited to tell you that we’re ahead of schedule, so we’re revising that number. When I look at the strengths of our company and the opportunity we have going forward, I believe we can exceed that goal and reach $28-30 billion in revenue by fiscal year 2015. Today we have seven distinct, high-energy brands – each

with a powerful connection to its consumers. Those connections give us the insights we need to create amazing products and experiences. That’s the fundamental cycle that continually drives growth. And while each brand has enormous potential in its own right, the real power of NIKE, Inc. comes from making the overall value of our portfolio greater than the sum of the parts. We define our portfolio as the NIKE,


Inc. brands and everything that drives them: our products, retail partners and executions, supply chain, strong balance sheet and a very focused management team. We use the power of our portfolio to manage risk and attack our biggest growth opportunities. It’s the source of our financial capital. It gives us the scale necessary to drive down costs. It enables us to leverage our resources across multiple brands

and categories. And it all revolves around one thing: innovation. We innovate to serve the athlete. We innovate to grow the company. And we innovate to inspire the world. We deliver amazing products and experiences. This is easy in theory, but tougher in execution. When we launched NIKE Free technology, it changed the look, feel and role that footwear plays in the life of the athlete. Today, NIKE Free is one of

our most successful innovations. When we launched NIKE Lunar technology, we knew it would change the industry. But we didn’t know that it would be a $1.5 billion 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 growth through the category offense. Last year alone we held 132 runs in 28 countries, increased membership in NIKE+ by 40 percent and launched the hottest digital product with the GPS Sport Watch. The result was a currency-neutral revenue increase of 30 percent in our Running and 7


fitness 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 fans watched 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 products and experiences that extend our leadership position. 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 warmed up. The opportunities to deliver meaningful product 8

innovation have never been greater, and we’ve never been more excited and better prepared to take advantage of those opportunities. We see huge opportunity to drive growth by executing on our strategy to transform the marketplace. We’re on the ground around the world – identifying key markets, connecting with consumers and assessing retail opportunities. We use this knowledge to apply our resources where they make the most difference. In fiscal 2011 we opened more than 100 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’re 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 in New York and Boston. And NIKE, Inc. e-commerce was up 25 percent on a currencyneutral basis compared to last year. That’s a big increase, but it pales in comparison to the opportunity we have to expand e-commerce across all NIKE, Inc. brands. I think one of the great lessons of the 21st century is the need for collaboration. Nobody can solve the big challenges or reach the big opportunities of the future alone – not governments, not companies, not activists. We all have to work together. This is especially true 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. We choose sustainability. Last year we reclaimed 13 million plastic bottles 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, and that changed 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. I was in Kenya and Ethiopia earlier this year and saw firsthand the impact


that’s where this company distinguishes itself from all others:

innovation

of inter-generational poverty. I also saw the very real sense of hope and possibility in young girls who are breaking that 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 difficult. 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 summer Olympics, and you’ll see it every day. We’re just beginning to tap into some huge, game-changing innovation: digital integration between athletes and technology, one-of-a-kind customization, open 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. Mark Parker President and Chief Executive Officer NIKE, Inc.

9


The approximate number of athletes and sports teams that are currently sponsored by NIKE, Inc.

10

880


11


product showcase Nike Free Run After learning that Stanford athletes had been training barefoot on the university’s golf course, three of Nike’s most innovative and creative employees set out to develop a shoe that felt natural and weightless, just like bare feet. In 2002, they examined a group of men and women with pressure-measuring insoles taped to their feet, using high-speed cameras to capture images of each foot in motion. The team spent eight years studying the biomechanics of shoeless running. The results yielded a profound understanding of the foot’s natural landing angle, pressure and toe position, allowing Nike designers to build an unconventional and flexible running shoe.

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Nike+ Sensor

Nike ProCombat

Nike FuelBand

Simply slip the sensor into the pocket beneath the sockliner of your left Nike+ ready shoe, connect the receiver to your iPod nano and start running. The sensor measures your pace, distance, time elapsed and calories burned. This information is transmitted wirelessly to the receiver and your Nike+ tracking device for real-time feedback while you train.

These compression shorts were designed to shield the body from big hits and hard falls while keeping the wearer comfortable.

Nike+ FuelBand tracks activity through a sport-tested acceleromete. it can track running, walking, dancing, basketball and dozens of everyday activities.

Ergonomically designed floating foam gives lightweight impact protection on the hips and tailbone. Optional snap-in, foam-covered hard plates increase padding on the thighs for superior protection.

Users set Daily Goal and Nike+ FuelBand tracks progress, lighting up from red to green throughout the day. With the touch of a button the user can cycle through their time, steps taken and calories burned.

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what is nike free? It’s a simple idea: let your body perform as it wants to perform to develop significant performance benefits. This is the philosophy of Nike Free, shoes that offer the proven benefits of barefoot training, and your feet will thank you. Allowed their freedom, the toes will flex and grip, setting off a natural chain that exercises muscles normally neglected in traditional footwear. By exercising these muscles, athletes can achieve small performance benefits, adding millimeters to a vertical leap or shaving milliseconds off a race time, while strengthening key stabilizer muscles that help prevent injuries. The outsoles of Nike Free shoes feature siping (deep slices) and reverse flex grooves to encourage flexion and extension in both directions. With a lightweight seamless upper atop this flexible outsole, Nike Free shoes merge the natural, healthy motion of a bare foot with the protection of traditional footwear.

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contoured cushioning improves fit and comfort

asymmetrical lacing system helps to reduce pressure over the top ridge of the foot for enhanced comfort

upper combines with ultralight overlays to provide glove like fit and precise support


Full inner-sleeve construction provides dynamic, sock-like fit that hug the foot

flex grooves promote a natural, barefoot stride

waffle pistons in the outsole work in conjunction with the midsole by helping to absorb impact, then springing back to original shape for added responsiveness

nike + ready to make tracking runs easy

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brand portfolio

16

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 equipment that is unrivaled in the world.


Jordan Brand, a division of NIKE, Inc., is a premium crafted performance brand of athletic footwear, appareal and accessories inspired by the legacy and hands-on leadership of Michael Jordan. Since 1997, the Jordan Brand has grown into a complete collection of sport performance and lifestyle product. The Jordan Brand is also active in local communities through a new corporate responsibility program called “Wings for the Future”, which focuses on three unique community programs emphasizing education, sport, and creativity.

Nike Golf, a division of NIKE, Inc., designs and markets golf equipment, apparel, balls, footwear, bags, and assessories worldwide. With the most advanced R&D capabilities anywhere, Nike Golf delivers innovations that enable athletes to push the boundries of performance and reset what is possible in one of the world’s oldest games.

17


Billions of dollars in revenue contributed by NIKE Inc. affiliate businesses in the 2011 fiscal year.

$2.7

Shaped by more than a century of innovation, craftsmanship and style, Cole Haan is a classic American apparel brand, devoted to making premium men’s and women’s footwear, assessories, and outerwear. A wholly-owned subsidiary of NIKE, Inc., Cole Haan can be found at retail locations worldwide, and online. The company is headquartered in New York City.

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Hurley is a company based on inclusion, says chairman and founder Bob Hurley. This philosophy applied to the company’s launch is 1999, when Hurley decidied to start a brand that was a true microphone for youth. That sense of community remains a guiding principle of the company today, where innovative products like the Phantom Boardshort and game-changing events like the US Open of Surfing continues to redefine what is possible in our world. Hurley, a wholly-owned subsidiary of NIKE, Inc., is headquartered in Costa Mesa, California with international offices in Sydney and Barcelona.


Converse, Inc., based is N.Andover, Massachusetts, is a wholly-owned subsidiary of NIKE, Inc. Established in 1908, the Converse brand has built a reputation as “America’s Original Sports Company”. It has a rich brand heritage of legendary footwear, including Chuck Taylor All Star. Today, Converse offers a diverse porfolio of premium lifestyle men’s and women’s footwear and apparel adn can be found in more than 160 countries and over 50 company-owned retail locations in the U.S.

Umbro, a wholly-owned subsidiary of NIKE, Inc., based in Manchester, England is the original football sportswear brand. Born in England in 1924, the company leverages its rich heritage in its role as the most progressive, relevant, and connected brand in global football.

19


The approximate number of countries around the world that sell NIKE Inc. products.

20

200


21


select financials

22


revenue performance

Revenues for NIKE, Inc. increased 18 percent to $5.7 billion, up 16 percent on a currency-neutral basis. Excluding the impacts of changes in foreign currency, NIKE Brand revenues rose 18 percent with growth in every geography except Japan and in all key categories except Action Sports. Revenues for Other Businesses increased 5 percent with minimal impact from changes in currency exchange rates, as growth at Converse more than offset lower revenues at NIKE Golf, Cole Haan, Hurley and Umbro.

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revenue distribution

24


revenue increases

On December 21, 2010, Nike posted strong fiscal 2011 secondquarter earnings of 0.94 per share, reflecting a growth of 24% from the year-ago earnings of $0.76 per share. Healthy top-line growth coupled with higher gross margin and inventory management were the key highlights of the quarter. Despite macroeconomic headwinds, Nike’s total revenue grew 10% to 4,842 million from $4,405 million in the prior-year quarter. The company continued to benefit from its strategy of consistently focus on innovative products that provide a competitive edge over its rivals.

25


revenue results

26


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financial data stock activity

fundamental data

Last Price

109.90

Debt/Equity Ratio

52 Week High

112.97

Gross Margin

52 Week Low

76.98

Net Profit Margin

Volume

1.26 M

Total Shares Outstanding

Average Daily Volume

2.34 M

Market Capitalization

earnings estimates 2011

2012

2013

2014

Average Estimate

1.37

1.43

4.94

5.80

High Estimate

1.45

1.72

5.02

6.20

Low Estimate

1.24

0.96

4.80

5.43

Year Ago EPS

1.24

1.36

4.39

4.94

+10.72%

+5.48%

+12.54%

+17.40%

Growth Rate

28

0.04 43.79% 9.68% 458.4 M 50.37 B


financials

earnings estimates 2011

growth

23.4 B

6.9%

Qtr(5/12) EPS Estimate

1.37

Income

2.3 B

8.9%

FY(5/12) EPS Estimate

4.94

Dividend Rate

1.44

15.26%

Dividend Yield

1.30%

Sales

1.40%

revenue - quarterly results (in millions)

Current P/E FY(5/13) EPS Estimate

23.10 5.80

financial highlights

2011

2010

2009

1st Qtr

6,081.0

5,175.0

4,799.0

Sales

2nd Qtr

5,731.0

4,842.0

4,405.6

Income

2.27 B

3rd Qtr

5,846.0

5,079.0

4,733.0

Net Profit Margin

9.68%

4th Qtr

N/A

5,766.0

5,077.0

Return on Equity

22.58%

17,658.0

20,862.0

19,014.6

Total

23.42 B

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executives

Phil Knight Chairman of the Board Director/Founder at Nike, Inc.

Matt Parker Chief Executive Officer Director President at Nike, Inc.

Charlie Denson President, Divisional at Nike, Inc.

30


board of directors

The Nominating and Corporate Governance Committee of NIKE, Inc. considers and evaluates candidates for appointment or election to the Board of Directors. In evaluating potential candidates for suitability, the Committee considers many factors to identify individuals with the requisite intelligence, education, experience, and character to make significant contributions to the committee.

Alan B. Graf

Director at Nike, Inc.

John C. Lechleiter

Director at Nike, Inc.

Bernard F. Pliska

Controller/Vice President at Nike, Inc.

John F. Slusher

President, Divisional at Nike, Inc.

David J. Ayre

Vice President, Divisional at Nike, Inc.

John G. Connors

Director at Nike, Inc.

Donald W. Blair

CFO/Vice President at Nike, Inc.

John R. Thompson

Director at Nike, Inc.

Douglas G. Houser

Director at Nike, Inc.

Johnathan A. Rodgers

Director at Nike, Inc.

Elizabeth J. Comstock

Director at Nike, Inc.

Orin C. Smith

Director at Nike, Inc.

Eric D. Sprunk

Vice President, Divisional at Nike, Inc.

P. Eunan McLaughlin

President, Divisional at Nike, Inc.

Gary M. DeStefano

President, Divisional at Nike, Inc.

Phyllis M. Wise

Director at Nike, Inc.

Hans van Alebeek

Vice President, Divisional at Nike, Inc.

Ralph D. DeNunzio

Director at Nike, Inc.

Hilary K. Krane

General Counsel/Vice President at Nike, Inc.

Roger S. Wyett

President, Divisional at Nike, Inc

Jeanne P. Jackson

President, Divisional at Nike, Inc.

Timothy D. Cook

Director at Nike, Inc.

Jill K. Conway

Director at Nike, Inc.

Trevor Edwards

Vice President, Divisional at Nike 31


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shareholder information

NIKE, 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 Headquarters One Bowerman Drive Beaverton, Oregon 97005-6453 Quarterly dividends on NIKE common stock, when declared by the Board of Directors, are paid on or about July 5, October 5, January 5, and April 5. Financial information is also available at www.nikebiz.com/investors. INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 1300 SW Fifth Avenue, Suite 3100 Portland, Oregon 97201 REGISTRAR AND STOCK TRANSFER AGENT Communications 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 43078 Providence, RI 02940-3078 800-756-8200 Hearing Impaired: 800-952-9245

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Nike, Inc. Annual Report  

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