diff --git a/raw/filings/0000320187/2000/0001095811-01-503828/filing.txt b/raw/filings/0000320187/2000/0001095811-01-503828/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0988446f65ccc32492a57c8a216def57f44bd59a
--- /dev/null
+++ b/raw/filings/0000320187/2000/0001095811-01-503828/filing.txt
@@ -0,0 +1,2888 @@
+10-K
+1
+v74223e10-k.txt
+FORM 10-K PERIOD ENDED MAY 31, 2001
+1
+--------------------------------------------------------------------------------
+--------------------------------------------------------------------------------
+SECURITIES AND EXCHANGE COMMISSION
+WASHINGTON, D.C. 20549
+------------------------
+FORM 10-K
+------------------------
+(MARK ONE)
+[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
+SECURITIES EXCHANGE ACT OF 1934
+FOR THE FISCAL YEAR ENDED MAY 31, 2001
+OR
+[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
+SECURITIES EXCHANGE ACT OF 1934
+FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
+COMMISSION FILE NO. 1-10635
+NIKE, INC.
+(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
+OREGON 93-0584541
+(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
+INCORPORATION)
+ONE BOWERMAN DRIVE
+BEAVERTON, OREGON 97005-6453
+(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
+(503) 671-6453
+(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
+SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
+(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
+Class B Common Stock New York Stock Exchange
+Pacific Stock Exchange
+SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
+None
+Indicate by check mark whether the Registrant (1) has filed all reports
+required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
+1934 during the preceding 12 months (or for such shorter period that the
+Registrant was required to file such reports), and (2) has been subject to such
+filing requirements for the past 90 days. Yes [X] No [ ]
+As of July 25, 2001, the aggregate market value of the Registrant's Class A
+Common Stock held by nonaffiliates of the Registrant was $150,509,504 and the
+aggregate market value of the Registrant's Class B Common Stock held by
+nonaffiliates of the Registrant was $7,801,584,944.
+As of July 25, 2001, the number of shares of the Registrant's Class A
+Common Stock outstanding was 99,126,334 and the number of shares of the
+Registrant's Class B Common Stock outstanding was 170,114,060.
+DOCUMENTS INCORPORATED BY REFERENCE:
+Parts of Registrant's Proxy Statement dated August 10, 2001 for the annual
+meeting of shareholders to be held on September 17, 2001 are incorporated by
+reference into Part III of this Report.
+Indicate by check mark if disclosure of delinquent filers pursuant to Item
+405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
+will not be contained to the best of Registrant's knowledge, in definitive proxy
+or information statements incorporated by reference in Part III of this Form
+10-K or any amendment to this Form 10-K. [ ]
+--------------------------------------------------------------------------------
+--------------------------------------------------------------------------------
+2
+NIKE, INC.
+ANNUAL REPORT ON FORM 10-K
+TABLE OF CONTENTS
+PAGE
+----
+PART I
+Item 1. Business.................................................... 1
+General..................................................... 1
+Products.................................................... 1
+Sales and Marketing......................................... 2
+United States Market........................................ 2
+International Markets....................................... 3
+Significant Customers....................................... 3
+Orders...................................................... 3
+Product Research and Development............................ 4
+Manufacturing............................................... 4
+Trade Legislation........................................... 5
+Competition................................................. 6
+Trademarks and Patents...................................... 7
+Employees................................................... 7
+Executive Officers of the Registrant........................ 7
+Item 2. Properties.................................................. 9
+Item 3. Legal Proceedings........................................... 9
+Item 4. Submission of Matters to a Vote of Security Holders......... 10
+PART II
+Item 5. Market for Registrant's Common Equity and Related 10
+Stockholder Matters.........................................
+Item 6. Selected Financial Data..................................... 11
+Item 7. Management's Discussion and Analysis of Financial Condition 12
+and Results of Operations...................................
+Item 7A. Quantitative and Qualitative Disclosures about Market 18
+Risk........................................................
+Item 8. Financial Statements and Supplemental Data.................. 22
+Item 9. Changes in and Disagreements with Accountants on Accounting 44
+and Financial Disclosure....................................
+PART III
+(Except for the information set forth under "Executive
+Officers of the Registrant" in Item I above, Part III is
+incorporated by reference from the Proxy Statement for the
+NIKE, Inc. 2001 annual meeting of shareholders.)
+Item 10. Directors and Executive Officers of the Registrant.......... 44
+Item 11. Executive Compensation...................................... 44
+Item 12. Security Ownership of Certain Beneficial Owners and 44
+Management..................................................
+Item 13. Certain Relationships and Related Transactions.............. 44
+PART IV
+Item 14. Exhibits, Financial Statement Schedules and Reports on Form 45
+8-K.........................................................
+SIGNATURES............................................................ S-1
+i
+3
+PART I
+ITEM 1. BUSINESS
+GENERAL
+NIKE, 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 the context
+indicates otherwise.
+Our principal business activity involves the design, development and
+worldwide marketing of high quality footwear, apparel, equipment, and accessory
+products. NIKE is the largest seller of athletic footwear and athletic apparel
+in the world. We sell our products to approximately 17,000 retail accounts in
+the United States and through a mix of independent distributors, licensees and
+subsidiaries in approximately 140 countries around the world. Virtually all of
+our products are manufactured by independent contractors. Virtually all footwear
+products are produced outside the United States, while apparel products are
+produced both in the United States and abroad.
+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 innovative design. Running, basketball, children's, cross-training and
+women's shoes are currently our top-selling product categories and we expect
+them to continue to lead in product sales in the near future. However, we also
+market shoes designed for outdoor activities, tennis, golf, soccer, baseball,
+football, bicycling, volleyball, wrestling, cheerleading, aquatic activities,
+hiking, and other athletic and recreational uses.
+We sell active sports apparel covering most of the above categories,
+athletically inspired lifestyle apparel, as well as athletic bags and accessory
+items. NIKE apparel and accessories are designed to complement our athletic
+footwear products, 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,
+including sport balls, timepieces, eyewear, skates, bats, gloves, and other
+equipment designed for sports activities. We also have agreements for licensees
+to produce and sell NIKE brand swimwear, women's sports bras, cycling apparel,
+children's clothing, posters, school supplies, and electronic media devices.
+We also sell a line of dress and casual footwear and accessories for men,
+women and children under the brand name Cole Haan(R) through our wholly-owned
+subsidiary, Cole Haan Holdings Incorporated, headquartered in Maine. We also
+sell small amounts of various plastic products to other manufacturers through
+our wholly-owned subsidiary, NIKE IHM, Inc.
+Our wholly-owned subsidiary, Bauer NIKE Hockey Inc., headquartered in
+Greenland, New Hampshire, manufactures and distributes ice skates, skate blades,
+in-line roller skates, protective gear, hockey sticks, and hockey jerseys and
+accessories under the Bauer(R) and NIKE(R) brand names. Bauer also offers a full
+selection of products for street, roller and field hockey.
+1
+4
+SALES AND MARKETING
+The table below shows certain information regarding NIKE's United States
+and international (non-U.S.) revenues for the last three fiscal years.
+MAY 31, 2001 2000 % CHG 1999 % CHG
+------- -------- -------- ----- -------- -----
+(IN MILLIONS)
+USA Region
+Footwear................................ $3,208.9 $3,351.2 (4.2)% $3,244.6 3.3%
+Apparel................................. 1,260.3 1,154.4 9.2% 1,293.4 (10.7)%
+Equipment and other..................... 349.8 226.5 54.4% 212.7 6.5%
+-------- -------- ----- -------- -----
+Total USA....................... 4,819.0 4,732.1 1.8% 4,750.7 (0.4)%
+-------- -------- ----- -------- -----
+Europe, Middle East & Africa (EMEA) Region
+Footwear................................ 1,422.8 1,309.4 8.7% 1,207.3 8.5%
+Apparel................................. 976.3 933.9 4.5% 917.7 1.8%
+Equipment and other..................... 185.7 163.7 13.4% 168.8 (3.0)%
+-------- -------- ----- -------- -----
+Total Europe.................... 2,584.8 2,407.0 7.4% 2,293.8 4.9%
+-------- -------- ----- -------- -----
+Asia Pacific Region
+Footwear................................ 632.4 557.0 13.5% 455.3 22.3%
+Apparel................................. 374.8 321.0 16.8% 319.8 0.4%
+Equipment and other..................... 102.8 77.1 33.3% 69.4 11.1%
+-------- -------- ----- -------- -----
+Total Asia Pacific.............. 1,110.0 955.1 16.2% 844.5 13.1%
+-------- -------- ----- -------- -----
+Americas Region
+Footwear................................ 359.6 343.9 4.6% 311.2 10.5%
+Apparel................................. 152.2 137.7 10.5% 146.2 (5.8)%
+Equipment and other..................... 27.3 12.5 118.4% 11.7 6.8%
+-------- -------- ----- -------- -----
+Total Americas.................. 539.1 494.1 9.1% 469.1 5.3%
+-------- -------- ----- -------- -----
+Total NIKE brand.......................... 9,052.9 8,588.3 5.4% 8,358.1 2.8%
+-------- -------- ----- -------- -----
+Other brands.............................. 435.9 406.8 7.2% 418.8 (2.9)%
+-------- -------- ----- -------- -----
+Total Revenues............................ $9,488.8 $8,995.1 5.5% $8,776.9 2.5%
+======== ======== ===== ======== =====
+Financial information about geographic and segment operations appears in
+Note 16 of the consolidated financial statements on page 41.
+We experience moderate fluctuations in aggregate sales volume during the
+year. However, the mix of product sales may vary considerably from time to time
+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 fitness activities and changing design trends affect the
+demand for our products. We must therefore respond to trends and shifts in
+consumer preferences by adjusting the mix of existing product offerings,
+developing new products, styles and categories, and influencing sports and
+fitness preferences through aggressive marketing. This is a continuing risk.
+Failure to timely and adequately respond could have a material adverse affect on
+our sales and profitability.
+UNITED STATES MARKET
+During fiscal 2001, sales in the United States accounted for approximately
+54 percent of total revenues, compared to 56 percent in fiscal 2000 and 57
+percent in fiscal 1999. We sell to approximately 17,000 retail accounts in the
+United States. The NIKE brand domestic retail account base includes a mix of
+department stores, footwear stores, sporting goods stores, skating, tennis and
+golf shops, and other retail accounts. During fiscal year 2001, our three
+largest customers accounted for approximately 29 percent of NIKE brand sales in
+the United States, and 27 percent of total sales in the United States.
+2
+5
+We make substantial use of our "futures" ordering program, which allows
+retailers to order five to six months in advance of delivery with the guarantee
+that 90 percent of their orders will be delivered within a set time period at a
+fixed price. In fiscal year 2001, 86 percent of our U.S. footwear shipments
+(excluding Cole Haan and Bauer) were made under the futures program, compared to
+90 percent in fiscal 2000 and 91 percent in fiscal 1999. In fiscal 2001, 78
+percent of our U.S. apparel shipments were made under the futures program,
+compared to 82 percent in fiscal 2000, and 80 percent in 1999.
+We utilize 16 NIKE sales offices to solicit sales in the United States. We
+also utilize 30 independent sales representatives to sell specialty products for
+golf, cycling, water sports and outdoor activities. In addition, we operate the
+following retail outlets in the United States:
+RETAIL STORES NUMBER
+------------- ------
+NIKE factory stores (which carry primarily B-grade and
+close-out merchandise).................................... 81
+NIKE stores................................................. 2
+NIKETOWNs (designed to showcase NIKE products).............. 13
+Employee-only stores........................................ 4
+Cole Haan stores (including factory and employee stores).... 57
+---
+Total............................................. 157
+===
+NIKE's domestic distribution centers for footwear are located in Beaverton,
+Oregon, Wilsonville, Oregon, Memphis, Tennessee, and Greenland, New Hampshire.
+Apparel products are shipped from the Memphis distribution center. Cole Haan
+footwear and Bauer NIKE Hockey products are distributed primarily from
+Greenland, New Hampshire, and licensed team apparel is shipped from Foothill
+Ranch, California.
+INTERNATIONAL MARKETS
+We currently market our products in approximately 140 countries outside of
+the United States through independent distributors, licensees, subsidiaries and
+branch offices. Non-U.S. sales accounted for 46 percent of total revenues in
+fiscal 2001, compared to 44 percent in fiscal 2000 and 43 percent in fiscal
+1999. We operate 19 distribution centers in Europe, Asia, Australia, Latin
+America, and Canada, and also distribute through independent distributors and
+licensees. We estimate that our products are sold through more than 30,000
+retail accounts outside the United States. In many countries and regions,
+including Japan, Canada, Asia, Latin America, and Europe, we have a futures
+ordering program for retailers similar to the United States futures program
+described above. NIKE's three largest customers outside of the U.S. accounted
+for approximately 10 percent of non-U.S. sales.
+We operate 111 retail outlets outside the United States, which are
+comprised of NIKETOWNs, factory stores, employee stores, and Cole Haan stores.
+International branch offices and subsidiaries of NIKE are located in
+Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, Croatia, Czech
+Republic, Denmark, Finland, France, Germany, Hong Kong, Hungary, Indonesia,
+India, Ireland, Italy, Japan, Korea, Malaysia, Mexico, New Zealand, The
+Netherlands, Norway, Peoples Republic of China, The Philippines, Poland,
+Portugal, Singapore, Slovenia, South Africa, Spain, Sweden, Switzerland, Taiwan,
+Thailand, Turkey, the United Kingdom, and Vietnam.
+SIGNIFICANT CUSTOMERS
+Venator Group Inc., which operates a chain of retail stores specializing in
+athletic footwear and apparel, accounted for approximately 12 percent of global
+net sales of NIKE brand products during fiscal 2001. No other customer accounted
+for 10 percent or more of our net sales during fiscal 2001.
+ORDERS
+As of May 31, 2001, our worldwide futures orders for NIKE brand athletic
+footwear and apparel totaled $4.3 billion, compared to $4.2 billion as of May
+31, 2000. These orders are scheduled for delivery from June
+3
+6
+through November of 2001. Based upon historical data, we expect that
+approximately 95 percent of these orders will be filled in that time period,
+although the orders may be cancelable.
+PRODUCT RESEARCH AND DEVELOPMENT
+We believe that 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 strives to
+produce products that reduce or eliminate injury, aid athletic performance and
+maximize comfort.
+In addition to NIKE's own staff of specialists in the areas of
+biomechanics, 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 and concepts for
+product improvement. Employee athletes wear-test and evaluate products during
+the design and development process.
+MANUFACTURING
+In fiscal 2001, approximately five percent of total NIKE brand apparel
+production for sale to the United States market was manufactured in the United
+States by independent contract manufacturers, most of which are located in the
+southern states. The remainder was manufactured by independent contractors
+located in 28 countries. Most of this apparel production occurred in Bangladesh,
+China, Hong Kong, India, Indonesia, Malaysia, Mexico, Pakistan, The Philippines,
+Sri Lanka, Taiwan, and Thailand. Substantially all of our apparel production for
+sale to the international market was manufactured outside the U.S. Our largest
+single apparel supplier accounted for approximately eight percent of total
+fiscal 2001 apparel production.
+Virtually all of our footwear is produced outside of the United States. In
+fiscal 2001, contract suppliers in the following countries manufactured the
+following percentages of total NIKE brand footwear:
+COUNTRY PERCENT
+------- -------
+People's Republic of China.................................. 40
+Indonesia................................................... 31
+Vietnam..................................................... 13
+Thailand.................................................... 13
+Italy....................................................... 1
+Taiwan...................................................... 1
+South Korea................................................. 1
+We also have manufacturing agreements with independent factories in Argentina,
+Brazil, Mexico, South Africa, and Zimbabwe, to manufacture footwear for sale
+within those countries. Our largest single footwear supplier accounted for
+approximately 6 percent of total fiscal 2001 footwear 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. NIKE
+IHM, Inc., a wholly-owned subsidiary of NIKE, is our sole supplier 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 and its contractors
+and suppliers buy raw materials in bulk. Most raw materials are available in the
+countries where manufacturing takes place. We have thus far experienced little
+difficulty in satisfying our raw material requirements.
+Our international operations are subject to the usual risks of doing
+business abroad, such as possible revaluation of currencies, export duties,
+quotas, restrictions on the transfer of funds and, in certain parts of the
+world, political instability. See "Trade Legislation" below. We have not, to
+date, been materially affected by any such risk, but cannot predict the
+likelihood of such developments occurring. We believe that we have the ability
+to develop, over a period of time, adequate alternative sources of supply for
+the products obtained from
+4
+7
+our present suppliers outside of the United States. If events prevented us from
+acquiring products from our suppliers in a particular country, our footwear
+operations could be temporarily disrupted and we could experience an adverse
+financial impact. However, we believe that we could eliminate any such
+disruption within a period of no more than 12 months, and that any adverse
+impact would, therefore, be of a short-term nature. We believe that our
+principal competitors are subject to similar risks.
+All of our products manufactured overseas and imported into the United
+States and other countries are subject to duties collected by customs
+authorities. Customs information submitted by us is routinely subject to review
+by customs authorities. We are unable to predict whether additional customs
+duties, quotas or other restrictions may be imposed on the importation of our
+products in the future. The enactment of any such duties, quotas or restrictions
+could result in increases in the cost of our products generally and might
+adversely affect the sales or profitability of NIKE and the imported footwear
+and apparel industry as a whole.
+Since 1972, Nissho Iwai American Corporation ("NIAC"), a subsidiary of
+Nissho Iwai Corporation, a large Japanese trading company, has performed
+significant import-export financing services for us. Currently, NIAC provides
+such financing services with respect to more than 80 percent of the NIKE
+products sold outside of the United States, Europe and Japan. Any failure of
+NIAC to provide these services could disrupt our ability to acquire products
+from our suppliers and to deliver products to our customers outside of the
+United States, Europe and Japan. If prolonged, such a disruption could result in
+cancelled orders that would adversely affect sales and profitability. 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 NIAC expire on May 31, 2003.
+TRADE LEGISLATION
+Our non-U.S. operations are subject to the usual risks of doing business
+abroad, such as the imposition of import quotas or anti-dumping duties. In 1994,
+the European Union ("EU") Commission imposed quotas on certain types of footwear
+manufactured in China. These quotas replaced national quotas that had previously
+been in effect in several Member States. Footwear designed for use in sporting
+activities, meeting certain technical criteria and having a CIF (cost, insurance
+and freight) price above 9 euros ("Special Technology Athletic Footwear" or
+"STAF"), is excluded from the quotas. As a result of the STAF exclusion, and the
+amount of quota made available to us, the quotas have not, to date, had a
+material effect on our business.
+In 1995, the EU Commission, at the request of European footwear
+manufacturers, initiated two anti-dumping investigations covering footwear
+imported from the People's Republic of China, Indonesia and Thailand. As a
+result, in October 1997 the Commission imposed definitive anti-dumping duties on
+certain textile upper footwear imported from China and Indonesia. In February
+1998, the Commission imposed definitive anti-dumping duties on certain synthetic
+and leather upper footwear originating in China, Indonesia and Thailand. In the
+case of textile upper footwear, the anti-dumping duties do not cover sports
+footwear. In the case of synthetic and leather upper footwear, the anti-dumping
+duties do not cover footwear meeting the STAF technical criteria and with a CIF
+price above 5.7 euros. As a result, the anti-dumping duties for synthetic and
+leather upper footwear apply only to low cost footwear. In our case, these
+duties primarily affect children's shoes and low cost sandals. While the
+exclusions are subject to some interpretation by customs authorities, we believe
+that most of our footwear sourced in the target countries for sale in the EU
+fits within the exclusions. We have also shifted the production of these types
+of footwear to other countries. Accordingly, the anti-dumping duties have not
+had a material effect on our business.
+While we have no reason to believe that the sports footwear exclusions from
+the quotas (which will remain in place through 2004) and anti-dumping duties
+will be eliminated, the EU Commission in June 2000 issued an amendment to the
+explanatory notes to the EU's customs nomenclature ("CN"). The amendment, which
+is not legally binding, interprets some of the technical criteria for the STAF
+exclusion and the footwear types that can be classified as for use in sporting
+activity. The amendment could restrict the scope of the STAF exclusion from the
+quotas and also the sports footwear exclusions from the two EU anti-dumping
+measures. In addition, the Commission has altered its administration of the
+quota system in a manner that
+5
+8
+would preclude national customs authorities from opting to grant the exclusion
+to certain other footwear types, notably sandals.
+We cannot assess the full impact of the amendment to the CN explanatory
+notes until the national customs administrations clarify their national
+application of its non-binding provisions. In the meantime, we are assessing the
+legal issues relating to both the Commission's action in issuing the amendment
+and its related administrative action concerning other footwear originating in
+China. We will closely monitor further developments and will seek, by individual
+action and through relevant trade associations, to prevent interpretations and
+administrative measures that would subject a greater portion of our products to
+the quotas and anti-dumping duties.
+If the EU trade measures become substantially more restrictive as a result
+of the recent Commission measures, we would recommend that our European
+subsidiaries consider, in addition to possible legal remedies, shifting the
+production of such footwear to other countries in order to maintain competitive
+pricing. We believe that we are prepared to deal effectively with any such
+change of circumstances and that any adverse impact would be of a temporary
+nature. We continue to closely monitor international restrictions and maintain
+our multi-country sourcing strategy and contingency plans. We believe that our
+major competitors stand in much the same position regarding these trade
+measures.
+The People's Republic of China ("China") is a material source of footwear
+production for NIKE. As part of China's bid to join the World Trade Organization
+("WTO"), and after the United States and China reached a comprehensive trade
+agreement, former President Clinton submitted legislation to Congress which
+would grant permanent non-discriminatory "normal trade relations" ("NTR",
+formerly "most favored nation") trading status to China. In 2000, Congress
+approved the legislation, but because China had not finished its accession
+negotiations with the WTO, in June 2001 President Bush extended NTR to China on
+an annual basis. That decision was recently supported by Congress. Once China
+completes the terms of accession to the WTO, Congress has provided the President
+with the authority to grant China permanent NTR. Bringing China into the WTO and
+providing permanent NTR to China will eventually reduce barriers to producing
+products in, exporting products from, and marketing and selling products within
+China.
+We are also currently sourcing footwear and apparel products from factories
+in Vietnam. From 1995 to 1998, former President Clinton took several steps to
+normalize economic and diplomatic relations between the United States and
+Vietnam. The President's actions were steps toward restoration of full trade
+relations which includes the United States granting non-discriminatory NTR
+trading status to Vietnam which would result in lower tariffs between the two
+countries. In July 2000, the United States and Vietnam signed a comprehensive
+bilateral trade agreement, which would, among other things, provide reciprocal
+NTR between the two countries. In June 2001, that agreement was submitted to
+Congress for consideration. If approved by the U.S. Congress and the Vietnamese
+National Assembly, the United States will grant an annual extension of NTR to
+Vietnam. This grant must be renewed annually by the President and reviewed by
+the Congress. We currently believe that Congress will consider the trade
+agreement by the end of this calendar year. If Congress approves the trade
+agreement, the grant of NTR trading status for Vietnam could expand our
+production and marketing opportunities in Vietnam and allow for Vietnamese
+sourced product to enter the United States at NTR tariff rates.
+COMPETITION
+The athletic footwear, apparel and equipment industry is keenly competitive
+in the United States and on a worldwide basis. We compete internationally with
+an increasing number of athletic and leisure shoe companies, athletic and
+leisure apparel companies, sports equipment companies, and large companies
+having diversified lines of athletic and leisure shoes, apparel and equipment,
+including Reebok, Adidas and 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 and athletic apparel in the
+world. Performance and reliability of shoes, apparel, and equipment, new product
+development, price, product identity through
+6
+9
+marketing and promotion, and customer support and service are important aspects
+of competition in the athletic footwear, apparel and equipment industry. To help
+market our products, we contract with prominent and influential 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 are competitive in all of these areas.
+TRADEMARKS AND PATENTS
+We utilize trademarks on nearly all of our products and believe that having
+distinctive marks that are readily identifiable is an important factor in
+creating a market for our goods, in identifying the Company, and in
+distinguishing our goods from the goods of others. We consider our NIKE(R) and
+Swoosh Design(R) trademarks to be among our most valuable assets and we have
+registered these trademarks in over 100 countries. In addition, we own many
+other trademarks which we utilize in marketing our products. We continue to
+vigorously protect our trademarks against infringement.
+NIKE has an exclusive, worldwide license to make and sell footwear using
+patented "Air" technology. The process utilizes pressurized gas encapsulated in
+polyurethane. Some of the early NIKE AIR(R) patents have expired, which may
+enable competitors to use certain types of like technology. Subsequent NIKE AIR
+patents will not expire for several years. We also have a number of patents
+covering components and features used in various athletic and leisure shoes. We
+believe that our success 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 filing applications for United States and
+foreign patents on inventions, designs and improvements that we deem valuable.
+EMPLOYEES
+We had approximately 22,700 employees at May 31, 2001. Management considers
+its relationship with employees to be excellent. With the exception of Bauer
+NIKE Hockey Inc., our employees are not represented by a union. Of Bauer NIKE
+Hockey's North American employees, approximately 65 percent, or fewer than 450,
+are covered by three union collective bargaining agreements with three separate
+bargaining units, and of Bauer NIKE Hockey's approximately 170 employees in
+Italy, approximately 30 percent, or fewer than 50, are covered by three
+collective bargaining agreements. The collective bargaining agreements expire on
+various dates from 2001 through 2003. There has never been a material
+interruption of operations due to labor disagreements.
+EXECUTIVE OFFICERS OF THE REGISTRANT
+The executive officers of NIKE as of July 25, 2001 are as follows:
+Philip H. Knight, Chief Executive Officer, Chairman of the Board, and
+President -- Mr. Knight, 63, a director since 1968, is a co-founder of NIKE and,
+except for the period from June 1983 through September 1984, served as its
+President from 1968 to 1990, and from June 2000 to present. Prior to 1968, Mr.
+Knight was a certified public accountant with Price Waterhouse and Coopers &
+Lybrand and was an Assistant Professor of Business Administration at Portland
+State University.
+Donald W. Blair, Vice President and Chief Financial Officer -- Mr. Blair,
+43, joined NIKE in November 1999. Prior to joining NIKE, he held a number of
+financial management positions with Pepsico, Inc., including Vice President,
+Finance of Pepsi-Cola Asia, Vice President, Planning of PepsiCo's Pizza Hut
+Division, and Senior Vice President, Finance of The Pepsi Bottling Group, Inc.
+Prior to joining Pepsico, Mr. Blair was a certified public accountant with
+Deloitte, Haskins, and Sells.
+Thomas E. Clarke, President of New Ventures -- Dr. Clarke, 50, a director
+since 1994, joined the Company in 1980. He was appointed divisional Vice
+President in charge of marketing in 1987, elected corporate Vice President in
+1989, appointed General Manager in 1990, and served as President and Chief
+Operating Officer from 1994 to 1999. Dr. Clarke previously held various
+positions with the Company, primarily in research, design, development and
+marketing. Dr. Clarke holds a doctorate degree in biomechanics.
+7
+10
+Charles D. Denson, President of the NIKE Brand -- Mr. Denson, 45, has been
+employed by NIKE since February 1979. Mr. Denson held several positions within
+the Company, including his appointments as Director of USA Apparel Sales in
+1994, divisional Vice President, US Sales in 1994, divisional Vice President
+European Sales in 1997, divisional Vice President and General Manager, NIKE
+Europe in 1998, Vice President and General Manager of NIKE USA in June 2000, and
+President of the NIKE Brand in March 2001.
+Gary M. DeStefano, President of USA Operations -- Mr. DeStefano, 44, has
+been employed by NIKE since 1982, with primary responsibilities in sales and
+regional administration. Mr. DeStefano was appointed Director of Domestic Sales
+in 1990, divisional Vice President in charge of domestic sales in 1992, Vice
+President of Global Sales in 1996, Vice President and General Manager of Asia
+Pacific in March 1997, and President of USA Operations in March 2001.
+Mindy F. Grossman, Vice President of Global Apparel -- Ms. Grossman, 43,
+joined NIKE in October 2000. Prior to joining NIKE, she was President and Chief
+Executive Officer of Polo Jeans Company/Ralph Lauren, a division of Jones
+Apparel Group, from 1995 to 2000. Prior to that, Ms. Grossman was Vice President
+of New Business Development at Polo Ralph Lauren Corp. from 1994 to 1995,
+President of The Warnaco Group Inc. Chaps Ralph Lauren division, and Senior Vice
+President of The Warnaco Group Inc. Menswear division from 1991 to 1994.
+P. Eunan McLaughlin, Vice President, Asia Pacific -- Mr. McLaughlin, 43,
+joined NIKE as Vice President Sales, NIKE Europe in February 1999, was appointed
+Vice President Commercial Sales and Retail in February 2000. and became Vice
+President, Asia Pacific in June 2001. Prior to joining NIKE, he was Partner and
+Vice President of Consumer & Retail Practices Division, Korn/Ferry International
+from 1996 to 1999. From 1985 to 1996 Mr. McLaughlin held the following positions
+with Mars, Inc.: Finance Director, Sales Director, and Managing Director of
+Germany Drink Division; Operations Director of Pedigree Pet Foods; and European
+Sales & Marketing Director. Mr. McLaughlin also worked for Reynolds McCarron
+(formerly Ernst & Young) in Ireland.
+Mark G. Parker, President of the NIKE Brand -- Mr. Parker, 44, has been
+employed by NIKE since 1979 with primary responsibilities in product research,
+design and development. Mr. Parker was appointed divisional Vice President in
+charge of development in 1987, corporate Vice President in 1989, General Manager
+in 1993, Vice President of Global Footwear in 1998, and President of the NIKE
+Brand in March 2001.
+Eric D. Sprunk, Vice President, Global Footwear -- Mr. Sprunk, 37, joined
+the Company in 1993. He was appointed Finance Director and General Manager of
+the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General
+Manager, NIKE Europe Footwear in 1998, and Vice President & General Manager of
+the Americas in 2000. Mr. Sprunk was appointed Vice President, Global Footwear
+in June 2001.
+Lindsay D. Stewart, Vice President and Chief of Staff, and Assistant
+Secretary -- Mr. Stewart, 54, joined NIKE as Assistant Corporate Counsel in
+1981. Mr. Stewart became Corporate Counsel in 1983. He was appointed Vice
+President and General Counsel in 1991, and Chief of Staff in March 2001. Prior
+to joining NIKE, Mr. Stewart was in private practice and an attorney for
+Georgia-Pacific Corporation.
+Frits D. van Paasschen, Vice President and General Manager, NIKE
+Europe -- Mr. van Paasschen, 40, has been employed by NIKE since 1997. He served
+as Vice President, Strategic Planning, and was appointed Vice President and
+General Manager, The Americas and Africa in 1998, and corporate Vice President
+and General Manager, NIKE Europe in 2000. Mr. van Paasschen was formerly Vice
+President, Finance & Planning, Disney Consumer Products, The Walt Disney
+Company.
+8
+11
+ITEM 2. PROPERTIES
+Following is a summary of principal properties owned or leased by NIKE. Our
+leases expire at various dates through the year 2017.
+U.S. ADMINISTRATIVE OFFICES: DISTRIBUTION FACILITIES:
+Beaverton, Oregon (9 locations) -- 8 leased Greenland, New Hampshire -- leased
+Wilsonville, Oregon Wilsonville, Oregon
+Memphis, Tennessee (2 locations) -- 1 leased Forest Park, Georgia
+Yarmouth, Maine Memphis, Tennessee (2 locations) -- 1 leased
+Charlotte, North Carolina -- leased Foothill Ranch, California -- leased
+Canada (2 locations) -- leased
+INTERNATIONAL ADMINISTRATIVE OFFICES: Europe (3 locations) -- 2 leased
+Canada (4 locations) -- leased Asia Pacific (12 locations) -- 10 leased
+Europe (18 locations) -- leased Latin America (2 locations) -- leased
+Asia Pacific (16 locations) -- leased
+Latin America (5 locations) -- leased INTERNATIONAL PRODUCTION OFFICES:
+Africa (2 locations) -- leased Europe (2 locations) -- leased
+Latin America (2 locations) -- leased
+SALES OFFICES AND SHOWROOMS: Asia Pacific (27 locations) -- leased
+United States (23 locations) -- leased
+Canada (4 locations) -- leased MANUFACTURING FACILITIES:
+Europe (26 locations) -- leased United States (3 locations) -- 1 leased
+Asia Pacific (17 locations) -- leased Canada (3 locations) -- 2 leased
+Latin America (7 locations) -- leased Europe (2 locations) -- leased
+Africa (2 locations) -- leased Asia Pacific (1 location) -- owned
+RETAIL OUTLETS:
+United States (157 locations) -- 154 leased
+Canada (7 locations) -- leased
+Europe (34 locations) -- leased
+Asia Pacific (57 locations) -- leased
+Latin America (13 locations) -- leased
+ITEM 3. LEGAL PROCEEDINGS
+Except as described below, there are no material pending legal proceedings,
+other than ordinary routine litigation incidental to our business, to which we
+are a party or of which any of our property is the subject.
+The Company and certain of its officers and directors were named as
+defendants in four substantially identical securities class actions filed in the
+U.S. District Court for the District of Oregon on March 9, 14, 20, and April 4,
+2001. On July 23, 2001, the cases were consolidated as In re NIKE, Inc.
+Securities Litigation, CV-01-332-K. The consolidated amended complaint seeks
+unspecified damages on behalf of a purported class consisting of purchasers of
+the Company's stock during the period December 20, 2000 through February 26,
+2001. Plaintiffs allege that the defendants made false and misleading statements
+about the Company's actual and expected business and financial performance in
+violation of federal securities laws. Plaintiffs further allege that certain
+individual defendants sold Company stock while in possession of material
+non-public information. While the litigation is in a very preliminary stage,
+based on the available information we do not currently anticipate that the
+action will have a material financial impact. We believe the claims are without
+merit, and we intend to vigorously defend them.
+A related shareholder derivative lawsuit, Metivier v. Denunzio, et al.,
+0104-04339, was filed in the Multnomah County Circuit Court of the State of
+Oregon on April 26, 2001. The derivative suit was brought by certain Company
+shareholders, allegedly on behalf of the Company, against certain directors and
+officers of the Company. The derivative plaintiffs allege that these officers
+and directors breached their fiduciary duties to the Company by making or
+causing to be made alleged misstatements about the Company's actual and expected
+financial performance while certain officers and directors sold Company stock
+and by allowing the Company to be sued in the shareholder class action. The
+derivative plaintiffs seek compensatory and other
+9
+12
+damages, and disgorgement of compensation received. On July 25, 2001, the Court
+entered a stipulation and order abating the action until further notice.
+In accordance with the Company's Articles of Incorporation and Bylaws, and
+in accordance with indemnity agreements between the Company and the directors
+and officers named in the legal actions, the Company has agreed to indemnify
+these individuals and assume their defense in the actions.
+ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
+No matter was submitted during the fourth quarter of the 2001 fiscal year
+to a vote of security holders, through the solicitation of proxies or otherwise.
+PART II
+ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
+NIKE's Class B Common Stock is listed on the New York Stock Exchange and
+the Pacific Stock Exchange and trades under the symbol NKE. At July 25, 2001,
+there were approximately 19,500 holders of record of our Class B Common Stock
+and 27 holders of record of our Class A Common Stock. These figures do not
+include beneficial owners who hold shares in nominee name. The Class A Common
+Stock is not publicly traded but each share is convertible upon request of the
+holder into one share of Class B Common Stock.
+We refer to the table entitled "Selected Quarterly Financial Data" in Item
+6, which lists, for the periods indicated, the range of high and low closing
+sales prices on the New York Stock Exchange. That table also describes the
+amount and frequency of all cash dividends declared on our common stock for the
+2001 and 2000 fiscal years.
+10
+13
+ITEM 6. SELECTED FINANCIAL DATA
+FINANCIAL HISTORY
+(IN MILLIONS, EXCEPT PER SHARE DATA, FINANCIAL RATIOS AND NUMBER OF
+SHAREHOLDERS)
+2001 2000 1999 1998 1997 1996 1995 1994
+--------- --------- --------- --------- --------- --------- -------- --------
+YEAR ENDED MAY 31,
+Revenues....................... $ 9,488.8 $ 8,995.1 $ 8,776.9 $ 9,553.1 $ 9,186.5 $ 6,470.6 $4,760.8 $3,789.7
+Gross margin................... 3,703.9 3,591.3 3,283.4 3,487.6 3,683.5 2,563.9 1,895.6 1,488.2
+Gross margin %................. 39.0% 39.9% 37.4% 36.5% 40.1% 39.6% 39.8% 39.3%
+Restructuring charge, net...... 0.1 (2.5) 45.1 129.9 -- -- -- --
+Net income..................... 589.7 579.1 451.4 399.6 795.8 553.2 399.7 298.8
+Basic earnings per common
+share......................... 2.18 2.10 1.59 1.38 2.76 1.93 1.38 1.00
+Diluted earnings per common
+share......................... 2.16 2.07 1.57 1.35 2.68 1.88 1.36 0.99
+Average common shares
+outstanding................... 270.0 275.7 283.3 288.7 288.4 286.6 289.6 298.6
+Diluted average common shares
+outstanding................... 273.3 279.4 288.3 295.0 297.0 293.6 294.0 301.8
+Cash dividends declared per
+common share.................. 0.48 0.48 0.48 0.46 0.38 0.29 0.24 0.20
+Cash flow from operations...... 656.5 699.6 941.4 517.5 323.1 339.7 254.9 576.5
+Price range of common stock
+High.......................... 59.438 64.125 65.500 64.125 76.375 52.063 20.156 18.688
+Low........................... 35.188 26.563 31.750 37.750 47.875 19.531 14.06 3 10.781
+AT MAY 31,
+Cash and equivalents........... $ 304.0 $ 254.3 $ 198.1 $ 108.6 $ 445.4 $ 262.1 $ 216.1 $ 518.8
+Inventories.................... 1,424.1 1,446.0 1,170.6 1,396.6 1,338.6 931.2 629.7 470.0
+Working capital................ 1,838.6 1,456.4 1,818.0 1,828.8 1,964.0 1,259.9 938.4 1,208.4
+Total assets................... 5,819.6 5,856.9 5,247.7 5,397.4 5,361.2 3,951.6 3,142.7 2,373.8
+Long-term debt................. 435.9 470.3 386.1 379.4 296.0 9.6 10.6 12.4
+Redeemable Preferred Stock..... 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
+Shareholders' equity........... 3,494.5 3,136.0 3,334.6 3,261.6 3,155.9 2,431.4 1,964.7 1,740.9
+Year-end stock price........... 41.100 42.875 60.938 46.000 57.500 50.188 19.719 14.750
+Market capitalization.......... 11,039.5 11,559.1 17,202.2 13,201.1 16,633.0 14,416.8 5,635.2 4,318.8
+FINANCIAL RATIOS:
+Return on equity............... 17.8% 17.9% 13.7% 12.5% 28.5% 25.2% 21.6% 17.7%
+Return on assets............... 10.1% 10.4% 8.5% 7.4% 17.1% 15.6% 14.5% 13.1%
+Inventory turns................ 4.0 4.1 4.3 4.4 4.8 5.0 5.2 4.3
+Current ratio at May 31........ 2.0 1.7 2.3 2.1 2.1 1.9 1.8 3.2
+Price/Earnings ratio at May 31
+(Diluted)..................... 19.0 20.7 38.8 34.1 21.5 26.6 14.5 14.9
+GEOGRAPHIC REVENUES:
+United States.................. $ 5,144.2 $ 5,017.4 $ 5,042.6 $ 5,460.0 $ 5,538.2 $ 3,964.7 $2,997.9 $2,432.7
+Europe......................... 2,584.8 2,407.0 2,293.8 2,096.1 1,789.8 1,334.3 980.4 927.3
+Asia/Pacific................... 1,110.0 955.1 844.5 1,253.9 1,241.9 735.1 515.6 283.4
+Americas (exclusive of United
+States)....................... 649.8 615.6 596.0 743.1 616.6 436.5 266.9 146.3
+--------- --------- --------- --------- --------- --------- -------- --------
+TOTAL REVENUES................. $ 9,488.8 $ 8,995.1 $ 8,776.9 $ 9,553.1 $ 9,186.5 $ 6,470.6 $4,760.8 $3,789.7
+========= ========= ========= ========= ========= ========= ======== ========
+1993 1992 1991
+-------- -------- --------
+YEAR ENDED MAY 31,
+Revenues....................... $3,931.0 $3,405.2 $3,003.6
+Gross margin................... 1,544.0 1,316.1 1,153.1
+Gross margin %................. 39.3% 38.7% 38.4%
+Restructuring charge, net...... -- -- --
+Net income..................... 365.0 329.2 287.0
+Basic earnings per common
+share......................... 1.20 1.09 0.96
+Diluted earnings per common
+share......................... 1.18 1.07 0.94
+Average common shares
+outstanding................... 302.9 301.7 300.4
+Diluted average common shares
+outstanding................... 308.3 306.4 304.3
+Cash dividends declared per
+common share.................. 0.19 0.15 0.13
+Cash flow from operations...... 265.3 435.8 11.1
+Price range of common stock
+High.......................... 22.563 19.344 13.625
+Low........................... 13.750 8.781 6.500
+AT MAY 31,
+Cash and equivalents........... $ 291.3 $ 260.1 $ 119.8
+Inventories.................... 593.0 471.2 586.6
+Working capital................ 1,165.2 964.3 662.6
+Total assets................... 2,186.3 1,871.7 1,707.2
+Long-term debt................. 15.0 69.5 30.0
+Redeemable Preferred Stock..... 0.3 0.3 0.3
+Shareholders' equity........... 1,642.8 1,328.5 1,029.6
+Year-end stock price........... 18.125 14.500 9.938
+Market capitalization.......... 5,499.3 4,379.6 2,993.0
+FINANCIAL RATIOS:
+Return on equity............... 24.5% 27.9% 31.7%
+Return on assets............... 18.0% 18.4% 20.5%
+Inventory turns................ 4.5 3.9 4.1
+Current ratio at May 31........ 3.6 3.3 2.1
+Price/Earnings ratio at May 31
+(Diluted)..................... 15.3 13.5 10.5
+GEOGRAPHIC REVENUES:
+United States.................. $2,528.8 $2,270.9 $2,141.5
+Europe......................... 1,085.7 919.8 664.7
+Asia/Pacific................... 178.2 75.7 56.2
+Americas (exclusive of United
+States)....................... 138.3 138.8 141.2
+-------- -------- --------
+TOTAL REVENUES................. $3,931.0 $3,405.2 $3,003.6
+======== ======== ========
+11
+14
+All per common share data has been adjusted to reflect the 2-for-1 stock
+splits paid October 23, 1996, October 30, 1995 and October 5, 1990. The
+Company's Class B Common Stock is listed on the New York and Pacific Exchanges
+and trades under the symbol NKE. At May 31, 2001, there were approximately
+141,000 shareholders of Class A and Class B common stock.
+FINANCIAL HIGHLIGHTS
+(IN MILLIONS, EXCEPT PER SHARE DATA AND FINANCIAL RATIOS)
+YEAR ENDED MAY 31,
+-----------------------------
+2001 2000 % CHG
+-------- -------- -----
+Revenues.................................................... $9,488.8 $8,995.1 5.5%
+Gross margin................................................ 3,703.9 3,591.3 3.1%
+Gross margin %.............................................. 39.0% 39.9%
+Net income.................................................. 589.7 579.1 1.8%
+Basic earnings per common share............................. 2.18 2.10 3.8%
+Diluted earnings per common share........................... 2.16 2.07 4.3%
+Return on equity............................................ 17.8% 17.9%
+Stock price at May 31....................................... 41.100 42.875 (4.1)%
+SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
+(IN MILLIONS, EXCEPT PER SHARE DATA AND FINANCIAL RATIOS)
+1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
+------------------- ------------------- ------------------- -------------------
+2001 2000 2001 2000 2001 2000 2001 2000
+-------- -------- -------- -------- -------- -------- -------- --------
+Revenues...................... $2,636.7 $2,501.1 $2,198.7 $2,059.7 $2,170.1 $2,161.6 $2,483.3 $2,272.7
+Gross margin.................. 1,067.5 966.4 871.4 821.7 828.6 875.2 936.4 928.0
+Gross margin %................ 40.5% 38.6% 39.6% 39.9% 38.2% 40.5% 37.7% 40.8%
+Net income.................... 210.2 200.2 119.4 107.5 97.4 145.3 162.7 126.1
+Basic earnings per common
+share....................... 0.78 0.71 0.44 0.39 0.36 0.53 0.60 0.47
+Diluted earnings per common
+share....................... 0.77 0.70 0.44 0.38 0.35 0.52 0.60 0.46
+Average common shares
+outstanding................. 269.9 281.1 269.8 277.3 270.9 276.1 269.3 270.2
+Diluted average common shares
+outstanding................. 273.8 285.5 273.2 281.2 274.6 276.9 271.5 273.9
+Cash dividends declared per
+common share................ 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12
+Price range of common stock
+High........................ 48.000 64.125 44.500 58.750 59.438 52.813 45.090 46.563
+Low......................... 35.188 46.750 36.375 44.250 39.050 26.563 36.300 26.750
+ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
+OF OPERATIONS
+HIGHLIGHTS
+- Fiscal year 2001 revenues increased 5.5% to $9.5 billion, compared to
+$9.0 billion in fiscal year 2000.
+- Net income increased in fiscal year 2001 to $589.7 million from $579.1
+million in the prior year.
+- Fiscal year 2001 diluted earnings per share increased by 4.3%, from $2.07
+to $2.16.
+- Gross margins declined as a percentage of revenues to 39.0% from 39.9% in
+fiscal year 2000.
+- Selling and administrative expenses also declined as a percentage of
+revenues to 28.3% from 29.0% in fiscal year 2000.
+12
+15
+RESULTS OF OPERATIONS
+FISCAL 2001 COMPARED TO FISCAL 2000
+Net income increased 1.8% over fiscal 2000, from $579.1 million to $589.7
+million. Although consolidated revenues increased 5.5% over fiscal 2000, income
+before income taxes was essentially flat as pretax profit margins decreased due
+to a lower gross margin percentage, higher interest expense, and increased other
+operating expenses, partially offset by lower selling and administrative
+expenses as a percent of revenue. Despite flat income before income taxes, net
+income increased due to a lower effective tax rate. Diluted earnings per share
+increased 4.3%, from $2.07 to $2.16. The percentage increase in earnings per
+share was higher than that of net income primarily due to share repurchases in
+fiscal years 2000 and 2001.
+NIKE brand revenues in the United States region increased 1.8% as compared
+to fiscal 2000, while NIKE brand revenues in our international regions increased
+9.8%. Had the U.S. dollar remained constant with the prior year, these
+international revenues would have increased 18.6%, and consolidated revenues
+would have advanced 9.3%. In the United States region, our largest market
+segment, the 1.8% increase in revenues reflected a 9.2% increase in apparel
+sales and a 54.4% increase in equipment sales, offset by a 4.2% decrease in
+footwear sales. The increases in apparel and equipment reflected stronger demand
+for in-line products. The increase in the equipment product line reflected
+increases in a variety of sports equipment categories, including golf, football,
+and baseball products as well as socks, bags and eyewear. The decrease in
+footwear reflected lower demand, particularly in the mid-range price segment,
+and supply chain disruptions resulting from the implementation of a new global
+demand and supply planning system. The supply chain disruptions resulted in
+product excesses as well as product shortages and late deliveries in the second
+half of the fiscal year.
+In fiscal 2001, NIKE brand revenues from our international regions
+continued to grow, both as a percentage of total company revenues and in total
+dollars as compared to fiscal 2000. These revenues represented 44.6% of total
+company revenues as compared to 42.9% in fiscal 2000. Revenues from our
+international regions were $4.2 billion as compared to $3.9 billion in fiscal
+2000. Revenues in our Europe, Middle East, and Africa (EMEA) region increased
+for the seventh consecutive year. Fiscal 2001 revenues in EMEA increased over
+fiscal 2000 by 7.4% to $2,584.8 million, a 19.3% increase in constant dollars.
+In our Asia Pacific region, revenues grew 16.2%, a 20.8% increase in constant
+dollars. The Americas region grew revenues 9.1%, an 11.4% increase in constant
+dollars.
+In fiscal 2001, revenue from other brands increased 7.2% to $435.9 million.
+Worldwide futures and advance orders for NIKE brand athletic footwear and
+apparel scheduled for delivery from June through November 2001 were 3% higher
+than such orders booked in the comparable period of fiscal 2000. The percentage
+growth in these orders is not necessarily indicative of our expectation of
+revenue growth in subsequent periods. This is because the mix of orders can
+shift between advance/futures and at-once orders. In addition, exchange rate
+fluctuations as well as differing levels of order cancellations can cause
+differences in the comparisons between future orders and actual revenues.
+Finally, a significant portion of our revenues are not derived from futures
+orders, including those from our equipment product line, U.S. licensed team
+apparel product line, retail operations, and other brands, including Bauer NIKE
+Hockey and Cole Haan.
+13
+16
+The breakdown of revenues follows:
+MAY 31, 2001 2000 % CHG 1999 % CHG
+------- -------- -------- ----- -------- -----
+(IN MILLIONS)
+USA Region
+Footwear................................ $3,208.9 $3,351.2 (4.2)% $3,244.6 3.3%
+Apparel................................. 1,260.3 1,154.4 9.2% 1,293.4 (10.7)%
+Equipment and other..................... 349.8 226.5 54.4% 212.7 6.5%
+-------- -------- ----- -------- -----
+Total USA....................... 4,819.0 4,732.1 1.8% 4,750.7 (0.4)%
+-------- -------- ----- -------- -----
+EMEA Region
+Footwear................................ 1,422.8 1,309.4 8.7% 1,207.3 8.5%
+Apparel................................. 976.3 933.9 4.5% 917.7 1.8%
+Equipment and other..................... 185.7 163.7 13.4% 168.8 (3.0)%
+-------- -------- ----- -------- -----
+Total Europe.................... 2,584.8 2,407.0 7.4% 2,293.8 4.9%
+-------- -------- ----- -------- -----
+Asia Pacific Region
+Footwear................................ 632.4 557.0 13.5% 455.3 22.3%
+Apparel................................. 374.8 321.0 16.8% 319.8 0.4%
+Equipment and other..................... 102.8 77.1 33.3% 69.4 11.1%
+-------- -------- ----- -------- -----
+Total Asia Pacific.............. 1,110.0 955.1 16.2% 844.5 13.1%
+-------- -------- ----- -------- -----
+Americas Region
+Footwear................................ 359.6 343.9 4.6% 311.2 10.5%
+Apparel................................. 152.2 137.7 10.5% 146.2 (5.8)%
+Equipment and other..................... 27.3 12.5 118.4% 11.7 6.8%
+-------- -------- ----- -------- -----
+Total Americas.................. 539.1 494.1 9.1% 469.1 5.3%
+-------- -------- ----- -------- -----
+Total NIKE brand.......................... 9,052.9 8,588.3 5.4% 8,358.1 2.8%
+-------- -------- ----- -------- -----
+Other brands.............................. 435.9 406.8 7.2% 418.8 (2.9)%
+-------- -------- ----- -------- -----
+Total Revenues............................ $9,488.8 $8,995.1 5.5% $8,776.9 2.5%
+======== ======== ===== ======== =====
+Our gross margin percentage declined 90 basis points, from 39.9% in fiscal
+2000 to 39.0% in fiscal 2001. Factors contributing to the lower gross margin
+percentage were as follows:
+(1) The effect of the change in foreign exchange rates, most notably
+the weakening of the euro against the U.S. dollar relative to fiscal 2000.
+(2) A higher mix of close-out sales as well as lower margins achieved
+on close-outs, primarily in footwear and licensed team apparel in the
+United States. In footwear, the higher mix of close-outs and lower
+close-out margins were due in part to the supply chain disruptions
+discussed above. Higher close-outs and lower margins in U.S. licensed team
+apparel resulted primarily from the liquidation of National Football League
+("NFL") team apparel, due to the termination of our NFL license agreement
+this year.
+(3) Product recalls of certain footwear models in the United States,
+which resulted in product returns and write-offs.
+We expect the weakness of the euro to place additional negative pressure on
+our gross margins throughout fiscal 2002. In addition, we will continue to
+liquidate excess inventories caused by the supply chain problems, affecting
+gross margins through the first half of fiscal 2002.
+Selling and administrative expenses decreased as a percentage of revenues
+from 29.0% to 28.3%. This decrease reflected cost containment measures, both in
+marketing and operational areas. While implementing these measures to control
+selling and administrative expense growth, we also continued to invest in
+operational initiatives designed to create future revenues and profits. These
+initiatives included the expansion of NIKE-owned retail outlets, the development
+of e-commerce applications, and systems and processes supporting our worldwide
+supply chain. Our level of investment in these areas was comparable to our level
+of investment in fiscal 2000. The worldwide supply chain initiative is intended
+to improve revenue (by increasing our ability to respond to market conditions),
+margins (by lowering close-outs and distribution costs) and cash flow (by
+14
+17
+reducing inventories). The ultimate level of benefit to revenues, margins, and
+cash flows, if any, will not be known until the new systems and processes have
+been implemented worldwide over the next few years.
+Interest expense increased 30.4%, from $45.0 million to $58.7 million, due
+to higher average debt levels in fiscal 2001 versus fiscal 2000. During fiscal
+2000, we increased debt to fund capital expenditures and higher working capital
+requirements and to repurchase common stock. Although our debt balance decreased
+during fiscal 2001, the average debt balance for fiscal 2001 remained above the
+prior year.
+Other income/expense was a net expense of $34.2 million versus a net
+expense of $23.2 million in fiscal 2000. Significant amounts included in other
+income/expense were interest income, profit sharing expense, goodwill
+amortization, certain foreign currency conversion gains and losses, and asset
+disposal gains and losses.
+Our fiscal 2001 effective tax rate was 36.0% as compared to 37.0% in fiscal
+2000. Factors contributing to this decrease included lower taxes on a portion of
+foreign earnings that have been permanently invested outside of the U.S. and
+additional research tax credits.
+FISCAL 2000 COMPARED TO FISCAL 1999
+Net income increased 28.3% in fiscal 2000 over fiscal 1999, from $451.4
+million to $579.1 million. Excluding the impact of restructuring charge activity
+in fiscal 1999, net income advanced $100.4 million, or 21.0%. Income before
+income taxes increased due to increased revenues and an improved gross margin,
+partially offset by higher selling and administrative expenses. The increased
+selling and administrative expenses in large part reflected significant
+investments in new supply chain systems, e-commerce initiatives, and new retail
+stores, discussed further below. The increase in net income primarily reflected
+the improved income before income taxes, but also reflected a lower effective
+tax rate. Diluted earnings per share increased 31.8%, more rapidly than net
+income, as a result of share repurchases during fiscal 2000. Excluding the
+impact of restructuring charges, diluted earnings per share increased 24.7%.
+Total NIKE revenues increased by 2.5% in fiscal 2000. NIKE brand revenues
+in the United States region were flat as compared to fiscal 1999 while NIKE
+brand revenues in our international regions increased 6.9%. Had the U.S. dollar
+remained constant with the prior year, these international revenues would have
+increased 11.9%, and consolidated revenues would have advanced 4.5%. Revenue
+growth in the United States was slowed by a contraction of athletic sportswear
+retail space.
+In fiscal 2000, NIKE brand revenues from our international regions
+represented 42.9% of total company revenues and grew significantly during the
+year. Fiscal 2000 revenues in EMEA increased over fiscal 1999 by 4.9% to
+$2,407.0 million, 15.5% in constant dollars. In our Asia Pacific region,
+revenues grew 13.1%, a 4.7% increase in constant dollars. The Americas region
+grew revenues 5.3%, 7.2% in constant dollars.
+In fiscal 2000, our gross margin percentage improved 250 basis points, from
+37.4% to 39.9%. The key factors in the improvement of margins were as follows:
+(1) Increased margins on in-line products, particularly in apparel and
+equipment.
+(2) Reduced levels of lower margin close-out sales, reflecting lower
+inventories of close-out, out-of-season product.
+(3) Higher margins on close-out sales, driven by the expansion of our
+network of outlet stores.
+Selling and administrative expenses increased 7.4% in fiscal 2000 to
+$2,606.4 million. Much of the increase was driven by investments designed to
+create future revenues and profits, including opening new NIKE-owned retail
+outlets, development of e-commerce capability, initiatives to streamline our
+supply chain, and the conversion of certain international markets from
+independent distributorships to direct NIKE ownership. Higher bad debt expense
+due to the bankruptcy filing of one of our U.S. customers, also increased
+selling and administrative expenses in fiscal 2000 versus fiscal 1999.
+Interest expense increased by 2.0% during fiscal 2000 to $45.0 million.
+This increase reflected incremental interest costs due to significantly higher
+average debt balances than in fiscal 1999. (Much of this increase was offset by
+the effect of lower interest rates outside of the U.S. and the effect of our
+restructured operating agreement with NIAC, which reduced the interest rate on
+product purchases financed by NIAC.)
+15
+18
+Other income/expense was a net expense of $23.2 million in fiscal 2000 as
+compared to a net expense of $21.5 million in fiscal 1999. Significant amounts
+included in other income/expense were interest income, profit sharing expense,
+goodwill amortization, certain foreign exchange conversion gains and losses, and
+asset disposal gains and losses. In fiscal 1999, other income/expense also
+included a $15.0 million credit related to the change in accounting for
+substantially all inventories in the U.S. from the last-in, first-out (LIFO)
+method to the first-in, first-out (FIFO) method. The change was not sufficiently
+material to require presentation of the cumulative effect or to restate
+comparable income statements as dictated by Accounting Principles Board Opinion
+No. 20.
+Our effective tax rate was 37.0% in fiscal 2000, significantly lower than
+the prior year rate of 39.5% in fiscal 1999. This decrease was primarily due to
+reduced state taxes and the utilization of tax loss carryforwards in certain
+recently profitable foreign operations, where our effective rate is lower than
+in the U.S.
+FISCAL 1999 RESTRUCTURING CHARGE
+During fiscal 1999, the Company incurred a $60.1 million restructuring
+charge as a result of certain actions taken to better align our cost structure
+with expected revenue growth rates. As a result of the restructuring actions, we
+were able to remove approximately $36 million from our cost structure.
+The charge (shown below in tabular format) was primarily for costs of
+severing employees, including severance packages, lease abandonments and the
+write down of assets no longer in use. Two major areas that were affected by the
+reduction in force include our information technology functions, primarily in
+the U.S., as we shifted to an outsource agreement for certain areas of our
+operations, and European customer service and accounting, where we have been
+consolidating functions from individual countries to our European headquarters.
+Outside of these two areas, employees were terminated from various other areas
+around the Company, including our Asia Pacific region. The original number of
+employees to be terminated was 1,291. As of May 31, 2001, 71 employees have
+found positions elsewhere in the Company and 1,200 have left the Company,
+leaving 20 still to be terminated.
+The second major component of the 1999 charge was a write-off of certain
+equipment, hardware and software development costs at one of our U.S.
+distribution centers due to a change in strategy around how we flow product for
+a specific type of business.
+Due to the change in the number of employees that will be terminated, $0.1
+million and $1.4 million of the reserve was reversed during fiscal 2001 and
+fiscal 2000, respectively. The remaining accrual balance as of May 31, 2001 of
+$1.5 million will be relieved as leases expire and severance payments are
+completed.
+Detail of the restructuring charge is as follows:
+FY99 RESERVE RESERVE RESERVE
+CASH/ RESTRUCTURING FY99 BALANCE AT FY00 BALANCE AT FY01 BALANCE AT
+DESCRIPTION NON-CASH CHARGE ACTIVITY 5/31/99 ACTIVITY 5/31/00 ACTIVITY 5/31/01
+----------- ------------- ------------- -------- ---------- -------- ---------- -------- ----------
+(IN MILLIONS)
+Elimination of Job
+Responsibilities $(39.9) $21.9 $(18.0) $14.5 $(3.5) $1.8 $(1.7)
+Severance packages...... cash (28.0) 11.7 (16.3) 12.9 (3.4) 1.8 (1.6)
+Lease cancellations &
+commitments........... cash (2.4) 1.6 (0.8) 0.7 (0.1) -- (0.1)
+Write-down of assets.... non-cash (7.8) 7.8 -- -- -- -- --
+Other................... cash/non-cash (1.7) 0.8 (0.9) 0.9 -- -- --
+--------------------------
+Change in warehouse
+distribution strategy... $(20.2) $20.2 -- -- -- -- --
+Write-down of assets.... non-cash (20.2) 20.2 -- -- -- -- --
+--------------------------
+Effect of foreign currency
+translation............. -- $ 0.1 $ 0.1 $(0.1) -- $0.2 $ 0.2
+--------------------------
+Total............ $(60.1) $42.2 $(17.9) $14.4 $(3.5) $2.0 $(1.5)
+--------------------------
+--------------------------
+16
+19
+EURO CONVERSION
+On January 1, 1999, eleven of the fifteen member countries of the European
+Union established permanent, fixed conversion rates between their existing
+currencies and the European Union's new common currency, the euro. In January
+2001, an additional country, Greece, also established a fixed conversion rate to
+the euro. During the transition period ending December 31, 2001, public and
+private parties may pay for goods and services using either the euro or the
+participating country's legacy currency. Beginning January 1, 2002, euro
+denominated bills and coins will be issued, and the legacy currencies will be
+completely withdrawn from circulation on June 30, 2002.
+We have had a dedicated project team working on the euro transition
+strategy since January 1998. We have made modifications to information
+technology systems supporting marketing, order management, purchasing,
+invoicing, payroll, and cash management functions, in order to make them euro
+compliant. All major systems have been converted and are euro compliant, well
+ahead of the end of the transitional period.
+We believe the introduction of the euro may create a move towards a greater
+level of wholesale price harmonization, although differing country costs and
+value added tax rates will continue to result in price differences at the retail
+level. Over the past three years, we have been actively working to assess and,
+where necessary, adjust pricing practices to operate effectively in this new
+environment.
+The costs of adapting our systems and practices to the implementation of
+the euro were generally related to the modification of existing systems and
+totaled approximately $8 million. These costs were expensed as incurred,
+primarily in fiscal 2000. We believe that the conversion to the euro will not
+have a material impact on our financial condition or results of operations.
+RECENTLY ISSUED ACCOUNTING STANDARDS
+Effective June 1, 2001, we will adopt Statement of Financial Accounting
+Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
+Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
+Instruments and Certain Hedging Activities" (FAS 133).
+As required upon adoption of FAS 133, a one-time transition adjustment will
+be recorded as of June 1, 2001 on both our consolidated statement of income and
+consolidated balance sheet. We estimate that the transition adjustment on the
+consolidated statement of income to be a charge of approximately $5.1 million,
+net of tax effect. This amount relates to an investment that will be adjusted to
+fair value in accordance with FAS 133. The transition adjustment on the
+consolidated balance sheet represents the initial recognition of the fair values
+of hedge derivatives outstanding on the adoption date and realized gains and
+losses on effective hedges for which the underlying exposure has not yet
+affected earnings. The transition adjustment on the consolidated balance sheet
+is estimated to be an increase in current assets of $118.5 million, an increase
+in noncurrent assets of $87.0 million, an increase in current liabilities of
+$151.6 million, and an increase in other comprehensive income of approximately
+$59.0 million, net of tax effects.
+In July 2001, the Financial Accounting Standards Board issued SFAS No. 142
+(FAS 142), "Goodwill and Other Intangible Assets." Our adoption date is expected
+to be June 1, 2002. As required by FAS 142, we will perform an impairment test
+on goodwill and other intangible assets as of the adoption date. Thereafter, we
+will perform impairment tests annually and whenever events or circumstances
+occur indicating that goodwill or other intangible assets might be impaired.
+Amortization of goodwill and certain other intangible assets, including those
+recorded in past business combinations, will cease. We have not yet determined
+what the impact of FAS 142 will be on our results of operations and financial
+position.
+LIQUIDITY AND CAPITAL RESOURCES
+Cash provided by operations was $656.5 million in fiscal 2001, compared to
+$699.6 million in fiscal 2000. Our primary source of operating cash flow was net
+income earned during the year of $589.7 million. The company also generated cash
+flow by utilizing tax loss carryforwards, which resulted in a decrease in
+deferred income tax assets during the year, and from income tax benefits from
+stock option exercises. These cash
+17
+20
+inflows were partially offset by a slight increase in operating working capital,
+which reflected a higher level of operating activity in the current fiscal year.
+Cash used by investing activities during fiscal 2001 was $342.3 million,
+compared to $440.0 million invested during fiscal 2000. The total for fiscal
+2001 related primarily to capital expenditures for computer equipment and
+software, driven by our supply chain initiative; investments in new retail
+outlets; the expansion of our world headquarters; and the development of new
+distribution facilities in Japan. During fiscal 2002, we will continue to incur
+expenditures related to the supply chain initiative and retail expansion,
+although we currently expect total capital expenditures to be less than the
+total for fiscal 2001.
+Cash used by financing activities in fiscal year 2001 was $349.9 million,
+up from $252.1 million in the prior year. This amount included uses of cash for
+dividends to shareholders, a net reduction of short-term debt, payment of a
+maturing note payable, and share repurchases. These uses of cash were partially
+offset by proceeds from the exercise of employee stock options.
+The share repurchases were part of a $1.0 billion share repurchase program
+that began in fiscal 2001, after completion of a four-year, $1.0 billion program
+in fiscal 2000. To date, under the new program we have purchased a total of 4.0
+million shares of NIKE's Class B common stock for $157.0 million. We expect to
+fund the current program largely from operating cash flow. The timing and the
+amount of shares purchased will be dictated by our capital needs and stock
+market conditions.
+We have filed a shelf registration with the Securities and Exchange
+Commission (SEC) under which $500.0 million in debt securities are available to
+be issued. Our long-term debt rating is A2 and A by Moody's Investor Service and
+Standard and Poor's Corporation, respectively.
+Liquidity is also provided by our commercial paper program, under which
+there was $710.0 million and $691.9 million outstanding at May 31, 2001 and May
+31, 2000, respectively. Our issuances of commercial paper are required to be
+supported by committed lines of credit and/or cash. During fiscal 2001, we
+entered into a new $1.25 billion committed credit facility with a group of
+banks: $750 million has a maturity of 364 days from the facility date and $500
+million has a maturity of five years from the facility date. To date, we have
+not borrowed under this facility. Each year, the $750 million, 364 day facility
+can be extended 364 days, and the $500 million, five year facility can be
+extended one year. Our ratings for the issuance of commercial paper are P1 and
+A1 by Moody's Investor Service and Standard and Poor's Corporation,
+respectively. We also maintain significant uncommitted short and long-term lines
+of credit with banks. At May 31, 2001 and 2000, we had letters of credit
+outstanding totaling $851.8 million and $678.2 million, respectively. These
+letters of credit were issued for the purchase of inventory.
+Management currently believes that cash generated by operations, together
+with access to external sources of funds, will be sufficient to meet our
+operating and capital needs.
+Dividends per share of common stock for fiscal 2001 were $0.48, the same as
+in fiscal 2000. We have paid a dividend for every quarter since February 1984.
+Consistent with our practice in prior years, we will review our dividend policy
+at the meeting of our Board of Directors in November; however, based upon
+current projected earnings and cash flow requirements, we anticipate continuing
+to pay a quarterly dividend.
+ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
+In the normal course of business and consistent with established policies
+and procedures, we employ a variety of financial instruments to manage exposure
+to fluctuations in the value of foreign currencies and interest rates. It is our
+policy to utilize these financial instruments only where necessary to finance
+our business and manage such exposures; we do not enter into these transactions
+for speculative purposes.
+We are exposed to foreign currency fluctuation as a result of our
+international sales, production and funding activities. Our foreign currency
+risk management objective is to protect cash flows from the adverse impact of
+exchange rate movements. We use forward exchange contracts and purchased options
+to hedge certain firm commitments and the related receivables and payables,
+including third party or intercompany transactions, and use purchased currency
+options to hedge certain anticipated but not yet firmly committed
+18
+21
+transactions. When we begin hedging exposures depends on the nature of the
+exposure and market conditions. Generally, all firmly committed and anticipated
+transactions that are hedged are to be recognized within twelve months. In
+addition, we use cross-currency swaps to hedge foreign currency denominated
+payments under intercompany loan agreements. Hedged transactions are principally
+denominated in European currencies, Japanese yen, Australian dollars, Canadian
+dollars, and Korean won.
+Our financial performance is also exposed to movements in short and
+long-term market interest rates. Our objective in managing this interest rate
+exposure is to limit the impact of interest rate changes on earnings and cash
+flows, and to reduce overall borrowing costs. To achieve these objectives, we
+maintain a mix of medium and long-term fixed rate debt, commercial paper, bank
+loans and trade financing from NIAC.
+MARKET RISK MEASUREMENT
+We monitor foreign exchange risk, interest rate risk and related
+derivatives using a variety of techniques including a review of market value,
+sensitivity analysis, and Value-at-Risk (VaR). Our market-sensitive derivative
+and other financial instruments, as defined by the SEC, are foreign currency
+forward contracts, foreign currency option contracts, cross-currency swaps,
+intercompany loans denominated in foreign currencies, fixed interest rate U.S.
+dollar denominated debt and fixed interest rate Japanese yen denominated debt.
+We use VaR to monitor the foreign exchange risk of our foreign currency
+forward and foreign currency option derivative instruments only. The VaR
+determines the maximum potential one-day loss in the fair value of these foreign
+exchange rate-sensitive financial instruments. The VaR model estimates assume
+normal market conditions and a 95% confidence level. There are various modeling
+techniques that can be used in the VaR computation. Our computations are based
+on interrelationships between currencies and interest rates (a
+"variance/co-variance" technique). We determined these interrelationships by
+observing foreign exchange currency market changes and interest rate changes
+over the preceding one year. The value of foreign currency options does not
+change on a one-to-one basis with changes in the underlying currency rate. We
+adjusted the potential loss in option value for the estimated sensitivity (the
+"delta" and "gamma") to changes in the underlying currency rate. We have
+excluded anticipated transactions, firm commitments, cash balances and accounts
+receivable and payable denominated in foreign currencies from the VaR
+calculation, which certain of these instruments are intended to hedge.
+The VaR model is a risk analysis tool and does not purport to represent
+actual losses in fair value that we will incur, nor does it consider the
+potential effect of favorable changes in market rates. It also does not
+represent the full extent of the possible loss that may occur. Actual future
+gains and losses will differ from those estimated because of changes or
+differences in market rates and interrelationships, hedging instruments and
+hedge percentages, timing and other factors.
+The estimated maximum one-day loss in fair value on NIKE's foreign currency
+sensitive financial instruments, derived using the VaR model, was $18.9 million
+and $9.5 million at May 31, 2001 and May 31, 2000, respectively. Such a
+hypothetical loss in fair value of our derivatives would be offset by increases
+in the value of the underlying transactions being hedged.
+Details of all other market-sensitive derivative and other financial
+instruments, including their fair values, are included in the table below. These
+instruments include intercompany loans denominated in foreign currencies, fixed
+interest rate Japanese yen denominated debt, fixed interest rate U.S. dollar
+denominated debt, and cross-currency swaps. For debt obligations, the table
+presents principal cash flows and related weighted average interest rates by
+expected maturity dates. We have excluded the cross-currency swaps from the
+foreign exchange risk category because these instruments eliminate all foreign
+currency exposure in the cash flows of a Dutch guilder denominated inter-company
+loan. We have included these cross-currency swaps in the interest rate risk
+category but excluded the related intercompany loan from this category because
+the intercompany interest eliminates in consolidation. For the cross-currency
+swaps the table presents both the Dutch guilder swap payable and U.S. dollar
+swap receivable and the respective pay and receive interest rates. All
+information is presented in U.S. dollar equivalents, in millions, except
+interest rates.
+19
+22
+EXPECTED MATURITY DATE
+YEAR ENDED MAY 31,
+2002 2003 2004 2005 2006 THEREAFTER TOTAL FAIR VALUE
+------ ---- ---- ----- ---- ---------- ------ ----------
+FOREIGN EXCHANGE RISK
+Euro Functional Currency
+Intercompany loan -- U.S. dollar
+denominated -- Fixed rate
+Principal payments................. $133.7 -- -- -- -- -- $133.7 $133.7
+Average interest rate.............. 7.4% -- -- -- -- -- 7.4%
+U.S. Dollar Functional Currency
+Intercompany loans -- Euro
+denominated -- Fixed rate
+Principal payments................. $257.3 -- -- -- -- -- $257.3 $257.3
+Average interest rate.............. 5.0% -- -- -- -- -- 5.0%
+Intercompany loan -- Japanese yen
+denominated -- Fixed rate
+Principal payments................. $213.0 -- -- -- -- -- $213.0 $213.0
+Average interest rate.............. 0% -- -- -- -- -- 0%
+Intercompany loan -- British pound
+denominated -- Fixed rate
+Principal payments................. $ 20.6 -- -- -- -- -- $ 20.6 $ 20.6
+Average interest rate.............. 6.5% -- -- -- -- -- 6.5%
+Korean Won Functional Currency
+Intercompany loan -- U.S. dollar
+denominated -- Fixed rate
+Principal payments................. $ 22.6 -- -- -- -- -- $ 22.6 $ 22.6
+Average interest rate.............. 6.9% -- -- -- -- -- 6.9%
+Japanese Yen Functional Currency
+Long-term Japanese yen debt-Fixed
+rate
+Principal payments................. $ 5.4 5.4 5.4 5.4 5.4 $164.0 $191.0 $181.1
+Average interest rate.............. 3.3% 3.3% 3.3% 3.4% 3.4% 3.4% 3.3%
+INTEREST RATE RISK
+Japanese Yen Functional Currency
+Long-term Japanese yen debt-Fixed
+rate
+Principal Payments................. $ 5.4 5.4 5.4 5.4 5.4 $164.0 $191.0 $181.1
+Average interest rate.............. 3.3% 3.3% 3.3% 3.4% 3.4% 3.4% 3.3%
+U.S. Dollar Functional Currency
+Long-term U.S. dollar debt-Fixed
+rate
+Principal payments................. $ -- 50.0 199.6 -- -- -- $249.6 $256.2
+Average interest rate.............. 6.4% 6.4% 6.4% -- -- -- 6.4%
+Cross-currency swaps-
+Fixed Dutch guilder for fixed U.S.
+dollar
+Dutch guilder swap payable......... $ -- 37.8 134.8 -- -- -- $172.6 $179.4
+U.S. dollar swap receivable........ $ -- 50.0 200.0 -- -- -- $250.0 $266.4
+Average pay rate (Dutch guilder)... 5.5% 5.6% 5.6% -- -- -- 5.6%
+Average receive rate (U.S.
+dollars)......................... 6.5% 6.5% 6.5% -- -- -- 6.5%
+Intercompany loans and related interest amounts eliminate in consolidation.
+Intercompany loans are generally hedged against foreign exchange risk through
+the use of forward contracts and swaps with third parties.
+20
+23
+The fixed interest rate Japanese yen denominated debts were issued by and
+are accounted for by two of NIKE's Japanese subsidiaries. Accordingly, the
+monthly remeasurement of these instruments due to changes in foreign exchange
+rates is recognized in accumulated other comprehensive income upon the
+consolidation of these subsidiaries.
+There was not a significant change in debt or cross-currency swap market
+risks during fiscal 2001. The U.S. dollar fair values of intercompany loans
+denominated in foreign currencies was $692.8 million at May 31, 2000, which is
+the same as the carrying values of the loans prior to their elimination. The
+U.S. dollar fair value of the fixed rate Japanese yen denominated debt that was
+outstanding at May 31, 2000 was $220.4 million versus a carrying value of $219.8
+million at that date. The U.S. dollar fair values of the fixed rate U.S. dollar
+denominated debt, the Dutch guilder swap payable and the U.S. dollar swap
+receivable as of May 31, 2000 were $288.4 million, $226.6 million and $288.8
+million, respectively, versus carrying values of $299.6 million, $227.6 million
+and $300 million, respectively, at that date.
+SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND ANALYST REPORTS.
+Certain written and oral statements, other than purely historical
+information including estimates, projections, statements relating to NIKE's
+business plans, objectives and expected operating results, and the assumptions
+upon which those statements are based, made or incorporated by reference from
+time to time by NIKE or its representatives in this report, other reports,
+filings with the Securities and Exchange Commission, press releases,
+conferences, or otherwise, are "forward-looking statements" within the meaning
+of the Private Securities Litigation Reform Act of 1995 and Section 21E of the
+Securities Exchange Act of 1934. Forward-looking statements include, without
+limitation, any statement that may predict, forecast, indicate, or imply future
+results, performance, or achievements, and may contain the words "believe,"
+"anticipate," "expect," "estimate," "project," "will be," "will continue," "will
+likely result," or words or phrases of similar meaning. Forward-looking
+statements involve risks and uncertainties which may cause actual results to
+differ materially from the forward-looking statements. The risks and
+uncertainties are detailed from time to time in reports filed by NIKE with the
+S.E.C., including Forms 8-K, 10-Q, and 10-K, and include, among others, the
+following: international, national and local general economic and market
+conditions; the size and growth of the overall athletic footwear, apparel, and
+equipment markets; intense competition among designers, marketers, distributors
+and sellers of athletic footwear, apparel, and equipment for consumers and
+endorsers; demographic changes; changes in consumer preferences; popularity of
+particular designs, categories of products, and sports; seasonal and geographic
+demand for NIKE products; difficulties in anticipating or forecasting changes in
+consumer preferences, consumer demand for NIKE products, and the various market
+factors described above; difficulties in implementing, operating, and
+maintaining NIKE's increasingly complex information systems and controls,
+including, without limitation, the systems related to demand and supply
+planning, and inventory control; fluctuations and difficulty in forecasting
+operating results, including, without limitation, the fact that advance
+"futures" orders may not be indicative of future revenues due to the changing
+mix of futures and at-once orders; the ability of NIKE to sustain, manage or
+forecast its growth and inventories; the size, timing and mix of purchases of
+NIKE's products; new product development and introduction; the ability to secure
+and protect trademarks, patents, and other intellectual property performance and
+reliability of products; customer service; adverse publicity; the loss of
+significant customers or suppliers; dependence on distributors; business
+disruptions; increased costs of freight and transportation to meet delivery
+deadlines; changes in business strategy or development plans; general risks
+associated with doing business outside the United States, including, without
+limitation, import duties, tariffs, quotas and political and economic
+instability; changes in government regulations; liability and other claims
+asserted against NIKE; the ability to attract and retain qualified personnel;
+and other factors referenced or incorporated by reference in this report and
+other reports.
+The risks included here are not exhaustive. Other sections of this report
+may include additional factors which could adversely affect NIKE's business and
+financial performance. Moreover, NIKE operates in a very competitive and rapidly
+changing environment. New risk factors emerge from time to time and it is not
+possible for management to predict all such risk factors, nor can it assess the
+impact of all such risk factors on NIKE's business or the extent to which any
+factor, or combination of factors, may cause actual results to differ
+21
+24
+materially from those contained in any forward-looking statements. Given these
+risks and uncertainties, investors should not place undue reliance on
+forward-looking statements as a prediction of actual results.
+Investors should also be aware that while NIKE does, from time to time,
+communicate with securities analysts, it is against NIKE's policy to disclose to
+them any material non-public information or other confidential commercial
+information. Accordingly, shareholders should not assume that NIKE agrees with
+any statement or report issued by any analyst irrespective of the content of the
+statement or report. Furthermore, NIKE has a policy against issuing or
+confirming financial forecasts or projections issued by others. Thus, to the
+extent that reports issued by securities analysts contain any projections,
+forecasts or opinions, such reports are not the responsibility of NIKE.
+ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
+Management of NIKE, Inc. is responsible for the information and
+representations contained in this report. The financial statements have been
+prepared in conformity with the generally accepted accounting principles we
+considered appropriate in the circumstances and include some amounts based on
+our best estimates and judgments. Other financial information in this report is
+consistent with these financial statements.
+Our accounting systems include controls designed to reasonably assure that
+assets are safeguarded from unauthorized use or disposition and which provide
+for the preparation of financial statements in conformity with generally
+accepted accounting principles. These systems are supplemented by the selection
+and training of qualified financial personnel and an organizational structure
+providing for appropriate segregation of duties.
+An Internal Audit department reviews the results of its work with the Audit
+Committee of the Board of Directors, presently consisting of three outside
+directors. The Audit Committee is responsible for recommending to the Board of
+Directors the appointment of the independent accountants and reviews with the
+independent accountants, management and the internal audit staff, the scope and
+the results of the annual examination, the effectiveness of the accounting
+control system and other matters relating to the financial affairs of NIKE as
+they deem appropriate. The independent accountants and the internal auditors
+have full access to the Committee, with and without the presence of management,
+to discuss any appropriate matters.
+22
+25
+REPORT OF INDEPENDENT ACCOUNTANTS
+To the Board of Directors and
+Shareholders of NIKE, Inc.
+In our opinion, the consolidated financial statements listed in the index
+appearing under Item 14(A)(1) on page 45 present fairly, in all material
+respects, the financial position of NIKE, Inc. and its subsidiaries at May 31,
+2001 and 2000, and the results of their operations and their cash flows for each
+of the three years in the period ended May 31, 2001 in conformity with
+accounting principles generally accepted in the United States of America. In
+addition, in our opinion, the financial statement schedule listed in the index
+appearing under Item 14(A)(2) on page 45 presents fairly, in all material
+respects, the information set forth therein when read in conjunction with the
+related consolidated financial statements. These financial statements and
+financial statement schedule are the responsibility of the Company's management;
+our responsibility is to express an opinion on these financial statements and
+financial statement schedule based on our audits. We conducted our audits of
+these statements in accordance with auditing standards generally accepted in the
+United States of America, which require that we plan and perform the audit to
+obtain reasonable assurance about whether the financial statements are free of
+material misstatement. An audit includes examining, on a test basis, evidence
+supporting the amounts and disclosures in the financial statements, assessing
+the accounting principles used and significant estimates made by management, and
+evaluating the overall financial statement presentation. We believe that our
+audits provide a reasonable basis for our opinion.
+/s/ PRICEWATERHOUSECOOPERS LLP
+PricewaterhouseCoopers LLP
+Portland, Oregon
+June 27, 2001
+23
+26
+NIKE, INC.
+CONSOLIDATED STATEMENTS OF INCOME
+YEAR ENDED MAY 31,
+--------------------------------------
+2001 2000 1999
+---------- ---------- ----------
+(IN MILLIONS, EXCEPT PER SHARE DATA)
+Revenues.................................................... $9,488.8 $8,995.1 $8,776.9
+Costs and expenses:
+Cost of sales............................................. 5,784.9 5,403.8 5,493.5
+Selling and administrative................................ 2,689.7 2,606.4 2,426.6
+Interest expense (Notes 4 and 5).......................... 58.7 45.0 44.1
+Other income/expense, net (Notes 1, 10 and 11)............ 34.2 23.2 21.5
+Restructuring charge, net (Note 13)....................... (.1) (2.5) 45.1
+-------- -------- --------
+Total costs and expenses.................................... 8,567.4 8,075.9 8,030.8
+-------- -------- --------
+Income before income taxes.................................. 921.4 919.2 746.1
+Income taxes (Note 6)....................................... 331.7 340.1 294.7
+-------- -------- --------
+Net income.................................................. $ 589.7 $ 579.1 $ 451.4
+======== ======== ========
+Basic earnings per common share (Notes 1 and 9)............. $ 2.18 $ 2.10 $ 1.59
+======== ======== ========
+Diluted earnings per common share (Notes 1 and 9)........... $ 2.16 $ 2.07 $ 1.57
+======== ======== ========
+The accompanying notes to consolidated financial statements are an integral part
+of this statement.
+24
+27
+NIKE, INC.
+CONSOLIDATED BALANCE SHEETS
+ASSETS
+MAY 31,
+--------------------
+2001 2000
+-------- --------
+(IN MILLIONS)
+Current Assets:
+Cash and equivalents...................................... $ 304.0 $ 254.3
+Accounts receivable, less allowance for doubtful accounts
+of $72.1 and $65.4..................................... 1,621.4 1,569.4
+Inventories (Note 2)...................................... 1,424.1 1,446.0
+Deferred income taxes (Notes 1 and 6)..................... 113.3 111.5
+Prepaid expenses (Note 1)................................. 162.5 215.2
+-------- --------
+Total current assets.............................. 3,625.3 3,596.4
+-------- --------
+Property, plant and equipment, net (Note 3)................. 1,618.8 1,583.4
+Identifiable intangible assets and goodwill, net (Note 1)... 397.3 410.9
+Deferred income taxes and other assets (Notes 1 and 6)...... 178.2 266.2
+-------- --------
+Total assets...................................... $5,819.6 $5,856.9
+======== ========
+LIABILITIES AND SHAREHOLDERS' EQUITY
+Current Liabilities:
+Current portion of long-term debt (Note 5)................ $ 5.4 $ 50.1
+Notes payable (Note 4).................................... 855.3 924.2
+Accounts payable (Note 4)................................. 432.0 543.8
+Accrued liabilities....................................... 472.1 621.9
+Income taxes payable...................................... 21.9 --
+-------- --------
+Total current liabilities......................... 1,786.7 2,140.0
+-------- --------
+Long-term debt (Notes 5 and 14)............................. 435.9 470.3
+Deferred income taxes and other liabilities (Notes 1 and
+6)........................................................ 102.2 110.3
+Commitments and contingencies (Notes 12 and 15)............. -- --
+Redeemable Preferred Stock (Note 7)......................... 0.3 0.3
+Shareholders' Equity:
+Common Stock at stated value (Note 8):
+Class A convertible -- 99.1 and 99.2 shares
+outstanding........................................... 0.2 0.2
+Class B -- 169.5 and 170.4 shares outstanding.......... 2.6 2.6
+Capital in excess of stated value......................... 459.4 369.0
+Unearned stock compensation............................... (9.9) (11.7)
+Accumulated other comprehensive income.................... (152.1) (111.1)
+Retained earnings......................................... 3,194.3 2,887.0
+-------- --------
+Total shareholders' equity........................ 3,494.5 3,136.0
+-------- --------
+Total liabilities and shareholders' equity........ $5,819.6 $5,856.9
+======== ========
+The accompanying notes to consolidated financial statements are an integral part
+of this statement.
+25
+28
+NIKE, INC.
+CONSOLIDATED STATEMENTS OF CASH FLOWS
+YEAR ENDED MAY 31,
+-----------------------------
+2001 2000 1999
+------- ------- -------
+(IN MILLIONS)
+CASH PROVIDED (USED) BY OPERATIONS:
+Net income.................................................. $ 589.7 $ 579.1 $ 451.4
+Income charges not affecting cash:
+Depreciation.............................................. 197.4 188.0 198.2
+Non-cash portion of restructuring charge.................. -- -- 28.0
+Deferred income taxes..................................... 79.8 36.8 37.9
+Amortization and other.................................... 16.7 35.6 30.6
+Income tax benefit from exercise of stock options........... 32.4 14.9 33.4
+Changes in certain working capital components:
+(Increase) decrease in accounts receivable................ (141.4) (82.6) 114.4
+(Increase) decrease in inventories........................ (16.7) (311.8) 214.4
+Decrease in other current assets and income taxes
+receivable............................................. 78.0 61.2 24.2
+(Decrease) increase in accounts payable, accrued
+liabilities and income taxes payable................... (179.4) 178.4 (191.1)
+------- ------- -------
+Cash provided by operations............................ 656.5 699.6 941.4
+------- ------- -------
+CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
+Additions to property, plant and equipment.................. (317.6) (419.9) (384.1)
+Disposals of property, plant and equipment.................. 12.7 25.3 27.2
+Increase in other assets.................................... (42.5) (51.3) (60.8)
+Increase in other liabilities............................... 5.1 5.9 1.2
+------- ------- -------
+Cash used by investing activities...................... (342.3) (440.0) (416.5)
+------- ------- -------
+CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
+Reductions in long-term debt including current portion...... (50.3) (1.7) (1.5)
+(Decrease) increase in notes payable........................ (68.9) 505.1 (61.0)
+Proceeds from exercise of stock options..................... 56.0 23.9 54.4
+Repurchase of stock......................................... (157.0) (646.3) (299.8)
+Dividends -- common and preferred........................... (129.7) (133.1) (136.2)
+------- ------- -------
+Cash used by financing activities...................... (349.9) (252.1) (444.1)
+------- ------- -------
+Effect of exchange rate changes on cash..................... 85.4 48.7 8.7
+------- ------- -------
+Net increase in cash and equivalents................... 49.7 56.2 89.5
+Cash and equivalents, beginning of year..................... 254.3 198.1 108.6
+------- ------- -------
+Cash and equivalents, end of year........................... $ 304.0 $ 254.3 $ 198.1
+======= ======= =======
+SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
+Cash paid during the year for:
+Interest.................................................. $ 68.5 $ 45.0 $ 47.1
+Income taxes.............................................. 173.1 221.1 231.9
+NON-CASH INVESTING AND FINANCING ACTIVITY:
+Assumption of long-term debt to acquire property, plant and
+equipment................................................. -- $ 108.9 --
+The accompanying notes to consolidated financial statements are an integral part
+of this statement.
+26
+29
+NIKE, INC.
+CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
+COMMON STOCK
+--------------------------------- CAPITAL IN ACCUMULATED
+CLASS A CLASS B EXCESS OF UNEARNED OTHER
+--------------- --------------- STATED STOCK COMPREHENSIVE RETAINED
+SHARES AMOUNT SHARES AMOUNT VALUE COMPENSATION INCOME EARNINGS TOTAL
+------ ------ ------ ------ ---------- ------------ ------------- -------- --------
+(IN MILLIONS)
+BALANCE AT MAY 31, 1998..... 101.5 $0.2 185.5 $ 2.7 $262.5 $ -- $ (47.2) $3,043.4 $3,261.6
+----- ---- ----- ----- ------ ------ ------- -------- --------
+Stock options exercised..... 2.7 80.5 80.5
+Conversion to Class B Common
+Stock..................... (0.8) 0.8
+Repurchase of Class B Common
+Stock..................... (7.4) (8.9) (292.7) (301.6)
+Dividends on Common Stock... (135.6) (135.6)
+Comprehensive income:
+Net income................ 451.4 451.4
+Foreign currency
+translation (net of tax
+expense of $0.4)........ (21.7) (21.7)
+----- ---- ----- ----- ------ ------ ------- -------- --------
+Comprehensive income........ (21.7) 451.4 429.7
+----- ---- ----- ----- ------ ------ ------- -------- --------
+BALANCE AT MAY 31, 1999..... 100.7 0.2 181.6 2.7 334.1 -- (68.9) 3,066.5 3,334.6
+----- ---- ----- ----- ------ ------ ------- -------- --------
+Stock options exercised..... 1.3 38.7 38.7
+Conversion to Class B Common
+Stock..................... (1.5) 1.5
+Repurchase of Class B Common
+Stock..................... (14.5) (0.1) (17.3) (627.1) (644.5)
+Dividends on Common stock... (131.5) (131.5)
+Issuance of shares to
+employees................. 0.5 13.5 (13.5) --
+Amortization of unearned
+compensation.............. 1.8 1.8
+Comprehensive income:
+Net income................ 579.1 579.1
+Foreign currency
+translation (net of tax
+expense of $1.2)........ (42.2) (42.2)
+----- ---- ----- ----- ------ ------ ------- -------- --------
+Comprehensive income........ (42.2) 579.1 536.9
+----- ---- ----- ----- ------ ------ ------- -------- --------
+BALANCE AT MAY 31, 2000..... 99.2 0.2 170.4 2.6 369.0 (11.7) (111.1) 2,887.0 3,136.0
+----- ---- ----- ----- ------ ------ ------- -------- --------
+Stock options exercised..... 2.9 91.0 91.0
+Conversion to Class B Common
+Stock..................... (0.1) 0.1 --
+Repurchase of Class B Common
+Stock..................... (4.0) (4.8) (152.2) (157.0)
+Dividends on Common Stock... (129.6) (129.6)
+Issuance of shares to
+employees................. 0.1 6.7 (6.7) --
+Amortization of unearned
+compensation.............. 7.3 7.3
+Forfeiture of shares from
+employees................. (2.5) 1.2 (0.6) (1.9)
+Comprehensive income:
+Net income................ 589.7 589.7
+Foreign currency
+translation and other
+(net of tax benefit of
+$0.2)................... (41.0) (41.0)
+----- ---- ----- ----- ------ ------ ------- -------- --------
+Comprehensive income........ (41.0) 589.7 548.7
+----- ---- ----- ----- ------ ------ ------- -------- --------
+BALANCE AT MAY 31, 2001..... 99.1 $0.2 169.5 $ 2.6 $459.4 $ (9.9) $(152.1) $3,194.3 $3,494.5
+===== ==== ===== ===== ====== ====== ======= ======== ========
+The accompanying notes to consolidated financial statements are an integral part
+of this statement.
+27
+30
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
+Basis of consolidation:
+The consolidated financial statements include the accounts of NIKE, Inc.
+and its subsidiaries (the Company). All significant intercompany transactions
+and balances have been eliminated.
+Recognition of revenues:
+Wholesale revenues are recognized when title passes and the risks and
+rewards of ownership have passed to the customer based on the terms of sale.
+Title passes generally upon shipment or upon receipt by the customer depending
+on the country of the sale and the agreement with the customer. Retail store
+revenues are recorded at the time of sale. Provisions for sales discounts and
+returns are made at the time of sale.
+Advertising and promotion:
+Advertising production costs are expensed the first time the advertisement
+is run. Media (TV and print) placement costs are expensed in the month the
+advertising appears. The majority of the Company's promotional expenses result
+from payments under endorsement contracts. Accounting for endorsement payments
+is based upon specific contract provisions. Generally, endorsement payments are
+expensed uniformly over the term of the contract after giving recognition to
+periodic performance compliance provisions of the contracts. Prepayments made
+under contracts are included in prepaid expenses or other assets depending on
+the length of the contract. Total advertising and promotion expenses were
+$1,000.5 million, $978.2 million and $978.6 million for the years ended May 31,
+2001, 2000 and 1999, respectively. Included in prepaid expenses and other assets
+was $122.3 million and $158.7 million at May 31, 2001 and 2000, respectively,
+relating to prepaid advertising and promotion expenses.
+Cash and equivalents:
+Cash and equivalents represent cash and short-term, highly liquid
+investments with original maturities of three months or less.
+Inventory valuation:
+Inventories are stated at the lower of cost or market. Inventories are
+valued on a first-in, first-out (FIFO) basis. During the year ended May 31,
+1999, the Company changed its method of determining cost for substantially all
+of its U.S. inventories from last-in, first-out (LIFO) to FIFO. See Note 11.
+Property, plant and equipment and depreciation:
+Property, plant and equipment are recorded at cost. Depreciation for
+financial reporting purposes is determined on a straight-line basis for
+buildings and leasehold improvements over 2 to 40 years and principally on a
+declining balance basis for machinery and equipment over 2 to 15 years. Computer
+software is depreciated on a straight-line basis over 3 to 10 years.
+Identifiable intangible assets and goodwill:
+At May 31, 2001 and 2000, the Company had patents, trademarks and other
+identifiable intangible assets recorded at a cost of $218.6 million and $215.2
+million, respectively. The Company's excess of purchase cost over the fair value
+of net assets of businesses acquired (goodwill) was $322.5 million and $323.5
+million at May 31, 2001 and 2000, respectively.
+Identifiable intangible assets and goodwill are being amortized over their
+estimated useful lives on a straight-line basis over five to forty years.
+Accumulated amortization was $143.8 million and $127.8 million at
+28
+31
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+May 31, 2001 and 2000, respectively. Amortization expense, which is included in
+other income/expense, was $15.6 million, $18.5 million and $19.4 million for the
+years ended May 31, 2001, 2000 and 1999, respectively.
+Impairment of long-lived assets:
+When events or circumstances indicate the carrying value of a long-lived
+asset may be impaired, the Company uses an estimate of the future undiscounted
+cash flows to be derived from the remaining useful life of the asset to assess
+whether or not the asset is recoverable. If the future undiscounted cash flows
+to be derived over the life of the asset do not exceed the asset's net book
+value, the Company then considers estimated fair market value versus carrying
+value in determining any potential impairment.
+Foreign currency translation and foreign currency transactions:
+Adjustments resulting from translating foreign functional currency
+financial statements into U.S. dollars are included in the foreign currency
+translation adjustment, a component of accumulated other comprehensive income in
+shareholders' equity. Gains and losses resulting from transactions that are made
+in a currency different from the functional currency of the applicable Company
+entity are recognized in earnings as they occur or, for hedging contracts, when
+the underlying hedged transaction affects earnings. Foreign currency transaction
+gains and losses were a $129.6 million gain, a $36.1 million gain, and a $32.3
+million loss for the years ended May 31, 2001, 2000, and 1999, respectively.
+Derivatives:
+The Company enters into foreign currency contracts in order to reduce the
+impact of certain foreign currency fluctuations. Firmly committed transactions
+and the related receivables and payables may be hedged with forward exchange
+contracts or purchased options. Anticipated, but not yet firmly committed,
+transactions may be hedged through the use of purchased options. Premiums paid
+on purchased options and any realized gains are included in prepaid expenses or
+accrued liabilities and are recognized in earnings when the transaction being
+hedged is recognized. Gains and losses arising from foreign currency forward and
+option contracts and cross-currency swap transactions are recognized in income
+or expense as offsets of gains and losses resulting from the underlying hedged
+transactions. Hedge effectiveness is determined by evaluating whether gains and
+losses on hedges will offset gains and losses on the underlying exposures. This
+evaluation is performed at inception of the hedge and periodically over the life
+of the hedge. Occasionally, hedges may cease to be effective and are thus
+terminated prior to recognition of the underlying transaction. Gains and losses
+on these hedges are deferred until the point in time ineffectiveness is
+determined and will be included in the basis of the underlying transaction.
+Hedges will also be terminated if the underlying transaction is no longer
+expected to occur. When this occurs, all related deferred gains and losses are
+recognized in earnings immediately. Cash flows from hedging activities are
+classified in the same category as the cash flows from the related foreign
+exchange transaction activity. See Note 15 for further discussion.
+Income taxes:
+United States income taxes are provided currently on financial statement
+earnings of non-U.S. subsidiaries expected to be repatriated. The Company
+determines annually the amount of undistributed non-U.S. earnings to invest
+indefinitely in its non-U.S. operations. The Company accounts for income taxes
+using the asset and liability method. This approach requires the recognition of
+deferred tax assets and liabilities for the expected future tax consequences of
+temporary differences between the carrying amounts and the tax bases of other
+assets and liabilities. See Note 6 for further discussion.
+29
+32
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+Earnings per share:
+Basic earnings per common share is calculated by dividing net income by the
+weighted average number of common shares outstanding during the year. Diluted
+earnings per common share is calculated by adjusting weighted average
+outstanding shares, assuming conversion of all potentially dilutive stock
+options and awards. See Note 9 for further discussion.
+Management estimates:
+The preparation of financial statements in conformity with generally
+accepted accounting principles requires management to make estimates, including
+estimates relating to assumptions that affect the reported amounts of assets and
+liabilities and disclosure of contingent assets and liabilities at the date of
+financial statements and the reported amounts of revenues and expenses during
+the reporting period. Actual results could differ from these estimates.
+Reclassifications:
+Certain prior year amounts have been reclassified to conform to fiscal year
+2001 presentation. These changes had no impact on previously reported results of
+operations or shareholders' equity.
+Recently issued accounting standards:
+Effective June 1, 2001, the Company will adopt Statement of Financial
+Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
+and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain
+Derivative Instruments and Certain Hedging Activities" (FAS 133).
+As required upon adoption of FAS 133, a one-time transition adjustment will
+be recorded as of June 1, 2001 on both the consolidated statement of income and
+consolidated balance sheet. The Company estimates the transition adjustment on
+the consolidated statement of income to be a charge of approximately $5.1
+million, net of tax effect. This amount relates to an investment that will be
+adjusted to fair value in accordance with FAS 133. The transition adjustment on
+the consolidated balance sheet represents the initial recognition of the fair
+values of hedge derivatives outstanding on the adoption date and realized gains
+and losses on effective hedges for which the underlying exposure has not yet
+affected earnings. The transition adjustment on the consolidated balance sheet
+is estimated to be an increase in current assets of $118.5 million, an increase
+in noncurrent assets of $87.0 million, an increase in current liabilities of
+$151.6 million, and an increase in other comprehensive income of approximately
+$59.0 million, net of tax effects.
+The Company expects to adopt SFAS No. 142, "Goodwill and Other Intangible
+Assets" on June 1, 2002 (FAS 142). As required by FAS 142, the Company will
+perform an impairment test on goodwill and other intangible assets as of the
+adoption date. Thereafter, the Company will perform impairment tests annually
+and whenever events or circumstances occur indicating that goodwill or other
+intangible assets might be impaired. Amortization of goodwill and certain other
+intangible assets, including those recorded in past business combinations, will
+cease. The Company has not yet determined what the impact of FAS 142 will be on
+the Company's results of operations and financial position.
+30
+33
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+NOTE 2 -- INVENTORIES:
+Inventories by major classification are as follows:
+MAY 31,
+--------------------
+2001 2000
+-------- --------
+(IN MILLIONS)
+Finished goods.......................................... $1,399.4 $1,416.6
+Work-in-progress........................................ 15.1 17.3
+Raw materials........................................... 9.6 12.1
+-------- --------
+$1,424.1 $1,446.0
+======== ========
+NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT:
+Property, plant and equipment includes the following:
+MAY 31,
+--------------------
+2001 2000
+-------- --------
+(IN MILLIONS)
+Land.................................................... $ 177.2 $ 180.6
+Buildings............................................... 695.4 503.4
+Machinery and equipment................................. 1,117.3 981.9
+Leasehold improvements.................................. 391.9 279.6
+Construction in process................................. 171.0 448.3
+-------- --------
+2,552.8 2,393.8
+Less accumulated depreciation........................... 934.0 810.4
+-------- --------
+$1,618.8 $1,583.4
+======== ========
+Capitalized interest expense incurred was $8.4 million, $4.8 million and
+$6.9 million for the years ended May 31, 2001, 2000 and 1999, respectively.
+NOTE 4 -- SHORT-TERM BORROWINGS AND CREDIT LINES:
+Commercial paper outstanding, notes payable to banks and interest-bearing
+accounts payable to Nissho Iwai American Corporation (NIAC) are summarized
+below:
+MAY 31,
+---------------------------------------------------
+2001 2000
+------------------------ ------------------------
+INTEREST INTEREST
+BORROWINGS RATE BORROWINGS RATE
+------------- -------- ------------- --------
+(IN MILLIONS) (IN MILLIONS)
+Notes payable and commercial paper:
+U.S. operations........................... $710.0 4.07% $691.9 6.42%
+Non-U.S. operations....................... 145.3 6.50% 232.3 3.72%
+------ ------
+$855.3 $924.2
+====== ======
+NIAC:
+U.S. and Europe operations................ $ -- -- $ 12.6 6.36%
+Rest of world operations.................. 30.4 5.14% 47.3 7.15%
+------ ------
+$ 30.4 $ 59.9
+====== ======
+The Company has outstanding loans at interest rates at various spreads
+above the banks' cost of funds for financing non-U.S. operations. Certain of
+these loans are secured by accounts receivable and inventory.
+31
+34
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+U.S. operations were funded principally with commercial paper. At May 31, 2001
+there was $710.0 million outstanding and at May 31, 2000 there was $691.9
+million outstanding under these arrangements, net of discounting.
+The Company purchases through NIAC certain athletic footwear and apparel it
+acquires from non-U.S. suppliers. These purchases are for the Company's
+operations outside of the U.S. and Europe. Accounts payable to NIAC are
+generally due up to 60 days after shipment of goods from the foreign port. The
+interest on such accounts payable accrues at the 60 day London Interbank Offered
+Rate (LIBOR) as of the beginning of the month of the invoice date, plus 0.75%.
+At May 31, 2001, the Company had no outstanding borrowings under its $1.25
+billion committed credit facility with a group of 20 banks. This credit facility
+has a 364-day revolver (due 364 days from the borrowing date) for $750.0 million
+and a five-year revolver (due five years from the borrowing date) for $500.0
+million. Each year, the $750 million, 364-day facility can be extended 364 days,
+and the $500 million, five-year facility can be extended one year. Based on the
+Company's current senior unsecured debt ratings, the interest rate charged on
+any outstanding borrowings on the $750.0 million revolver would be the
+prevailing LIBOR rate plus 0.24%, and the interest rate charged on any
+outstanding borrowings on the $500.0 million revolver would be the prevailing
+LIBOR rate plus 0.22%. The facility fees for the $750.0 million and the $500.0
+million revolvers are 0.06% and 0.08%, respectively, of the total commitment.
+Under these agreements, the Company must maintain, among other things, certain
+minimum specified financial ratios with which the Company was in compliance at
+May 31, 2001.
+NOTE 5 -- LONG-TERM DEBT:
+Long-term debt includes the following:
+MAY 31,
+----------------
+2001 2000
+------ ------
+(IN MILLIONS)
+6.51% Medium term notes, payable June 16, 2000.............. $ -- $ 50.0
+6.69% Medium term notes, payable June 17, 2002.............. 50.0 50.0
+6.375% Medium term notes, payable December 1, 2003.......... 199.7 199.6
+4.3% Japanese yen notes, payable June 26, 2011.............. 85.3 98.2
+2.6% Japanese yen notes, maturing August 20, 2001 through
+November 20, 2020......................................... 73.2 84.2
+2.0% Japanese yen notes, maturing August 20, 2001 through
+November 20, 2020......................................... 32.5 37.4
+Other....................................................... .6 1.0
+------ ------
+Total............................................. 441.3 520.4
+Less current maturities..................................... 5.4 50.1
+------ ------
+$435.9 $470.3
+====== ======
+In December 1996, the Company filed a $500.0 million shelf registration
+with the Securities and Exchange Commission (SEC) and issued $200 million
+seven-year notes, maturing December 1, 2003. In June 1997, the Company issued an
+additional $100 million in medium-term notes under this program with maturities
+of June 16, 2000 and June 17, 2002. The note that matured on June 16, 2000 was
+repaid. Interest on the remaining note outstanding is paid semi-annually. The
+proceeds from all three issues were subsequently exchanged for Dutch guilders
+and loaned to a European subsidiary. The Company entered into swap transactions
+to hedge the foreign currency exposure related to the repayment of these
+intercompany loans. (See Note 15.) In February 1999, the Company filed a shelf
+registration with the SEC for the sale of up to $500 million in debt securities,
+of which $200 million had been previously registered but not issued under the
+December 1996 registration.
+32
+35
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+In June 1996, one of the Company's Japanese subsidiaries borrowed 10,500
+million Japanese yen in a private placement with a maturity of June 26, 2011.
+Interest is paid semi-annually. The agreement provides for early retirement
+after year ten.
+In July 1999, another of the Company's Japanese subsidiaries assumed 13,000
+million in Japanese yen loans as part of its agreement to purchase a
+distribution center in Japan, which serves as collateral for the loans. These
+loans mature in equal quarterly installments during the period August 20, 2001
+through November 20, 2020. Interest is also paid quarterly.
+Amounts of long-term debt maturities in each of the years ending May 31,
+2002 through 2006 are $5.4 million, $55.5 million, $205.2 million, $5.5 million
+and $5.6 million, respectively.
+NOTE 6 -- INCOME TAXES:
+Income before income taxes and the provision for income taxes are as
+follows:
+YEAR ENDED MAY 31,
+--------------------------
+2001 2000 1999
+------ ------ ------
+(IN MILLIONS)
+Income before income taxes:
+United States.......................................... $470.7 $530.4 $598.7
+Foreign................................................ 450.7 388.8 147.4
+------ ------ ------
+$921.4 $919.2 $746.1
+====== ====== ======
+Provision for income taxes:
+Current:
+United States
+Federal............................................. $158.5 $205.0 $210.2
+State............................................... 31.6 30.6 34.3
+Foreign................................................ 76.2 58.8 50.1
+------ ------ ------
+266.3 294.4 294.6
+------ ------ ------
+Deferred:
+United States
+Federal............................................. 64.2 32.7 (7.6)
+State............................................... 2.6 1.6 4.0
+Foreign................................................ (1.4) 11.4 3.7
+------ ------ ------
+65.4 45.7 0.1
+------ ------ ------
+$331.7 $340.1 $294.7
+====== ====== ======
+The Company has indefinitely reinvested approximately $81.0 million of the
+cumulative undistributed earnings of certain foreign subsidiaries, of which
+$25.0 million was earned in the year ended May 31, 2001. Such earnings would be
+subject to U.S. taxation if repatriated to the U.S. The amount of unrecognized
+deferred tax liability associated with the undistributed earnings was
+approximately $19.9 million.
+A benefit was recognized for foreign loss carryforwards of $118.6 million
+at May 31, 2001, of which $4.0 million, $6.0 million, $31.6 million, $8.3
+million and $8.1 million expire in the years ended May 31, 2004, 2005, 2006,
+2007, and 2008, respectively. Foreign loss carryforwards of $60.6 million do not
+expire.
+As of May 31, 2001 the Company had utilized all foreign tax credits.
+33
+36
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+Deferred tax liabilities (assets) are comprised of the following:
+MAY 31,
+------------------
+2001 2000
+------- -------
+(IN MILLIONS)
+Undistributed earnings of foreign subsidiaries.............. $ 53.9 $ 24.9
+Depreciation................................................ 18.4 4.9
+Other....................................................... 20.5 14.9
+------- -------
+Gross deferred tax liabilities............................ 92.8 44.7
+------- -------
+Allowance for doubtful accounts............................. (16.3) (16.0)
+Inventory reserves.......................................... (17.2) (16.3)
+Sales return reserves....................................... (18.4) (20.8)
+Deferred compensation....................................... (40.1) (36.2)
+Reserves and accrued liabilities............................ (40.1) (33.1)
+Tax basis inventory adjustment.............................. (16.8) (14.7)
+Depreciation................................................ (25.7) (33.3)
+Foreign loss carryforwards.................................. (33.2) (72.2)
+Other....................................................... (21.5) (18.4)
+------- -------
+Gross deferred tax assets................................. (229.3) (261.0)
+------- -------
+Net deferred tax assets................................... $(136.5) $(216.3)
+======= =======
+A reconciliation from the U.S. statutory federal income tax rate to the
+effective income tax rate follows:
+YEAR ENDED
+MAY 31,
+------------
+2001 2000
+---- ----
+U.S. federal statutory rate................................. 35.0% 35.0%
+State income taxes, net of federal benefit.................. 2.4 2.3
+Other, net.................................................. (1.4) (0.3)
+---- ----
+Effective income tax rate................................... 36.0% 37.0%
+==== ====
+NOTE 7 -- REDEEMABLE PREFERRED STOCK:
+NIAC is the sole owner of the Company's authorized Redeemable Preferred
+Stock, $1 par value, which is redeemable at the option of NIAC or the Company at
+par value aggregating $0.3 million. A cumulative dividend of $0.10 per share is
+payable annually on May 31 and no dividends may be declared or paid on the
+common stock of the Company unless dividends on the Redeemable Preferred Stock
+have been declared and paid in full. There have been no changes in the
+Redeemable Preferred Stock in the three years ended May 31, 2001. As the holder
+of the Redeemable Preferred Stock, NIAC does not have general voting rights but
+does have the right to vote as a separate class on the sale of all or
+substantially all of the assets of the Company and its subsidiaries, on merger,
+consolidation, liquidation or dissolution of the Company or on the sale or
+assignment of the NIKE trademark for athletic footwear sold in the United
+States.
+NOTE 8 -- COMMON STOCK:
+The authorized number of shares of Class A Common Stock no par value and
+Class B Common Stock no par value are 110 million and 350 million, respectively.
+Each share of Class A Common Stock is convertible into one share of Class B
+Common Stock. Voting rights of Class B Common Stock are limited in certain
+circumstances with respect to the election of directors.
+In 1990, the Board of Directors adopted, and the shareholders approved, the
+NIKE, Inc. 1990 Stock Incentive Plan (the "1990 Plan"). The 1990 Plan provides
+for the issuance of up to 37.5 million shares of
+34
+37
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+Class B Common Stock in connection with stock options and other awards granted
+under such plan. The 1990 Plan authorizes the grant of incentive stock options,
+non-statutory stock options, stock appreciation rights, stock bonuses and the
+sale of restricted stock. The exercise price for incentive stock options may not
+be less than the fair market value of the underlying shares on the date of
+grant. The exercise price for non-statutory stock options, stock appreciation
+rights and the purchase price of restricted stock may not be less than 75% of
+the fair market value of the underlying shares on the date of grant. No
+consideration will be paid for stock bonuses awarded under the 1990 Plan. A
+committee of the Board of Directors administers the 1990 Plan. The committee has
+the authority to determine the employees to whom awards will be made, the amount
+of the awards, and the other terms and conditions of the awards. As of May 31,
+2001, the committee has granted substantially all non-statutory stock options at
+100% of fair market value on the date of grant under the 1990 Plan.
+During the year ended May 31, 2001, the Company granted 25,000 shares of
+restricted stock at a market value of $39.875 per share under the 1990 plan. A
+portion of the grant was immediately vested, a portion will vest in one year and
+a final portion in two years. The shares are subject to forfeiture if employment
+terminates prior to vesting. During the year ended May 31, 2000, the Company
+granted 427,000 shares of restricted stock at a market value of $27.69 per
+share. The restrictions lapse and recipients of the restricted shares become
+vested in the shares over a three-year period from the date of grant. The shares
+are subject to partial forfeiture if employment terminates within the three-year
+period. Recipients of restricted shares are entitled to cash dividends and to
+vote their respective shares. The value of all of the restricted shares was
+established by the market price on the date of grant. Unearned compensation was
+charged for the market value of the restricted shares. The unearned compensation
+is shown as a reduction of shareholders' equity and is being amortized ratably
+over the vesting period. During the years ended May 31, 2001 and 2000,
+respectively, the Company recognized $4.3 million and $1.0 million in selling
+and administrative expense related to the grants, net of forfeitures.
+During the years ended May 31, 2001 and 2000, the Company also granted
+shares of restricted stock under the Long-Term Incentive Plan ("LTIP"), adopted
+by the Board of Directors and approved by shareholders in September 1997. Under
+the LTIP, awards are made to certain executives based on performance targets
+established over varying time periods. Once performance targets are achieved,
+the shares of stock are issued and remain restricted for an additional three
+years, subject to forfeiture if the executive's employment terminates within
+that period. Plan participants are entitled to cash dividends and to vote their
+respective shares. The value of the restricted shares is established by the
+market price on the date of grant. Unearned compensation is charged for the
+market value of the restricted shares. The unearned compensation is shown as a
+reduction of shareholders' equity and is being amortized ratably over the
+service and vesting periods. Under the LTIP, a total of 115,000 restricted
+shares with an average market value of $47.56 were issued during the year ended
+May 31, 2001, and a total of 33,000 restricted shares with an average market
+value of $51.06 were issued during the year ended May 31, 2000. The Company
+recognized $2.3 million and $2.0 million of selling and administrative expense
+in the years May 31, 2001 and 2000, respectively, net of forfeitures.
+Statement of Financial Accounting Standards No. 123, "Accounting for
+Stock-Based Compensation," (FAS 123) defines a fair value method of accounting
+for employee stock compensation and encourages, but does not require, all
+entities to adopt that method of accounting. Entities electing not to adopt the
+fair value method of accounting must make pro forma disclosures of net income
+and earnings per share, as if the fair value based method of accounting defined
+in this statement had been applied.
+The Company has elected not to adopt the fair value method; however, as
+required by FAS 123, the Company has computed for pro forma disclosure purposes,
+the fair value of options granted during the years ended May 31, 2001, 2000 and
+1999 using the Black-Scholes option pricing model. The weighted average
+assumptions used for stock option grants for each of these years were a dividend
+yield of 1%; expected
+35
+38
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+volatility of the market price of the Company's common stock of 39%, 37%, and
+34% for the years ended May 31, 2001, 2000, and 1999, respectively; a
+weighted-average expected life of the options of approximately five years; and
+interest rates of 5.4% for the year ended May 31, 2001, 5.8%, 6.2% and 6.6% for
+the year ended May 31, 2000 and 5.5% and 4.9% for the year ended May 31, 1999.
+These interest rates are reflective of option grant dates throughout the year.
+Options were assumed to be exercised over the 5 year expected life for
+purposes of this valuation. Adjustments for forfeitures are made as they occur.
+For the years ended May 31, 2001, 2000 and 1999, the total value of the options
+granted, for which no previous expense has been recognized, was computed as
+approximately $5.0 million, $129.8 million and $61.6 million, respectively,
+which would be amortized on a straight line basis over the vesting period of the
+options. The weighted average fair value per share of the options granted in the
+years ended May 31, 2001, 2000 and 1999 are $17.27, $15.81 and $17.33,
+respectively.
+If the Company had accounted for these stock options issued to employees in
+accordance with FAS 123, the Company's pro forma net income and pro forma
+earnings per share (EPS) would have been reported as follows:
+2001 2000 1999
+------------------------ ------------------------ ------------------------
+NET DILUTED BASIC NET DILUTED BASIC NET DILUTED BASIC
+INCOME EPS EPS INCOME EPS EPS INCOME EPS EPS
+------ ------- ----- ------ ------- ----- ------ ------- -----
+(IN MILLIONS, EXCEPT PER SHARE DATA)
+As reported................. $589.7 $2.16 $2.18 $579.1 $2.07 $2.10 $451.4 $1.57 $1.59
+Pro Forma................... 559.0 2.05 2.07 551.2 1.97 2.00 434.3 1.51 1.53
+The pro forma effects of applying FAS 123 may not be representative of the
+effects on reported net income and earnings per share for future years since
+options vest over several years and additional awards are made each year.
+The following summarizes the stock option transactions under plans
+discussed above (adjusted for all applicable stock splits):
+WEIGHTED
+AVERAGE
+OPTION
+SHARES PRICE
+-------------- --------
+(IN THOUSANDS)
+Options outstanding May 31, 1998............................ 11,373 $26.30
+Exercised................................................. (2,665) 15.25
+Surrendered............................................... (399) 46.70
+Granted................................................... 3,556 48.76
+------
+Options outstanding May 31, 1999............................ 11,865 34.97
+Exercised................................................. (1,237) 18.23
+Surrendered............................................... (852) 52.86
+Granted................................................... 8,294 40.94
+------
+Options outstanding May 31, 2000............................ 18,070 38.02
+Exercised................................................. (2,944) 19.24
+Surrendered............................................... (1,302) 44.80
+Granted................................................... 341 40.71
+------
+Options outstanding May 31, 2001............................ 14,165 $41.28
+======
+Options exercisable at May 31,
+1999...................................................... 5,991 $22.13
+2000...................................................... 6,655 28.72
+2001...................................................... 6,626 39.70
+36
+39
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+The following table sets forth the exercise prices, the number of options
+outstanding and exercisable and the remaining contractual lives of the Company's
+stock options at May 31, 2001:
+OPTIONS OUTSTANDING
+-------------------------------------------------- OPTIONS EXERCISABLE
+WEIGHTED -------------------------------
+NUMBER OF WEIGHTED AVERAGE NUMBER OF WEIGHTED
+OPTIONS AVERAGE CONTRACTUAL LIFE OPTIONS AVERAGE
+EXERCISE PRICE OUTSTANDING EXERCISE PRICE REMAINING EXERCISABLE EXERCISE PRICE
+-------------- -------------- -------------- ---------------- -------------- --------------
+(IN THOUSANDS) (YEARS) (IN THOUSANDS)
+$ 9.56 - $21.00 1,607 $17.12 3.10 1,607 $17.12
+27.50 - 27.69 3,749 27.69 8.77 924 27.69
+28.13 - 48.44 4,143 46.96 6.94 2,341 47.56
+48.69 - 74.88 4,666 55.49 7.67 1,754 56.24
+NOTE 9 -- EARNINGS PER SHARE:
+The following represents a reconciliation from basic earnings per share to
+diluted earnings per share. Options to purchase 8.3 million and 9.7 million
+shares of common stock were outstanding at May 31, 2001 and May 31, 2000,
+respectively, but were not included in the computation of diluted earnings per
+share because the options' exercise prices were greater than the average market
+price of the common shares and, therefore, the effect would be antidilutive. No
+such antidilutive options were outstanding at May 31, 1999.
+YEAR ENDED MAY 31,
+--------------------------
+2001 2000 1999
+------ ------ ------
+(IN MILLIONS,
+EXCEPT PER SHARE DATA)
+Determination of shares:
+Average common shares outstanding...................... 270.0 275.7 283.3
+Assumed conversion of dilutive stock options and
+awards.............................................. 3.3 3.7 5.0
+------ ------ ------
+Diluted average common shares outstanding................ 273.3 279.4 288.3
+====== ====== ======
+Basic earnings per common share.......................... $ 2.18 $ 2.10 $ 1.59
+Diluted earnings per common share........................ $ 2.16 $ 2.07 $ 1.57
+NOTE 10 -- BENEFIT PLANS:
+The Company has a profit sharing plan available to substantially all
+U.S.-based employees. The terms of the plan call for annual contributions by the
+Company as determined by the Board of Directors. Contributions of $13.1 million,
+$15.7 million and $12.8 million to the plan are included in other income/expense
+in the consolidated financial statements for the years ended May 31, 2001, 2000
+and 1999, respectively. The Company has a voluntary 401(k) employee savings
+plan. The Company matches a portion of employee contributions with common stock.
+Plan changes during the year ended May 31, 2001 included a larger Company match
+percentage and a change to immediate vesting of the Company match, compared to a
+previous vesting schedule over 5 years. Company contributions to the savings
+plan were $12.7 million, $6.7 million and $7.4 million for the years ended May
+31, 2001, 2000 and 1999, respectively, and are included in selling and
+administrative expenses.
+NOTE 11 -- OTHER INCOME/EXPENSE, NET:
+Included in other income/expense for the years ended May 31, 2001, 2000,
+and 1999, was interest income of $13.9 million, $13.6 million and $13.0 million,
+respectively. In addition, included in other income/expense in the year ended
+May 31, 1999 was income of $15.0 million related to the change in accounting for
+inventories in the U.S. from the LIFO to the FIFO method. The change was not
+considered significant to
+37
+40
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+show the cumulative effect or to restate comparable income statements as
+dictated by Accounting Principles Board Opinion No. 20.
+NOTE 12 -- COMMITMENTS AND CONTINGENCIES:
+The Company leases space for certain of its offices, warehouses and retail
+stores under leases expiring from one to sixteen years after May 31, 2001. Rent
+expense aggregated $152.0 million, $145.5 million and $129.5 million for the
+years ended May 31, 2001, 2000 and 1999, respectively. Amounts of minimum future
+annual rental commitments under non-cancelable operating leases in each of the
+five years ending May 31, 2002 through 2006 are $108.9 million, $101.3 million,
+$88.0 million, $78.4 million, $70.1 million, respectively, and $298.8 million in
+later years.
+As of May 31, 2001 and 2000, the Company had letters of credit outstanding
+totaling $851.8 million and $678.2 million, respectively. These letters of
+credit were issued for the purchase of inventory.
+In the ordinary course of its business, the Company has pending various
+cases involving contractual matters, employee-related matters, distribution
+questions, product liability claims, trademark infringement and other matters.
+The Company does not believe there are any pending legal proceedings that will
+have a material impact on the Company's financial position or results of
+operations.
+NOTE 13 -- RESTRUCTURING CHARGES:
+During the year ended May 31, 1999, a $60.1 million charge was taken to
+better align the Company's cost structure with expected revenue growth rates.
+The charge (shown below in tabular format) was primarily for costs of severing
+employees, including severance packages, lease abandonments and the write down
+of assets no longer in use. Employees were terminated in Europe, Asia Pacific,
+and in the United States, and included employees affected by the Company's shift
+to outsourcing certain of its information technology functions. The original
+number of employees to be terminated was 1,291. As of May 31, 2001, 71 employees
+have found positions elsewhere in the Company and 1,200 have left the Company,
+leaving 20 still to be terminated. Due to the change in the number of employees
+that will be terminated, $0.1 million and $1.4 million of the reserve was
+reversed during the years ended May 31, 2001 and 2000, respectively.
+Also included in the charge was a $20.2 million write-off of certain assets
+related to the change in strategies around the Company's warehouse distribution
+facilities in the United States.
+The remaining accrual balance as of May 31, 2001 of $1.5 million will be
+relieved as leases expire and severance payments are completed.
+38
+41
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+Detail of the restructuring charge is as follows:
+FY99 RESERVE RESERVE RESERVE
+CASH/ RESTRUCTURING FY99 BALANCE AT FY00 BALANCE AT FY01 BALANCE AT
+DESCRIPTION NON-CASH CHARGE ACTIVITY 5/31/99 ACTIVITY 5/31/00 ACTIVITY 5/31/01
+----------- ------------- ------------- -------- ---------- -------- ---------- -------- ----------
+(IN MILLIONS)
+Elimination of Job
+Responsibilities $(39.9) $21.9 $(18.0) $14.5 $(3.5) $1.8 $(1.7)
+Severance packages....... cash (28.0) 11.7 (16.3) 12.9 (3.4) 1.8 (1.6)
+Lease cancellations &
+commitments............ cash (2.4) 1.6 (0.8) 0.7 (0.1) -- (0.1)
+Write-down of assets..... non-cash (7.8) 7.8 -- -- -- -- --
+Other.................... cash/non-cash (1.7) 0.8 (0.9) 0.9 -- -- --
+---------------------------------------------------------------------------------------------------------------------------------
+Change in warehouse
+distribution strategy.... $(20.2) $20.2 -- -- -- -- --
+Write-down of assets..... non-cash (20.2) 20.2 -- -- -- -- --
+---------------------------------------------------------------------------------------------------------------------------------
+Effect of foreign currency
+translation.............. -- $ 0.1 $ 0.1 $(0.1) -- $0.2 $ 0.2
+---------------------------------------------------------------------------------------------------------------------------------
+Total...................... $(60.1) $42.2 $(17.9) $14.4 $(3.5) $2.0 $(1.5)
+=================================================================================================================================
+During the year ended May 31, 2000, a $1.1 million reserve established as
+part of a restructuring charge in the year ended May 31, 1998 was reversed due
+to changes in outstanding lease commitments.
+NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS:
+The carrying amounts reflected in the consolidated balance sheet for cash
+and equivalents and notes payable approximate fair value due to the short
+maturities. The fair value of long-term debt is estimated using discounted cash
+flow analyses, based on the Company's incremental borrowing rates for similar
+types of borrowing arrangements. The fair value of the Company's long-term debt,
+including current portion, is approximately $437.8 million, compared to a
+carrying value of $441.3 million at May 31, 2001 and $509.9 million, compared to
+a carrying value of $520.4 million at May 31, 2000. See Note 15 for fair value
+of derivatives.
+NOTE 15 -- FINANCIAL RISK MANAGEMENT AND DERIVATIVES:
+The purpose of the Company's foreign currency hedging activities is to
+protect the Company from the risk that the eventual cash flows resulting from
+the sale and purchase of products in foreign currencies will be adversely
+affected by changes in exchange rates. In addition, the Company seeks to manage
+the impact of foreign currency fluctuations related to the repayment of
+intercompany transactions, including intercompany borrowings. The Company does
+not hold or issue financial instruments for trading purposes. It is the
+Company's policy to utilize derivative financial instruments to reduce foreign
+exchange risks where internal netting strategies cannot be effectively employed.
+Fluctuations in the value of hedging instruments are offset by fluctuations in
+the value of the underlying exposures being hedged.
+The Company uses forward exchange contracts and purchased options to hedge
+certain firm purchases and sales commitments and the related payables and
+receivables, including other third party or intercompany foreign currency
+transactions, and uses purchased currency options to hedge certain anticipated
+but not yet firmly committed transactions. Cross-currency swaps are used to
+hedge foreign currency denominated payments related to intercompany loan
+agreements. Hedged transactions are denominated primarily in European
+currencies, Japanese yen, Australian dollars, Canadian dollars, and Korean won.
+Premiums paid on purchased options and any realized gains are included in
+prepaid expenses or accrued liabilities and recognized in earnings when the
+underlying transaction is recognized. Deferred option premium cost, net of
+realized gains, was $6.1 million of net cost at May 31, 2001. Deferred option
+premium cost, net of realized gains, was
+39
+42
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+$3.8 million of net benefit at May 31, 2000. Results related to hedges of firmly
+committed transactions and the related receivables and payables are deferred and
+are recognized in earnings or as adjustments of carrying amounts when the
+offsetting results are recognized on the underlying transaction. Net realized
+and unrealized gains on forward contracts deferred at May 31, 2001 and 2000 were
+$15.8 million and $42.8 million, respectively.
+The estimated fair values of derivatives used to hedge the Company's risks
+will fluctuate over time. The fair value of the forward exchange contracts and
+cross-currency swaps are estimated by obtaining quoted market prices. The fair
+value of option contracts is estimated using option pricing models widely used
+in the financial markets. These fair value amounts should not be viewed in
+isolation, but rather in relation to the fair values of the underlying hedged
+transactions and the overall reduction in the Company's exposure to adverse
+fluctuations in foreign exchange rates. The notional amounts of derivatives
+summarized below do not necessarily represent amounts exchanged by the parties
+and, therefore, are not a direct measure of the exposure to the Company through
+its use of derivatives. The amounts exchanged are calculated on the basis of the
+notional amounts and the other terms of the derivatives, which relate to
+interest rates, exchange rates or other financial indices.
+The following table presents the aggregate notional principal amounts,
+carrying values and fair values of the Company's derivative financial
+instruments outstanding at May 31, 2001 and 2000.
+MAY 31,
+------------------------------------------------------------------
+2001 2000
+------------------------------- -------------------------------
+NOTIONAL NOTIONAL
+PRINCIPAL CARRYING FAIR PRINCIPAL CARRYING FAIR
+AMOUNTS VALUES VALUES AMOUNTS VALUES VALUES
+--------- -------- ------ --------- -------- ------
+(IN MILLIONS)
+Currency Swaps................... $ 250.0 $ 77.4 $ 87.0 $ 300.0 $ 72.4 $ 62.2
+Forward Contracts................ 2,428.3 17.8 51.7 2,430.5 33.0 62.1
+Purchased Options................ 727.5 17.7 20.4 265.4 8.9 5.7
+-------- ------ ------ -------- ------ ------
+Total.................. $3,405.8 $112.9 $159.1 $2,995.9 $114.3 $130.0
+======== ====== ====== ======== ====== ======
+Carrying values primarily represent amounts recognized for unrealized gains
+and losses on contracts which do not meet the criteria for deferral accounting
+and unamortized premiums paid on option contracts.
+The net fair value of outstanding forward contracts of $51.7 million as of
+May 31, 2001 was comprised of unrealized fair value losses of $22.9 million and
+unrealized fair value gains of $74.6 million. The net fair value of outstanding
+forward contracts of $62.1 million as of May 31, 2000 was comprised of
+unrealized fair value losses of $16.4 million and unrealized fair value gains of
+$78.5 million.
+The normal term of foreign exchange forward and option contracts entered
+into is one year or less. The currency swaps have maturity dates consistent with
+the maturity dates of the related intercompany loan which matures partially
+during the year ending May 31, 2003 and during the year ending May 31, 2004. All
+realized results deferred at May 31, 2001 will be recorded in earnings within
+one year.
+The Company is exposed to credit-related losses in the event of
+non-performance by counterparties to hedging instruments. The counterparties to
+derivative transactions are major financial institutions with high investment
+grade credit ratings and, additionally, counterparties to derivatives three
+years or greater are AA+ or better rated. However, this does not eliminate the
+Company's exposure to credit risk with these institutions. This credit risk is
+generally limited to the unrealized gains in such contracts should any of these
+counterparties fail to perform as contracted. To manage this risk, the Company
+has established strict counterparty credit guidelines which are continually
+monitored and reported to senior management according to prescribed guidelines.
+The Company utilizes a portfolio of financial institutions either headquartered
+or operating in the
+40
+43
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+same countries the Company conducts its business. As a result of the above
+considerations, the Company considers the risk of counterparty default to be
+minimal.
+In addition to hedging instruments, the Company is subject to
+concentrations of credit risk associated with cash and equivalents and accounts
+receivable. The Company places cash and equivalents with financial institutions
+with investment grade credit ratings and, by policy, limits the amount of credit
+exposure to any one financial institution. The Company considers its
+concentration risk related to accounts receivable to be mitigated by the
+Company's credit policy, the significance of outstanding balances owed by each
+individual customer at any point in time and the geographic dispersion of these
+customers.
+NOTE 16 -- OPERATING SEGMENTS AND RELATED INFORMATION:
+Operating Segments. For subsidiaries participating in NIKE brand sales
+activity, the Company's major operating segments are defined by geographic
+regions. Other brands as shown below represent activity for our subsidiaries
+Cole Haan Holdings, Inc., Bauer NIKE Hockey Inc., and NIKE IHM, Inc., and are
+considered immaterial for individual disclosure. In prior years, the Company's
+operations in Africa were included in the Americas region, but effective June 1,
+2000, these operations are included in the EMEA (Europe, Middle East, and
+Africa) region. Africa information and certain other prior year segment
+information has been reclassified to conform with current year presentation.
+Where applicable, "Corporate" represents items necessary to reconcile to the
+consolidated financial statements; these items generally include corporate
+activity and corporate eliminations. The segments are evidence of the structure
+of the Company's internal organization. Each NIKE brand geographic segment
+operates predominantly in one industry: the design, production, marketing and
+selling of sports and fitness footwear, apparel, and equipment.
+Net revenues as shown below represent sales to external customers for each
+segment. Intercompany revenues have been eliminated and are immaterial for
+separate disclosure. The Company centrally manages interest expense. Operating
+segment interest is primarily the result of intercompany lending, which is
+eliminated for consolidated purposes. The Company evaluates performance of
+individual operating segments based on Contribution Profit before Corporate
+Allocations and Income Taxes (referred to as management pre-tax income). On a
+consolidated basis, this amount represents Income Before Taxes as shown in the
+Consolidated Statements of Income. Reconciling items for management pre-tax
+income represent corporate costs that are not allocated to the operating
+segments for management reporting and intercompany eliminations for specific
+income statement items.
+Additions to long-lived assets predominantly represent capital
+expenditures, which are shown below by operating segment. Other additions to
+long-lived assets represent additions to identifiable intangibles and goodwill,
+which are immaterial for disclosure. Amortization of identifiable intangible
+assets and goodwill is considered a corporate expense and is not attributable to
+any specific operating segment. See Note 1 for further discussion on
+identifiable intangible assets and goodwill.
+41
+44
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+Accounts receivable, inventory and property, plant and equipment for
+operating segments are regularly reviewed by management and are therefore
+provided below.
+YEAR ENDED MAY 31,
+--------------------------------
+2001 2000 1999
+-------- -------- --------
+(IN MILLIONS)
+Net Revenue
+United States...................................... $4,819.0 $4,732.1 $4,750.7
+EMEA............................................... 2,584.8 2,407.0 2,293.8
+Asia/Pacific....................................... 1,110.0 955.1 844.5
+Americas........................................... 539.1 494.1 469.1
+Other brands....................................... 435.9 406.8 418.8
+-------- -------- --------
+$9,488.8 $8,995.1 $8,776.9
+======== ======== ========
+Management Pre-tax Income
+United States...................................... $ 919.6 $ 924.3 $ 873.7
+EMEA............................................... 386.3 376.9 294.8
+Asia/Pacific....................................... 206.1 146.0 68.2
+Americas........................................... 81.6 63.7 48.3
+Other brands....................................... 41.4 68.9 15.8
+Corporate.......................................... (713.6) (660.6) (554.7)
+-------- -------- --------
+$ 921.4 $ 919.2 $ 746.1
+======== ======== ========
+Capital Expenditures
+United States...................................... $ 45.2 $ 29.0 $ 50.1
+EMEA............................................... 26.2 46.1 88.8
+Asia/Pacific....................................... 52.9 269.7 43.7
+Americas........................................... 5.1 4.8 11.4
+Other brands....................................... 26.3 32.4 28.4
+Corporate.......................................... 161.9 146.8 161.7
+-------- -------- --------
+$ 317.6 $ 528.8 $ 384.1
+======== ======== ========
+Depreciation
+United States...................................... $ 51.2 $ 50.8 $ 22.8
+EMEA............................................... 38.9 39.9 41.0
+Asia/Pacific....................................... 20.5 19.4 20.8
+Americas........................................... 6.3 7.1 6.4
+Other brands....................................... 23.5 23.7 33.9
+Corporate.......................................... 57.0 47.1 73.3
+-------- -------- --------
+$ 197.4 $ 188.0 $ 198.2
+======== ======== ========
+Accounts Receivable, net
+United States...................................... $ 622.5 $ 564.7 $ 578.6
+EMEA............................................... 512.5 529.9 560.2
+Asia/Pacific....................................... 194.8 200.8 141.5
+Americas........................................... 144.7 123.0 110.6
+Other brands....................................... 118.6 121.0 104.6
+Corporate.......................................... 28.3 30.0 44.6
+-------- -------- --------
+$1,621.4 $1,569.4 $1,540.1
+======== ======== ========
+42
+45
+NIKE, INC.
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
+YEAR ENDED MAY 31,
+--------------------------------
+2001 2000 1999
+-------- -------- --------
+(IN MILLIONS)
+Inventory, net
+United States...................................... $ 744.2 $ 736.5 $ 525.3
+EMEA............................................... 298.3 357.4 320.1
+Asia/Pacific....................................... 125.8 115.9 81.5
+Americas........................................... 72.4 65.5 69.2
+Other brands....................................... 156.4 141.4 137.5
+Corporate.......................................... 27.0 29.3 37.0
+-------- -------- --------
+$1,424.1 $1,446.0 $1,170.6
+======== ======== ========
+Property, Plant and Equipment, net
+United States...................................... $ 263.5 $ 271.7 $ 294.1
+EMEA............................................... 208.2 240.4 272.1
+Asia/Pacific....................................... 403.5 426.4 148.0
+Americas........................................... 15.4 18.1 20.8
+Other brands....................................... 113.4 114.4 111.7
+Corporate.......................................... 614.8 512.4 419.1
+-------- -------- --------
+$1,618.8 $1,583.4 $1,265.8
+======== ======== ========
+Revenues by Major Product Lines. Revenues to external customers for NIKE
+brand products are attributable to sales of footwear, apparel, and equipment.
+Revenues to external customers for Other brands include external sales by Cole
+Haan Holdings, Inc. and Bauer NIKE Hockey Inc..
+YEAR ENDED MAY 31,
+--------------------------------
+2001 2000 1999
+-------- -------- --------
+(IN MILLIONS)
+Footwear............................................. $5,623.7 $5,561.5 $5,218.4
+Apparel.............................................. 2,763.6 2,547.0 2,677.1
+Equipment............................................ 665.6 479.8 462.6
+Other brands......................................... 435.9 406.8 418.8
+-------- -------- --------
+$9,488.8 $8,995.1 $8,776.9
+======== ======== ========
+Revenues and Long-Lived Assets by Geographic Area. Geographical area
+information is similar to that shown previously under operating segments with
+the exception that Other brand activity is derived predominantly from activity
+in the U.S. and Americas. Revenues derived in the U.S. were $5,144.2 million
+$5,017.4 million, $5,042.6 million, during the years ended May 31, 2001, 2000,
+and 1999, respectively. Long-lived assets, which are comprised of net property,
+plant & equipment and net identifiable intangible assets and goodwill,
+attributable to operations in the U.S. were $1,201.5 million $1,222.5 million,
+and $1,112.3 million at May 31, 2001, 2000, and 1999, respectively.
+Major Customers. During the years ended May 31, 2001, 2000 and 1999,
+revenues derived from one customer represented 11.8%, 12.4% and 10.3%,
+respectively of the Company's consolidated revenues. Sales to this customer are
+included in all segments of the Company.
+43
+46
+ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
+FINANCIAL DISCLOSURE
+There has been no change of accountants nor any disagreements with
+accountants on any matter of accounting principles or practices or financial
+statement disclosure required to be reported under this Item.
+PART III
+ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
+The information required by Item 401 of Regulation S-K regarding directors
+is included under "Election of Directors" in the definitive Proxy Statement for
+our 2001 Annual Meeting of Shareholders and is incorporated herein by reference.
+The information required by Item 401 of Regulation S-K regarding executive
+officers is included under "Executive Officers of the Registrant" in Item 1 of
+this Report. The information required by Item 405 of Regulation S-K is included
+under "Section 16(a) Beneficial Ownership Reporting Compliance" in the
+definitive Proxy Statement for our 2001 Annual Meeting of Shareholders and is
+incorporated herein by reference.
+ITEM 11. EXECUTIVE COMPENSATION
+The information required by this Item is included under "Director
+Compensation and Retirement Plan," "Executive Compensation" (but excluding the
+Performance Graph), "Personnel Committee Interlocks and Insider Participation"
+and "Employment Contracts and Termination of Employment and Change-in-Control
+Arrangements" in the definitive Proxy Statement for our 2001 Annual Meeting of
+Shareholders and is incorporated herein by reference.
+ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
+The information required by this Item is included under "Stock Holdings of
+Certain Owners and Management" in the definitive Proxy Statement for our 2001
+Annual Meeting of Shareholders and is incorporated herein by reference.
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
+The information required by this Item is included under "Certain
+Transactions and Business Relationships" and "Indebtedness of Management" in the
+definitive Proxy Statement for our 2001 Annual Meeting of Shareholders and is
+incorporated herein by reference.
+44
+47
+PART IV
+ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
+(A) The following documents are filed as part of this report:
+FORM 10-K
+PAGE NO.
+---------
+1. FINANCIAL STATEMENTS:
+Report of Independent Accountants........................... 23
+Consolidated Statements of Income for each of the three
+years ended May 31, 2001.................................... 24
+Consolidated Balance Sheets at May 31, 2001 and 2000........ 25
+Consolidated Statements of Cash Flows for each of the three
+years ended May 31, 2001.................................... 26
+Consolidated Statements of Shareholders' Equity for each of
+the three years ended May 31, 2001.......................... 27
+Notes to Consolidated Financial Statements.................. 28
+2. FINANCIAL STATEMENT SCHEDULE:
+II -- Valuation and Qualifying Accounts..................... F-1
+All other schedules are omitted because they are not applicable or the
+required information is shown in the financial statements or notes thereto.
+3. EXHIBITS:
+3.1 Restated Articles of Incorporation, as amended (incorporated
+by reference from Exhibit 3.1 to the Company's Quarterly
+Report on Form 10-Q for the fiscal quarter ended August 31,
+1995).
+3.2 Third Restated Bylaws, as amended (incorporated by reference
+from Exhibit 3.2 to the Company's Quarterly Report on Form
+10-Q for the fiscal quarter ended August 31, 1995).
+4.1 Restated Articles of Incorporation, as amended (see Exhibit
+3.1).
+4.2 Third Restated Bylaws, as amended (see Exhibit 3.2).
+4.3 Indenture between the Company and The First National Bank of
+Chicago, as Trustee (incorporated by reference from Exhibit
+4.01 to Amendment No. 1 to Registration Statement No.
+333-15953 filed by the Company on November 26, 1996).
+10.1 Credit Agreement dated as of November 17, 2000 among NIKE,
+Inc., Bank of America, N.A., individually and as Agent, and
+the other banks party thereto (incorporated by reference
+from Exhibit 10.1 to the Company's Quarterly Report on Form
+10-Q for the fiscal quarter ended November 30, 2000).
+10.2 Form of non-employee director Stock Option Agreement
+(incorporated by reference from Exhibit 10.2 to the
+Company's Quarterly Report on Form 10-Q for the fiscal
+quarter ended November 30, 2000).*
+10.3 Form of Indemnity Agreement entered into between the Company
+and each of its officers and directors (incorporated by
+reference from the Company's definitive proxy statement
+filed in connection with its annual meeting of shareholders
+held on September 21, 1987).
+10.4 NIKE, Inc. 1990 Stock Incentive Plan (incorporated by
+reference from the Company's definitive proxy statement
+filed in connection with its annual meeting of shareholders
+held on September 18, 2000).*
+10.5 NIKE, Inc. Executive Performance Sharing Plan (incorporated
+by reference from the Company's definitive proxy statement
+filed in connection with its annual meeting of shareholders
+held on September 18, 2000).*
+10.6 NIKE, Inc. Long-Term Incentive Plan (incorporated by
+reference from the Company's definitive proxy statement
+filed in connection with its annual meeting of shareholders
+held on September 22, 1997).*
+45
+48
+10.7 Collateral Assignment Split-Dollar Agreement between NIKE,
+Inc. and Philip H. Knight dated March 10, 1994 (incorporated
+by reference from Exhibit 10.7 to the Company's Annual
+Report on Form 10-K for the fiscal year ended May 31,
+1994).*
+12.1 Computation of Ratio of Earnings to Fixed Charges.
+21 Subsidiaries of the Registrant.
+23 Consent of PricewaterhouseCoopers LLP, independent
+accountants (set forth on page F-2 of this Annual Report on
+Form 10-K).
+---------------
+* Management contract or compensatory plan or arrangement.
+Upon written request to Investor Relations, NIKE, Inc., One Bowerman Drive,
+Beaverton, Oregon 97005-6453, NIKE will furnish shareholders with a copy of any
+Exhibit upon payment of $.10 per page, which represents our reasonable expenses
+in furnishing Exhibits.
+(B) The following reports on Form 8-K were filed by NIKE during the last quarter
+of fiscal 2001:
+DATE ITEM SUBJECT
+---- ---- -------
+March 10, 2001 Item 5. Other Events Earnings release for third quarter of fiscal
+year 2001
+April 26, 2001 Item 5. Other Events FAS 133 effect on first quarter of fiscal year
+2002
+46
+49
+SCHEDULE II
+VALUATION AND QUALIFYING ACCOUNTS
+(IN MILLIONS)
+BALANCE AT CHARGED TO CHARGED TO WRITE-OFFS BALANCE AT
+BEGINNING COSTS AND OTHER NET OF END OF
+DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RECOVERIES PERIOD
+----------- ---------- ---------- ---------- ---------- ----------
+FOR THE YEAR ENDED MAY 31, 1999:
+Allowance for doubtful accounts............ $71.4 $ 7.8 $1.8 $ (7.8) $73.2
+FOR THE YEAR ENDED MAY 31, 2000:
+Allowance for doubtful accounts............ $73.2 $26.0 $1.8 $(35.6) $65.4
+FOR THE YEAR ENDED MAY 31, 2001:
+Allowance for doubtful accounts............ $65.4 $32.7 $2.8 $(28.8) $72.1
+F-1
+50
+CONSENT OF INDEPENDENT ACCOUNTANTS
+We hereby consent to the incorporation by reference in the documents listed
+below of our report dated June 27, 2001 relating to the financial statements and
+financial statement schedule of NIKE, Inc., which appears in this Form 10-K:
+1. Registration Statement on Form S-8 (No. 2-81419) of NIKE, Inc.;
+2. Registration Statement on Form S-3 (No. 33-43205) of NIKE, Inc.;
+3. Registration Statement on Form S-3 (No. 33-48977) of NIKE, Inc.;
+4. Registration Statement on Form S-3 (No. 33-41842) of NIKE, Inc.;
+5. Registration Statement on Form S-8 (No. 33-63995) of NIKE, Inc.;
+6. Registration Statement on Form S-3 (No. 333-15953) of NIKE, Inc.;
+7. Registration Statement on Form S-8 (No. 333-63581) of NIKE, Inc.;
+8. Registration Statement on Form S-8 (No. 333-63583) of NIKE, Inc.; and
+9. Registration Statement on Form S-3 (No. 333-71975) of NIKE, Inc.
+/s/ PRICEWATERHOUSECOOPERS LLP
+PricewaterhouseCoopers LLP
+Portland, Oregon
+August 9, 2001
+F-2
+51
+SIGNATURES
+Pursuant to the requirements of Section 13 or 15(d) of the Securities
+Exchange Act of 1934, the registrant has duly caused this report to be signed on
+its behalf by the undersigned, thereunto duly authorized.
+Date: August 9, 2001 NIKE, INC.
+By: /s/ PHILIP H. KNIGHT
+------------------------------------
+Philip H. Knight
+Chairman of the Board, Chief
+Executive Officer and President
+Pursuant to the requirements of the Securities Exchange Act of 1934, this
+report has been signed below by the following persons on behalf of the
+registrant and in the capacities and on the dates indicated.
+SIGNATURE TITLE DATE
+--------- ----- ----
+PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR:
+/s/ PHILIP H. KNIGHT Chairman of the Board, Chief August 9, 2001
+----------------------------------------------------- Executive Officer, and
+Philip H. Knight President
+PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
+/s/ DONALD W. BLAIR Chief Financial Officer August 9, 2001
+-----------------------------------------------------
+Donald W. Blair
+DIRECTORS:
+/s/ THOMAS E. CLARKE Director August 9, 2001
+-----------------------------------------------------
+Thomas E. Clarke
+/s/ JILL K. CONWAY Director August 9, 2001
+-----------------------------------------------------
+Jill K. Conway
+/s/ RALPH D. DENUNZIO Director August 9, 2001
+-----------------------------------------------------
+Ralph D. DeNunzio
+/s/ RICHARD K. DONAHUE Director August 9, 2001
+-----------------------------------------------------
+Richard K. Donahue
+/s/ DELBERT J. HAYES Director August 9, 2001
+-----------------------------------------------------
+Delbert J. Hayes
+/s/ DOUGLAS G. HOUSER Director August 9, 2001
+-----------------------------------------------------
+Douglas G. Houser
+/s/ JOHN E. JAQUA Director August 9, 2001
+-----------------------------------------------------
+John E. Jaqua
+/s/ CHARLES W. ROBINSON Director August 9, 2001
+-----------------------------------------------------
+Charles W. Robinson
+/s/ A. MICHAEL SPENCE Director August 9, 2001
+-----------------------------------------------------
+A. Michael Spence
+/s/ JOHN R. THOMPSON, JR. Director August 9, 2001
+-----------------------------------------------------
+John R. Thompson, Jr.
+S-1
\ No newline at end of file
diff --git a/raw/filings/0000320187/2000/0001095811-01-503828/filing_metadata.csv b/raw/filings/0000320187/2000/0001095811-01-503828/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..1b7b5913c38aa99982201a1532e090694fec4dba
--- /dev/null
+++ b/raw/filings/0000320187/2000/0001095811-01-503828/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000320187,NKE,"NIKE, Inc.",10-K,2001-08-09,2001-05-31,2001-08-09T08:00:00.000Z,0001095811-01-503828,v74223e10-k.txt,"FORM 10-K PERIOD ENDED MAY 31, 2001",216922,0,0,https://www.sec.gov/Archives/edgar/data/320187/000109581101503828/v74223e10-k.txt,https://www.sec.gov/Archives/edgar/data/320187/000109581101503828/,2000,2000,1
diff --git a/raw/filings/0000320187/2000/0001095811-01-503828/item1.txt b/raw/filings/0000320187/2000/0001095811-01-503828/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b6415d632795f86af08915b6ac48ab7245db76c9
--- /dev/null
+++ b/raw/filings/0000320187/2000/0001095811-01-503828/item1.txt
@@ -0,0 +1,494 @@
+ITEM 1. BUSINESS
+GENERAL
+NIKE, 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 the context
+indicates otherwise.
+Our principal business activity involves the design, development and
+worldwide marketing of high quality footwear, apparel, equipment, and accessory
+products. NIKE is the largest seller of athletic footwear and athletic apparel
+in the world. We sell our products to approximately 17,000 retail accounts in
+the United States and through a mix of independent distributors, licensees and
+subsidiaries in approximately 140 countries around the world. Virtually all of
+our products are manufactured by independent contractors. Virtually all footwear
+products are produced outside the United States, while apparel products are
+produced both in the United States and abroad.
+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 innovative design. Running, basketball, children's, cross-training and
+women's shoes are currently our top-selling product categories and we expect
+them to continue to lead in product sales in the near future. However, we also
+market shoes designed for outdoor activities, tennis, golf, soccer, baseball,
+football, bicycling, volleyball, wrestling, cheerleading, aquatic activities,
+hiking, and other athletic and recreational uses.
+We sell active sports apparel covering most of the above categories,
+athletically inspired lifestyle apparel, as well as athletic bags and accessory
+items. NIKE apparel and accessories are designed to complement our athletic
+footwear products, 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,
+including sport balls, timepieces, eyewear, skates, bats, gloves, and other
+equipment designed for sports activities. We also have agreements for licensees
+to produce and sell NIKE brand swimwear, women's sports bras, cycling apparel,
+children's clothing, posters, school supplies, and electronic media devices.
+We also sell a line of dress and casual footwear and accessories for men,
+women and children under the brand name Cole Haan(R) through our wholly-owned
+subsidiary, Cole Haan Holdings Incorporated, headquartered in Maine. We also
+sell small amounts of various plastic products to other manufacturers through
+our wholly-owned subsidiary, NIKE IHM, Inc.
+Our wholly-owned subsidiary, Bauer NIKE Hockey Inc., headquartered in
+Greenland, New Hampshire, manufactures and distributes ice skates, skate blades,
+in-line roller skates, protective gear, hockey sticks, and hockey jerseys and
+accessories under the Bauer(R) and NIKE(R) brand names. Bauer also offers a full
+selection of products for street, roller and field hockey.
+1
+4
+SALES AND MARKETING
+The table below shows certain information regarding NIKE's United States
+and international (non-U.S.) revenues for the last three fiscal years.
+MAY 31, 2001 2000 % CHG 1999 % CHG
+------- -------- -------- ----- -------- -----
+(IN MILLIONS)
+USA Region
+Footwear................................ $3,208.9 $3,351.2 (4.2)% $3,244.6 3.3%
+Apparel................................. 1,260.3 1,154.4 9.2% 1,293.4 (10.7)%
+Equipment and other..................... 349.8 226.5 54.4% 212.7 6.5%
+-------- -------- ----- -------- -----
+Total USA....................... 4,819.0 4,732.1 1.8% 4,750.7 (0.4)%
+-------- -------- ----- -------- -----
+Europe, Middle East & Africa (EMEA) Region
+Footwear................................ 1,422.8 1,309.4 8.7% 1,207.3 8.5%
+Apparel................................. 976.3 933.9 4.5% 917.7 1.8%
+Equipment and other..................... 185.7 163.7 13.4% 168.8 (3.0)%
+-------- -------- ----- -------- -----
+Total Europe.................... 2,584.8 2,407.0 7.4% 2,293.8 4.9%
+-------- -------- ----- -------- -----
+Asia Pacific Region
+Footwear................................ 632.4 557.0 13.5% 455.3 22.3%
+Apparel................................. 374.8 321.0 16.8% 319.8 0.4%
+Equipment and other..................... 102.8 77.1 33.3% 69.4 11.1%
+-------- -------- ----- -------- -----
+Total Asia Pacific.............. 1,110.0 955.1 16.2% 844.5 13.1%
+-------- -------- ----- -------- -----
+Americas Region
+Footwear................................ 359.6 343.9 4.6% 311.2 10.5%
+Apparel................................. 152.2 137.7 10.5% 146.2 (5.8)%
+Equipment and other..................... 27.3 12.5 118.4% 11.7 6.8%
+-------- -------- ----- -------- -----
+Total Americas.................. 539.1 494.1 9.1% 469.1 5.3%
+-------- -------- ----- -------- -----
+Total NIKE brand.......................... 9,052.9 8,588.3 5.4% 8,358.1 2.8%
+-------- -------- ----- -------- -----
+Other brands.............................. 435.9 406.8 7.2% 418.8 (2.9)%
+-------- -------- ----- -------- -----
+Total Revenues............................ $9,488.8 $8,995.1 5.5% $8,776.9 2.5%
+======== ======== ===== ======== =====
+Financial information about geographic and segment operations appears in
+Note 16 of the consolidated financial statements on page 41.
+We experience moderate fluctuations in aggregate sales volume during the
+year. However, the mix of product sales may vary considerably from time to time
+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 fitness activities and changing design trends affect the
+demand for our products. We must therefore respond to trends and shifts in
+consumer preferences by adjusting the mix of existing product offerings,
+developing new products, styles and categories, and influencing sports and
+fitness preferences through aggressive marketing. This is a continuing risk.
+Failure to timely and adequately respond could have a material adverse affect on
+our sales and profitability.
+UNITED STATES MARKET
+During fiscal 2001, sales in the United States accounted for approximately
+54 percent of total revenues, compared to 56 percent in fiscal 2000 and 57
+percent in fiscal 1999. We sell to approximately 17,000 retail accounts in the
+United States. The NIKE brand domestic retail account base includes a mix of
+department stores, footwear stores, sporting goods stores, skating, tennis and
+golf shops, and other retail accounts. During fiscal year 2001, our three
+largest customers accounted for approximately 29 percent of NIKE brand sales in
+the United States, and 27 percent of total sales in the United States.
+2
+5
+We make substantial use of our "futures" ordering program, which allows
+retailers to order five to six months in advance of delivery with the guarantee
+that 90 percent of their orders will be delivered within a set time period at a
+fixed price. In fiscal year 2001, 86 percent of our U.S. footwear shipments
+(excluding Cole Haan and Bauer) were made under the futures program, compared to
+90 percent in fiscal 2000 and 91 percent in fiscal 1999. In fiscal 2001, 78
+percent of our U.S. apparel shipments were made under the futures program,
+compared to 82 percent in fiscal 2000, and 80 percent in 1999.
+We utilize 16 NIKE sales offices to solicit sales in the United States. We
+also utilize 30 independent sales representatives to sell specialty products for
+golf, cycling, water sports and outdoor activities. In addition, we operate the
+following retail outlets in the United States:
+RETAIL STORES NUMBER
+------------- ------
+NIKE factory stores (which carry primarily B-grade and
+close-out merchandise).................................... 81
+NIKE stores................................................. 2
+NIKETOWNs (designed to showcase NIKE products).............. 13
+Employee-only stores........................................ 4
+Cole Haan stores (including factory and employee stores).... 57
+---
+Total............................................. 157
+===
+NIKE's domestic distribution centers for footwear are located in Beaverton,
+Oregon, Wilsonville, Oregon, Memphis, Tennessee, and Greenland, New Hampshire.
+Apparel products are shipped from the Memphis distribution center. Cole Haan
+footwear and Bauer NIKE Hockey products are distributed primarily from
+Greenland, New Hampshire, and licensed team apparel is shipped from Foothill
+Ranch, California.
+INTERNATIONAL MARKETS
+We currently market our products in approximately 140 countries outside of
+the United States through independent distributors, licensees, subsidiaries and
+branch offices. Non-U.S. sales accounted for 46 percent of total revenues in
+fiscal 2001, compared to 44 percent in fiscal 2000 and 43 percent in fiscal
+1999. We operate 19 distribution centers in Europe, Asia, Australia, Latin
+America, and Canada, and also distribute through independent distributors and
+licensees. We estimate that our products are sold through more than 30,000
+retail accounts outside the United States. In many countries and regions,
+including Japan, Canada, Asia, Latin America, and Europe, we have a futures
+ordering program for retailers similar to the United States futures program
+described above. NIKE's three largest customers outside of the U.S. accounted
+for approximately 10 percent of non-U.S. sales.
+We operate 111 retail outlets outside the United States, which are
+comprised of NIKETOWNs, factory stores, employee stores, and Cole Haan stores.
+International branch offices and subsidiaries of NIKE are located in
+Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, Croatia, Czech
+Republic, Denmark, Finland, France, Germany, Hong Kong, Hungary, Indonesia,
+India, Ireland, Italy, Japan, Korea, Malaysia, Mexico, New Zealand, The
+Netherlands, Norway, Peoples Republic of China, The Philippines, Poland,
+Portugal, Singapore, Slovenia, South Africa, Spain, Sweden, Switzerland, Taiwan,
+Thailand, Turkey, the United Kingdom, and Vietnam.
+SIGNIFICANT CUSTOMERS
+Venator Group Inc., which operates a chain of retail stores specializing in
+athletic footwear and apparel, accounted for approximately 12 percent of global
+net sales of NIKE brand products during fiscal 2001. No other customer accounted
+for 10 percent or more of our net sales during fiscal 2001.
+ORDERS
+As of May 31, 2001, our worldwide futures orders for NIKE brand athletic
+footwear and apparel totaled $4.3 billion, compared to $4.2 billion as of May
+31, 2000. These orders are scheduled for delivery from June
+3
+6
+through November of 2001. Based upon historical data, we expect that
+approximately 95 percent of these orders will be filled in that time period,
+although the orders may be cancelable.
+PRODUCT RESEARCH AND DEVELOPMENT
+We believe that 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 strives to
+produce products that reduce or eliminate injury, aid athletic performance and
+maximize comfort.
+In addition to NIKE's own staff of specialists in the areas of
+biomechanics, 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 and concepts for
+product improvement. Employee athletes wear-test and evaluate products during
+the design and development process.
+MANUFACTURING
+In fiscal 2001, approximately five percent of total NIKE brand apparel
+production for sale to the United States market was manufactured in the United
+States by independent contract manufacturers, most of which are located in the
+southern states. The remainder was manufactured by independent contractors
+located in 28 countries. Most of this apparel production occurred in Bangladesh,
+China, Hong Kong, India, Indonesia, Malaysia, Mexico, Pakistan, The Philippines,
+Sri Lanka, Taiwan, and Thailand. Substantially all of our apparel production for
+sale to the international market was manufactured outside the U.S. Our largest
+single apparel supplier accounted for approximately eight percent of total
+fiscal 2001 apparel production.
+Virtually all of our footwear is produced outside of the United States. In
+fiscal 2001, contract suppliers in the following countries manufactured the
+following percentages of total NIKE brand footwear:
+COUNTRY PERCENT
+------- -------
+People's Republic of China.................................. 40
+Indonesia................................................... 31
+Vietnam..................................................... 13
+Thailand.................................................... 13
+Italy....................................................... 1
+Taiwan...................................................... 1
+South Korea................................................. 1
+We also have manufacturing agreements with independent factories in Argentina,
+Brazil, Mexico, South Africa, and Zimbabwe, to manufacture footwear for sale
+within those countries. Our largest single footwear supplier accounted for
+approximately 6 percent of total fiscal 2001 footwear 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. NIKE
+IHM, Inc., a wholly-owned subsidiary of NIKE, is our sole supplier 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 and its contractors
+and suppliers buy raw materials in bulk. Most raw materials are available in the
+countries where manufacturing takes place. We have thus far experienced little
+difficulty in satisfying our raw material requirements.
+Our international operations are subject to the usual risks of doing
+business abroad, such as possible revaluation of currencies, export duties,
+quotas, restrictions on the transfer of funds and, in certain parts of the
+world, political instability. See "Trade Legislation" below. We have not, to
+date, been materially affected by any such risk, but cannot predict the
+likelihood of such developments occurring. We believe that we have the ability
+to develop, over a period of time, adequate alternative sources of supply for
+the products obtained from
+4
+7
+our present suppliers outside of the United States. If events prevented us from
+acquiring products from our suppliers in a particular country, our footwear
+operations could be temporarily disrupted and we could experience an adverse
+financial impact. However, we believe that we could eliminate any such
+disruption within a period of no more than 12 months, and that any adverse
+impact would, therefore, be of a short-term nature. We believe that our
+principal competitors are subject to similar risks.
+All of our products manufactured overseas and imported into the United
+States and other countries are subject to duties collected by customs
+authorities. Customs information submitted by us is routinely subject to review
+by customs authorities. We are unable to predict whether additional customs
+duties, quotas or other restrictions may be imposed on the importation of our
+products in the future. The enactment of any such duties, quotas or restrictions
+could result in increases in the cost of our products generally and might
+adversely affect the sales or profitability of NIKE and the imported footwear
+and apparel industry as a whole.
+Since 1972, Nissho Iwai American Corporation ("NIAC"), a subsidiary of
+Nissho Iwai Corporation, a large Japanese trading company, has performed
+significant import-export financing services for us. Currently, NIAC provides
+such financing services with respect to more than 80 percent of the NIKE
+products sold outside of the United States, Europe and Japan. Any failure of
+NIAC to provide these services could disrupt our ability to acquire products
+from our suppliers and to deliver products to our customers outside of the
+United States, Europe and Japan. If prolonged, such a disruption could result in
+cancelled orders that would adversely affect sales and profitability. 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 NIAC expire on May 31, 2003.
+TRADE LEGISLATION
+Our non-U.S. operations are subject to the usual risks of doing business
+abroad, such as the imposition of import quotas or anti-dumping duties. In 1994,
+the European Union ("EU") Commission imposed quotas on certain types of footwear
+manufactured in China. These quotas replaced national quotas that had previously
+been in effect in several Member States. Footwear designed for use in sporting
+activities, meeting certain technical criteria and having a CIF (cost, insurance
+and freight) price above 9 euros ("Special Technology Athletic Footwear" or
+"STAF"), is excluded from the quotas. As a result of the STAF exclusion, and the
+amount of quota made available to us, the quotas have not, to date, had a
+material effect on our business.
+In 1995, the EU Commission, at the request of European footwear
+manufacturers, initiated two anti-dumping investigations covering footwear
+imported from the People's Republic of China, Indonesia and Thailand. As a
+result, in October 1997 the Commission imposed definitive anti-dumping duties on
+certain textile upper footwear imported from China and Indonesia. In February
+1998, the Commission imposed definitive anti-dumping duties on certain synthetic
+and leather upper footwear originating in China, Indonesia and Thailand. In the
+case of textile upper footwear, the anti-dumping duties do not cover sports
+footwear. In the case of synthetic and leather upper footwear, the anti-dumping
+duties do not cover footwear meeting the STAF technical criteria and with a CIF
+price above 5.7 euros. As a result, the anti-dumping duties for synthetic and
+leather upper footwear apply only to low cost footwear. In our case, these
+duties primarily affect children's shoes and low cost sandals. While the
+exclusions are subject to some interpretation by customs authorities, we believe
+that most of our footwear sourced in the target countries for sale in the EU
+fits within the exclusions. We have also shifted the production of these types
+of footwear to other countries. Accordingly, the anti-dumping duties have not
+had a material effect on our business.
+While we have no reason to believe that the sports footwear exclusions from
+the quotas (which will remain in place through 2004) and anti-dumping duties
+will be eliminated, the EU Commission in June 2000 issued an amendment to the
+explanatory notes to the EU's customs nomenclature ("CN"). The amendment, which
+is not legally binding, interprets some of the technical criteria for the STAF
+exclusion and the footwear types that can be classified as for use in sporting
+activity. The amendment could restrict the scope of the STAF exclusion from the
+quotas and also the sports footwear exclusions from the two EU anti-dumping
+measures. In addition, the Commission has altered its administration of the
+quota system in a manner that
+5
+8
+would preclude national customs authorities from opting to grant the exclusion
+to certain other footwear types, notably sandals.
+We cannot assess the full impact of the amendment to the CN explanatory
+notes until the national customs administrations clarify their national
+application of its non-binding provisions. In the meantime, we are assessing the
+legal issues relating to both the Commission's action in issuing the amendment
+and its related administrative action concerning other footwear originating in
+China. We will closely monitor further developments and will seek, by individual
+action and through relevant trade associations, to prevent interpretations and
+administrative measures that would subject a greater portion of our products to
+the quotas and anti-dumping duties.
+If the EU trade measures become substantially more restrictive as a result
+of the recent Commission measures, we would recommend that our European
+subsidiaries consider, in addition to possible legal remedies, shifting the
+production of such footwear to other countries in order to maintain competitive
+pricing. We believe that we are prepared to deal effectively with any such
+change of circumstances and that any adverse impact would be of a temporary
+nature. We continue to closely monitor international restrictions and maintain
+our multi-country sourcing strategy and contingency plans. We believe that our
+major competitors stand in much the same position regarding these trade
+measures.
+The People's Republic of China ("China") is a material source of footwear
+production for NIKE. As part of China's bid to join the World Trade Organization
+("WTO"), and after the United States and China reached a comprehensive trade
+agreement, former President Clinton submitted legislation to Congress which
+would grant permanent non-discriminatory "normal trade relations" ("NTR",
+formerly "most favored nation") trading status to China. In 2000, Congress
+approved the legislation, but because China had not finished its accession
+negotiations with the WTO, in June 2001 President Bush extended NTR to China on
+an annual basis. That decision was recently supported by Congress. Once China
+completes the terms of accession to the WTO, Congress has provided the President
+with the authority to grant China permanent NTR. Bringing China into the WTO and
+providing permanent NTR to China will eventually reduce barriers to producing
+products in, exporting products from, and marketing and selling products within
+China.
+We are also currently sourcing footwear and apparel products from factories
+in Vietnam. From 1995 to 1998, former President Clinton took several steps to
+normalize economic and diplomatic relations between the United States and
+Vietnam. The President's actions were steps toward restoration of full trade
+relations which includes the United States granting non-discriminatory NTR
+trading status to Vietnam which would result in lower tariffs between the two
+countries. In July 2000, the United States and Vietnam signed a comprehensive
+bilateral trade agreement, which would, among other things, provide reciprocal
+NTR between the two countries. In June 2001, that agreement was submitted to
+Congress for consideration. If approved by the U.S. Congress and the Vietnamese
+National Assembly, the United States will grant an annual extension of NTR to
+Vietnam. This grant must be renewed annually by the President and reviewed by
+the Congress. We currently believe that Congress will consider the trade
+agreement by the end of this calendar year. If Congress approves the trade
+agreement, the grant of NTR trading status for Vietnam could expand our
+production and marketing opportunities in Vietnam and allow for Vietnamese
+sourced product to enter the United States at NTR tariff rates.
+COMPETITION
+The athletic footwear, apparel and equipment industry is keenly competitive
+in the United States and on a worldwide basis. We compete internationally with
+an increasing number of athletic and leisure shoe companies, athletic and
+leisure apparel companies, sports equipment companies, and large companies
+having diversified lines of athletic and leisure shoes, apparel and equipment,
+including Reebok, Adidas and 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 and athletic apparel in the
+world. Performance and reliability of shoes, apparel, and equipment, new product
+development, price, product identity through
+6
+9
+marketing and promotion, and customer support and service are important aspects
+of competition in the athletic footwear, apparel and equipment industry. To help
+market our products, we contract with prominent and influential 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 are competitive in all of these areas.
+TRADEMARKS AND PATENTS
+We utilize trademarks on nearly all of our products and believe that having
+distinctive marks that are readily identifiable is an important factor in
+creating a market for our goods, in identifying the Company, and in
+distinguishing our goods from the goods of others. We consider our NIKE(R) and
+Swoosh Design(R) trademarks to be among our most valuable assets and we have
+registered these trademarks in over 100 countries. In addition, we own many
+other trademarks which we utilize in marketing our products. We continue to
+vigorously protect our trademarks against infringement.
+NIKE has an exclusive, worldwide license to make and sell footwear using
+patented "Air" technology. The process utilizes pressurized gas encapsulated in
+polyurethane. Some of the early NIKE AIR(R) patents have expired, which may
+enable competitors to use certain types of like technology. Subsequent NIKE AIR
+patents will not expire for several years. We also have a number of patents
+covering components and features used in various athletic and leisure shoes. We
+believe that our success 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 filing applications for United States and
+foreign patents on inventions, designs and improvements that we deem valuable.
+EMPLOYEES
+We had approximately 22,700 employees at May 31, 2001. Management considers
+its relationship with employees to be excellent. With the exception of Bauer
+NIKE Hockey Inc., our employees are not represented by a union. Of Bauer NIKE
+Hockey's North American employees, approximately 65 percent, or fewer than 450,
+are covered by three union collective bargaining agreements with three separate
+bargaining units, and of Bauer NIKE Hockey's approximately 170 employees in
+Italy, approximately 30 percent, or fewer than 50, are covered by three
+collective bargaining agreements. The collective bargaining agreements expire on
+various dates from 2001 through 2003. There has never been a material
+interruption of operations due to labor disagreements.
+EXECUTIVE OFFICERS OF THE REGISTRANT
+The executive officers of NIKE as of July 25, 2001 are as follows:
+Philip H. Knight, Chief Executive Officer, Chairman of the Board, and
+President -- Mr. Knight, 63, a director since 1968, is a co-founder of NIKE and,
+except for the period from June 1983 through September 1984, served as its
+President from 1968 to 1990, and from June 2000 to present. Prior to 1968, Mr.
+Knight was a certified public accountant with Price Waterhouse and Coopers &
+Lybrand and was an Assistant Professor of Business Administration at Portland
+State University.
+Donald W. Blair, Vice President and Chief Financial Officer -- Mr. Blair,
+43, joined NIKE in November 1999. Prior to joining NIKE, he held a number of
+financial management positions with Pepsico, Inc., including Vice President,
+Finance of Pepsi-Cola Asia, Vice President, Planning of PepsiCo's Pizza Hut
+Division, and Senior Vice President, Finance of The Pepsi Bottling Group, Inc.
+Prior to joining Pepsico, Mr. Blair was a certified public accountant with
+Deloitte, Haskins, and Sells.
+Thomas E. Clarke, President of New Ventures -- Dr. Clarke, 50, a director
+since 1994, joined the Company in 1980. He was appointed divisional Vice
+President in charge of marketing in 1987, elected corporate Vice President in
+1989, appointed General Manager in 1990, and served as President and Chief
+Operating Officer from 1994 to 1999. Dr. Clarke previously held various
+positions with the Company, primarily in research, design, development and
+marketing. Dr. Clarke holds a doctorate degree in biomechanics.
+7
+10
+Charles D. Denson, President of the NIKE Brand -- Mr. Denson, 45, has been
+employed by NIKE since February 1979. Mr. Denson held several positions within
+the Company, including his appointments as Director of USA Apparel Sales in
+1994, divisional Vice President, US Sales in 1994, divisional Vice President
+European Sales in 1997, divisional Vice President and General Manager, NIKE
+Europe in 1998, Vice President and General Manager of NIKE USA in June 2000, and
+President of the NIKE Brand in March 2001.
+Gary M. DeStefano, President of USA Operations -- Mr. DeStefano, 44, has
+been employed by NIKE since 1982, with primary responsibilities in sales and
+regional administration. Mr. DeStefano was appointed Director of Domestic Sales
+in 1990, divisional Vice President in charge of domestic sales in 1992, Vice
+President of Global Sales in 1996, Vice President and General Manager of Asia
+Pacific in March 1997, and President of USA Operations in March 2001.
+Mindy F. Grossman, Vice President of Global Apparel -- Ms. Grossman, 43,
+joined NIKE in October 2000. Prior to joining NIKE, she was President and Chief
+Executive Officer of Polo Jeans Company/Ralph Lauren, a division of Jones
+Apparel Group, from 1995 to 2000. Prior to that, Ms. Grossman was Vice President
+of New Business Development at Polo Ralph Lauren Corp. from 1994 to 1995,
+President of The Warnaco Group Inc. Chaps Ralph Lauren division, and Senior Vice
+President of The Warnaco Group Inc. Menswear division from 1991 to 1994.
+P. Eunan McLaughlin, Vice President, Asia Pacific -- Mr. McLaughlin, 43,
+joined NIKE as Vice President Sales, NIKE Europe in February 1999, was appointed
+Vice President Commercial Sales and Retail in February 2000. and became Vice
+President, Asia Pacific in June 2001. Prior to joining NIKE, he was Partner and
+Vice President of Consumer & Retail Practices Division, Korn/Ferry International
+from 1996 to 1999. From 1985 to 1996 Mr. McLaughlin held the following positions
+with Mars, Inc.: Finance Director, Sales Director, and Managing Director of
+Germany Drink Division; Operations Director of Pedigree Pet Foods; and European
+Sales & Marketing Director. Mr. McLaughlin also worked for Reynolds McCarron
+(formerly Ernst & Young) in Ireland.
+Mark G. Parker, President of the NIKE Brand -- Mr. Parker, 44, has been
+employed by NIKE since 1979 with primary responsibilities in product research,
+design and development. Mr. Parker was appointed divisional Vice President in
+charge of development in 1987, corporate Vice President in 1989, General Manager
+in 1993, Vice President of Global Footwear in 1998, and President of the NIKE
+Brand in March 2001.
+Eric D. Sprunk, Vice President, Global Footwear -- Mr. Sprunk, 37, joined
+the Company in 1993. He was appointed Finance Director and General Manager of
+the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General
+Manager, NIKE Europe Footwear in 1998, and Vice President & General Manager of
+the Americas in 2000. Mr. Sprunk was appointed Vice President, Global Footwear
+in June 2001.
+Lindsay D. Stewart, Vice President and Chief of Staff, and Assistant
+Secretary -- Mr. Stewart, 54, joined NIKE as Assistant Corporate Counsel in
+1981. Mr. Stewart became Corporate Counsel in 1983. He was appointed Vice
+President and General Counsel in 1991, and Chief of Staff in March 2001. Prior
+to joining NIKE, Mr. Stewart was in private practice and an attorney for
+Georgia-Pacific Corporation.
+Frits D. van Paasschen, Vice President and General Manager, NIKE
+Europe -- Mr. van Paasschen, 40, has been employed by NIKE since 1997. He served
+as Vice President, Strategic Planning, and was appointed Vice President and
+General Manager, The Americas and Africa in 1998, and corporate Vice President
+and General Manager, NIKE Europe in 2000. Mr. van Paasschen was formerly Vice
+President, Finance & Planning, Disney Consumer Products, The Walt Disney
+Company.
+8
+11
\ No newline at end of file
diff --git a/raw/filings/0000320187/2000/0001095811-01-503828/item13.txt b/raw/filings/0000320187/2000/0001095811-01-503828/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e506be7e1639f0a0496e67f1d74884274492158d
--- /dev/null
+++ b/raw/filings/0000320187/2000/0001095811-01-503828/item13.txt
@@ -0,0 +1,7 @@
+ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
+The information required by this Item is included under "Certain
+Transactions and Business Relationships" and "Indebtedness of Management" in the
+definitive Proxy Statement for our 2001 Annual Meeting of Shareholders and is
+incorporated herein by reference.
+44
+47
\ No newline at end of file
diff --git a/raw/filings/0000320187/2000/0001095811-01-503828/item9a.txt b/raw/filings/0000320187/2000/0001095811-01-503828/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2000/0001095811-01-503828/rp_note.txt b/raw/filings/0000320187/2000/0001095811-01-503828/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2000/0001095811-01-503828/rpt_disclosure.txt b/raw/filings/0000320187/2000/0001095811-01-503828/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2001/0000891020-02-001248/filing.txt b/raw/filings/0000320187/2001/0000891020-02-001248/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c301c3a0e2e6a6b41508c38c0a02755d49a40e65
--- /dev/null
+++ b/raw/filings/0000320187/2001/0000891020-02-001248/filing.txt
@@ -0,0 +1,6707 @@
+10-K
+1
+v83383ore10vk.htm
+FORM 10-K YEAR ENDED MAY 31, 2002
+Nike, Inc. Form 10-K Year Ended May 31, 2002 
+Table of Contents 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+Form 10-K 
+(Mark One)
+þ 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR
+15(d) 
+OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended May 31,
+2002 
+or 
+o 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR
+15(d) 
+OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the transition period
+from to . 
+Commission File No. 1-10635 
+NIKE, Inc. 
+(Exact name of Registrant as specified in its
+charter) 
+Oregon 
+93-0584541 
+(State or other jurisdiction 
+of incorporation) 
+(IRS Employer 
+Identification No.) 
+One Bowerman Drive 
+Beaverton, Oregon 97005-6453 
+(Address of principal executive
+offices) (Zip Code) 
+(503) 671-6453 
+(Registrant’s Telephone
+Number, Including Area Code) 
+Securities registered pursuant to
+Section 12(b) of the Act: 
+Class B Common Stock 
+(Title of each class) 
+New York Stock Exchange 
+(Name of each exchange on which registered) 
+Securities registered pursuant to
+Section 12(g) of the Act: 
+None
+Indicate by check mark whether the Registrant
+(1) has filed all reports required to be filed by
+Section 13 or 15(d) of the Securities Exchange Act of 1934
+during the preceding 12 months (or for such shorter period
+that the Registrant was required to file such reports), and
+(2) has been subject to such filing requirements for the
+past
+90 days. Yes þ No o 
+As of July 25, 2002, the aggregate market
+value of the Registrant’s Class A Common Stock held by
+nonaffiliates of the Registrant was $170,452,457 and the
+aggregate market value of the Registrant’s Class B
+Common Stock held by nonaffiliates of the Registrant was
+$8,037,948,759.
+As of July 25, 2002, the number of shares of
+the Registrant’s Class A Common Stock outstanding was
+98,095,361 and the number of shares of the Registrant’s
+Class B Common Stock outstanding was 168,763,188.
+DOCUMENTS INCORPORATED BY REFERENCE: 
+Parts of Registrant’s Proxy Statement for
+the annual meeting of shareholders to be held on
+September 18, 2002 are incorporated by reference into
+Part III of this Report.
+Indicate by check mark if disclosure of
+delinquent filers pursuant to Item 405 of
+Regulation S-K (229.405 of this chapter) is not contained
+herein, and will not be contained to the best of
+Registrant’s knowledge, in definitive proxy or information
+statements incorporated by reference in Part III of this
+Form 10-K or any amendment to this
+Form 10-K. o 
+TABLE OF CONTENTS 
+PART I 
+Item 1. Business 
+Item 2. Properties 
+Item 3. Legal Proceedings 
+Item 4. Submission of Matters to a Vote of Security Holders 
+PART II 
+Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters 
+Item 6. Selected Financial Data 
+Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+Item 7A. Quantitative and Qualitative Disclosures about Market Risk 
+Item 8. Financial Statements and Supplemental Data 
+REPORT OF INDEPENDENT ACCOUNTANTS 
+Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
+PART III 
+Item 10. Directors and Executive Officers of the Registrant 
+Item 11. Executive Compensation 
+Item 13. Certain Relationships and Related Transactions 
+PART IV 
+Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 
+SIGNATURES 
+EXHIBIT 10.5 
+EXHIBIT 10.12 
+EXHIBIT 12.1 
+EXHIBIT 21 
+Table of Contents 
+NIKE, INC. 
+ANNUAL REPORT ON FORM 10-K 
+TABLE OF CONTENTS 
+Page 
+PART I 
+Item 1.
+Business
+2 
+General
+2 
+Products
+2 
+Sales and Marketing
+3 
+United States Market
+4 
+International Markets
+4 
+Significant Customers
+5 
+Orders
+5 
+Product Research and Development
+5 
+Manufacturing
+5 
+Trade Legislation
+6 
+Competition
+7 
+Trademarks and Patents
+8 
+Employees
+8 
+Executive Officers of the Registrant
+8 
+Item 2.
+Properties
+10 
+Item 3.
+Legal Proceedings
+10 
+Item 4.
+Submission of Matters to a Vote of Security
+Holders
+11 
+PART II 
+Item 5.
+Market for Registrant’s Common Equity and
+Related Stockholder Matters
+11 
+Item 6.
+Selected Financial Data
+12 
+Item 7.
+Management’s Discussion and Analysis of
+Financial Condition and Results of Operations
+13 
+Item 7A.
+Quantitative and Qualitative Disclosures about
+Market Risk
+25 
+Item 8.
+Financial Statements and Supplemental Data
+29 
+Item 9.
+Changes in and Disagreements with Accountants on
+Accounting and Financial Disclosure
+54 
+PART III 
+(Except for the information set forth under
+“Executive Officers of the Registrant” in Item 1
+above, Part III is incorporated by reference from the Proxy
+Statement for the NIKE, Inc. 2002 annual meeting of
+shareholders.)
+Item 10.
+Directors and Executive Officers of the Registrant
+54 
+Item 11.
+Executive Compensation
+54 
+Item 12.
+Security Ownership of Certain Beneficial Owners
+and Management
+54 
+Item 13.
+Certain Relationships and Related Transactions
+54 
+PART IV 
+Item 14.
+Exhibits, Financial Statement Schedules and
+Reports on Form 8-K
+55 
+Signatures
+S-1 
+1
+Table of Contents 
+PART I 
+Item 1. 
+Business 
+General 
+NIKE, 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 the context indicates
+otherwise.
+Our principal business activity involves the
+design, development and worldwide marketing of high quality
+footwear, apparel, equipment, and accessory products. NIKE is
+the largest seller of athletic footwear and athletic apparel in
+the world. We sell our products to approximately
+18,000 retail accounts in the United States and through a
+mix of independent distributors, licensees and subsidiaries in
+approximately 140 countries around the world. Virtually all
+of our products are manufactured by independent contractors.
+Virtually all footwear products are produced outside the United
+States, while apparel products are produced both in the United
+States and abroad.
+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 innovative design. Running, basketball,
+children’s, cross-training and women’s shoes are
+currently our top-selling product categories and we expect them
+to continue to lead in product sales in the near future.
+However, we also market shoes designed for outdoor activities,
+tennis, golf, soccer, baseball, football, bicycling, volleyball,
+wrestling, cheerleading, aquatic activities, hiking, and other
+athletic and recreational uses.
+We sell active sports apparel covering most of
+the above categories, athletically inspired lifestyle apparel,
+as well as athletic bags and accessory items. NIKE apparel and
+accessories are designed to complement our athletic footwear
+products, 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, including sport balls, timepieces, eyewear,
+skates, bats, gloves, and other equipment designed for sports
+activities. We also have agreements for licensees to produce and
+sell NIKE brand swimwear, women’s sports bras, cycling
+apparel, children’s clothing, posters, school supplies,
+timepieces, and electronic media devices. We also sell small
+amounts of various plastic products to other manufacturers
+through our wholly-owned subsidiary, NIKE IHM, Inc.
+We sell a line of dress and casual footwear and
+accessories for men, women and children under the brand name
+Cole Haan® through our wholly-owned subsidiary, Cole Haan
+Holdings, Inc., headquartered in Yarmouth, Maine.
+Our wholly-owned subsidiary, Bauer NIKE Hockey
+Inc., headquartered in Greenland, New Hampshire, manufactures
+and distributes ice skates, skate blades, in-line roller skates,
+protective gear, hockey sticks, and hockey jerseys and
+accessories under the Bauer® and NIKE® brand names.
+Bauer also offers a full selection of products for street,
+roller and field hockey.
+In April 2002, we acquired Hurley International
+LLC, headquartered in Costa Mesa, California, which designs and
+distributes a line of action sports apparel (for surfing,
+skateboarding, and snowboarding) and youth lifestyle apparel
+under the Hurley brand name.
+2
+Table of Contents 
+Sales and Marketing 
+The table below shows certain information
+regarding NIKE’s United States and international (non-U.S.)
+revenues for the last three fiscal years.
+FY02 vs. 
+FY01 vs. 
+Fiscal 
+Fiscal 
+FY01 
+Fiscal 
+FY00 
+May 31, 
+2002 
+2001 
+% CHG 
+2000 
+% CHG 
+(In millions) 
+USA Region
+Footwear
+$ 
+3,185.0 
+$ 
+3,208.9 
+(0.7 
+)% 
+$ 
+3,351.2 
+(4.2 
+)% 
+Apparel
+1,305.3 
+1,260.3 
+3.6 
+% 
+1,154.4 
+9.2 
+% 
+Equipment and other
+425.7 
+349.8 
+21.7 
+% 
+226.5 
+54.4 
+% 
+Total USA
+4,916.0 
+4,819.0 
+2.0 
+% 
+4,732.1 
+1.8 
+% 
+Europe, Middle East and Africa (EMEA) Region
+Footwear
+1,551.8 
+1,422.8 
+9.1 
+% 
+1,309.4 
+8.7 
+% 
+Apparel
+989.5 
+976.3 
+1.4 
+% 
+933.9 
+4.5 
+% 
+Equipment and other
+190.2 
+185.7 
+2.4 
+% 
+163.7 
+13.4 
+% 
+Total EMEA
+2,731.5 
+2,584.8 
+5.7 
+% 
+2,407.0 
+7.4 
+% 
+Asia Pacific Region
+Footwear
+657.7 
+632.4 
+4.0 
+% 
+557.0 
+13.5 
+% 
+Apparel
+431.0 
+374.8 
+15.0 
+% 
+321.0 
+16.8 
+% 
+Equipment and other
+123.0 
+102.8 
+19.6 
+% 
+77.1 
+33.3 
+% 
+Total Asia Pacific
+1,211.7 
+1,110.0 
+9.2 
+% 
+955.1 
+16.2 
+% 
+Americas Region
+Footwear
+359.2 
+355.2 
+1.1 
+% 
+343.9 
+3.3 
+% 
+Apparel
+167.1 
+152.2 
+9.8 
+% 
+137.7 
+10.5 
+% 
+Equipment and other
+41.8 
+31.7 
+31.9 
+% 
+12.5 
+153.6 
+% 
+Total Americas
+568.1 
+539.1 
+5.4 
+% 
+494.1 
+9.1 
+% 
+Total NIKE brand
+9,427.3 
+9,052.9 
+4.1 
+% 
+8,588.3 
+5.4 
+% 
+Other brands
+465.7 
+435.9 
+6.8 
+% 
+406.8 
+7.2 
+% 
+Total Revenues
+$ 
+9,893.0 
+$ 
+9,488.8 
+4.3 
+% 
+$ 
+8,995.1 
+5.5 
+% 
+Financial information about geographic and
+segment operations appears in Note 16 of the consolidated
+financial statements on page 51.
+We experience moderate fluctuations in aggregate
+sales volume during the year. However, the mix of product sales
+may vary considerably from time to time 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 fitness activities and
+changing design trends affect the demand for our products. We
+must therefore respond to trends and shifts in consumer
+preferences by adjusting the mix of existing product offerings,
+developing new products, styles and categories, and influencing
+sports and fitness preferences through aggressive marketing.
+This is a continuing risk. Failure to timely and adequately
+respond could have a material adverse affect on our sales and
+profitability.
+3
+Table of Contents 
+United States Market 
+During fiscal 2002, sales in the United States
+accounted for approximately 53 percent of total revenues,
+compared to 54 percent in fiscal 2001 and 56 percent in
+fiscal 2000. We sell to approximately 18,000 retail
+accounts in the United States. The NIKE brand domestic retail
+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 fiscal
+year 2002, our three largest customers accounted for
+approximately 28 percent of NIKE brand sales in the United
+States, and 26 percent of total sales in the United States.
+We make substantial use of our
+“futures” ordering program, which allows retailers to
+order five to six months in advance of delivery with the
+guarantee that 90 percent of their orders will be delivered
+within a set time period at a fixed price. In fiscal year 2002,
+92 percent of our U.S. footwear shipments (excluding Cole
+Haan, Bauer and Hurley) were made under the futures program,
+compared to 86 percent in fiscal 2001 and 90 percent
+in fiscal 2000. In fiscal 2002, 77 percent of our
+U.S. apparel shipments were made under the futures program,
+compared to 78 percent in fiscal 2001, and 82 percent
+in 2000.
+We utilize 18 NIKE sales offices to solicit sales
+in the United States. We also utilize 15 independent sales
+representatives to sell specialty products for golf, cycling,
+water sports and outdoor activities. In addition, we operate the
+following retail outlets in the United States:
+Retail Stores 
+Number 
+NIKE factory stores (which carry primarily
+B-grade and close-out merchandise)
+78 
+NIKE stores (including NIKE Goddess Stores)
+4 
+NIKETOWNs (designed to showcase NIKE products)
+13 
+Employee-only stores
+4 
+Cole Haan stores (including factory and employee
+stores)
+61 
+Total
+160 
+NIKE’s domestic distribution centers for
+footwear are located in Beaverton, Oregon, Wilsonville, Oregon,
+Memphis, Tennessee, and Greenland, New Hampshire. Apparel
+products are shipped from our Memphis distribution center. Cole
+Haan footwear and Bauer NIKE Hockey products are distributed
+primarily from Greenland, New Hampshire, and Hurley products are
+shipped from Costa Mesa, California.
+International Markets 
+We currently market our products in approximately
+140 countries outside of the United States through independent
+distributors, licensees, subsidiaries and branch offices.
+Non-U.S. sales accounted for 47 percent of total revenues
+in fiscal 2002, compared to 46 percent in fiscal 2001 and
+44 percent in fiscal 2000. We operate 19 distribution
+centers in Europe, Asia, Australia, Latin America, and Canada,
+and also distribute through independent distributors and
+licensees. We estimate that our products are sold through more
+than 30,000 retail accounts outside the United States. In many
+countries and regions, including Japan, Canada, Asia, Latin
+America, and Europe, we have a futures ordering program for
+retailers similar to the United States futures program described
+above. NIKE’s three largest customers outside of the U.S.
+accounted for approximately 9 percent of non-U.S. sales.
+We operate 162 retail outlets outside the United
+States, which are comprised of NIKETOWNs, factory stores,
+employee stores, and Cole Haan stores.
+International branch offices and subsidiaries of
+NIKE are located in Argentina, Australia, Austria, Belgium,
+Brazil, Canada, Chile, Croatia, Czech Republic, Denmark,
+Finland, France, Germany, Hong Kong, Hungary, Indonesia, India,
+Ireland, Israel, Italy, Japan, Korea, Malaysia, Mexico, New
+Zealand, The Netherlands, Norway, Peoples Republic of China, The
+Philippines, Poland, Portugal, Singapore, Slovakia, Slovenia,
+South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand,
+Turkey, the United Kingdom, and Vietnam.
+4
+Table of Contents 
+Significant Customers 
+Foot Locker, Inc., which operates a chain of
+retail stores specializing in athletic footwear and apparel,
+accounted for approximately 11 percent of global net sales of
+NIKE brand products during fiscal 2002. No other customer
+accounted for 10 percent or more of our net sales during fiscal
+2002.
+Orders 
+As of May 31, 2002, our worldwide futures
+orders for NIKE brand athletic footwear and apparel totaled
+$4.6 billion, compared to $4.4 billion as of
+May 31, 2001. These orders are scheduled for delivery from
+June through November of 2002. Based upon historical data, we
+expect that approximately 95 percent of these orders will be
+filled in that time period, although the orders may be
+cancelable.
+Product Research and Development 
+We believe that 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 strives to
+produce products that reduce or eliminate injury, aid athletic
+performance and maximize comfort.
+In addition to NIKE’s own staff of
+specialists in the areas of biomechanics, 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 and concepts for product improvement.
+Employee athletes wear-test and evaluate products during the
+design and development process.
+Manufacturing 
+In fiscal 2002, approximately 5 percent of total
+NIKE brand apparel production for sale to the United States
+market was manufactured in the United States by independent
+contract manufacturers, most of which are located in the
+southern states. The remainder was manufactured by independent
+contractors located in 28 countries. Most of this apparel
+production occurred in Bangladesh, Bulgaria, China, Hong Kong,
+India, Indonesia, Malaysia, Mexico, Pakistan, The Philippines,
+Sri Lanka, Taiwan, Thailand, and Turkey. Substantially all of
+our apparel production for sale to the international market was
+manufactured outside the U.S. Our largest single apparel
+supplier accounted for approximately 8 percent of total fiscal
+2002 apparel production.
+Virtually all of our footwear is produced outside
+of the United States. In fiscal 2002, contract suppliers in the
+following countries manufactured the following percentages of
+total NIKE brand footwear:
+Country 
+Percent 
+People’s Republic of China
+38 
+Indonesia
+30 
+Vietnam
+15 
+Thailand
+14 
+Italy
+1 
+Taiwan
+1 
+South Korea
+1 
+We also have manufacturing agreements with
+independent factories in Argentina, Brazil, India, Mexico, South
+Africa, and Zimbabwe, to manufacture footwear for sale within
+those countries. Our largest single footwear supplier accounted
+for approximately 6 percent of total fiscal 2002 footwear
+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.
+NIKE IHM, Inc., a wholly-owned subsidiary of NIKE, is our sole
+supplier of the AIR-SOLE cushioning components used in footwear.
+The principal materials used in our
+5
+Table of Contents 
+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 and its contractors
+and suppliers buy raw materials in bulk. Most raw materials are
+available in the countries where manufacturing takes place. We
+have thus far experienced little difficulty in satisfying our
+raw material requirements.
+Our international operations are subject to the
+usual risks of doing business abroad, such as possible
+revaluation of currencies, export duties, quotas, restrictions
+on the transfer of funds and, in certain parts of the world,
+political instability. See “Trade Legislation” below.
+We have not, to date, been materially affected by any such risk,
+but cannot predict the likelihood of such developments
+occurring. 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 outside of the
+United States. If events prevented us from acquiring products
+from our suppliers in a particular country, our footwear
+operations could be temporarily disrupted and we could
+experience an adverse financial impact. However, we believe that
+we could eliminate any such disruption within a period of no
+more than 12 months, and that any adverse impact would,
+therefore, be of a short-term nature. We believe that our
+principal competitors are subject to similar risks.
+All of our products manufactured overseas and
+imported into the United States and other countries are subject
+to customs duties collected by customs authorities. Customs
+information submitted by us is routinely subject to review by
+customs authorities. We are unable to predict whether additional
+customs duties, quotas or other restrictions may be imposed on
+the importation of our products in the future. The enactment of
+any such duties, quotas or restrictions could result in
+increases in the cost of our products generally and might
+adversely affect the sales or profitability of NIKE and the
+imported footwear and apparel industry as a whole.
+Since 1972, Nissho Iwai American Corporation
+(“NIAC”), a subsidiary of Nissho Iwai Corporation, a
+large Japanese trading company, has performed significant
+import-export financing services for us. Currently, NIAC
+provides such financing services with respect to at least 80
+percent of the NIKE products sold outside of the United States,
+Europe and Japan. Any failure of NIAC to provide these services
+could disrupt our ability to acquire products from our suppliers
+and to deliver products to our customers outside of the United
+States, Europe and Japan. 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 NIAC expire on May 31, 2003.
+Trade Legislation 
+Our non-U.S. operations are subject to the usual
+risks of doing business abroad, such as the imposition of import
+quotas or anti-dumping duties. In 1994, the European Union
+(“EU”) Commission imposed quotas on certain types of
+footwear manufactured in China. These quotas replaced national
+quotas that had previously been in effect in several Member
+States. Footwear designed for use in sporting activities,
+meeting certain technical criteria and having a CIF (cost,
+insurance and freight) price above 9 euros (“Special
+Technology Athletic Footwear” or “STAF”), is
+excluded from the quotas. As a result of the STAF exclusion, and
+the amount of quota made available to us, the quotas have not,
+to date, had a material effect on our business.
+In 1995, the EU Commission, at the request of
+European footwear manufacturers, initiated two anti-dumping
+investigations covering footwear imported from the People’s
+Republic of China, Indonesia and Thailand. As a result, in 1997
+the Commission imposed definitive anti-dumping duties on certain
+textile upper footwear imported from China and Indonesia. In
+1998, the Commission imposed definitive anti-dumping duties on
+certain synthetic and leather upper footwear originating in
+China, Indonesia and Thailand. In the case of textile upper
+footwear, the anti-dumping duties do not cover sports footwear.
+In the case of synthetic and leather upper footwear, the
+anti-dumping duties do not cover footwear meeting the STAF
+technical criteria nor footwear with a CIF price above 5.7
+euros. As the anti-dumping duties for synthetic and leather
+uppers only affect some low cost footwear, these measures have
+no impact for us. While the exclusions are subject to some
+interpretation by customs authorities, we believe that most of
+our footwear sourced in the target countries for sale in the EU
+fits within the exclusions. We have also shifted the production
+of these types
+6
+Table of Contents 
+of footwear to other countries. Accordingly, the
+anti-dumping duties have not had a material effect on our
+business. The EU Commission has announced the impending
+expiration of these anti-dumping cases, subject to possible
+review requests by the European footwear manufacturers. Such
+reviews may result in the renewal of the anti-dumping
+regulations.
+The EU Commission in June 2000 issued an
+amendment to the explanatory notes to the EU’s customs
+nomenclature (“CN”). The amendment, which is not
+legally binding, interprets some of the technical criteria for
+the STAF exclusion and the footwear types that can be classified
+as for use in sporting activity. The amendment restricts
+somewhat the scope of the STAF exclusion from the quotas and
+also the sports footwear exclusions from the two EU anti-dumping
+measures. To date, the large majority of our footwear models
+fall within the exclusions provided for under the CN. Our
+innovative footwear designs may stretch the traditional concepts
+of athletic or sports footwear reflected in the technical
+criteria. We anticipate that the majority of these new designs
+will fall within the exclusions. NIKE is an active participant
+in discussions to revise the technical criteria to reflect
+technologically advanced designs.
+If the EU trade measures become substantially
+more restrictive we would consider shifting the production of
+such footwear to other countries in order to maintain
+competitive pricing. We believe that we are prepared to deal
+effectively with any such change of circumstances and that any
+adverse impact would be of a temporary nature. We continue to
+closely monitor international restrictions and maintain our
+multi-country sourcing strategy and contingency plans. We
+believe that our major competitors stand in much the same
+position regarding these trade measures.
+We currently source footwear and apparel products
+from factories in Vietnam. In July 2000, the United States and
+Vietnam signed an historic, comprehensive bilateral trade
+agreement, which, among other things, provides reciprocal,
+non-discriminatory Normal Trade Relations (“NTR”)
+between the two countries. In September 2001, that agreement was
+approved by Congress and then ratified by the Vietnamese
+National Assembly. Once approved, the United States granted an
+annual extension of NTR to Vietnam. Under current U.S. law, the
+President must renew this grant annually with the opportunity
+for review by the Congress. In June 2002, President Bush renewed
+NTR for Vietnam for an additional year and in July 2002, the
+Congress supported the President’s decision. We currently
+believe that, absent unforeseen circumstances, the President
+will continue his annual extensions of NTR to Vietnam and that
+Congress will support the President’s decisions. Ongoing
+NTR trading status for Vietnam will allow us to expand our
+production and marketing opportunities in Vietnam and allow for
+Vietnamese-sourced product to enter the United States at NTR
+tariff rates.
+Competition 
+The athletic footwear, apparel and equipment
+industry is keenly competitive in the United States and on a
+worldwide basis. We compete internationally with an increasing
+number of athletic and leisure shoe companies, athletic and
+leisure apparel companies, sports equipment companies, and large
+companies having diversified lines of athletic and leisure
+shoes, apparel and equipment, including Reebok, Adidas and
+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
+and athletic apparel in the world. Performance and reliability
+of shoes, apparel, and equipment, new product development,
+price, product identity through marketing and promotion, and
+customer support and service are important aspects of
+competition in the athletic footwear, apparel and equipment
+industry. To help market our products, we contract with
+prominent and influential 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 are competitive in all of these areas.
+7
+Table of Contents 
+Trademarks and Patents 
+We utilize trademarks on nearly all of our
+products and believe that having distinctive marks that are
+readily identifiable is an important factor in creating a market
+for our goods, in identifying 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 over
+100 countries. In addition, we own many other trademarks
+which we utilize in marketing our products. We continue to
+vigorously protect our trademarks against infringement.
+NIKE has an exclusive, worldwide license to make
+and sell footwear using patented “Air” technology. The
+process utilizes pressurized gas encapsulated in polyurethane.
+Some of the early NIKE AIR® patents have expired,
+which may enable competitors to use certain types of like
+technology. Subsequent NIKE AIR patents will not expire for
+several years. We also have a number of patents covering
+components and features used in various athletic and leisure
+shoes. We believe that our success 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 filing applications for United States and foreign
+patents on inventions, designs and improvements that we deem
+valuable.
+Employees 
+We had approximately 22,700 employees at
+May 31, 2002. Management considers its relationship with
+employees to be excellent. With the exception of Bauer NIKE
+Hockey Inc., our employees are not represented by a union. Of
+Bauer NIKE Hockey’s North American employees, approximately
+65 percent, or fewer than 450, are covered by three union
+collective bargaining agreements with three separate bargaining
+units, and all of Bauer NIKE Hockey’s approximately 150
+non-immigrant employees in Italy are covered by three collective
+bargaining agreements. The collective bargaining agreements
+expire on various dates from 2002 through 2003. There has never
+been a material interruption of operations due to labor
+disagreements.
+Executive Officers of the Registrant 
+The executive officers of NIKE as of
+July 25, 2002 are as follows:
+Philip H. Knight,
+Chief Executive Officer, Chairman of
+the Board, and President — Mr. Knight, 64, a
+director since 1968, is a co-founder of NIKE and, except for the
+period from June 1983 through September 1984, served as its
+President from 1968 to 1990, and from June 2000 to present.
+Prior to 1968, Mr. Knight was a certified public accountant
+with Price Waterhouse and Coopers & Lybrand and was an
+Assistant Professor of Business Administration at Portland State
+University.
+Donald W. Blair,
+Vice President and Chief Financial
+Officer — Mr. Blair, 44, joined NIKE in November
+1999. Prior to joining NIKE, he held a number of financial
+management positions with Pepsico, Inc., including Vice
+President, Finance of Pepsi-Cola Asia, Vice President, Planning
+of PepsiCo’s Pizza Hut Division, and Senior Vice President,
+Finance of The Pepsi Bottling Group, Inc. Prior to joining
+Pepsico, Mr. Blair was a certified public accountant with
+Deloitte, Haskins, and Sells.
+Thomas E. Clarke,
+President of New Ventures —
+Dr. Clarke, 51, a director since 1994, joined the Company
+in 1980. He was appointed divisional Vice President in charge of
+marketing in 1987, elected corporate Vice President in 1989,
+appointed General Manager in 1990, and served as President and
+Chief Operating Officer from 1994 to 2000. Dr. Clarke
+previously held various positions with the Company, primarily in
+research, design, development and marketing. Dr. Clarke
+holds a doctorate degree in biomechanics.
+Charles D. Denson,
+President of the NIKE
+Brand — Mr. Denson, 46, has been employed by NIKE
+since February 1979. Mr. Denson held several positions
+within the Company, including his appointments as Director of
+USA Apparel Sales in 1994, divisional Vice President, US Sales
+in 1994, divisional Vice President European Sales in 1997,
+divisional Vice President and General Manager, NIKE Europe in
+1998, Vice President and General Manager of NIKE USA in June
+2000, and President of the NIKE Brand in March 2001.
+8
+Table of Contents 
+Gary M. DeStefano,
+President of USA
+Operations — Mr. DeStefano, 45, has been employed
+by NIKE since 1982, with primary responsibilities in sales and
+regional administration. Mr. DeStefano was appointed
+Director of Domestic Sales in 1990, divisional Vice President in
+charge of domestic sales in 1992, Vice President of Global Sales
+in 1996, Vice President and General Manager of Asia Pacific in
+March 1997, and President of USA Operations in March 2001.
+Mindy F. Grossman,
+Vice President of Global
+Apparel — Ms. Grossman, 44, joined NIKE in
+October 2000. Prior to joining NIKE, she was President and Chief
+Executive Officer of Polo Jeans Company/ Ralph Lauren, a
+division of Jones Apparel Group, Inc. from 1995 to 2000. Prior
+to that, Ms. Grossman was Vice President of New Business
+Development at Polo Ralph Lauren Corp. from 1994 to 1995,
+President of The Warnaco Group Inc. Chaps Ralph Lauren division,
+and Senior Vice President of The Warnaco Group Inc. Menswear
+division from 1991 to 1994.
+P. Eunan McLaughlin,
+Vice President, Asia
+Pacific — Mr. McLaughlin, 44, joined NIKE as Vice
+President, Sales, NIKE Europe in February 1999, was appointed
+Vice President Commercial Sales and Retail in February 2000, and
+became Vice President, Asia Pacific in June 2001. Prior to
+joining NIKE, he was Partner and Vice President of Consumer
+& Retail Practices Division, Korn/ Ferry International from
+1996 to 1999. From 1985 to 1996 Mr. McLaughlin held the
+following positions with Mars, Inc.: Finance Director, Sales
+Director, and Managing Director of Germany Drink Division;
+Operations Director of Pedigree Pet Foods; and European Sales
+& Marketing Director. Mr. McLaughlin also worked for
+Reynolds McCarron (formerly Ernst & Young) in Ireland.
+D. Scott Olivet,
+Vice President, NIKE Subsidiaries and
+New Business Development — Mr Olivet, 40, joined NIKE
+in August 2001. Prior to joining NIKE, he was a Senior Vice
+President of Gap Inc., responsible for real estate, store
+design, and construction across Gap, Banana Republic, and Old
+Navy brands from 1998 to 2001. Prior to that, Mr. Olivet
+was employed by Bain & Company, an international
+strategic consulting firm from 1984 to 1998 (a Partner from 1993
+to 1998). In addition to direct client work, Mr. Olivet was
+the leader of the firm’s worldwide practice in
+organizational effectiveness and change management.
+Mark G. Parker,
+President of the NIKE
+Brand — Mr. Parker, 45, has been employed by NIKE
+since 1979 with primary responsibilities in product research,
+design and development. Mr. Parker was appointed divisional
+Vice President in charge of development in 1987, corporate Vice
+President in 1989, General Manager in 1993, Vice President of
+Global Footwear in 1998, and President of the NIKE Brand in
+March 2001.
+Eric D. Sprunk, Vice
+President, Global Footwear — Mr. Sprunk, 38,
+joined the Company in 1993. He was appointed Finance Director
+and General Manager of the Americas in 1994, Finance Director,
+NIKE Europe in 1995, Regional General Manager, NIKE Europe
+Footwear in 1998, and Vice President & General Manager of
+the Americas in 2000. Mr. Sprunk was appointed corporate
+Vice President, Global Footwear in June 2001.
+Lindsay D. Stewart,
+Vice President and Chief of Staff, and
+Assistant Secretary — Mr. Stewart, 55, joined
+NIKE as Assistant Corporate Counsel in 1981. Mr. Stewart
+became Corporate Counsel in 1983. He was appointed Vice
+President and General Counsel in 1991, and Chief of Staff in
+March 2001. Prior to joining NIKE, Mr. Stewart was in
+private practice and an attorney for Georgia-Pacific Corporation.
+Frits D. van Paasschen,
+Vice President and General Manager,
+NIKE Europe — Mr. van Paasschen, 42, has been employed
+by NIKE since 1997. He served as Vice President, Strategic
+Planning, and was appointed Vice President and General Manager,
+The Americas and Africa in 1998, and corporate Vice President
+and General Manager, NIKE Europe in 2000. Mr. van Paasschen
+was formerly Vice President, Finance & Planning, Disney
+Consumer Products, The Walt Disney Company.
+Roland P. Wolfram,
+Vice President, Global
+Operations & Technology — Mr. Wolfram, 42,
+joined NIKE as Vice President, Strategic Planning in November
+1998, and was appointed Vice President, Global
+Operations & Technology in February 2002. Prior to
+NIKE, Mr. Wolfram was Vice President and General Manager of
+Pacific Bell Video Services. From 1992 to 1993 he was director
+of the desktop products group for Compression Labs, Inc.
+9
+Table of Contents 
+Item 2. 
+Properties 
+Following is a summary of principal properties
+owned or leased by NIKE. Our leases expire at various dates
+through the year 2017.
+U.S. Administrative Offices: 
+Beaverton, Oregon
+(10 locations) —
+9 leased 
+Memphis, Tennessee
+(2 locations) —
+1 leased 
+Yarmouth,
+Maine 
+Charlotte, North Carolina —
+leased 
+Greenland, New Hampshire —
+leased 
+Costa Mesa, California —
+leased 
+International Administrative Offices: 
+Europe (23 locations) —
+leased 
+Africa (1 location) —
+leased 
+Asia Pacific
+(16 locations) — leased 
+Canada
+(2 locations) — leased 
+Latin
+America (2 locations) — leased 
+Sales Offices and Showrooms: 
+United States (22 locations) —
+leased 
+Europe (63 locations) —
+leased 
+Africa (1 location) —
+leased 
+Asia Pacific
+(24 locations) — leased 
+Canada
+(3 locations) — leased 
+Latin
+America (2 locations) — leased
+Distribution Facilities: 
+Greenland, New
+Hampshire — leased 
+Wilsonville,
+Oregon 
+Forest Park,
+Georgia 
+Memphis, Tennessee
+(2 locations) — 1 leased 
+Costa
+Mesa, California — leased 
+Europe
+(5 locations) — 4 leased 
+Asia
+Pacific (11 locations) —
+9 leased 
+Canada
+(2 locations) — leased 
+Latin
+America (2 locations) — leased 
+International Production Offices: 
+Europe (3 locations) —
+leased 
+Latin America
+(2 locations) — leased 
+Asia
+Pacific (24 locations) — leased 
+Manufacturing Facilities: 
+United States (3 locations) —
+1 leased 
+Canada
+(3 locations) —
+2 leased 
+Europe
+(2 locations) — leased 
+Asia
+Pacific (1 location) 
+Retail Outlets: 
+United States (160 locations) —
+157 leased 
+Europe
+(40 locations) — leased 
+Asia
+Pacific (99 locations) —
+leased 
+Latin America
+(16 locations) — leased 
+Canada
+(7 locations) — leased
+Item 3. Legal
+Proceedings 
+Except as described below, there are no material
+pending legal proceedings, other than ordinary routine
+litigation incidental to our business, to which we are a party
+or of which any of our property is the subject.
+The Company and certain of its officers and
+directors were named as defendants in four substantially
+identical securities class actions filed in the U.S. District
+Court for the District of Oregon on March 9, 14, 20, and
+April 4, 2001. On July 23, 2001, the cases were
+consolidated as In re NIKE, Inc. Securities Litigation,
+CV-01-332-K. The consolidated amended complaint sought
+unspecified damages on behalf of a purported class consisting of
+purchasers of the Company’s stock during the period
+December 20, 2000 through February 26, 2001.
+Plaintiffs allege that the defendants made false and misleading
+statements about the Company’s actual and expected business
+and financial performance in violation of federal securities
+laws. Plaintiffs further allege that certain individual
+defendants sold Company stock while in possession of material
+non-public information. In January 2002, the Court
+dismissed this action with leave to amend. On February 25,
+2002, plaintiffs filed an amended complaint extending the
+purported class period to June 29, 2000 through
+February 26, 2001 and containing the same allegations.
+Based on the available information we do not currently
+anticipate that the action will have a material financial
+impact. We believe the claims are without merit, and we intend
+to vigorously defend against them.
+A related shareholder derivative lawsuit,
+Metivier v. Denunzio, et al., 0104-04339, was filed in the
+Multnomah County Circuit Court of the State of Oregon on
+April 26, 2001. The state derivative suit was brought by
+certain Company shareholders, allegedly on behalf of the
+Company, against certain directors and officers of the Company.
+The derivative plaintiffs allege that these officers and
+directors breached their
+10
+Table of Contents 
+fiduciary duties to the Company by making or
+causing to be made alleged misstatements about the
+Company’s actual and expected financial performance while
+certain officers and directors sold Company stock and by
+allowing the Company to be sued in the shareholder class action.
+The derivative plaintiffs seek compensatory and other damages,
+and disgorgement of compensation received. On July 25,
+2001, the Court entered a stipulation and order abating the
+action until further notice.
+Another related shareholder derivative lawsuit,
+Lendman v. Knight, et al., CV-01-1153-AS, was filed in the
+U.S. District Court for the District of Oregon on July 26,
+2001. The federal derivative suit is not materially different
+from the state derivative action. It alleges substantially
+similar causes of action and seeks substantially similar
+remedies. The federal derivative action was served on the
+Company and the individual defendants on December 13, 2001
+and was also stayed pending the outcome of In re NIKE, Inc.
+Securities Litigation on December 13, 2001.
+In accordance with the Company’s Articles of
+Incorporation and Bylaws, and in accordance with indemnity
+agreements between the Company and the directors and officers
+named in the above legal actions, the Company has agreed to
+indemnify these individuals and assume their defense in the
+actions.
+The Company and certain of its officers were
+named as defendants in an lawsuit, Kasky v. NIKE, Inc. et al.,
+No. 994446, filed in 1998 in San Francisco County Superior
+Court. Plaintiff brought the action under the California
+Business and Professions Code alleging that statements made by
+the Company in response to criticism about labor practices in
+factories making its products were false or misleading.
+Plaintiff seeks injunctive relief and restitution of profits
+earned from the alleged violations of the California Code. The
+claims were dismissed by the Superior Court, with the court
+concluding that the alleged statements, if made, were protected
+speech as part of a public debate under the First Amendment to
+the United States Constitution. Plaintiff appealed the Superior
+Court ruling to the California Court of Appeals, which court
+affirmed the ruling of the lower court. Plaintiff sought review
+in the California Supreme Court, which, on May 2, 2002,
+overturned the lower court rulings by a four to three vote. The
+California Supreme Court made no ruling on the merits of
+plaintiff’s contention that the Company had made false or
+misleading statements, but concluded that the alleged statements
+were commercial speech and not entitled to the full protection
+of the First Amendment of the United States Constitution. The
+Company filed a petition for rehearing before the California
+Supreme Court, which was denied on July 31, 2002. The case
+has been remanded to the lower California state courts for
+further proceedings. We have announced our intention to seek
+review by the United States Supreme Court and have engaged
+additional counsel for that specific purpose. Since the
+litigation is in a preliminary stage, we do not currently
+anticipate that the action will have a material financial
+impact. We believe that the claims are without merit and we
+intend to vigorously defend against them.
+Item 4. Submission
+of Matters to a Vote of Security Holders 
+No matter was submitted during the fourth quarter
+of the 2002 fiscal year to a vote of security holders, through
+the solicitation of proxies or otherwise.
+PART II 
+Item 5. Market
+for Registrant’s Common Equity and Related Stockholder
+Matters 
+NIKE’s Class B Common Stock is listed
+on the New York Stock Exchange and the Pacific Stock Exchange
+and trades under the symbol NKE. At July 25, 2002, there
+were approximately 19,200 holders of record of our Class B
+Common Stock and 26 holders of record of our Class A Common
+Stock. These figures do not include beneficial owners who hold
+shares in nominee name. The Class A Common Stock is not
+publicly traded but each share is convertible upon request of
+the holder into one share of Class B Common Stock.
+We refer to the table entitled “Selected
+Quarterly Financial Data” in Item 6, which lists, for
+the periods indicated, the range of high and low closing sales
+prices on the New York Stock Exchange. That table also describes
+the amount and frequency of all cash dividends declared on our
+common stock for the 2002 and 2001 fiscal years.
+11
+Table of Contents 
+Item 6. Selected
+Financial Data 
+Financial History 
+2002 
+2001 
+2000 
+1999 
+1998 
+1997 
+1996 
+1995 
+1994 
+1993 
+1992 
+(In millions, except per share data, financial ratios and number of shareholders) 
+Year Ended May 31, 
+Revenues
+$ 
+9,893.0 
+$ 
+9,488.8 
+$ 
+8,995.1 
+$ 
+8,776.9 
+$ 
+9,553.1 
+$ 
+9,186.5 
+$ 
+6,470.6 
+$ 
+4,760.8 
+$ 
+3,789.7 
+$ 
+3,931.0 
+$ 
+3,405.2 
+Gross margin
+3,888.3 
+3,703.9 
+3,591.3 
+3,283.4 
+3,487.6 
+3,683.5 
+2,563.9 
+1,895.6 
+1,488.2 
+1,544.0 
+1,316.1 
+Gross margin %
+39.3 
+% 
+39.0 
+% 
+39.9 
+% 
+37.4 
+% 
+36.5 
+% 
+40.1 
+% 
+39.6 
+% 
+39.8 
+% 
+39.3 
+% 
+39.3 
+% 
+38.7 
+% 
+Restructuring charge, net
+— 
+0.1 
+(2.5 
+) 
+45.1 
+129.9 
+— 
+— 
+— 
+— 
+— 
+— 
+Income before accounting change
+668.3 
+589.7 
+579.1 
+451.4 
+399.6 
+795.8 
+553.2 
+399.7 
+298.8 
+365.0 
+329.2 
+Cumulative effect of change in accounting
+principle
+5.0 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+Net income
+663.3 
+589.7 
+579.1 
+451.4 
+399.6 
+795.8 
+553.2 
+399.7 
+298.8 
+365.0 
+329.2 
+Basic earnings per common share:
+Income before accounting change
+2.50 
+2.18 
+2.10 
+1.59 
+1.38 
+2.76 
+1.93 
+1.38 
+1.00 
+1.20 
+1.09 
+Cumulative effect of change in accounting
+principle
+0.02 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+Net income
+2.48 
+2.18 
+2.10 
+1.59 
+1.38 
+2.76 
+1.93 
+1.38 
+1.00 
+1.20 
+1.09 
+Diluted earnings per common share:
+Income before accounting change
+2.46 
+2.16 
+2.07 
+1.57 
+1.35 
+2.68 
+1.88 
+1.36 
+0.99 
+1.18 
+1.07 
+Cumulative effect of change in accounting
+principle
+0.02 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+Net income
+2.44 
+2.16 
+2.07 
+1.57 
+1.35 
+2.68 
+1.88 
+1.36 
+0.99 
+1.18 
+1.07 
+Average common shares outstanding
+267.7 
+270.0 
+275.7 
+283.3 
+288.7 
+288.4 
+286.6 
+289.6 
+298.6 
+302.9 
+301.7 
+Diluted average common shares outstanding
+272.2 
+273.3 
+279.4 
+288.3 
+295.0 
+297.0 
+293.6 
+294.0 
+301.8 
+308.3 
+306.4 
+Cash dividends declared per common share
+0.48 
+0.48 
+0.48 
+0.48 
+0.46 
+0.38 
+0.29 
+0.24 
+0.20 
+0.19 
+0.15 
+Cash flow from operations
+1,081.5 
+656.5 
+699.6 
+941.4 
+517.5 
+323.1 
+339.7 
+254.9 
+576.5 
+265.3 
+435.8 
+Price range of common stock
+High
+63.99 
+59.438 
+64.125 
+65.500 
+64.125 
+76.375 
+52.063 
+20.156 
+18.688 
+22.563 
+19.344 
+Low
+40.81 
+35.188 
+26.563 
+31.750 
+37.750 
+47.875 
+19.531 
+14.063 
+10.781 
+13.750 
+8.781 
+At May 31, 
+Cash and equivalents
+$ 
+575.5 
+$ 
+304.0 
+$ 
+254.3 
+$ 
+198.1 
+$ 
+108.6 
+$ 
+445.4 
+$ 
+262.1 
+$ 
+216.1 
+$ 
+518.8 
+$ 
+291.3 
+$ 
+260.1 
+Inventories
+1,373.8 
+1,424.1 
+1,446.0 
+1,170.6 
+1,396.6 
+1,338.6 
+931.2 
+629.7 
+470.0 
+593.0 
+471.2 
+Working capital
+2,321.5 
+1,838.6 
+1,456.4 
+1,818.0 
+1,828.8 
+1,964.0 
+1,259.9 
+938.4 
+1,208.4 
+1,165.2 
+964.3 
+Total assets
+6,443.0 
+5,819.6 
+5,856.9 
+5,247.7 
+5,397.4 
+5,361.2 
+3,951.6 
+3,142.7 
+2,373.8 
+2,186.3 
+1,871.7 
+Long-term debt
+625.9 
+435.9 
+470.3 
+386.1 
+379.4 
+296.0 
+9.6 
+10.6 
+12.4 
+15.0 
+69.5 
+Redeemable Preferred Stock
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+Shareholders’ equity
+3,839.0 
+3,494.5 
+3,136.0 
+3,334.6 
+3,261.6 
+3,155.9 
+2,431.4 
+1,964.7 
+1,740.9 
+1,642.8 
+1,328.5 
+Year-end stock price
+53.75 
+41.100 
+42.875 
+60.938 
+46.000 
+57.500 
+50.188 
+19.719 
+14.750 
+18.125 
+14.500 
+Market capitalization
+14,302.5 
+11,039.5 
+11,559.1 
+17,202.2 
+13,201.1 
+16,633.0 
+14,416.8 
+5,635.2 
+4,318.8 
+5,499.3 
+4,379.6 
+Financial Ratios: 
+Return on equity
+18.2 
+% 
+17.8 
+% 
+17.9 
+% 
+13.7 
+% 
+12.5 
+% 
+28.5 
+% 
+25.2 
+% 
+21.6 
+% 
+17.7 
+% 
+24.5 
+% 
+27.9 
+% 
+Return on assets
+10.9 
+% 
+10.1 
+% 
+10.4 
+% 
+8.5 
+% 
+7.4 
+% 
+17.1 
+% 
+15.6 
+% 
+14.5 
+% 
+13.1 
+% 
+18.0 
+% 
+18.4 
+% 
+Inventory turns
+4.3 
+4.0 
+4.1 
+4.3 
+4.4 
+4.8 
+5.0 
+5.2 
+4.3 
+4.5 
+3.9 
+Current ratio at May 31
+2.3 
+2.0 
+1.7 
+2.3 
+2.1 
+2.1 
+1.9 
+1.8 
+3.2 
+3.6 
+3.3 
+Price/ Earnings ratio at May 31
+(Diluted)
+21.8 
+19.0 
+20.7 
+38.8 
+34.1 
+21.5 
+26.6 
+14.5 
+14.9 
+15.3 
+13.5 
+Geographic Revenues: 
+United States
+$ 
+5,258.8 
+$ 
+5,144.2 
+$ 
+5,017.4 
+$ 
+5,042.6 
+$ 
+5,460.0 
+$ 
+5,538.2 
+$ 
+3,964.7 
+$ 
+2,997.9 
+$ 
+2,432.7 
+$ 
+2,528.8 
+$ 
+2,270.9 
+Europe
+2,731.5 
+2,584.8 
+2,407.0 
+2,293.8 
+2,096.1 
+1,789.8 
+1,334.3 
+980.4 
+927.3 
+1,085.7 
+919.8 
+Asia/ Pacific
+1,211.7 
+1,110.0 
+955.1 
+844.5 
+1,253.9 
+1,241.9 
+735.1 
+515.6 
+283.4 
+178.2 
+75.7 
+Americas (exclusive of United States)
+691.0 
+649.8 
+615.6 
+596.0 
+743.1 
+616.6 
+436.5 
+266.9 
+146.3 
+138.3 
+138.8 
+Total Revenues 
+$ 
+9,893.0 
+$ 
+9,488.8 
+$ 
+8,995.1 
+$ 
+8,776.9 
+$ 
+9,553.1 
+$ 
+9,186.5 
+$ 
+6,470.6 
+$ 
+4,760.8 
+$ 
+3,789.7 
+$ 
+3,931.0 
+$ 
+3,405.2 
+12
+Table of Contents 
+All per common share data has been adjusted to
+reflect the 2-for-1 stock splits paid October 23, 1996 and
+October 30, 1995. The Company’s Class B Common
+Stock is listed on the New York and Pacific Exchanges and trades
+under the symbol NKE. At May 31, 2002, there were
+approximately 126,000 shareholders of Class A and
+Class B common stock.
+Financial Highlights 
+Year Ended May 31, 
+2002 
+2001 
+% CHG 
+(In millions, except per share data 
+and financial ratios) 
+Revenues
+$ 
+9,893.0 
+$ 
+9,488.8 
+4.3 
+% 
+Gross margin
+3,888.3 
+3,703.9 
+5.0 
+% 
+Gross margin %
+39.3 
+% 
+39.0 
+% 
+Income before accounting change
+668.3 
+589.7 
+13.3 
+% 
+Basic earnings per common share before accounting
+change
+2.50 
+2.18 
+14.7 
+% 
+Diluted earnings per common share before
+accounting change
+2.46 
+2.16 
+13.9 
+% 
+Return on equity
+18.2 
+% 
+17.8 
+% 
+Stock price at May 31
+53.75 
+41.10 
+30.8 
+% 
+Selected Quarterly Financial Data 
+1st Quarter 
+2nd Quarter 
+3rd Quarter 
+4th Quarter 
+2002 
+2001 
+2002 
+2001 
+2002 
+2001 
+2002 
+2001 
+(Unaudited) 
+(In millions, except per share data and financial ratios) 
+Revenues
+$ 
+2,613.7 
+$ 
+2,636.7 
+$ 
+2,336.8 
+$ 
+2,198.7 
+$ 
+2,260.3 
+$ 
+2,170.1 
+$ 
+2,682.2 
+$ 
+2,483.3 
+Gross margin
+1,028.9 
+1,067.5 
+895.4 
+871.4 
+883.5 
+828.6 
+1,080.5 
+936.4 
+Gross margin %
+39.4 
+% 
+40.5 
+% 
+38.3 
+% 
+39.6 
+% 
+39.1 
+% 
+38.2 
+% 
+40.3 
+% 
+37.7 
+% 
+Income before accounting change
+204.2 
+210.2 
+129.3 
+119.4 
+126.3 
+97.4 
+208.5 
+162.7 
+Basic earnings per common share before accounting
+change
+0.74 
+0.78 
+0.48 
+0.44 
+0.47 
+0.36 
+0.78 
+0.60 
+Diluted earnings per common share before
+accounting change
+0.73 
+0.77 
+0.48 
+0.44 
+0.46 
+0.35 
+0.77 
+0.60 
+Net income
+199.2 
+210.2 
+129.3 
+119.4 
+126.3 
+97.4 
+208.5 
+162.7 
+Average common shares outstanding
+268.6 
+269.9 
+268.1 
+269.8 
+268.4 
+270.9 
+266.9 
+269.3 
+Diluted average common shares outstanding
+271.6 
+273.8 
+271.6 
+273.2 
+273.4 
+274.6 
+272.0 
+271.5 
+Cash dividends declared per common share
+0.12 
+0.12 
+0.12 
+0.12 
+0.12 
+0.12 
+0.12 
+0.12 
+Price range of common stock
+High
+51.28 
+48.00 
+53.55 
+44.50 
+61.00 
+59.44 
+63.99 
+45.09 
+Low
+40.81 
+35.19 
+42.26 
+36.38 
+52.31 
+39.05 
+52.75 
+36.30 
+Item 7. Management’s
+Discussion and Analysis of Financial Condition and Results of
+Operations 
+Critical Accounting Policies 
+Our discussion and analysis of our financial
+condition and results of operations following are based upon our
+consolidated financial statements, which have been prepared in
+accordance with accounting principles
+13
+Table of Contents 
+generally accepted in the United States. The
+preparation of these financial statements requires us to make
+estimates and judgments that affect the reported amounts of
+assets, liabilities, revenues and expenses, and related
+disclosure of contingent assets and liabilities.
+We believe that the estimates, assumptions and
+judgments involved in the accounting policies described below
+have the greatest potential impact on our financial statements,
+so we consider these to be our critical accounting policies.
+Because of the uncertainty inherent in these matters, actual
+results could differ from the estimates we use in applying the
+critical accounting policies. Certain of these critical
+accounting policies affect working capital account balances,
+including the policies for revenue recognition, the reserve for
+uncollectible accounts receivable, inventory reserves, and
+contingent payments under endorsement contracts. These policies
+require that we make estimates in the preparation of our
+financial statements as of a given date. However, since our
+business cycle is relatively short, actual results related to
+these estimates are generally known within the six-month period
+following the financial statement date. Thus, these policies
+generally affect only the timing of reported amounts across two
+to three quarters.
+Within the context of these critical accounting
+policies, we are not currently aware of any reasonably likely
+events or circumstances which would result in materially
+different amounts being reported.
+Revenue Recognition 
+We record wholesale revenues when title passes
+and the risks and rewards of ownership have passed to the
+customer, based on the terms of sale. Title passes generally
+upon shipment or upon receipt by the customer depending on the
+country of the sale and the agreement with the customer. Retail
+store revenues are recorded at the time of sale.
+In some instances, we ship product directly from
+our supplier to the customer. In these cases, we recognize
+revenue when the product is delivered to the customer. Our
+revenues may fluctuate in cases when our customers delay
+accepting shipment of product for periods up to several weeks.
+In certain countries outside of the U.S., precise
+information regarding the date of receipt by the customer is not
+readily available. In these cases, we estimate the date of
+receipt by the customer based upon historical delivery times by
+geographic location. On the basis of our tests of actual
+transactions, we have no indication that these estimates have
+been materially inaccurate historically.
+As part of our revenue recognition policy, we
+record estimated sales returns and miscellaneous claims from
+customers as reductions to revenues at the time revenues are
+recorded. We base our estimates on historical rates of product
+returns and claims, and specific identification of outstanding
+claims and outstanding returns not yet received from customers.
+In the past, actual returns and claims have not exceeded our
+reserves. However, actual returns and claims in any future
+period are inherently uncertain and thus may differ from our
+estimates. If actual or expected future returns and claims were
+significantly greater or lower than the reserves we had
+established, we would record a reduction or increase to net
+revenues in the period in which we made such determination.
+Reserve for Uncollectible Accounts
+Receivable 
+We make ongoing estimates relating to the
+collectibility of our accounts receivable and maintain a reserve
+for estimated losses resulting from the inability of our
+customers to make required payments. In determining the amount
+of the reserve, we consider our historical level of credit
+losses and make judgments about the creditworthiness of
+significant customers based on ongoing credit evaluations.
+Historically, losses from uncollectible accounts have not
+exceeded our reserves. Since we cannot predict future changes in
+the financial stability of our customers, actual future losses
+from uncollectible accounts may differ from our estimates. If
+the financial condition of our customers were to deteriorate,
+resulting in their inability to make payments, a larger reserve
+might be required. In the event we determined that a smaller or
+larger reserve was appropriate, we would record a credit or a
+charge to selling and administrative expense in the period in
+which we made such a determination.
+14
+Table of Contents 
+Inventory Reserves 
+We also make ongoing estimates relating to the
+market value of inventories, based upon our assumptions about
+future demand and market conditions. If we estimate that the net
+realizable value of our inventory is less than the cost of the
+inventory recorded on our books, we record a reserve equal to
+the difference between the cost of the inventory and the
+estimated market value. This reserve is recorded as a charge to
+cost of sales. If changes in market conditions result in
+reductions in the estimated market value of our inventory below
+our previous estimate, we would increase our reserve in the
+period in which we made such a determination and record a charge
+to cost of sales.
+Contingent Payments under Endorsement
+Contracts 
+A significant portion of our demand creation
+(advertising and promotion) expense relates to payments under
+endorsement contracts. In general, endorsement payments are
+expensed uniformly over the term of the contract. However,
+certain contract elements may be accounted for differently,
+based upon the facts and circumstances of each individual
+contract.
+Certain contracts provide for contingent payments
+to endorsers based upon specific achievements in their sports
+(e.g. winning a championship). We record selling and
+administrative expense for these amounts when the endorser
+achieves the specific goal.
+Certain contracts provide for payments based upon
+endorsers maintaining a level of performance in their sport over
+an extended period of time (e.g. maintaining a top ranking in a
+sport for a year). These amounts are reported in selling and
+administrative expense when we determine that it is probable
+that the specified level of performance will be maintained
+throughout the period. In these instances, to the extent that
+actual payments to the endorser differ from our estimate due to
+changes in the endorser’s athletic performance, increased
+or decreased selling and administrative expense may be reported
+in a future period.
+Certain contracts provide for royalty payments to
+endorsers based upon a predetermined percentage of sales of
+particular products. We expense these payments in cost of sales
+as the related sales are made. In certain contracts, we offer
+minimum guaranteed royalty payments. For contractual obligations
+for which we estimate that we will not meet the minimum
+guaranteed amount of royalty fees through sales of product, we
+record in selling and administrative expense the minimum
+guaranteed payment amount uniformly over the remaining royalty
+term.
+Property, Plant and Equipment and Other
+Long-lived Assets 
+Property, plant and equipment, including
+buildings, equipment, and computer hardware and software is
+recorded at cost (including, in some cases, the cost of internal
+labor) and is depreciated over its estimated useful life.
+Changes in circumstances (such as technological advances or
+changes to our business operations) can result in differences
+between the actual and estimated useful lives. In those cases
+where we determine that the useful life of a long-lived asset
+should be shortened, we increase depreciation expense over the
+remaining useful life to depreciate the asset’s net book
+value to its salvage value.
+Under current accounting standards, when events
+or circumstances indicate that the carrying value of a
+long-lived asset may be impaired, we estimate the future
+undiscounted cash flows to be derived from the asset to
+determine whether or not a potential impairment exists. If the
+carrying value exceeds our estimate of future undiscounted cash
+flows, we then calculate the impairment as the excess of the
+carrying value of the asset over our estimate of its fair market
+value. Any impairment charges are recorded as other expense. We
+estimate future undiscounted cash flows using assumptions about
+our expected future operating performance. Our estimates of
+undiscounted cash flows may differ from actual cash flows due
+to, among other things, technological changes, economic
+conditions, or changes to our business operations. For fiscal
+2002, no significant impairment related to the carrying value of
+our long-lived assets (including property, plant, and equipment,
+goodwill, and other intangible assets) has been recorded under
+current accounting standards. However, as of June 1, 2002,
+we will adopt Statement of Financial Accounting Standards (SFAS)
+No. 142, “Goodwill and Other Intangible Assets.”
+We expect to record an impairment charge related to the goodwill
+15
+Table of Contents 
+and other intangible assets of our subsidiaries
+Bauer NIKE Hockey, Inc. and Cole-Haan Holdings, Inc. in the
+first quarter of fiscal 2003. See “Recently Issued
+Accounting Standards” below.
+Hedge Accounting for Derivatives 
+We use forward exchange contracts and option
+contracts to hedge certain anticipated foreign currency exchange
+transactions, as well as any resulting receivable or payable
+balance. When specific criteria required by SFAS No. 133,
+“Accounting for Derivative Instruments and Hedging
+Activities,” have been met, changes in fair values of hedge
+contracts relating to anticipated transactions are recorded in
+other comprehensive income rather than current earnings until
+the underlying hedged transaction affects current earnings. In
+most cases, this results in gains and losses on hedge
+derivatives being released from other comprehensive income into
+current earnings some time after the maturity of the derivative.
+One of the criteria for this accounting treatment is that the
+forward exchange contract amount should not be in excess of
+specifically identified anticipated transactions. By their very
+nature, our estimates of anticipated transactions may fluctuate
+over time and may ultimately vary from actual transactions. When
+anticipated transaction estimates or actual transaction amounts
+decrease below hedged levels, or when the timing of transactions
+changes significantly, we are required to reclassify at least a
+portion of the cumulative changes in fair values of the related
+hedge contracts from other comprehensive income to other income/
+expense during the quarter in which such changes occur. Once an
+anticipated transaction estimate or actual transaction amount
+decreases below hedged levels, we make adjustments to the
+related hedge contract in order to reduce the amount of the
+hedge contract to that of the revised anticipated transaction.
+Taxes 
+We record valuation allowances against our
+deferred tax assets, when necessary, in accordance with SFAS
+No. 109, “Accounting for Income Taxes.”
+Realization of deferred tax assets (such as net operating loss
+carryforwards) is dependent on future taxable earnings and is
+therefore uncertain. At least quarterly, we assess the
+likelihood that our deferred tax asset balance will be recovered
+from future taxable income. To the extent we believe that
+recovery is not likely, we establish a valuation allowance
+against our deferred tax asset, increasing our income tax
+expense in the period such determination is made.
+In addition, we have not recorded U.S. income tax
+expense for foreign earnings that we have declared as
+indefinitely reinvested offshore, thus reducing our overall
+income tax expense. The amount of earnings designated as
+indefinitely reinvested offshore is based upon the actual
+deployment of such earnings in our offshore assets and our
+expectations of the future cash needs of our U.S. and foreign
+entities. Income tax considerations are also a factor in
+determining the amount of foreign earnings to be repatriated.
+In the event actual cash needs of our U.S.
+entities exceed our current expectations or the actual cash
+needs of our foreign entities are less than expected, we may
+need to repatriate foreign earnings which have been designated
+as indefinitely reinvested offshore. This would result in
+additional income tax expense being recorded.
+We take a conservative approach in determining
+the amount of foreign earnings to declare as reinvested
+offshore. As required by U.S. generally accepted accounting
+principles, the presumption is that such earnings will be
+repatriated in the future. In order to overcome this
+presumption, we carefully review all factors which drive the
+ultimate disposition of such foreign earnings, and apply
+stringent standards to overcoming the presumption of
+repatriation. Despite this conservative approach, because the
+determination involves our future plans and expectations of
+future events, there is a possibility that amounts declared as
+indefinitely reinvested offshore may ultimately be repatriated.
+Conversely, this conservative approach may result in accumulated
+foreign earnings (for which U.S. income taxes have been
+provided) being determined in the future to be indefinitely
+reinvested offshore. In this latter case, our income tax expense
+would be reduced in the year of such determination.
+On an interim basis, we estimate what our
+effective tax rate will be for the full fiscal year and record a
+quarterly income tax provision in accordance with the
+anticipated annual rate. As the fiscal year progresses, we
+continually refine our estimate based upon actual events and
+earnings by jurisdiction during the year. This
+16
+Table of Contents 
+continual estimation process periodically results
+in a change to our expected effective tax rate for the fiscal
+year. When this occurs, we adjust the income tax provision
+during the quarter in which the change in estimate occurs so
+that the year-to-date provision equals the expected annual rate.
+Other Contingencies 
+In the ordinary course of business, we are
+involved in legal proceedings involving contractual and
+employment relationships, product liability claims, trademark
+rights, and a variety of other matters. We record contingent
+liabilities resulting from claims against us when it is probable
+that a liability has been incurred and the amount of the loss is
+reasonably estimable. We disclose contingent liabilities when
+there is a reasonable possibility that the ultimate loss will
+exceed the recorded liability. Estimating probable losses
+requires analysis of multiple factors, in some cases including
+judgments about the potential actions of third party claimants
+and courts. Therefore, actual losses in any future period are
+inherently uncertain. Currently, we do not believe that any of
+our pending legal proceedings or claims will have a material
+impact on our financial position or results of operations.
+However, if actual or estimated probable future losses exceed
+our recorded liability for such claims, we would record
+additional charges as other expense during the period in which
+the actual loss or change in estimate occurred.
+Results of Operations 
+Fiscal 2002 Highlights 
+• 
+Revenues increased 4.3% to $9.9 billion,
+compared to $9.5 billion in fiscal 2001.
+• 
+Income before the cumulative effect of an
+accounting change increased to $668.3 million from
+$589.7 million in the prior year, an increase of 13.3%.
+After the effect of the accounting change, net income rose 12.5%.
+• 
+Diluted earnings per share before the effect of
+the accounting change increased by 13.9%, from $2.16 to $2.46.
+After the effect of the accounting change, diluted earnings per
+share rose 13.0%.
+• 
+Gross margins increased as a percentage of
+revenues to 39.3% from 39.0% in fiscal 2001.
+• 
+Selling and administrative expenses increased as
+a percentage of revenues to 28.5% from 28.3% in fiscal 2001.
+Fiscal 2002 Compared to Fiscal
+2001 
+Net income increased 13.3% over fiscal 2001, from
+$589.7 million to $668.3 million (excluding an
+after-tax loss of $5.0 million related to the cumulative
+effect of the adoption of SFAS No. 133, “Accounting
+for Derivative Instruments and Hedging Activities”).
+Diluted earnings per share before the effect of the accounting
+change improved 13.9%, from $2.16 to $2.46. These increases
+reflected a 10.4% increase in income before income taxes and a
+1.7 point decrease in our effective income tax rate. The
+increase in income before income taxes was due to increased
+revenues, improved gross margins and lower interest and other
+expenses, partially offset by a slight increase in selling and
+administrative expenses as a percentage of revenues.
+Fiscal 2002 revenues were the highest in our
+history, reflecting increased NIKE brand sales in all of our
+geographic regions. In the U.S., NIKE brand revenues increased
+2.0% for the fiscal year, driven by increased sales of apparel
+and equipment. The increased sales in apparel reflected higher
+demand for in-line products, particularly for NIKE brand and
+Brand Jordan basketball apparel, more than offsetting the effect
+of the expiration of our apparel license agreement with the
+National Football League last year. In equipment, our rapidly
+growing golf business drove a 21.7% increase for the year.
+U.S. footwear revenues declined 0.7% versus
+fiscal 2001. While in-line sales of footwear increased compared
+to last year, particularly in the mid-range price segment,
+close-out sales decreased significantly. The reduction in
+close-out sales reflected both our efforts to limit the
+availability of close-out products in the marketplace (in order
+to build overall profitability) and relatively high levels of
+close-out sales in the last half of fiscal 2001 due to supply
+chain system disruptions discussed further below in the
+Fiscal 2001 Compared to 
+17
+Table of Contents 
+Fiscal 2000 section.
+As in the apparel business, sales of NIKE brand and Brand Jordan
+basketball footwear products were the primary drivers of
+increased wholesale sales of in-line footwear during the year.
+In fiscal 2002, NIKE brand revenues from our
+international regions continued to grow versus the prior year,
+both as a percentage of total company revenues and in total
+dollars. These revenues represented 45.6% of total company
+revenues as compared to 44.6% in fiscal 2001. Revenues from our
+international regions were $4.5 billion as compared to
+$4.2 billion in fiscal 2001, a 6.6% increase. Had the U.S.
+dollar remained constant with the prior year, these
+international revenues would have increased 12.4%, and
+consolidated revenues would have increased 6.9% (compared to
+4.3% growth as reported).
+Increased revenues in each of our international
+regions resulted from higher demand for products in all NIKE
+brand businesses: footwear, apparel, and equipment. Revenues in
+our Europe, Middle East, and Africa (EMEA) region increased for
+the eighth consecutive year. Fiscal 2002 reported revenues in
+EMEA increased by 5.7% over fiscal 2001, a 9.6% increase in
+constant dollars. In our Asia Pacific region, reported revenues
+grew 9.2%, a 19.3% increase in constant dollars. The Americas
+region grew reported revenues 5.4%, an 11.9% increase in
+constant dollars, despite a drop-off in sales in Argentina
+during the second half of the year due to that country’s
+economic crisis.
+In fiscal 2002, other revenue, which primarily
+includes revenues from Bauer NIKE Hockey, Cole Haan, and Hurley,
+increased 6.8% to $465.7 million.
+Foot Locker, Inc. is our largest single customer
+and represented 10.9% of our worldwide revenues in fiscal 2002.
+Foot Locker has expressed its intention to reduce the emphasis
+of its U.S. business on higher-priced, premium footwear and
+place more focus on moderately-priced offerings. Due to this
+change in strategy, Foot Locker’s futures orders in the
+U.S. for the holiday season (scheduled for delivery from
+September through November 2002) decreased significantly versus
+the same period in the previous year. In spite of the reduction
+in orders from Foot Locker, total U.S. futures orders for
+the September to November period are down only 2.3% versus the
+prior year and worldwide futures orders for the same period
+increased 3.0% versus fiscal 2002.
+The impact of lower orders from Foot Locker for
+the September to November period was largely included in the
+June to November futures orders reported in our June 27,
+2002 press release. However, additional changes in November
+orders from Foot Locker reduced the overall growth of worldwide
+futures for the six-month period by approximately 30 basis
+points to 6.3%.
+Although we expect Foot Locker to continue to be
+an important retail partner for NIKE, second half U.S. footwear
+orders from this customer will likely be significantly below the
+prior year. We are aggressively pursuing incremental sales
+across our business as we work to offset these declines and
+achieve our worldwide revenue growth goals for the year. We
+believe there continues to be strong consumer demand for
+high-end, performance footwear; this segment has always been
+central to the success of the NIKE brand. Therefore, we will
+continue to work aggressively with those retailers who are
+focused on serving this market. While the success of these
+efforts over the next few quarters is uncertain, we remain
+confident in the long-term strength of our brand and our
+business.
+Worldwide futures (advance) orders for NIKE brand
+athletic footwear and apparel scheduled for delivery from June
+through November 2002 were 6.3% higher than such orders booked
+in the comparable period of fiscal 2002. The percentage growth
+in futures orders is not necessarily indicative of our
+expectation of revenue growth in subsequent periods. This is
+because the mix of orders can shift between advance/futures and
+at-once orders. In addition, exchange rate fluctuations as well
+as differing levels of order cancellations can cause differences
+in the comparisons between future orders and actual revenues.
+Finally, a significant portion of our revenues are not derived
+from futures orders, including wholesale sales of equipment,
+U.S. licensed team apparel, Bauer NIKE Hockey, Cole Haan,
+Hurley, and retail sales across all brands. In the first quarter
+of fiscal 2003, we expect that revenue growth will lag futures
+order growth, reflecting lower close-out sales versus the first
+quarter of fiscal 2002 and lower retail sales versus the same
+period last year as U.S. retail sales have remained at
+relatively low levels since the terrorist attacks of
+September 11, 2001.
+18
+Table of Contents 
+The breakdown of revenues follows:
+FY02 vs. 
+FY01 vs. 
+Fiscal 
+Fiscal 
+FY01 
+Fiscal 
+FY00 
+May 31, 
+2002 
+2001 
+% CHG 
+2000 
+% CHG 
+(In millions) 
+USA Region
+Footwear
+$ 
+3,185.0 
+$ 
+3,208.9 
+(0.7 
+)% 
+$ 
+3,351.2 
+(4.2 
+)% 
+Apparel
+1,305.3 
+1,260.3 
+3.6 
+% 
+1,154.4 
+9.2 
+% 
+Equipment and other
+425.7 
+349.8 
+21.7 
+% 
+226.5 
+54.4 
+% 
+Total USA
+4,916.0 
+4,819.0 
+2.0 
+% 
+4,732.1 
+1.8 
+% 
+EMEA Region
+Footwear
+1,551.8 
+1,422.8 
+9.1 
+% 
+1,309.4 
+8.7 
+% 
+Apparel
+989.5 
+976.3 
+1.4 
+% 
+933.9 
+4.5 
+% 
+Equipment and other
+190.2 
+185.7 
+2.4 
+% 
+163.7 
+13.4 
+% 
+Total EMEA
+2,731.5 
+2,584.8 
+5.7 
+% 
+2,407.0 
+7.4 
+% 
+Asia Pacific Region
+Footwear
+657.7 
+632.4 
+4.0 
+% 
+557.0 
+13.5 
+% 
+Apparel
+431.0 
+374.8 
+15.0 
+% 
+321.0 
+16.8 
+% 
+Equipment and other
+123.0 
+102.8 
+19.6 
+% 
+77.1 
+33.3 
+% 
+Total Asia Pacific
+1,211.7 
+1,110.0 
+9.2 
+% 
+955.1 
+16.2 
+% 
+Americas Region
+Footwear
+359.2 
+355.2 
+1.1 
+% 
+343.9 
+3.3 
+% 
+Apparel
+167.1 
+152.2 
+9.8 
+% 
+137.7 
+10.5 
+% 
+Equipment and other
+41.8 
+31.7 
+31.9 
+% 
+12.5 
+153.6 
+% 
+Total Americas
+568.1 
+539.1 
+5.4 
+% 
+494.1 
+9.1 
+% 
+Total NIKE brand
+9,427.3 
+9,052.9 
+4.1 
+% 
+8,588.3 
+5.4 
+% 
+Other
+465.7 
+435.9 
+6.8 
+% 
+406.8 
+7.2 
+% 
+Total Revenues
+$ 
+9,893.0 
+$ 
+9,488.8 
+4.3 
+% 
+$ 
+8,995.1 
+5.5 
+% 
+Our gross margin percentage improved 30 basis
+points, from 39.0% in fiscal 2001 to 39.3% in fiscal 2002.
+Factors contributing to the improved gross margin percentage
+versus the prior year were as follows:
+(1) 
+Higher in-line pricing margins in EMEA, due to
+the effect of higher prices effective at the beginning of the
+fiscal year and sourcing and warehousing efficiencies, partially
+offset by the effect of weaker euro/U.S. dollar currency
+hedge rates relative to fiscal 2001.
+(2) 
+Higher footwear margins in the U.S. due in part
+to lower product costs and lower transportation costs, as a
+result of both effective negotiations with shippers and lower
+air freight costs incurred. Relatively higher air freight costs
+were incurred in fiscal 2001 due to supply chain problems
+discussed following.
+(3) 
+A higher mix of in-line sales versus close-out
+sales of U.S. footwear, reflecting increased demand for
+in-line footwear and lower close-out sales as compared to fiscal
+2001 as discussed above.
+Selling and administrative expenses increased as
+a percentage of revenues from 28.3% in fiscal 2001 to 28.5% in
+fiscal 2002. Operating overhead increased 6.0% during fiscal
+2002 largely as a result of our continued investment in
+initiatives intended to generate future revenues and profits.
+Significant drivers of the increased operating overhead included
+increased investment in our supply chain initiative, additional
+headcount to support our growing golf and European businesses,
+additional expense for compensation programs tied to our
+19
+Table of Contents 
+profitability and stock performance, and costs
+for additional retail stores primarily in our EMEA and Asia
+Pacific regions.
+The supply chain initiative refers to our
+on-going development of systems and processes supporting our
+worldwide supply chain. This initiative is intended to improve
+revenue (by increasing our ability to respond to market
+conditions), margins (by lowering close-outs and distribution
+costs) and cash flow (by reducing inventories). The ultimate
+level of benefit to revenues, margins, and cash flows, if any,
+will not be known until the new systems and processes have been
+implemented worldwide over the next few years. During fiscal
+2002, we implemented new systems and processes for certain
+global functions and for our U.S. business, and we plan on
+implementing new systems and processes in EMEA during fiscal
+2003. In fiscal 2003, we will continue to invest in the
+implementation of the new systems worldwide and support our
+existing system infrastructure for those businesses where we
+have not yet implemented the new systems.
+Demand creation expense was $1,027.9 million
+in fiscal 2002 versus $998.2 million in fiscal 2001, which
+was consistent between years as a percentage of revenues. Our
+fiscal 2002 demand creation expense reflected incremental
+spending for our World Cup 2002 marketing campaign, which
+occurred primarily in our international regions. In fiscal 2003,
+we expect demand creation expense to grow slightly faster than
+revenues, reflecting the continuation of the World Cup 2002
+campaign into the first quarter of fiscal 2003. In addition, we
+have entered into a long-term license and endorsement agreement
+with Manchester United, one of the premier soccer clubs in the
+world, which begins in August 2002. Payments under this contract
+will result in additional demand creation expense.
+Interest expense decreased 18.9%, from
+$58.7 million to $47.6 million in fiscal 2002, due to
+lower interest rates in the current year and lower average debt
+levels, as we used operating free cash flow to reduce debt.
+Other income/ expense was a net expense of
+$3.0 million versus a net expense of $34.1 million in
+fiscal 2001. Consistent with previous years, other
+income/expense included interest income, profit sharing expense,
+goodwill amortization, certain foreign currency conversion gains
+and losses, and asset disposal gains/ losses. Net other expense
+decreased between years as the fiscal 2001 amount included
+charges for contractual settlements that did not recur in fiscal
+2002. In addition, fiscal 2002 other income/ expense included
+credits related to the favorable resolution of some outstanding
+claims.
+Our fiscal 2002 effective tax rate was 34.3% as
+compared to 36.0% in fiscal 2001. As required by
+U.S. generally accepted accounting principles, we do not
+accrue for U.S. tax liability on foreign earnings
+permanently invested offshore. The lower effective tax rate in
+fiscal 2002 is primarily the result of a larger amount of
+foreign earnings permanently invested offshore in fiscal 2002
+than in fiscal 2001.
+Fiscal 2001 Compared to Fiscal
+2000 
+Net income increased 1.8% over fiscal 2000, from
+$579.1 million to $589.7 million. Although
+consolidated revenues increased 5.5% over fiscal 2000, income
+before income taxes was essentially flat as pretax profit
+margins decreased due to a lower gross margin percentage, higher
+interest expense, and increased other expenses, partially offset
+by lower selling and administrative expenses as a percentage of
+revenues. Despite flat income before income taxes, net income
+increased due to a lower effective tax rate. Diluted earnings
+per share increased 4.3%, from $2.07 to $2.16. The
+percentage increase in earnings per share was higher than that
+of net income primarily due to share repurchases in fiscal years
+2000 and 2001.
+NIKE brand revenues in the U.S. region
+increased 1.8% as compared to fiscal 2000, while NIKE brand
+revenues in our international regions increased 9.8%. Had the
+U.S. dollar remained constant with the prior year, these
+international revenues would have increased 18.6%, and
+consolidated revenues would have advanced 9.3%. In the U.S.
+region, our largest market segment, the 1.8% increase in
+revenues reflected a 9.2% increase in apparel sales and a 54.4%
+increase in equipment sales, offset by a 4.2% decrease in
+footwear sales. The increases in apparel and equipment reflected
+stronger demand for in-line products. The increase in the
+equipment product line reflected increases in a variety of
+sports equipment categories, including golf, football, and
+baseball products as well as socks, bags and eyewear. The
+decrease in footwear reflected lower demand, particularly in the
+mid-range price segment, and supply chain disruptions resulting
+from the implementation of
+20
+Table of Contents 
+a new global demand and supply planning system.
+The supply chain disruptions resulted in product excesses as
+well as product shortages and late deliveries in the second half
+of the fiscal 2001.
+Revenues from our international regions were
+$4.2 billion as compared to $3.9 billion in fiscal
+2000. Fiscal 2001 revenues in EMEA increased over fiscal 2000 by
+7.4% to $2,584.8 million, a 19.3% increase in constant
+dollars. In our Asia Pacific region, revenues grew 16.2%, a
+20.8% increase in constant dollars. The Americas region grew
+revenues 9.1%, an 11.4% increase in constant dollars.
+In fiscal 2001, other revenue increased 7.2% to
+$435.9 million.
+Our gross margin percentage declined
+90 basis points, from 39.9% in fiscal 2000 to 39.0% in
+fiscal 2001. Factors contributing to the lower gross margin
+percentage were as follows:
+(1) 
+The effect of the change in foreign exchange
+rates, most notably the weakening of the euro against the U.S.
+dollar relative to fiscal 2000.
+(2) 
+A higher mix of close-out sales as well as lower
+margins achieved on close-outs, primarily in footwear and
+licensed team apparel in the U.S. In footwear, the higher mix of
+close-outs and lower close-out margins were due in part to the
+supply chain disruptions discussed above. Higher close-outs and
+lower margins in U.S. licensed team apparel resulted
+primarily from the liquidation of National Football League
+(“NFL”) team apparel, due to the termination of our
+NFL license agreement.
+(3) 
+Product recalls of certain footwear models in the
+United States, which resulted in product returns and write-offs.
+Selling and administrative expenses decreased as
+a percentage of revenues from 29.0% to 28.3%. Demand creation
+expense decreased as a percentage of revenues from 10.8% to
+10.5%. Fiscal 2001 demand creation expense was
+$998.2 million versus $974.1 million in fiscal 2000.
+The overall decrease in selling and administrative expenses as a
+percentage of revenues reflected cost containment measures, both
+in marketing and operational areas. While implementing these
+measures to control selling and administrative expense growth,
+we also continued to invest in operational initiatives designed
+to create future revenues and profits. These initiatives
+included the expansion of NIKE-owned retail outlets, the
+development of e-commerce applications, and systems and
+processes supporting our worldwide supply chain. Our level of
+investment in these areas in fiscal 2001 was comparable to our
+level of investment in fiscal 2000.
+Interest expense increased 30.4%, from
+$45.0 million to $58.7 million, due to higher average
+debt levels in fiscal 2001 versus fiscal 2000. During fiscal
+2000, we increased debt to fund capital expenditures and higher
+working capital requirements, and to repurchase common stock.
+Although our debt balance decreased during fiscal 2001, the
+average debt balance for fiscal 2001 remained above the prior
+year.
+Other income/ expense was a net expense of
+$34.1 million versus a net expense of $20.7 million in
+fiscal 2000. Significant amounts included in other income/
+expense were interest income, profit sharing expense, goodwill
+amortization, certain foreign currency conversion gains and
+losses, asset disposal gains and losses, and charges for
+contractual settlements.
+Our fiscal 2001 effective tax rate was 36.0% as
+compared to 37.0% in fiscal 2000. As discussed above, we do not
+accrue for U.S. tax liability on foreign earnings
+permanently invested offshore. The lower effective tax rate in
+fiscal 2001 was primarily the result of lower taxes on a larger
+amount of foreign earnings that were permanently invested
+offshore in fiscal 2001 than in fiscal 2000 as well as
+additional research tax credits.
+Recently Issued Accounting Standards 
+In July 2001, the Financial Accounting Standards
+Board (FASB) issued SFAS No. 141, “Business
+Combinations” (FAS 141) and SFAS No. 142,
+“Goodwill and Other Intangible Assets” (FAS 142).
+FAS 141 requires the purchase method of accounting to be
+used for all business combinations initiated after June 30,
+2001. FAS 141 also requires a more rigorous identification
+of intangible assets which must be
+21
+Table of Contents 
+recognized and reported separately from goodwill.
+The adoption of FAS 141 will not have a material effect on
+our results of operations or financial position.
+FAS 142 requires that goodwill and
+intangible assets with indefinite lives no longer be amortized
+but instead be measured for impairment at least annually, or
+when events indicate that an impairment exists. Our adoption
+date is June 1, 2002. As of that date, amortization of
+outstanding goodwill and other indefinite-lived intangible
+assets will cease. As a result of the elimination of this
+amortization, other expense will decrease by approximately
+$13 million annually beginning in fiscal 2003.
+As required by FAS 142, we will perform
+impairment tests on goodwill and other indefinite-lived
+intangible assets as of the adoption date. Thereafter, we will
+perform impairment tests annually and whenever events or
+circumstances indicate that the value of goodwill or other
+indefinite-lived intangible assets might be impaired. In
+connection with the FAS 142 indefinite-lived intangible
+asset impairment test, we will utilize the required one-step
+method to determine whether an impairment exists as of the
+adoption date. The test will consist of a comparison of the
+estimated fair values of indefinite-lived assets with the
+carrying amounts. If the carrying amount of an intangible asset
+exceeds our estimate of its fair value, we will recognize an
+impairment loss in an amount equal to that excess.
+In connection with the FAS 142 transitional
+goodwill impairment test, we will utilize the required two-step
+method for determining goodwill impairment as of the adoption
+date. To accomplish this, we will identify our reporting units
+and determine the carrying value of each reporting unit by
+assigning our assets and liabilities, including the existing
+goodwill and intangible assets, to those reporting units as of
+the adoption date. We will then estimate the fair value of each
+reporting unit and compare it to the carrying amount of the
+reporting unit. To the extent the carrying amount of a reporting
+unit exceeds our estimate of the fair value of the reporting
+unit, we then will perform the second step of the transitional
+impairment test.
+Where necessary, in the second step, we will
+compare the implied fair value of the reporting unit goodwill
+with the carrying amount of the reporting unit goodwill, both of
+which will be measured as of the adoption date. The implied fair
+value of goodwill will be determined by allocating the estimated
+fair value of the reporting unit to all of the assets
+(recognized and unrecognized) and liabilities of the reporting
+unit in a manner similar to a purchase price allocation, in
+accordance with FAS 141. The residual fair value after this
+allocation will be the implied fair value of the reporting unit
+goodwill. We will record a transitional impairment loss for any
+excess of the carrying value of goodwill allocated to the
+reporting unit over the implied fair value.
+We have estimated that we will likely incur a
+transitional impairment loss of approximately $270 million
+related to our Bauer NIKE Hockey and Cole Haan subsidiaries,
+reflecting that the fair values we have estimated for these
+subsidiaries are less than the carrying values including
+goodwill. This expected transitional impairment loss will be
+recognized as the cumulative effect of a change in accounting
+principle in our consolidated statement of income during the
+first quarter of fiscal 2003.
+In October 2001, the FASB issued
+SFAS No. 144, “Accounting for the Impairment or
+Disposal of Long-Lived Assets” (FAS 144). This
+statement supersedes SFAS No. 121, “Accounting
+for the Impairment of Long-Lived Assets and for Long-Lived
+Assets to be Disposed Of” (FAS 121), and amends
+Accounting Principles Board Statement No. 30,
+“Reporting the Effects of Disposal of a Segment of a
+Business, and Extraordinary, Unusual and Infrequently Occurring
+Events and Transactions” (APB 30). FAS 144
+requires that long-lived assets that are to be disposed of by
+sale be measured at the lower of book value or fair value less
+costs to sell. FAS 144 retains the fundamental provisions
+of FAS 121 for (a) recognition and measurement of the
+impairment of long-lived assets to be held and used and
+(b) measurement of long-lived assets to be disposed of by
+sale. This statement also retains APB 30’s requirement
+that companies report discontinued operations separately from
+continuing operations. All provisions of this statement will be
+effective for us on June 1, 2003. We do not expect that the
+adoption of FAS 144 will have any impact on our
+consolidated financial position or results of operations.
+22
+Table of Contents 
+Liquidity and Capital Resources 
+Fiscal 2002 Cash Flow
+Activity 
+Cash provided by operations was
+$1,081.5 million in fiscal 2002, compared to
+$656.5 million in fiscal 2001. Our primary source of
+operating cash flow was net income earned during the year of
+$663.3 million. Operating cash flow increased significantly
+over the prior year due to reduced investment in certain working
+capital components during fiscal 2002, which generated positive
+operating cash flow.
+Cash used by investing activities during fiscal
+2002 was $302.8 million, compared to $342.3 million
+invested during fiscal 2001. The total for fiscal 2002 related
+primarily to capital expenditures for computer equipment and
+software, driven by our supply chain initiative, and investments
+in new retail outlets. In addition, we acquired all of the
+assets and substantially all of the liabilities of Hurley
+International LLC, a teen lifestyle brand company. During fiscal
+2003, we will continue to incur expenditures related to systems
+improvements (most notably the supply chain initiative), retail
+expansion, and investments in our worldwide warehouse facilities.
+Cash used by financing activities in fiscal 2002
+was $478.2 million, up from $349.9 million in the
+prior year. This amount included uses of cash for dividends to
+shareholders, a net reduction in debt, and share repurchases.
+These uses of cash were partially offset by proceeds from the
+exercise of employee stock options.
+The share repurchases were part of a
+$1.0 billion share repurchase program that began in fiscal
+2001, after completion of a four-year, $1.0 billion program
+in fiscal 2000. In fiscal 2002, we repurchased 4.3 million
+shares of NIKE’s Class B common stock for
+$237.7 million. To date, under the current program, we have
+purchased a total of 8.3 million shares of NIKE’s
+Class B common stock for $394.7 million. We expect to
+fund the current program from operating cash flow. The timing
+and the amount of shares purchased will be dictated by our
+capital needs and stock market conditions.
+Long-term Financial Obligations and Other
+Commercial Commitments 
+Our significant long-term contractual obligations
+as of May 31, 2002 are as follows:
+Cash Payments Due During the Year Ended May 31, 
+Description of Commitment 
+2003 
+2004 
+2005 
+2006 
+2007 
+Thereafter 
+Total 
+(In millions) 
+Operating Leases
+$ 
+158.2 
+143.4 
+119.1 
+95.3 
+98.2 
+288.0 
+$ 
+902.2 
+Long-term Debt
+55.3 
+205.3 
+5.5 
+5.5 
+254.7 
+154.9 
+681.2 
+Endorsement Contracts
+274.2 
+220.3 
+166.1 
+133.5 
+92.7 
+208.1 
+1,094.9 
+The amounts listed for endorsement contracts
+represent approximate amounts of base compensation and minimum
+guaranteed royalty fees we are obligated to pay athlete and
+sport team endorsers of our products. Actual payments under some
+contracts are likely be higher than the amounts listed as these
+contracts provide for bonuses to be paid to the endorsers based
+upon athletic achievements in future periods. Actual payments
+under some contracts may also be lower as a limited number of
+contracts include provisions for reduced payments if athlete
+performance declines in future periods.
+In addition to the cash payments disclosed above,
+we are obligated to furnish the endorsers with NIKE products for
+their use. It is not possible to determine how much we will
+spend on this product on an annual basis as the contracts do not
+stipulate a specific amount of cash to be spent on the product.
+The amount of product provided to the endorsers will depend on
+many factors including general playing conditions, the number of
+sporting events in which they participate, and our own decisions
+regarding product and marketing initiatives. In addition, the
+costs to design, develop, source, and purchase the products
+furnished to the endorsers are incurred over a period of time
+and are not necessarily tracked separately from similar costs
+incurred for products sold to customers.
+An outsourcing contractor provides us with
+information technology operations management services through
+2006. The amount of the payments in future years depends on our
+level of monthly use of the different elements of the
+contractor’s services. If we were to terminate the entire
+contract as of May 31, 2002, we would
+23
+Table of Contents 
+be required to provide the contractor with four
+months notice and pay a termination liability of
+$22.6 million. Our monthly payments to the contractor
+currently are approximately $6 million.
+We also have the following outstanding short-term
+debt obligations as of May 31, 2002. Please refer to the
+accompanying Notes to Consolidated Financial Statements
+(Note 4 — Short-term Borrowings and Credit
+Lines ) for further description and interest rates related to
+the below short-term debt obligations.
+Outstanding as of 
+May 31, 
+2002 
+(In millions) 
+Commercial paper outstanding and other notes
+payable for U.S. operations, all original maturities
+ninety-five days or less
+$ 
+339.2 
+Notes payable for non-U.S. operations, due
+at a mutually agreed-upon dates, generally ninety days from
+issuance or on demand
+86.0 
+Payable to Nissho Iwai American Company
+(NIAC) for the purchase of inventories, generally due sixty
+days after shipment of goods from a foreign port
+36.3 
+As of May 31, 2002, letters of credit of
+$808.4 million were outstanding for the purchase of
+inventories. All letters of credit generally expire within one
+year.
+Capital Resources 
+We have an effective shelf registration statement
+on file with the Securities and Exchange Commission
+(SEC) under which $1.0 billion in debt securities are
+available to be issued. On May 29, 2002, we commenced a
+medium-term note program under the shelf registration that
+allows us to issue up to $500.0 million in medium-term
+notes, as our capital needs dictate. We entered into this
+program to provide additional liquidity to meet our working
+capital and general corporate cash requirements. As of
+May 31, 2002, we had not issued any debt securities under
+the shelf registration.
+Subsequent to May 31, 2002, we issued a
+total of $90 million in notes under the medium-term note
+program. The notes have coupon rates that range from 4.80% to
+5.66%. The maturities range from July 9, 2007 to
+August 7, 2012. For $75 million of the notes, we
+simultaneously entered into interest rate swap agreements
+whereby we receive fixed interest payments at the same rate as
+the notes and pay variable interest payments based on the
+six-month London Inter Bank Offering Rate (LIBOR) plus a
+spread. Each swap has the same notional amount and maturity date
+as its respective note. After issuance of these notes,
+$910.0 million remains available to be issued under our
+shelf registration. We may issue additional notes under the
+shelf registration in fiscal 2003 depending on working capital
+and general corporate needs.
+As of May 31, 2001, we had a
+$750.0 million, 364-day committed credit facility and a
+$500.0 million, multi-year committed credit facility in
+place with a group of banks. In November 2001, we renewed the
+364-day facility in the amount of $600.0 million. Thus, our
+current total availability under these two bank facilities is
+$1.1 billion. We currently have no amounts outstanding
+under these facilities. The $600.0 million facility matures
+on November 15, 2002 and can be extended 364 days on
+each maturity date. The $500.0 million facility matures on
+November 17, 2005, and once a year, it can be extended for
+one additional year. Based on our current long-term senior
+unsecured debt ratings of A and A2 from Standard and Poor’s
+Corporation and Moody’s Investor Services, respectively,
+the interest rate charged on any outstanding borrowings on the
+$600.0 million facility would be the prevailing LIBOR plus
+0.24%, and the interest rate charged on any outstanding
+borrowings on the $500.0 million facility would be the
+prevailing LIBOR plus 0.22%. The facility fees for the
+$600.0 million and the $500.0 million facilities are
+0.06% and 0.08%, respectively, of the total commitment.
+If our long-term debt rating were to decline, the
+facility fees and interest rates under our committed credit
+facilities would increase. Conversely, if our long-term debt
+rating improves, the facility fees and interest rates would
+decrease. Changes in our long-term debt rating would not trigger
+acceleration of maturity of any then outstanding borrowings or
+any future borrowings under the committed credit facilities.
+However, under
+24
+Table of Contents 
+these committed credit facilities, we have agreed
+to various covenants. These covenants include limits on our
+disposal of fixed assets and the amount of debt secured by liens
+we may incur, and set a minimum ratio of net worth to
+indebtedness. In the event we were to have any borrowings
+outstanding under these facilities, failed to meet any covenant,
+and were unable to obtain a waiver from a majority of the banks,
+any borrowings would become immediately due and payable. As of
+May 31, 2002, we were in full compliance with each of these
+covenants and believe it is unlikely we will fail to meet any of
+these covenants in the future.
+Liquidity is also provided by our commercial
+paper program, under which there was $338.3 million and
+$710.0 million outstanding at May 31, 2002 and May 31,
+2001, respectively. We currently have short-term debt ratings of
+A1 and P1 from Standard and Poor’s Corporation and
+Moody’s Investor Services, respectively.
+We currently believe that cash generated by
+operations, together with access to external sources of funds as
+described above, will be sufficient to meet our operating and
+capital needs.
+Dividends per share of common stock for fiscal
+2002 were $0.48, the same as in fiscal 2001. We have paid a
+dividend every quarter since February 1984. We review our
+dividend policy from time to time; however, based upon current
+projected earnings and cash flow requirements, we anticipate
+continuing to pay a quarterly dividend.
+Item 7A. Quantitative
+and Qualitative Disclosures about Market Risk 
+In the normal course of business and consistent
+with established policies and procedures, we employ a variety of
+financial instruments to manage exposure to fluctuations in the
+value of foreign currencies and interest rates. It is our policy
+to utilize these financial instruments only where necessary to
+finance our business and manage such exposures; we do not enter
+into these transactions for speculative purposes.
+We are exposed to foreign currency fluctuation as
+a result of our international sales, production and funding
+activities. Our foreign currency risk management objective is to
+reduce the variability of local entity cash flows as a result of
+exchange rate movements. We use forward exchange contracts and
+options to hedge certain anticipated but not yet firmly
+committed transactions as well as certain firm commitments and
+the related receivables and payables, including third party or
+intercompany transactions.
+When we begin hedging exposures depends on the
+nature of the exposure and market conditions. Generally, all
+anticipated and firmly committed transactions that are hedged
+are to be recognized within twelve months, although at
+May 31, 2002 we had forward contracts hedging anticipated
+transactions that will be recognized in as many as
+24 months. The majority of the contracts expiring in more
+than twelve months relate to the anticipated purchase of
+inventory by our Japanese subsidiary. We use forward contracts
+and cross-currency swaps to hedge foreign currency denominated
+payments under intercompany loan agreements. When intercompany
+loans are hedged, it is typically for their expected duration,
+which in some circumstances may be in excess of five years.
+Hedged transactions are principally denominated in European
+currencies, Japanese yen, Canadian dollars, Korean won, Mexican
+pesos, Australian dollars and new Taiwan dollars.
+Our earnings are also exposed to movements in
+short and long-term market interest rates. Our objective in
+managing this interest rate exposure is to limit the impact of
+interest rate changes on earnings and cash flows, and to reduce
+overall borrowing costs. To achieve these objectives, we
+maintain a mix of medium and long-term fixed rate debt,
+commercial paper, and bank loans and have entered into interest
+rate swaps under which we receive fixed interest and pay
+variable interest.
+Market Risk Measurement 
+We monitor foreign exchange risk, interest rate
+risk and related derivatives using a variety of techniques
+including a review of market value, sensitivity analysis, and
+Value-at-Risk (VaR). Our market-sensitive derivative and other
+financial instruments, as defined by the SEC, are foreign
+currency forward contracts, foreign currency option contracts,
+cross-currency swaps, interest rate swaps, intercompany loans
+denominated in foreign currencies, fixed interest rate
+U.S. dollar denominated debt, and fixed interest rate
+Japanese yen denominated debt.
+25
+Table of Contents 
+We use VaR to monitor the foreign exchange risk
+of our foreign currency forward and foreign currency option
+derivative instruments only. The VaR determines the maximum
+potential one-day loss in the fair value of these foreign
+exchange rate-sensitive financial instruments. The VaR model
+estimates assume normal market conditions and a 95% confidence
+level. There are various modeling techniques that can be used in
+the VaR computation. Our computations are based on
+interrelationships between currencies and interest rates
+(a “variance/ co-variance” technique). These
+interrelationships are a function of foreign exchange currency
+market changes and interest rate changes over the preceding one
+year. The value of foreign currency options does not change on a
+one-to-one basis with changes in the underlying currency rate.
+We adjusted the potential loss in option value for the estimated
+sensitivity (the “delta” and “gamma”) to
+changes in the underlying currency rate. This calculation
+reflects the impact of foreign currency rate fluctuations on the
+derivative instruments only, and hence does not include the
+impact of such rate fluctuations on the underlying based
+transactions that are anticipated transactions, firm
+commitments, cash balances and accounts and loans receivable and
+payable denominated in foreign currencies from the VaR
+calculation, including those which are hedged by these
+instruments.
+The VaR model is a risk analysis tool and does
+not purport to represent actual losses in fair value that we
+will incur, nor does it consider the potential effect of
+favorable changes in market rates. It also does not represent
+the full extent of the possible loss that may occur. Actual
+future gains and losses will differ from those estimated because
+of changes or differences in market rates and
+interrelationships, hedging instruments and hedge percentages,
+timing and other factors.
+The estimated maximum one-day loss in fair value
+on our foreign currency sensitive financial instruments, derived
+using the VaR model, was $13.7 million and
+$18.9 million at May 31, 2002 and May 31, 2001,
+respectively. The reduction in VaR as of May 31, 2002
+occurred due to the effect of currency volatility on existing
+trades on the May 31, 2002 VaR computation versus the
+effect of currency volatility on existing trades on the
+May 31, 2001 VaR computation. Such a hypothetical loss in
+fair value of our derivatives would be offset by increases in
+the value of the underlying transactions being hedged. The
+average monthly change in the fair values of foreign currency
+forward and foreign currency option derivative instruments was
+$42.9 million and $22.4 million for fiscal 2002 and
+fiscal 2001, respectively.
+Details of other market-sensitive financial
+instruments and derivative financial instruments not included in
+the VaR calculation above, are provided in the table below
+except the interest rate swaps which are described in the last
+paragraph of this section. These instruments include
+intercompany loans denominated in foreign currencies, fixed
+interest rate Japanese yen denominated debt, fixed interest rate
+U.S. dollar denominated debt, cross-currency swaps, and
+interest rate swaps. For debt obligations, the table presents
+principal cash flows and related weighted average interest rates
+by expected maturity dates. We have excluded the cross-currency
+swaps from the foreign exchange risk category because these
+instruments eliminate all foreign currency exposure in the cash
+flows of a euro denominated intercompany loan. We have included
+these cross-currency swaps in the interest rate risk category
+but excluded the related intercompany loan from this category
+because the intercompany interest eliminates in consolidation.
+For the cross-currency swaps the table presents both the euro
+swap payable and U.S. dollar swap receivable and the
+respective pay and receive interest rates. All information is
+presented in U.S. dollar equivalents, in millions, except
+interest rates.
+Intercompany loans and related interest amounts
+eliminate in consolidation. Intercompany loans are generally
+hedged against foreign exchange risk through the use of forward
+contracts and swaps with third parties.
+The fixed interest rate Japanese yen denominated
+debts were issued by and are accounted for by two of our
+Japanese subsidiaries. Accordingly, the monthly remeasurement of
+these instruments due to changes in foreign exchange rates is
+recognized in accumulated other comprehensive loss upon the
+consolidation of these subsidiaries.
+There was not a significant change in debt or
+cross-currency swap market risks during fiscal 2002. The
+U.S. dollar fair values of intercompany loans denominated
+in foreign currencies was $647.2 million at May 31,
+2001, which is the same as the carrying values of the loans
+prior to their elimination. The U.S. dollar fair value of
+the fixed rate Japanese yen denominated debt that was
+outstanding at May 31, 2001 was $181.1 million
+26
+Table of Contents 
+versus a carrying value of $191.0 million at
+that date. The U.S. dollar fair values of the fixed rate
+U.S. dollar denominated debt, the euro swap payable and the
+U.S. dollar swap receivable as of May 31, 2001 were
+$256.2 million, $179.4 million and
+$266.4 million, respectively, versus carrying values of
+$249.6 million, $172.6 million and
+$250.0 million, respectively, at that date.
+In August 2001, we issued a $250 million
+corporate bond maturing in August 2006, with a fixed interest
+rate of 5.5%. In November 2001, we entered into receive-fixed
+pay-variable interest rate swap agreements to hedge the interest
+rate exposure related to this bond. The interest rate swaps have
+an aggregate notional amount of $250 million maturing in
+August 2006. The receive-fixed rates on the swaps match the
+fixed rate on the bond, and the pay-variable rates are based on
+the three-month LIBOR rates plus a spread. As a result of the
+interest rate swap agreements, our effective interest rate on
+the $250 million corporate bond was 3.3% as of May 31,
+2002. The difference between the carrying amounts and fair value
+of the corporate bond and related interest rate swaps was
+$1.8 million at May 31, 2002.
+Expected Maturity Date 
+Year Ended May 31, 
+2003 
+2004 
+2005 
+2006 
+2007 
+Thereafter 
+Total 
+Fair Value 
+(In millions, except interest rates) 
+Foreign Exchange Risk 
+Euro Functional Currency
+Intercompany loan — U.S. dollar
+denominated — Fixed rate Principal payments
+$ 
+131.4 
+— 
+— 
+— 
+— 
+— 
+$ 
+131.4 
+$ 
+131.4 
+Average interest rate
+2.2 
+% 
+— 
+— 
+— 
+— 
+— 
+2.2 
+% 
+U.S. Dollar Functional Currency
+Intercompany loans — Euro
+denominated — Fixed rate Principal payments
+$ 
+135.1 
+147.4 
+— 
+— 
+— 
+— 
+$ 
+282.5 
+$ 
+282.5 
+Average interest rate
+5.5 
+% 
+5.6 
+% 
+— 
+— 
+— 
+— 
+5.6 
+% 
+Intercompany loan — Japanese yen
+denominated — Fixed rate Principal payments
+$ 
+161.3 
+— 
+— 
+— 
+— 
+— 
+$ 
+161.3 
+$ 
+161.3 
+Average interest rate
+0.4 
+% 
+— 
+— 
+— 
+— 
+— 
+0.4 
+% 
+Intercompany loan — Canadian dollar
+denominated — Fixed rate Principal payments
+$ 
+29.3 
+— 
+— 
+— 
+— 
+— 
+$ 
+29.3 
+$ 
+29.3 
+Average interest rate
+2.6 
+% 
+— 
+— 
+— 
+— 
+— 
+2.6 
+% 
+Argentine peso Functional Currency
+Intercompany loan — U.S. dollar
+denominated — Fixed rate Principal payments
+$ 
+44.9 
+— 
+— 
+— 
+— 
+— 
+$ 
+44.9 
+$ 
+44.9 
+Average interest rate
+2.3 
+% 
+— 
+— 
+— 
+— 
+— 
+2.3 
+% 
+Japanese Yen Functional Currency
+Long-term Japanese yen debt-Fixed rate Principal
+payments
+$ 
+5.3 
+5.3 
+5.3 
+5.3 
+5.3 
+$ 
+154.9 
+$ 
+181.4 
+$ 
+207.4 
+Average interest rate
+3.3 
+% 
+3.3 
+% 
+3.3 
+% 
+3.4 
+% 
+3.4 
+% 
+3.7 
+% 
+3.6 
+% 
+27
+Table of Contents 
+Expected Maturity Date 
+Year Ended May 31, 
+2003 
+2004 
+2005 
+2006 
+2007 
+Thereafter 
+Total 
+Fair Value 
+(In millions, except interest rates) 
+Interest Rate Risk 
+Japanese Yen Functional Currency
+Long-term Japanese yen debt-Fixed rate Principal
+payments
+$ 
+5.3 
+5.3 
+5.3 
+5.3 
+5.3 
+$ 
+154.9 
+$ 
+181.4 
+$ 
+207.4 
+Average interest rate
+3.3 
+% 
+3.3 
+% 
+3.3 
+% 
+3.4 
+% 
+3.4 
+% 
+3.7 
+% 
+3.6 
+% 
+U.S. Dollar Functional Currency
+Long-term U.S. dollar debt-Fixed rate
+Principal payments
+$ 
+50.0 
+199.8 
+— 
+— 
+250.0 
+— 
+$ 
+499.8 
+$ 
+516.5 
+Average interest rate
+5.9 
+% 
+5.8 
+% 
+5.5 
+% 
+5.5 
+% 
+5.5 
+% 
+— 
+5.7 
+% 
+Fixed euro for fixed U.S. dollar
+cross-currency swap Euro swap payable
+$ 
+41.4 
+147.4 
+— 
+— 
+— 
+— 
+$ 
+188.8 
+$ 
+196.2 
+U.S. dollar swap receivable
+$ 
+50.0 
+200.0 
+— 
+— 
+— 
+— 
+$ 
+250.0 
+$ 
+267.9 
+Average pay rate (euro)
+5.6 
+% 
+5.6 
+% 
+— 
+— 
+— 
+— 
+5.6 
+% 
+Average receive rate (U.S. dollars)
+6.5 
+% 
+6.5 
+% 
+— 
+— 
+— 
+— 
+6.5 
+% 
+Special Note Regarding Forward-Looking
+Statements and Analyst Reports 
+Certain written and oral statements, other than
+purely historical information, including estimates, projections,
+statements relating to NIKE’s business plans, objectives
+and expected operating results, and the assumptions upon which
+those statements are based, made or incorporated by reference
+from time to time by NIKE or its representatives in this report,
+other reports, filings with the Securities and Exchange
+Commission, press releases, conferences, or otherwise, are
+“forward-looking statements” within the meaning of the
+Private Securities Litigation Reform Act of 1995 and
+Section 21E of the Securities Exchange Act of 1934.
+Forward-looking statements include, without limitation, any
+statement that may predict, forecast, indicate, or imply future
+results, performance, or achievements, and may contain the words
+“believe,” “anticipate,” “expect,”
+“estimate,” “project,” “will be,”
+“will continue,” “will likely result,” or
+words or phrases of similar meaning. Forward-looking statements
+involve risks and uncertainties which may cause actual results
+to differ materially from the forward-looking statements. The
+risks and uncertainties are detailed from time to time in
+reports filed by NIKE with the SEC, including Forms 8-K,
+10-Q, and 10-K, and include, among others, the following:
+international, national and local general economic and market
+conditions; the size and growth of the overall athletic
+footwear, apparel, and equipment markets; intense competition
+among designers, marketers, distributors and sellers of athletic
+footwear, apparel, and equipment for consumers and endorsers;
+demographic changes; changes in consumer preferences; popularity
+of particular designs, categories of products, and sports;
+seasonal and geographic demand for NIKE products; difficulties
+in anticipating or forecasting changes in consumer preferences,
+consumer demand for NIKE products, and the various market
+factors described above; difficulties in implementing,
+operating, and maintaining NIKE’s increasingly complex
+information systems and controls, including, without limitation,
+the systems related to demand and supply planning, and inventory
+control; interruptions in data and communications systems;
+fluctuations and difficulty in forecasting operating results,
+including, without limitation, the fact that advance
+“futures” orders may not be indicative of future
+revenues due to the changing mix of futures and at-once orders;
+the ability of NIKE to sustain, manage or forecast its growth
+and inventories; the size, timing and mix of purchases of
+NIKE’s products; new product development and introduction;
+the ability to secure and protect trademarks, patents, and other
+intellectual property; performance and reliability of products;
+customer service; adverse publicity; the loss of significant
+customers or suppliers; dependence on distributors; business
+disruptions; increased costs of freight and transportation to
+meet delivery deadlines; increases in borrowing costs due to any
+decline in our debt ratings; changes in business strategy or
+development plans; general risks associated with doing business
+outside the United States, including without limitation, import
+duties, tariffs, quotas and political and economic instability;
+changes in government regulations; liability and other claims
+asserted against NIKE; the ability to
+28
+Table of Contents 
+attract and retain qualified personnel; and other
+factors referenced or incorporated by reference in this report
+and other reports.
+The risks included here are not exhaustive. Other
+sections of this report may include additional factors which
+could adversely affect NIKE’s business and financial
+performance. Moreover, NIKE operates in a very competitive and
+rapidly changing environment. New risk factors emerge from time
+to time and it is not possible for management to predict all
+such risk factors, nor can it assess the impact of all such risk
+factors on NIKE’s business or the extent to which any
+factor, or combination of factors, may cause actual results to
+differ materially from those contained in any forward-looking
+statements. Given these risks and uncertainties, investors
+should not place undue reliance on forward-looking statements as
+a prediction of actual results.
+Investors should also be aware that while NIKE
+does, from time to time, communicate with securities analysts,
+it is against NIKE’s policy to disclose to them any
+material non-public information or other confidential commercial
+information. Accordingly, shareholders should not assume that
+NIKE agrees with any statement or report issued by any analyst
+irrespective of the content of the statement or report.
+Furthermore, NIKE has a policy against issuing or confirming
+financial forecasts or projections issued by others. Thus, to
+the extent that reports issued by securities analysts contain
+any projections, forecasts or opinions, such reports are not the
+responsibility of NIKE.
+Item 8. Financial
+Statements and Supplemental Data 
+Management of NIKE, Inc. is responsible for the
+information and representations contained in this report. The
+financial statements have been prepared in conformity with the
+generally accepted accounting principles we considered
+appropriate in the circumstances and include some amounts based
+on our best estimates and judgments. Other financial information
+in this report is consistent with these financial statements.
+Our accounting systems include controls designed
+to reasonably assure that assets are safeguarded from
+unauthorized use or disposition and which provide for the
+preparation of financial statements in conformity with generally
+accepted accounting principles. These systems are supplemented
+by the selection and training of qualified financial personnel
+and an organizational structure providing for appropriate
+segregation of duties.
+An Internal Audit department reviews the results
+of its work with the Audit Committee of the Board of Directors,
+presently consisting of three outside directors. The Audit
+Committee is responsible for recommending to the Board of
+Directors the appointment of the independent accountants and
+reviews with the independent accountants, management and the
+internal audit staff, the scope and the results of the annual
+examination, the effectiveness of the accounting control system
+and other matters relating to the financial affairs of NIKE as
+they deem appropriate. The independent accountants and the
+internal auditors have full access to the Committee, with and
+without the presence of management, to discuss any appropriate
+matters.
+29
+Table of Contents 
+REPORT OF INDEPENDENT ACCOUNTANTS 
+To the Board of Directors and
+Shareholders of NIKE, Inc.
+In our opinion, the consolidated financial
+statements listed in the index appearing under
+Item 14(A)(1) on page 55 present fairly, in all
+material respects, the financial position of NIKE, Inc. and its
+subsidiaries at May 31, 2002 and 2001, and the results of
+their operations and their cash flows for each of the three
+years in the period ended May 31, 2002 in conformity with
+accounting principles generally accepted in the United States of
+America. In addition, in our opinion, the financial statement
+schedule listed in the index appearing under Item 14(A)(2)
+on page 55 presents fairly, in all material respects, the
+information set forth therein when read in conjunction with the
+related consolidated financial statements. These financial
+statements and financial statement schedule are the
+responsibility of the Company’s management; our
+responsibility is to express an opinion on these financial
+statements and financial statement schedule based on our audits.
+We conducted our audits of these statements in accordance with
+auditing standards generally accepted in the United States of
+America, which require that we plan and perform the audit to
+obtain reasonable assurance about whether the financial
+statements are free of material misstatement. An audit includes
+examining, on a test basis, evidence supporting the amounts and
+disclosures in the financial statements, assessing the
+accounting principles used and significant estimates made by
+management, and evaluating the overall financial statement
+presentation. We believe that our audits provide a reasonable
+basis for our opinion.
+As discussed in Note 1 to the consolidated
+financial statements, effective June 1, 2001, the Company
+changed its method of accounting for derivative instruments in
+accordance with Statement of Financial Accounting Standards
+No. 133 “Accounting for Derivative Instruments and
+Hedging Activities” and Statement of Financial Accounting
+Standards No. 138, “Accounting for Certain Derivative
+Instruments and Certain Hedging Activities.”
+/s/ PRICEWATERHOUSECOOPERS LLP
+Portland, Oregon
+June 27, 2002
+30
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF INCOME 
+Year Ended May 31, 
+2002 
+2001 
+2000 
+(In millions, except per share data) 
+Revenues
+$ 
+9,893.0 
+$ 
+9,488.8 
+$ 
+8,995.1 
+Costs and expenses:
+Cost of sales
+6,004.7 
+5,784.9 
+5,403.8 
+Selling and administrative
+2,820.4 
+2,689.7 
+2,606.4 
+Interest expense (Notes 4 and 5)
+47.6 
+58.7 
+45.0 
+Other income/expense, net (Notes 1, 10 and 11)
+3.0 
+34.1 
+20.7 
+Total costs and expenses
+8,875.7 
+8,567.4 
+8,075.9 
+Income before income taxes and cumulative effect
+accounting change
+1,017.3 
+921.4 
+919.2 
+Income taxes (Note 6)
+349.0 
+331.7 
+340.1 
+Income before cumulative effect of accounting
+change
+668.3 
+589.7 
+579.1 
+Cumulative effect of accounting change, net of
+income taxes of $3.0 (Note 1)
+5.0 
+— 
+— 
+Net income
+$ 
+663.3 
+$ 
+589.7 
+$ 
+579.1 
+Basic earnings per common share —
+before accounting change (Notes 1 and 9)
+$ 
+2.50 
+$ 
+2.18 
+$ 
+2.10 
+Cumulative effect of accounting change
+0.02 
+— 
+— 
+$ 
+2.48 
+$ 
+2.18 
+$ 
+2.10 
+Diluted earnings per common share —
+before accounting change (Notes 1 and 9)
+$ 
+2.46 
+$ 
+2.16 
+$ 
+2.07 
+Cumulative effect of accounting change
+0.02 
+— 
+— 
+$ 
+2.44 
+$ 
+2.16 
+$ 
+2.07 
+The accompanying notes to consolidated financial
+statements are an integral part of this statement.
+31
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED BALANCE SHEETS 
+May 31, 
+2002 
+2001 
+(In millions) 
+ASSETS 
+Current Assets:
+Cash and equivalents
+$ 
+575.5 
+$ 
+304.0 
+Accounts receivable, less allowance for doubtful
+accounts of $77.4 and $72.1
+1,807.1 
+1,621.4 
+Inventories (Note 2)
+1,373.8 
+1,424.1 
+Deferred income taxes (Notes 1 and 6)
+140.8 
+113.3 
+Prepaid expenses and other current assets
+(Note 1)
+260.5 
+162.5 
+Total current assets
+4,157.7 
+3,625.3 
+Property, plant and equipment, net (Note 3)
+1,614.5 
+1,618.8 
+Identifiable intangible assets and goodwill, net
+(Note 1)
+437.8 
+397.3 
+Deferred income taxes and other assets
+(Notes 1 and 6)
+233.0 
+178.2 
+Total assets
+$ 
+6,443.0 
+$ 
+5,819.6 
+LIABILITIES AND SHAREHOLDERS’
+EQUITY 
+Current Liabilities:
+Current portion of long-term debt (Note 5)
+$ 
+55.3 
+$ 
+5.4 
+Notes payable (Note 4)
+425.2 
+855.3 
+Accounts payable (Note 4)
+504.4 
+432.0 
+Accrued liabilities (Note 15)
+768.3 
+472.1 
+Income taxes payable
+83.0 
+21.9 
+Total current liabilities
+1,836.2 
+1,786.7 
+Long-term debt (Notes 5 and 14)
+625.9 
+435.9 
+Deferred income taxes and other liabilities
+(Notes 1 and 6)
+141.6 
+102.2 
+Commitments and contingencies (Notes 13 and
+15)
+— 
+— 
+Redeemable Preferred Stock (Note 7)
+0.3 
+0.3 
+Shareholders’ Equity:
+Common Stock at stated value (Note 8):
+Class A convertible — 98.1 and
+99.1 shares outstanding
+0.2 
+0.2 
+Class B — 168.0 and 169.5 shares
+outstanding
+2.6 
+2.6 
+Capital in excess of stated value
+538.7 
+459.4 
+Unearned stock compensation
+(5.1 
+) 
+(9.9 
+) 
+Accumulated other comprehensive loss
+(192.4 
+) 
+(152.1 
+) 
+Retained earnings
+3,495.0 
+3,194.3 
+Total shareholders’ equity
+3,839.0 
+3,494.5 
+Total liabilities and shareholders’ equity
+$ 
+6,443.0 
+$ 
+5,819.6 
+The accompanying notes to consolidated financial
+statements are an integral part of this statement.
+32
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF CASH
+FLOWS 
+Year Ended May 31, 
+2002 
+2001 
+2000 
+(In millions) 
+Cash provided (used) by
+operations: 
+Net income
+$ 
+663.3 
+$ 
+589.7 
+$ 
+579.1 
+Income charges not affecting cash:
+Depreciation
+223.5 
+197.4 
+188.0 
+Deferred income taxes
+15.2 
+79.8 
+36.8 
+Amortization and other
+53.1 
+16.7 
+35.6 
+Income tax benefit from exercise of stock options
+13.9 
+32.4 
+14.9 
+Changes in certain working capital components:
+Increase in accounts receivable
+(135.2 
+) 
+(141.4 
+) 
+(82.6 
+) 
+Decrease (increase) in inventories
+55.4 
+(16.7 
+) 
+(311.8 
+) 
+Decrease in other current assets and income taxes
+receivable
+16.9 
+78.0 
+61.2 
+Increase (decrease) in accounts payable,
+accrued liabilities and income taxes payable
+175.4 
+(179.4 
+) 
+178.4 
+Cash provided by operations
+1,081.5 
+656.5 
+699.6 
+Cash provided (used) by investing
+activities: 
+Additions to property, plant and equipment and
+other
+(282.8 
+) 
+(317.6 
+) 
+(419.9 
+) 
+Disposals of property, plant and equipment
+15.6 
+12.7 
+25.3 
+Increase in other assets
+(39.1 
+) 
+(42.5 
+) 
+(51.3 
+) 
+Increase in other liabilities
+3.5 
+5.1 
+5.9 
+Cash used by investing activities
+(302.8 
+) 
+(342.3 
+) 
+(440.0 
+) 
+Cash provided (used) by financing
+activities: 
+Proceeds from long-term debt issuance
+329.9 
+— 
+— 
+Reductions in long-term debt including current
+portion
+(80.3 
+) 
+(50.3 
+) 
+(1.7 
+) 
+(Decrease) increase in notes payable
+(431.5 
+) 
+(68.9 
+) 
+505.1 
+Proceeds from exercise of stock options and other
+stock issuances
+59.5 
+56.0 
+23.9 
+Repurchase of stock
+(226.9 
+) 
+(157.0 
+) 
+(646.3 
+) 
+Dividends — common and preferred
+(128.9 
+) 
+(129.7 
+) 
+(133.1 
+) 
+Cash used by financing activities
+(478.2 
+) 
+(349.9 
+) 
+(252.1 
+) 
+Effect of exchange rate changes
+(29.0 
+) 
+85.4 
+48.7 
+Net increase in cash and equivalents
+271.5 
+49.7 
+56.2 
+Cash and equivalents, beginning of year
+304.0 
+254.3 
+198.1 
+Cash and equivalents, end of year
+$ 
+575.5 
+$ 
+304.0 
+$ 
+254.3 
+Supplemental disclosure of cash flow
+information: 
+Cash paid during the year for:
+Interest
+$ 
+54.2 
+$ 
+68.5 
+$ 
+45.0 
+Income taxes
+262.0 
+173.1 
+221.1 
+Non-cash investing and financing
+activity: 
+Assumption of long-term debt to acquire property,
+plant and equipment
+— 
+— 
+$ 
+108.9 
+The accompanying notes to consolidated financial
+statements are an integral part of this statement.
+33
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
+EQUITY 
+Common Stock 
+Capital in 
+Accumulated 
+Class A 
+Class B 
+Excess of 
+Unearned 
+Other 
+Stated 
+Stock 
+Comprehensive 
+Retained 
+Shares 
+Amount 
+Shares 
+Amount 
+Value 
+Compensation 
+Loss 
+Earnings 
+Total 
+(In millions, except per share data) 
+Balance at May 31, 1999 
+100.7 
+0.2 
+181.6 
+2.7 
+334.1 
+— 
+(68.9 
+) 
+3,066.5 
+3,334.6 
+Stock options exercised
+1.3 
+38.7 
+38.7 
+Conversion to Class B Common Stock
+(1.5 
+) 
+1.5 
+Repurchase of Class B Common Stock
+(14.5 
+) 
+(0.1 
+) 
+(17.3 
+) 
+(627.1 
+) 
+(644.5 
+) 
+Dividends on Common stock ($.48 per share)
+(131.5 
+) 
+(131.5 
+) 
+Issuance of shares to employees
+0.5 
+13.5 
+(13.5 
+) 
+— 
+Amortization of unearned compensation
+1.8 
+1.8 
+Comprehensive income:
+Net income
+579.1 
+579.1 
+Foreign currency translation (net of tax expense
+of $1.2)
+(42.2 
+) 
+(42.2 
+) 
+Comprehensive income
+(42.2 
+) 
+579.1 
+536.9 
+Balance at May 31, 2000 
+99.2 
+0.2 
+170.4 
+2.6 
+369.0 
+(11.7 
+) 
+(111.1 
+) 
+2,887.0 
+3,136.0 
+Stock options exercised
+2.9 
+91.0 
+91.0 
+Conversion to Class B Common Stock
+(0.1 
+) 
+0.1 
+— 
+Repurchase of Class B Common Stock
+(4.0 
+) 
+(4.8 
+) 
+(152.2 
+) 
+(157.0 
+) 
+Dividends on Common stock ($.48 per share)
+(129.6 
+) 
+(129.6 
+) 
+Issuance of shares to employees
+0.1 
+6.7 
+(6.7 
+) 
+— 
+Amortization of unearned compensation
+7.3 
+7.3 
+Forfeiture of shares from employees
+(2.5 
+) 
+1.2 
+(0.6 
+) 
+(1.9 
+) 
+Comprehensive income:
+Net income
+589.7 
+589.7 
+Foreign currency translation and other (net of
+tax benefit of $2.4)
+(41.0 
+) 
+(41.0 
+) 
+Comprehensive income
+(41.0 
+) 
+589.7 
+548.7 
+Balance at May 31, 2001 
+99.1 
+$ 
+0.2 
+169.5 
+$ 
+2.6 
+$ 
+459.4 
+$ 
+(9.9 
+) 
+$ 
+(152.1 
+) 
+$ 
+3,194.3 
+3,494.5 
+Stock options exercised
+1.7 
+72.9 
+72.9 
+Conversion to Class B Common Stock
+(1.0 
+) 
+1.0 
+Repurchase of Class B Common Stock
+(4.3 
+) 
+(5.2 
+) 
+(232.5 
+) 
+(237.7 
+) 
+Dividends on Common stock ($.48 per share)
+(128.6 
+) 
+(128.6 
+) 
+Issuance of shares to employees and others
+0.2 
+13.2 
+(1.9 
+) 
+11.3 
+Amortization of unearned compensation
+6.5 
+6.5 
+Forfeiture of shares from employees
+(0.1 
+) 
+(1.6 
+) 
+0.2 
+(1.5 
+) 
+(2.9 
+) 
+Comprehensive income (Note 12):
+Net income
+663.3 
+663.3 
+Other comprehensive income (net of tax benefit of
+$17.4):
+Foreign currency translation
+(1.5 
+) 
+(1.5 
+) 
+Cumulative effect of change in accounting
+principle (Note 1)
+56.8 
+56.8 
+Adjustment for fair value of hedge derivatives
+(95.6 
+) 
+(95.6 
+) 
+Comprehensive income
+(40.3 
+) 
+663.3 
+623.0 
+Balance at May 31, 2002 
+98.1 
+$ 
+0.2 
+168.0 
+$ 
+2.6 
+$ 
+538.7 
+$ 
+(5.1 
+) 
+$ 
+(192.4 
+) 
+$ 
+3,495.0 
+$ 
+3,839.0 
+The accompanying notes to consolidated financial
+statements are an integral part of this statement.
+34
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS 
+Note 1 — Summary of Significant
+Accounting Policies 
+Basis of Consolidation 
+The consolidated financial statements include the
+accounts of NIKE, Inc. and its subsidiaries (the Company). All
+significant intercompany transactions and balances have been
+eliminated.
+Recognition of Revenues 
+Wholesale revenues are recognized when title
+passes and the risks and rewards of ownership have passed to the
+customer, based on the terms of sale. Title passes generally
+upon shipment or upon receipt by the customer depending on the
+country of the sale and the agreement with the customer. Retail
+store revenues are recorded at the time of sale. Provisions for
+sales discounts and returns are made at the time of sale.
+Shipping and Handling Costs 
+Shipping and handling costs are expensed as
+incurred and included in cost of sales.
+Advertising and Promotion 
+Advertising production costs are expensed the
+first time the advertisement is run. Media (TV and print)
+placement costs are expensed in the month the advertising
+appears. A significant amount of the Company’s promotional
+expenses result from payments under endorsement contracts.
+Accounting for endorsement payments is based upon specific
+contract provisions. Generally, endorsement payments are
+expensed uniformly over the term of the contract after giving
+recognition to periodic performance compliance provisions of the
+contracts. Prepayments made under contracts are included in
+Prepaid expenses and other current assets or Other assets
+depending on the length of the contract. Through cooperative
+advertising programs, we reimburse our retail customers for
+certain of their costs of advertising our products. We record
+these costs in selling and administrative expense at the point
+in time when we are obligated to our customers for the costs.
+This obligation may arise prior to the related advertisement
+being run. Total advertising and promotion expenses were
+$1,027.9 million, $998.2 million and
+$974.1 million for the years ended May 31, 2002, 2001
+and 2000, respectively. Included in Prepaid expenses and other
+current assets and Other assets was $113.2 million and
+$122.3 million at May 31, 2002 and 2001, respectively,
+relating to prepaid advertising and promotion expenses.
+Cash and Equivalents 
+Cash and equivalents represent cash and
+short-term, highly liquid investments with original maturities
+of three months or less.
+Inventory Valuation 
+Inventories are stated at the lower of cost or
+market. Inventories are valued on a first-in, first-out (FIFO)
+or moving-average cost basis.
+Property, Plant and Equipment and
+Depreciation 
+Property, plant and equipment are recorded at
+cost. Depreciation for financial reporting purposes is
+determined on a straight-line basis for buildings and leasehold
+improvements over 2 to 40 years and principally on a
+declining balance basis for machinery and equipment over 2 to
+15 years. Computer software is depreciated on a
+straight-line basis over 3 to 10 years.
+35
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+Identifiable Intangible Assets and
+Goodwill 
+At May 31, 2002 and 2001, the Company had
+patents, trademarks and other identifiable intangible assets
+recorded at a cost of $264.2 million and $218.6 million,
+respectively. The Company’s excess of purchase cost over
+the fair value of net assets of businesses acquired
+(goodwill) was $333.6 million and $322.5 million
+at May 31, 2002 and 2001, respectively.
+Identifiable intangible assets and goodwill are
+being amortized over their estimated useful lives on a
+straight-line basis over five to forty years. Accumulated
+amortization was $160.0 million and $143.8 million at
+May 31, 2002 and 2001, respectively. Amortization expense,
+which is included in other income/expense, was
+$15.7 million, $15.6 million and $18.5 million
+for the years ended May 31, 2002, 2001 and 2000,
+respectively.
+Impairment of Long-Lived
+Assets 
+When events or circumstances indicate the
+carrying value of a long-lived asset may be impaired, the
+Company estimates the future undiscounted cash flows to be
+derived from the asset to assess whether or not a potential
+impairment exists. If the carrying value exceeds our estimate of
+future undiscounted cash flows, we then calculate the impairment
+as the excess of the carrying value of the asset over our
+estimate of its fair market value.
+Foreign Currency Translation and Foreign
+Currency Transactions 
+Adjustments resulting from translating foreign
+functional currency financial statements into U.S. dollars are
+included in the foreign currency translation adjustment, a
+component of accumulated other comprehensive loss in
+shareholders’ equity.
+Transaction gains and losses generated by the
+effect of foreign exchange on recorded assets and liabilities
+denominated in a currency different from the functional currency
+of the applicable Company entity are recorded in other
+income/expense currently.
+Net foreign currency transaction gains, which
+include transaction gains and losses referred to above as well
+as hedge results captured in revenues, cost of sales, selling
+and administrative expense and other income/expense, were
+$45.1 million, $129.6 million, and $36.1 million
+for the years ended May 31, 2002, 2001, and 2000
+respectively.
+Adoption of FAS 133 
+The Company adopted Statement of Financial
+Accounting Standards (“SFAS”) No. 133,
+“Accounting for Derivative Instruments and Hedging
+Activities,” as amended by SFAS No. 138,
+“Accounting for Certain Derivative Instruments and Certain
+Hedging Activities” (FAS 133) on June 1, 2001.
+In accordance with the transition provisions of
+FAS 133, the Company recorded a one-time transition
+adjustment as of June 1, 2001 on both the consolidated
+statement of income and the consolidated balance sheet. The
+transition adjustment on the consolidated statement of income
+was a charge of $5.0 million, net of tax effect. This
+amount related to an investment that was adjusted to fair value
+in accordance with FAS 133. The transition adjustment on
+the consolidated balance sheet represented the initial
+recognition of the fair values of hedge derivatives outstanding
+on the adoption date and realized gains and losses on effective
+hedges for which the underlying exposure had not yet affected
+earnings. The transition adjustment on the consolidated balance
+sheet was an increase in current assets of $116.4 million,
+an increase in noncurrent assets of $87.0 million, an
+increase in current liabilities of $151.6 million, and an
+increase in other comprehensive income of approximately
+$56.8 million, net of tax effect. The majority of the
+$56.8 million recorded in other comprehensive income as of
+June 1, 2001 related to outstanding derivatives at that
+date. Because exchange rates on the transition date were
+different from those on the maturity dates of these derivatives
+and because
+36
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+some contracts maturing during the year ended
+May 31, 2002 were entered into after the transition date,
+amounts ultimately reclassified to earnings during the year
+ended May 31, 2002, as described in note 12, are
+significantly different from this amount.
+Accounting for Derivatives and Hedging
+Activities 
+The purpose of the Company’s foreign
+currency hedging activities is to protect the Company from the
+risk that the eventual cash flows resulting from transactions in
+foreign currencies, including revenues, product costs, selling
+and administrative expenses, and intercompany transactions,
+including intercompany borrowings, will be adversely affected by
+changes in exchange rates. The Company does not hold or issue
+derivatives for trading purposes. It is the Company’s
+policy to utilize derivatives to reduce foreign exchange risks
+where internal netting strategies cannot be effectively
+employed. Fluctuations in the value of hedging instruments are
+offset by fluctuations in the value of the underlying exposures
+being hedged.
+Derivatives used by the Company to hedge the
+risks described above are forward exchange contracts, options
+and cross-currency swaps. These instruments protect against the
+risk that the eventual net cash inflows and outflows from
+foreign currency denominated transactions will be adversely
+affected by changes in exchange rates. The cross-currency swaps
+are used to hedge foreign currency denominated payments related
+to intercompany loan agreements. Hedged transactions are
+denominated primarily in European currencies, Japanese yen,
+Canadian dollars, Korean won, Mexican pesos, Australian dollars,
+and new Taiwan dollars. The Company hedges up to 100% of
+anticipated exposures typically twelve months in advance but has
+hedged as much as 32 months in advance. When intercompany
+loans are hedged, it is typically for their expected duration,
+which in some circumstances may be in excess of five years.
+The Company is also exposed to the risk of
+changes in the fair value of certain fixed-rate debt
+attributable to changes in interest rates. Derivatives currently
+used by the Company to hedge this risk are receive-fixed,
+pay-variable interest rate swaps. See Note 5.
+All derivatives are recognized on the balance
+sheet at their fair value. Unrealized gain positions are
+recorded as other current assets or other non-current assets.
+Unrealized loss positions are recorded as accrued liabilities or
+other non-current liabilities.
+The fair values of the interest rate swap
+agreements are recorded as other non-current assets or other
+non-current liabilities. The unrealized gain or loss on the
+interest rate swaps is exactly offset by an unrealized loss or
+gain on the underlying long-term debt.
+Substantially all foreign currency derivatives
+entered into by the Company qualify for and are designated as
+foreign-currency cash flow hedges, including those hedging
+foreign currency denominated firm commitments.
+The interest rate swap agreements are designated
+as fair value hedges of the related long-term debt and meet the
+shortcut method requirements under FAS 133. Accordingly,
+interest expense on the related long-term debt is recorded based
+on the variable rates paid under the interest rate swap
+agreements, and changes in the fair values of the interest rate
+swap agreements exactly offset changes in the fair value of the
+long-term debt.
+The Company considers whether any provisions in
+non-derivative contracts represent “embedded”
+derivative instruments as described in FAS 133. For the
+period ended May 31, 2002 the Company has concluded that no
+“embedded” derivative instruments warrant separate
+fair value accounting under FAS 133.
+Changes in fair values of outstanding cash flow
+hedge derivatives that are highly effective are recorded in
+other comprehensive income, until earnings are affected by the
+variability of cash flows of the hedged transaction. In most
+cases amounts recorded in other comprehensive income will be
+released to earnings some time after the maturity of the related
+derivative. The consolidated statement of income classification
+of
+37
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+effective hedge results is the same as that of
+the underlying exposure. Results of hedges of revenue and
+product costs are recorded in revenue and cost of sales,
+respectively, when the underlying hedged transaction affects
+earnings. Results of hedges of selling and administrative
+expense are recorded together with those costs when the related
+expense is recorded. Results of hedges of anticipated
+intercompany transactions are recorded in other income/expense
+when the transaction occurs. Hedges of recorded balance sheet
+positions are recorded in other income/expense currently
+together with the transaction gain or loss from the hedged
+balance sheet position. Unrealized derivative gains and losses
+recorded in current and non-current assets and liabilities and
+amounts recorded in other comprehensive income are non-cash
+items and therefore are taken into account in the preparation of
+the consolidated statement of cash flows based on their
+respective balance sheet classifications.
+The critical terms of the company’s
+outstanding interest rate swap agreements exactly match the
+critical terms of the underlying debt. Therefore, under the
+shortcut provisions of FAS 133, the swaps are considered
+perfectly effective.
+The Company formally documents all relationships
+between hedging instruments and hedged items, as well as its
+risk-management objective and strategy for undertaking hedge
+transactions. This process includes linking all derivatives that
+are designated as foreign-currency cash flow hedges to either
+specific assets and liabilities on the balance sheet or specific
+firm commitments or forecasted transactions. The Company also
+formally assesses, both at the hedge’s inception and on an
+ongoing basis, whether the derivatives that are used in hedging
+transactions have been highly effective in offsetting changes in
+the cash flows of hedged items and whether those derivatives may
+be expected to remain highly effective in future periods. When
+it is determined that a derivative is not, or has ceased to be,
+highly effective as a hedge, the Company discontinues hedge
+accounting prospectively, as discussed below.
+The Company discontinues hedge accounting
+prospectively when (1) it determines that the derivative is
+no longer highly effective in offsetting changes in the cash
+flows of a hedged item (including hedged items such as firm
+commitments or forecasted transactions); (2) the derivative
+expires or is sold, terminated, or exercised; (3) it is no
+longer probable that the forecasted transaction will occur; or
+(4) management determines that designating the derivative
+as a hedging instrument is no longer appropriate.
+When the Company discontinues hedge accounting
+because it is no longer probable that the forecasted transaction
+will occur in the originally expected period, the gain or loss
+on the derivative remains in accumulated other comprehensive
+income and is reclassified into earnings when the forecasted
+transaction affects earnings. However, if it is probable that a
+forecasted transaction will not occur by the end of the
+originally specified time period or within an additional
+two-month period of time thereafter, the gains and losses that
+were accumulated in other comprehensive loss will be recognized
+immediately in earnings. In all situations in which hedge
+accounting is discontinued and the derivative remains
+outstanding, the Company will carry the derivative at its fair
+value on the balance sheet, recognizing future changes in the
+fair value in current-period earnings. Any hedge ineffectiveness
+is recorded in current-period earnings. Effectiveness is
+assessed based on forward rates.
+Premiums paid on options are initially recorded
+as deferred charges. The Company assesses effectiveness on
+options based on the total cash flows method and records total
+changes in the options’ fair value to other comprehensive
+income to the degree they are effective.
+Income Taxes 
+United States income taxes are provided currently
+on financial statement earnings of non-U.S. subsidiaries
+expected to be repatriated. The Company determines annually the
+amount of undistributed non-U.S. earnings to invest
+indefinitely in its non-U.S. operations. The Company
+accounts for income taxes using the asset and liability method.
+This approach requires the recognition of deferred tax assets
+38
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+and liabilities for the expected future tax
+consequences of temporary differences between the carrying
+amounts and the tax bases of other assets and liabilities. See
+Note 6 for further discussion.
+Earnings Per Share 
+Basic earnings per common share is calculated by
+dividing net income by the weighted average number of common
+shares outstanding during the year. Diluted earnings per common
+share is calculated by adjusting weighted average outstanding
+shares, assuming conversion of all potentially dilutive stock
+options and awards. See Note 9 for further discussion.
+Management Estimates 
+The preparation of financial statements in
+conformity with generally accepted accounting principles
+requires management to make estimates, including estimates
+relating to assumptions that affect the reported amounts of
+assets and liabilities and disclosure of contingent assets and
+liabilities at the date of financial statements and the reported
+amounts of revenues and expenses during the reporting period.
+Actual results could differ from these estimates.
+Reclassifications 
+Certain prior year amounts have been reclassified
+to conform to fiscal year 2002 presentation. These changes had
+no impact on previously reported results of operations or
+shareholders’ equity.
+Recently Issued Accounting
+Standards 
+The Company will adopt SFAS No. 142,
+“Goodwill and Other Intangible Assets” (FAS 142)
+on June 1, 2002. FAS 142 requires that goodwill and
+intangible assets with indefinite lives no longer be amortized
+but instead be measured for impairment at least annually, or
+when events indicate that an impairment exists. As of the
+adoption date, amortization of outstanding goodwill and other
+indefinite-lived intangible assets will cease. As a result of
+the elimination of this amortization, other expense will
+decrease by approximately $13 million annually beginning in
+the quarter ended August 31, 2002.
+As required by FAS 142, we will perform
+impairment tests on goodwill and other indefinite-lived
+intangible assets as of the adoption date. Thereafter, we will
+perform impairment tests annually and whenever events or
+circumstances indicate that the value of goodwill or other
+indefinite-lived intangible assets might be impaired. In
+connection with the FAS 142 indefinite-lived intangible
+asset impairment test, we will utilize the required one-step
+method to determine whether an impairment exists as of the
+adoption date. In connection with the FAS 142 transitional
+goodwill impairment test, we will utilize the required two-step
+method for determining goodwill impairment as of the adoption
+date.
+We have estimated that we will likely incur a
+transitional impairment loss of approximately $270 million
+related to our Bauer NIKE Hockey and Cole Haan subsidiaries,
+reflecting that the fair values we have estimated for these
+subsidiaries are less than the carrying values including
+goodwill. This expected transitional impairment loss will be
+recognized as a cumulative effect of a change in accounting
+principle in our consolidated statement of income during the
+quarter ended August 31, 2002.
+In October 2001, the FASB issued
+SFAS No. 144, “Accounting for the Impairment or
+Disposal of Long-Lived Assets” (FAS 144). This
+statement supersedes SFAS No. 121, “Accounting
+for the Impairment of Long-Lived Assets and for Long-Lived
+Assets to be Disposed Of” (FAS 121), and amends
+Accounting Principles Board Statement No. 30,
+“Reporting the Effects of Disposal of a Segment of a
+Business, and Extraordinary, Unusual and Infrequently Occurring
+Events and Transactions” (APB 30). FAS 144
+requires that long-lived assets that are to be disposed of by
+sale be measured at the lower of book value or fair value less
+costs to sell. FAS 144 retains the fundamental provisions of
+FAS 121 for (a) recognition and measurement of
+39
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+the impairment of long-lived assets to be held
+and used and (b) measurement of long-lived assets to be
+disposed of by sale. This statement also retains
+APB 30’s requirement that companies report
+discontinued operations separately from continuing operations.
+All provisions of this statement will be effective for the
+Company on June 1, 2003. It is not expected that the
+adoption of FAS 144 will have any impact on the
+Company’s consolidated financial position or results of
+operations.
+Note 2 — 
+Inventories 
+Inventories by major classification are as
+follows:
+May 31, 
+2002 
+2001 
+(In millions) 
+Finished goods
+$ 
+1,348.2 
+$ 
+1,399.9 
+Work-in-progress
+13.0 
+15.1 
+Raw materials
+12.6 
+9.1 
+$ 
+1,373.8 
+$ 
+1,424.1 
+Note 3 — 
+Property, Plant and Equipment 
+Property, plant and equipment includes the
+following:
+May 31, 
+2002 
+2001 
+(In millions) 
+Land
+$ 
+178.3 
+$ 
+177.2 
+Buildings
+739.9 
+695.4 
+Machinery and equipment
+1,356.9 
+1,117.3 
+Leasehold improvements
+394.2 
+391.9 
+Construction in process
+72.4 
+171.0 
+2,741.7 
+2,552.8 
+Less accumulated depreciation
+1,127.2 
+934.0 
+$ 
+1,614.5 
+$ 
+1,618.8 
+Capitalized interest expense incurred was
+$1.7 million, $8.4 million and $4.8 million for
+the years ended May 31, 2002, 2001 and 2000, respectively.
+40
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+Note 4 — 
+Short-Term Borrowings and Credit
+Lines: 
+Commercial paper outstanding, notes payable to
+banks, and interest-bearing accounts payable to Nissho Iwai
+American Corporation (NIAC) are summarized below:
+May 31, 
+2002 
+2001 
+Interest 
+Interest 
+Borrowings 
+Rate 
+Borrowings 
+Rate 
+(In millions) 
+(In millions) 
+Notes payable and commercial paper:
+U.S. operations
+$ 
+339.2 
+1.82 
+% 
+$ 
+710.0 
+4.07 
+% 
+Non-U.S. operations
+86.0 
+6.61 
+% 
+145.3 
+6.50 
+% 
+$ 
+425.2 
+$ 
+855.3 
+NIAC
+36.3 
+2.62 
+% 
+30.4 
+5.14 
+% 
+At May 31, 2002 there was
+$338.3 million outstanding and at May 31, 2001 there
+was $710.0 million outstanding under our commercial paper
+program.
+The Company purchases through NIAC certain
+athletic footwear and apparel it acquires from non-U.S.
+suppliers. These purchases are for the Company’s operations
+outside of the U.S., Europe, and Japan. Accounts payable to NIAC
+are generally due up to 60 days after shipment of goods
+from the foreign port. The interest rate on such accounts
+payable is the 60 day London Interbank Offered Rate
+(LIBOR) as of the beginning of the month of the invoice
+date, plus 0.75%.
+The Company has a $600.0 million, 364-day
+committed credit facility and a $500.0 million, multi-year
+committed credit facility in place with a group of banks under
+which no amounts are outstanding. The $600.0 million
+facility matures on November 15, 2002 and can be extended
+364 days on each maturity date. The $500.0 million
+facility matures on November 17, 2005, and once a year, it
+can be extended for one additional year. Based on the
+Company’s current senior unsecured debt ratings, the
+interest rate charged on any outstanding borrowings on the
+$600.0 million facility would be the prevailing LIBOR plus
+0.24%, and the interest rate charged on any outstanding
+borrowings on the $500.0 million facility would be the
+prevailing LIBOR plus 0.22%. The facility fees for the
+$600.0 million and the $500.0 million facilities are
+0.06% and 0.08%, respectively, of the total commitment. Under
+these agreements, the Company must maintain, among other things,
+certain minimum specified financial ratios with which the
+Company was in compliance at May 31, 2002.
+41
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+Note 5 — 
+Long-Term Debt 
+Long-term debt includes the following:
+May 31, 
+2002 
+2001 
+(In millions) 
+6.69% Medium term note, payable June 17, 2002
+$ 
+50.0 
+$ 
+50.0 
+6.375% Corporate Bond, payable December 1,
+2003
+199.8 
+199.8 
+5.5% Corporate Bond, payable August 15, 2006
+248.2 
+— 
+4.3% Japanese yen note, payable June 26, 2011
+83.4 
+85.3 
+2.6% Japanese yen note, maturing August 20,
+2001 through November 20, 2020
+67.8 
+73.2 
+2.0% Japanese yen note, maturing August 20,
+2001 through November 20, 2020
+30.2 
+32.5 
+Other
+1.8 
+.5 
+Total
+681.2 
+441.3 
+Less current maturities
+55.3 
+5.4 
+$ 
+625.9 
+$ 
+435.9 
+The 6.69% medium term note, due June 17,
+2002, was repaid subsequent to May 31, 2002.
+In February 1999, the Company filed a shelf
+registration with the U.S. Securities and Exchange
+Commission (“SEC”) for the sale of up to
+$500.0 million in debt securities. In August 2001, we
+issued a $250.0 million corporate bond under this shelf
+registration, maturing in August 2006, with an interest rate of
+5.5%. With the proceeds, we reduced the amount of commercial
+paper outstanding. In November 2001 the Company entered into
+interest rate swap agreements totaling $250 million and
+maturing August 2006, whereby the Company receives fixed
+interest payments at 5.5% and pays variable interest payments
+based on the three-month LIBOR plus a spread. At May 31,
+2002, the interest rates payable on the swap agreements were
+approximately 3.3%.
+We have an effective shelf registration statement
+with the Securities and Exchange Commission for $1 billion
+of debt securities. As of May 31, 2002, we had not issued
+any debt under the registration statement. Subsequent to
+May 31, 2002, we issued a total of $90.0 million in notes
+under the medium term note program of the shelf registration.
+The notes have coupon rates that range from 4.80% to 5.66%. The
+maturities range from July 9, 2007 to August 7, 2012.
+For $75 million of the notes, we simultaneously entered
+into interest rate swap agreements whereby we receive fixed
+interest payments at the same rate as the notes and pay variable
+interest payments based on the six-month LIBOR plus a spread.
+Each swap has the same notional amount and maturity date as the
+corresponding note. After issuance of these notes,
+$910.0 million remains available to be issued under our
+shelf registration. We may issue further notes under the shelf
+registration during the year ended May 31, 2003 depending
+on working capital and general corporate needs.
+In June 1996, one of the Company’s Japanese
+subsidiaries borrowed 10,500 million Japanese yen in a
+private placement with a maturity of June 26, 2011.
+Interest is paid semi-annually. The agreement provides for early
+retirement after year ten.
+In July 1999, another of the Company’s
+Japanese subsidiaries assumed 13,000 million in Japanese
+yen loans as part of its agreement to purchase a distribution
+center in Japan, which serves as collateral for the loans. These
+loans mature in equal quarterly installments during the period
+August 20, 2001 through November 20, 2020. Interest is
+also paid quarterly.
+42
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+Amounts of long-term debt maturities in each of
+the years ending May 31, 2003 through 2007 are
+$55.3 million, $205.3 million, $5.5 million,
+$5.5 million and $254.7 million, respectively.
+Note 6 — 
+Income Taxes 
+Income before income taxes and cumulative effect
+of accounting change is as follows:
+Year Ended May 31, 
+2002 
+2001 
+2000 
+(In millions) 
+Income before income taxes and cumulative effect
+of accounting change:
+United States
+$ 
+511.2 
+$ 
+470.7 
+$ 
+530.4 
+Foreign
+506.1 
+450.7 
+388.8 
+$ 
+1,017.3 
+$ 
+921.4 
+$ 
+919.2 
+The provision for income taxes is as follows:
+Year Ended May 31, 
+2002 
+2001 
+2000 
+(In millions) 
+Current:
+United States
+Federal
+$ 
+156.5 
+$ 
+158.5 
+$ 
+205.0 
+State
+32.0 
+31.6 
+30.6 
+Foreign
+147.7 
+76.2 
+58.8 
+336.2 
+266.3 
+294.4 
+Deferred:
+United States
+Federal
+(3.3 
+) 
+64.2 
+32.7 
+State
+3.3 
+2.6 
+1.6 
+Foreign
+12.8 
+(1.4 
+) 
+11.4 
+12.8 
+65.4 
+45.7 
+$ 
+349.0 
+$ 
+331.7 
+$ 
+340.1 
+43
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+Deferred tax (assets) and liabilities are
+comprised of the following:
+May 31, 
+2002 
+2001 
+(In millions) 
+Deferred tax assets:
+Allowance for doubtful accounts
+(14.5 
+) 
+(16.3 
+) 
+Inventory reserves
+(17.4 
+) 
+(17.2 
+) 
+Sales return reserves
+(22.1 
+) 
+(18.4 
+) 
+Deferred compensation
+(49.0 
+) 
+(40.1 
+) 
+Reserves and accrued liabilities
+(38.5 
+) 
+(40.1 
+) 
+Tax basis inventory adjustment
+(16.0 
+) 
+(16.8 
+) 
+Property, plant, and equipment
+(23.4 
+) 
+(25.7 
+) 
+Foreign loss carryforwards
+(39.9 
+) 
+(34.6 
+) 
+Hedges
+(26.7 
+) 
+— 
+Other
+(22.7 
+) 
+(21.5 
+) 
+Total deferred tax assets
+(270.2 
+) 
+(230.7 
+) 
+Deferred tax liabilities:
+Undistributed earnings of foreign subsidiaries
+$ 
+22.0 
+$ 
+53.9 
+Property, plant and equipment
+59.6 
+18.4 
+Hedges
+13.7 
+— 
+Other
+26.7 
+20.5 
+Total deferred tax liabilities
+122.0 
+92.8 
+Net deferred tax asset before valuation allowance
+(148.2 
+) 
+(137.9 
+) 
+Valuation allowance
+13.2 
+1.4 
+Net deferred tax asset
+$ 
+(135.0 
+) 
+$ 
+(136.5 
+) 
+A reconciliation from the U.S. statutory federal
+income tax rate to the effective income tax rate follows:
+Year Ended 
+May 31, 
+2002 
+2001 
+2000 
+Federal income tax rate
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State taxes, net of federal benefit
+2.2 
+2.4 
+2.3 
+Foreign earnings
+(3.1 
+) 
+(1.8 
+) 
+(1.5 
+) 
+Other, net
+0.2 
+0.4 
+1.2 
+Effective income tax rate
+34.3 
+% 
+36.0 
+% 
+37.0 
+% 
+The Company has indefinitely reinvested
+approximately $361.1 million of the cumulative
+undistributed earnings of certain foreign subsidiaries, of which
+$150.0 million was earned during the year ended
+May 31, 2002. Such earnings would be subject to U.S.
+taxation if repatriated to the U.S. The amount of unrecognized
+deferred tax liability associated with the permanently
+reinvested cumulative undistributed earnings was approximately
+$91.5 million.
+Deferred tax assets at May 31, 2002 and 2001
+were reduced by a valuation allowance relating to tax benefits
+attributable to net operating losses of certain foreign
+subsidiaries where local tax laws limit the utilization of such
+net operating losses.
+44
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+A benefit was recognized for foreign loss
+carryforwards of $80.1 million at May 31, 2002. Such
+losses expire as follows (millions):
+Year Ended May 31, 
+2004 
+2005 
+2006 
+2007 
+2008 
+Indefinite 
+Expiration Amount
+4.1 
+4.4 
+24.8 
+8.4 
+9.0 
+29.4 
+During the years ended May 31, 2002, 2001,
+and 2000 income tax benefits attributable to employee stock
+option transactions of $13.9 million, $32.4 million, and
+$14.9 million, respectively, were allocated to
+shareholders’ equity.
+Note 7 — Redeemable Preferred
+Stock 
+NIAC is the sole owner of the Company’s
+authorized Redeemable Preferred Stock, $1 par value, which is
+redeemable at the option of NIAC or the Company at par value
+aggregating $0.3 million. A cumulative dividend of $0.10
+per share is payable annually on May 31 and no dividends
+may be declared or paid on the common stock of the Company
+unless dividends on the Redeemable Preferred Stock have been
+declared and paid in full. There have been no changes in the
+Redeemable Preferred Stock in the three years ended May 31,
+2002. As the holder of the Redeemable Preferred Stock, NIAC does
+not have general voting rights but does have the right to vote
+as a separate class on the sale of all or substantially all of
+the assets of the Company and its subsidiaries, on merger,
+consolidation, liquidation or dissolution of the Company or on
+the sale or assignment of the NIKE trademark for athletic
+footwear sold in the United States.
+Note 8 — Common Stock 
+The authorized number of shares of Class A
+Common Stock no par value and Class B Common Stock no par
+value are 110 million and 350 million, respectively.
+Each share of Class A Common Stock is convertible into one
+share of Class B Common Stock. Voting rights of
+Class B Common Stock are limited in certain circumstances
+with respect to the election of directors.
+In 1990, the Board of Directors adopted, and the
+shareholders approved, the NIKE, Inc. 1990 Stock Incentive Plan
+(the “1990 Plan”). The 1990 Plan provides for the
+issuance of up to 37.5 million shares of Class B
+Common Stock in connection with stock options and other awards
+granted under such plan. The 1990 Plan authorizes the grant of
+incentive stock options, non-statutory stock options, stock
+appreciation rights, stock bonuses and the sale of restricted
+stock. The exercise price for incentive stock options may not be
+less than the fair market value of the underlying shares on the
+date of grant. The exercise price for non-statutory stock
+options, stock appreciation rights and the purchase price of
+restricted stock may not be less than 75% of the fair market
+value of the underlying shares on the date of grant. No
+consideration will be paid for stock bonuses awarded under the
+1990 Plan. A committee of the Board of Directors administers the
+1990 Plan. The committee has the authority to determine the
+employees to whom awards will be made, the amount of the awards,
+and the other terms and conditions of the awards. As of
+May 31, 2002, the committee has granted substantially all
+non-statutory stock options at 100% of fair market value on the
+date of grant under the 1990 Plan.
+From time to time, the Company grants restricted
+stock and unrestricted stock to key employees under the 1990
+plan. The number of shares granted to employees during the years
+ended May 31, 2002 and May 31, 2001 was not material.
+During the year ended May 31, 2000, the Company granted
+427,000 shares of restricted stock at a market value of
+$27.69 per share. The restrictions lapse and recipients of the
+restricted shares become vested in the shares over a three-year
+period from the date of grant. The shares are subject to partial
+forfeiture if employment terminates within the three-year
+period. Recipients of restricted shares are entitled to cash
+dividends and to vote their respective shares. The value of all
+of the restricted shares was established by the market price on
+the date of grant. Unearned compensation was charged for the
+market value of the restricted shares. The unearned compensation
+is shown as a reduction of shareholders’ equity and
+45
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+is being amortized ratably over the vesting
+period. During the years ended May 31, 2002, 2001, and
+2000, respectively, the Company recognized $4.3 million,
+$4.3 million and $1.0 million in selling and
+administrative expense related to the grants, net of forfeitures.
+During the years ended May 31, 2002, 2001
+and 2000, the Company also granted shares of restricted stock
+under the Long-Term Incentive Plan (“LTIP”), adopted
+by the Board of Directors and approved by shareholders in
+September 1997. Under the LTIP, awards are made to certain
+executives based on performance targets established over varying
+time periods. Once performance targets are achieved, the shares
+of stock are issued and, for certain plan years, remain
+restricted for an additional three years. In other plan years
+the shares are immediately vested upon issuance. Unvested shares
+are subject to forfeiture if the executive’s employment
+terminates within that period. Plan participants are entitled to
+cash dividends and to vote their respective shares. The value of
+the restricted shares is established by the market price on the
+date of issuance. Unearned compensation is charged for the
+market value of the restricted shares. The unearned compensation
+is shown as a reduction of shareholders’ equity and is
+being amortized ratably over the service and vesting periods.
+Under the LTIP a total of 38,000 restricted shares with an
+average price of $49.50 were issued during the year ended
+May 31, 2002, 115,000 restricted shares with an
+average market value of $47.56 were issued during the year ended
+May 31, 2001, and 33,000 restricted shares with an
+average market value of $51.06 were issued during the year ended
+May 31, 2000. Related to the LTIP, the Company recognized
+$9.0 million, $2.3 million and $2.0 million of
+selling and administrative expense in the years ending
+May 31, 2002, 2001 and 2000, respectively, net of
+forfeitures.
+SFAS No. 123, “Accounting for
+Stock-Based Compensation,” (FAS 123) defines a fair
+value method of accounting for employee stock compensation and
+encourages, but does not require, all entities to adopt that
+method of accounting. Entities electing not to adopt the fair
+value method of accounting must make pro forma disclosures of
+net income and earnings per share, as if the fair value based
+method of accounting defined in this statement had been applied.
+The Company has elected not to adopt the fair
+value method; however, as required by FAS 123, the Company has
+computed for pro forma disclosure purposes, the fair value of
+options granted during the years ended May 31, 2002, 2001
+and 2000 using the Black-Scholes option pricing model. The
+weighted average assumptions used for stock option grants for
+each of these years were a dividend yield of 1%, expected
+volatility of the market price of the Company’s common
+stock of 38%, 39% and 37% for the years ended May 31, 2002,
+2001 and 2000, respectively; a weighted-average expected life of
+the options of approximately five years; and interest rates of
+4.8% and 5.4% for the years ended May 31, 2002 and 2001,
+respectively, and 5.8%, 6.2% and 6.6% for the year ended
+May 31, 2000. These interest rates are reflective of option
+grant dates throughout the year.
+Options were assumed to be exercised over the
+5 year expected life for purposes of this valuation.
+Adjustments for forfeitures are made as they occur. For the
+years ended May 31, 2002, 2001 and 2000, the total value of
+the options granted, for which no previous expense has been
+recognized, was computed as approximately $73.4 million,
+$5.0 million and $129.8 million, respectively, which
+would be amortized on a straight line basis over the vesting
+period of the options. The weighted average fair value per share
+of the options granted in the years ended May 31, 2002,
+2001 and 2000 are $16.02, $17.27 and $15.81, respectively.
+46
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+If the Company had accounted for these stock
+options issued to employees in accordance with FAS 123, the
+Company’s pro forma net income and pro forma earnings per
+share (EPS) would have been reported as follows:
+Year Ended May 31, 
+2002 
+2001 
+2000 
+Net 
+Diluted 
+Basic 
+Net 
+Diluted 
+Basic 
+Net 
+Diluted 
+Basic 
+Income 
+EPS 
+EPS 
+Income 
+EPS 
+EPS 
+Income 
+EPS 
+EPS 
+(In millions, except per share data) 
+As reported
+$ 
+663.3 
+$ 
+2.44 
+$ 
+2.48 
+$ 
+589.7 
+$ 
+2.16 
+$ 
+2.18 
+$ 
+579.1 
+$ 
+2.07 
+$ 
+2.10 
+Pro Forma
+627.2 
+2.30 
+2.34 
+559.0 
+2.05 
+2.07 
+551.2 
+1.97 
+2.00 
+The pro forma effects of applying FAS 123 may not
+be representative of the effects on reported net income and
+earnings per share for future years since options vest over
+several years and additional awards are made each year.
+The following summarizes the stock option
+transactions under plans discussed above (adjusted for all
+applicable stock splits):
+Weighted 
+Average 
+Option 
+Shares 
+Price 
+(In thousands) 
+Options outstanding May 31, 1999
+11,865 
+$ 
+34.97 
+Exercised
+(1,237 
+) 
+18.23 
+Surrendered
+(852 
+) 
+52.86 
+Granted
+8,294 
+40.94 
+Options outstanding May 31, 2000
+18,070 
+38.02 
+Exercised
+(2,944 
+) 
+19.24 
+Surrendered
+(1,302 
+) 
+44.80 
+Granted
+341 
+40.71 
+Options outstanding May 31, 2001
+14,165 
+41.28 
+Exercised
+(1,687 
+) 
+33.62 
+Surrendered
+(724 
+) 
+44.43 
+Granted
+4,687 
+42.68 
+Options outstanding May 31, 2002
+16,441 
+$ 
+42.31 
+Options exercisable at May 31,
+2000
+6,655 
+$ 
+28.72 
+2001
+6,626 
+39.70 
+2002
+7,590 
+42.30 
+47
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+The following table sets forth the exercise
+prices, the number of options outstanding and exercisable and
+the remaining contractual lives of the Company’s stock
+options at May 31, 2002:
+Options Outstanding 
+Options Exercisable 
+Weighted 
+Number of 
+Weighted 
+Average 
+Number of 
+Weighted 
+Options 
+Average 
+Contractual Life 
+Options 
+Average 
+Exercise Price 
+Outstanding 
+Exercise Price 
+Remaining 
+Exercisable 
+Exercise Price 
+(In thousands) 
+(Years) 
+(In thousands) 
+$11.25-$27.69
+4,253 
+$ 
+25.07 
+6.33 
+2,486 
+$ 
+23.21 
+28.13- 40.63
+368 
+39.65 
+7.56 
+186 
+39.93 
+40.69- 42.36
+4,378 
+42.34 
+9.09 
+31 
+40.95 
+42.50- 52.06
+3,291 
+48.00 
+5.89 
+2,414 
+48.01 
+52.44- 74.88
+4,151 
+55.65 
+6.66 
+2,473 
+56.11 
+In September 2001, the Company’s
+shareholders approved the establishment of an Employee Stock
+Purchase Plan (the “ESPP”) under which 3,000,000
+shares of Class B Stock are reserved for issuance to
+employees. The plan qualifies as a noncompensatory employee
+stock purchase plan under Section 423 of the Internal
+Revenue Code. Employees are eligible to participate through
+payroll deductions in amounts ranging from 1% to 10% of their
+compensation. At the end of each six-month offering period,
+shares are purchased by the participants at 85% of the lower of
+the fair market value at the beginning or the end of the
+offering period. Under the ESPP, 78,000 shares were issued
+during the year ended May 31, 2002.
+Note 9 — Earnings Per
+Share 
+The following represents a reconciliation from
+basic earnings per share to diluted earnings per share. Options
+to purchase 4.2 million, 8.3 million, and
+9.7 million shares of common stock were outstanding at
+May 31, 2002, 2001, and 2000, respectively, but were not
+included in the computation of diluted earnings per share
+because the options’ exercise prices were greater than the
+average market price of the common shares and, therefore, the
+effect would be antidilutive.
+Year Ended May 31, 
+2002 
+2001 
+2000 
+(In millions, 
+except per share data) 
+Determination of shares:
+Average common shares outstanding
+267.7 
+270.0 
+275.7 
+Assumed conversion of dilutive stock options and
+awards
+4.5 
+3.3 
+3.7 
+Diluted average common shares outstanding
+272.2 
+273.3 
+279.4 
+Basic earnings per common share —
+before cumulative effect of accounting change
+$ 
+2.50 
+$ 
+2.18 
+$ 
+2.10 
+Cumulative effect of accounting change
+0.02 
+— 
+— 
+$ 
+2.48 
+$ 
+2.18 
+$ 
+2.10 
+Diluted earnings per common share —
+before cumulative effect of accounting change
+$ 
+2.46 
+$ 
+2.16 
+$ 
+2.07 
+Cumulative effect of accounting change
+0.02 
+— 
+— 
+$ 
+2.44 
+$ 
+2.16 
+$ 
+2.07 
+48
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+Note 10 — Benefit Plans 
+The Company has a profit sharing plan available
+to substantially all U.S.-based employees. The terms of the plan
+call for annual contributions by the Company as determined by
+the Board of Directors. Contributions of $14.4 million,
+$13.1 million and $15.7 million to the plan are
+included in other income/expense in the consolidated financial
+statements for the years ended May 31, 2002, 2001 and 2000,
+respectively. The Company has a voluntary 401(k) employee
+savings plan. The Company matches a portion of employee
+contributions with common stock. Plan changes during the year
+ended May 31, 2001 included a larger Company match
+percentage and a change to immediate vesting of the Company
+match, compared to a previous vesting schedule over
+5 years. Company contributions to the savings plan were
+$13.7 million, $12.7 million and $6.7 million for
+the years ended May 31, 2002, 2001 and 2000, respectively,
+and are included in selling and administrative expenses.
+Note 11 — Interest Income 
+Included in other income/expense for the years
+ended May 31, 2002, 2001, and 2000, was interest income of
+$13.6 million, $13.9 million and $13.6 million,
+respectively.
+Note 12 — Comprehensive
+Income 
+Comprehensive income is as follows:
+Year Ended May 31, 
+2002 
+2001 
+2000 
+(In millions) 
+Net income
+$ 
+663.3 
+$ 
+589.7 
+$ 
+579.1 
+Other comprehensive income:
+Change in cumulative translation adjustment and
+other (net tax expense/(benefit) of $(2.2) in 2002, $(2.4) in
+2001, $1.2 in 2000)
+(1.5 
+) 
+(41.0 
+) 
+(42.2 
+) 
+Recognition in net income of previously deferred
+unrealized loss on securities, due to accounting change (net of
+tax benefit of $2.2)
+3.4 
+— 
+— 
+Changes due to cash flow hedging instruments
+(Note 1):
+Initial recognition of net deferred gain as of
+June 1, due to accounting change (net of tax expense of
+$28.7)
+53.4 
+— 
+— 
+Loss on hedge derivatives (net of tax benefit of
+$31.5)
+(73.3 
+) 
+— 
+— 
+Reclassification to net income of previously
+deferred gains related to hedge derivative instruments (net of
+tax benefit of $10.2)
+(22.3 
+) 
+— 
+— 
+Other comprehensive income
+(40.3 
+) 
+(41.0 
+) 
+(42.2 
+) 
+Total comprehensive income
+$ 
+623.0 
+$ 
+548.7 
+$ 
+536.9 
+The components of accumulated other comprehensive
+loss are as follows:
+Year Ended May 31, 
+2002 
+2001 
+(In millions) 
+Cumulative translation adjustment and other
+$ 
+(150.2 
+) 
+$ 
+(152.1 
+) 
+Net deferred loss on hedge derivatives
+(42.2 
+) 
+— 
+$ 
+(192.4 
+) 
+$ 
+(152.1 
+) 
+49
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+Note 13 — Commitments and
+Contingencies 
+The Company leases space for certain of its
+offices, warehouses and retail stores under leases expiring from
+one to fifteen years after May 31, 2002. Rent expense was
+$159.9 million, $152.0 million and $145.5 million
+for the years ended May 31, 2002, 2001 and 2000,
+respectively. Amounts of minimum future annual rental
+commitments under non-cancelable operating leases in each of the
+five years ending May 31, 2003 through 2007 are
+$158.2 million, $143.4 million, $119.1 million,
+$95.3 million, $98.2 million, respectively, and
+$288.0 million in later years.
+As of May 31, 2002 and 2001, the Company had
+letters of credit outstanding totaling $808.4 million and
+$851.8 million, respectively. These letters of credit were
+issued for the purchase of inventory.
+In the ordinary course of its business, the
+Company is involved in legal proceedings involving contractual
+and employment relationships, product liability claims,
+trademark rights, and a variety of other matters. The Company
+does not believe there are any pending legal proceedings that
+will have a material impact on the Company’s financial
+position or results of operations.
+Note 14 — Fair Value of Financial
+Instruments 
+The carrying amounts reflected in the
+consolidated balance sheet for cash and equivalents and notes
+payable approximate fair value due to the short maturities. The
+fair value of long-term debt is estimated using discounted cash
+flow analyses, based on the Company’s incremental borrowing
+rates for similar types of borrowing arrangements. The fair
+value of the Company’s long-term debt, including current
+portion, is approximately $723.9 million, compared to a
+carrying value of $681.2 million at May 31, 2002 and
+$437.8 million, compared to a carrying value of
+$441.3 million at May 31, 2001.
+Note 15 — Financial Risk Management
+and Derivatives 
+As of May 31, 2002, $50.9 million of
+deferred net losses (net of tax) on both outstanding and matured
+derivatives accumulated in other comprehensive income are
+expected to be reclassified to earnings during the next twelve
+months as a result of underlying hedged transactions also being
+recorded in earnings. Actual amounts ultimately reclassified to
+earnings are dependent on the exchange rates in effect when
+derivative contracts that are currently outstanding mature. As
+of May 31, 2002, the maximum term over which the Company is
+hedging exposures to the variability of cash flows for all
+forecasted and recorded transactions is 24 months.
+For the year ended May 31, 2002 the Company
+recorded in other expense an insignificant loss representing the
+total ineffectiveness of all derivatives. Net income for the
+year ended May 31, 2002 was not materially affected due to
+discontinued hedge accounting.
+At May 31, 2002, the fair values of
+derivatives in a gain position and recorded in Prepaid expenses
+and other current assets and Deferred income taxes and other
+assets were $60.3 million and $70.0 million,
+respectively. At this same date, the fair values of derivatives
+in a loss position and recorded in Accrued liabilities and
+Deferred income taxes and other liabilities were
+$123.8 million and $8.1 million, respectively.
+Prior to the adoption of FAS 133 carrying values
+of derivatives recorded on the balance sheet were different from
+fair values. Accordingly, the aggregate notional principle
+amounts, carrying values and fair
+50
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+values of the Company’s derivative financial
+instruments as of May 31, 2001 are provided in the
+following table:
+May 31, 2001 
+Notional 
+Principal 
+Carrying 
+Fair 
+Amounts 
+Values 
+Values 
+(In millions) 
+Currency Swaps
+$ 
+250.0 
+$ 
+77.4 
+$ 
+87.0 
+Forward Contracts
+2,428.3 
+17.8 
+51.7 
+Purchased Options
+727.5 
+17.7 
+20.4 
+Total
+$ 
+3,405.8 
+$ 
+112.9 
+$ 
+159.1 
+Carrying values primarily represent amounts
+recognized for unrealized gains and losses on contracts which
+did not meet the criteria for deferral accounting and
+unamortized premiums paid on option contracts. The net fair
+value of outstanding forward contracts of $51.7 million as
+of May 31, 2001 was comprised of unrealized fair value
+losses of $22.9 million and unrealized fair value gains of
+$74.6 million.
+The Company is exposed to credit-related losses
+in the event of non-performance by counterparties to hedging
+instruments. The counterparties to all derivative transactions
+are major financial institutions with investment grade credit
+ratings. However, this does not eliminate the Company’s
+exposure to credit risk with these institutions. This credit
+risk is generally limited to the unrealized gains in such
+contracts should any of these counterparties fail to perform as
+contracted. To manage this risk, the Company has established
+strict counterparty credit guidelines which are continually
+monitored and reported to senior management according to
+prescribed guidelines. The Company utilizes a portfolio of
+financial institutions either headquartered or operating in the
+same countries the Company conducts its business. As a result of
+the above considerations, the Company considers the risk of
+counterparty default to be minimal.
+In addition to hedging instruments, the Company
+is subject to concentrations of credit risk associated with cash
+and equivalents and accounts receivable. The Company places cash
+and equivalents with financial institutions with investment
+grade credit ratings and, by policy, limits the amount of credit
+exposure to any one financial institution. The Company considers
+its concentration risk related to accounts receivable to be
+mitigated by the Company’s credit policy, the significance
+of outstanding balances owed by each individual customer at any
+point in time and the geographic dispersion of these customers.
+Note 16 — Operating Segments and
+Related Information 
+Operating Segments.
+The Company’s major operating
+segments are defined by geographic regions for subsidiaries
+participating in NIKE brand sales activity. “Other” as
+shown below represents activity for Cole-Haan Holdings, Inc.,
+Bauer NIKE Hockey, Inc., NIKE IHM, Inc., and Hurley
+International LLC, which are immaterial for individual
+disclosure. Where applicable, “Corporate” represents
+items necessary to reconcile to the consolidated financial
+statements, which generally include corporate activity and
+corporate eliminations. The segments are evidence of the
+structure of the Company’s internal organization. Each NIKE
+brand geographic segment operates predominantly in one industry:
+the design, production, marketing and selling of sports and
+fitness footwear, apparel, and equipment.
+Net revenues as shown below represent sales to
+external customers for each segment. Intercompany revenues have
+been eliminated and are immaterial for separate disclosure. The
+Company evaluates performance of individual operating segments
+based on management pre-tax income. On a consolidated basis,
+this amount represents income before income taxes and cumulative
+effect of accounting change as shown in the Consolidated
+Statements of Income. Reconciling items for management pre-tax
+income represent corporate
+51
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+costs that are not allocated to the operating
+segments for management reporting, and intercompany eliminations
+for specific income statement items.
+Additions to long-lived assets as presented
+following represent capital expenditures and additions to
+identifiable intangibles and goodwill. Generally, amortization
+of identifiable intangible assets and goodwill is considered a
+corporate expense and is not attributable to any specific
+operating segment. See Note 1 for further discussion on
+identifiable intangible assets and goodwill. Additions to other
+long-lived assets are not significant and are comprised of
+additions to miscellaneous corporate assets not attributable to
+any specific operating segment.
+Accounts receivable, inventory and property,
+plant and equipment for operating segments are regularly
+reviewed by management and are therefore provided below.
+Year Ended May 31, 
+2002 
+2001 
+2000 
+(In millions) 
+Net Revenue
+United States
+$ 
+4,916.0 
+$ 
+4,819.0 
+$ 
+4,732.1 
+Europe, Middle East, and Africa
+2,731.5 
+2,584.8 
+2,407.0 
+Asia/ Pacific
+1,211.7 
+1,110.0 
+955.1 
+Americas
+568.1 
+539.1 
+494.1 
+Other
+465.7 
+435.9 
+406.8 
+$ 
+9,893.0 
+$ 
+9,488.8 
+$ 
+8,995.1 
+Management Pre-tax Income
+United States
+$ 
+977.6 
+$ 
+919.6 
+$ 
+924.3 
+Europe, Middle East, and Africa
+445.4 
+386.3 
+376.9 
+Asia/ Pacific
+238.7 
+206.1 
+146.0 
+Americas
+92.9 
+81.6 
+63.7 
+Other
+20.0 
+41.4 
+68.9 
+Corporate
+(757.3 
+) 
+(713.6 
+) 
+(660.6 
+) 
+$ 
+1,017.3 
+$ 
+921.4 
+$ 
+919.2 
+Additions to Long-lived Assets
+United States
+$ 
+33.4 
+$ 
+45.2 
+$ 
+29.0 
+Europe, Middle East, and Africa
+27.2 
+26.2 
+46.1 
+Asia/ Pacific
+22.1 
+52.9 
+269.7 
+Americas
+4.8 
+5.1 
+4.8 
+Other
+76.3 
+26.3 
+32.4 
+Corporate
+115.2 
+161.9 
+146.8 
+$ 
+279.0 
+$ 
+317.6 
+$ 
+528.8 
+Depreciation
+United States
+$ 
+51.2 
+$ 
+51.2 
+$ 
+50.8 
+Europe, Middle East, and Africa
+35.2 
+38.9 
+39.9 
+Asia/ Pacific
+38.4 
+20.5 
+19.4 
+Americas
+5.3 
+6.3 
+7.1 
+Other
+22.4 
+23.5 
+23.7 
+Corporate
+71.0 
+57.0 
+47.1 
+$ 
+223.5 
+$ 
+197.4 
+$ 
+188.0 
+Accounts Receivable, net
+United States
+$ 
+759.8 
+$ 
+622.5 
+$ 
+564.7 
+Europe, Middle East, and Africa
+570.8 
+512.5 
+529.9 
+Asia/ Pacific
+189.6 
+194.8 
+200.8 
+Americas
+125.3 
+144.7 
+123.0 
+Other
+142.8 
+118.6 
+121.0 
+Corporate
+18.8 
+28.3 
+30.0 
+$ 
+1,807.1 
+$ 
+1,621.4 
+$ 
+1,569.4 
+52
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL
+STATEMENTS — (Continued) 
+Year Ended May 31, 
+2002 
+2001 
+2000 
+(In millions) 
+Inventory, net
+United States
+$ 
+681.5 
+$ 
+744.2 
+$ 
+736.5 
+Europe, Middle East, and Africa
+339.3 
+298.3 
+357.4 
+Asia/ Pacific
+159.8 
+125.8 
+115.9 
+Americas
+62.9 
+72.4 
+65.5 
+Other
+119.9 
+156.4 
+141.4 
+Corporate
+10.4 
+27.0 
+29.3 
+$ 
+1,373.8 
+$ 
+1,424.1 
+$ 
+1,446.0 
+Property, Plant and Equipment, net
+United States
+$ 
+244.4 
+$ 
+263.5 
+$ 
+271.7 
+Europe, Middle East, and Africa
+212.2 
+208.2 
+240.4 
+Asia/ Pacific
+378.4 
+403.5 
+426.4 
+Americas
+12.4 
+15.4 
+18.1 
+Other
+109.7 
+113.4 
+114.4 
+Corporate
+657.4 
+614.8 
+512.4 
+$ 
+1,614.5 
+$ 
+1,618.8 
+$ 
+1,583.4 
+Revenues by Major Product Lines.
+Revenues to external customers for
+NIKE brand products are attributable to sales of footwear,
+apparel, and equipment. Other revenues to external customers
+primarily include external sales by Cole Haan Holdings, Inc.,
+Bauer NIKE Hockey Inc. and Hurley International LLC.
+Year Ended May 31, 
+2002 
+2001 
+2000 
+(In millions) 
+Footwear
+$ 
+5,753.7 
+$ 
+5,619.3 
+$ 
+5,561.5 
+Apparel
+2,892.9 
+2,763.6 
+2,547.0 
+Equipment
+780.7 
+670.0 
+479.8 
+Other
+465.7 
+435.9 
+406.8 
+$ 
+9,893.0 
+$ 
+9,488.8 
+$ 
+8,995.1 
+Revenues and Long-Lived Assets by Geographic
+Area. Geographical area information is
+similar to that shown previously under operating segments with
+the exception that Other activity is derived predominantly from
+activity in the U.S. and Americas. Revenues derived in the U.S.
+were $5,258.8 million $5,144.2 million,
+$5,017.4 million, during the years ended May 31, 2002,
+2001, and 2000, respectively. Our largest concentrations of
+long-lived assets are in the U.S. and Japan. Long-lived assets
+attributable to operations in the U.S., which are primarily
+comprised of net property, plant & equipment and net
+identifiable intangible assets and goodwill, were
+$1,217.7 million, $1,165.3 million, and
+$1,187.0 million at May 31, 2002, 2001, and 2000,
+respectively. Long-lived assets attributable to operations in
+Japan were $321.6 million, $339.1 million, and
+$355.5 million at May 31, 2002, 2001, and 2000,
+respectively.
+Major Customers.
+During the years ended May 31,
+2002, 2001 and 2000, revenues derived from Foot Locker, Inc.
+represented 10.9%, 11.8% and 12.4%, respectively of the
+Company’s consolidated revenues. Sales to this customer are
+included in all segments of the Company participating in NIKE
+brand sales activity.
+53
+Table of Contents 
+Item 9. Changes
+In and Disagreements with Accountants on Accounting and
+Financial Disclosure 
+There has been no change of accountants nor any
+disagreements with accountants on any matter of accounting
+principles or practices or financial statement disclosure
+required to be reported under this Item.
+PART III 
+Item 10. Directors
+and Executive Officers of the Registrant 
+The information required by Item 401 of
+Regulation S-K regarding directors is included under
+“Election of Directors” in the definitive Proxy
+Statement for our 2002 Annual Meeting of Shareholders and is
+incorporated herein by reference. The information required by
+Item 401 of Regulation S-K regarding executive
+officers is included under “Executive Officers of the
+Registrant” in Item 1 of this Report. The information
+required by Item 405 of Regulation S-K is included
+under “Section 16(a) Beneficial Ownership Reporting
+Compliance” in the definitive Proxy Statement for our 2002
+Annual Meeting of Shareholders and is incorporated herein by
+reference.
+Item 11. Executive
+Compensation 
+The information required by this Item is included
+under “Director Compensation and Retirement Plan,”
+“Executive Compensation” (but excluding the
+Performance Graph), “Personnel Committee Interlocks and
+Insider Participation” and “Employment Contracts and
+Termination of Employment and Change-in-Control
+Arrangements” in the definitive Proxy Statement for our
+2002 Annual Meeting of Shareholders and is incorporated herein
+by reference.
+Item 12. Security
+Ownership of Certain Beneficial Owners and
+Management 
+The information required by this Item is included
+under “Stock Holdings of Certain Owners and
+Management” and under “Equity Compensation Plans”
+in the definitive Proxy Statement for our 2002 Annual Meeting of
+Shareholders and is incorporated herein by reference.
+Item 13. Certain
+Relationships and Related Transactions 
+The information required by this Item is included
+under “Certain Transactions and Business
+Relationships” and “Indebtedness of Management”
+in the definitive Proxy Statement for our 2002 Annual Meeting of
+Shareholders and is incorporated herein by reference.
+54
+Table of Contents 
+PART IV 
+Item 14. Exhibits,
+Financial Statement Schedule, and Reports on
+Form 8-K 
+(A) The following documents are filed as
+part of this report:
+Form 10-K 
+Page No. 
+1.
+FINANCIAL STATEMENTS:
+Report of Independent Accountants
+30 
+Consolidated Statements of Income for each of the
+three years ended May 31, 2002
+31 
+Consolidated Balance Sheets at May 31, 2002
+and 2001
+32 
+Consolidated Statements of Cash Flows for each of
+the three years ended May 31, 2002
+33 
+Consolidated Statements of Shareholders’
+Equity for each of the three years ended May 31, 2002
+34 
+Notes to Consolidated Financial Statements
+35 
+2.
+FINANCIAL STATEMENT SCHEDULE:
+II — Valuation and Qualifying Accounts
+F-1 
+All other schedules are omitted because they are
+not applicable or the required information is shown in the
+financial statements or notes thereto.
+3. EXHIBITS:
+3.1 
+Restated Articles of Incorporation, as amended
+(incorporated by reference from Exhibit 3.1 to the
+Company’s Quarterly Report on Form 10-Q for the fiscal
+quarter ended August 31, 1995).
+3.2 
+Third Restated Bylaws, as amended (incorporated
+by reference from Exhibit 3.2 to the Company’s
+Quarterly Report on Form 10-Q for the fiscal quarter ended
+August 31, 1995).
+4.1 
+Restated Articles of Incorporation, as amended
+(see Exhibit 3.1).
+4.2 
+Third Restated Bylaws, as amended (see
+Exhibit 3.2).
+4.3 
+Indenture between the Company and The First
+National Bank of Chicago, as Trustee (incorporated by reference
+from Exhibit 4.01 to Amendment No. 1 to Registration
+Statement No. 333-15953 filed by the Company on
+November 26, 1996).
+4.4 
+Form of Officers’ Certificate relating to
+the Company’s 6.375% Notes and form of 6.375% Note
+(incorporated by reference to Exhibits 4.1 and 4.2 of the
+Company’s Form 8-K dated December 10, 1996).
+4.5 
+Form of Officers’ Certificate relating to
+the Company’s 5.5% Notes and form of 5.5% Note
+(incorporated by reference to Exhibits 4.2 and 4.3 of the
+Company’s Form 8-K dated August 17, 2001).
+4.6 
+Form of Officers’ Certificate relating to
+the Company’s Fixed Rate Medium-Term Notes and the
+Company’s Floating Rate Medium-Term Notes, form of Fixed
+Rate Note and form of Floating Rate Note (incorporated by
+reference to Exhibits 4.2, 4.3 and 4.4 of the Company’s
+Form 8-K dated May 29, 2002).
+10.1 
+Credit Agreement dated as of November 17,
+2000 among NIKE, Inc., Bank of America, N.A., individually and
+as Agent, and the other banks party thereto (incorporated by
+reference from Exhibit 10.1 to the Company’s Quarterly
+Report on Form 10-Q for the fiscal quarter ended
+November 30, 2000).
+10.2 
+First Amendment to Credit Agreement dated as of
+November 16, 2001 (incorporated by reference from
+Exhibit 10.2 to the Company’s Quarterly Report on
+Form 10-Q for the fiscal quarter ended November 30,
+2001).
+55
+Table of Contents 
+10.3 
+Form of non-employee director Stock Option
+Agreement (incorporated by reference from Exhibit 10.2 to
+the Company’s Quarterly Report on Form 10-Q for the
+fiscal quarter ended November 30, 2000).*
+10.4 
+Form of Indemnity Agreement entered into between
+the Company and each of its officers and directors (incorporated
+by reference from the Company’s definitive proxy statement
+filed in connection with its annual meeting of shareholders held
+on September 21, 1987).
+10.5 
+NIKE, Inc. 1990 Stock Incentive Plan.*
+10.6 
+NIKE, Inc. Executive Performance Sharing Plan
+(incorporated by reference from the Company’s definitive
+proxy statement filed in connection with its annual meeting of
+shareholders held on September 18, 2000).*
+10.7 
+NIKE, Inc. Long-Term Incentive Plan (incorporated
+by reference from the Company’s definitive proxy statement
+filed in connection with its annual meeting of shareholders held
+on September 22, 1997).*
+10.8 
+Collateral Assignment Split-Dollar Agreement
+between NIKE, Inc. and Philip H. Knight dated
+March 10, 1994 (incorporated by reference from
+Exhibit 10.7 to the Company’s Annual Report on
+Form 10-K for the fiscal year ended May 31, 1994).*
+10.9 
+Covenant Not To Compete And Non-Disclosure
+Agreement between NIKE, Inc. and Thomas E. Clarke dated
+August 31, 1994 (incorporated by reference from
+Exhibit 10.8 to the Company’s Quarterly Report on
+Form 10-Q for the fiscal quarter ended August 31,
+2001).*
+10.10 
+Covenant Not To Compete And Non-Disclosure
+Agreement between NIKE, Inc. and Mark G. Parker dated
+October 6, 1994 (incorporated by reference from
+Exhibit 10.9 to the Company’s Quarterly Report on
+Form 10-Q for the fiscal quarter ended August 31,
+2001).*
+10.11 
+NIKE, Inc. Deferred Compensation Plan dated
+January 1, 2000 (incorporated by reference from
+Exhibit 10.10 to the Company’s Quarterly Report on
+Form 10-Q for the fiscal quarter ended August 31,
+2001).*
+10.12 
+Employment Agreement, and Covenant Not To Compete
+And Non-Disclosure Agreement between NIKE, Inc. and
+Mindy F. Grossman dated September 6, 2000.*
+12.1 
+Computation of Ratio of Earnings to Fixed Charges.
+21 
+Subsidiaries of the Registrant.
+23 
+Consent of PricewaterhouseCoopers LLP,
+independent accountants (set forth on page F-2 of this
+Annual Report on Form 10-K).
+* 
+Management contract or compensatory plan or
+arrangement.
+The exhibits filed herewith do not include
+certain instruments with respect to long-term debt of NIKE and
+its subsidiaries, inasmuch as the total amount of debt
+authorized under any such instrument does not exceed 10% of the
+total assets of NIKE and its subsidiaries on a consolidated
+basis. NIKE agrees, pursuant to Item 601(b)(4)(iii) of
+Regulation S-K, that it will furnish a copy of any such
+instrument to the SEC upon request.
+Upon written request to Investor Relations, NIKE,
+Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453,
+NIKE will furnish shareholders with a copy of any Exhibit upon
+payment of $.10 per page, which represents our reasonable
+expenses in furnishing Exhibits.
+(B) The following reports on Form 8-K
+were filed by NIKE during the last quarter of fiscal 2002:
+Date 
+Item 
+Subject 
+May 29, 2002
+Item 5. Other Events & 
+Medium-Term Note 
+Item 7. Financial Statements & Exhibits 
+56
+Table of Contents 
+SCHEDULE II 
+VALUATION AND QUALIFYING ACCOUNTS 
+Balance at 
+Charged to 
+Charged to 
+Write-Offs 
+Balance at 
+Beginning 
+Costs and 
+Other 
+Net of 
+End of 
+Description 
+of Period 
+Expenses 
+Accounts 
+Recoveries 
+Period 
+(In millions) 
+For the year ended May 31,
+2000: 
+Allowance for doubtful accounts
+$ 
+73.2 
+$ 
+26.0 
+$ 
+1.8 
+$ 
+(35.6 
+) 
+$ 
+65.4 
+For the year ended May 31,
+2001: 
+Allowance for doubtful accounts
+$ 
+65.4 
+$ 
+32.7 
+$ 
+2.8 
+$ 
+(28.8 
+) 
+$ 
+72.1 
+For the year ended May 31,
+2002: 
+Allowance for doubtful accounts
+$ 
+72.1 
+$ 
+23.7 
+$ 
+1.2 
+$ 
+(19.6 
+) 
+$ 
+77.4 
+F-1
+Table of Contents 
+CONSENT OF INDEPENDENT ACCOUNTANTS 
+We hereby consent to the incorporation by
+reference in the documents listed below of our report dated
+June 27, 2002 relating to the financial statements and
+financial statement schedule of NIKE, Inc., which appears in
+this Form 10-K:
+1. Registration
+Statement on Form S-8 (No. 2-81419) of NIKE, Inc.;
+2. Registration
+Statement on Form S-3 (No. 33-43205) of NIKE, Inc.;
+3. Registration
+Statement on Form S-3 (No. 33-48977) of NIKE, Inc.;
+4. Registration
+Statement on Form S-3 (No. 33-41842) of NIKE, Inc.;
+5. Registration
+Statement on Form S-8 (No. 33-63995) of NIKE, Inc.;
+6. Registration
+Statement on Form S-3 (No. 333-15953) of NIKE, Inc.;
+7. Registration
+Statement on Form S-8 (No. 333-63581) of NIKE, Inc.;
+8. Registration
+Statement on Form S-8 (No. 333-63583) of NIKE, Inc.;
+9. Registration
+Statement on Form S-3 (No. 333-71975) of NIKE, Inc.;
+10. Registration
+Statement on Form S-8 (No. 333-68864) of NIKE, Inc.;
+11. Registration
+Statement on Form S-8 (No. 333-68886) of NIKE, Inc.;
+12. Registration
+Statement on Form S-8 (No. 333-71660) of NIKE, Inc.;
+and
+13. Registration
+Statement on Form S-3 (No. 333-71324) of NIKE, Inc.
+/s/ PRICEWATERHOUSECOOPERS LLP
+Portland, Oregon
+August 14, 2002
+F-2
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13
+or 15(d) of the Securities Exchange Act of 1934, the registrant
+has duly caused this report to be signed on its behalf by the
+undersigned, thereunto duly authorized.
+NIKE, INC.
+BY: 
+/s/ PHILIP H. KNIGHT
+Philip H. Knight
+Chairman of the Board, Chief Executive
+Officer 
+and President 
+Date: August 14, 2002
+Pursuant to the requirements of the Securities
+Exchange Act of 1934, this report has been signed below by the
+following persons on behalf of the registrant and in the
+capacities and on the dates indicated.
+Signature 
+Title 
+Date 
+Principal Executive Officer and
+Director: 
+/s/ PHILIP H. KNIGHT 
+Philip H. Knight
+Chairman of the Board, 
+Chief Executive Officer, and President
+August 14, 2002
+Principal Financial and Accounting
+Officer: 
+/s/ DONALD W. BLAIR 
+Donald W. Blair
+Chief Financial Officer
+August 14, 2002
+Directors: 
+/s/ THOMAS E. CLARKE 
+Thomas E. Clarke
+Director
+August 14, 2002
+/s/ JILL K. CONWAY 
+Jill K. Conway
+Director
+August 14, 2002
+/s/ RALPH D. DENUNZIO 
+Ralph D. DeNunzio
+Director
+August 14, 2002
+/s/ RICHARD K. DONAHUE 
+Richard K. Donahue
+Director
+August 14, 2002
+/s/ DELBERT J. HAYES 
+Delbert J. Hayes
+Director
+August 14, 2002
+/s/ DOUGLAS G. HOUSER 
+Douglas G. Houser
+Director
+August 14, 2002
+S-1
+Table of Contents 
+Signature 
+Title 
+Date 
+/s/ JEANNE P. JACKSON 
+Jeanne P. Jackson
+Director
+August 14, 2002
+/s/ JOHN E. JAQUA 
+John E. Jaqua
+Director
+August 14, 2002
+/s/ CHARLES W. ROBINSON 
+Charles W. Robinson
+Director
+August 14, 2002
+/s/ A. MICHAEL SPENCE 
+A. Michael Spence
+Director
+August 14, 2002
+/s/ JOHN R. THOMPSON, JR. 
+John R. Thompson, Jr.
+Director
+August 14, 2002
+S-2
\ No newline at end of file
diff --git a/raw/filings/0000320187/2001/0000891020-02-001248/filing_metadata.csv b/raw/filings/0000320187/2001/0000891020-02-001248/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..b88c4ad74320008fe2153147dcae1f5a79be704b
--- /dev/null
+++ b/raw/filings/0000320187/2001/0000891020-02-001248/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000320187,NKE,"NIKE, Inc.",10-K,2002-08-14,2002-05-31,2002-08-14T23:37:26.000Z,0000891020-02-001248,v83383ore10vk.htm,"FORM 10-K YEAR ENDED MAY 31, 2002",1089565,0,0,https://www.sec.gov/Archives/edgar/data/320187/000089102002001248/v83383ore10vk.htm,https://www.sec.gov/Archives/edgar/data/320187/000089102002001248/,2001,2001,1
diff --git a/raw/filings/0000320187/2001/0000891020-02-001248/item1.txt b/raw/filings/0000320187/2001/0000891020-02-001248/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..89b9d2216538818926ac18dfcb75034509254951
--- /dev/null
+++ b/raw/filings/0000320187/2001/0000891020-02-001248/item1.txt
@@ -0,0 +1,774 @@
+Item 1. 
+Business 
+General 
+NIKE, 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 the context indicates
+otherwise.
+Our principal business activity involves the
+design, development and worldwide marketing of high quality
+footwear, apparel, equipment, and accessory products. NIKE is
+the largest seller of athletic footwear and athletic apparel in
+the world. We sell our products to approximately
+18,000 retail accounts in the United States and through a
+mix of independent distributors, licensees and subsidiaries in
+approximately 140 countries around the world. Virtually all
+of our products are manufactured by independent contractors.
+Virtually all footwear products are produced outside the United
+States, while apparel products are produced both in the United
+States and abroad.
+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 innovative design. Running, basketball,
+children’s, cross-training and women’s shoes are
+currently our top-selling product categories and we expect them
+to continue to lead in product sales in the near future.
+However, we also market shoes designed for outdoor activities,
+tennis, golf, soccer, baseball, football, bicycling, volleyball,
+wrestling, cheerleading, aquatic activities, hiking, and other
+athletic and recreational uses.
+We sell active sports apparel covering most of
+the above categories, athletically inspired lifestyle apparel,
+as well as athletic bags and accessory items. NIKE apparel and
+accessories are designed to complement our athletic footwear
+products, 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, including sport balls, timepieces, eyewear,
+skates, bats, gloves, and other equipment designed for sports
+activities. We also have agreements for licensees to produce and
+sell NIKE brand swimwear, women’s sports bras, cycling
+apparel, children’s clothing, posters, school supplies,
+timepieces, and electronic media devices. We also sell small
+amounts of various plastic products to other manufacturers
+through our wholly-owned subsidiary, NIKE IHM, Inc.
+We sell a line of dress and casual footwear and
+accessories for men, women and children under the brand name
+Cole Haan® through our wholly-owned subsidiary, Cole Haan
+Holdings, Inc., headquartered in Yarmouth, Maine.
+Our wholly-owned subsidiary, Bauer NIKE Hockey
+Inc., headquartered in Greenland, New Hampshire, manufactures
+and distributes ice skates, skate blades, in-line roller skates,
+protective gear, hockey sticks, and hockey jerseys and
+accessories under the Bauer® and NIKE® brand names.
+Bauer also offers a full selection of products for street,
+roller and field hockey.
+In April 2002, we acquired Hurley International
+LLC, headquartered in Costa Mesa, California, which designs and
+distributes a line of action sports apparel (for surfing,
+skateboarding, and snowboarding) and youth lifestyle apparel
+under the Hurley brand name.
+2
+Table of Contents 
+Sales and Marketing 
+The table below shows certain information
+regarding NIKE’s United States and international (non-U.S.)
+revenues for the last three fiscal years.
+FY02 vs. 
+FY01 vs. 
+Fiscal 
+Fiscal 
+FY01 
+Fiscal 
+FY00 
+May 31, 
+2002 
+2001 
+% CHG 
+2000 
+% CHG 
+(In millions) 
+USA Region
+Footwear
+$ 
+3,185.0 
+$ 
+3,208.9 
+(0.7 
+)% 
+$ 
+3,351.2 
+(4.2 
+)% 
+Apparel
+1,305.3 
+1,260.3 
+3.6 
+% 
+1,154.4 
+9.2 
+% 
+Equipment and other
+425.7 
+349.8 
+21.7 
+% 
+226.5 
+54.4 
+% 
+Total USA
+4,916.0 
+4,819.0 
+2.0 
+% 
+4,732.1 
+1.8 
+% 
+Europe, Middle East and Africa (EMEA) Region
+Footwear
+1,551.8 
+1,422.8 
+9.1 
+% 
+1,309.4 
+8.7 
+% 
+Apparel
+989.5 
+976.3 
+1.4 
+% 
+933.9 
+4.5 
+% 
+Equipment and other
+190.2 
+185.7 
+2.4 
+% 
+163.7 
+13.4 
+% 
+Total EMEA
+2,731.5 
+2,584.8 
+5.7 
+% 
+2,407.0 
+7.4 
+% 
+Asia Pacific Region
+Footwear
+657.7 
+632.4 
+4.0 
+% 
+557.0 
+13.5 
+% 
+Apparel
+431.0 
+374.8 
+15.0 
+% 
+321.0 
+16.8 
+% 
+Equipment and other
+123.0 
+102.8 
+19.6 
+% 
+77.1 
+33.3 
+% 
+Total Asia Pacific
+1,211.7 
+1,110.0 
+9.2 
+% 
+955.1 
+16.2 
+% 
+Americas Region
+Footwear
+359.2 
+355.2 
+1.1 
+% 
+343.9 
+3.3 
+% 
+Apparel
+167.1 
+152.2 
+9.8 
+% 
+137.7 
+10.5 
+% 
+Equipment and other
+41.8 
+31.7 
+31.9 
+% 
+12.5 
+153.6 
+% 
+Total Americas
+568.1 
+539.1 
+5.4 
+% 
+494.1 
+9.1 
+% 
+Total NIKE brand
+9,427.3 
+9,052.9 
+4.1 
+% 
+8,588.3 
+5.4 
+% 
+Other brands
+465.7 
+435.9 
+6.8 
+% 
+406.8 
+7.2 
+% 
+Total Revenues
+$ 
+9,893.0 
+$ 
+9,488.8 
+4.3 
+% 
+$ 
+8,995.1 
+5.5 
+% 
+Financial information about geographic and
+segment operations appears in Note 16 of the consolidated
+financial statements on page 51.
+We experience moderate fluctuations in aggregate
+sales volume during the year. However, the mix of product sales
+may vary considerably from time to time 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 fitness activities and
+changing design trends affect the demand for our products. We
+must therefore respond to trends and shifts in consumer
+preferences by adjusting the mix of existing product offerings,
+developing new products, styles and categories, and influencing
+sports and fitness preferences through aggressive marketing.
+This is a continuing risk. Failure to timely and adequately
+respond could have a material adverse affect on our sales and
+profitability.
+3
+Table of Contents 
+United States Market 
+During fiscal 2002, sales in the United States
+accounted for approximately 53 percent of total revenues,
+compared to 54 percent in fiscal 2001 and 56 percent in
+fiscal 2000. We sell to approximately 18,000 retail
+accounts in the United States. The NIKE brand domestic retail
+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 fiscal
+year 2002, our three largest customers accounted for
+approximately 28 percent of NIKE brand sales in the United
+States, and 26 percent of total sales in the United States.
+We make substantial use of our
+“futures” ordering program, which allows retailers to
+order five to six months in advance of delivery with the
+guarantee that 90 percent of their orders will be delivered
+within a set time period at a fixed price. In fiscal year 2002,
+92 percent of our U.S. footwear shipments (excluding Cole
+Haan, Bauer and Hurley) were made under the futures program,
+compared to 86 percent in fiscal 2001 and 90 percent
+in fiscal 2000. In fiscal 2002, 77 percent of our
+U.S. apparel shipments were made under the futures program,
+compared to 78 percent in fiscal 2001, and 82 percent
+in 2000.
+We utilize 18 NIKE sales offices to solicit sales
+in the United States. We also utilize 15 independent sales
+representatives to sell specialty products for golf, cycling,
+water sports and outdoor activities. In addition, we operate the
+following retail outlets in the United States:
+Retail Stores 
+Number 
+NIKE factory stores (which carry primarily
+B-grade and close-out merchandise)
+78 
+NIKE stores (including NIKE Goddess Stores)
+4 
+NIKETOWNs (designed to showcase NIKE products)
+13 
+Employee-only stores
+4 
+Cole Haan stores (including factory and employee
+stores)
+61 
+Total
+160 
+NIKE’s domestic distribution centers for
+footwear are located in Beaverton, Oregon, Wilsonville, Oregon,
+Memphis, Tennessee, and Greenland, New Hampshire. Apparel
+products are shipped from our Memphis distribution center. Cole
+Haan footwear and Bauer NIKE Hockey products are distributed
+primarily from Greenland, New Hampshire, and Hurley products are
+shipped from Costa Mesa, California.
+International Markets 
+We currently market our products in approximately
+140 countries outside of the United States through independent
+distributors, licensees, subsidiaries and branch offices.
+Non-U.S. sales accounted for 47 percent of total revenues
+in fiscal 2002, compared to 46 percent in fiscal 2001 and
+44 percent in fiscal 2000. We operate 19 distribution
+centers in Europe, Asia, Australia, Latin America, and Canada,
+and also distribute through independent distributors and
+licensees. We estimate that our products are sold through more
+than 30,000 retail accounts outside the United States. In many
+countries and regions, including Japan, Canada, Asia, Latin
+America, and Europe, we have a futures ordering program for
+retailers similar to the United States futures program described
+above. NIKE’s three largest customers outside of the U.S.
+accounted for approximately 9 percent of non-U.S. sales.
+We operate 162 retail outlets outside the United
+States, which are comprised of NIKETOWNs, factory stores,
+employee stores, and Cole Haan stores.
+International branch offices and subsidiaries of
+NIKE are located in Argentina, Australia, Austria, Belgium,
+Brazil, Canada, Chile, Croatia, Czech Republic, Denmark,
+Finland, France, Germany, Hong Kong, Hungary, Indonesia, India,
+Ireland, Israel, Italy, Japan, Korea, Malaysia, Mexico, New
+Zealand, The Netherlands, Norway, Peoples Republic of China, The
+Philippines, Poland, Portugal, Singapore, Slovakia, Slovenia,
+South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand,
+Turkey, the United Kingdom, and Vietnam.
+4
+Table of Contents 
+Significant Customers 
+Foot Locker, Inc., which operates a chain of
+retail stores specializing in athletic footwear and apparel,
+accounted for approximately 11 percent of global net sales of
+NIKE brand products during fiscal 2002. No other customer
+accounted for 10 percent or more of our net sales during fiscal
+2002.
+Orders 
+As of May 31, 2002, our worldwide futures
+orders for NIKE brand athletic footwear and apparel totaled
+$4.6 billion, compared to $4.4 billion as of
+May 31, 2001. These orders are scheduled for delivery from
+June through November of 2002. Based upon historical data, we
+expect that approximately 95 percent of these orders will be
+filled in that time period, although the orders may be
+cancelable.
+Product Research and Development 
+We believe that 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 strives to
+produce products that reduce or eliminate injury, aid athletic
+performance and maximize comfort.
+In addition to NIKE’s own staff of
+specialists in the areas of biomechanics, 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 and concepts for product improvement.
+Employee athletes wear-test and evaluate products during the
+design and development process.
+Manufacturing 
+In fiscal 2002, approximately 5 percent of total
+NIKE brand apparel production for sale to the United States
+market was manufactured in the United States by independent
+contract manufacturers, most of which are located in the
+southern states. The remainder was manufactured by independent
+contractors located in 28 countries. Most of this apparel
+production occurred in Bangladesh, Bulgaria, China, Hong Kong,
+India, Indonesia, Malaysia, Mexico, Pakistan, The Philippines,
+Sri Lanka, Taiwan, Thailand, and Turkey. Substantially all of
+our apparel production for sale to the international market was
+manufactured outside the U.S. Our largest single apparel
+supplier accounted for approximately 8 percent of total fiscal
+2002 apparel production.
+Virtually all of our footwear is produced outside
+of the United States. In fiscal 2002, contract suppliers in the
+following countries manufactured the following percentages of
+total NIKE brand footwear:
+Country 
+Percent 
+People’s Republic of China
+38 
+Indonesia
+30 
+Vietnam
+15 
+Thailand
+14 
+Italy
+1 
+Taiwan
+1 
+South Korea
+1 
+We also have manufacturing agreements with
+independent factories in Argentina, Brazil, India, Mexico, South
+Africa, and Zimbabwe, to manufacture footwear for sale within
+those countries. Our largest single footwear supplier accounted
+for approximately 6 percent of total fiscal 2002 footwear
+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.
+NIKE IHM, Inc., a wholly-owned subsidiary of NIKE, is our sole
+supplier of the AIR-SOLE cushioning components used in footwear.
+The principal materials used in our
+5
+Table of Contents 
+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 and its contractors
+and suppliers buy raw materials in bulk. Most raw materials are
+available in the countries where manufacturing takes place. We
+have thus far experienced little difficulty in satisfying our
+raw material requirements.
+Our international operations are subject to the
+usual risks of doing business abroad, such as possible
+revaluation of currencies, export duties, quotas, restrictions
+on the transfer of funds and, in certain parts of the world,
+political instability. See “Trade Legislation” below.
+We have not, to date, been materially affected by any such risk,
+but cannot predict the likelihood of such developments
+occurring. 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 outside of the
+United States. If events prevented us from acquiring products
+from our suppliers in a particular country, our footwear
+operations could be temporarily disrupted and we could
+experience an adverse financial impact. However, we believe that
+we could eliminate any such disruption within a period of no
+more than 12 months, and that any adverse impact would,
+therefore, be of a short-term nature. We believe that our
+principal competitors are subject to similar risks.
+All of our products manufactured overseas and
+imported into the United States and other countries are subject
+to customs duties collected by customs authorities. Customs
+information submitted by us is routinely subject to review by
+customs authorities. We are unable to predict whether additional
+customs duties, quotas or other restrictions may be imposed on
+the importation of our products in the future. The enactment of
+any such duties, quotas or restrictions could result in
+increases in the cost of our products generally and might
+adversely affect the sales or profitability of NIKE and the
+imported footwear and apparel industry as a whole.
+Since 1972, Nissho Iwai American Corporation
+(“NIAC”), a subsidiary of Nissho Iwai Corporation, a
+large Japanese trading company, has performed significant
+import-export financing services for us. Currently, NIAC
+provides such financing services with respect to at least 80
+percent of the NIKE products sold outside of the United States,
+Europe and Japan. Any failure of NIAC to provide these services
+could disrupt our ability to acquire products from our suppliers
+and to deliver products to our customers outside of the United
+States, Europe and Japan. 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 NIAC expire on May 31, 2003.
+Trade Legislation 
+Our non-U.S. operations are subject to the usual
+risks of doing business abroad, such as the imposition of import
+quotas or anti-dumping duties. In 1994, the European Union
+(“EU”) Commission imposed quotas on certain types of
+footwear manufactured in China. These quotas replaced national
+quotas that had previously been in effect in several Member
+States. Footwear designed for use in sporting activities,
+meeting certain technical criteria and having a CIF (cost,
+insurance and freight) price above 9 euros (“Special
+Technology Athletic Footwear” or “STAF”), is
+excluded from the quotas. As a result of the STAF exclusion, and
+the amount of quota made available to us, the quotas have not,
+to date, had a material effect on our business.
+In 1995, the EU Commission, at the request of
+European footwear manufacturers, initiated two anti-dumping
+investigations covering footwear imported from the People’s
+Republic of China, Indonesia and Thailand. As a result, in 1997
+the Commission imposed definitive anti-dumping duties on certain
+textile upper footwear imported from China and Indonesia. In
+1998, the Commission imposed definitive anti-dumping duties on
+certain synthetic and leather upper footwear originating in
+China, Indonesia and Thailand. In the case of textile upper
+footwear, the anti-dumping duties do not cover sports footwear.
+In the case of synthetic and leather upper footwear, the
+anti-dumping duties do not cover footwear meeting the STAF
+technical criteria nor footwear with a CIF price above 5.7
+euros. As the anti-dumping duties for synthetic and leather
+uppers only affect some low cost footwear, these measures have
+no impact for us. While the exclusions are subject to some
+interpretation by customs authorities, we believe that most of
+our footwear sourced in the target countries for sale in the EU
+fits within the exclusions. We have also shifted the production
+of these types
+6
+Table of Contents 
+of footwear to other countries. Accordingly, the
+anti-dumping duties have not had a material effect on our
+business. The EU Commission has announced the impending
+expiration of these anti-dumping cases, subject to possible
+review requests by the European footwear manufacturers. Such
+reviews may result in the renewal of the anti-dumping
+regulations.
+The EU Commission in June 2000 issued an
+amendment to the explanatory notes to the EU’s customs
+nomenclature (“CN”). The amendment, which is not
+legally binding, interprets some of the technical criteria for
+the STAF exclusion and the footwear types that can be classified
+as for use in sporting activity. The amendment restricts
+somewhat the scope of the STAF exclusion from the quotas and
+also the sports footwear exclusions from the two EU anti-dumping
+measures. To date, the large majority of our footwear models
+fall within the exclusions provided for under the CN. Our
+innovative footwear designs may stretch the traditional concepts
+of athletic or sports footwear reflected in the technical
+criteria. We anticipate that the majority of these new designs
+will fall within the exclusions. NIKE is an active participant
+in discussions to revise the technical criteria to reflect
+technologically advanced designs.
+If the EU trade measures become substantially
+more restrictive we would consider shifting the production of
+such footwear to other countries in order to maintain
+competitive pricing. We believe that we are prepared to deal
+effectively with any such change of circumstances and that any
+adverse impact would be of a temporary nature. We continue to
+closely monitor international restrictions and maintain our
+multi-country sourcing strategy and contingency plans. We
+believe that our major competitors stand in much the same
+position regarding these trade measures.
+We currently source footwear and apparel products
+from factories in Vietnam. In July 2000, the United States and
+Vietnam signed an historic, comprehensive bilateral trade
+agreement, which, among other things, provides reciprocal,
+non-discriminatory Normal Trade Relations (“NTR”)
+between the two countries. In September 2001, that agreement was
+approved by Congress and then ratified by the Vietnamese
+National Assembly. Once approved, the United States granted an
+annual extension of NTR to Vietnam. Under current U.S. law, the
+President must renew this grant annually with the opportunity
+for review by the Congress. In June 2002, President Bush renewed
+NTR for Vietnam for an additional year and in July 2002, the
+Congress supported the President’s decision. We currently
+believe that, absent unforeseen circumstances, the President
+will continue his annual extensions of NTR to Vietnam and that
+Congress will support the President’s decisions. Ongoing
+NTR trading status for Vietnam will allow us to expand our
+production and marketing opportunities in Vietnam and allow for
+Vietnamese-sourced product to enter the United States at NTR
+tariff rates.
+Competition 
+The athletic footwear, apparel and equipment
+industry is keenly competitive in the United States and on a
+worldwide basis. We compete internationally with an increasing
+number of athletic and leisure shoe companies, athletic and
+leisure apparel companies, sports equipment companies, and large
+companies having diversified lines of athletic and leisure
+shoes, apparel and equipment, including Reebok, Adidas and
+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
+and athletic apparel in the world. Performance and reliability
+of shoes, apparel, and equipment, new product development,
+price, product identity through marketing and promotion, and
+customer support and service are important aspects of
+competition in the athletic footwear, apparel and equipment
+industry. To help market our products, we contract with
+prominent and influential 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 are competitive in all of these areas.
+7
+Table of Contents 
+Trademarks and Patents 
+We utilize trademarks on nearly all of our
+products and believe that having distinctive marks that are
+readily identifiable is an important factor in creating a market
+for our goods, in identifying 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 over
+100 countries. In addition, we own many other trademarks
+which we utilize in marketing our products. We continue to
+vigorously protect our trademarks against infringement.
+NIKE has an exclusive, worldwide license to make
+and sell footwear using patented “Air” technology. The
+process utilizes pressurized gas encapsulated in polyurethane.
+Some of the early NIKE AIR® patents have expired,
+which may enable competitors to use certain types of like
+technology. Subsequent NIKE AIR patents will not expire for
+several years. We also have a number of patents covering
+components and features used in various athletic and leisure
+shoes. We believe that our success 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 filing applications for United States and foreign
+patents on inventions, designs and improvements that we deem
+valuable.
+Employees 
+We had approximately 22,700 employees at
+May 31, 2002. Management considers its relationship with
+employees to be excellent. With the exception of Bauer NIKE
+Hockey Inc., our employees are not represented by a union. Of
+Bauer NIKE Hockey’s North American employees, approximately
+65 percent, or fewer than 450, are covered by three union
+collective bargaining agreements with three separate bargaining
+units, and all of Bauer NIKE Hockey’s approximately 150
+non-immigrant employees in Italy are covered by three collective
+bargaining agreements. The collective bargaining agreements
+expire on various dates from 2002 through 2003. There has never
+been a material interruption of operations due to labor
+disagreements.
+Executive Officers of the Registrant 
+The executive officers of NIKE as of
+July 25, 2002 are as follows:
+Philip H. Knight,
+Chief Executive Officer, Chairman of
+the Board, and President — Mr. Knight, 64, a
+director since 1968, is a co-founder of NIKE and, except for the
+period from June 1983 through September 1984, served as its
+President from 1968 to 1990, and from June 2000 to present.
+Prior to 1968, Mr. Knight was a certified public accountant
+with Price Waterhouse and Coopers & Lybrand and was an
+Assistant Professor of Business Administration at Portland State
+University.
+Donald W. Blair,
+Vice President and Chief Financial
+Officer — Mr. Blair, 44, joined NIKE in November
+1999. Prior to joining NIKE, he held a number of financial
+management positions with Pepsico, Inc., including Vice
+President, Finance of Pepsi-Cola Asia, Vice President, Planning
+of PepsiCo’s Pizza Hut Division, and Senior Vice President,
+Finance of The Pepsi Bottling Group, Inc. Prior to joining
+Pepsico, Mr. Blair was a certified public accountant with
+Deloitte, Haskins, and Sells.
+Thomas E. Clarke,
+President of New Ventures —
+Dr. Clarke, 51, a director since 1994, joined the Company
+in 1980. He was appointed divisional Vice President in charge of
+marketing in 1987, elected corporate Vice President in 1989,
+appointed General Manager in 1990, and served as President and
+Chief Operating Officer from 1994 to 2000. Dr. Clarke
+previously held various positions with the Company, primarily in
+research, design, development and marketing. Dr. Clarke
+holds a doctorate degree in biomechanics.
+Charles D. Denson,
+President of the NIKE
+Brand — Mr. Denson, 46, has been employed by NIKE
+since February 1979. Mr. Denson held several positions
+within the Company, including his appointments as Director of
+USA Apparel Sales in 1994, divisional Vice President, US Sales
+in 1994, divisional Vice President European Sales in 1997,
+divisional Vice President and General Manager, NIKE Europe in
+1998, Vice President and General Manager of NIKE USA in June
+2000, and President of the NIKE Brand in March 2001.
+8
+Table of Contents 
+Gary M. DeStefano,
+President of USA
+Operations — Mr. DeStefano, 45, has been employed
+by NIKE since 1982, with primary responsibilities in sales and
+regional administration. Mr. DeStefano was appointed
+Director of Domestic Sales in 1990, divisional Vice President in
+charge of domestic sales in 1992, Vice President of Global Sales
+in 1996, Vice President and General Manager of Asia Pacific in
+March 1997, and President of USA Operations in March 2001.
+Mindy F. Grossman,
+Vice President of Global
+Apparel — Ms. Grossman, 44, joined NIKE in
+October 2000. Prior to joining NIKE, she was President and Chief
+Executive Officer of Polo Jeans Company/ Ralph Lauren, a
+division of Jones Apparel Group, Inc. from 1995 to 2000. Prior
+to that, Ms. Grossman was Vice President of New Business
+Development at Polo Ralph Lauren Corp. from 1994 to 1995,
+President of The Warnaco Group Inc. Chaps Ralph Lauren division,
+and Senior Vice President of The Warnaco Group Inc. Menswear
+division from 1991 to 1994.
+P. Eunan McLaughlin,
+Vice President, Asia
+Pacific — Mr. McLaughlin, 44, joined NIKE as Vice
+President, Sales, NIKE Europe in February 1999, was appointed
+Vice President Commercial Sales and Retail in February 2000, and
+became Vice President, Asia Pacific in June 2001. Prior to
+joining NIKE, he was Partner and Vice President of Consumer
+& Retail Practices Division, Korn/ Ferry International from
+1996 to 1999. From 1985 to 1996 Mr. McLaughlin held the
+following positions with Mars, Inc.: Finance Director, Sales
+Director, and Managing Director of Germany Drink Division;
+Operations Director of Pedigree Pet Foods; and European Sales
+& Marketing Director. Mr. McLaughlin also worked for
+Reynolds McCarron (formerly Ernst & Young) in Ireland.
+D. Scott Olivet,
+Vice President, NIKE Subsidiaries and
+New Business Development — Mr Olivet, 40, joined NIKE
+in August 2001. Prior to joining NIKE, he was a Senior Vice
+President of Gap Inc., responsible for real estate, store
+design, and construction across Gap, Banana Republic, and Old
+Navy brands from 1998 to 2001. Prior to that, Mr. Olivet
+was employed by Bain & Company, an international
+strategic consulting firm from 1984 to 1998 (a Partner from 1993
+to 1998). In addition to direct client work, Mr. Olivet was
+the leader of the firm’s worldwide practice in
+organizational effectiveness and change management.
+Mark G. Parker,
+President of the NIKE
+Brand — Mr. Parker, 45, has been employed by NIKE
+since 1979 with primary responsibilities in product research,
+design and development. Mr. Parker was appointed divisional
+Vice President in charge of development in 1987, corporate Vice
+President in 1989, General Manager in 1993, Vice President of
+Global Footwear in 1998, and President of the NIKE Brand in
+March 2001.
+Eric D. Sprunk, Vice
+President, Global Footwear — Mr. Sprunk, 38,
+joined the Company in 1993. He was appointed Finance Director
+and General Manager of the Americas in 1994, Finance Director,
+NIKE Europe in 1995, Regional General Manager, NIKE Europe
+Footwear in 1998, and Vice President & General Manager of
+the Americas in 2000. Mr. Sprunk was appointed corporate
+Vice President, Global Footwear in June 2001.
+Lindsay D. Stewart,
+Vice President and Chief of Staff, and
+Assistant Secretary — Mr. Stewart, 55, joined
+NIKE as Assistant Corporate Counsel in 1981. Mr. Stewart
+became Corporate Counsel in 1983. He was appointed Vice
+President and General Counsel in 1991, and Chief of Staff in
+March 2001. Prior to joining NIKE, Mr. Stewart was in
+private practice and an attorney for Georgia-Pacific Corporation.
+Frits D. van Paasschen,
+Vice President and General Manager,
+NIKE Europe — Mr. van Paasschen, 42, has been employed
+by NIKE since 1997. He served as Vice President, Strategic
+Planning, and was appointed Vice President and General Manager,
+The Americas and Africa in 1998, and corporate Vice President
+and General Manager, NIKE Europe in 2000. Mr. van Paasschen
+was formerly Vice President, Finance & Planning, Disney
+Consumer Products, The Walt Disney Company.
+Roland P. Wolfram,
+Vice President, Global
+Operations & Technology — Mr. Wolfram, 42,
+joined NIKE as Vice President, Strategic Planning in November
+1998, and was appointed Vice President, Global
+Operations & Technology in February 2002. Prior to
+NIKE, Mr. Wolfram was Vice President and General Manager of
+Pacific Bell Video Services. From 1992 to 1993 he was director
+of the desktop products group for Compression Labs, Inc.
+9
+Table of Contents
\ No newline at end of file
diff --git a/raw/filings/0000320187/2001/0000891020-02-001248/item13.txt b/raw/filings/0000320187/2001/0000891020-02-001248/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c2f7fd698153524a968d638d0c6c5a4a7df543b5
--- /dev/null
+++ b/raw/filings/0000320187/2001/0000891020-02-001248/item13.txt
@@ -0,0 +1,9 @@
+Item 13. Certain
+Relationships and Related Transactions 
+The information required by this Item is included
+under “Certain Transactions and Business
+Relationships” and “Indebtedness of Management”
+in the definitive Proxy Statement for our 2002 Annual Meeting of
+Shareholders and is incorporated herein by reference.
+54
+Table of Contents
\ No newline at end of file
diff --git a/raw/filings/0000320187/2001/0000891020-02-001248/item9a.txt b/raw/filings/0000320187/2001/0000891020-02-001248/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2001/0000891020-02-001248/rp_note.txt b/raw/filings/0000320187/2001/0000891020-02-001248/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2001/0000891020-02-001248/rpt_disclosure.txt b/raw/filings/0000320187/2001/0000891020-02-001248/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2002/0001193125-03-031022/filing.txt b/raw/filings/0000320187/2002/0001193125-03-031022/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3d5e48968a715be840b7d253ca59da228b0dfd46
--- /dev/null
+++ b/raw/filings/0000320187/2002/0001193125-03-031022/filing.txt
@@ -0,0 +1,4728 @@
+10-K
+1
+d10k.htm
+FORM 10-K
+Form 10-K 
+Table of Contents 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+Form 10-K 
+(Mark One) 
+þ 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
+For the fiscal year ended May 31,
+2003 
+or 
+¨ 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
+For the transition period from
+to .
+Commission File No. 1-10635 
+NIKE, Inc. 
+(Exact name of Registrant as specified in its charter) 
+Oregon 
+93-0584541 
+(State or other jurisdiction 
+of incorporation) 
+(IRS Employer 
+Identification No.) 
+One Bowerman Drive 
+(503) 671-6453 
+Beaverton, Oregon 97005-6453 
+(Registrant’s Telephone Number, Including Area Code) 
+(Address of principal executive offices) (Zip Code) 
+Securities
+registered pursuant to Section 12(b) of the Act: 
+Class B Common Stock 
+New York Stock Exchange 
+(Title of each class) 
+(Name of each exchange on which registered) 
+Securities
+registered pursuant to Section 12(g) of the Act: 
+None 
+Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
+Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
+þ No ¨ 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item
+405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
+any amendment to this Form 10-K. ¨ 
+Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange
+Act of 1934. Yes þ No ¨ 
+As of November 29, 2002, the aggregate market value of the Registrant’s
+Class A Common Stock held by nonaffiliates of the Registrant was $153,576,324 and the aggregate market value of the Registrant’s Class B Common Stock held by nonaffiliates of the Registrant was $7,395,856,426. 
+As of July 25, 2003, the number of shares of the Registrant’s Class A
+Common Stock outstanding was 97,816,966 and the number of shares of the Registrant’s Class B Common Stock outstanding was 165,916,126. 
+DOCUMENTS INCORPORATED BY REFERENCE: 
+Parts of Registrant’s Proxy Statement for the annual meeting of shareholders to be held on September 22, 2003 are incorporated by reference into Part
+III of this Report. 
+Table of Contents 
+NIKE, INC. 
+ANNUAL REPORT ON FORM 10-K
+TABLE OF CONTENTS 
+Page 
+PART I 
+Item 1. 
+Business 
+2 
+General 
+2 
+Products 
+2 
+Sales and Marketing 
+3 
+United States Market 
+4 
+International Markets 
+4 
+Orders 
+5 
+Product Research and Development 
+5 
+Manufacturing 
+5 
+Trade Legislation 
+6 
+Competition 
+7 
+Trademarks and Patents 
+7 
+Employees 
+8 
+Executive Officers of the Registrant 
+8 
+Item 2. 
+Properties 
+10 
+Item 3. 
+Legal Proceedings 
+10 
+Item 4. 
+Submission of Matters to a Vote of Security Holders 
+12 
+PART II 
+Item 5. 
+Market for Registrant’s Common Equity and Related Stockholder Matters 
+13 
+Item 6. 
+Selected Financial Data 
+14 
+Item 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+15 
+Item 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+30 
+Item 8. 
+Financial Statements and Supplemental Data 
+33 
+Item 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+63 
+Item 9A. 
+Controls and Procedures 
+63 
+PART III 
+(Except for the information set forth under “Executive Officers of the Registrant” in 
+Item 1 above, Part III is incorporated by reference from the Proxy Statement for
+the 
+NIKE, Inc. 2003 annual meeting of shareholders.) 
+Item 10. 
+Directors and Executive Officers of the Registrant 
+64 
+Item 11. 
+Executive Compensation 
+64 
+Item 12. 
+Security Ownership of Certain Beneficial Owners and Management 
+64 
+Item 13. 
+Certain Relationships and Related Transactions 
+64 
+Item 14. 
+Principal Accountant Fees and Services 
+64 
+PART IV 
+Item 15. 
+Exhibits, Financial Statement Schedules and Reports on Form 8-K 
+65 
+Signatures 
+S-1 
+1 
+Table of Contents 
+PART I 
+Item 1. Business 
+General 
+NIKE, 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
+the context indicates otherwise. Our Internet address is www.nike.com . On our NIKE Corporate web site, located at www.nikebiz.com , we post the following filings as soon as reasonably practicable after they are electronically filed with
+or furnished to the 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 furnished pursuant to Section 13(a) or
+15(d) of the Securities and Exchange Act of 1934. All such filings on our NIKE Corporate web site are available free of charge. 
+Our principal business activity involves the design, development and worldwide marketing of high quality footwear, apparel, equipment, and accessory
+products. NIKE is the largest seller of athletic footwear and athletic apparel in the world. We sell our products to approximately 18,000 retail accounts in the United States and through a mix of independent distributors, licensees and subsidiaries
+in nearly 200 countries around the world. Virtually all of our products are manufactured by independent contractors. Virtually all footwear products are produced outside the United States, while apparel and equipment products are produced both in
+the United States and abroad. 
+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 innovative design for men, women
+and children. Running, basketball, children’s, cross-training and women’s shoes are currently our top-selling product categories and we expect them to continue to lead in product sales in the near future. However, we also market shoes
+designed for outdoor activities, tennis, golf, soccer, baseball, football, bicycling, volleyball, wrestling, cheerleading, aquatic activities, hiking, and other athletic and recreational uses. 
+We sell active sports apparel covering most of the above categories,
+athletically inspired lifestyle apparel, as well as athletic bags and accessory items. NIKE apparel and accessories are designed to complement our athletic footwear products, 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, including
+sport balls, timepieces, eyewear, skates, bats, gloves, and other equipment designed for sports activities. We also have agreements for licensees to produce and sell NIKE brand swimwear, women’s sports bras, cycling apparel, maternity exercise
+wear, children’s clothing, school supplies, timepieces, and electronic media devices. We also sell small amounts of various plastic products to other manufacturers through our wholly-owned subsidiary, NIKE IHM, Inc. and plastic injected and
+metal products to other manufacturers through our wholly-owned subsidiary , BAUER Italia S.p.A. 
+We sell a line of dress and casual footwear, apparel and accessories for men and women under the brand names Cole Haan ® , CH, Gseries by Cole Haan, and Bragano through our wholly-owned subsidiary,
+Cole Haan Holdings, Inc., headquartered in Yarmouth, Maine. 
+Our wholly-owned subsidiary, Bauer NIKE Hockey Inc., headquartered in Greenland, New Hampshire, manufactures and distributes ice skates, skate blades, in-line roller skates, protective gear, hockey sticks, and hockey jerseys, licensed
+apparel and accessories under the Bauer ® and
+NIKE ® brand names. Bauer also offers a full
+selection of products for street and roller hockey. 
+2 
+Table of Contents 
+Our wholly-owned subsidiary Hurley International LLC, headquartered in Costa Mesa, California, designs
+and distributes a line of action sports apparel (for surfing, skateboarding, and snowboarding) and youth lifestyle apparel and footwear under the Hurley brand name. 
+On July 9, 2003, the Company entered into an agreement to purchase all of the equity shares of Converse Inc., a widely
+recognized footwear company based in Massachusetts. Closing of the transaction is subject to regulatory review, including U.S. government review under the Hart-Scott-Rodino Premerger Notification Act. 
+Sales and Marketing 
+The table
+below shows certain information regarding NIKE’s United States and international (non-U.S.) revenues for the three years ending May 31, 2003. 
+Fiscal 
+2003 
+Fiscal 
+2002 
+FY03 vs. 
+FY02 
+% CHG 
+Fiscal 
+2001 
+FY02 vs. 
+FY01 
+% CHG 
+(Dollars in millions) 
+USA Region 
+Footwear 
+$ 
+3,019.5 
+$ 
+3,135.5 
+(4 
+)% 
+$ 
+3,167.4 
+(1 
+)% 
+Apparel 
+1,351.0 
+1,255.7 
+8 
+% 
+1,207.9 
+4 
+% 
+Equipment 
+287.9 
+278.4 
+3 
+% 
+273.6 
+2 
+% 
+Total USA 
+4,658.4 
+4,669.6 
+— 
+4,648.9 
+— 
+Europe, Middle East and Africa (EMEA) Region 
+Footwear 
+1,896.0 
+1,543.8 
+23 
+% 
+1,415.7 
+9 
+% 
+Apparel 
+1,133.1 
+977.9 
+16 
+% 
+961.0 
+2 
+% 
+Equipment 
+212.6 
+174.8 
+22 
+% 
+176.3 
+(1 
+)% 
+Total EMEA 
+3,241.7 
+2,696.5 
+20 
+% 
+2,553.0 
+6 
+% 
+Asia Pacific Region 
+Footwear 
+732.4 
+640.2 
+14 
+% 
+617.5 
+4 
+% 
+Apparel 
+499.3 
+403.3 
+24 
+% 
+356.1 
+13 
+% 
+Equipment 
+127.1 
+98.7 
+29 
+% 
+91.5 
+8 
+% 
+Total Asia Pacific 
+1,358.8 
+1,142.2 
+19 
+% 
+1,065.1 
+7 
+% 
+Americas Region 
+Footwear 
+337.3 
+359.1 
+(6 
+)% 
+355.2 
+1 
+% 
+Apparel 
+148.1 
+167.1 
+(11 
+)% 
+152.1 
+10 
+% 
+Equipment 
+41.6 
+41.9 
+(1 
+)% 
+31.8 
+32 
+% 
+Total Americas 
+527.0 
+568.1 
+(7 
+)% 
+539.1 
+5 
+% 
+9,785.9 
+9,076.4 
+8 
+% 
+8,806.1 
+3 
+% 
+Other 
+911.1 
+816.6 
+12 
+% 
+682.7 
+20 
+% 
+Total Revenues 
+$ 
+10,697.0 
+$ 
+9,893.0 
+8 
+% 
+$ 
+9,488.8 
+4 
+% 
+Financial information
+about geographic and segment operations appears in Note 17 of the consolidated financial statements on page 59. 
+We experience moderate fluctuations in aggregate sales volume during the year. However, the mix of product sales may vary considerably from time to time
+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 fitness activities and changing design trends affect the demand
+for our products. We must therefore respond to trends 
+3 
+Table of Contents 
+and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories, and influencing sports
+and fitness preferences through aggressive marketing. This is a continuing risk. Failure to timely and adequately respond could have a material adverse affect on our sales and profitability. 
+United States Market 
+During
+fiscal 2003, sales in the United States accounted for approximately 49 percent of total revenues, compared to 53 percent in fiscal 2002 and 54 percent in fiscal 2001. We sell to approximately 18,000 retail accounts in the United States. The
+NIKE brand domestic retail 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 fiscal year 2003, our three largest
+customers accounted for approximately 27 percent of NIKE brand sales in the United States excluding sales from NIKE Golf and Bauer NIKE Hockey, and 24 percent of total sales in the United States. 
+We make substantial use of our “futures” ordering program, which
+allows retailers to order five to six months in advance of delivery with the commitment that 90 percent of their orders will be delivered within a set time period at a fixed price. In fiscal year 2003, 91 percent of our U.S. footwear shipments
+(excluding Cole Haan, Bauer, Hurley and NIKE Golf) were made under the futures program, compared to 92 percent in fiscal 2002 and 86 percent in fiscal 2001. In fiscal 2003, 67 percent of our U.S. apparel shipments were made under the futures
+program, compared to 69 percent in fiscal 2002, and 67 percent in 2001. 
+We utilize 19 NIKE sales offices to solicit sales in the United States. We also utilize 11 independent sales representatives to sell specialty products for golf, cycling, water sports and outdoor activities. In addition, we operate the
+following retail outlets in the United States: 
+Retail Stores 
+Number 
+NIKE factory stores (which carry primarily B-grade and close-out merchandise) 
+75 
+NIKE stores (including NIKE Goddess Stores) 
+4 
+NIKETOWNs (designed to showcase NIKE products) 
+13 
+Employee-only stores 
+4 
+Cole Haan stores (including factory and employee stores) 
+65 
+Total 
+161 
+NIKE’s domestic
+distribution centers for footwear are located in Wilsonville, Oregon, Memphis, Tennessee, and Greenland, New Hampshire. Apparel products are shipped from our Memphis distribution center. Cole Haan and Bauer NIKE Hockey products are distributed
+primarily from Greenland, New Hampshire, and Hurley products are shipped from Costa Mesa, California. 
+International Markets 
+We
+currently market our products in nearly 200 countries outside of the United States through independent distributors, licensees, subsidiaries and branch offices. Non-U.S. sales accounted for 51 percent of total revenues in fiscal 2003, compared to 47
+percent in fiscal 2002 and 46 percent in fiscal 2001. We operate 24 distribution centers in Europe, Asia, Australia, Latin America, Africa and Canada, and also distribute through independent distributors and licensees. We estimate that our products
+are sold through more than 30,000 retail accounts outside the United States. In many countries and regions, including Japan, Canada, Asia, some Latin American countries, and Europe, we have a futures ordering program for retailers similar to the
+United States futures program described above. NIKE’s three largest customers outside of the U.S. accounted for approximately 14 percent of non-U.S. sales. 
+We operate 175 retail outlets outside the United States, which consist of NIKETOWNs, factory stores, employee stores, and
+Cole Haan stores. 
+4 
+Table of Contents 
+International branch offices and subsidiaries of NIKE are located in Argentina, Australia, Austria,
+Belgium, Brazil, Canada, Chile, Croatia, Czech Republic, Denmark, Finland, France, Germany, Hong Kong, Hungary, Indonesia, India, Ireland, Israel, Italy, Japan, Korea, Malaysia, Mexico, New Zealand, The Netherlands, Norway, Peoples Republic of
+China, The Philippines, Poland, Portugal, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom, and Vietnam. 
+Orders 
+Worldwide futures for NIKE
+brand athletic footwear and apparel, scheduled for delivery between June and November 2003, were $4.9 billion compared to $4.6 billion for the same period last year. Based upon historical data, we expect that approximately 95 percent of these orders
+will be filled in that time period, although the orders may be cancelled. 
+Product Research and Development 
+We believe that 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 strives to produce
+products that reduce or eliminate injury, aid athletic performance and maximize comfort. 
+In addition to NIKE’s own staff of specialists in the areas of biomechanics, 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 and concepts for product improvement. Employee athletes wear-test and evaluate products during the
+design and development process. 
+Manufacturing 
+In fiscal 2003,
+approximately 1 percent of total NIKE brand apparel production for sale to the United States market was manufactured in the United States by independent contract manufacturers, most of which are located in the southern states. The remainder was
+manufactured by independent contractors located in 35 countries. Most of this apparel production occurred in Bangladesh, Bulgaria, China, Hong Kong, India, Indonesia, Malaysia, Mexico, Pakistan, The Philippines, Sri Lanka, Taiwan, Thailand, and
+Turkey. Substantially all of our apparel production for sale to the international market was manufactured outside the U.S. Our largest single apparel supplier accounted for approximately 7 percent of total fiscal 2003 apparel production. 
+Virtually all of our footwear is produced outside of the United States. In
+fiscal 2003, contract suppliers in the following countries manufactured the following percentages of total NIKE brand footwear: 
+Country 
+Percent 
+People’s Republic of China 
+38 
+Indonesia 
+27 
+Vietnam 
+18 
+Thailand 
+16 
+Italy 
+Less than 1 
+Taiwan 
+Less than 1 
+South Korea 
+Less than 1 
+We also have manufacturing agreements
+with independent factories in Argentina, Brazil, India, Mexico, South Africa, and Zimbabwe, to manufacture footwear for sale primarily within those countries. Our largest single footwear supplier accounted for approximately 7 percent of total fiscal
+2003 footwear 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 
+5 
+Table of Contents 
+components. NIKE IHM, Inc., a wholly-owned subsidiary of NIKE, is our sole supplier 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 and its
+contractors and suppliers buy raw materials in bulk. Most raw materials are available in the countries where manufacturing takes place. We have thus far experienced little difficulty in satisfying our raw material requirements. 
+Our international operations are subject to the usual risks of doing business
+abroad, such as possible revaluation of currencies, export duties, quotas, restrictions on the transfer of funds and, in certain parts of the world, political instability. See “Trade Legislation” below. We have not, to date, been
+materially affected by any such risk, but cannot predict the likelihood of such developments occurring. 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 outside of the United States. If events prevented us from acquiring products from our suppliers in a particular country, our footwear operations could be temporarily disrupted and we could experience an adverse financial impact.
+However, we believe that we could eliminate any such disruption within a period of no more than 12 months, and that any adverse impact would, therefore, be of a short-term nature. We believe that our principal competitors are subject to similar
+risks. 
+All of our products manufactured overseas and imported
+into the United States and other countries are subject to customs duties collected by customs authorities. Customs information submitted by us is routinely subject to review by customs authorities. We are unable to predict whether additional customs
+duties, quotas or other restrictions may be imposed on the importation of our products in the future. The enactment of any such duties, quotas or restrictions could result in increases in the cost of our products generally and might adversely affect
+the sales or profitability of NIKE and the imported footwear and apparel industry as a whole. 
+Since 1972, Nissho Iwai American Corporation (“NIAC”), a subsidiary of Nissho Iwai Corporation, a large Japanese trading company, has performed significant import-export financing services for us. Currently,
+NIAC provides such financing services with respect to at least 80% of the NIKE products sold outside of the United States, Europe and Japan. Approximately 12% of NIKE products are sold outside of the United States, Europe and Japan. Any failure of
+NIAC to provide these services or any failure of NIAC’s banks could disrupt our ability to acquire products from our suppliers and to deliver products to our customers outside of the United States, Europe and Japan. 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 NIAC expire on May 31, 2005. 
+Trade Legislation 
+Our non-U.S.
+operations are subject to the usual risks of doing business abroad, such as the imposition of import quotas or anti-dumping duties. In 1994, the European Union (“EU”) Commission imposed quotas on certain types of footwear manufactured in
+China. These quotas replaced national quotas that had previously been in effect in several Member States. Footwear designed for use in sporting activities, meeting certain technical criteria and having a CIF (cost, insurance and freight) price above
+9 euros (“Special Technology Athletic Footwear” or “STAF”), is excluded from the quotas. As a result of the STAF exclusion, and the amount of quota made available to us, the quotas have not, to date, had a material effect on our
+business. In addition, the EU Commission has announced that footwear quotas will be eliminated globally beginning January 1, 2005. 
+In 1995, the EU Commission, at the request of European footwear manufacturers, initiated two anti-dumping investigations within the footwear industry
+covering footwear imported from the People’s Republic of China, Indonesia and Thailand. As a result, in 1997 the Commission imposed definitive anti-dumping duties on certain textile upper footwear imported from China and Indonesia. In 1998, the
+Commission imposed definitive anti-dumping duties on certain synthetic and leather upper footwear originating in China, Indonesia and Thailand. These anti-dumping duties were removed in 2003 and are no longer applicable for footwear imports into the
+EU. These measures had no impact on us. 
+6 
+Table of Contents 
+The EU Commission in June 2000 issued an amendment to the explanatory notes to the EU’s customs
+nomenclature (“CN”). The amendment, which is not legally binding, interprets some of the technical criteria for the STAF exclusion and the footwear types that can be classified as for use in sporting activity. The amendment restricts
+somewhat the scope of the STAF exclusion from the quotas and also the sports footwear exclusions from the two EU anti-dumping measures. To date, the large majority of our footwear models fall within the exclusions provided for under the CN. Our
+innovative footwear designs may stretch the traditional concepts of athletic or sports footwear reflected in the technical criteria. We anticipate that the majority of these new designs will fall within the exclusions. NIKE is an active participant
+in discussions to revise the technical criteria to reflect technologically advanced designs. 
+On May 1, 2004 10 new countries will join the EU. They will also join the EU single market and discussions are presently underway to increase the current EU quota system to account for the enlarged EU market. NIKE and
+other manufacturers do not expect this expansion of the EU single market to present any significant challenges to the importation into the EU of sports footwear produced in China as the EU has announced that it will increase the quotas to take
+account of the enlarged consumer and market demand. 
+If the EU
+trade measures become substantially more restrictive we would consider shifting the production of our sports footwear to other countries in order to maintain competitive pricing and access to these markets. We believe that we are prepared to deal
+effectively with any such change of circumstances and that any adverse impact would be of a temporary nature. We continue to closely monitor international restrictions and maintain our multi-country sourcing strategy and contingency plans. We
+believe that our major competitors stand in much the same position regarding these trade measures. 
+We currently source footwear and apparel products from factories in Vietnam. In July 2000, the United States and Vietnam signed a historic, comprehensive
+bilateral trade agreement, which, among other things, provides reciprocal, non-discriminatory Normal Trade Relations (“NTR”) between the two countries. In September 2001, that agreement was approved by Congress and then ratified by the
+Vietnamese National Assembly. Once approved, the United States granted an annual extension of NTR to Vietnam. Under current U.S. law, the President must renew this grant annually with the opportunity for review by Congress. In May 2003, President
+Bush renewed NTR for Vietnam for an additional year and we anticipate Congress will support this decision. We currently believe that, absent unforeseen circumstances, the President will continue his annual extensions of NTR to Vietnam and that
+Congress will support the President’s decisions. Ongoing NTR trading status for Vietnam will allow us to expand our production and marketing opportunities in Vietnam and allow for Vietnamese-sourced product to enter the United States at NTR
+tariff rates. 
+Competition 
+The athletic
+footwear, apparel and equipment industry is keenly competitive in the United States and on a worldwide basis. We compete internationally with an increasing number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports
+equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel and equipment, including Reebok, Adidas and 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 and athletic apparel in the world. Performance and reliability of shoes, apparel, and equipment, new
+product development, price, product identity through marketing and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel and equipment industry. To help market our products, we contract
+with prominent and influential 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 are competitive in all of these areas.
+Trademarks and Patents 
+We
+utilize trademarks on nearly all of our products and believe that having distinctive marks that are readily identifiable is an important factor in creating a market for our goods, in identifying the Company, and in 
+7 
+Table of Contents 
+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 over 100 countries. In addition, we own many other
+trademarks that we utilize in marketing our products. We continue to vigorously protect our trademarks against infringement. 
+NIKE has an exclusive, worldwide license to make and sell footwear using patented “Air” technology. The process utilizes pressurized gas
+encapsulated in polyurethane. Some of the early NIKE AIR ® patents have expired, which may enable competitors to use certain types of similar technology. Subsequent NIKE AIR patents will not expire for several years. We also have a number of patents covering components and
+features used in various athletic and leisure shoes. We believe that our success 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
+filing applications for United States and foreign patents on inventions, designs and improvements that we deem valuable. 
+Employees 
+We had approximately
+23,300 employees at May 31, 2003. Management considers its relationship with employees to be excellent. None of our employees are represented by a union, with the exception of Bauer NIKE Hockey Inc. Of Bauer NIKE Hockey’s North American
+employees, approximately 74 percent, or approximately 550, are covered by three union collective bargaining agreements with three separate bargaining units, and all of Bauer NIKE Hockey’s approximately 210 non-immigrant employees in Italy are
+covered by three collective bargaining agreements. The collective bargaining agreements expire on various dates from 2003 through 2005. There has never been a material interruption of operations due to labor disagreements. 
+Executive Officers of the Registrant 
+The executive officers of NIKE as of July 25, 2003 are as follows: 
+Philip H. Knight, Chief Executive Officer, Chairman of the Board, and President — Mr. Knight, 65, a director since 1968, is a co-founder of NIKE and, except for the period from June 1983 through September
+1984, served as its President from 1968 to 1990, and from June 2000 to present. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at
+Portland State University. 
+Donald W. Blair, Vice
+President and Chief Financial Officer — Mr. Blair, 45, joined NIKE in November 1999. Prior to joining NIKE, he held a number of financial management positions with Pepsico, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice
+President, Planning of PepsiCo’s Pizza Hut Division, and Senior Vice President, Finance of The Pepsi Bottling Group, Inc. Prior to joining Pepsico, Mr. Blair was a certified public accountant with Deloitte, Haskins, and Sells. 
+Thomas E. Clarke, President of New Ventures — Dr. Clarke, 52, a
+director since 1994, joined the Company in 1980. He was appointed divisional Vice President in charge of marketing in 1987, elected corporate Vice President in 1989, appointed General Manager in 1990, and served as President and Chief Operating
+Officer from 1994 to 2000. Dr. Clarke previously held various positions with the Company, primarily in research, design, development and marketing. Dr. Clarke holds a doctorate degree in biomechanics. 
+Wesley A. Coleman , Vice President, Global Human Resources — Mr.
+Coleman, 53, has been employed by Nike since 2002 in his current role. Prior to joining Nike, he held a number of Human Resource positions over a 20-year period with S.C. Johnson and Sons, Inc., including Vice President HR, North America and Vice
+President HR, Asia/Pacific. 
+Charles D. Denson,
+President of the NIKE Brand — Mr. Denson, 47, has been employed by NIKE since February 1979. Mr. Denson held several positions within the Company, including his appointments as Director 
+8 
+Table of Contents 
+of USA Apparel Sales in 1994, divisional Vice President, US Sales in 1994, divisional Vice President European Sales in 1997, divisional Vice President and
+General Manager, NIKE Europe in 1998, Vice President and General Manager of NIKE USA in June 2000, and President of the NIKE Brand in March 2001. 
+Gary M. DeStefano, President of USA Operations — Mr. DeStefano, 46, has been employed by NIKE since 1982, with primary responsibilities in
+sales and regional administration. Mr. DeStefano was appointed Director of Domestic Sales in 1990, divisional Vice President in charge of domestic sales in 1992, Vice President of Global Sales in 1996, Vice President and General Manager of Asia
+Pacific in March 1997, and President of USA Operations in March 2001. 
+Trevor Edwards , Vice President, Global Brand Management — Mr. Edwards, 40, joined the Company in 1992. He was appointed Marketing Manager, Strategic Accounts, Foot Locker in 1993, Director of Marketing, the Americas in 1995,
+Director of Marketing, Europe in 1997, Vice President, Marketing for Europe, Middle East and Africa in 1999, and Vice President, US Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in November
+2002. 
+Mindy F. Grossman, Vice President of Global
+Apparel — Ms. Grossman, 45, joined NIKE in October 2000. Prior to joining NIKE, she was President and Chief Executive Officer of Polo Jeans Company/Ralph Lauren, a division of Jones Apparel Group, Inc. from 1995 to 2000. Prior to that, Ms.
+Grossman was Vice President of New Business Development at Polo Ralph Lauren Corp. from 1994 to 1995, President of The Warnaco Group Inc. Chaps Ralph Lauren division, and Senior Vice President of The Warnaco Group Inc. Menswear division from 1991 to
+1994. 
+P. Eunan McLaughlin, Vice President, Asia Pacific
+— Mr. McLaughlin, 45, joined NIKE as Director of Sales, NIKE Europe in February 1999, was appointed Vice President Commercial Sales and Retail in February 2000, and became Vice President, Asia Pacific in June 2001. Prior to joining NIKE, he was
+Partner and Vice President of Consumer & Retail Practices Division, Korn/Ferry International from 1996 to 1999. From 1983 to 1996 Mr. McLaughlin held various positions with Mars, Inc. in Finance, Sales, Marketing and General Management.
+D. Scott Olivet, Vice President, NIKE Subsidiaries and
+New Business Development — Mr. Olivet, 41, joined NIKE in August 2001. Prior to joining NIKE, he was a Senior Vice President of Gap Inc., responsible for real estate, store design, and construction across Gap, Banana Republic, and Old Navy
+brands from 1998 to 2001. Prior to that, Mr. Olivet was employed by Bain & Company, an international strategic consulting firm from 1984 to 1998 (a Partner from 1993 to 1998). In addition to direct client work, Mr. Olivet was the leader of the
+firm’s worldwide practice in organizational effectiveness and change management. 
+Mark G. Parker, President of the NIKE Brand — Mr. Parker, 47, has been employed by NIKE since 1979 with primary responsibilities in product research, design and development. Mr. Parker was appointed
+divisional Vice President in charge of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in March 2001. 
+Eric D. Sprunk, Vice President, Global Footwear — Mr. Sprunk, 39,
+joined the Company in 1993. He was appointed Finance Director and General Manager of the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General Manager, NIKE Europe Footwear in 1998, and Vice President & General Manager of the
+Americas in 2000. Mr. Sprunk was appointed corporate Vice President, Global Footwear in June 2001. 
+Lindsay D. Stewart, Vice President and Chief of Staff, and Secretary — Mr. Stewart, 56, joined NIKE as Assistant Corporate Counsel in 1981.
+Mr. Stewart became Corporate Counsel in 1983. He was appointed Vice President and General Counsel in 1991, and Chief of Staff in March 2001. Prior to joining NIKE, Mr. Stewart was in private practice and an attorney for Georgia-Pacific Corporation.
+9 
+Table of Contents 
+Frits D. van Paasschen, Vice President and General Manager, NIKE Europe — Mr. van Paasschen,
+42, has been employed by NIKE since 1997. He served as Vice President, Strategic Planning, and was appointed Vice President and General Manager, The Americas and Africa in 1998, and corporate Vice President and General Manager, NIKE Europe in 2000.
+Mr. van Paasschen was formerly Vice President, Finance & Planning, Disney Consumer Products, The Walt Disney Company. 
+Roland P. Wolfram, Vice President, Global Operations & Technology — Mr. Wolfram, 43, joined NIKE as Vice President, Strategic Planning in
+November 1998, and was appointed Vice President, Global Operations & Technology in February 2002. Prior to NIKE, Mr. Wolfram was Vice President and General Manager of Pacific Bell Video Services. From 1992 to 1993 he was director of the desktop
+products group for Compression Labs, Inc. 
+Item 2. Properties 
+Following is a summary of principal properties owned or leased by NIKE. Our leases expire at various dates through the year 2034. 
+U.S. Administrative Offices: 
+Beaverton, Oregon (10 locations) — 9 leased 
+Memphis, Tennessee (2 locations) — 1 leased 
+Yarmouth, Maine 
+Charlotte, North Carolina — leased 
+Greenland, New Hampshire — leased 
+Costa Mesa, California — leased 
+International Administrative Offices: 
+Europe (30 locations) — 29 leased 
+Africa — leased 
+Asia Pacific (19 locations) — leased 
+Canada (2 locations) — leased 
+Latin America (5 locations) — leased 
+Australia — leased 
+Sales Offices and Showrooms: 
+United States (22 locations) — leased 
+Europe (53 locations) — leased 
+Africa — leased 
+Asia Pacific (26 locations) — leased 
+Canada (2 locations) — leased 
+Latin America (2 locations) — leased 
+Distribution Facilities: 
+Greenland, New Hampshire — leased 
+Wilsonville, Oregon 
+Memphis, Tennessee (2 locations) — 1 leased 
+Costa Mesa, California — leased 
+Europe (4 locations) — leased 
+Asia Pacific (24 locations) — 12 leased 
+Canada (2 locations) — leased 
+Latin America (2 locations) — leased 
+Africa — leased 
+Australia — leased 
+International
+Production Offices: 
+Europe (2 locations) — leased 
+Latin America (2 locations) — leased 
+Asia Pacific (10 locations) —
+leased 
+Turkey — leased 
+Manufacturing Facilities: 
+United States (3
+locations) — 1 leased 
+Europe (2 locations) — 1 leased 
+Asia Pacific — leased 
+Canada (3 locations) — leased 
+Retail Outlets: 
+United States (161 locations) — 158 leased 
+Europe (46 locations) —
+leased 
+Asia Pacific (106 locations) — leased 
+Latin America (16 locations) — leased 
+Canada (7 locations) —
+leased 
+Item 3. Legal Proceedings 
+Except as described below, there are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we
+are a party or of which any of our property is the subject. 
+The Company and certain of its officers and directors were named as defendants in four substantially identical securities class actions filed in the U.S. District Court for the District of Oregon on March 9, 14, 20, and 
+10 
+Table of Contents 
+April 4, 2001. On July 23, 2001, the cases were consolidated as In re NIKE, Inc. Securities Litigation, CV-01-332-K. The consolidated amended complaint
+sought unspecified damages on behalf of a purported class consisting of purchasers of the Company’s stock during the period December 20, 2000 through February 26, 2001. Plaintiffs allege that the defendants made false and misleading statements
+about the Company’s actual and expected business and financial performance in violation of federal securities laws. Plaintiffs further allege that certain individual defendants sold Company stock while in possession of material non-public
+information. In January 2002, the Court dismissed this action with leave to amend. On February 25, 2002, plaintiffs filed an amended complaint extending the purported class period to June 29, 2000 through February 26, 2001 and containing the
+essential allegations. On or about October 18, 2002, the Company and the individual defendants reached an agreement with the plaintiffs to resolve and release all claims asserted in the litigation in exchange for the payment of $8.9 million, which
+was funded by the Company’s directors and officers liability insurers. The stipulation of settlement dated as of October 18, 2002 provided that the Company and the individual defendants denied any liability or wrongdoing, and the claims were
+being settled to avoid the uncertainties, burdens and expense of further litigation. On February 24, 2003, the U.S. District Court for the District of Oregon issued an order granting final approval of the settlement and entered judgment dismissing
+the case with prejudice. 
+Another related shareholder
+derivative lawsuit, Metivier v. Denunzio, et al., 0104-04339, was filed in the Multnomah County Circuit Court of the State of Oregon on April 26, 2001. The state derivative suit was brought by a Company shareholder, allegedly on behalf of the
+Company, against certain directors and officers of the Company. The derivative plaintiff alleges that these officers and directors breached their fiduciary duties to the Company by making or causing to be made alleged misstatements about the
+Company’s actual and expected financial performance while certain officers and directors sold Company stock and by allowing the Company to be sued in the shareholder class action. The derivative plaintiff seeks unspecified damages and
+disgorgement of profits on the sale of Company stock. On July 25, 2001, the Court entered a stipulation and order abating the action until further notice. On or about February 11, 2003, the parties stipulated to an order vacating the order of
+abatement. On February 14, 2003, the derivative plaintiff filed a first amended complaint reiterating and expanding upon his original allegation, and naming additional officers and directors as defendants. On March 31, 2003, the Company filed a
+motion to dismiss the first amended complaint for failure to make or excuse a demand on the Company’s Board of Directors. The Company’s motion to dismiss was denied by the Court on June 30, 2003. Based on the available information we do
+not currently anticipate that the action will have a material financial impact. We believe the claims are without merit, and we intend to vigorously defend against them. 
+Another related shareholder derivative lawsuit, Lendman v. Knight, et al., CV-01-1153-AS, was filed in the U.S. District
+Court for the District of Oregon on July 26, 2001. The federal derivative complaint is not materially different from the original complaint in the state derivative action. It alleges substantially similar causes of action and seeks substantially
+similar remedies. The federal derivative action was served on the Company and the individual defendants on December 13, 2001 and was also stayed pending the outcome of In re NIKE, Inc. Securities Litigation on December 13, 2001. On May 30, 2003, the
+Court entered an order of administrative dismissal dismissing the case without prejudice. 
+In accordance with the Company’s Articles of Incorporation and Bylaws, and in accordance with indemnity agreements between the Company and the directors and officers named in the above legal actions, the Company
+has agreed to indemnify these individuals and assume their defense in these actions. 
+The Company and certain of its officers were named as defendants in a lawsuit, Kasky v. NIKE, Inc. et al., No. 994446, filed in 1998 in San Francisco County Superior Court. Plaintiff brought the action under the
+California Business and Professions Code alleging that statements made by the Company in response to criticism about labor practices in factories making its products were false or misleading. Plaintiff seeks injunctive relief and restitution of
+profits earned from the alleged violations of the California Code. The claims were dismissed by the Superior Court, with the court concluding that the alleged statements, if made, were protected speech as part of a public debate under the First
+Amendment to the United States Constitution. Plaintiff appealed the Superior Court ruling to the California Court of Appeals, which court affirmed the ruling of the lower court. Plaintiff 
+11 
+Table of Contents 
+sought review in the California Supreme Court, which, on May 2, 2002, overturned the lower court rulings by a four to three vote. The California Supreme
+Court made no ruling on the merits of plaintiff’s contention that the Company had made false or misleading statements, but concluded that the alleged statements were commercial speech and not entitled to the full protection of the First
+Amendment of the United States Constitution. The Company filed a petition for rehearing before the California Supreme Court, which was denied on July 31, 2002. The Company petitioned the United States Supreme Court for certiorari, which was granted.
+The United States Supreme Court recently dismissed our petition for review, causing the case to return to the California Superior Court. The Court stated that further development of the case before review by the United States Supreme Court was
+needed. We expect that the case will now proceed through the California court system with discovery, motions and perhaps trial in the same fashion as other cases proceed through the courts. Ordinary discovery and much motion practice have not
+occurred in the trial court. The California Supreme Court noted that the Company’s legal challenges to the case other than the one it ruled on remain open for consideration. Based on information currently available, we do not anticipate that
+the action will have a material financial impact. 
+Item 4. Submission of Matters to a Vote of Security Holders 
+No matter was submitted during the fourth quarter of the 2003 fiscal year to a vote of security holders, through the solicitation of proxies or otherwise.
+12 
+Table of Contents 
+PART II 
+Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters 
+NIKE’s Class B Common Stock is listed on the New York Stock Exchange and the Pacific Stock Exchange and trades under the symbol NKE. At July 25,
+2003, there were 19,198 holders of record of our Class B Common Stock and 23 holders of record of our Class A Common Stock. These figures do not include beneficial owners who hold shares in nominee name. The Class A Common Stock is not publicly
+traded but each share is convertible upon request of the holder into one share of Class B Common Stock. 
+We refer to the table entitled “Selected Quarterly Financial Data” in Item 6, which lists, for the periods indicated, the range of high and low
+closing sales prices on the New York Stock Exchange. That table also describes the amount and frequency of all cash dividends declared on our common stock for the 2003 and 2002 fiscal years. 
+13 
+Table of Contents 
+Item 6. Selected Financial Data 
+Financial History 
+2003 
+2002 
+2001 
+2000 
+1999 
+(In millions, except per share data, financial ratios and number of 
+shareholders) 
+Year Ended May 31, 
+Revenues 
+$ 
+10,697.0 
+$ 
+9,893.0 
+$ 
+9,488.8 
+$ 
+8,995.1 
+$ 
+8,776.9 
+Gross margin 
+4,383.4 
+3,888.3 
+3,703.9 
+3,591.3 
+3,283.4 
+Gross margin % 
+41.0 
+% 
+39.3 
+% 
+39.0 
+% 
+39.9 
+% 
+37.4 
+% 
+Restructuring charge, net 
+— 
+— 
+0.1 
+(2.5 
+) 
+45.1 
+Income before accounting change 
+740.1 
+668.3 
+589.7 
+579.1 
+451.4 
+Cumulative effect of change in accounting principle 
+266.1 
+5.0 
+— 
+— 
+— 
+Net income 
+474.0 
+663.3 
+589.7 
+579.1 
+451.4 
+Basic earnings per common share: 
+Income before accounting change 
+2.80 
+2.50 
+2.18 
+2.10 
+1.59 
+Cumulative effect of change in accounting principle 
+1.01 
+0.02 
+— 
+— 
+— 
+Net income 
+1.79 
+2.48 
+2.18 
+2.10 
+1.59 
+Diluted earnings per common share: 
+Income before accounting change 
+2.77 
+2.46 
+2.16 
+2.07 
+1.57 
+Cumulative effect of change in accounting principle 
+1.00 
+0.02 
+— 
+— 
+— 
+Net income 
+1.77 
+2.44 
+2.16 
+2.07 
+1.57 
+Average common shares outstanding 
+264.5 
+267.7 
+270.0 
+275.7 
+283.3 
+Diluted average common shares outstanding 
+267.6 
+272.2 
+273.3 
+279.4 
+288.3 
+Cash dividends declared per common share 
+0.54 
+0.48 
+0.48 
+0.48 
+0.48 
+Cash flow from operations 
+917.4 
+1,081.5 
+656.5 
+699.6 
+941.4 
+Price range of common stock 
+High 
+57.85 
+63.99 
+59.438 
+64.125 
+65.500 
+Low 
+38.53 
+40.81 
+35.188 
+26.563 
+31.750 
+At May 31, 
+Cash and equivalents 
+$ 
+634.0 
+$ 
+575.5 
+$ 
+304.0 
+$ 
+254.3 
+$ 
+198.1 
+Inventories 
+1,514.9 
+1,373.8 
+1,424.1 
+1,446.0 
+1,170.6 
+Working capital 
+2,664.7 
+2,321.5 
+1,838.6 
+1,456.4 
+1,818.0 
+Total assets 
+6,713.9 
+6,440.0 
+5,819.6 
+5,856.9 
+5,247.7 
+Long-term debt 
+551.6 
+625.9 
+435.9 
+470.3 
+386.1 
+Redeemable Preferred Stock 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+Shareholders’ equity 
+3,990.7 
+3,839.0 
+3,494.5 
+3,136.0 
+3,334.6 
+Year-end stock price 
+55.99 
+53.75 
+41.100 
+42.875 
+60.938 
+Market capitalization 
+14,758.8 
+14,302.5 
+11,039.5 
+11,559.1 
+17,202.2 
+Financial Ratios: 
+Return on equity 
+18.9 
+% 
+18.2 
+% 
+17.8 
+% 
+17.9 
+% 
+13.7 
+% 
+Return on assets 
+11.3 
+% 
+10.9 
+% 
+10.1 
+% 
+10.4 
+% 
+8.5 
+% 
+Inventory turns 
+4.4 
+4.3 
+4.0 
+4.1 
+4.3 
+Current ratio at May 31 
+2.3 
+2.3 
+2.0 
+1.7 
+2.3 
+Price/Earnings ratio at May 31 (Diluted before accounting change) 
+20.2 
+21.8 
+19.0 
+20.7 
+38.8 
+14 
+Table of Contents 
+The Company’s Class B Common Stock is listed on the New York and Pacific Exchanges and trades under
+the symbol NKE. At May 31, 2003, there were approximately 127,000 shareholders of Class A and Class B common stock. 
+Financial Highlights 
+Year Ended May 31, 
+2003 
+2002 
+% CHG 
+(In millions, except per share data 
+and financial ratios) 
+Revenues 
+$ 
+10,697.0 
+$ 
+9,893.0 
+8 
+% 
+Gross margin 
+4,383.4 
+3,888.3 
+13 
+% 
+Gross margin % 
+41.0 
+% 
+39.3 
+% 
+Income before accounting change 
+740.1 
+668.3 
+11 
+% 
+Basic earnings per common share before accounting change 
+2.80 
+2.50 
+12 
+% 
+Diluted earnings per common share before accounting change 
+2.77 
+2.46 
+13 
+% 
+Return on equity 
+18.9 
+% 
+18.2 
+% 
+Stock price at May 31 
+55.99 
+53.75 
+4 
+% 
+Selected Quarterly
+Financial Data 
+1st Quarter 
+2nd Quarter 
+3rd Quarter 
+4th Quarter 
+2003 
+2002 
+2003 
+2002 
+2003 
+2002 
+2003 
+2002 
+(Unaudited) 
+(In millions, except per share data and financial ratios) 
+Revenues 
+$ 
+2,796.3 
+$ 
+2,613.7 
+$ 
+2,514.7 
+$ 
+2,336.8 
+$ 
+2,400.9 
+$ 
+2,260.3 
+$ 
+2,985.1 
+$ 
+2,682.2 
+Gross margin 
+1,157.1 
+1,028.9 
+1,010.1 
+895.4 
+976.0 
+883.5 
+1,240.2 
+1,080.5 
+Gross margin % 
+41.4 
+% 
+39.4 
+% 
+40.2 
+% 
+38.3 
+% 
+40.7 
+% 
+39.1 
+% 
+41.5 
+% 
+40.3 
+% 
+Income before accounting change 
+217.2 
+204.2 
+152.0 
+129.3 
+124.7 
+126.3 
+246.2 
+208.5 
+Basic earnings per common share before accounting change 
+0.82 
+0.76 
+0.57 
+0.48 
+0.47 
+0.47 
+0.93 
+0.78 
+Diluted earnings per common share before accounting change 
+0.81 
+0.75 
+0.57 
+0.48 
+0.47 
+0.46 
+0.92 
+0.77 
+Net income (loss) 
+(48.9 
+) 
+199.2 
+152.0 
+129.3 
+124.7 
+126.3 
+246.2 
+208.5 
+Average common shares outstanding 
+265.3 
+268.6 
+264.7 
+268.1 
+263.9 
+268.4 
+264.0 
+266.9 
+Diluted average common shares outstanding 
+269.1 
+271.6 
+267.5 
+271.6 
+266.7 
+273.4 
+267.6 
+272.0 
+Cash dividends declared per common share 
+0.12 
+0.12 
+0.14 
+0.12 
+0.14 
+0.12 
+0.14 
+0.12 
+Price range of common stock 
+High 
+57.85 
+51.28 
+48.23 
+53.55 
+48.43 
+61.00 
+56.56 
+63.99 
+Low 
+40.50 
+40.81 
+38.53 
+42.26 
+41.19 
+52.31 
+45.51 
+52.75 
+Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+Critical Accounting Policies 
+Our discussion and analysis of our financial condition and results of operations following are based upon our consolidated financial statements, which
+have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
+liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. 
+We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our
+financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of
+these critical accounting policies affect working capital account balances, including the policies for revenue recognition, the reserve for uncollectible accounts receivable, inventory reserves, and contingent payments under endorsement contracts.
+These policies 
+15 
+Table of Contents 
+require that we make estimates in the preparation of our financial statements as of a given date. However, since our business cycle is relatively short,
+actual results related to these estimates are generally known within the six-month period following the financial statement date. Thus, these policies generally affect only the timing of reported amounts across two to three quarters. 
+Within the context of these critical accounting policies, we are not
+currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. 
+Revenue Recognition 
+We record wholesale revenues when title passes and the risks and rewards of ownership have passed to the customer, based on the terms of sale. Title
+passes generally upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale. 
+In some instances, we ship product directly from our supplier to the
+customer. In these cases, we recognize revenue when the product is delivered to and accepted by the customer. Our revenues may fluctuate in cases when our customers delay accepting shipment of product for periods up to several weeks. 
+In certain countries outside of the U.S., precise information regarding the
+date of receipt by the customer is not readily available. In these cases, we estimate the date of receipt by the customer based upon historical delivery times by geographic location. On the basis of our tests of actual transactions, we have no
+indication that these estimates have been materially inaccurate historically. 
+As part of our revenue recognition policy, we record estimated sales returns and miscellaneous claims from customers as reductions to revenues at the time revenues are recorded. We base our estimates on historical
+rates of product returns and claims, and specific identification of outstanding claims and outstanding returns not yet received from customers. Actual returns and claims in any future period are inherently uncertain and thus may differ from our
+estimates. If actual or expected future returns and claims were significantly greater or lower than the reserves we had established, we would record a reduction or increase to net revenues in the period in which we made such determination.
+Reserve for Uncollectible Accounts Receivable 
+We make ongoing estimates relating to the collectibility of our accounts
+receivable and maintain a reserve for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the reserve, we consider our historical level of credit losses and make judgments about the
+creditworthiness of significant customers based on ongoing credit evaluations. Since we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the
+financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In the event we determined that a smaller or larger reserve was appropriate, we would record a credit or a
+charge to selling and administrative expense in the period in which we made such a determination. 
+Inventory Reserves 
+We
+also make ongoing estimates relating to the net realizable value of inventories, based upon our assumptions about future demand and market conditions. If we estimate that the net realizable value of our inventory is less than the cost of the
+inventory recorded on our books, we record a reserve equal to the difference between the cost of the inventory and the estimated net realizable value. This reserve is recorded as a charge to cost of sales. If changes in market conditions result in
+reductions in the estimated net realizable value of our inventory below our previous estimate, we would increase our reserve in the period in which we made such a determination and record a charge to cost of sales. 
+16 
+Table of Contents 
+Contingent Payments under Endorsement Contracts 
+A significant portion of our demand creation (advertising and promotion) expense relates to payments under endorsement
+contracts. In general, endorsement payments are expensed uniformly over the term of the contract. However, certain contract elements may be accounted for differently, based upon the facts and circumstances of each individual contract. 
+Certain contracts provide for contingent payments to endorsers based upon
+specific achievements in their sports (e.g., winning a championship). We record selling and administrative expense for these amounts when the endorser achieves the specific goal. 
+Certain contracts provide for payments based upon endorsers maintaining a level of performance in their sport over an
+extended period of time (e.g., maintaining a top ranking in a sport for a year). These amounts are reported in selling and administrative expense when we determine that it is probable that the specified level of performance will be maintained
+throughout the period. In these instances, to the extent that actual payments to the endorser differ from our estimate due to changes in the endorser’s athletic performance, increased or decreased selling and administrative expense may be
+reported in a future period. 
+Certain contracts provide for
+royalty payments to endorsers based upon a predetermined percentage of sales of particular products. We expense these payments in cost of sales as the related sales are made. In certain contracts, we offer minimum guaranteed royalty payments. For
+contractual obligations for which we estimate that we will not meet the minimum guaranteed amount of royalty fees through sales of product, we record the amount of the guaranteed payment in excess of that earned through sales of product in selling
+and administrative expense uniformly over the remaining guarantee period. 
+Property, Plant and Equipment 
+Property, plant
+and equipment, including buildings, equipment, and computer hardware and software is recorded at cost (including, in some cases, the cost of internal labor) and is depreciated over its estimated useful life. Changes in circumstances (such as
+technological advances or changes to our business operations) can result in differences between the actual and estimated useful lives. In those cases where we determine that the useful life of a long-lived asset should be shortened, we increase
+depreciation expense over the remaining useful life to depreciate the asset’s net book value to its salvage value. 
+When events or circumstances indicate that the carrying value of property, plant and equipment may be impaired, we estimate the future undiscounted cash
+flows to be derived from the asset to determine whether or not a potential impairment exists. If the carrying value exceeds our estimate of future undiscounted cash flows, we then calculate the impairment as the excess of the carrying value of the
+asset over our estimate of its fair market value. Any impairment charges are recorded as other expense. We estimate future undiscounted cash flows using assumptions about our expected future operating performance. Our estimates of undiscounted cash
+flows may change in future periods due to, among other things, technological changes, economic conditions, changes to our business operations or inability to meet business plans. Such changes may result in impairment charges in the period in which
+such changes in estimates are made. 
+Goodwill and Other Intangible Assets
+We adopted Statement of Financial Accounting Standards
+(SFAS) No. 142, “Goodwill and Other Intangible Assets,” (FAS 142) effective for the first quarter of fiscal 2003. In accordance with FAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but instead measured
+for impairment at least annually or when events indicate that an impairment exists. As required by FAS 142, in our impairment tests for goodwill and other indefinite-lived intangible assets, we compare the estimated fair value of goodwill and other
+intangible assets to the carrying value. If the carrying value exceeds our estimate of fair value, we calculate impairment as the excess of the carrying value over our estimate of fair value. Our estimates of fair value utilized 
+17 
+Table of Contents 
+in goodwill and other indefinite-lived intangible asset tests may be based upon a number of factors, including our assumptions about the expected future
+operating performance of our reporting units. Our estimates may change in future periods due to, among other things, technological change, economic conditions, changes to our business operations or inability to meet business plans. Such changes may
+result in impairment charges recorded in future periods. 
+As
+discussed further below, upon adoption of FAS 142, we recorded an impairment charge related to goodwill and other indefinite-lived intangible assets of $266.1 million. This charge is shown on our consolidated statement of income as the cumulative
+effect of accounting change. In future periods, any goodwill impairment charges would be classified as a separate line item on our consolidated statement of income as part of income before income taxes and cumulative effect of accounting change.
+Other indefinite-lived intangible asset impairment charges would be classified as other expense. 
+Intangible assets that are determined to have definite lives will continue to be amortized over their useful lives and are measured for impairment only
+when events or circumstances indicate the carrying value may be impaired. In these cases, we estimate the future undiscounted cash flows to be derived from the asset to determine whether or not a potential impairment exists. If the carrying value
+exceeds our estimate of future undiscounted cash flows, we then calculate the impairment as the excess of the carrying value of the asset over our estimate of its fair value. Any impairment charges would be classified as other expense. 
+Hedge Accounting for Derivatives 
+We use forward exchange contracts and option contracts to hedge certain
+anticipated foreign currency exchange transactions, as well as any resulting receivable or payable balance. When specific criteria required by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” have been met,
+changes in fair values of hedge contracts relating to anticipated transactions are recorded in other comprehensive income rather than net income until the underlying hedged transaction affects net income. In most cases, this results in gains and
+losses on hedge derivatives being released from other comprehensive income into net income some time after the maturity of the derivative. One of the criteria for this accounting treatment is that the forward exchange contract amount should not be
+in excess of specifically identified anticipated transactions. By their very nature, our estimates of anticipated transactions may fluctuate over time and may ultimately vary from actual transactions. When anticipated transaction estimates or actual
+transaction amounts decrease below hedged levels, or when the timing of transactions changes significantly, we are required to reclassify at least a portion of the cumulative changes in fair values of the related hedge contracts from other
+comprehensive income to other income/expense during the quarter in which such changes occur. Once an anticipated transaction estimate or actual transaction amount decreases below hedged levels, we make adjustments to the related hedge contract in
+order to reduce the amount of the hedge contract to that of the revised anticipated transaction. 
+Taxes 
+We record
+valuation allowances against our deferred tax assets, when necessary, in accordance with SFAS No. 109, “Accounting for Income Taxes.” Realization of deferred tax assets (such as net operating loss carryforwards) is dependent on future
+taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a
+valuation allowance against our deferred tax asset, increasing our income tax expense in the year such determination is made. 
+In addition, we have not recorded U.S. income tax expense for foreign earnings that we have declared as indefinitely reinvested offshore, thus reducing
+our overall income tax expense. The amount of earnings designated as indefinitely reinvested offshore is based upon the actual deployment of such earnings in our offshore assets and our expectations of the future cash needs of our U.S. and foreign
+entities. Income tax considerations are also a factor in determining the amount of foreign earnings to be indefinitely reinvested offshore. 
+18 
+Table of Contents 
+We take a conservative approach in determining the amount of foreign earnings to declare as reinvested
+offshore. As required by U.S. generally accepted accounting principles, the presumption is that such earnings will be repatriated in the future. We carefully review all factors that drive the ultimate disposition of such foreign earnings, and apply
+stringent standards to overcoming the presumption of repatriation. Despite this conservative approach, because the determination involves our future plans and expectations of future events, the possibility exists that amounts declared as
+indefinitely reinvested offshore may ultimately be repatriated. For instance, the actual cash needs of our U.S. entities may exceed our current expectations, or the actual cash needs of our foreign entities may be less than our current expectations.
+This would result in additional income tax expense in the year we determined that amounts were no longer indefinitely reinvested offshore. Conversely, our conservative approach may result in accumulated foreign earnings (for which U.S. income taxes
+have been provided) being determined in the future to be indefinitely reinvested offshore. In this case, our income tax expense would be reduced in the year of such determination. 
+On an interim basis, we estimate what our effective tax rate will be for the full fiscal year and record a quarterly income
+tax provision in accordance with the anticipated annual rate. As the fiscal year progresses, we continually refine our estimate based upon actual events and earnings by jurisdiction during the year. This continual estimation process periodically
+results in a change to our expected effective tax rate for the fiscal year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision equals the expected annual
+rate. 
+Other Contingencies 
+In the ordinary course of business, we are involved in legal proceedings
+regarding contractual and employment relationships, product liability claims, trademark rights, and a variety of other matters. We record contingent liabilities resulting from claims against us when it is probable that a liability has been incurred
+and the amount of the loss is reasonably estimable. We disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will materially exceed the recorded liability. Estimating probable losses requires analysis of
+multiple factors, in some cases including judgments about the potential actions of third party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. Currently, we do not believe that any of our pending legal
+proceedings or claims will have a material impact on our financial position or results of operations. However, if actual or estimated probable future losses exceed our recorded liability for such claims, we would record additional charges as other
+expense during the period in which the actual loss or change in estimate occurred. 
+Results of Operations 
+Fiscal 2003 Compared to Fiscal 2002 
+• 
+Revenues increased 8% to $10.7 billion, the highest annual revenues in the history of NIKE. 
+• 
+Income before the cumulative effect of an accounting change increased to $740.1 million from $668.3 million in the prior year, an increase of 11%. After the effect of the
+accounting change, net income declined 29% from $663.3 million to $474.0 million. 
+• 
+Diluted earnings per share before the effect of the accounting change increased by 13%, from $2.46 to $2.77. After the effect of the accounting change, diluted earnings per share
+declined 27%. 
+• 
+Gross margins increased as a percentage of revenues from 39.3% to 41.0% in fiscal 2003. 
+• 
+Selling and administrative expense increased as a percentage of revenues to 29.3% from 28.5% in the prior year. 
+Revenue growth in our international regions drove the 8% increase in
+consolidated revenues in fiscal 2003 as compared to fiscal 2002. Changes in currency exchange rates, primarily the euro, were responsible for 4% of the consolidated revenue growth. 
+19 
+Table of Contents 
+Our largest international region, Europe, Middle East and Africa (EMEA), reported 20% revenue growth in
+fiscal 2003 compared to fiscal 2002. This growth reflected a 15 percentage point improvement due to changes in currency exchange rates. Growth in the emerging markets in Central and Eastern Europe was the key driver of the balance of the increase,
+as our distribution continued to expand in these markets and customer demand increased. Excluding the effect from changes in currency exchange rates, each of our EMEA business units, footwear, apparel, and equipment, delivered revenue growth versus
+the prior year. 
+EMEA pre-tax income grew from $422.4 million
+in fiscal 2002 to $533.0 million in fiscal 2003. Higher revenues and improved gross margins drove the increase, more than offsetting incremental selling and administrative costs. 
+In Asia Pacific, revenues increased 19% in fiscal 2003; five percentage points of this growth were due to changes in
+currency exchange rates. Excluding the benefit from changes in currency exchange rates, sales in each Asia Pacific business unit grew in fiscal 2003, as did sales in almost every country of the region, particularly Japan and Korea, driven primarily
+by heightened consumer demand for our products following the 2002 World Cup and our related marketing campaign, and China, driven primarily by an expansion of retail distribution of our products. 
+Pre-tax income for the Asia Pacific region increased from $216.2 million in
+fiscal 2002 to $295.0 million in fiscal 2003. This increase reflected higher revenues and improved gross margins that more than offset higher selling and administrative costs. 
+In the Americas region, fiscal 2003 revenues decreased 7% compared to fiscal 2002, reflecting higher sales in local
+currencies that were more than offset by a 15 percentage point decline due to changes in currency exchange rates. This currency exchange impact was due to weaker currencies in the Latin American markets, partially offset by the stronger Canadian
+dollar. Excluding the currency exchange rate impact, the region experienced sales growth in the footwear and equipment business units slightly offset by a small percentage decrease in the apparel business unit. On a geographic basis, excluding
+currency exchange rate impacts, the region experienced sales growth in Brazil, Argentina, and Mexico, reflecting stronger consumer demand. The sales growth in Argentina reflected a rebound since fiscal 2002 when that country underwent an economic
+crisis. 
+Pre-tax income for the Americas region grew from $92.1
+million in fiscal 2002 to $96.3 million in fiscal 2003. Pre-tax income improved despite lower reported revenues primarily due to an improved gross margin percentage. 
+In the U.S. region, revenues were down slightly in fiscal 2003, at $4,658.4 million versus $4,669.6 million in fiscal 2002.
+U.S. footwear revenues were down 4%, more than offsetting sales growth in U.S. apparel and equipment. U.S. apparel sales increased $95.3 million dollars, primarily driven by increased consumer demand for team licensed apparel. Lower revenues in the
+footwear business unit were largely the result of a significant change in our U.S. footwear distribution. 
+During fiscal 2003, we began a realignment of our U.S. footwear distribution to address the changing retail marketplace, including our largest
+customer’s (Foot Locker) reduction in emphasis on premium footwear in its offerings. The objectives of this realignment are to improve the presentation and profitability of the NIKE brand in the U.S. As a result of changes in both Foot
+Locker’s orders and our product offerings to this account, our fiscal 2003 sales to Foot Locker in the U.S. were significantly below the level of fiscal 2002. At the same time, we expanded the premium products available to other athletic
+specialty and independent retailers that focus on premium footwear offerings, increasing sales to these accounts significantly. 
+Based upon U.S. futures orders scheduled for delivery through December 2003, we expect that U.S. footwear revenues will remain below prior year levels at
+least through the first half of fiscal 2004. In the short 
+20 
+Table of Contents 
+term, we do not expect to fully offset the revenue decline from Foot Locker in the U.S., and the amounts of future sales to Foot Locker are uncertain.
+However, we believe the NIKE brand continues to enjoy strong consumer demand and that we will successfully realign our distribution to fulfill consumers’ demand for our products and generate profitable revenue growth. 
+Our unit sales of footwear in the U.S. increased slightly as compared to
+fiscal 2002. However, this volume increase was more than offset by a decline in the average price per pair of footwear sold. The reduction in average price per pair in fiscal 2003 versus fiscal 2002 reflected a higher percentage of sales of classic
+footwear and kids’ models, which have a lower average price than our more complex adult performance models. Based upon futures orders, average price per pair ordered by customers for delivery in the first quarter of fiscal 2004 was slightly
+below the prior year, but the average price per pair increased for second quarter orders. 
+U.S. region pre-tax income increased from $956.0 million in fiscal 2002 to $957.5 million in fiscal 2003. Pre-tax income improved, despite lower revenues and higher selling and administrative expense, due to improved
+gross margins. 
+Other revenues include revenues from Bauer NIKE
+Hockey, Inc., Cole Haan Holdings, Inc., Hurley International LLC, and NIKE Golf. In fiscal 2003, we began managing the NIKE Golf operations in our largest golf markets separately from our regional businesses. As a result, beginning in the first
+quarter of fiscal 2003, revenues and pre-tax income for these businesses have been excluded from the regional results and reported in the Other category. This NIKE Golf information for fiscal 2002 and fiscal 2001 has been reclassified in this
+Form 10-K to conform to the fiscal 2003 presentation. 
+Other revenues grew 12% in fiscal 2003 compared to fiscal 2002. The addition of revenues from our Hurley business, purchased in the fourth quarter of fiscal 2002, drove the increase in Other revenues. 
+Other pre-tax income declined from $56.8 million in fiscal 2002 to $18.9
+million in fiscal 2003. Reduced profitability at NIKE Golf drove this decline, reflecting significantly weaker demand in the U.S. golf market versus fiscal 2002 and start-up issues we experienced at a third-party distribution facility. We expect
+that demand in the U.S. for golf products throughout the industry and for our business may remain weak in the near term due to the current slowdown of the U.S. economy. 
+21 
+Table of Contents 
+The breakdown of revenues follows: 
+Fiscal 
+2003 
+Fiscal 
+2002 
+FY03 vs. 
+FY02 
+% CHG 
+Fiscal 
+2001 
+FY02 vs. 
+FY01 
+% CHG 
+(Dollars in millions) 
+USA Region 
+Footwear 
+$ 
+3,019.5 
+$ 
+3,135.5 
+(4 
+)% 
+$ 
+3,167.4 
+(1 
+)% 
+Apparel 
+1,351.0 
+1,255.7 
+8 
+% 
+1,207.9 
+4 
+% 
+Equipment 
+287.9 
+278.4 
+3 
+% 
+273.6 
+2 
+% 
+Total USA 
+4,658.4 
+4,669.6 
+— 
+4,648.9 
+— 
+EMEA Region 
+Footwear 
+1,896.0 
+1,543.8 
+23 
+% 
+1,415.7 
+9 
+% 
+Apparel 
+1,133.1 
+977.9 
+16 
+% 
+961.0 
+2 
+% 
+Equipment 
+212.6 
+174.8 
+22 
+% 
+176.3 
+(1 
+)% 
+Total EMEA 
+3,241.7 
+2,696.5 
+20 
+% 
+2,553.0 
+6 
+% 
+Asia Pacific Region 
+Footwear 
+732.4 
+640.2 
+14 
+% 
+617.5 
+4 
+% 
+Apparel 
+499.3 
+403.3 
+24 
+% 
+356.1 
+13 
+% 
+Equipment 
+127.1 
+98.7 
+29 
+% 
+91.5 
+8 
+% 
+Total Asia Pacific 
+1,358.8 
+1,142.2 
+19 
+% 
+1,065.1 
+7 
+% 
+Americas Region 
+Footwear 
+337.3 
+359.1 
+(6 
+)% 
+355.2 
+1 
+% 
+Apparel 
+148.1 
+167.1 
+(11 
+)% 
+152.1 
+10 
+% 
+Equipment 
+41.6 
+41.9 
+(1 
+)% 
+31.8 
+32 
+% 
+Total Americas 
+527.0 
+568.1 
+(7 
+)% 
+539.1 
+5 
+% 
+9,785.9 
+9,076.4 
+8 
+% 
+8,806.1 
+3 
+% 
+Other 
+911.1 
+816.6 
+12 
+% 
+682.7 
+20 
+% 
+Total Revenues 
+$ 
+10,697.0 
+$ 
+9,893.0 
+8 
+% 
+$ 
+9,488.8 
+4 
+% 
+This discussion
+includes disclosure of “pre-tax income” for our operating segments. We have reported pre-tax income for each of our operating segments in accordance with Statement of Financial Accounting Standard No. 131, “Disclosures about Segments
+of an Enterprise and Related Information.” As discussed in Note 17 — Operating Segments and Related Information in the attached Notes to Consolidated Financial Statements , certain corporate costs are not included in
+pre-tax income of our operating segments. 
+Worldwide futures
+and advance orders for our footwear and apparel scheduled for delivery from June 2003 to November 2003 were 5.0% higher than such orders reported in the comparable period of fiscal 2002. Five points of this reported increase were due to changes in
+currency exchange rates versus the same period last year. On our June 26, 2003 press release, we reported that worldwide futures and advance orders for this period were up 4.4% as compared to last year and that futures and advance orders in the U.S.
+were down 10% as compared to last year. Our futures program permits changes to orders for a short period of time following the order deadline. Such changes to U.S. orders, most notably additional orders of footwear from Foot Locker, increased the
+growth in worldwide futures for the June to November period by 0.6 percentage points, to 5.0%, and reduced the decrease in U.S. orders from 10% to 9%. These orders were for footwear consistent with our distribution realignment strategy discussed
+above. The reported futures orders growth is not necessarily indicative of our expectation of revenue growth during this period. This is because the mix of orders can shift between advance/futures and at-once orders. In addition, exchange rate
+fluctuations as well as differing levels of order cancellations can cause differences in the comparisons between futures orders and actual revenues. Moreover, a significant portion of our revenues is not derived from futures orders, including
+wholesale sales of equipment, 
+22 
+Table of Contents 
+U.S. licensed team apparel, Bauer NIKE Hockey, Cole Haan, NIKE Golf, Hurley, and retail sales across all brands. 
+In fiscal 2003, our consolidated gross margin percentage improved 1.7 points
+as compared to fiscal 2002, from 39.3% to 41.0%. Significant factors contributing to the improved gross margin percentage were as follows: 
+(1) 
+Product cost reductions resulting from our global initiatives to improve efficiency and reduce materials costs. 
+(2) 
+A higher mix of sales of classic footwear models which are generally more profitable than our more complex performance models. 
+Lower pricing of NIKE Golf products as a result of market conditions discussed above
+partially offset these positive margin drivers. Changes in currency exchange rates did not have a material impact on our gross margin percentage in fiscal 2003 as the benefit of stronger hedge rates in some currencies was offset by weaker hedge
+rates in other currencies. A significant portion of product purchases for fiscal 2004 are already hedged and we expect that changes in year-over-year hedge rates will have a net positive effect on our gross margin percentage in fiscal 2004, as the
+benefits of stronger euro hedge rates more than offset weaker hedge rates in other currencies. 
+Selling and administrative expense increased as a percentage of revenues from 28.5% in fiscal 2002 to 29.3% in fiscal 2003. Both demand creation and operating overhead expense increased as a percentage of revenues.
+Demand creation expense grew from $1,027.9 million in fiscal 2002 to $1,168.6 million in fiscal 2003. Higher costs incurred in the EMEA region drove the growth in demand creation expense, reflecting, 1) a stronger euro currency exchange rate
+compared to the U.S. dollar, which resulted in higher U.S. dollar expenses for costs that are euro-denominated, 2) our new endorsement agreement with the Manchester United soccer team that became effective in August 2002, and 3) costs of our World
+Cup marketing campaign incurred in the first quarter of fiscal 2003. Higher demand creation expenses were also incurred in the Asia Pacific and Americas regions due to the World Cup marketing campaign. We also increased demand creation spending in
+the U.S. in order to drive continued consumer demand for footwear while we realign our distribution to retail customers. 
+Operating overhead increased from $1,792.5 million in fiscal 2002 to $1,969.0 million in fiscal 2003. Major drivers of this increase were the stronger
+euro exchange rate, incremental costs related to our on-going development of systems and processes supporting our worldwide supply chain, (primarily reflected in the corporate line in our segment presentation of pre-tax income in Note 17 —
+Operating Segments and Related Information ), investments in headcount for our NIKE Golf business, the addition of Hurley overhead costs beginning in the fourth quarter of fiscal 2002, and overhead costs of additional retail stores in EMEA and
+Asia Pacific. 
+As part of our worldwide supply chain
+initiative, we implemented new systems in the EMEA region in fiscal 2003. Prior to the EMEA region implementation, we implemented new systems and processes for certain global functions and for our U.S. and Canadian businesses. Over the next few
+years, we will continue to enhance and refine the systems and processes in the U.S., EMEA and Canada as well as implement our new supply chain platform in the remaining countries in which we operate. Over this time period, operating overhead expense
+will continue to include costs of the supply chain initiative as well as costs for supporting our existing system infrastructure for those businesses where we have not yet implemented the new systems. This initiative is intended to improve revenue
+(by increasing our ability to respond to market conditions), margins (by lowering close-outs and distribution costs) and cash flow (by reducing inventories). In the U.S., where the new systems have been in place for over a year, we have begun to see
+improvements in several key performance measures. The ultimate level of benefit, if any, to revenues, margins, and cash flows will not be known until the new systems and processes have been implemented in the remaining countries in which we operate
+and globally integrated over the next few years. 
+Interest
+expense decreased from $47.6 million in fiscal 2002 to $42.9 million in fiscal 2003, a decline of 10%. The decrease reflected both lower interest rates and lower average debt levels, as we have used cash flow from operations to reduce total debt.
+23 
+Table of Contents 
+Other income/expense was net expense of $79.9 million compared to net expense of $3.0 million in fiscal
+2002. Significant amounts included in other income/expense were interest income, profit sharing expense, goodwill amortization (fiscal 2002 only), and certain foreign currency gains and losses. 
+An increase in net foreign currency losses was the largest contributor to the
+increase in other expense versus last year. These foreign currency losses were primarily due to hedge losses on intercompany charges to a European subsidiary, whose functional currency is the euro. These losses are reflected in the Corporate line in
+our segment presentation of pre-tax income in Note 17 — Operating Segments and Related Information . The hedge losses reflected that the euro has strengthened considerably since we entered into these hedge contracts. In fiscal 2003, net
+foreign currency losses in other income/expense were more than offset by favorable translation of foreign currency denominated profits. Our estimate of the net impact of these losses and the favorable translation is a $13 million addition to
+consolidated income before income taxes. Consistent with our existing policies, we have continued to hedge anticipated intercompany charges for fiscal 2004. Since the euro has continued to strengthen since these hedge contracts were executed, we
+expect to continue to incur some hedge losses in fiscal 2004. However, we expect the net impact of the hedge losses and the offsetting positive translation impact will result in a net benefit to fiscal 2004 consolidated net income versus the prior
+year. 
+Our fiscal 2003 effective tax rate was 34.1%, relatively
+consistent with the fiscal 2002 effective rate of 34.3%. 
+Included in fiscal 2003 net income was a $266.1 million charge for the cumulative effect of implementing FAS 142. This charge related to the impairment of goodwill and trademarks associated with Bauer NIKE Hockey and the goodwill of Cole
+Haan, reflecting that the fair values we estimated for these assets were less than the carrying values. In addition, the adoption of this accounting standard resulted in a reduction to goodwill and intangible asset amortization of $13.1 million as
+compared to fiscal 2002. See the accompanying Notes to Consolidated Financial Statements (Note 4 — Identifiable Intangible Assets and Goodwill) for further information. 
+Fiscal 2002 Compared to Fiscal 2001 
+• 
+Revenues increased 4% to $9.9 billion, compared to $9.5 billion in fiscal 2001. 
+• 
+Income before the cumulative effect of an accounting change increased to $668.3 million from $589.7 million in the prior year, an increase of 13%. After the effect of the
+accounting change, net income rose 12%. 
+• 
+Diluted earnings per share before the effect of the accounting change increased by 14%, from $2.16 to $2.46. After the effect of the accounting change, diluted earnings per share
+rose 13%. 
+• 
+Gross margins increased as a percentage of revenues to 39.3% from 39.0% in fiscal 2001. 
+• 
+Selling and administrative expense increased as a percentage of revenues to 28.5% from 28.3% in fiscal 2001. 
+• 
+Included in fiscal 2002 net income was a $5.0 million after-tax loss related to the cumulative effect of the adoption of SFAS No. 133, “Accounting for Derivative Instruments
+and Hedging Activities.” 
+As discussed
+above, our fiscal 2002 and fiscal 2001 Nike Golf information has been reclassified to conform to the fiscal 2003 presentation. This presentation reflects significant NIKE Golf operations as a separate business in the Other category rather than
+within each of our geographical regions. The following discussion of fiscal 2002 results versus fiscal 2001 by region reflects this reclassification of NIKE Golf operations. This reclassification did not result in any change to our previously
+reported consolidated results, nor did it result in a significant change to the previously reported revenue and profitability trends in each of our regional businesses in fiscal 2002. This reclassification did result in significantly higher revenues
+and profits reported in the Other category. 
+24 
+Table of Contents 
+In the U.S. region, revenues were flat in fiscal 2002 versus fiscal 2001, reflecting increased sales of
+apparel and equipment offset by decreased sales of footwear. The increased sales in apparel reflected higher demand for in-line products, particularly for NIKE brand and Brand Jordan basketball apparel, more than offsetting the effect of the
+expiration of our apparel license agreement with the National Football League in fiscal 2001. While in-line sales of footwear increased in fiscal 2002, particularly in the mid-range price segment, close-out sales decreased significantly. The
+reduction in close-out sales reflected both our efforts to limit the availability of close-out products in the marketplace (in order to build overall profitability) and relatively high levels of close-out sales in the last half of fiscal 2001 due to
+supply chain system disruptions. As in the apparel business, sales of NIKE brand and Brand Jordan basketball footwear products were the primary drivers of increased wholesale sales of in-line footwear during the year. 
+Despite revenues and selling and administrative expense being essentially
+consistent with fiscal 2001, U.S. pre-tax income increased from $905.0 million to $956.0 million, driven primarily by an improved gross margin percentage. 
+In fiscal 2002, revenues from our international regions grew 6% versus the prior year. Changes in currency exchange rates decreased the international
+region growth rate 6 percentage points and decreased our consolidated growth rate 3 percentage points. Fiscal 2002 reported revenues in EMEA increased by 6% over fiscal 2001, including a 4 percentage point decrease due to changes in currency
+exchange rates. Excluding the negative effect of currency exchange rates, EMEA revenues grew in each of our business units, footwear, apparel, and equipment and in almost every country in the region, reflecting increasing demand for NIKE brand
+products throughout EMEA. 
+EMEA pre-tax income grew 16% from
+$363.4 million to $422.4 million. Growth in revenues and a higher gross margin percentage drove the increase in pre-tax income. 
+In our Asia Pacific region, reported revenues grew 7%, including a 10 percentage point decrease due to changes in currency exchange rates. Asia Pacific
+revenues grew in each business unit and in almost every country in the region, with the largest growth coming from Japan, Korea, and China. 
+Pre-tax income for the Asia Pacific region increased from $184.4 million to $216.2 million. The increase in revenues and lower selling and administrative
+expense as a percentage of revenues drove the growth in pre-tax income, which was partially offset by a decline in gross margin percentage. 
+The Americas region reported revenues grew 5%, including a 7 percentage point decrease due to changes in currency exchange rates, despite a drop-off in
+sales in Argentina during the second half of fiscal 2002 as a result of the country’s economic crisis. Revenues in the Americas region grew in each of our business units, led by growth in Canada, Mexico, and Brazil. 
+Pre-tax income for the Americas region increased from $81.6 million to $92.1
+million. The increase in revenues and lower selling and administrative expense as a percentage of revenues drove the growth in pre-tax income, which was partially offset by a decline in gross margin percentage. 
+In fiscal 2002, Other revenues, including revenues from Bauer NIKE Hockey,
+Cole Haan, Hurley, and NIKE Golf, increased 20% to $816.6 million, driven by growth in NIKE Golf. The Hurley acquisition did not have a significant impact on fiscal 2002 revenues since the acquisition did not occur until the last quarter of fiscal
+2002. 
+Other pre-tax income declined from $74.2 million to
+$56.8 million, driven by a decline in profitability at Cole Haan. Despite slight revenue growth at Cole Haan during the year, pre-tax income declined due to relatively high discounting and inventory obsolescence as a result of depressed consumer
+demand in the wake of the September 11, 2001 terrorist attacks. 
+25 
+Table of Contents 
+Our gross margin percentage improved from 39.0% in fiscal 2001 to 39.3% in fiscal 2002. Factors
+contributing to the improved gross margin percentage in fiscal 2002 were as follows: 
+(1) 
+Higher in-line pricing margins in EMEA, due to the effect of higher prices effective at the beginning of the fiscal year and sourcing and warehousing efficiencies, partially offset
+by the effect of weaker euro/U.S. dollar currency hedge rates relative to fiscal 2001. 
+(2) 
+Higher footwear margins in the U.S. due in part to lower product costs and lower transportation costs, as a result of both effective negotiations with shippers and lower air freight
+costs incurred. Relatively higher air freight costs were incurred in fiscal 2001 due to supply chain system problems. 
+(3) 
+A higher mix of in-line sales versus close-out sales of U.S. footwear, reflecting increased demand for in-line footwear and lower close-out sales as compared to fiscal 2001 as
+discussed above. 
+Selling and administrative
+expense increased as a percentage of revenues from 28.3% in fiscal 2001 to 28.5% in fiscal 2002. Operating overhead increased 6% in fiscal 2002. Significant drivers of the increased operating overhead included increased investment in our supply
+chain initiative, additional headcount to support our golf and European businesses due to business growth, additional expense for compensation programs tied to our profitability and stock performance, and costs for additional retail stores primarily
+in our EMEA and Asia Pacific regions. 
+Demand creation expense
+was $1,027.9 million in fiscal 2002 versus $998.2 million in fiscal 2001, which was consistent between years as a percentage of revenues. Our fiscal 2002 demand creation expense reflected incremental spending for our World Cup 2002 marketing
+campaign, which began in the fourth quarter of fiscal 2002. 
+Interest expense decreased 19%, from $58.7 million in fiscal 2001 to $47.6 million in fiscal 2002. The decrease reflected both lower interest rates and lower average debt levels, as we used cash flow from operations to reduce total debt.
+Other income/expense was a net expense of $3.0 million in
+fiscal 2002 versus a net expense of $34.1 million in fiscal 2001. Significant amounts included in other income/expense included interest income, profit sharing expense, goodwill amortization, certain foreign currency gains and losses, and asset
+disposal gains/losses. Net other expense decreased between years as the fiscal 2001 amount included charges for contractual settlements that did not recur in fiscal 2002. In addition, fiscal 2002 other income/expense included credits related to the
+favorable resolution of some outstanding claims. 
+Our fiscal
+2002 effective tax rate was 34.3% as compared to 36.0% in fiscal 2001. As required by U.S. generally accepted accounting principles, we do not accrue a U.S. tax liability on foreign earnings permanently invested offshore. The lower effective tax
+rate in fiscal 2002 is primarily the result of a larger amount of foreign earnings permanently invested offshore in fiscal 2002 than in fiscal 2001. 
+Recently Issued Accounting Standards 
+In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (FAS 143). This
+statement requires that a liability for an asset retirement obligation be recognized at fair value in the period the obligation is incurred and the associated retirement costs be capitalized as part of the carrying amount of the related tangible
+long-lived asset. All provisions of this statement will be effective for the Company on June 1, 2003. We do not expect that the adoption of FAS 143 will have a material impact on our consolidated financial position or results of operations.
+In June 2002, the FASB issued SFAS No. 146 “Accounting
+for Costs Associated with Exit or Disposal Activities” (FAS 146). This statement supercedes Emerging Issues Task Force (EITF) Issue No. 94-3 “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
+Activity (including Certain Costs Incurred in a Restructuring),” FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability was recognized
+at the date an entity committed to an exit plan. FAS 146 also establishes that the liability should initially be measured and recorded at fair value. The provisions of FAS 146 are effective for any exit and disposal activities initiated after
+26 
+Table of Contents 
+December 31, 2002. We have not entered into any significant exit or disposal activities since the effective date of this rule. As such, FAS 146 has not had
+an impact on our consolidated financial position or results of operations, and no significant impact is expected in the foreseeable future. 
+In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including
+Indirect Guarantees of Indebtedness of Others” (FIN 45). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional
+disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The
+disclosure requirements of FIN 45 were effective beginning with the third quarter of fiscal 2003. 
+In connection with various contracts and agreements, we provide routine indemnifications relating to the enforceability of intellectual property rights,
+coverage for legal issues that arise, and other items that fall under the scope of FIN 45. Currently, we have several such agreements in place. However, based on our historical experience and estimated probability of future loss, we have determined
+that the fair value of such indemnifications is not material. Hence, the adoption of FIN 45 has not had an impact on our consolidated financial position or results of operations, and no significant impact is expected in the foreseeable future.
+In December 2002, the FASB issued SFAS No. 148
+“Accounting for Stock-Based Compensation— Transition and Disclosure—an amendment of FASB Statement No. 123” (FAS 148). This statement amends SFAS No. 123 “Accounting for Stock Based Compensation” (FAS 123) to provide
+alternative methods of voluntarily transitioning to the fair value based method of accounting for stock-based employee compensation. FAS 148 also amends the disclosure requirements of FAS 123 to require disclosure of the method used to account for
+stock-based employee compensation and the effect of the method on reported results in both annual and interim financial statements. The disclosure provisions are effective for us beginning with this fiscal 2003 annual report on Form 10-K. The annual
+impact of a change to the fair value model prescribed by FAS 123 has been disclosed in our previous 10-K filings, and the applicable disclosures in this report are in Note 1 and Note 10 of the Notes to Consolidated Financial
+Statements . At this time, we plan to continue to account for stock-based compensation using the intrinsic method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” rather than change
+to the FAS 123 fair value method. 
+In January 2003, the FASB
+issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation of variable
+interest entities. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary if the entity does not effectively disperse risks among the parties involved. The provisions of FIN 46 are effective immediately for
+those variable interest entities created after January 31, 2003. The provisions are effective for the first period beginning after June 15, 2003 for those variable interests held prior to February 1, 2003. We do not currently have any variable
+interest entities as defined in FIN 46. Accordingly, we do not expect the provisions of FIN 46 to affect our consolidated financial position or results of operations. 
+Liquidity and Capital Resources 
+Fiscal 2003 Cash Flow Activity 
+Cash provided by operations was $917.4 million in fiscal 2003, compared to $1,081.5 million in fiscal 2002. Our primary source of operating cash flow was
+income before the cumulative effect of an accounting change of $740.1 million. Operating cash flow decreased compared to the prior year due to increased investment in certain working capital components during fiscal 2003, including inventories.
+While a decline in inventory levels provided a source of cash during fiscal 2002, an increase in inventory levels during fiscal 2003 resulted in a use of cash, primarily due to our decision to purchase product for the U.S. “back-to-school”
+selling season earlier than we did last year in order to improve the timeliness of shipments to customers. 
+Cash used by investing activities during fiscal 2003 was $215.6 million, compared to $302.8 million invested during fiscal 2002. The most significant
+investing activities in both periods were expenditures for 
+27 
+Table of Contents 
+computer equipment and software related to our supply chain initiative and continued investment in NIKE-owned retail stores. Spending for both of these
+activities declined in fiscal 2003 as compared to fiscal 2002. Additionally, fiscal 2002 spending included our acquisition of all of the assets and substantially all of the liabilities of Hurley International LLC, an action sports and youth
+lifestyle brand company. Costs incurred for distribution center projects increased in fiscal 2003, the largest project being construction of a new storage building in Japan, with scheduled opening in the second half of fiscal 2004. During fiscal
+2004, we will continue to make investments in systems improvements (most notably the supply chain initiative), retail expansion, and our worldwide distribution center facilities. Additionally, during the first quarter of fiscal 2004, we entered into
+an agreement to purchase Converse Inc., discussed further below. 
+Cash used by financing activities in fiscal 2003 was $605.2 million, up from $478.2 million in the prior year. This amount included uses of cash for dividends to shareholders, a net reduction in debt, and share repurchases. These uses of
+cash were partially offset by proceeds from the exercise of employee stock options. 
+The share repurchases were part of a $1.0 billion share repurchase program that began in fiscal 2001, after completion of a four-year, $1.0 billion program in fiscal 2000. In fiscal 2003, we repurchased 4.0 million
+shares of NIKE’s Class B common stock for $191.0 million. To date, under the current program, we have purchased a total of 12.3 million shares of NIKE’s Class B common stock for $585.7 million. We expect to continue to fund the current
+program from operating cash flow. The timing and the ultimate amount of shares purchased under the program will be dictated by our capital needs and stock market conditions. 
+Long-term Financial Obligations and Other Commercial Commitments 
+Our significant long-term contractual obligations as of May 31, 2003 and
+significant endorsement contracts entered into through the date of this report are as follows: 
+Cash Payments Due During the Year Ended May 31, 
+Description of Commitment 
+2004 
+2005 
+2006 
+2007 
+2008 
+Thereafter 
+Total 
+(In millions) 
+Operating Leases 
+$ 
+188.9 
+149.6 
+129.5 
+111.1 
+92.2 
+505.6 
+$ 
+1,176.9 
+Long-term Debt 
+205.7 
+5.9 
+5.9 
+255.9 
+30.9 
+227.5 
+731.8 
+Endorsement Contracts 
+338.6 
+292.1 
+247.2 
+230.7 
+129.1 
+204.7 
+1,442.4 
+Other 
+25.5 
+9.5 
+2.5 
+1.4 
+1.2 
+0.2 
+40.3 
+The amounts listed for
+endorsement contracts represent approximate amounts of base compensation and minimum guaranteed royalty fees we are obligated to pay athlete and sport team endorsers of our products. Actual payments under some contracts will likely be higher than
+the amounts listed as these contracts provide for bonuses to be paid to the endorsers based upon athletic achievements in future periods. Actual payments under some contracts may also be lower as a limited number of contracts include provisions for
+reduced payments if athlete performance declines in future periods. 
+In addition to the cash payments disclosed above, we are obligated to furnish the endorsers with NIKE products for their use. It is not possible to determine how much we will spend on this product on an annual basis as the contracts do not
+stipulate a specific amount of cash to be spent on the product. The amount of product provided to the endorsers will depend on many factors including general playing conditions, the number of sporting events in which they participate, and our own
+decisions regarding product and marketing initiatives. In addition, the costs to design, develop, source, and purchase the products furnished to the endorsers are incurred over a period of time and are not necessarily tracked separately from similar
+costs incurred for products sold to customers. 
+An outsourcing
+contractor provides us with information technology operations management services through 2006. The amount of the payments in future years depends on our level of monthly use of the different elements of the contractor’s services. If we were to
+terminate the entire contract as of May 31, 2003, we would be required to provide the contractor with four months’ notice and pay a termination fee of $32.7 million. Our monthly payments to the contractor currently are approximately $6 million.
+28 
+Table of Contents 
+We also have the following outstanding short-term debt obligations as of May 31, 2003. Please refer to
+the accompanying Notes to Consolidated Financial Statements (Note 6 — Short-term Borrowings and Credit Lines ) for further description and interest rates related to the short-term debt obligations listed below. 
+Outstanding as of 
+May 31, 2003 
+(In millions) 
+Notes payable, due at mutually agreed-upon dates, generally ninety days from issuance or on demand 
+$ 
+75.4 
+Payable to Nissho Iwai American Company (NIAC) for the purchase of inventories, generally due sixty days after shipment of goods
+from a foreign port 
+$ 
+49.6 
+As of May 31, 2003,
+letters of credit of $704.4 million were outstanding, primarily for the purchase of inventory. All letters of credit generally expire within one year. 
+On July 9, 2003, we entered into an agreement to purchase all of the equity shares of Converse Inc., a widely recognized footwear company based in
+Massachusetts, for $305 million cash. Prior to closing, this transaction is subject to regulatory review, including U.S. government review under the Hart-Scott-Rodino Premerger Notification Act. If the acquisition is completed, we do not expect it
+will have a significant effect on our liquidity, results of operations or financial position in the short term. While we do expect a positive impact on our long-term profitability from this acquisition, we cannot reasonably estimate this impact at
+this time. 
+Capital Resources 
+In October 2001, we filed a shelf registration statement with the Securities
+and Exchange Commission (SEC) under which $1.0 billion in debt securities may be issued. In May 2002, we commenced a medium-term note program under the shelf registration that allows us to issue up to $500.0 million in medium-term notes, as our
+capital needs dictate. We entered into this program to provide additional liquidity to meet our working capital and general corporate cash requirements. During fiscal 2003, we issued a total of $90 million in notes under the medium-term note
+program. The notes have coupon rates that range from 4.80% to 5.66%. The maturities range from July 9, 2007 to August 7, 2012. For each of the notes, we have entered into interest rate swap agreements whereby we receive fixed interest payments at
+the same rate as the notes and pay variable interest payments based on the three-month or six-month London Inter Bank Offering Rate (LIBOR) plus a spread. Each swap has the same notional amount and maturity date as its respective note. After
+issuance of these notes, $410.0 million remains available to be issued under our medium note program, and another $500.0 million remains available to be issued under our shelf registration statement. We may issue additional notes under the shelf
+registration in fiscal 2004 depending on working capital general corporate needs. 
+As of May 31, 2003, we had a total of $1.0 billion available under two committed credit facilities in place with a group of banks, and we currently have no amounts outstanding under either facility. The first facility
+is a $500.0 million, 364-day facility that will mature on November 14, 2003 and can be extended 364 days on each maturity date. The second facility is a $500.0 million, multi-year facility that matures on November 17, 2005, and once a year it can be
+extended for one additional year. Both of these facilities have been in place since fiscal 2001. During fiscal 2003, upon renewal in November 2002, the 364-day facility was reduced from $600.0 million to $500.0 million. Based on our current
+long-term senior unsecured debt ratings of A and A2 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively, the interest rate charged on any outstanding borrowings on the 364-day facility would be the prevailing
+LIBOR plus 0.24%, and the interest rate charged on any outstanding borrowings on the multi-year facility would be the prevailing LIBOR plus 0.22%. The facility fees for the 364-day facility and the multi-year facility are 0.06% and 0.08%,
+respectively, of the total commitment. 
+If our long-term debt
+rating were to decline, the facility fees and interest rates under our committed credit facilities would increase. Conversely, if our long-term debt rating were to improve, the facility fees and interest 
+29 
+Table of Contents 
+rates would decrease. Changes in our long-term debt rating would not trigger acceleration of maturity of any then outstanding borrowings or any future
+borrowings under the committed credit facilities. However, under these committed credit facilities, we have agreed to various covenants. These covenants include limits on our disposal of fixed assets and the amount of debt secured by liens we may
+incur, and set a minimum ratio of net worth to indebtedness. In the event we were to have any borrowings outstanding under these facilities, failed to meet any covenant, and were unable to obtain a waiver from a majority of the banks, any borrowings
+would become immediately due and payable. As of May 31, 2003, we were in full compliance with each of these covenants and believe it is unlikely we will fail to meet any of these covenants in the foreseeable future. 
+Liquidity is also provided by our commercial paper program, under which there
+was no amount outstanding at May 31, 2003 and $338.3 million outstanding at May 31, 2002. We currently have short-term debt ratings of A1 and P1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively. 
+We currently believe that cash generated by operations, together with
+access to external sources of funds as described above, will be sufficient to meet our operating and capital needs in the foreseeable future. 
+Dividends per share of common stock for fiscal 2003 were $0.54, compared to $0.48 in fiscal 2002. We have paid a dividend every quarter since February
+1984. We review our dividend policy from time to time; however, based upon current projected earnings and cash flow requirements, we anticipate continuing to pay a quarterly dividend in the foreseeable future. 
+Item 7A. Quantitative and Qualitative Disclosures about Market Risk 
+In the normal course of business and consistent with established policies and procedures, we employ a variety of financial instruments to manage exposure
+to fluctuations in the value of foreign currencies and interest rates. It is our policy to utilize these financial instruments only where necessary to finance our business and manage such exposures; we do not enter into these transactions for
+speculative purposes. 
+We are exposed to foreign currency
+fluctuation as a result of our international sales, production and funding activities. Our foreign currency risk management objective is to reduce the variability of local entity cash flows as a result of exchange rate movements. We use forward
+exchange contracts and options to hedge certain anticipated but not yet firmly committed transactions as well as certain firm commitments and the related receivables and payables, including third party or intercompany transactions. 
+When we begin hedging exposures depends on the nature of the exposure and
+market conditions. Generally, all anticipated and firmly committed transactions that are hedged are to be recognized within twelve months, although at May 31, 2003 we had forward contracts hedging anticipated transactions that will be recognized in
+as many as 18 months. The majority of the contracts expiring in more than twelve months relate to the anticipated purchase of inventory by our European and Japanese subsidiaries. We use forward contracts and cross-currency swaps to hedge foreign
+currency denominated payments under intercompany loan agreements. When intercompany loans are hedged, it is typically for their expected duration. Hedged transactions are principally denominated in European currencies, Japanese yen, Canadian
+dollars, Korean won, Mexican pesos and Australian dollars. 
+Our
+earnings are also exposed to movements in short and long-term market interest rates. Our objective in managing this interest rate exposure is to limit the impact of interest rate changes on earnings and cash flows, and to reduce overall borrowing
+costs. To achieve these objectives, we maintain a mix of medium and long-term fixed rate debt, commercial paper, and bank loans and have entered into interest rate swaps under which we receive fixed interest and pay variable interest. 
+Market Risk Measurement 
+We monitor foreign exchange risk, interest rate risk and related derivatives using a variety of techniques including a
+review of market value, sensitivity analysis, and Value-at-Risk (VaR). Our market-sensitive derivative and other financial instruments, as defined by the SEC, are foreign currency forward contracts, foreign currency option contracts, cross-currency
+swaps, interest rate swaps, intercompany loans denominated in foreign currencies, fixed interest rate U.S. dollar denominated debt, and fixed interest rate Japanese yen denominated debt. 
+30 
+Table of Contents 
+We use VaR to monitor the foreign exchange risk of our foreign currency forward and foreign currency
+option derivative instruments only. The VaR determines the maximum potential one-day loss in the fair value of these foreign exchange rate-sensitive financial instruments. The VaR model estimates assume normal market conditions and a 95% confidence
+level. There are various modeling techniques that can be used in the VaR computation. Our computations are based on interrelationships between currencies and interest rates (a “variance/co-variance” technique). These interrelationships are
+a function of foreign exchange currency market changes and interest rate changes over the preceding one year. The value of foreign currency options does not change on a one-to-one basis with changes in the underlying currency rate. We adjusted the
+potential loss in option value for the estimated sensitivity (the “delta” and “gamma”) to changes in the underlying currency rate. This calculation reflects the impact of foreign currency rate fluctuations on the derivative
+instruments only, and hence does not include the impact of such rate fluctuations on the underlying based transactions that are anticipated transactions, firm commitments, cash balances and accounts and loans receivable and payable denominated in
+foreign currencies from the VaR calculation, including those which are hedged by these instruments. 
+The VaR model is a risk analysis tool and does not purport to represent actual losses in fair value that we will incur, nor does it consider the potential
+effect of favorable changes in market rates. It also does not represent the full extent of the possible loss that may occur. Actual future gains and losses will differ from those estimated because of changes or differences in market rates and
+interrelationships, hedging instruments and hedge percentages, timing and other factors. 
+The estimated maximum one-day loss in fair value on our foreign currency sensitive financial instruments, derived using the VaR model, was $21.0 million and $13.7 million at May 31, 2003 and May 31, 2002,
+respectively. The increase in VaR as of May 31, 2003 occurred due to the effect of currency volatility on existing trades on the May 31, 2003 VaR computation versus the effect of currency volatility on existing trades on the May 31, 2002 VaR
+computation. Such a hypothetical loss in fair value of our derivatives would be offset by increases in the value of the underlying transactions being hedged. The average monthly change in the fair values of foreign currency forward and foreign
+currency option derivative instruments was $43.3 million and $42.9 million for fiscal 2003 and fiscal 2002, respectively. 
+Details of other market-sensitive financial instruments and derivative financial instruments not included in the VaR calculation above are provided in the
+table below, except the interest rate swaps which are described below. These instruments include intercompany loans denominated in foreign currencies, fixed interest rate Japanese yen denominated debt, fixed interest rate U.S. dollar denominated
+debt, cross-currency swaps, and interest rate swaps. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. We have excluded the cross-currency swaps from the foreign
+exchange risk category because these instruments eliminate all foreign currency exposure in the cash flows of a euro denominated intercompany loan. We have included these cross-currency swaps in the interest rate risk category but excluded the
+related intercompany loan from this category because the intercompany interest eliminates in consolidation. For the cross-currency swaps the table presents both the euro swap payable and U.S. dollar swap receivable and the respective pay and receive
+interest rates. All information is presented in millions of U.S. dollars, except interest rates. 
+Intercompany loans and related interest amounts eliminate in consolidation. Intercompany loans are generally hedged against foreign exchange risk through
+the use of forward contracts and swaps with third parties. 
+The
+fixed interest rate Japanese yen denominated debts were issued by and are accounted for by two of our Japanese subsidiaries. Accordingly, the monthly remeasurement of these instruments due to changes in foreign exchange rates is recognized in
+accumulated other comprehensive loss upon the consolidation of these subsidiaries. 
+There were no significant changes in debt or cross-currency swap market risks during fiscal 2003. The U.S. dollar fair values of intercompany loans denominated in foreign currencies was $649.4 million at May 31, 2002,
+which is the same as the carrying values of the loans prior to their elimination. The U.S. dollar fair value of the fixed rate Japanese yen denominated debt that was outstanding at May 31, 2002 was $207.4 million versus a carrying value of $181.4
+million at that date. The U.S. dollar fair values of the fixed rate U.S. dollar denominated debt, the euro swap payable and the U.S. dollar swap receivable as of May 31, 2002 were $516.5 million, $196.2 million and $267.9 million, respectively,
+versus carrying values of $499.8 million, $188.8 million and $250.0 million, respectively, at that date. 
+31 
+Table of Contents 
+In fiscal 2002 we issued a $250 million long-term fixed-rate corporate bond which matures in August 2006.
+In fiscal 2003, we issued an additional $90 million in long-term fixed-rate corporate bonds which mature on various dates beginning in July 2007 through August 2012. Fixed interest rates on these bonds range from 4.8% to 5.66%. For each of these
+bonds issued in fiscal 2002 and fiscal 2003, we have entered into interest rate swap agreements whereby we receive fixed interest payments at the same rate as the bonds and pay variable interest payments based on the three-month or six-month LIBOR
+plus a spread. Each swap has the same notional amount and maturity date as the corresponding bond. As a result of the interest rate swap agreements, the average effective interest rate payable on these bonds was 2.5% at May 31, 2003 and 3.3% at May
+31, 2002. These interest rate swaps are accounted for as fair value hedges, so changes in the recorded fair values of the swaps are offset by changes in the recorded fair value of the related debt. The recorded fair value of the interest rate swaps
+was a $25.5 million gain at May 31, 2003 and a $1.8 million loss at May 31, 2002. 
+In fiscal 2003 we also entered into an interest rate swap agreement related to a Japanese yen denominated intercompany loan with one of our Japanese subsidiaries. The Japanese subsidiary pays variable interest on the
+intercompany loan based on 3-month LIBOR plus a spread. Under the interest rate swap agreement, the subsidiary pays fixed interest payments at 0.8% and receives variable interest payments based on 3-month LIBOR plus a spread based on a notional
+amount of 8 billion Japanese yen. This interest rate swap is not accounted for as a hedge, accordingly changes in the fair value of the swap are recorded to net income. As of May 31, 2003, the recorded fair value of the swap was a $1.0 million loss.
+Expected Maturity Date 
+Year Ended May 31, 
+2004 
+2005 
+2006 
+2007 
+2008 
+Thereafter 
+Total 
+Fair Value 
+(In millions, except interest rates) 
+Foreign Exchange Risk 
+Euro Functional Currency 
+Intercompany loan — U.S. dollar 
+denominated — Fixed rate 
+Principal payments 
+$ 
+— 
+— 
+— 
+— 
+— 
+270.4 
+$ 
+270.4 
+$ 
+270.4 
+Average interest rate 
+— 
+— 
+— 
+— 
+— 
+2.7 
+% 
+2.7 
+% 
+Intercompany loan — British pound 
+denominated — Fixed rate 
+Principal payments 
+$ 
+30.0 
+— 
+— 
+— 
+— 
+— 
+$ 
+30.0 
+$ 
+30.0 
+Average interest rate 
+3.4 
+% 
+— 
+— 
+— 
+— 
+— 
+3.4 
+% 
+U.S. Dollar Functional Currency 
+Intercompany loans — Euro 
+denominated — Fixed rate 
+Principal payments 
+$ 
+186.0 
+— 
+— 
+— 
+— 
+— 
+$ 
+186.0 
+$ 
+186.0 
+Average interest rate 
+5.6 
+% 
+— 
+— 
+— 
+— 
+— 
+5.6 
+% 
+Intercompany loan — Japanese yen 
+denominated — Variable rate 
+Principal payments 
+$ 
+189.1 
+— 
+— 
+— 
+— 
+— 
+$ 
+189.1 
+$ 
+189.1 
+Average interest rate 
+0.4 
+% 
+— 
+— 
+— 
+— 
+— 
+0.4 
+% 
+Intercompany loan — Canadian dollar 
+denominated — Fixed rate 
+Principal payments 
+$ 
+36.3 
+— 
+— 
+— 
+— 
+— 
+$ 
+36.3 
+$ 
+36.3 
+Average interest rate 
+3.5 
+% 
+— 
+— 
+— 
+— 
+— 
+3.5 
+% 
+Japanese Yen Functional Currency 
+Long-term Japanese yen debt — Fixed rate 
+Principal payments 
+$ 
+5.7 
+5.7 
+5.7 
+5.7 
+5.7 
+161.6 
+$ 
+190.1 
+$ 
+234.5 
+Average interest rate 
+3.3 
+% 
+3.3 
+% 
+3.4 
+% 
+3.4 
+% 
+3.4 
+% 
+2.9 
+% 
+3.0 
+% 
+Interest Rate Risk 
+Japanese Yen Functional Currency 
+Long-term Japanese yen debt — Fixed rate 
+Principal payments 
+$ 
+5.7 
+5.7 
+5.7 
+5.7 
+5.7 
+161.6 
+$ 
+190.1 
+$ 
+234.5 
+Average interest rate 
+3.3 
+% 
+3.3 
+% 
+3.4 
+% 
+3.4 
+% 
+3.4 
+% 
+2.9 
+% 
+3.0 
+% 
+U.S. Dollar Functional Currency 
+Long-term U.S. dollar debt — Fixed rate 
+Principal payments 
+$ 
+200.0 
+— 
+— 
+250.0 
+25.0 
+65.0 
+$ 
+540.0 
+$ 
+582.2 
+Average interest rate 
+5.7 
+% 
+5.4 
+% 
+5.4 
+% 
+5.4 
+% 
+5.5 
+% 
+5.5 
+% 
+5.5 
+% 
+Fixed euro for fixed U.S. dollar 
+cross-currency swap 
+Euro swap payable 
+$ 
+186.0 
+— 
+— 
+— 
+— 
+— 
+$ 
+186.0 
+$ 
+193.5 
+U.S. dollar swap receivable 
+$ 
+200.0 
+— 
+— 
+— 
+— 
+— 
+$ 
+200.0 
+$ 
+211.6 
+Average pay rate (euro) 
+5.6 
+% 
+— 
+— 
+— 
+— 
+— 
+5.6 
+% 
+Average receive rate (U.S. dollars) 
+6.5 
+% 
+— 
+— 
+— 
+— 
+— 
+6.5 
+% 
+32 
+Table of Contents 
+Special Note Regarding Forward-Looking Statements and Analyst Reports 
+Certain written and oral statements, other than purely historical
+information, including estimates, projections, statements relating to NIKE’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, made or incorporated by reference from time to
+time by NIKE or its representatives in this report, other reports, filings with the Securities and Exchange Commission, press releases, conferences, or otherwise, are “forward-looking statements” within the meaning of the Private
+Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or
+achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” or words or phrases
+of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by
+NIKE with the SEC, including Forms 8-K, 10-Q, and 10-K, and include, among others, the following: international, national and local general economic and market conditions; the size and growth of the overall athletic footwear, apparel, and equipment
+markets; intense competition among designers, marketers, distributors and sellers of athletic footwear, apparel, and equipment for consumers and endorsers; demographic changes; changes in consumer preferences; popularity of particular designs,
+categories of products, and sports; seasonal and geographic demand for NIKE products; difficulties in anticipating or forecasting changes in consumer preferences, consumer demand for NIKE products, and the various market factors described above;
+difficulties in implementing, operating, and maintaining NIKE’s increasingly complex information systems and controls, including, without limitation, the systems related to demand and supply planning, and inventory control; interruptions in
+data and communications systems; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that advance “futures” orders may not be indicative of future revenues due to the changing mix of
+futures and at-once orders; the ability of NIKE to sustain, manage or forecast its growth and inventories; the size, timing and mix of purchases of NIKE’s products; new product development and introduction; the ability to secure and protect
+trademarks, patents, and other intellectual property; performance and reliability of products; customer service; adverse publicity; the loss of significant customers or suppliers; dependence on distributors; business disruptions; increased costs of
+freight and transportation to meet delivery deadlines; increases in borrowing costs due to any decline in our debt ratings; changes in business strategy or development plans; general risks associated with doing business outside the United States,
+including without limitation, import duties, tariffs, quotas and political and economic instability; changes in government regulations; liability and other claims asserted against NIKE; the ability to attract and retain qualified personnel; and
+other factors referenced or incorporated by reference in this report and other reports. 
+The risks included here are not exhaustive. Other sections of this report may include additional factors which could adversely affect NIKE’s business and financial performance. Moreover, NIKE operates in a very
+competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on NIKE’s business or the
+extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on
+forward-looking statements as a prediction of actual results. 
+Investors should also be aware that while NIKE does, from time to time, communicate with securities analysts, it is against NIKE’s policy to disclose to them any material non-public information or other confidential commercial
+information. Accordingly, shareholders should not assume that NIKE agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, NIKE has a policy against issuing or confirming
+financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of NIKE. 
+Item 8. Financial Statements and Supplemental Data 
+Management of NIKE, Inc. is responsible for the information and representations contained in this report. The financial statements have been prepared in
+conformity with the generally accepted accounting principles we 
+33 
+Table of Contents 
+considered appropriate in the circumstances and include some amounts based on our best estimates and judgments. Other financial information in this report is
+consistent with these financial statements. 
+Our accounting
+systems include controls designed to reasonably assure that assets are safeguarded from unauthorized use or disposition and which provide for the preparation of financial statements in conformity with generally accepted accounting principles. These
+systems are supplemented by the selection and training of qualified financial personnel and an organizational structure providing for appropriate segregation of duties. 
+An Internal Audit department reviews the results of its work with the Audit Committee of the Board of Directors, presently
+consisting of three outside directors. The Audit Committee is responsible for the appointment of the independent accountants and reviews with the independent accountants, management and the internal audit staff, the scope and the results of the
+annual examination, the effectiveness of the accounting control system and other matters relating to the financial affairs of NIKE as they deem appropriate. The independent accountants and the internal auditors have full access to the Committee,
+with and without the presence of management, to discuss any appropriate matters. 
+34 
+Table of Contents 
+REPORT OF INDEPENDENT AUDITORS 
+To the Board of Directors and 
+Shareholders of
+NIKE, Inc. 
+In our opinion, the consolidated financial
+statements listed in the index appearing under Item 15(A)(1) on page 65 present fairly, in all material respects, the financial position of NIKE, Inc. and its subsidiaries at May 31, 2003 and 2002, and the results of their operations and their cash
+flows for each of the three years in the period ended May 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index
+appearing under Item 15(A)(2) on page 65 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial
+statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements
+in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
+audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
+statement presentation. We believe that our audits provide a reasonable basis for our opinion. 
+As discussed in Note 4 to the consolidated financial statements, effective June 1, 2002, the Company changed its method of accounting for goodwill and intangible assets in accordance with the Statement of Financial
+Accounting Standards No. 142, “Goodwill and Other Intangible Assets”. In addition, as discussed in Note 1 to the consolidated financial statements, effective June 1, 2001, the Company changed its method of accounting for derivative
+instruments in accordance with the Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” and Statement of Financial Accounting Standards No. 138, “Accounting for
+Certain Derivative Instruments and Certain Hedging Activities.” 
+/ S / P RICEWATERHOUSE C OOPERS LLP 
+Portland, Oregon 
+June 26, 2003, except for footnote 18, as to which the date
+is July 9, 2003 
+35 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF INCOME 
+Year Ended May 31, 
+2003 
+2002 
+2001 
+(In millions, except per share data) 
+Revenues 
+$ 
+10,697.0 
+$ 
+9,893.0 
+$ 
+9,488.8 
+Cost of sales 
+6,313.6 
+6,004.7 
+5,784.9 
+Gross Margin 
+4,383.4 
+3,888.3 
+3,703.9 
+Selling and administrative 
+3,137.6 
+2,820.4 
+2,689.7 
+Interest expense (Notes 6 and 7) 
+42.9 
+47.6 
+58.7 
+Other income/expense, net (Notes 1, 12 and 13) 
+79.9 
+3.0 
+34.1 
+Income before income taxes and cumulative effect accounting change 
+1,123.0 
+1,017.3 
+921.4 
+Income taxes (Note 8) 
+382.9 
+349.0 
+331.7 
+Income before cumulative effect of accounting change 
+740.1 
+668.3 
+589.7 
+Cumulative effect of accounting change, net of income taxes of ($-, $3.0 and $-) (Note 4, Note 1) 
+266.1 
+5.0 
+— 
+Net income 
+$ 
+474.0 
+$ 
+663.3 
+$ 
+589.7 
+Basic earnings per common share — before accounting change (Notes 1 and 11) 
+$ 
+2.80 
+$ 
+2.50 
+$ 
+2.18 
+Cumulative effect of accounting change 
+1.01 
+0.02 
+— 
+$ 
+1.79 
+$ 
+2.48 
+$ 
+2.18 
+Diluted earnings per common share — before accounting change (Notes 1 and 11) 
+$ 
+2.77 
+$ 
+2.46 
+$ 
+2.16 
+Cumulative effect of accounting change 
+1.00 
+0.02 
+— 
+$ 
+1.77 
+$ 
+2.44 
+$ 
+2.16 
+The accompanying notes to consolidated financial statements are an integral
+part of this statement. 
+36 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED BALANCE SHEETS 
+May 31, 
+2003 
+2002 
+(In millions) 
+ASSETS 
+Current Assets: 
+Cash and equivalents 
+$ 
+634.0 
+$ 
+575.5 
+Accounts receivable, less allowance for doubtful accounts of $87.9 and $80.4 
+2,101.1 
+1,804.1 
+Inventories (Note 2) 
+1,514.9 
+1,373.8 
+Deferred income taxes (Notes 1 and 8) 
+163.7 
+140.8 
+Prepaid expenses and other current assets (Note 1) 
+266.2 
+260.5 
+Total current assets 
+4,679.9 
+4,154.7 
+Property, plant and equipment, net (Note 3) 
+1,620.8 
+1,614.5 
+Identifiable intangible assets, net (Note 4) 
+118.2 
+206.0 
+Goodwill (Note 4) 
+65.6 
+232.7 
+Deferred income taxes and other assets (Notes 1 and 8) 
+229.4 
+232.1 
+Total assets 
+$ 
+6,713.9 
+$ 
+6,440.0 
+LIABILITIES AND SHAREHOLDERS’ EQUITY 
+Current Liabilities: 
+Current portion of long-term debt (Note 7) 
+$ 
+205.7 
+$ 
+55.3 
+Notes payable (Note 6) 
+75.4 
+425.2 
+Accounts payable (Note 6) 
+572.7 
+504.4 
+Accrued liabilities (Notes 5 and 16) 
+1,054.2 
+765.3 
+Income taxes payable 
+107.2 
+83.0 
+Total current liabilities 
+2,015.2 
+1,833.2 
+Long-term debt (Note 7) 
+551.6 
+625.9 
+Deferred income taxes and other liabilities (Notes 1 and 8) 
+156.1 
+141.6 
+Commitments and contingencies (Notes 15 and 16) 
+— 
+— 
+Redeemable Preferred Stock (Note 9) 
+0.3 
+0.3 
+Shareholders’ Equity: 
+Common Stock at stated value (Note 10): 
+Class A convertible — 97.8 and 98.1 shares outstanding 
+0.2 
+0.2 
+Class B — 165.8 and 168.0 shares outstanding 
+2.6 
+2.6 
+Capital in excess of stated value 
+589.0 
+538.7 
+Unearned stock compensation 
+(0.6 
+) 
+(5.1 
+) 
+Accumulated other comprehensive loss (Note 14) 
+(239.7 
+) 
+(192.4 
+) 
+Retained earnings 
+3,639.2 
+3,495.0 
+Total shareholders’ equity 
+3,990.7 
+3,839.0 
+Total liabilities and shareholders’ equity 
+$ 
+6,713.9 
+$ 
+6,440.0 
+The accompanying notes
+to consolidated financial statements are an integral part of this statement. 
+37 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+Year Ended May 31, 
+2003 
+2002 
+2001 
+(In millions) 
+Cash provided (used) by operations: 
+Net income 
+$ 
+474.0 
+$ 
+663.3 
+$ 
+589.7 
+Income charges not affecting cash: 
+Cumulative effect of accounting change 
+266.1 
+5.0 
+— 
+Depreciation 
+239.3 
+223.5 
+197.4 
+Deferred income taxes 
+50.4 
+15.2 
+79.8 
+Amortization and other 
+23.2 
+48.1 
+16.7 
+Income tax benefit from exercise of stock options 
+12.5 
+13.9 
+32.4 
+Changes in certain working capital components: 
+Increase in accounts receivable 
+(136.3 
+) 
+(135.2 
+) 
+(141.4 
+) 
+(Increase) decrease in inventories 
+(102.8 
+) 
+55.4 
+(16.7 
+) 
+Decrease in other current assets and income taxes receivable 
+60.9 
+16.9 
+78.0 
+Increase (decrease) in accounts payable, accrued liabilities and income taxes payable 
+30.1 
+175.4 
+(179.4 
+) 
+Cash provided by operations 
+917.4 
+1,081.5 
+656.5 
+Cash provided (used) by investing activities: 
+Additions to property, plant and equipment and other 
+(185.9 
+) 
+(282.8 
+) 
+(317.6 
+) 
+Disposals of property, plant and equipment 
+14.8 
+15.6 
+12.7 
+Increase in other assets 
+(46.3 
+) 
+(28.7 
+) 
+(38.5 
+) 
+Increase (decrease) in other liabilities 
+1.8 
+(6.9 
+) 
+1.1 
+Cash used by investing activities 
+(215.6 
+) 
+(302.8 
+) 
+(342.3 
+) 
+Cash provided (used) by financing activities: 
+Proceeds from long-term debt issuance 
+90.4 
+329.9 
+— 
+Reductions in long-term debt including current portion 
+(55.9 
+) 
+(80.3 
+) 
+(50.3 
+) 
+Decrease in notes payable 
+(349.8 
+) 
+(431.5 
+) 
+(68.9 
+) 
+Proceeds from exercise of stock options and other stock issuances 
+44.2 
+59.5 
+56.0 
+Repurchase of stock 
+(196.3 
+) 
+(226.9 
+) 
+(157.0 
+) 
+Dividends — common and preferred 
+(137.8 
+) 
+(128.9 
+) 
+(129.7 
+) 
+Cash used by financing activities 
+(605.2 
+) 
+(478.2 
+) 
+(349.9 
+) 
+Effect of exchange rate changes 
+(38.1 
+) 
+(29.0 
+) 
+85.4 
+Net increase in cash and equivalents 
+58.5 
+271.5 
+49.7 
+Cash and equivalents, beginning of year 
+575.5 
+304.0 
+254.3 
+Cash and equivalents, end of year 
+$ 
+634.0 
+$ 
+575.5 
+$ 
+304.0 
+Supplemental disclosure of cash flow information: 
+Cash paid during the year for: 
+Interest, net of capitalized interest 
+$ 
+38.9 
+$ 
+54.2 
+$ 
+68.5 
+Income taxes 
+330.2 
+262.0 
+173.1 
+The accompanying notes
+to consolidated financial statements are an integral part of this statement. 
+38 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY 
+Capital in 
+Excess of 
+Stated 
+Value 
+Accumulated 
+Other 
+Comprehensive 
+Income (Loss) 
+Common Stock 
+Unearned 
+Stock 
+Compensation 
+Class A 
+Class B 
+Retained 
+Earnings 
+Shares 
+Amount 
+Shares 
+Amount 
+Total 
+(In millions, except per share data) 
+Balance at May 31, 2000 
+99.2 
+$ 
+0.2 
+170.4 
+$ 
+2.6 
+$ 
+369.0 
+$ 
+(11.7 
+) 
+$ 
+(111.1 
+) 
+$ 
+2,887.0 
+$ 
+3,136.0 
+Stock options exercised 
+2.9 
+91.0 
+91.0 
+Conversion to Class B Common Stock 
+(0.1 
+) 
+0.1 
+— 
+Repurchase of Class B Common Stock 
+(4.0 
+) 
+(4.8 
+) 
+(152.2 
+) 
+(157.0 
+) 
+Dividends on Common stock ($.48 per share) 
+(129.6 
+) 
+(129.6 
+) 
+Issuance of shares to employees 
+0.1 
+6.7 
+(6.7 
+) 
+— 
+Amortization of unearned compensation 
+7.3 
+7.3 
+Forfeiture of shares from employees 
+(2.5 
+) 
+1.2 
+(0.6 
+) 
+(1.9 
+) 
+Comprehensive income (Note 14): 
+Net income 
+589.7 
+589.7 
+Foreign currency translation and other (net of tax benefit of $2.4) 
+(41.0 
+) 
+(41.0 
+) 
+Comprehensive income 
+(41.0 
+) 
+589.7 
+548.7 
+Balance at May 31, 2001 
+99.1 
+$ 
+0.2 
+169.5 
+$ 
+2.6 
+$ 
+459.4 
+$ 
+(9.9 
+) 
+$ 
+(152.1 
+) 
+$ 
+3,194.3 
+$ 
+3,494.5 
+Stock options exercised 
+1.7 
+72.9 
+72.9 
+Conversion to Class B Common Stock 
+(1.0 
+) 
+1.0 
+Repurchase of Class B Common Stock 
+(4.3 
+) 
+(5.2 
+) 
+(232.5 
+) 
+(237.7 
+) 
+Dividends on Common stock ($.48 per share) 
+(128.6 
+) 
+(128.6 
+) 
+Issuance of shares to employees and others 
+0.2 
+13.2 
+(1.9 
+) 
+11.3 
+Amortization of unearned compensation 
+6.5 
+6.5 
+Forfeiture of shares from employees 
+(0.1 
+) 
+(1.6 
+) 
+0.2 
+(1.5 
+) 
+(2.9 
+) 
+Comprehensive income (Note 14): 
+Net income 
+663.3 
+663.3 
+Other comprehensive income (net of tax benefit of $13.0): 
+Foreign currency translation 
+(1.5 
+) 
+(1.5 
+) 
+Cumulative effect of change in accounting principle (Note 1) 
+56.8 
+56.8 
+Adjustment for fair value of hedge derivatives 
+(95.6 
+) 
+(95.6 
+) 
+Comprehensive income 
+(40.3 
+) 
+663.3 
+623.0 
+Balance at May 31, 2002 
+98.1 
+$ 
+0.2 
+168.0 
+$ 
+2.6 
+$ 
+538.7 
+$ 
+(5.1 
+) 
+$ 
+(192.4 
+) 
+$ 
+3,495.0 
+$ 
+3,839.0 
+Stock options exercised 
+1.3 
+48.2 
+48.2 
+Conversion to Class B Common Stock 
+(0.3 
+) 
+0.3 
+— 
+Repurchase of Class B Common Stock 
+(4.0 
+) 
+(4.8 
+) 
+(186.2 
+) 
+(191.0 
+) 
+Dividends on Common stock ($.54 per share) 
+(142.7 
+) 
+(142.7 
+) 
+Issuance of shares to employees 
+0.3 
+9.6 
+(0.2 
+) 
+9.4 
+Amortization of unearned compensation 
+3.7 
+3.7 
+Forfeiture of shares from employees 
+(0.1 
+) 
+(2.7 
+) 
+1.0 
+(0.9 
+) 
+(2.6 
+) 
+Comprehensive income (Note 14): 
+Net income 
+474.0 
+474.0 
+Other comprehensive income (net of tax benefit of $72.8): 
+Foreign currency translation 
+127.4 
+127.4 
+Adjustment for fair value of hedge derivatives 
+(174.7 
+) 
+(174.7 
+) 
+Comprehensive income 
+(47.3 
+) 
+474.0 
+426.7 
+Balance at May 31, 2003 
+97.8 
+$ 
+0.2 
+165.8 
+$ 
+2.6 
+$ 
+589.0 
+$ 
+(0.6 
+) 
+$ 
+(239.7 
+) 
+$ 
+3,639.2 
+$ 
+3,990.7 
+The accompanying notes
+to consolidated financial statements are an integral part of this statement. 
+39 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+Note 1 — Summary of Significant Accounting Policies 
+Basis of Consolidation 
+The consolidated financial statements include the accounts of NIKE, Inc. and its subsidiaries (the Company). All significant
+intercompany transactions and balances have been eliminated. 
+Recognition of Revenues 
+Wholesale
+revenues are recognized when title passes and the risks and rewards of ownership have passed to the customer, based on the terms of sale. Title passes generally upon shipment or upon receipt by the customer depending on the country of the sale and
+the agreement with the customer. Retail store revenues are recorded at the time of sale. Provisions for sales discounts and returns are made at the time of sale. 
+Shipping and Handling Costs 
+Shipping and handling costs are expensed as incurred and included in cost of sales. 
+Advertising and Promotion 
+Advertising production costs are expensed the first time the advertisement
+is run. Media (TV and print) placement costs are expensed in the month the advertising appears. A significant amount of the Company’s promotional expenses result from payments under endorsement contracts. Accounting for endorsement payments is
+based upon specific contract provisions. Generally, endorsement payments are expensed uniformly over the term of the contract after giving recognition to periodic performance compliance provisions of the contracts. Prepayments made under contracts
+are included in prepaid expenses and other current assets or other assets depending on the length of the contract. Through cooperative advertising programs, we reimburse our retail customers for certain of their costs of advertising our products. We
+record these costs in selling and administrative expense at the point in time when we are obligated to our customers for the costs. This obligation may arise prior to the related advertisement being run. Total advertising and promotion expenses were
+$1,168.6 million, $1,027.9 million and $998.2 million for the years ended May 31, 2003, 2002 and 2001, respectively. Included in prepaid expenses and other current assets and other assets was $135.2 million and $113.2 million at May 31, 2003 and
+2002, respectively, relating to prepaid advertising and promotion expenses. 
+Cash and Equivalents 
+Cash and equivalents represent cash and short-term, highly liquid investments with original maturities of three months or less. The carrying amounts reflected in the consolidated balance sheet for cash and cash equivalents approximate fair
+value due to the short maturities. 
+Inventory Valuation
+Inventories are stated at the lower of cost or
+market. Inventories are valued on a first-in, first-out (FIFO) or moving-average cost basis. 
+Property, Plant and Equipment and Depreciation 
+Property, plant and equipment are recorded at cost. Depreciation for financial reporting purposes is determined on a straight-line basis for buildings and leasehold improvements over 2 to 40 years and principally on a
+declining balance basis for machinery and equipment over 2 to 15 years. Computer software is depreciated on a straight-line basis over 3 to 10 years. 
+40 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Impairment of Long-Lived Assets 
+Effective June 1, 2002, the Company adopted the provisions of Statement of
+Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (FAS 144), which did not have an impact on the Company’s consolidated financial position or results of operations. In
+accordance with FAS 144, the Company estimates the future undiscounted cash flows to be derived from an asset to assess whether or not a potential impairment exists when events or circumstances indicate the carrying value of a long-lived asset may
+be impaired. If the carrying value exceeds our estimate of future undiscounted cash flows, we then calculate the impairment as the excess of the carrying value of the asset over our estimate of its fair market value. 
+Identifiable Intangible Assets and Goodwill 
+In accordance with SFAS No. 142 “Goodwill and Other Intangible
+Assets” (FAS 142), goodwill and intangible assets with indefinite lives are no longer being amortized but instead are being measured for impairment at least annually, or when events indicate that an impairment exists. As required by FAS 142, in
+the Company’s impairment test of goodwill, we compare the fair value of the applicable reporting unit to its carrying value. If the carrying value of the reporting unit exceeds the estimate of fair value, we calculate the impairment as the
+excess of the carrying value of goodwill over its implied fair value. In the impairment tests for indefinite-lived intangible assets, we compare the estimated fair value of the indefinite-lived intangible assets to the carrying value. If the
+carrying value exceeds the estimate of fair value, we calculate impairment as the excess of the carrying value over the estimate of fair value. See Note 4 for discussion of the Company’s adoption of FAS 142. 
+Intangible assets that are determined to have definite lives are amortized
+over their useful lives and are measured for impairment only when events or circumstances indicate the carrying value may be impaired in accordance with FAS 144 discussed above. 
+Foreign Currency Translation and Foreign Currency Transactions 
+Adjustments resulting from translating foreign functional currency financial
+statements into U.S. dollars are included in the foreign currency translation adjustment, a component of accumulated other comprehensive loss in shareholders’ equity. 
+Transaction gains and losses generated by the effect of foreign exchange on recorded assets and liabilities denominated in a
+currency different from the functional currency of the applicable Company entity are recorded in other income/expense currently. 
+Accounting for Derivatives and Hedging Activities 
+The Company uses derivative financial instruments to limit exposure to changes in foreign currency exchange rates and interest rates. The Company
+accounts for derivatives pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted (FAS 133), which was adopted on June 1, 2001. FAS 133 establishes accounting and reporting
+standards for derivative instruments and requires that all derivatives be recorded at fair value on the balance sheet. Changes in the fair value of derivative financial instruments are either recognized in other comprehensive income (a component of
+shareholders equity) or net income depending on whether the derivative is being used to hedge changes in cash flows or fair value. 
+In accordance with the transition provisions, the Company recorded a one-time transition adjustment as of June 1, 2001 on both the consolidated statement
+of income and the consolidated balance sheet. The transition 
+41 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+adjustment on the consolidated statement of income was a charge of $5.0 million, net of tax effect. This amount related to an investment that was adjusted to
+fair value in accordance with FAS 133. The transition adjustment on the consolidated balance sheet represented the initial recognition of the fair values of hedge derivatives outstanding on the adoption date and realized gains and losses on
+effective hedges for which the underlying exposure had not yet affected earnings. The transition adjustment on the consolidated balance sheet was an increase in current assets of $116.4 million, an increase in noncurrent assets of $87.0 million, an
+increase in current liabilities of $151.6 million, and an increase in other comprehensive income of approximately $56.8 million, net of tax effect. The majority of the $56.8 million recorded in other comprehensive income as of June 1, 2001
+related to outstanding derivatives at that date. Because exchange rates on the transition date were different from those on the maturity dates of these derivatives and because some contracts maturing during the year ended May 31, 2002 were entered
+into after the transition date, amounts ultimately reclassified to earnings during the year ended May 31, 2002, as described in Note 14, were significantly different from this amount. 
+Unrealized derivative gains and losses recorded in current and non-current assets and liabilities and amounts recorded in
+other comprehensive income are non-cash items and therefore are taken into account in the preparation of the consolidated statement of cash flows based on their respective balance sheet classifications. 
+See Note 16 for more information on our Risk Management program and
+Derivatives. 
+Stock-Based Compensation
+The Company uses the intrinsic value method to
+account for stock-based compensation in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” as permitted by Statement of Financial Accounting Standards (SFAS) No. 123
+“Accounting for Stock-Based Compensation” (FAS 123). The Company’s policy is to grant stock options with an exercise price equal to the market value at the date of grant, and accordingly, no compensation expense is recognized.
+As required by FAS 123 and amended by SFAS No. 148
+“Accounting for Stock-Based Compensation—Transition and Disclosure” (FAS 148), the Company has computed, for pro forma disclosure purposes, the fair value of options granted during the years ended May 31, 2003, 2002 and 2001 using the
+Black-Scholes option pricing model. The weighted average assumptions used for stock option grants for each of these years were a dividend yield of 1%, expected volatility of the market price of the Company’s common stock of 38%, 38% and 39% for
+the years ended May 31, 2003, 2002 and 2001, respectively; a weighted-average expected life of the options of approximately five years; and interest rates of 3.8%, 4.8% and 5.4% for the years ended May 31, 2003, 2002 and 2001, respectively. These
+interest rates are reflective of option grant dates throughout the year. 
+Options were assumed to be exercised over the 5 year expected life for purposes of this valuation. Adjustments for forfeitures are made as they occur. For the years ended May 31, 2003, 2002 and 2001, the total value
+of the options granted, for which no previous expense has been recognized, was computed as approximately $89.8 million, $73.4 million and $5.0 million, respectively, which would be amortized on a straight line basis over the vesting period of the
+options. The weighted average fair value per share of the options granted in the years ended May 31, 2003, 2002 and 2001 are $17.45, $16.02 and $17.27, respectively. 
+42 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+If the Company had accounted for these stock options issued to employees in accordance with FAS 123,
+the Company’s pro forma net income and pro forma earnings per share (EPS) would have been reported as follows: 
+Year Ended May 31, 
+2003 
+2002 
+2001 
+(In millions) 
+Net income as reported 
+$ 
+474.0 
+$ 
+663.3 
+$ 
+589.7 
+Add: Stock-based compensation expense included in reported net income, net of tax 
+— 
+— 
+0.8 
+Deduct: Total stock-based employee compensation expense under fair value based method for all awards, net of tax 
+(42.2 
+) 
+(36.1 
+) 
+(30.7 
+) 
+Pro forma net income 
+$ 
+431.8 
+$ 
+627.2 
+$ 
+559.8 
+Earnings per Share: 
+Basic — as reported 
+$ 
+1.79 
+$ 
+2.48 
+$ 
+2.18 
+Basic — pro forma 
+$ 
+1.63 
+$ 
+2.34 
+$ 
+2.07 
+Diluted — as reported 
+$ 
+1.77 
+$ 
+2.44 
+$ 
+2.16 
+Diluted — pro forma 
+$ 
+1.62 
+$ 
+2.30 
+$ 
+2.05 
+The pro forma effects
+of applying FAS 123 may not be representative of the effects on reported net income and earnings per share for future years since options vest over several years and additional awards are made each year. 
+Income Taxes 
+United States income taxes are provided currently on financial statement
+earnings of non-U.S. subsidiaries expected to be repatriated. The Company determines annually the amount of undistributed non-U.S. earnings to invest indefinitely in its non-U.S. operations. The Company accounts for income taxes using the asset and
+liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of other assets and liabilities. See
+Note 8 for further discussion. 
+Earnings Per Share
+Basic earnings per common share is calculated by
+dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive stock
+options and awards. See Note 11 for further discussion. 
+Management Estimates 
+The preparation
+of financial statements in conformity with generally accepted accounting principles requires management to make estimates, including estimates relating to assumptions that affect the reported amounts of assets and liabilities and disclosure of
+contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 
+43 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Reclassifications 
+Certain prior year amounts have been reclassified to conform to fiscal year 2003 presentation. These changes had no impact
+on previously reported results of operations or shareholders’ equity. 
+Recently Issued Accounting Standards 
+In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (FAS 143). This statement requires that a liability for an asset retirement
+obligation be recognized at fair value in the period the obligation is incurred and the associated retirement costs be capitalized as part of the carrying amount of the related tangible long-lived asset. All provisions of this statement will be
+effective for the Company on June 1, 2003. It is not expected that the adoption of FAS 143 will have a material impact on the Company’s consolidated financial position or results of operations. 
+In June 2002, the FASB issued SFAS No. 146 “Accounting for Costs
+Associated with Exit or Disposal Activities” (FAS 146). This statement supercedes Emerging Issues Task Force (EITF) Issue No. 94-3 “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity
+(including Certain Costs Incurred in a Restructuring).” FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability was recognized at the
+date an entity committed to an exit plan. FAS 146 also establishes that the liability should initially be measured and recorded at fair value. The provisions of FAS 146 are effective for any exit and disposal activities initiated after December 31,
+2002. We have not entered into any significant exit or disposal activities since the effective date of this rule. As such, FAS 146 has not had any impact on the Company’s consolidated financial position or results of operations, and no
+significant impact is expected in the foreseeable future. 
+In
+November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). FIN 45 requires that upon issuance of a
+guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations
+associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 were effective beginning with the third quarter ended February
+28, 2003. 
+In connection with various contracts and agreements,
+the Company provides routine indemnifications relating to the enforceability of intellectual property rights, coverage for legal issues that arise, and other items that fall under the scope of FIN 45. Currently, the Company has several such
+agreements in place. However, based on the Company’s historical experience and estimated probability of future loss, the Company has determined that the fair value of such indemnifications is not material. Hence, the adoption of FIN 45 has not
+had an impact on the Company’s consolidated financial position or results of operations, and no significant impact is expected in the foreseeable future. 
+In December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB
+Statement No. 123” (FAS 148). This statement amends SFAS No. 123 “Accounting for Stock Based Compensation” (FAS 123) to provide alternative methods of voluntarily transitioning to the fair value based method of accounting for
+stock-based employee compensation. FAS 148 also amends the disclosure requirements of FAS 123 to require disclosure of the method used to account for stock-based employee compensation and the effect of the method on reported results in both annual
+and interim financial statements. The disclosure provisions are effective for the Company beginning with this annual report on Form 10-K. The annual impact of a change to the fair value model prescribed by FAS 123 has 
+44 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+been disclosed in the Company’s previous annual 10-K filings, and the applicable disclosures in this report are here in Note 1 and Note 10. At this
+time, the Company plans to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” rather than change to the
+FAS 123 fair value method. 
+In January 2003, the FASB issued
+FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, addresses consolidation of variable interest
+entities. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary if the entity does not effectively disperse risks among the parties involved. The provisions of FIN 46 are effective immediately for those
+variable interest entities created after January 31, 2003. The provisions are effective for the first period beginning after June 15, 2003 for those variable interests held prior to February 1, 2003. The Company does not currently have any variable
+interest entities as defined in FIN 46. Accordingly, the Company does not expect the provisions of FIN 46 to affect the Company’s consolidated financial position or results of operations. 
+Note 2 — Inventories 
+Inventories by major classification are as follows: 
+May 31, 
+2003 
+2002 
+(In millions) 
+Finished goods 
+$ 
+1,484.1 
+$ 
+1,348.2 
+Work-in-progress 
+15.2 
+13.0 
+Raw materials 
+15.6 
+12.6 
+$ 
+1,514.9 
+$ 
+1,373.8 
+Note 3 — Property, Plant and
+Equipment 
+Property, plant and equipment includes the
+following: 
+May 31, 
+2003 
+2002 
+(In millions) 
+Land 
+$ 
+191.1 
+$ 
+178.3 
+Buildings 
+785.0 
+739.9 
+Machinery and equipment 
+1,538.7 
+1,356.9 
+Leasehold improvements 
+433.4 
+394.2 
+Construction in process 
+40.6 
+72.4 
+2,988.8 
+2,741.7 
+Less accumulated depreciation 
+1,368.0 
+1,127.2 
+$ 
+1,620.8 
+$ 
+1,614.5 
+Capitalized interest
+was $0.8 million, $1.7 million and $8.4 million for the years ended May 31, 2003, 2002 and 2001, respectively. 
+45 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 4 — Identifiable Intangible Assets and Goodwill: 
+Adoption of FAS 142 
+The Company adopted Statement of Financial Accounting Standards No. 142,
+“Goodwill and Other Intangible Assets,” (FAS 142) effective June 1, 2002. In accordance with FAS 142, goodwill and intangible assets with indefinite lives will no longer be amortized but instead will be measured for impairment at least
+annually, or when events indicate that an impairment exists. Intangible assets that are determined to have definite lives will continue to be amortized over their useful lives. 
+As required by FAS 142, the Company performed impairment tests on goodwill and other intangible assets with indefinite
+lives, which consisted only of certain trademarks, as of June 1, 2002. As a result of the impairment tests, the Company recorded a $266.1 million cumulative effect of accounting change. Under FAS 142, goodwill impairment exists if the net book
+value of a reporting unit exceeds its estimated fair value. The Company estimated the fair value of its reporting units by using a combination of discounted cash flow analyses and comparisons with the market values of similar publicly-traded
+companies. 
+Included in the Company’s $266.1 million
+impairment charge was a $178.5 million charge related to the impairment of the goodwill associated with the Bauer NIKE Hockey (“Bauer”) and Cole Haan reporting units. These reporting units are reflected in the Company’s
+“Other” operating segment. Since the Company’s purchase of Bauer in 1995, the hockey equipment and apparel markets have not grown as fast as expected and the in-line skate market has contracted significantly. As a result, we
+determined that the goodwill acquired at Bauer had been impaired. The goodwill impairment at Cole Haan reflected the significantly lower fair value calculated on the basis of reduced operating income in the year following the September 11, 2001
+terrorist attacks. 
+The remaining $87.6 million of the
+impairment charge relates to trademarks associated with Bauer. Under FAS 142, impairment of an indefinite-lived asset exists if the net book value of the asset exceeds its fair value. The Company estimated the fair value of trademarks using the
+relief-from-royalty approach, which is a standard form of discounted cash flow analysis typically used for the valuation of trademarks. The impairment of the Bauer trademarks reflects the same circumstances as described above related to the Bauer
+goodwill impairment. 
+The following table summarizes the
+Company’s identifiable intangible assets and goodwill balances as of May 31, 2003 and May 31, 2002: 
+May 31, 2003 
+May 31, 2002 
+Gross 
+Carrying 
+Amount 
+Accumulated 
+Amortization 
+Gross 
+Carrying 
+Amount 
+Accumulated 
+Amortization 
+(In millions) 
+Amortized intangible assets: 
+Patents 
+$ 
+24.9 
+$ 
+(10.4 
+) 
+$ 
+23.1 
+$ 
+(8.8 
+) 
+Trademarks 
+12.9 
+(10.6 
+) 
+12.0 
+(9.8 
+) 
+Other 
+7.5 
+(1.1 
+) 
+7.5 
+(0.2 
+) 
+Total 
+$ 
+45.3 
+$ 
+(22.1 
+) 
+$ 
+42.6 
+$ 
+(18.8 
+) 
+Unamortized intangible assets: 
+Goodwill 
+$ 
+65.6 
+$ 
+232.7 
+Trademarks 
+95.0 
+182.2 
+Total 
+$ 
+160.6 
+$ 
+414.9 
+46 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Amortization expense of identifiable assets with definite lives, which is included in selling and
+administrative expense, was $3.6 million, $2.6 million and $2.5 million for the years ended May 31, 2003, 2002, and 2001, respectively. The amortization expense of indefinite-lived intangible assets and goodwill, which was included in other
+income/expense, net, was zero, $13.1 million and $13.1 million for the years ended May 31, 2003, 2002, and 2001 respectively. The estimated amortization expense for intangible assets subject to amortization for each of the succeeding years ending
+May 31, 2004 through May 31, 2008 is as follows: 2004: $3.0 million; 2005: $2.8 million; 2006: $2.8 million; 2007: $2.2 million; 2008: $2.1 million. 
+The results for the years ended May 31, 2002 and 2001 do not reflect the provisions of FAS 142. The reported net income before cumulative effect of
+accounting change was $668.3 million and $589.7 million for the years ended May 31, 2002 and 2001, respectively. Had the Company adopted FAS 142 on June 1, 2000, for the year ended May 31, 2001 we would have recorded net income before cumulative
+effect of accounting change of $602.8 million as a result of not recording $8.6 million in goodwill amortization and $4.5 million in trademark amortization. For the year ended May 31, 2002, net income before cumulative effect of accounting change
+would have been $681.4 million as a result of not recording $8.6 million in goodwill amortization and $4.5 million in trademark amortization. Basic and diluted earnings per common share before accounting change would have increased $0.05 in both
+years ended May 31, 2002 and 2001. 
+Note 5 — Accrued Liabilities
+Accrued liabilities include the following: 
+May 31, 
+2003 
+2002 
+(In millions) 
+Fair value of foreign currency exchange contracts, options, and cross-currency swaps 
+$ 
+313.1 
+$ 
+123.8 
+Accrued compensation and benefits 
+254.9 
+215.2 
+Accrued tax 
+79.0 
+47.2 
+Accrued endorser compensation 
+70.2 
+66.5 
+Other 
+337.0 
+312.6 
+$ 
+1,054.2 
+$ 
+765.3 
+Note 6 — Short-Term Borrowings
+and Credit Lines: 
+Commercial paper outstanding, notes
+payable to banks, and interest-bearing accounts payable to Nissho Iwai American Corporation (NIAC) are summarized below: 
+May 31, 
+2003 
+2002 
+Borrowings 
+Interest 
+Rate 
+Borrowings 
+Interest 
+Rate 
+(In millions) 
+(In millions) 
+Notes payable and commercial paper: 
+U.S. operations 
+$ 
+2.3 
+4.25 
+% 
+$ 
+339.2 
+1.82 
+% 
+Non-U.S. operations 
+73.1 
+5.26 
+% 
+86.0 
+6.61 
+% 
+$ 
+75.4 
+$ 
+425.2 
+NIAC 
+49.6 
+2.06 
+% 
+36.3 
+2.62 
+% 
+47 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The carrying amounts reflected in the consolidated balance sheet for notes payable approximate fair
+value due to the short maturities. 
+The Company had no
+commercial paper outstanding at May 31, 2003. At May 31, 2002, $338.3 million was outstanding under our commercial paper program. 
+The Company purchases through NIAC certain athletic footwear and apparel it acquires from non-U.S. suppliers. These purchases are for the Company’s
+operations outside of the U.S., Europe, and Japan. Accounts payable to NIAC are generally due up to 60 days after shipment of goods from the foreign port. The interest rate on such accounts payable is the 60 day London Interbank Offered Rate (LIBOR)
+as of the beginning of the month of the invoice date, plus 0.75%. 
+The Company has a $500.0 million, 364-day committed credit facility and a $500.0 million, multi-year committed credit facility in place with a group of banks under which no amounts are outstanding. The $500.0 million, 364-day facility
+matures on November 14, 2003 and can be extended 364 days on each maturity date. The $500.0 million multi-year facility matures on November 17, 2005, and once a year, it can be extended for one additional year. Based on the Company’s current
+senior unsecured debt ratings, the interest rate charged on any outstanding borrowings on the $500.0 million 364-day facility would be the prevailing LIBOR plus 0.24%, and the interest rate charged on any outstanding borrowings on the $500.0 million
+multi-year facility would be the prevailing LIBOR plus 0.22%. The facility fees for the 364-day and the multi-year facilities are 0.06% and 0.08%, respectively, of the total commitment. Under these agreements, the Company must maintain, among other
+things, certain minimum specified financial ratios with which the Company was in compliance at May 31, 2003. 
+Note 7 — Long-Term Debt 
+Long-term debt includes the following: 
+May 31, 
+2003 
+2002 
+(In millions) 
+6.69% Corporate Bond, payable June 17, 2002 
+$ 
+— 
+$ 
+50.0 
+6.375% Corporate Bond, payable December 1, 2003 
+200.0 
+199.8 
+5.5% Corporate Bond, payable August 15, 2006 
+266.3 
+248.2 
+4.8% Corporate Bond, payable July 9, 2007 
+27.1 
+— 
+5.375% Corporate Bond, payable July 8, 2009 
+27.6 
+— 
+5.66% Corporate Bond, payable July 23, 2012 
+28.1 
+— 
+5.4% Corporate Bond, payable August 7, 2012 
+16.4 
+— 
+4.3% Japanese yen note, payable June 26, 2011 
+90.1 
+83.4 
+2.6% Japanese yen note, maturing August 20, 2001 through November 20, 2020 
+69.2 
+67.8 
+2.0% Japanese yen note, maturing August 20, 2001 through November 20, 2020 
+30.8 
+30.2 
+Other 
+1.7 
+1.8 
+Total 
+757.3 
+681.2 
+Less current maturities 
+205.7 
+55.3 
+$ 
+551.6 
+$ 
+625.9 
+The fair value of
+long-term debt is estimated using discounted cash flow analyses, based on the Company’s incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company’s long- 
+48 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+term debt, including current portion, is approximately $818.4 million at May 31, 2003 and $723.9 million at May 31, 2002. 
+In August 2001, we issued a $250.0 million corporate bond, maturing in August
+2006, with an interest rate of 5.5%. With the proceeds, we reduced the amount of commercial paper outstanding. In November 2001 the Company entered into interest rate swap agreements with the same notional amount and maturity dates as this bond,
+whereby the Company receives fixed interest payments at the same rate as the bond and pays variable interest payments based on the three-month LIBOR plus a spread. The interest rates payable on these swap agreements were approximately 2.7% and 3.3%
+at May 31, 2003 and 2002, respectively. 
+We have an effective
+shelf registration statement with the Securities and Exchange Commission for $1 billion of debt securities. During the year ended May 31, 2003, we issued a total of $90.0 million in notes under the medium term note program of the shelf
+registration. The notes have coupon rates that range from 4.80% to 5.66%. The maturities range from July 9, 2007 to August 7, 2012. For each of these notes, we have entered into interest rate swap agreements whereby we receive fixed interest
+payments at the same rate as the notes and pay variable interest payments based on the six-month LIBOR plus a spread. Each swap has the same notional amount and maturity date as the corresponding note. At May 31, 2003, the interest rates payable on
+these swap agreements range from approximately 1.8% to 2.1%. After issuance of these notes, $910.0 million remains available to be issued under our shelf registration. 
+In June 1996, one of the Company’s Japanese subsidiaries borrowed 10,500 million Japanese yen in a private placement
+with a maturity of June 26, 2011. Interest is paid semi-annually. The agreement provides for early retirement after year ten. 
+In July 1999, another of the Company’s Japanese subsidiaries assumed 13,000 million in Japanese yen loans as part of its agreement to purchase a
+distribution center in Japan, which serves as collateral for the loans. These loans mature in equal quarterly installments during the period August 20, 2001 through November 20, 2020. Interest is also paid quarterly. 
+Amounts of long-term debt maturities in each of the years ending May 31, 2004
+through 2008 are $205.7 million, $5.9 million, $5.9 million, $255.9 million and $30.9 million, respectively. 
+Note 8 — Income Taxes 
+Income before income taxes and cumulative effect of accounting change is as follows: 
+Year Ended May 31, 
+2003 
+2002 
+2001 
+(In millions) 
+Income before income taxes and cumulative effect of accounting change: 
+United States 
+$ 
+444.8 
+$ 
+511.2 
+$ 
+470.7 
+Foreign 
+678.2 
+506.1 
+450.7 
+$ 
+1,123.0 
+$ 
+1,017.3 
+$ 
+921.4 
+49 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The provision for income taxes is as follows: 
+Year Ended May 31, 
+2003 
+2002 
+2001 
+(In millions) 
+Current: 
+United States 
+Federal 
+$ 
+125.6 
+$ 
+156.5 
+$ 
+158.5 
+State 
+33.6 
+32.0 
+31.6 
+Foreign 
+190.0 
+147.7 
+76.2 
+349.2 
+336.2 
+266.3 
+Deferred: 
+United States 
+Federal 
+11.3 
+(3.3 
+) 
+64.2 
+State 
+8.6 
+3.3 
+2.6 
+Foreign 
+13.8 
+12.8 
+(1.4 
+) 
+33.7 
+12.8 
+65.4 
+$ 
+382.9 
+$ 
+349.0 
+$ 
+331.7 
+Deferred tax (assets)
+and liabilities are comprised of the following: 
+May 31, 
+2003 
+2002 
+(In millions) 
+Deferred tax assets: 
+Allowance for doubtful accounts 
+$ 
+(11.8 
+) 
+$ 
+(14.5 
+) 
+Inventory reserves 
+(10.0 
+) 
+(17.4 
+) 
+Sales return reserves 
+(27.4 
+) 
+(22.1 
+) 
+Deferred compensation 
+(68.1 
+) 
+(49.0 
+) 
+Reserves and accrued liabilities 
+(28.5 
+) 
+(38.5 
+) 
+Tax basis inventory adjustment 
+(15.9 
+) 
+(16.0 
+) 
+Property, plant, and equipment 
+(28.9 
+) 
+(23.4 
+) 
+Foreign loss carryforwards 
+(32.5 
+) 
+(39.9 
+) 
+Hedges 
+(110.9 
+) 
+(26.7 
+) 
+Other 
+(17.7 
+) 
+(22.7 
+) 
+Total deferred tax assets 
+(351.7 
+) 
+(270.2 
+) 
+Deferred tax liabilities: 
+Undistributed earnings of foreign subsidiaries 
+60.1 
+22.0 
+Property, plant and equipment 
+94.3 
+59.6 
+Hedges 
+2.6 
+13.7 
+Other 
+13.7 
+26.7 
+Total deferred tax liabilities 
+170.7 
+122.0 
+Net deferred tax asset before valuation allowance 
+(181.0 
+) 
+(148.2 
+) 
+Valuation allowance 
+13.0 
+13.2 
+Net deferred tax asset 
+$ 
+(168.0 
+) 
+$ 
+(135.0 
+) 
+50 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate
+follows: 
+Year Ended May 31, 
+2003 
+2002 
+2001 
+Federal income tax rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State taxes, net of federal benefit 
+2.5 
+2.2 
+2.4 
+Foreign earnings 
+(2.7 
+) 
+(3.1 
+) 
+(1.8 
+) 
+Other, net 
+(0.7 
+) 
+0.2 
+0.4 
+Effective income tax rate 
+34.1 
+% 
+34.3 
+% 
+36.0 
+% 
+The Company has
+indefinitely reinvested approximately $526.1 million of the cumulative undistributed earnings of certain foreign subsidiaries, of which $165.0 million was earned during the year ended May 31, 2003. Such earnings would be subject to U.S. taxation if
+repatriated to the U.S. The amount of unrecognized deferred tax liability associated with the permanently reinvested cumulative undistributed earnings was approximately $126.7 million. 
+Deferred tax assets at May 31, 2003 and 2002 were reduced by a valuation allowance relating to tax benefits attributable to
+net operating losses of certain foreign subsidiaries where local tax laws limit the utilization of such net operating losses. 
+A benefit was recognized for foreign loss carryforwards of $65.0 million at May 31, 2003. Such losses expire as follows (millions): 
+Year Ended May 31, 
+2004 
+2005 
+2006 
+2007 
+2008 
+Indefinite 
+Expiration Amount 
+1.2 
+1.4 
+0.0 
+8.3 
+9.9 
+44.2 
+During the years ended
+May 31, 2003, 2002, and 2001 income tax benefits attributable to employee stock option transactions of $12.5 million, $13.9 million, and $32.4 million, respectively, were allocated to shareholders’ equity. 
+Note 9 — Redeemable Preferred Stock 
+NIAC is the sole owner of the Company’s authorized Redeemable Preferred
+Stock, $1 par value, which is redeemable at the option of NIAC or the Company at par value aggregating $0.3 million. A cumulative dividend of $0.10 per share is payable annually on May 31 and no dividends may be declared or paid on the common stock
+of the Company unless dividends on the Redeemable Preferred Stock have been declared and paid in full. There have been no changes in the Redeemable Preferred Stock in the three years ended May 31, 2003. As the holder of the Redeemable Preferred
+Stock, NIAC does not have general voting rights but does have the right to vote as a separate class on the sale of all or substantially all of the assets of the Company and its subsidiaries, on merger, consolidation, liquidation or dissolution of
+the Company or on the sale or assignment of the NIKE trademark for athletic footwear sold in the United States. 
+Note 10 — Common Stock 
+The authorized number of shares of Class A Common Stock, no par value, and Class B Common Stock, no par value, are 110 million and 350 million,
+respectively. Each share of Class A Common Stock is convertible into one share of Class B Common Stock. Voting rights of Class B Common Stock are limited in certain circumstances with respect to the election of directors. 
+51 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+In 1990, the Board of Directors adopted, and the shareholders approved, the NIKE, Inc. 1990 Stock
+Incentive Plan (the “1990 Plan”). The 1990 Plan provides for the issuance of up to 37.5 million shares of Class B Common Stock in connection with stock options and other awards granted under such plan. The 1990 Plan authorizes the grant of
+incentive stock options, non-statutory stock options, stock appreciation rights, stock bonuses and the sale of restricted stock. The exercise price for incentive stock options may not be less than the fair market value of the underlying shares on
+the date of grant. The exercise price for non-statutory stock options, stock appreciation rights and the purchase price of restricted stock may not be less than 75% of the fair market value of the underlying shares on the date of grant. No
+consideration will be paid for stock bonuses awarded under the 1990 Plan. A committee of the Board of Directors administers the 1990 Plan. The committee has the authority to determine the employees to whom awards will be made, the amount of the
+awards, and the other terms and conditions of the awards. As of May 31, 2003, the committee has granted substantially all non-statutory stock options at 100% of fair market value on the date of grant under the 1990 Plan. 
+From time to time, the Company grants restricted stock and unrestricted stock
+to key employees under the 1990 plan. The number of shares granted to employees during the years ended May 31, 2003 and May 31, 2002 was not material. Recipients of restricted shares are entitled to cash dividends and to vote their respective shares
+throughout the period of restriction. The value of all of the granted shares was established by the market price on the date of grant. Unearned compensation was charged for the market value of the restricted shares. The unearned compensation is
+shown as a reduction of shareholders’ equity and is being amortized ratably over the vesting period. During the years ended May 31, 2003, 2002, and 2001, respectively, the Company recognized $2.7 million, $4.3 million and $4.3 million
+in selling and administrative expense related to the grants, net of forfeitures. 
+During the years ended May 31, 2003, 2002 and 2001, the Company also granted shares of restricted stock under the Long-Term Incentive Plan (“LTIP”), adopted by the Board of Directors and approved by
+shareholders in September 1997. The LTIP provides for the issuance of up to 1,000,000 shares of Class B Common Stock. Under the LTIP, awards are made to certain executives in the form of either cash or stock based on performance targets established
+over varying time periods. Once performance targets are achieved, cash or shares of stock are issued. For certain plan years, shares of stock issued remain restricted for an additional three years. In other plan years, shares are immediately vested
+upon grant. Unvested shares are subject to forfeiture if the executive’s employment terminates within that period. Plan participants are entitled to cash dividends and to vote their respective shares. The value of the restricted shares is
+established by the market price on the date of issuance. Unearned compensation is charged for the market value of the restricted shares. The unearned compensation is shown as a reduction of shareholders’ equity and is being amortized ratably
+over the service and vesting periods. Under the LTIP no shares were issued during the year ended May 31, 2003 as performance targets for the plan year ended May 31, 2002 were not met. A total of 38,000 restricted shares with an average price of
+$49.50 were issued during the year ended May 31, 2002 for the plan year ended May 31, 2002, and 115,000 restricted shares with an average market value of $47.56 were issued during the year ended May 31, 2001. Related to the LTIP, the Company
+recognized $9.9 million, $9.0 million and $2.3 million of selling and administrative expense in the years ending May 31, 2003, 2002 and 2001, respectively, net of forfeitures. 
+52 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The following summarizes the stock option transactions under plans discussed above: 
+Shares 
+Weighted 
+Average 
+Option 
+Price 
+(In thousands) 
+Options outstanding May 31, 2000 
+18,070 
+$ 
+38.02 
+Exercised 
+(2,944 
+) 
+19.24 
+Surrendered 
+(1,302 
+) 
+44.80 
+Granted 
+341 
+40.71 
+Options outstanding May 31, 2001 
+14,165 
+41.28 
+Exercised 
+(1,687 
+) 
+33.62 
+Surrendered 
+(724 
+) 
+44.43 
+Granted 
+4,687 
+42.68 
+Options outstanding May 31, 2002 
+16,441 
+42.31 
+Exercised 
+(1,307 
+) 
+29.56 
+Surrendered 
+(713 
+) 
+45.23 
+Granted 
+5,278 
+48.83 
+Options outstanding May 31, 2003 
+19,699 
+$ 
+44.82 
+Options exercisable at May 31, 
+2001 
+6,626 
+$ 
+39.70 
+2002 
+7,590 
+42.30 
+2003 
+9,730 
+44.18 
+The following table sets forth the exercise prices, the number of options outstanding and
+exercisable and the remaining contractual lives of the Company’s stock options at May 31, 2003: 
+Options Outstanding 
+Number of 
+Options 
+Outstanding 
+Weighted 
+Average 
+Exercise Price 
+Weighted 
+Average 
+Contractual Life 
+Remaining 
+Options Exercisable 
+Exercise Price 
+Number of 
+Options 
+Exercisable 
+Weighted 
+Average 
+Exercise Price 
+(In thousands) 
+(Years) 
+(In thousands) 
+$11.25-$27.69 
+3,252 
+$ 
+25.64 
+5.61 
+2,432 
+$ 
+24.95 
+28.13- 42.36 
+4,335 
+42.17 
+7.99 
+1,153 
+41.88 
+42.50- 48.44 
+2,913 
+47.75 
+4.79 
+2,754 
+47.95 
+48.51- 48.98 
+5,029 
+48.98 
+9.13 
+40 
+48.79 
+49.01- 74.88 
+4,170 
+55.43 
+5.74 
+3,351 
+55.78 
+In September 2001, the
+Company’s shareholders approved the establishment of an Employee Stock Purchase Plan (the “ESPP”) under which 3,000,000 shares of Class B Stock are reserved for issuance to employees. The plan qualifies as a noncompensatory employee
+stock purchase plan under Section 423 of the Internal Revenue Code. Employees are eligible to participate through payroll deductions in amounts ranging from 1% to 10% of their compensation not to exceed limitations set out under Section 423. At the
+end of each six-month offering period, shares are purchased by the participants at 85% of the lower of the fair market value at the beginning or the end of the offering period. Under the ESPP, 249,000 shares were issued during the year ended May 31,
+2003 and 78,000 shares were issued during the year ended May 31, 2002. 
+53 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 11 — Earnings Per Share 
+The following represents a reconciliation from basic earnings per share to diluted earnings per share. Options to purchase
+11.7 million, 4.2 million, and 8.3 million shares of common stock were outstanding at May 31, 2003, 2002, and 2001, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise prices
+were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. 
+Year Ended May 31, 
+2003 
+2002 
+2001 
+(In millions, 
+except per share data) 
+Determination of shares: 
+Average common shares outstanding 
+264.5 
+267.7 
+270.0 
+Assumed conversion of dilutive stock options and awards 
+3.1 
+4.5 
+3.3 
+Diluted average common shares outstanding 
+267.6 
+272.2 
+273.3 
+Basic earnings per common share — before cumulative effect of accounting change 
+$ 
+2.80 
+$ 
+2.50 
+$ 
+2.18 
+Cumulative effect of accounting change 
+1.01 
+0.02 
+— 
+$ 
+1.79 
+$ 
+2.48 
+$ 
+2.18 
+Diluted earnings per common share — before cumulative effect of accounting change 
+$ 
+2.77 
+$ 
+2.46 
+$ 
+2.16 
+Cumulative effect of accounting change 
+1.00 
+0.02 
+— 
+$ 
+1.77 
+$ 
+2.44 
+$ 
+2.16 
+Note 12 — Benefit Plans
+The Company has a profit sharing plan available to
+substantially all U.S.-based employees. The terms of the plan call for annual contributions by the Company as determined by the Board of Directors. Contributions of $16.0 million, $14.4 million, and $13.1 million to the plan are included in other
+income/expense in the consolidated financial statements for the years ended May 31, 2003, 2002 and 2001, respectively. The Company has a voluntary 401(k) employee savings plan. The Company matches a portion of employee contributions with common
+stock. Plan changes during the year ended May 31, 2001 included a larger Company match percentage and a change to immediate vesting of the Company match, compared to a previous vesting schedule over 5 years. Company contributions to the savings plan
+were $15.0 million, $13.7 million, and $12.7 million for the years ended May 31, 2003, 2002 and 2001, respectively, and are included in selling and administrative expenses. 
+Note 13 — Interest Income 
+Included in other income/expense for the years ended May 31, 2003, 2002, and 2001, was interest income of $14.1 million, $13.6 million and $13.9 million,
+respectively. 
+54 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 14 — Comprehensive Income 
+Comprehensive income is as follows: 
+Year Ended May 31, 
+2003 
+2002 
+2001 
+(In millions) 
+Net income 
+$ 
+474.0 
+$ 
+663.3 
+$ 
+589.7 
+Other comprehensive income (loss): 
+Change in cumulative translation adjustment and other (net tax (expense)/benefit of ($22.4) in 2003, $2.2 in 2002, $2.4 in
+2001) 
+127.4 
+(1.5 
+) 
+(41.0 
+) 
+Recognition in net income of previously deferred unrealized loss on securities, due to accounting change (net of tax (benefit) of
+($2.2)) 
+— 
+3.4 
+— 
+Changes due to cash flow hedging instruments (Note 16): 
+Initial recognition of net deferred gain as of June 1, due to accounting change (net of tax (expense) of ($28.7)) 
+— 
+53.4 
+— 
+Net (loss) gain on hedge derivatives (net of tax benefit of $160.8 in 2003 and $31.5 in 2002) 
+(311.9 
+) 
+(73.3 
+) 
+— 
+Reclassification to net income of previously deferred (gains) and loss related to hedge derivative instruments (net of tax
+(benefit)/expense of ($65.6) in 2003 and $10.2 in 2002) 
+137.2 
+(22.3 
+) 
+— 
+Other comprehensive loss 
+(47.3 
+) 
+(40.3 
+) 
+(41.0 
+) 
+Total comprehensive income 
+$ 
+426.7 
+$ 
+623.0 
+$ 
+548.7 
+The components of
+accumulated other comprehensive loss are as follows: 
+May 31, 
+2003 
+2002 
+(In millions) 
+Cumulative translation adjustment and other 
+$ 
+(22.8 
+) 
+$ 
+(150.2 
+) 
+Net deferred loss on hedge derivatives 
+(216.9 
+) 
+(42.2 
+) 
+$ 
+(239.7 
+) 
+$ 
+(192.4 
+) 
+Note 15 — Commitments and
+Contingencies 
+The Company leases space for certain of its
+offices, warehouses and retail stores under leases expiring from one to twenty-eight years after May 31, 2003. Rent expense was $183.2 million, $159.9 million and $152.0 million for the years ended May 31, 2003, 2002 and 2001, respectively.
+Amounts of minimum future annual rental commitments under non-cancelable operating leases in each of the five years ending May 31, 2004 through 2008 are $188.9 million, $149.6 million, $129.5 million, $111.1 million, $92.2 million, respectively, and
+$505.6 million in later years. 
+As of May 31, 2003 and 2002,
+the Company had letters of credit outstanding totaling $704.4 million and $808.4 million, respectively. These letters of credit were issued primarily for the purchase of inventory. 
+In the ordinary course of its business, the Company is involved in legal proceedings involving contractual and employment
+relationships, product liability claims, trademark rights, and a variety of other matters. The 
+55 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position or results of
+operations. 
+Note 16 — Risk Management and Derivatives 
+The Company is exposed to global market risks, including the effect of
+changes in foreign currency exchange rates and interest rates. The Company uses derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading purposes. 
+The Company formally documents all relationships between hedging
+instruments and hedged items, as well as its risk-management objective and strategy for undertaking hedge transactions. This process includes linking all derivatives to either specific assets and liabilities on the balance sheet or specific firm
+commitments or forecasted transactions. 
+Substantially all
+derivatives entered into by the Company are designated as either cash flow or fair value hedges. All derivatives are recognized on the balance sheet at their fair value. Unrealized gain positions are recorded as other current assets or other
+non-current assets, depending on the instrument’s maturity date. Unrealized loss positions are recorded as accrued liabilities or other non-current liabilities. Changes in fair values of outstanding cash flow hedge derivatives that are highly
+effective are recorded in other comprehensive income, until net income is affected by the variability of cash flows of the hedged transaction. Fair value hedges are recorded in net income and are offset by the change in fair value of the underlying
+asset or liability being hedged. 
+Cash Flow Hedges
+The purpose of the Company’s foreign currency
+hedging activities is to protect the Company from the risk that the eventual cash flows resulting from transactions in foreign currencies, including revenues, product costs, selling and administrative expenses, and intercompany transactions,
+including intercompany borrowings, will be adversely affected by changes in exchange rates. It is the Company’s policy to utilize derivatives to reduce foreign exchange risks where internal netting strategies cannot be effectively employed.
+Derivatives used by the Company to hedge foreign currency
+exchange risks are forward exchange contracts, options and cross-currency swaps. These instruments protect against the risk that the eventual net cash inflows and outflows from foreign currency denominated transactions will be adversely affected by
+changes in exchange rates. The cross-currency swaps are used to hedge foreign currency denominated payments related to intercompany loan agreements. Hedged transactions are denominated primarily in European currencies, Japanese yen, Canadian
+dollars, Korean won, Mexican pesos, and Australian dollars. The Company hedges up to 100% of anticipated exposures typically twelve months in advance but has hedged as much as 32 months in advance. When intercompany loans are hedged, it is typically
+for their expected duration. 
+Substantially all foreign
+currency derivatives entered into by the Company qualify for and are designated as foreign-currency cash flow hedges, including those hedging foreign currency denominated firm commitments. 
+Changes in fair values of outstanding cash flow hedge derivatives that are
+highly effective are recorded in other comprehensive income, until net income is affected by the variability of cash flows of the hedged transaction. In most cases amounts recorded in other comprehensive income will be released to net income some
+time after the maturity of the related derivative. The consolidated statement of income classification of effective hedge results is the same as that of the underlying exposure. Results of hedges of revenue and product costs are recorded in revenue
+and cost of sales, respectively, when the underlying hedged transaction affects net income. 
+56 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Results of hedges of selling and administrative expense are recorded together with those costs when the related expense is recorded. Results of hedges of
+anticipated intercompany transactions are recorded in other income/expense when the transaction occurs. Hedges of recorded balance sheet positions are recorded in other income/expense currently together with the transaction gain or loss from the
+hedged balance sheet position. Net foreign currency transaction gains and losses, which includes hedge results captured in revenues, cost of sales, selling and administrative expense and other income/expense, were a $180.9 million loss, a $42.7
+million gain, and a $129.6 million gain for the years ended May 31, 2003, 2002, and 2001, respectively. 
+Premiums paid on options are initially recorded as deferred charges. The Company assesses effectiveness on options based on the total cash flows method
+and records total changes in the options’ fair value to other comprehensive income to the degree they are effective. 
+As of May 31, 2003, $171.9 million of deferred net losses (net of tax) on both outstanding and matured derivatives accumulated in other comprehensive
+income are expected to be reclassified to net income during the next twelve months as a result of underlying hedged transactions also being recorded in net income. Actual amounts ultimately reclassified to net income are dependent on the exchange
+rates in effect when derivative contracts that are currently outstanding mature. As of May 31, 2003, the maximum term over which the Company is hedging exposures to the variability of cash flows for all forecasted and recorded transactions is
+18 months. 
+The Company formally assesses, both at the
+hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain
+highly effective in future periods. When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, the Company discontinues hedge accounting prospectively. 
+The Company discontinues hedge accounting prospectively when (1) it
+determines that the derivative is no longer highly effective in offsetting changes in the cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or
+exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate. 
+When the Company discontinues hedge accounting because it is no longer
+probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified to net income when the forecasted transaction affects net
+income. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other
+comprehensive loss will be recognized immediately in net income. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet,
+recognizing future changes in the fair value in current-period net income. Any hedge ineffectiveness is recorded in current-period net income. Effectiveness for cash flow hedges is assessed based on forward rates. 
+For the year ended May 31, 2003 the Company recorded in other income/expense
+an insignificant loss representing the total ineffectiveness of all derivatives. An insignificant gain was recorded in other income/expense for the year ended May 31, 2002. Net income for each of the years ended May 31, 2003 and 2002 was not
+materially affected due to discontinued hedge accounting. 
+57 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Fair Value Hedges 
+The Company is also exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in
+interest rates. Derivatives currently used by the Company to hedge this risk are receive-fixed, pay-variable interest rate swaps. 
+Substantially all interest rate swap agreements are designated as fair value hedges of the related long-term debt and meet the shortcut method
+requirements under FAS 133. Accordingly, changes in the fair values of the interest rate swap agreements are exactly offset by changes in the fair value of the underlying long-term debt. No ineffectiveness has been recorded to net income related to
+interest rate swaps designated as fair value hedges for the years ended May 31, 2003 and 2002. 
+During the year ended May 31, 2003 we also entered into an interest rate swap agreement related to a Japanese yen denominated intercompany loan with one of our Japanese subsidiaries. The Japanese subsidiary pays
+variable interest on the intercompany loan based on 3-month LIBOR plus a spread. Under the interest rate swap agreement, the subsidiary pays fixed interest payments at 0.8% and receives variable interest payments based on 3-month LIBOR plus a spread
+based on a notional amount of 8 billion Japanese yen. This interest rate swap is not accounted for as a hedge, accordingly changes in the fair value of the swap are recorded to net income. As of May 31, 2003, the recorded fair value of the
+swap was a $1.0 million loss. 
+The fair values of all
+derivatives recorded on the consolidated balance sheet are as follows: 
+May 31, 
+2003 
+2002 
+(In millions) 
+Gains: 
+Foreign currency exchange contracts, options and cross-currency swaps 
+$ 
+71.5 
+$ 
+130.3 
+Interest rate swaps 
+25.5 
+— 
+(Losses): 
+Foreign currency exchange contracts, options and cross-currency swaps 
+(322.7 
+) 
+(130.1 
+) 
+Interest rate swaps 
+(1.0 
+) 
+(1.8 
+) 
+Concentration of
+Credit Risk 
+The Company is exposed to credit-related
+losses in the event of non-performance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate the
+Company’s exposure to credit risk with these institutions. This credit risk is generally limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted. To manage this risk, the Company has
+established strict counterparty credit guidelines which are continually monitored and reported to senior management according to prescribed guidelines. The Company utilizes a portfolio of financial institutions either headquartered or operating in
+the same countries the Company conducts its business. As a result of the above considerations, the Company considers the risk of counterparty default to be minimal. 
+In addition to hedging instruments, the Company is subject to concentrations of credit risk associated with cash and
+equivalents and accounts receivable. The Company places cash and equivalents with financial institutions with investment grade credit ratings and, by policy, limits the amount of credit exposure to any one financial institution. The Company
+considers its concentration risk related to accounts receivable to be mitigated by the Company’s credit policy, the significance of outstanding balances owed by each individual customer at any point in time and the geographic dispersion of
+these customers. 
+58 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 17 — Operating Segments and Related Information 
+Operating Segments. The Company’s
+operating segments are evidence of the structure of the Company’s internal organization. The major segments are defined by geographic regions with operations participating in NIKE brand sales activity. Each NIKE brand geographic segment
+operates predominantly in one industry: the design, production, marketing and selling of sports and fitness footwear, apparel, and equipment. The “Other” category shown below represents activities of Cole Haan Holdings, Inc., Bauer NIKE
+Hockey, Inc., Hurley International LLC, NIKE Golf, and NIKE IHM, Inc., which are considered immaterial for individual disclosure. 
+In prior years, operating activity for NIKE Golf was classified within each region. Effective June 1, 2002, NIKE Golf revenues and income from the
+Company’s largest golf markets have been reclassified to the Other category, as a result that the Company has begun managing these operations separately from the regional businesses. Certain NIKE Golf inventories, receivables, and property,
+plant, and equipment continue to be managed by the regions, and as a result, no reclassifications for these balances have been made. NIKE Golf information for the years ended May 31, 2002 and 2001 have been reclassified to conform to the current
+year presentation. 
+Where applicable, “Corporate”
+represents items necessary to reconcile to the consolidated financial statements, which generally include corporate activity and corporate eliminations. Certain miscellaneous operating activities have been reclassified between Corporate and the
+applicable regional operating segment as of June 1, 2002, reflecting a change in the management of these activities. With respect to these classifications, the applicable prior year periods have been reclassified to conform to the current year
+presentation. 
+Net revenues as shown below represent sales to
+external customers for each segment. Intercompany revenues have been eliminated and are immaterial for separate disclosure. The Company evaluates performance of individual operating segments based on pre-tax income. On a consolidated basis, this
+amount represents Income before income taxes and cumulative effect of accounting change as shown in the Consolidated Statements of Income. Reconciling items for pre-tax income represent corporate costs that are not allocated to the operating
+segments for management reporting including certain currency exchange rate gains and losses on transactions, amortization of indefinite-lived intangible assets and goodwill, and intercompany eliminations for specific income statement items in the
+Consolidated Statements of Income. 
+Additions to long-lived
+assets as presented following represent capital expenditures and additions to identifiable intangibles and goodwill. Generally, additions to identifiable intangible assets and goodwill are considered corporate costs and are not attributable to any
+specific operating segment. See Note 4 for further discussion on identifiable intangible assets and goodwill. Additions to other long-lived assets are not significant and are comprised of additions to miscellaneous corporate assets not attributable
+to any specific operating segment. 
+59 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Accounts receivable, inventory and property, plant and equipment for operating segments are regularly
+reviewed by management and are therefore provided below. 
+Year Ended May 31, 
+2003 
+2002 
+2001 
+(In millions) 
+Net Revenue 
+United States 
+$ 
+4,658.4 
+$ 
+4,669.6 
+$ 
+4,648.9 
+Europe, Middle East, and Africa 
+3,241.7 
+2,696.5 
+2,553.0 
+Asia Pacific 
+1,358.8 
+1,142.2 
+1,065.1 
+Americas 
+527.0 
+568.1 
+539.1 
+Other 
+911.1 
+816.6 
+682.7 
+$ 
+10,697.0 
+$ 
+9,893.0 
+$ 
+9,488.8 
+Pre-tax Income 
+United States 
+$ 
+957.5 
+$ 
+956.0 
+$ 
+905.0 
+Europe, Middle East, and Africa 
+533.0 
+422.4 
+363.4 
+Asia Pacific 
+295.0 
+216.2 
+184.4 
+Americas 
+96.3 
+92.1 
+81.6 
+Other 
+18.9 
+56.8 
+74.2 
+Corporate 
+(777.7 
+) 
+(726.2 
+) 
+(687.2 
+) 
+$ 
+1,123.0 
+$ 
+1,017.3 
+$ 
+921.4 
+Additions to Long-lived Assets 
+United States 
+$ 
+27.1 
+$ 
+30.4 
+$ 
+45.2 
+Europe, Middle East, and Africa 
+29.2 
+27.2 
+26.2 
+Asia Pacific 
+26.2 
+21.8 
+52.9 
+Americas 
+3.5 
+4.8 
+5.1 
+Other 
+23.7 
+79.7 
+26.3 
+Corporate 
+76.2 
+115.1 
+161.9 
+$ 
+185.9 
+$ 
+279.0 
+$ 
+317.6 
+Depreciation 
+United States 
+$ 
+49.9 
+$ 
+50.5 
+$ 
+50.7 
+Europe, Middle East, and Africa 
+38.9 
+35.2 
+38.9 
+Asia Pacific 
+38.5 
+38.4 
+20.5 
+Americas 
+4.5 
+5.3 
+6.3 
+Other 
+25.4 
+23.3 
+24.1 
+Corporate 
+82.1 
+70.8 
+56.9 
+$ 
+239.3 
+$ 
+223.5 
+$ 
+197.4 
+Accounts Receivable, net 
+United States 
+$ 
+609.5 
+$ 
+654.4 
+$ 
+569.0 
+Europe, Middle East, and Africa 
+794.1 
+571.1 
+512.5 
+Asia Pacific 
+258.4 
+189.6 
+194.8 
+Americas 
+130.0 
+122.3 
+144.7 
+Other 
+278.8 
+249.5 
+172.1 
+Corporate 
+30.3 
+17.2 
+28.3 
+$ 
+2,101.1 
+$ 
+1,804.1 
+$ 
+1,621.4 
+60 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Year Ended May 31, 
+2003 
+2002 
+2001 
+(In millions) 
+Inventory, net 
+United States 
+$ 
+640.6 
+$ 
+613.4 
+$ 
+701.4 
+Europe, Middle East, and Africa 
+383.4 
+336.5 
+298.3 
+Asia Pacific 
+143.5 
+148.0 
+125.8 
+Americas 
+84.2 
+62.9 
+72.4 
+Other 
+253.1 
+203.8 
+199.2 
+Corporate 
+10.1 
+9.2 
+27.0 
+$ 
+1,514.9 
+$ 
+1,373.8 
+$ 
+1,424.1 
+Property, Plant and Equipment, net 
+United States 
+$ 
+215.7 
+$ 
+241.9 
+$ 
+262.7 
+Europe, Middle East, and Africa 
+241.4 
+212.2 
+208.2 
+Asia Pacific 
+386.3 
+378.4 
+403.5 
+Americas 
+11.0 
+12.4 
+15.4 
+Other 
+113.8 
+113.4 
+114.3 
+Corporate 
+652.6 
+656.2 
+614.7 
+$ 
+1,620.8 
+$ 
+1,614.5 
+$ 
+1,618.8 
+Revenues by Major
+Product Lines. Revenues to external customers for NIKE brand products are attributable to sales of footwear, apparel, and equipment. Other revenues to external customers primarily include external sales by Cole Haan
+Holdings, Inc., Bauer NIKE Hockey Inc., Hurley International LLC, and NIKE Golf. 
+Year Ended May 31, 
+2003 
+2002 
+2001 
+(In millions) 
+Footwear 
+$ 
+5,985.2 
+$ 
+5,678.6 
+$ 
+5,555.8 
+Apparel 
+3,131.5 
+2,804.0 
+2,677.1 
+Equipment 
+669.2 
+593.8 
+573.2 
+Other 
+911.1 
+816.6 
+682.7 
+$ 
+10,697.0 
+$ 
+9,893.0 
+$ 
+9,488.8 
+Revenues and
+Long-Lived Assets by Geographic Area. Geographical area information is similar to that shown previously under operating segments with the exception of the Other activity, which has been allocated to the geographical areas
+based on the location where the sales originated. Revenues derived in the U.S. were $5,263.8 million, $5,246.3 million, and $5,142.5 million, for the years ended May 31, 2003, 2002, and 2001, respectively. Our largest concentrations of long-lived
+assets are in the U.S. and Japan. Long-lived assets attributable to operations in the U.S., which are primarily comprised of net property, plant & equipment and net identifiable intangible assets and goodwill, were $1,223.6 million, $1,217.7
+million, and $1,165.3 million at May 31, 2003, 2002, and 2001, respectively. Long-lived assets attributable to operations in Japan were $336.4 million, $321.6 million, and $339.1 million at May 31, 2003, 2002, and 2001, respectively.
+Major Customers. During the year
+ended May 31, 2003 the Company did not have a significant customer that accounted for more than 10% of consolidated revenues. During the years ended May 31, 2002 and 2001, 
+61 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+revenues derived from Foot Locker, Inc. represented 11% and 12%, respectively of the Company’s consolidated revenues. Sales to this customer are
+included in all segments of the Company participating in NIKE brand sales activity. 
+Note 18—Subsequent Event 
+On July 9,
+2003, the Company entered into an agreement to purchase all of the equity shares of Converse Inc., a widely recognized footwear company based in Massachusetts, for $305 million cash. Closing of the transaction is subject to regulatory review,
+including U.S. government review under the Hart-Scott-Rodino Premerger Notification Act. 
+62 
+Table of Contents 
+Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
+There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or
+practices or financial statement disclosure required to be reported under this Item. 
+Item 9A. Controls and Procedures 
+The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s
+Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s
+management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes
+that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit
+relationship of possible controls and procedures. 
+The Company
+carries out a variety of on-going procedures, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Company’s Chief Financial Officer, to evaluate the effectiveness of
+the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures
+were effective at the reasonable assurance level as of May 31, 2003. 
+There has been no change in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the Company’s
+internal controls over financial reporting. 
+63 
+Table of Contents 
+PART III 
+Item 10. Directors and Executive Officers of the Registrant 
+The information required by Item 401 of Regulation S-K regarding directors is included under “Election of Directors” (but excluding the
+disclosure concerning the existence of an “audit committee financial expert” as defined in regulations adopted by the Securities and Exchange Commission) in the definitive Proxy Statement for our 2003 Annual Meeting of Shareholders and is
+incorporated herein by reference. The information required by Item 401 of Regulation S-K regarding executive officers is included under “Executive Officers of the Registrant” in Item 1 of this Report. The information required by Item 405
+of Regulation S-K is included under “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for our 2003 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 11. Executive Compensation 
+The information required by this Item is included under “Director Compensation and Retirement Plan,” “Executive Compensation” (but
+excluding the Performance Graph), “Compensation Committee Interlocks and Insider Participation” and “Employment Contracts and Termination of Employment and Change-in-Control Arrangements” in the definitive Proxy Statement for our
+2003 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 12. Security Ownership of Certain Beneficial Owners and Management 
+The information required by this Item is included under “Stock Holdings of Certain Owners and Management” and under “Equity Compensation
+Plans” in the definitive Proxy Statement for our 2003 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 13. Certain Relationships and Related Transactions 
+The information required by this Item is included under “Certain Transactions and Business Relationships” and “Indebtedness of
+Management” in the definitive Proxy Statement for our 2003 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 14. Principal Accountant Fees and Services 
+The information required by this Item is included under “RATIFICATION OF INDEPENDENT ACCOUNTANTS” in the definitive Proxy Statement for our 2003
+Annual Meeting of Shareholders and is incorporated herein by reference. 
+64 
+Table of Contents 
+PART IV 
+Item 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 
+(A) The following documents are filed as part of this report: 
+Form 10-K 
+Page No. 
+1. 
+FINANCIAL STATEMENTS: 
+Report of Independent Auditors 
+35 
+Consolidated Statements of Income for each of the three years ended 
+May 31, 2003 
+36 
+Consolidated Balance Sheets at May 31, 2003 and 2002 
+37 
+Consolidated Statements of Cash Flows for each of the three years ended 
+May 31, 2003 
+38 
+Consolidated Statements of Shareholders’ Equity for each of the three years 
+ended May 31, 2003 
+39 
+Notes to Consolidated Financial Statements 
+40 
+2. 
+FINANCIAL STATEMENT SCHEDULE: 
+II — Valuation and Qualifying Accounts 
+F-1 
+All other schedules
+are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 
+3. EXHIBITS: 
+3.1 
+Restated Articles of Incorporation, as amended (incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August
+31, 1995). 
+3.2 
+Third Restated Bylaws, as amended (incorporated by reference from Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31,
+1995). 
+4.1 
+Restated Articles of Incorporation, as amended (see Exhibit 3.1). 
+4.2 
+Third Restated Bylaws, as amended (see Exhibit 3.2). 
+4.3 
+Indenture dated as of December 13, 1996 between the Company and Bank One Trust Company, National Association (successor in interest to The First National Bank of Chicago), as
+Trustee (incorporated by reference from Exhibit 4.01 to Amendment No. 1 to Registration Statement 
+No. 333-15953 filed by the Company on November 26, 1996). 
+4.4 
+Form of Officers’ Certificate relating to the Company’s 6.375% Notes and form of 6.375% Note (incorporated by reference to Exhibits 4.1 and 4.2 of the Company’s
+Form 8-K dated 
+December 10, 1996). 
+4.5 
+Form of Officers’ Certificate relating to the Company’s 5.5% Notes and form of 5.5% Note (incorporated by reference to Exhibits 4.2 and 4.3 of the Company’s Form
+8-K dated August 17, 2001). 
+4.6 
+Form of Officers’ Certificate relating to the Company’s Fixed Rate Medium-Term Notes and the Company’s Floating Rate Medium-Term Notes, form of Fixed Rate Note and
+form of Floating Rate Note (incorporated by reference to Exhibits 4.2, 4.3 and 4.4 of the Company’s Form 8-K dated 
+May 29, 2002). 
+10.1 
+Credit Agreement dated as of November 17, 2000 among NIKE, Inc., Bank of America, N.A., individually and as Agent, and the other banks party thereto (incorporated by reference
+from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended 
+November 30, 2000). 
+65 
+Table of Contents 
+10.2 
+First Amendment to Credit Agreement dated as of November 16, 2001 (incorporated by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal
+quarter ended November 30, 2001). 
+10.3 
+Second Amendment to Credit Agreement dated as of November 15, 2002 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal
+quarter ended 
+November 30, 2002). 
+10.4 
+Form of non-employee director Stock Option Agreement (incorporated by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
+November 30, 2000).* 
+10.5 
+Form of Indemnity Agreement entered into between the Company and each of its officers and directors (incorporated by reference from the Company’s definitive proxy statement
+filed in connection with its annual meeting of shareholders held on September 21, 1987). 
+10.6 
+NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31,
+2002).* 
+10.7 
+NIKE, Inc. Executive Performance Sharing Plan (incorporated by reference from the Company’s definitive proxy statement filed in connection with its annual meeting of
+shareholders held on September 18, 2000).* 
+10.8 
+NIKE, Inc. Long-Term Incentive Plan (incorporated by reference from the Company’s definitive proxy statement filed in connection with its annual meeting of shareholders held
+on 
+September 18, 2002).* 
+10.9 
+Collateral Assignment Split-Dollar Agreement between NIKE, Inc. and Philip H. Knight dated March 10, 1994 (incorporated by reference from Exhibit 10.7 to the Company’s Annual
+Report on Form 10-K for the fiscal year ended May 31, 1994).* 
+10.10 
+Covenant Not To Compete And Non-Disclosure Agreement between NIKE, Inc. and Thomas E. Clarke dated August 31, 1994 (incorporated by reference from Exhibit 10.8 to the
+Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2001).* 
+10.11 
+Covenant Not To Compete And Non-Disclosure Agreement between NIKE, Inc. and Mark G. Parker dated October 6, 1994 (incorporated by reference from Exhibit 10.9 to the Company’s
+Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2001).* 
+10.12 
+NIKE, Inc. Deferred Compensation Plan dated January 1, 2003 (incorporated by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
+ended 
+February 28, 2003).* 
+10.13 
+Employment Agreement, and Covenant Not To Compete And Non-Disclosure Agreement between NIKE, Inc. and Mindy F. Grossman dated September 6, 2000 (incorporated by reference to
+Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2002).* 
+10.14 
+Amendment to Employment Agreement between NIKE, Inc. and Mindy F. Grossman dated 
+March 17, 2003.* 
+10.15 
+NIKE, Inc. Foreign Subsidiary Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
+ended 
+February 28, 2003).* 
+10.16 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Charles D. Denson dated March 26, 2001.* 
+10.17 
+Amendment to Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Charles D. Denson dated March 4, 2003.* 
+12.1 
+Computation of Ratio of Earnings to Fixed Charges. 
+21 
+Subsidiaries of the Registrant. 
+23 
+Consent of PricewaterhouseCoopers LLP, independent accountants (set forth on page F-2 of this Annual Report on Form 10-K). 
+31 
+Rule 13a-14(a) Certifications. 
+32 
+Section 1350 Certifications. 
+* 
+Management contract or compensatory plan or arrangement. 
+66 
+Table of Contents 
+The exhibits filed herewith do not include certain instruments with respect to long-term debt of NIKE and
+its subsidiaries, inasmuch as the total amount of debt authorized under any such instrument does not exceed 10% of the total assets of NIKE and its subsidiaries on a consolidated basis. NIKE agrees, pursuant to Item 601(b)(4)(iii) of Regulation S-K,
+that it will furnish a copy of any such instrument to the SEC upon request. 
+Upon written request to Investor Relations, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453, NIKE will furnish shareholders with a copy of any Exhibit upon payment of $.10 per page, which represents our
+reasonable expenses in furnishing Exhibits. 
+(B) No
+reports on Form 8-K were filed by NIKE during the last quarter of fiscal 2003. 
+67 
+Table of Contents 
+SCHEDULE II 
+VALUATION AND QUALIFYING ACCOUNTS 
+Description 
+Balance at 
+Beginning 
+of Period 
+Charged to 
+Costs and 
+Expenses 
+Charged to 
+Other 
+Accounts 
+Write-Offs 
+Net of 
+Recoveries 
+Balance at 
+End of 
+Period 
+(In millions) 
+For the year ended May 31, 2001: 
+Allowance for doubtful accounts 
+$ 
+65.4 
+$ 
+32.7 
+$ 
+2.8 
+$ 
+(28.8 
+) 
+$ 
+72.1 
+For the year ended May 31, 2002: 
+Allowance for doubtful accounts 
+$ 
+72.1 
+$ 
+23.7 
+$ 
+4.2 
+$ 
+(19.6 
+) 
+$ 
+80.4 
+For the year ended May 31, 2003: 
+Allowance for doubtful accounts 
+$ 
+80.4 
+$ 
+25.8 
+$ 
+7.2 
+$ 
+(25.5 
+) 
+$ 
+87.9 
+F-1 
+Table of Contents 
+CONSENT OF INDEPENDENT ACCOUNTANTS 
+We hereby consent to the incorporation by reference in the documents listed below of our report dated June 26, 2003,
+except for footnote 18, as to which the date is July 9, 2003, relating to the financial statements and financial statement schedule of NIKE, Inc., which appears in this Form 10-K: 
+1. 
+Registration Statement on Form S-8 (No. 2-81419) of NIKE, Inc.; 
+2. 
+Registration Statement on Form S-3 (No. 33-43205) of NIKE, Inc.; 
+3. 
+Registration Statement on Form S-3 (No. 33-48977) of NIKE, Inc.; 
+4. 
+Registration Statement on Form S-3 (No. 33-41842) of NIKE, Inc.; 
+5. 
+Registration Statement on Form S-8 (No. 33-63995) of NIKE, Inc.; 
+6. 
+Registration Statement on Form S-3 (No. 333-15953) of NIKE, Inc.; 
+7. 
+Registration Statement on Form S-8 (No. 333-63581) of NIKE, Inc.; 
+8. 
+Registration Statement on Form S-8 (No. 333-63583) of NIKE, Inc.; 
+9. 
+Registration Statement on Form S-3 (No. 333-71975) of NIKE, Inc.; 
+10. 
+Registration Statement on Form S-8 (No. 333-68864) of NIKE, Inc.; 
+11. 
+Registration Statement on Form S-8 (No. 333-68886) of NIKE, Inc.; 
+12. 
+Registration Statement on Form S-8 (No. 333-71660) of NIKE, Inc.; 
+13. 
+Registration Statement on Form S-3 (No. 333-71324) of NIKE, Inc.; 
+14. 
+Registration Statement on Form S-8 (No. 333-104822) of NIKE, Inc.; and 
+15. 
+Registration Statement on Form S-8 (No. 333-104824) of NIKE, Inc. 
+/s/ P RICEWATERHOUSE C OOPERS LLP 
+Portland, Oregon 
+August 6, 2003 
+F-2 
+Table of Contents 
+SIGNATURES 
+Pursuant to the
+requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 
+NIKE, I NC . 
+By: 
+/s/ P HILIP H. K NIGHT 
+Philip H. Knight 
+Chairman of the Board, 
+Chief Executive Officer and President 
+Date: August 7, 2003 
+Pursuant to the requirements of the Securities Exchange Act of 1934, this
+report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 
+Signature 
+Title 
+Date 
+Principal Executive Officer and Director: 
+/s/ P HILIP H.
+K NIGHT 
+Philip H. Knight 
+Chairman of the Board, Chief Executive Officer, and President 
+August 7, 2003 
+Principal Financial and Accounting Officer: 
+/s/ D ONALD W.
+B LAIR 
+Donald W. Blair 
+Chief Financial Officer 
+August 7, 2003 
+Directors: 
+/s/ T HOMAS E.
+C LARKE 
+Thomas E. Clarke 
+Director 
+August 7, 2003 
+/s/ J ILL K.
+C ONWAY 
+Jill K. Conway 
+Director 
+August 7, 2003 
+/s/ R ALPH D.
+D ENUNZIO 
+Ralph D.
+DeNunzio 
+Director 
+August 7, 2003 
+/s/ R ICHARD K.
+D ONAHUE 
+Richard K.
+Donahue 
+Director 
+August 7, 2003 
+/s/ A LAN B. G RAF ,
+J R . 
+Alan B. Graf, Jr. 
+Director 
+August 7, 2003 
+/s/ D ELBERT J.
+H AYES 
+Delbert J. Hayes 
+Director 
+August 7, 2003 
+S-1 
+Table of Contents 
+Signature 
+Title 
+Date 
+/s/ D OUGLAS G.
+H OUSER 
+Douglas G. Houser 
+Director 
+August 7, 2003 
+/s/ J EANNE P.
+J ACKSON 
+Jeanne P. Jackson 
+Director 
+August 7, 2003 
+/s/ J OHN E.
+J AQUA 
+John E. Jaqua 
+Director 
+August 7, 2003 
+/s/ C HARLES W.
+R OBINSON 
+Charles W.
+Robinson 
+Director 
+August 7, 2003 
+/s/ A. M ICHAEL 
+S PENCE 
+A. Michael Spence 
+Director 
+August 7, 2003 
+/s/ J OHN R. T HOMPSON ,
+J R . 
+John R. Thompson, Jr. 
+Director 
+August 7, 2003 
+S-2
\ No newline at end of file
diff --git a/raw/filings/0000320187/2002/0001193125-03-031022/filing_metadata.csv b/raw/filings/0000320187/2002/0001193125-03-031022/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..931dcfc5a587c6441d2485c602ccaa399a9673f9
--- /dev/null
+++ b/raw/filings/0000320187/2002/0001193125-03-031022/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000320187,NKE,"NIKE, Inc.",10-K,2003-08-07,2003-05-31,2003-08-08T01:13:04.000Z,0001193125-03-031022,d10k.htm,FORM 10-K,1340808,0,0,https://www.sec.gov/Archives/edgar/data/320187/000119312503031022/d10k.htm,https://www.sec.gov/Archives/edgar/data/320187/000119312503031022/,2002,2002,1
diff --git a/raw/filings/0000320187/2002/0001193125-03-031022/item1.txt b/raw/filings/0000320187/2002/0001193125-03-031022/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8ba37c1bbe00b7308bbf4cebca53dc554c7bd0b1
--- /dev/null
+++ b/raw/filings/0000320187/2002/0001193125-03-031022/item1.txt
@@ -0,0 +1,425 @@
+Item 1. Business 
+General 
+NIKE, 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
+the context indicates otherwise. Our Internet address is www.nike.com . On our NIKE Corporate web site, located at www.nikebiz.com , we post the following filings as soon as reasonably practicable after they are electronically filed with
+or furnished to the 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 furnished pursuant to Section 13(a) or
+15(d) of the Securities and Exchange Act of 1934. All such filings on our NIKE Corporate web site are available free of charge. 
+Our principal business activity involves the design, development and worldwide marketing of high quality footwear, apparel, equipment, and accessory
+products. NIKE is the largest seller of athletic footwear and athletic apparel in the world. We sell our products to approximately 18,000 retail accounts in the United States and through a mix of independent distributors, licensees and subsidiaries
+in nearly 200 countries around the world. Virtually all of our products are manufactured by independent contractors. Virtually all footwear products are produced outside the United States, while apparel and equipment products are produced both in
+the United States and abroad. 
+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 innovative design for men, women
+and children. Running, basketball, children’s, cross-training and women’s shoes are currently our top-selling product categories and we expect them to continue to lead in product sales in the near future. However, we also market shoes
+designed for outdoor activities, tennis, golf, soccer, baseball, football, bicycling, volleyball, wrestling, cheerleading, aquatic activities, hiking, and other athletic and recreational uses. 
+We sell active sports apparel covering most of the above categories,
+athletically inspired lifestyle apparel, as well as athletic bags and accessory items. NIKE apparel and accessories are designed to complement our athletic footwear products, 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, including
+sport balls, timepieces, eyewear, skates, bats, gloves, and other equipment designed for sports activities. We also have agreements for licensees to produce and sell NIKE brand swimwear, women’s sports bras, cycling apparel, maternity exercise
+wear, children’s clothing, school supplies, timepieces, and electronic media devices. We also sell small amounts of various plastic products to other manufacturers through our wholly-owned subsidiary, NIKE IHM, Inc. and plastic injected and
+metal products to other manufacturers through our wholly-owned subsidiary , BAUER Italia S.p.A. 
+We sell a line of dress and casual footwear, apparel and accessories for men and women under the brand names Cole Haan ® , CH, Gseries by Cole Haan, and Bragano through our wholly-owned subsidiary,
+Cole Haan Holdings, Inc., headquartered in Yarmouth, Maine. 
+Our wholly-owned subsidiary, Bauer NIKE Hockey Inc., headquartered in Greenland, New Hampshire, manufactures and distributes ice skates, skate blades, in-line roller skates, protective gear, hockey sticks, and hockey jerseys, licensed
+apparel and accessories under the Bauer ® and
+NIKE ® brand names. Bauer also offers a full
+selection of products for street and roller hockey. 
+2 
+Table of Contents 
+Our wholly-owned subsidiary Hurley International LLC, headquartered in Costa Mesa, California, designs
+and distributes a line of action sports apparel (for surfing, skateboarding, and snowboarding) and youth lifestyle apparel and footwear under the Hurley brand name. 
+On July 9, 2003, the Company entered into an agreement to purchase all of the equity shares of Converse Inc., a widely
+recognized footwear company based in Massachusetts. Closing of the transaction is subject to regulatory review, including U.S. government review under the Hart-Scott-Rodino Premerger Notification Act. 
+Sales and Marketing 
+The table
+below shows certain information regarding NIKE’s United States and international (non-U.S.) revenues for the three years ending May 31, 2003. 
+Fiscal 
+2003 
+Fiscal 
+2002 
+FY03 vs. 
+FY02 
+% CHG 
+Fiscal 
+2001 
+FY02 vs. 
+FY01 
+% CHG 
+(Dollars in millions) 
+USA Region 
+Footwear 
+$ 
+3,019.5 
+$ 
+3,135.5 
+(4 
+)% 
+$ 
+3,167.4 
+(1 
+)% 
+Apparel 
+1,351.0 
+1,255.7 
+8 
+% 
+1,207.9 
+4 
+% 
+Equipment 
+287.9 
+278.4 
+3 
+% 
+273.6 
+2 
+% 
+Total USA 
+4,658.4 
+4,669.6 
+— 
+4,648.9 
+— 
+Europe, Middle East and Africa (EMEA) Region 
+Footwear 
+1,896.0 
+1,543.8 
+23 
+% 
+1,415.7 
+9 
+% 
+Apparel 
+1,133.1 
+977.9 
+16 
+% 
+961.0 
+2 
+% 
+Equipment 
+212.6 
+174.8 
+22 
+% 
+176.3 
+(1 
+)% 
+Total EMEA 
+3,241.7 
+2,696.5 
+20 
+% 
+2,553.0 
+6 
+% 
+Asia Pacific Region 
+Footwear 
+732.4 
+640.2 
+14 
+% 
+617.5 
+4 
+% 
+Apparel 
+499.3 
+403.3 
+24 
+% 
+356.1 
+13 
+% 
+Equipment 
+127.1 
+98.7 
+29 
+% 
+91.5 
+8 
+% 
+Total Asia Pacific 
+1,358.8 
+1,142.2 
+19 
+% 
+1,065.1 
+7 
+% 
+Americas Region 
+Footwear 
+337.3 
+359.1 
+(6 
+)% 
+355.2 
+1 
+% 
+Apparel 
+148.1 
+167.1 
+(11 
+)% 
+152.1 
+10 
+% 
+Equipment 
+41.6 
+41.9 
+(1 
+)% 
+31.8 
+32 
+% 
+Total Americas 
+527.0 
+568.1 
+(7 
+)% 
+539.1 
+5 
+% 
+9,785.9 
+9,076.4 
+8 
+% 
+8,806.1 
+3 
+% 
+Other 
+911.1 
+816.6 
+12 
+% 
+682.7 
+20 
+% 
+Total Revenues 
+$ 
+10,697.0 
+$ 
+9,893.0 
+8 
+% 
+$ 
+9,488.8 
+4 
+% 
+Financial information
+about geographic and segment operations appears in Note 17 of the consolidated financial statements on page 59. 
+We experience moderate fluctuations in aggregate sales volume during the year. However, the mix of product sales may vary considerably from time to time
+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 fitness activities and changing design trends affect the demand
+for our products. We must therefore respond to trends 
+3 
+Table of Contents 
+and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories, and influencing sports
+and fitness preferences through aggressive marketing. This is a continuing risk. Failure to timely and adequately respond could have a material adverse affect on our sales and profitability. 
+United States Market 
+During
+fiscal 2003, sales in the United States accounted for approximately 49 percent of total revenues, compared to 53 percent in fiscal 2002 and 54 percent in fiscal 2001. We sell to approximately 18,000 retail accounts in the United States. The
+NIKE brand domestic retail 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 fiscal year 2003, our three largest
+customers accounted for approximately 27 percent of NIKE brand sales in the United States excluding sales from NIKE Golf and Bauer NIKE Hockey, and 24 percent of total sales in the United States. 
+We make substantial use of our “futures” ordering program, which
+allows retailers to order five to six months in advance of delivery with the commitment that 90 percent of their orders will be delivered within a set time period at a fixed price. In fiscal year 2003, 91 percent of our U.S. footwear shipments
+(excluding Cole Haan, Bauer, Hurley and NIKE Golf) were made under the futures program, compared to 92 percent in fiscal 2002 and 86 percent in fiscal 2001. In fiscal 2003, 67 percent of our U.S. apparel shipments were made under the futures
+program, compared to 69 percent in fiscal 2002, and 67 percent in 2001. 
+We utilize 19 NIKE sales offices to solicit sales in the United States. We also utilize 11 independent sales representatives to sell specialty products for golf, cycling, water sports and outdoor activities. In addition, we operate the
+following retail outlets in the United States: 
+Retail Stores 
+Number 
+NIKE factory stores (which carry primarily B-grade and close-out merchandise) 
+75 
+NIKE stores (including NIKE Goddess Stores) 
+4 
+NIKETOWNs (designed to showcase NIKE products) 
+13 
+Employee-only stores 
+4 
+Cole Haan stores (including factory and employee stores) 
+65 
+Total 
+161 
+NIKE’s domestic
+distribution centers for footwear are located in Wilsonville, Oregon, Memphis, Tennessee, and Greenland, New Hampshire. Apparel products are shipped from our Memphis distribution center. Cole Haan and Bauer NIKE Hockey products are distributed
+primarily from Greenland, New Hampshire, and Hurley products are shipped from Costa Mesa, California. 
+International Markets 
+We
+currently market our products in nearly 200 countries outside of the United States through independent distributors, licensees, subsidiaries and branch offices. Non-U.S. sales accounted for 51 percent of total revenues in fiscal 2003, compared to 47
+percent in fiscal 2002 and 46 percent in fiscal 2001. We operate 24 distribution centers in Europe, Asia, Australia, Latin America, Africa and Canada, and also distribute through independent distributors and licensees. We estimate that our products
+are sold through more than 30,000 retail accounts outside the United States. In many countries and regions, including Japan, Canada, Asia, some Latin American countries, and Europe, we have a futures ordering program for retailers similar to the
+United States futures program described above. NIKE’s three largest customers outside of the U.S. accounted for approximately 14 percent of non-U.S. sales. 
+We operate 175 retail outlets outside the United States, which consist of NIKETOWNs, factory stores, employee stores, and
+Cole Haan stores. 
+4 
+Table of Contents 
+International branch offices and subsidiaries of NIKE are located in Argentina, Australia, Austria,
+Belgium, Brazil, Canada, Chile, Croatia, Czech Republic, Denmark, Finland, France, Germany, Hong Kong, Hungary, Indonesia, India, Ireland, Israel, Italy, Japan, Korea, Malaysia, Mexico, New Zealand, The Netherlands, Norway, Peoples Republic of
+China, The Philippines, Poland, Portugal, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom, and Vietnam. 
+Orders 
+Worldwide futures for NIKE
+brand athletic footwear and apparel, scheduled for delivery between June and November 2003, were $4.9 billion compared to $4.6 billion for the same period last year. Based upon historical data, we expect that approximately 95 percent of these orders
+will be filled in that time period, although the orders may be cancelled. 
+Product Research and Development 
+We believe that 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 strives to produce
+products that reduce or eliminate injury, aid athletic performance and maximize comfort. 
+In addition to NIKE’s own staff of specialists in the areas of biomechanics, 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 and concepts for product improvement. Employee athletes wear-test and evaluate products during the
+design and development process. 
+Manufacturing 
+In fiscal 2003,
+approximately 1 percent of total NIKE brand apparel production for sale to the United States market was manufactured in the United States by independent contract manufacturers, most of which are located in the southern states. The remainder was
+manufactured by independent contractors located in 35 countries. Most of this apparel production occurred in Bangladesh, Bulgaria, China, Hong Kong, India, Indonesia, Malaysia, Mexico, Pakistan, The Philippines, Sri Lanka, Taiwan, Thailand, and
+Turkey. Substantially all of our apparel production for sale to the international market was manufactured outside the U.S. Our largest single apparel supplier accounted for approximately 7 percent of total fiscal 2003 apparel production. 
+Virtually all of our footwear is produced outside of the United States. In
+fiscal 2003, contract suppliers in the following countries manufactured the following percentages of total NIKE brand footwear: 
+Country 
+Percent 
+People’s Republic of China 
+38 
+Indonesia 
+27 
+Vietnam 
+18 
+Thailand 
+16 
+Italy 
+Less than 1 
+Taiwan 
+Less than 1 
+South Korea 
+Less than 1 
+We also have manufacturing agreements
+with independent factories in Argentina, Brazil, India, Mexico, South Africa, and Zimbabwe, to manufacture footwear for sale primarily within those countries. Our largest single footwear supplier accounted for approximately 7 percent of total fiscal
+2003 footwear 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 
+5 
+Table of Contents 
+components. NIKE IHM, Inc., a wholly-owned subsidiary of NIKE, is our sole supplier 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 and its
+contractors and suppliers buy raw materials in bulk. Most raw materials are available in the countries where manufacturing takes place. We have thus far experienced little difficulty in satisfying our raw material requirements. 
+Our international operations are subject to the usual risks of doing business
+abroad, such as possible revaluation of currencies, export duties, quotas, restrictions on the transfer of funds and, in certain parts of the world, political instability. See “Trade Legislation” below. We have not, to date, been
+materially affected by any such risk, but cannot predict the likelihood of such developments occurring. 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 outside of the United States. If events prevented us from acquiring products from our suppliers in a particular country, our footwear operations could be temporarily disrupted and we could experience an adverse financial impact.
+However, we believe that we could eliminate any such disruption within a period of no more than 12 months, and that any adverse impact would, therefore, be of a short-term nature. We believe that our principal competitors are subject to similar
+risks. 
+All of our products manufactured overseas and imported
+into the United States and other countries are subject to customs duties collected by customs authorities. Customs information submitted by us is routinely subject to review by customs authorities. We are unable to predict whether additional customs
+duties, quotas or other restrictions may be imposed on the importation of our products in the future. The enactment of any such duties, quotas or restrictions could result in increases in the cost of our products generally and might adversely affect
+the sales or profitability of NIKE and the imported footwear and apparel industry as a whole. 
+Since 1972, Nissho Iwai American Corporation (“NIAC”), a subsidiary of Nissho Iwai Corporation, a large Japanese trading company, has performed significant import-export financing services for us. Currently,
+NIAC provides such financing services with respect to at least 80% of the NIKE products sold outside of the United States, Europe and Japan. Approximately 12% of NIKE products are sold outside of the United States, Europe and Japan. Any failure of
+NIAC to provide these services or any failure of NIAC’s banks could disrupt our ability to acquire products from our suppliers and to deliver products to our customers outside of the United States, Europe and Japan. 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 NIAC expire on May 31, 2005. 
+Trade Legislation 
+Our non-U.S.
+operations are subject to the usual risks of doing business abroad, such as the imposition of import quotas or anti-dumping duties. In 1994, the European Union (“EU”) Commission imposed quotas on certain types of footwear manufactured in
+China. These quotas replaced national quotas that had previously been in effect in several Member States. Footwear designed for use in sporting activities, meeting certain technical criteria and having a CIF (cost, insurance and freight) price above
+9 euros (“Special Technology Athletic Footwear” or “STAF”), is excluded from the quotas. As a result of the STAF exclusion, and the amount of quota made available to us, the quotas have not, to date, had a material effect on our
+business. In addition, the EU Commission has announced that footwear quotas will be eliminated globally beginning January 1, 2005. 
+In 1995, the EU Commission, at the request of European footwear manufacturers, initiated two anti-dumping investigations within the footwear industry
+covering footwear imported from the People’s Republic of China, Indonesia and Thailand. As a result, in 1997 the Commission imposed definitive anti-dumping duties on certain textile upper footwear imported from China and Indonesia. In 1998, the
+Commission imposed definitive anti-dumping duties on certain synthetic and leather upper footwear originating in China, Indonesia and Thailand. These anti-dumping duties were removed in 2003 and are no longer applicable for footwear imports into the
+EU. These measures had no impact on us. 
+6 
+Table of Contents 
+The EU Commission in June 2000 issued an amendment to the explanatory notes to the EU’s customs
+nomenclature (“CN”). The amendment, which is not legally binding, interprets some of the technical criteria for the STAF exclusion and the footwear types that can be classified as for use in sporting activity. The amendment restricts
+somewhat the scope of the STAF exclusion from the quotas and also the sports footwear exclusions from the two EU anti-dumping measures. To date, the large majority of our footwear models fall within the exclusions provided for under the CN. Our
+innovative footwear designs may stretch the traditional concepts of athletic or sports footwear reflected in the technical criteria. We anticipate that the majority of these new designs will fall within the exclusions. NIKE is an active participant
+in discussions to revise the technical criteria to reflect technologically advanced designs. 
+On May 1, 2004 10 new countries will join the EU. They will also join the EU single market and discussions are presently underway to increase the current EU quota system to account for the enlarged EU market. NIKE and
+other manufacturers do not expect this expansion of the EU single market to present any significant challenges to the importation into the EU of sports footwear produced in China as the EU has announced that it will increase the quotas to take
+account of the enlarged consumer and market demand. 
+If the EU
+trade measures become substantially more restrictive we would consider shifting the production of our sports footwear to other countries in order to maintain competitive pricing and access to these markets. We believe that we are prepared to deal
+effectively with any such change of circumstances and that any adverse impact would be of a temporary nature. We continue to closely monitor international restrictions and maintain our multi-country sourcing strategy and contingency plans. We
+believe that our major competitors stand in much the same position regarding these trade measures. 
+We currently source footwear and apparel products from factories in Vietnam. In July 2000, the United States and Vietnam signed a historic, comprehensive
+bilateral trade agreement, which, among other things, provides reciprocal, non-discriminatory Normal Trade Relations (“NTR”) between the two countries. In September 2001, that agreement was approved by Congress and then ratified by the
+Vietnamese National Assembly. Once approved, the United States granted an annual extension of NTR to Vietnam. Under current U.S. law, the President must renew this grant annually with the opportunity for review by Congress. In May 2003, President
+Bush renewed NTR for Vietnam for an additional year and we anticipate Congress will support this decision. We currently believe that, absent unforeseen circumstances, the President will continue his annual extensions of NTR to Vietnam and that
+Congress will support the President’s decisions. Ongoing NTR trading status for Vietnam will allow us to expand our production and marketing opportunities in Vietnam and allow for Vietnamese-sourced product to enter the United States at NTR
+tariff rates. 
+Competition 
+The athletic
+footwear, apparel and equipment industry is keenly competitive in the United States and on a worldwide basis. We compete internationally with an increasing number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports
+equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel and equipment, including Reebok, Adidas and 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 and athletic apparel in the world. Performance and reliability of shoes, apparel, and equipment, new
+product development, price, product identity through marketing and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel and equipment industry. To help market our products, we contract
+with prominent and influential 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 are competitive in all of these areas.
+Trademarks and Patents 
+We
+utilize trademarks on nearly all of our products and believe that having distinctive marks that are readily identifiable is an important factor in creating a market for our goods, in identifying the Company, and in 
+7 
+Table of Contents 
+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 over 100 countries. In addition, we own many other
+trademarks that we utilize in marketing our products. We continue to vigorously protect our trademarks against infringement. 
+NIKE has an exclusive, worldwide license to make and sell footwear using patented “Air” technology. The process utilizes pressurized gas
+encapsulated in polyurethane. Some of the early NIKE AIR ® patents have expired, which may enable competitors to use certain types of similar technology. Subsequent NIKE AIR patents will not expire for several years. We also have a number of patents covering components and
+features used in various athletic and leisure shoes. We believe that our success 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
+filing applications for United States and foreign patents on inventions, designs and improvements that we deem valuable. 
+Employees 
+We had approximately
+23,300 employees at May 31, 2003. Management considers its relationship with employees to be excellent. None of our employees are represented by a union, with the exception of Bauer NIKE Hockey Inc. Of Bauer NIKE Hockey’s North American
+employees, approximately 74 percent, or approximately 550, are covered by three union collective bargaining agreements with three separate bargaining units, and all of Bauer NIKE Hockey’s approximately 210 non-immigrant employees in Italy are
+covered by three collective bargaining agreements. The collective bargaining agreements expire on various dates from 2003 through 2005. There has never been a material interruption of operations due to labor disagreements. 
+Executive Officers of the Registrant 
+The executive officers of NIKE as of July 25, 2003 are as follows: 
+Philip H. Knight, Chief Executive Officer, Chairman of the Board, and President — Mr. Knight, 65, a director since 1968, is a co-founder of NIKE and, except for the period from June 1983 through September
+1984, served as its President from 1968 to 1990, and from June 2000 to present. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at
+Portland State University. 
+Donald W. Blair, Vice
+President and Chief Financial Officer — Mr. Blair, 45, joined NIKE in November 1999. Prior to joining NIKE, he held a number of financial management positions with Pepsico, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice
+President, Planning of PepsiCo’s Pizza Hut Division, and Senior Vice President, Finance of The Pepsi Bottling Group, Inc. Prior to joining Pepsico, Mr. Blair was a certified public accountant with Deloitte, Haskins, and Sells. 
+Thomas E. Clarke, President of New Ventures — Dr. Clarke, 52, a
+director since 1994, joined the Company in 1980. He was appointed divisional Vice President in charge of marketing in 1987, elected corporate Vice President in 1989, appointed General Manager in 1990, and served as President and Chief Operating
+Officer from 1994 to 2000. Dr. Clarke previously held various positions with the Company, primarily in research, design, development and marketing. Dr. Clarke holds a doctorate degree in biomechanics. 
+Wesley A. Coleman , Vice President, Global Human Resources — Mr.
+Coleman, 53, has been employed by Nike since 2002 in his current role. Prior to joining Nike, he held a number of Human Resource positions over a 20-year period with S.C. Johnson and Sons, Inc., including Vice President HR, North America and Vice
+President HR, Asia/Pacific. 
+Charles D. Denson,
+President of the NIKE Brand — Mr. Denson, 47, has been employed by NIKE since February 1979. Mr. Denson held several positions within the Company, including his appointments as Director 
+8 
+Table of Contents 
+of USA Apparel Sales in 1994, divisional Vice President, US Sales in 1994, divisional Vice President European Sales in 1997, divisional Vice President and
+General Manager, NIKE Europe in 1998, Vice President and General Manager of NIKE USA in June 2000, and President of the NIKE Brand in March 2001. 
+Gary M. DeStefano, President of USA Operations — Mr. DeStefano, 46, has been employed by NIKE since 1982, with primary responsibilities in
+sales and regional administration. Mr. DeStefano was appointed Director of Domestic Sales in 1990, divisional Vice President in charge of domestic sales in 1992, Vice President of Global Sales in 1996, Vice President and General Manager of Asia
+Pacific in March 1997, and President of USA Operations in March 2001. 
+Trevor Edwards , Vice President, Global Brand Management — Mr. Edwards, 40, joined the Company in 1992. He was appointed Marketing Manager, Strategic Accounts, Foot Locker in 1993, Director of Marketing, the Americas in 1995,
+Director of Marketing, Europe in 1997, Vice President, Marketing for Europe, Middle East and Africa in 1999, and Vice President, US Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in November
+2002. 
+Mindy F. Grossman, Vice President of Global
+Apparel — Ms. Grossman, 45, joined NIKE in October 2000. Prior to joining NIKE, she was President and Chief Executive Officer of Polo Jeans Company/Ralph Lauren, a division of Jones Apparel Group, Inc. from 1995 to 2000. Prior to that, Ms.
+Grossman was Vice President of New Business Development at Polo Ralph Lauren Corp. from 1994 to 1995, President of The Warnaco Group Inc. Chaps Ralph Lauren division, and Senior Vice President of The Warnaco Group Inc. Menswear division from 1991 to
+1994. 
+P. Eunan McLaughlin, Vice President, Asia Pacific
+— Mr. McLaughlin, 45, joined NIKE as Director of Sales, NIKE Europe in February 1999, was appointed Vice President Commercial Sales and Retail in February 2000, and became Vice President, Asia Pacific in June 2001. Prior to joining NIKE, he was
+Partner and Vice President of Consumer & Retail Practices Division, Korn/Ferry International from 1996 to 1999. From 1983 to 1996 Mr. McLaughlin held various positions with Mars, Inc. in Finance, Sales, Marketing and General Management.
+D. Scott Olivet, Vice President, NIKE Subsidiaries and
+New Business Development — Mr. Olivet, 41, joined NIKE in August 2001. Prior to joining NIKE, he was a Senior Vice President of Gap Inc., responsible for real estate, store design, and construction across Gap, Banana Republic, and Old Navy
+brands from 1998 to 2001. Prior to that, Mr. Olivet was employed by Bain & Company, an international strategic consulting firm from 1984 to 1998 (a Partner from 1993 to 1998). In addition to direct client work, Mr. Olivet was the leader of the
+firm’s worldwide practice in organizational effectiveness and change management. 
+Mark G. Parker, President of the NIKE Brand — Mr. Parker, 47, has been employed by NIKE since 1979 with primary responsibilities in product research, design and development. Mr. Parker was appointed
+divisional Vice President in charge of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in March 2001. 
+Eric D. Sprunk, Vice President, Global Footwear — Mr. Sprunk, 39,
+joined the Company in 1993. He was appointed Finance Director and General Manager of the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General Manager, NIKE Europe Footwear in 1998, and Vice President & General Manager of the
+Americas in 2000. Mr. Sprunk was appointed corporate Vice President, Global Footwear in June 2001. 
+Lindsay D. Stewart, Vice President and Chief of Staff, and Secretary — Mr. Stewart, 56, joined NIKE as Assistant Corporate Counsel in 1981.
+Mr. Stewart became Corporate Counsel in 1983. He was appointed Vice President and General Counsel in 1991, and Chief of Staff in March 2001. Prior to joining NIKE, Mr. Stewart was in private practice and an attorney for Georgia-Pacific Corporation.
+9 
+Table of Contents 
+Frits D. van Paasschen, Vice President and General Manager, NIKE Europe — Mr. van Paasschen,
+42, has been employed by NIKE since 1997. He served as Vice President, Strategic Planning, and was appointed Vice President and General Manager, The Americas and Africa in 1998, and corporate Vice President and General Manager, NIKE Europe in 2000.
+Mr. van Paasschen was formerly Vice President, Finance & Planning, Disney Consumer Products, The Walt Disney Company. 
+Roland P. Wolfram, Vice President, Global Operations & Technology — Mr. Wolfram, 43, joined NIKE as Vice President, Strategic Planning in
+November 1998, and was appointed Vice President, Global Operations & Technology in February 2002. Prior to NIKE, Mr. Wolfram was Vice President and General Manager of Pacific Bell Video Services. From 1992 to 1993 he was director of the desktop
+products group for Compression Labs, Inc.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2002/0001193125-03-031022/item13.txt b/raw/filings/0000320187/2002/0001193125-03-031022/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..92c3c649c28120d4cf788a3f3f8d68694234e852
--- /dev/null
+++ b/raw/filings/0000320187/2002/0001193125-03-031022/item13.txt
@@ -0,0 +1,3 @@
+Item 13. Certain Relationships and Related Transactions 
+The information required by this Item is included under “Certain Transactions and Business Relationships” and “Indebtedness of
+Management” in the definitive Proxy Statement for our 2003 Annual Meeting of Shareholders and is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2002/0001193125-03-031022/item9a.txt b/raw/filings/0000320187/2002/0001193125-03-031022/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e91343d2d877da1d1877964fec73d587786ec1f0
--- /dev/null
+++ b/raw/filings/0000320187/2002/0001193125-03-031022/item9a.txt
@@ -0,0 +1,15 @@
+Item 9A. Controls and Procedures 
+The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s
+Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s
+management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes
+that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit
+relationship of possible controls and procedures. 
+The Company
+carries out a variety of on-going procedures, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Company’s Chief Financial Officer, to evaluate the effectiveness of
+the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures
+were effective at the reasonable assurance level as of May 31, 2003. 
+There has been no change in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the Company’s
+internal controls over financial reporting. 
+63 
+Table of Contents 
+PART III
\ No newline at end of file
diff --git a/raw/filings/0000320187/2002/0001193125-03-031022/rp_note.txt b/raw/filings/0000320187/2002/0001193125-03-031022/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2002/0001193125-03-031022/rpt_disclosure.txt b/raw/filings/0000320187/2002/0001193125-03-031022/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2006/0001193125-07-164166/filing.txt b/raw/filings/0000320187/2006/0001193125-07-164166/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..273c5c55afa24c7a020e020d52afec723c611290
--- /dev/null
+++ b/raw/filings/0000320187/2006/0001193125-07-164166/filing.txt
@@ -0,0 +1,5425 @@
+10-K
+1
+d10k.htm
+FORM 10-K
+Form 10-K 
+Table of Contents 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+Form 10-K 
+(Mark One) 
+þ 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended May 31, 2007 
+or 
+¨ 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the transition period from 
+to . 
+Commission File No. 1-10635 
+NIKE, Inc. 
+(Exact name of Registrant as specified in its charter) 
+Oregon 
+93-0584541 
+(State or other jurisdiction 
+of incorporation) 
+(IRS Employer 
+Identification No.) 
+One Bowerman Drive 
+(503) 671-6453 
+Beaverton, Oregon 97005-6453 
+(Registrant’s Telephone Number, Including Area Code) 
+(Address of principal executive offices) (Zip Code) 
+Securities registered pursuant to Section 12(b) of the Act: 
+Class B Common Stock 
+New York Stock Exchange 
+(Title of Each Class) 
+(Name of Each Exchange on Which Registered) 
+Securities registered pursuant to Section 12(g) of the Act: 
+None 
+Indicate by check mark if the registrant
+is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨ 
+Indicate by check mark if the registrant is not required to file
+reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ 
+Indicate by check mark whether the
+Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and
+(2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨ 
+Indicate by check mark if disclosure of delinquent filers pursuant to
+Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
+this Form 10-K or any amendment to this Form 10-K. þ 
+Indicate by check mark
+whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. 
+Large accelerated filer þ 
+Accelerated filer ¨ 
+Non-accelerated filer ¨ 
+Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
+Act). Yes ¨ No þ 
+As of November 30, 2006, the aggregate market value of the Registrant’s Class A Common Stock held by nonaffiliates of the Registrant was
+$373,096,608 and the aggregate market value of the Registrant’s Class B Common Stock held by nonaffiliates of the Registrant was $17,199,195,520. 
+As of July 25, 2007, the number of shares of the Registrant’s Class A Common Stock outstanding was 117,560,234 and the number of shares of the Registrant’s Class B Common Stock outstanding was
+384,548,464. 
+DOCUMENTS INCORPORATED BY REFERENCE: 
+Parts of Registrant’s Proxy Statement for the annual meeting of shareholders to be held on September 17, 2007 are incorporated by reference into Part III of this Report. 
+Table of Contents 
+NIKE, INC. 
+ANNUAL REPORT ON FORM 10-K 
+TABLE OF CONTENTS 
+Page 
+PART I 
+Item 1. 
+Business 
+2 
+General 
+2 
+Products 
+2 
+Sales and Marketing 
+3 
+United States Market 
+3 
+International Markets 
+4 
+Significant Customer 
+5 
+Orders 
+5 
+Product Research and Development 
+5 
+Manufacturing 
+5 
+International Operations and Trade 
+6 
+Competition 
+8 
+Trademarks and Patents 
+8 
+Employees 
+8 
+Executive Officers of the Registrant 
+8 
+Item 1A. 
+Risk Factors 
+11 
+Item 1B. 
+Unresolved Staff Comments 
+18 
+Item 2. 
+Properties 
+18 
+Item 3. 
+Legal Proceedings 
+18 
+Item 4. 
+Submission of Matters to a Vote of Security Holders 
+18 
+PART II 
+Item 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+19 
+Item 6. 
+Selected Financial Data 
+21 
+Item 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+22 
+Item 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+43 
+Item 8. 
+Financial Statements and Supplemental Data 
+46 
+Item 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+77 
+Item 9A. 
+Controls and Procedures 
+77 
+Item 9B. 
+Other Information 
+77 
+PART III 
+(Except for the information set forth under “Executive Officers of the Registrant” in Item 1 above, Part III is incorporated by reference from the Proxy Statement for the NIKE, Inc.
+2007 annual meeting of shareholders.) 
+Item 10. 
+Directors, Executive Officers and Corporate Governance 
+78 
+Item 11. 
+Executive Compensation 
+78 
+Item 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+78 
+Item 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+78 
+Item 14. 
+Principal Accountant Fees and Services 
+78 
+PART IV 
+Item 15. 
+Exhibits, Financial Statement Schedules 
+79 
+Signatures 
+S-1 
+Table of Contents 
+PART I 
+Item 1. Business 
+General 
+NIKE, 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 the context indicates otherwise. Our Internet address is www.nike.com. On our
+NIKE Corporate web site, located at www.nikebiz.com, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the 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 furnished 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 free of charge. Also available on the NIKE Corporate web site are the charters of the committees of our board of directors, as well as our corporate governance guidelines and code of ethics;
+copies of any of these documents 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 worldwide marketing of high quality footwear, 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 NIKE-owned retail stores, and through a mix of independent distributors and licensees, in over 180 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.
+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-inspired urban shoes, and children’s shoes are currently our top-selling product categories and we expect them to continue to lead in product sales in the near future. We also market shoes designed for tennis, golf, baseball, football,
+lacrosse, walking, outdoor activities, skateboarding, bicycling, volleyball, wrestling, cheerleading, aquatic activities 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 are designed to complement
+our athletic footwear products, 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, including bags, socks, sport balls, eyewear, timepieces, electronic devices, bats, gloves, protective equipment, and other equipment designed for sports activities. We also have agreements for licensees to produce and sell NIKE
+brand swimwear, cycling apparel, children’s clothing, school supplies, electronic devices, eyewear, golf accessories, and belts. We also sell small amounts of various plastic products to other manufacturers through our wholly-owned subsidiary,
+NIKE IHM, Inc. 
+We sell a line of dress and casual footwear, apparel and accessories for men and women under the brand names Cole Haan ® , G Series ® and Bragano ® through our wholly-owned subsidiary, Cole Haan Holdings Incorporated (“Cole Haan”), headquartered in
+Yarmouth, Maine. 
+Our wholly-owned subsidiary Converse Inc. (“Converse”), headquartered in North Andover, Massachusetts, designs
+and distributes athletic and casual footwear, apparel and accessories under the Converse ® , Chuck Taylor ® , All Star ® , One
+Star ® and Jack Purcell ® trademarks, and footwear under the Hurley ® trademark. 
+2 
+Table of Contents 
+Our wholly-owned subsidiary Hurley International LLC (“Hurley”), headquartered in Costa Mesa,
+California, designs and distributes a line of action sports apparel for surfing, skateboarding, and snowboarding, youth lifestyle apparel, and accessories under the Hurley ® trademark. 
+Our wholly-owned subsidiaries NIKE Bauer Hockey Corp. and NIKE Bauer Hockey U.S.A., Inc. (collectively, “NIKE Bauer Hockey”), headquartered in Toronto, Ontario and Greenland, New Hampshire, respectively, manufactures and
+distributes ice skates, skate blades, protective gear, hockey sticks, licensed and team apparel and accessories under the NIKE Bauer ® , and NIKE ® trademarks. NIKE Bauer ® also offers a full selection of products for street and roller hockey. 
+Our wholly-owned subsidiary
+Exeter Brands Group LLC (“Exeter Brands Group”), headquartered in Beaverton, Oregon, sells athletic footwear and apparel in retail channels for value-conscious consumers, and markets licensed athletic footwear and apparel under the Starter
+brand name and “S” logo. 
+Sales and Marketing 
+Financial information about geographic and segment operations appears in Note 17 of the
+consolidated financial statements on page 73. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically,
+revenues in the first and fourth fiscal quarters have slightly exceeded those in the second and third quarters. However, the mix of product sales may vary considerably from time to time 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 fitness activities and changing design trends affect the demand for our products. We must therefore respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles
+and categories, and influencing sports and fitness preferences through aggressive marketing. This is a continuing risk. Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability.
+United States Market 
+In fiscal 2007, sales in the United States (including U.S. sales of Cole Haan, Converse,
+Exeter Brands Group, Hurley, NIKE Bauer Hockey and NIKE Golf) accounted for approximately 47 percent of total revenues, compared to 47 percent in fiscal 2006 and 46 percent in fiscal 2005. We sell to approximately 21,000 retail accounts in the
+United States. The NIKE brand domestic retail 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 fiscal year 2007, our
+three largest customers accounted for approximately 29 percent of NIKE brand sales in the United States excluding sales from NIKE Bauer Hockey and NIKE Golf, and 24 percent of total sales in the United States. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in advance of delivery with
+the commitment that 90 percent of their orders will be delivered within a set time period at a fixed price. In fiscal year 2007, 94 percent of our U.S. wholesale footwear shipments (excluding Cole Haan, Converse, Exeter Brands Group, Hurley, NIKE
+Bauer Hockey and NIKE Golf) were made under the futures program, compared to 90 percent in fiscal 2006 and 91 percent in fiscal 2005. In fiscal 2007, 81 percent of our U.S. wholesale apparel shipments (excluding Cole Haan, Converse, Exeter Brands
+Group, Hurley, NIKE Bauer Hockey and NIKE Golf) were made under the futures program, compared to 69 percent in fiscal 2006, and 71 percent in fiscal 2005. 
+3 
+Table of Contents 
+We utilize 18 NIKE sales offices to solicit sales in the United States. We also utilize 14 independent
+sales representatives to sell specialty products for golf. In addition, we sell NIKE brand products through our internet website, www.nikestore.com , and we operate the following retail outlets in the United States: 
+U.S. Retail Stores 
+Number 
+NIKE factory stores (which carry primarily overstock and closeout merchandise) 
+102 
+NIKE stores (including NIKE Women stores) 
+14 
+NIKETOWNs (designed to showcase NIKE products) 
+12 
+NIKE employee-only stores 
+4 
+Cole Haan stores (including factory and employee stores) 
+95 
+Converse stores (including factory and employee stores) 
+20 
+Hurley stores 
+7 
+Total 
+254 
+NIKE’s domestic distribution centers for footwear are located in Wilsonville, Oregon, and
+Memphis, Tennessee. Apparel and equipment products are shipped from our Memphis, Tennessee, Tigard, Oregon, and Foothill Ranch, California distribution centers. Cole Haan and NIKE Bauer Hockey products are distributed primarily from Greenland, New
+Hampshire, and Converse products are shipped from Ontario and Fontana, California. 
+International Markets 
+In fiscal 2007, non-U.S. sales (including non-U.S. sales of Cole Haan, Converse, Exeter
+Brands Group, Hurley, NIKE Bauer Hockey and NIKE Golf) accounted for 53 percent of total revenues in fiscal 2007, compared to 53 percent in fiscal 2006 and 54 percent in fiscal 2005. We sell our products to retail accounts, through NIKE-owned retail
+stores, and through a mix of independent distributors and licensees around the world. We estimate that we sell to more than 25,000 retail accounts outside the United States, excluding sales by independent distributors and licensees. We operate 11
+distribution centers in Europe, Asia, Australia, Africa and Canada. In many countries and regions, including Canada, Asia, some Latin American countries, and Europe, we have a futures ordering program for retailers similar to the United States
+futures program described above. NIKE’s three largest customers outside of the U.S. accounted for approximately 9 percent of NIKE brand sales outside the United States excluding sales from NIKE Bauer Hockey and NIKE Golf, and approximately
+9 percent of total non-U.S. sales. 
+We operate the following retail outlets outside the United States: 
+Non-U.S. Retail Stores 
+Number 
+NIKE factory stores 
+126 
+NIKE stores 
+33 
+NIKETOWNs 
+3 
+NIKE employee-only stores 
+9 
+Cole Haan stores 
+61 
+Total 
+232 
+International branch offices and subsidiaries of NIKE are located in Argentina, Australia,
+Austria, Belgium, Brazil, Bulgaria, Canada, Chile, Croatia, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, Indonesia, India, Ireland, Israel, Italy, Japan, Korea, Lebanon, Malaysia, Mexico, New Zealand,
+the Netherlands, Norway, People’s Republic of China, the Philippines, Poland, Portugal, Russia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom, Uruguay and
+Vietnam. 
+4 
+Table of Contents 
+Significant Customer 
+Foot Locker, Inc., which operates a chain of retail stores specializing in athletic
+footwear and apparel, accounted for approximately 10 percent of global net sales of NIKE, Inc. during fiscal 2007. No other customer accounted for 10 percent or more of our net sales during fiscal 2007. 
+Orders 
+Worldwide futures and advance orders for NIKE brand athletic footwear and apparel, scheduled for
+delivery from June through November 2007, were $7.7 billion compared to $6.6 billion for the same period last year. This futures and advance order amount is calculated based upon our forecast of the actual exchange rates under which our revenues
+will be translated during this period, which approximate current spot rates. Based upon historical data, we expect that approximately 95 percent of these orders will be filled in that time period, although some orders may be cancelled. 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 advance/futures and at-once orders. 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 and advance orders and actual revenues. Moreover, a significant portion of our revenue is not derived from futures
+and advance orders, including at-once and closeout sales of NIKE footwear and apparel, wholesale sales of equipment, Cole Haan, Converse, Exeter Brands Group, Hurley, NIKE Bauer Hockey, NIKE Golf, and retail sales across all brands. 
+Product Research and Development 
+We believe that 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 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, 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 and concepts for
+product improvement. Employee athletes and other athletes wear-test and evaluate products during the design and development process. 
+Manufacturing 
+Virtually all of our footwear is produced outside of the United States. In fiscal 2007, contract
+suppliers in China, Vietnam, Indonesia and Thailand manufactured 35 percent, 31 percent, 21 percent and 12 percent of total NIKE brand footwear, respectively. We also have manufacturing agreements with independent factories in Argentina, Brazil,
+India, Italy, and South Africa to manufacture footwear for sale primarily within those countries. Our largest single footwear factory accounted for approximately 6 percent of total fiscal 2007 footwear production. 
+Almost all of NIKE brand apparel production for sale to the United States market, and all of our apparel production for sale to the international market,
+was manufactured outside of the United States by independent contract manufacturers located in 36 countries. Most of this apparel production occurred in China, Thailand, Indonesia, Malaysia, Turkey, Honduras, Vietnam, Sri Lanka, Mexico, Taiwan,
+Cambodia, India and Bangladesh. Our largest single apparel factory accounted for approximately 6 percent of total fiscal 2007 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. NIKE IHM, Inc.,
+NIKE (Suzhou) Sports Company, Ltd., wholly-owned subsidiaries of NIKE, and independent contractors in China and Taiwan, are 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 
+5 
+Table of Contents 
+threads, plastic and metal hardware, and specialized performance fabrics designed to repel rain, retain heat, or efficiently transport body moisture. NIKE
+and its contractors and suppliers buy raw materials in bulk. Most raw materials are available 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, has performed significant import-export
+financing services for us. During fiscal 2007, Sojitz America provided such financing services for NIKE Brand products sold in Argentina, Uruguay, Canada, Chile, Mexico, Brazil, India, Panama, The Philippines, Malaysia, South Africa, China, Korea,
+and Thailand excluding products produced and sold in the same country. Approximately 13 percent 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 outside of the United States, Europe, Middle East, Africa and Japan. 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, 2008. 
+International Operations and Trade 
+Our international operations and sources of supply are subject to the usual
+risks of doing business abroad, such as possible revaluation of currencies, export duties, anti-dumping duties, 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 developments occurring. 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 outside of the United States. 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 that we could abate any such disruption within a period of no more than 12 months, and that much of the adverse impact on supply would, therefore, be of a short-term nature. We
+believe that our principal competitors are subject to similar risks. 
+As a result of the Trade Act of 2003, the United States implemented
+significant new Federal requirements for cargo security, focused on imports of containerized cargo. We are a significant importer of containerized cargo. Accordingly, we participate actively in appropriate governmental programs, such as the Customs
+Trade Partnership Against Terrorism, to reduce risks of possible supply disruptions caused by U.S. and international cargo security mandates and terrorism. We and a broad coalition of businesses have been actively working with the United States
+Congress as it considers legislation to make U.S. ports more secure. We are actively following this proposed legislation and believe that any legislation, if passed, will not have a significant impact on our supply chain. We believe that our major
+competitors stand in much the same position of risk regarding this potential legislation. 
+All of our products manufactured overseas and
+imported into the United States, the European Union (“EU”) and other countries are subject to customs duties collected by customs authorities. Customs information submitted by us is routinely subject to review by customs authorities. We
+are unable to predict whether additional customs duties, anti-dumping duties, quotas, safeguard measures, or other trade restrictions may be imposed on the importation of our products in the future. Such actions could result in increases in the cost
+of our products generally which might adversely affect the sales or profitability of NIKE and the imported footwear and apparel industry as a whole. Accordingly, we are actively monitoring the developments described below. 
+6 
+Table of Contents 
+Footwear Imports into the European Union 
+From 1994 through January 1, 2005, the EU imposed limits (or “quotas”) on the import of certain types of footwear manufactured in China.
+Footwear designed for use in sporting activities, meeting certain technical criteria and having a CIF (cost, insurance and freight) price above nine euros (“Special Technology Athletic Footwear” or “STAF”), was excluded from the
+quotas. As a result of the STAF exclusion, and the amount of quota made available to us, the quotas did not have a material effect on our business. However, as part of China’s 2001 accession to the World Trade Organization (“WTO”),
+China entered into an agreement with the EU and other WTO members to abide by a special safeguard arrangement whereby quotas could be imposed on any product sourced in China, including footwear, if there was a surge in imports from China into
+another WTO country, and after a legal proceeding it was determined that such imports were injuring a domestic producer. Additionally, under longstanding WTO rules, all WTO member countries reserved the right to impose (1) safeguard measures
+(temporary quotas) if it can be demonstrated in a legal proceeding that increased imports are injuring another WTO member’s domestic industry; and (2) anti-dumping measures if it can be demonstrated in a legal proceeding that imports are
+being sold at an unfair low price in another WTO member’s home market, and those imports were causing or threatening to cause material injury to the domestic industry. 
+Accordingly, with the phase-out of the quotas at the beginning of 2005, and the expiration of a separate EU anti-dumping case in 2003 against footwear
+made in China, Indonesia, and Thailand, there has been renewed pressure from some parts of the EU footwear manufacturing sector to re-impose some level of trade protection on imported footwear from China, India, Vietnam, and other exporting
+countries. In July 2005, the European Commission, at the request of the European domestic footwear industry, initiated investigations into leather footwear imported from China and Vietnam. NIKE and all other major athletic footwear manufacturers
+participated actively as respondents in this investigation and took the position that athletic footwear (i) should not be within the product scope of the investigation, and (ii) does not meet the legal requirements of injury and price in
+an anti-dumping investigation. Our arguments were successful and the EU agreed in October 2006 on definitive duties of 16.5% for China and 10% for Vietnam, but excluded STAF from the measures, and also agreed to implement the duties for two rather
+than the normal five-year period. As a result, these measures did not significantly impact our business and we believe that our major competitors stand in much the same position regarding these trade measures. 
+Vietnam Imports into the United States 
+We currently source a portion of our footwear and apparel products from factories in Vietnam. In 2001, the United States Congress and the Vietnamese National Assembly approved a comprehensive bilateral trade agreement, which, among other
+things, provides reciprocal, non-discriminatory Normal Trade Relations (“NTR”) between the U.S. and Vietnam. Following Congressional approval of granting Vietnam Permanent Normal Trade Relations in 2006, Vietnam is now a full member of the
+WTO. Vietnam’s entry into the WTO will provide us greater certainty about our business within Vietnam. It will likewise enable us to further expand our production and marketing opportunities in Vietnam and allow for Vietnamese-sourced products
+to continue to enter the United States at NTR tariff rates. 
+Trade Relations with China 
+China represents a critically important sourcing and marketing country for us. Many governments around the world are concerned about China’s growing
+and fast-paced economy, compliance with WTO rules, and high trade deficits. As a result there is a wide range of legislative proposals that have been introduced to address these concerns. While some of these concerns are justified, we are working
+with broad coalitions of global businesses and trade associations who represent a wide variety of sectors (e.g. services, manufacturing, agriculture) to help ensure that any legislation enacted and implemented (i) addresses legitimate and core
+concerns, (ii) is consistent with international trade rules, and (iii) is reflective and considerate of China’s domestic economy and important role in the global economic community. We believe that our major competitors as well as
+most other multi-national companies stand in much the same position regarding these trade measures. 
+7 
+Table of Contents 
+Competition 
+The athletic footwear, apparel and equipment industry is keenly competitive in the United States
+and on a worldwide basis. We compete internationally with an increasing number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and
+leisure shoes, apparel and equipment, including Adidas, Puma, and 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 and athletic apparel in the world.
+Performance and reliability of shoes, apparel, and equipment, new product development, price, product identity through marketing and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel
+and equipment industry. To help market our products, we contract with prominent and influential 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 are competitive in all of these areas. 
+Trademarks and Patents 
+We utilize trademarks on nearly all of our products and believe that having distinctive
+marks that are readily identifiable is an important factor in creating a market for our goods, in identifying 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 over 100 countries. In
+addition, we own many other trademarks that we utilize in marketing our products. We continue to vigorously protect our trademarks against infringement. 
+NIKE has an exclusive, worldwide license to make and sell footwear using patented “Air” technology. The process utilizes pressurized gas encapsulated in polyurethane. Some of the early NIKE AIR ® patents have expired, which may enable competitors to
+use certain types of similar technology. Subsequent NIKE AIR ® patents will not expire for several years. We also have hundreds of U.S. and foreign utility patents, and thousands of U.S. and foreign design patents covering components and features used in various athletic and
+leisure shoes, apparel, and equipment. These patents expire at various times, and have a remaining duration of from now to at least 2021 for design patents, and from now to at least 2027 for utility patents. We believe that our success 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 filing applications for United States and foreign patents on inventions, designs and
+improvements that we deem valuable. 
+Employees 
+We had approximately 30,200 employees at May 31, 2007. Management considers its relationship
+with employees to be excellent. None of our employees is represented by a union, with the exception of NIKE Bauer Hockey. Of NIKE Bauer Hockey’s employees, approximately 39 percent, or approximately 157, are covered by two union collective
+bargaining agreements with two separate bargaining units. The collective bargaining agreements expire on various dates from 2007 through 2008. There has never been a material interruption of operations due to labor disagreements. 
+Executive Officers of the Registrant 
+The executive officers of NIKE as of July 25, 2007 are as follows:
+Philip H. Knight, Chairman of the Board — Mr. Knight, 69, a director since 1968, is a co-founder of NIKE and, except for
+the period from June 1983 through September 1984, served as its President from 1968 to 1990, and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand
+and was an Assistant Professor of Business Administration at Portland State University. 
+8 
+Table of Contents 
+Mark G. Parker, Chief Executive Officer and President — Mr. Parker, 51, was appointed
+CEO and President in January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in
+charge of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. 
+David J. Ayre, Vice President, Global Human Resources — Mr. Ayre, 47, joined NIKE as Vice President, Global Human Resources in July
+2007. Prior to joining NIKE, he held a number of senior human resource positions with Pepsico, Inc. since 1990, most recently as head of Talent and Performance Rewards. 
+Lewis L. Bird III, President, Subsidiaries — Mr. Bird, 43, joined NIKE as President, Subsidiaries in July 2006. Prior to joining NIKE, he held a number of management positions within multinational
+companies with diverse brand portfolios. He was Executive Vice President of New Business Development for Gap Inc. from September 2005 to March 2006. Prior to that, Mr. Bird served as Chief Operating Officer of Gap Inc.’s
+North American division from March 2003 to September 2005, Chief Financial Officer of Gap Inc.’s Old Navy division from 2001 to 2003, Vice President Finance & Operations of Gateway, Inc. from 1999 to 2001, Director of Business
+Analysis & Planning at AlliedSignal Inc. from 1998 to 1999, and prior to that held financial management positions with AlliedSignal, Ford Motor Company and BayBanks, Inc. 
+Donald W. Blair, Vice President and Chief Financial Officer — Mr. Blair, 49, joined NIKE in November 1999. Prior to joining NIKE, he
+held a number of financial management positions with Pepsico, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice President, Planning of PepsiCo’s Pizza Hut Division, and Senior Vice President, Finance of The Pepsi Bottling Group,
+Inc. Prior to joining Pepsico, Mr. Blair was a certified public accountant with Deloitte, Haskins, and Sells. 
+Mary Kate Buckley,
+Vice President/General Manager, Americas — Ms. Buckley, 47, has been employed by NIKE since 1998. She was appointed Director of New Business Development in 1998, Director of nike.com in 1998, divisional Vice President of nike.com in
+1999, and divisional Vice President and General Manger, Americas Region in 2001. Ms. Buckley was appointed corporate Vice President and General Manager, Americas in July 2006. Prior to joining NIKE, Ms. Buckley worked in several positions
+in finance, marketing and strategic planning for The Walt Disney Company. 
+Craig Cheek, Vice President and General Manager, USA
+Region, Mr. Cheek, 45, has been employed by NIKE since 1990. Mr. Cheek held several sales management positions in the USA Region of the Company, and was appointed General Manager, USA Footwear in 2003, and divisional Vice President, USA
+Footwear from 2004 to 2006. Mr. Cheek was appointed corporate Vice President and General Manager, USA Region in July 2006. Prior to joining NIKE, Mr. Cheek held management positions at Nordstrom and Hilton Hotels. 
+Thomas E. Clarke, President of New Ventures — Dr. Clarke, 56, a director from 1994 to 2004, joined NIKE in 1980. He was appointed
+divisional Vice President in charge of marketing in 1987, elected corporate Vice President in 1989, appointed General Manager in 1990, and served as President and Chief Operating Officer from 1994 to 2000. Dr. Clarke previously held
+various positions with the Company, primarily in research, design, development and marketing. Dr. Clarke holds a doctorate degree in biomechanics. 
+Charles D. Denson, President of the NIKE Brand — Mr. Denson, 51, has been employed by NIKE since 1979. Mr. Denson held several management positions within the Company, including his appointments
+as Director of USA Apparel Sales in 1994, divisional Vice President, U.S. Sales in 1994, divisional Vice President European Sales in 1997, divisional Vice President and General Manager, NIKE Europe in 1998, Vice President and General Manager of NIKE
+USA in 2000, and President of the NIKE Brand in 2001. 
+Gary M. DeStefano, President of Global Operations — Mr. DeStefano,
+50, has been employed by NIKE since 1982, with primary responsibilities in sales and regional administration. Mr. DeStefano was appointed Director of Domestic Sales in 1990, divisional Vice President in charge of domestic sales in 1992, Vice
+President 
+9 
+Table of Contents 
+of Global Sales in 1996, Vice President and General Manager of Asia Pacific in 1997, President of USA Operations in 2001 and President of Global Operations
+in 2006. 
+Trevor Edwards, Vice President, Global Brand and Category Management — Mr. Edwards, 44, joined NIKE in 1992. He
+was appointed Marketing Manager, Strategic Accounts, Foot Locker in 1993, Director of Marketing, the Americas in 1995, Director of Marketing, Europe in 1997, Vice President, Marketing for Europe, Middle East and Africa in 1999, and Vice President,
+U.S. Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in 2002 and Vice President, Global Brand and Category Management in 2006. 
+Adam S. Helfant, Vice President, Global Sports Marketing — Mr. Helfant, 42, joined NIKE in 1995 in the Company’s legal department,
+and was appointed Director of Business Affairs for Global Sports Marketing in 1997, Director of Global Sports Marketing in 1998, Director of U.S. Sports Marketing in 2001, Vice President of U.S. Sports Marketing in 2003, and corporate Vice
+President, Global Sports Marketing in August 2004. Prior to joining NIKE, he was in private practice and an attorney for NHL Enterprises, Inc. 
+Joaquin Hidalgo, Vice President, Global Marketing and Soccer — Mr. Hidalgo, 46, joined NIKE in 1990. Mr. Hidalgo held various sales and marketing management positions in the Company’s USA and Americas Regions. He
+was appointed Director, CBF Business Unit, NIKE Football in 1997, Vice President and Global Brand Director, NIKE Football in 1998, Vice President, USA Marketing and Brand Management in 2002, and corporate Vice President, Global Marketing and Soccer
+in July 2006. Prior to joining NIKE, he was a marketing representative and product line manager at IBM. 
+Elliott Hill, Vice
+President, Global Retail — Mr. Hill, 43, has been employed by NIKE since 1988, with primary responsibilities in sales and retail operations. Mr. Hill was appointed divisional Vice President, EMEA Sales and Retail in 2000, Vice
+President and General Manager, NIKE USA Retail in 2003, Vice President, USA Commerce in 2004, and corporate Vice President, Global Retail in August 2006. Prior to joining NIKE, Mr. Hill worked as an assistant athletic trainer for the Dallas
+Cowboys. Mr. Hill is a member of the Board of Directors of Big Brothers Big Sisters Northwest. 
+P. Eunan McLaughlin, Vice
+President, Europe, Middle East & Africa — Mr. McLaughlin, 49, joined NIKE as Director of Sales, NIKE Europe in 1999, and was appointed Vice President Commercial Sales and Retail in 2000, Vice President, Asia Pacific in 2001, and
+Vice President, Europe, Middle East & Africa in May 2004. Prior to joining NIKE, he was Partner and Vice President of Consumer & Retail Practices Division, Korn/Ferry International from 1996 to 1999. From 1983 to 1996
+Mr. McLaughlin held various positions with Mars, Inc. in finance, sales, marketing and general management. 
+Eric D. Sprunk,
+Vice President, Global Footwear — Mr. Sprunk, 43, joined NIKE in 1993. He was appointed Finance Director and General Manager of the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General Manager, NIKE Europe Footwear
+in 1998, and Vice President & General Manager of the Americas in 2000. Mr. Sprunk was appointed corporate Vice President, Global Footwear in 2001. Prior to joining NIKE, Mr. Sprunk was a certified public accountant with Price
+Waterhouse from 1987 to 1993. 
+Lindsay D. Stewart, Vice President and Chief of Staff — Mr. Stewart, 60, joined NIKE as
+Assistant Corporate Counsel in 1981. Mr. Stewart became Corporate Counsel in 1983. He was appointed Vice President and General Counsel in 1991, and Chief of Staff in 2001. Prior to joining NIKE, Mr. Stewart was in private practice and an
+attorney for Georgia-Pacific Corporation. 
+Hans van Alebeek, Vice President, Global Operations & Technology —
+Mr. van Alebeek, 41, joined NIKE as Director of Operations of Europe in 1999, and was appointed Vice President, Operations & Administration in EMEA in 2001, Vice President, Global Operations in 2003, Vice President, Global
+Operations & Technology in 2004, and Corporate Vice President in November 2005. Prior to joining NIKE, Mr. van Alebeek worked for McKinsey & Company as a management consultant, and at N.V. Indivers in business development.
+10 
+Table of Contents 
+Roland P. Wolfram, Vice President and General Manager, Asia Pacific — Mr. Wolfram, 47,
+joined NIKE as Vice President, Strategic Planning in 1998, and was appointed Vice President, Global Operations & Technology in 2002, and Corporate Vice President, Asia Pacific in April 2004. Prior to NIKE, Mr. Wolfram was
+Vice President and General Manager at Pacific Bell Video Services. 
+Roger S. Wyett, Vice President, Global Apparel —
+Mr. Wyett, 50, returned to NIKE in April 2005 as President and Chief Operating Officer of the Company’s Hurley brand and was appointed Vice President, Global Apparel in 2006. Mr. Wyett first joined NIKE in 1994, holding a number of
+management positions in soccer and NIKE Team Sports. In 2000, Mr. Wyett joined The Walt Disney Company where he was Senior Vice President for Global Apparel, Accessories and Footwear, and later promoted to Executive Vice President for Global
+Sales and Marketing for Consumer Products. 
+Item 1A. Risk 
+Factors 
+Special Note Regarding Forward-Looking
+Statements and Analyst Reports 
+Certain written and oral statements, other than purely historical information, including estimates,
+projections, statements relating to NIKE’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, made or incorporated by reference from time to time by NIKE or its representatives
+in this report, other reports, filings with the Securities and Exchange Commission, or SEC, press releases, conferences, or otherwise, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of
+1995 and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may
+contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” or words or phrases of similar meaning.
+Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by NIKE with the SEC,
+including Forms 8-K, 10-Q, and 10-K, and include, among others, the following: international, national and local general economic and market conditions; the size and growth of the overall athletic footwear, apparel, and equipment markets; intense
+competition among designers, marketers, distributors and sellers of athletic footwear, apparel, and equipment for consumers and endorsers; demographic changes; changes in consumer preferences; popularity of particular designs, categories of
+products, and sports; seasonal and geographic demand for NIKE products; difficulties in anticipating or forecasting changes in consumer preferences, consumer demand for NIKE products, and the various market factors described above; difficulties in
+implementing, operating, and maintaining NIKE’s increasingly complex information systems and controls, including, without limitation, the systems related to demand and supply planning, and inventory control; interruptions in data and
+communications systems; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that advance “futures” orders may not be indicative of future revenues due to the changing mix of futures and
+at-once orders, currency exchange rate fluctuations, order cancellations, and the fact that a significant portion of our revenue is not derived from futures orders; the ability of NIKE to sustain, manage or forecast its growth and inventories; the
+size, timing and mix of purchases of NIKE’s products; new product development and introduction; the ability to secure and protect trademarks, patents, and other intellectual property; performance and reliability of products; customer service;
+adverse publicity; the loss of significant customers or suppliers; dependence on distributors; business disruptions; increased costs of freight and transportation to meet delivery deadlines; increases in borrowing costs due to any decline in our
+debt ratings; changes in business strategy or development plans; general risks associated with doing business outside the United States, including without limitation, import duties, tariffs, quotas, political and economic instability, and terrorism;
+changes in government regulations; liability and other claims asserted against NIKE; the ability to attract and retain qualified personnel; and other factors referenced or incorporated by reference in this report and other reports. 
+The risks included here are not exhaustive. Other sections of this report may include additional factors which could adversely affect NIKE’s
+business and financial performance. Moreover, NIKE operates in a very 
+11 
+Table of Contents 
+competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk
+factors, nor can it assess the impact of all such risk factors on NIKE’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
+statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. 
+Our products face intense competition. 
+NIKE is a consumer products company and the relative popularity of various
+sports and fitness activities and changing design trends affect the demand for our products. The athletic footwear, apparel and equipment industry is keenly competitive in the United States and on a worldwide basis. We compete internationally with
+an increasing number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel and equipment. We also compete with
+other companies for the production capacity of independent manufacturers that produce our products and for import quota capacity. 
+Our
+competitors’ product offerings, technologies, marketing expenditures (including for advertising and endorsements), pricing, costs of production, and customer service are areas of intense competition. This, in addition to 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. If we do not adequately and timely anticipate and respond to our
+competitors, our costs may increase or the consumer demand for our products may decline significantly. 
+If we are unable to anticipate consumer
+preferences and develop new products, we may not be able to maintain or increase our net revenues and profits. 
+Our success depends
+on our ability to identify, originate and define product trends as well as to anticipate, gauge and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with
+certainty. Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of performance or other sports apparel or away from these types of products altogether, and our future success depends in
+part on our ability to anticipate and respond to these changes. If we fail to anticipate accurately and respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, designs, styles
+and categories, and influencing sports and fitness preferences through aggressive marketing, we could experience lower sales, excess inventories and lower profit margins, any of which could have an adverse effect on our results of operations and
+financial condition. 
+We rely on technical innovation to compete in the market for our products. 
+Although design and aesthetics of our products appear to be the most important factor for consumer acceptance of our products, technical innovation in the
+design of footwear, apparel, and athletic equipment is also essential to the commercial success of our products. Research and development plays a key role in technical innovation. We rely upon specialists in the fields of biomechanics, exercise
+physiology, engineering, industrial design and related fields, as well as research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists and other experts to develop cutting edge
+performance products. While we strive to produce products that help to reduce injury, enhance athletic performance and maximize comfort, failure to introduce technical innovation in our products could result in a decline in consumer demand for our
+products. 
+12 
+Table of Contents 
+Failure to continue to obtain high quality endorsers of our products could harm our business. 
+We establish relationships with professional athletes and sports teams and leagues to evaluate and promote our products, and establish the authenticity
+of our products with consumers. If certain of our endorsers were to stop using our products contrary to their endorsement agreements, our business could be adversely affected. In addition, actions taken by athletes, teams or leagues associated with
+our products that harm the reputations of those athletes, teams or leagues could also harm our brand image with consumers and, as a result, could have an adverse effect on our sales and financial condition. In addition, poor performance by our
+endorsers, a failure to continue to correctly identify promising athletes to use and endorse our products, or a failure to enter into endorsement arrangements with prominent athletes and sports organizations could adversely affect our brand and
+result in decreased sales of our products. 
+Failure of our contractors to comply with our code of conduct, local laws, and other standards could harm
+our business. 
+We contract with hundreds of contractors outside of the United States to manufacture NIKE Brand products, and we
+impose on those contractors a code of conduct and other environmental, health, and safety standards for the benefit of workers. However, from time to time contractors may not be in compliance with such standards or applicable local law. Significant
+or continuing noncompliance with such standards and laws by one or more contractors could harm our reputation and, as a result, could have an adverse effect on our sales and financial condition. 
+Our business is affected by seasonality, which could result in fluctuations in our operating results and stock price. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have
+slightly exceeded those in the second and third fiscal quarters. However, the mix of product sales may vary considerably from time to time as a result of changes in seasonal and geographic demand for particular types of footwear, apparel and
+equipment. In addition, our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice. As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our results of
+operations are likely to fluctuate significantly from period to period. This seasonality, along with other factors that are beyond our control, including general economic conditions, changes in consumer preferences, weather conditions, availability
+of import quotas and currency exchange rate fluctuations, could adversely affect our business and cause our results of operations to fluctuate. Our operating margins are also sensitive to a number of factors that are beyond our control, including
+shifts in product sales mix, geographic sales trends, and currency exchange rate fluctuations, all of which we expect to continue. Results of operations in any period should not be considered indicative of the results to be expected for any future
+period. 
+“Futures” orders may not be an accurate indication of our future revenues. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in advance of delivery with
+the commitment that 90 percent of their orders will be delivered within a set period at a fixed price. Our futures ordering program allows us to minimize the amount of products we hold in inventory, purchasing costs, the time necessary to fill
+customer orders, and the risk of non-delivery. We report changes in futures orders in our periodic financial reports. Although we believe futures orders are an important indicator of our future revenues, reported futures orders are not necessarily
+indicative of our expectation of changes in revenues for any future period. This is because the mix of orders can shift between advance/futures and at-once orders. In addition, foreign currency exchange rate fluctuations, order cancellations,
+returns, 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 closeout sales of NIKE footwear and
+apparel, wholesale sales of equipment, Cole Haan, Converse, Exeter Brands Group, Hurley, NIKE Bauer Hockey, NIKE Golf, and retail sales across all brands. 
+13 
+Table of Contents 
+Our “futures” ordering program does not prevent excess inventories or inventory shortages, which could
+result in decreased operating margins and harm to our business. 
+We purchase products from manufacturers outside of our futures
+ordering program and in advance of customer orders, which we hold in inventory and re-sell to customers. There is a risk that we may be unable to sell excess products that we have ordered from manufacturers. Inventory levels in excess of customer
+demand may result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and have an adverse effect on our operating results and financial condition. Conversely, if we underestimate
+consumer demand for our products or if our manufacturers fail to supply the products that we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer
+and distributor relationships, and diminish brand loyalty. 
+The difficulty in forecasting demand also makes it difficult to estimate our
+future results of operations and financial condition from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects
+with any certainty in advance. 
+We may be adversely affected by the financial health of our retailers. 
+We extend credit to our customers based on an assessment of a customer’s financial condition, generally without requiring collateral. To assist in
+the scheduling of production and the shipping of seasonal products, we offer customers the ability to place orders five to six months ahead of delivery under our “futures” ordering program. These advance orders may be cancelled, and the
+risk of cancellation may increase when dealing with financially ailing retailers or retailers struggling with economic uncertainty. In the past, some customers have experienced financial difficulties, which in turn have had an adverse effect on our
+business. From time to time retailers will be more cautious than usual with orders as a result of weakness in the retail economy. A slowing economy in our key markets could have an adverse effect on the financial health of our customers, which could
+in turn have an adverse effect on our results of operations and financial condition. 
+Consolidation of retailers or concentration of retail market
+share among a few retailers may increase and concentrate our credit risk, and impair our ability to sell our products. 
+The athletic
+footwear, apparel, and equipment retail markets in some countries are dominated by a few large athletic footwear, apparel, and equipment retailers with many stores. These significant retailers have been increasing their market share by expanding
+through acquisitions and construction of additional stores. These situations concentrate our credit risk in a relatively small number of retailers, and, if any of these retailers were to experience a shortage of liquidity, it would increase the risk
+that their outstanding payables to us may not be paid. In addition, increasing market share concentration among one or a few retailers in a particular country or region increases the risk that if any one of them substantially reduces their purchases
+of our products, we may be unable to find a sufficient number of other retail outlets for our products to sustain the same level of sales and revenues. 
+Failure to adequately protect our intellectual property rights could adversely affect our business. 
+We utilize trademarks on nearly all of our products and believe that having distinctive marks that
+are readily identifiable is an important factor in creating a market for our goods, in identifying us, 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 over 100 countries. In addition, we own many other trademarks that we utilize in marketing our products. We
+believe that our trademarks, patents, and other intellectual property rights are important to our brand, our success and our competitive position. We periodically discover products that are counterfeit reproductions of our products or that otherwise
+infringe on our intellectual property rights. If we are unsuccessful in challenging a party’s products on the basis of trademark or design or 
+14 
+Table of Contents 
+utility patent infringement, continued sales of these products could adversely affect our sales and our brand and result in the shift of consumer preference
+away from our products. The actions we take to establish and protect trademarks, patents, and other intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of
+our products as violations of proprietary rights. 
+In addition, the laws of certain foreign countries may not protect intellectual property
+rights to the same extent as do the laws of the United States. We may face significant expenses and liability in connection with the protection of our intellectual property rights outside the United States, and if we are unable to successfully
+protect our rights or resolve intellectual property conflicts with others, our business or financial condition may be adversely affected. 
+We are
+subject to periodic litigation and other regulatory proceedings, which could result in unexpected expense of time and resources. 
+We
+are a defendant from time to time in lawsuits and regulatory actions relating to our business. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An
+unfavorable outcome could have an adverse impact on our business, financial condition and results of operations. In addition, any significant litigation in the future, regardless of its merits, could divert management’s attention from our
+operations and result in substantial legal fees. 
+Our international operations involve inherent risks which could result in harm to our business.
+Virtually all of our athletic footwear and apparel is manufactured outside of the United States, and the majority of our products
+are sold outside of the United States. Accordingly, we are subject to the risks generally associated with global trade and doing business abroad, which include foreign laws and regulations, varying consumer preferences across geographic regions,
+political unrest, disruptions or delays in cross-border shipments and changes in economic conditions in countries in which we manufacture or sell products. In addition, disease outbreaks, terrorist acts and military conflict have increased the risks
+of doing business abroad. These factors, among others, could affect our ability to manufacture products or procure materials, our ability to import products, our ability to sell products in international markets, and our cost of doing business. If
+any of these or other factors make the conduct of business in a particular country undesirable or impractical, our business could be adversely affected. In addition, many of our imported products are subject to duties, tariffs or quotas that affect
+the cost and quantity of various types of goods imported into the United States and other countries. Any country in which our products are produced or sold may eliminate, adjust or impose new quotas, duties, tariffs, safeguard measures, anti-dumping
+duties, cargo restrictions to prevent terrorism, restrictions on the transfer of currency, or other charges or restrictions, any of which could have an adverse effect on our results of operations and financial condition. 
+Currency exchange rate fluctuations could result in higher costs and decreased margins. 
+A majority of our products are sold outside of the United States. As a result, we conduct transactions in various currencies, which increases our exposure
+to fluctuations in foreign currency exchange rates relative to the U.S. dollar. Our international revenues and expenses generally are derived from sales and operations in foreign currencies, and these revenues and expenses could be affected by
+currency fluctuations, including amounts recorded in foreign currencies and translated into U.S. dollars for consolidated financial reporting. Currency exchange rate fluctuations could also disrupt the business of the independent manufacturers that
+produce our products by making their purchases of raw materials more expensive and more difficult to finance. Foreign currency fluctuations could have an adverse effect on our results of operations and financial condition. 
+We engage in hedging activities to mitigate the impact of the translation of foreign currencies on our financial results. See Note 16 to our financial
+statements, Risk Management and Derivatives. Our hedging 
+15 
+Table of Contents 
+activities are designed to reduce and delay, but not to eliminate, the effects of foreign currency fluctuations. Factors that could affect the effectiveness
+of our hedging activities include accuracy of sales forecasts, volatility of currency markets, and the availability of hedging instruments. Since the hedging activities are designed to reduce volatility, they not only reduce the negative impact of a
+stronger U.S. dollar, but they also reduce the positive impact of a weaker U.S. dollar. Our future financial results could be significantly affected by the value of the U.S. dollar in relation to the foreign currencies in which we conduct business.
+The degree to which our financial results are affected for any given time period will depend in part upon our hedging activities. 
+Our products are
+subject to risks associated with overseas sourcing, manufacturing, and financing. 
+The principal materials used in our apparel
+products — 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 — are available in countries where our
+manufacturing takes place. The principal materials used in our footwear products — natural and synthetic rubber, plastic compounds, foam cushioning materials, nylon, leather, canvas and polyurethane films — are also locally available to
+manufacturers. NIKE contractors and suppliers buy raw materials in bulk. 
+There could be a significant disruption in the supply of fabrics
+or raw materials from current sources or, in the event of a disruption, we might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price, or at all. In addition, we cannot be certain that our
+unaffiliated manufacturers will be able to fill our orders in a timely manner. If we experience significant increases in demand, or need to replace an existing manufacturer, there can be no assurance that additional supplies of fabrics or raw
+materials or additional manufacturing capacity will be available when required on terms that are acceptable to us, or at all, or that any supplier or manufacturer would allocate sufficient capacity to us in order to meet our requirements. In
+addition, even if we are able to expand existing or find new manufacturing or sources of materials, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods,
+products, quality control standards, and labor, health and safety standards. Any delays, interruption or increased costs in the supply of materials or manufacture of our products could have an adverse effect on our ability to meet retail customer
+and consumer demand for our products and result in lower revenues and net income both in the short and long term. 
+Because independent
+manufacturers manufacture a majority of our products outside of our principal sales markets, our products must be transported by third parties over large geographic distances. Delays in the shipment or delivery of our products due to the
+availability of transportation, work stoppages, port strikes, infrastructure congestion, or other factors, and costs and delays associated with transitioning between manufacturers, could adversely impact our financial performance. In addition,
+manufacturing delays or unexpected demand for our products may require us to use faster, but more expensive, transportation methods such as aircraft, which could adversely affect our profit margins. The cost of fuel is a significant component in
+transportation costs, so increases in the price of petroleum products can adversely affect our profit margins. 
+In addition, Sojitz America
+performs significant import-export financing services for most of the NIKE brand products sold outside of the United States, Europe, Middle East, Africa and Japan, excluding products produced and sold in the same country. 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 outside of the United States, Europe, Middle East, Africa, and
+Japan. Such a disruption could result in cancelled orders that would adversely affect sales and profitability. 
+Our success depends on our global
+distribution facilities. 
+We distribute our products to customers directly from the factory and through distribution centers located
+throughout the world. Our ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies depends on the proper operation of our distribution facilities, the 
+16 
+Table of Contents 
+development or expansion of additional distribution capabilities, and the timely performance of services by third parties (including those involved in
+shipping product to and from our distribution facilities). Our distribution facilities could be interrupted by information technology problems and disasters such as earthquakes or fires. Any significant failure in our distribution facilities could
+result in an adverse affect on our business. We maintain business interruption insurance, but it may not adequately protect us from any adverse effects that could be caused by significant disruptions in our distribution facilities. 
+We rely significantly on information technology in our supply chain, and any failure, inadequacy, interruption or security failure of that technology could harm
+our ability to effectively operate our business. 
+We are heavily dependent on information technology systems across our supply
+chain, including for design, production, forecasting, ordering, manufacturing, transportation, sales, and distribution. Our ability to effectively manage and maintain our inventory and to ship products to customers on a timely basis depends
+significantly on the reliability of these supply chain systems. Over the last several years, as part of the ongoing initiative to upgrade our worldwide supply chain, we have implemented new systems in all of our geographical regions in which we
+operate. Over the next few years, we will work to continue to enhance the systems and related processes in our global operations. The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, or
+a breach in security of these systems could cause delays in product fulfillment and reduced efficiency of our operations, and it could require significant capital investments to remediate the problem. 
+We depend on key personnel, the loss of whom would harm our business. 
+Our future success will depend in part on the continued service of key executive officers and personnel. The loss of the services of any key individuals could harm us. Our future success also depends on our ability to
+identify, attract and retain additional qualified personnel. Competition for employees in our industry is intense and we may not be successful in attracting and retaining such personnel. 
+The sale of a large number of shares held by our Chairman could depress the market price of our common stock. 
+Philip H. Knight, Co-founder and Chairman of our Board of Directors, beneficially owns over 90 percent of our Class A Common Stock. If all Class A Common Stock were converted into Class B Common Stock,
+Mr. Knight would own over 22 percent of our Class B Common Stock. These shares are available for resale, subject to the requirements of the U.S. securities laws. The sale or prospect of the sale of a substantial number of these shares could
+have an adverse effect on the market price of our common stock. 
+Anti-takeover provisions may impair an acquisition of the company or reduce the
+price of our common stock. 
+There are provisions of our articles of incorporation and Oregon law that are intended to protect
+shareholder interests by providing the Board of Directors a means to attempt to deny coercive takeover attempts or to negotiate with a potential acquirer in order to obtain more favorable terms. Such provisions include a control share acquisition
+statute, a freezeout statute, two classes of stock that vote separately on certain issues, and the fact that the holders of Class A Common Stock shares elect three-fourths of the Board of Directors rounded down to the next whole number.
+However, such provisions could discourage, delay or prevent an unsolicited merger, acquisition or other change in control of our company that some shareholders might believe to be in their best interests, or in which shareholders might receive a
+premium for their common stock over the prevailing market price. These provisions could also discourage proxy contests for control of the Company. 
+We may fail to meet analyst expectations, which could cause the price of our stock to decline. 
+Our common stock is
+traded publicly, and at any given time various securities analysts follow our financial results and issue reports on us. These reports include information about our historical financial results as well as 
+17 
+Table of Contents 
+the analysts’ estimates of our future performance. The analysts’ estimates are based upon their own opinions and are often different from our
+estimates or expectations. If our operating results are below the estimates or expectations of public market analysts and investors, our stock price could decline. In the past, securities class action litigation has been brought against NIKE and
+other companies following a decline in the market price of their securities. If our stock price is volatile, we may become involved in this type of litigation in the future. Any litigation could result in substantial costs and a diversion of
+management’s attention and resources that are needed to successfully run our business. 
+Item 1B. 
+Unresolved Staff Comments 
+Not applicable.
+Item 2. 
+Properties 
+The following is a summary of
+principal properties owned or leased by NIKE. 
+The NIKE World Campus, owned by NIKE and located in Beaverton, Oregon, USA, is a 176 acre
+facility of 16 buildings which functions as our world headquarters and is occupied by almost 6,000 employees engaged in management, research, design, development, marketing, finance, and other administrative functions from nearly all of our
+divisions of the Company. We also lease various office facilities in the surrounding metropolitan area. We lease a similar, but smaller, administrative facility in Hilversum, The Netherlands, which serves as the headquarters for the Europe, Middle
+East and Africa (“EMEA”) Region. 
+There are three significant distribution and customer service facilities for NIKE brand
+products in the United States. Two of them are located in Memphis, Tennessee, one of which is leased, and one is located in Wilsonville, Oregon, which is also leased. Cole Haan and NIKE Bauer Hockey also operate a distribution facility in Greenland,
+New Hampshire, which is owned by us. Smaller leased distribution facilities for other brands and subsidiaries are located in various parts of the United States. We also own or lease distribution and customer service facilities in many parts of the
+world, the most significant of which are the distribution facilities located in Tomisatomachi, Japan, and in Laakdal, Belgium, both of which we own. 
+We manufacture NIKE AIR-SOLE cushioning materials and components at NIKE IHM, Inc. manufacturing facilities located in Beaverton, Oregon and St. Charles, Missouri, which are owned by us, and at NIKE (Suzhou) Sports
+Company, Ltd., facilities in the People’s Republic of China, which are owned by us. 
+Aside from the principal properties described
+above, we lease approximately 6 production offices outside the United States, approximately 99 sales offices and showrooms worldwide, and approximately 63 administrative offices worldwide. We lease approximately 486 retail stores worldwide, which
+consist primarily of factory outlet stores. See “United States Market” and “International Markets” on pages 3 and 4 of this Report. Our leases expire at various dates through the year 2034. 
+Item 3. 
+Legal Proceedings 
+There are no material
+pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or of which any of our property is the subject. 
+Item 4. 
+Submission of Matters to a Vote of Security Holders 
+No matter was submitted during the fourth quarter of the 2007 fiscal year to a vote of security holders, through the solicitation of proxies or otherwise. 
+18 
+Table of Contents 
+PART II 
+Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+NIKE’s Class B Common Stock is listed on the New York Stock Exchange and trades under the symbol NKE. At July 25, 2007, there were 19,621
+holders of record of our Class B Common Stock and 23 holders of record of our Class A Common Stock. These figures do not include beneficial owners who hold shares in nominee name. The Class A Common Stock is not publicly traded but
+each share is convertible upon request of the holder into one share of Class B Common Stock. The following tables set forth, for each of the quarterly periods indicated, the high and low sales prices for the Class B Common Stock as reported on
+the New York Stock Exchange Composite Tape and dividends declared on the Class A and Class B Common Stock. Amounts prior to April 2, 2007 have been adjusted to reflect the two-for-one stock split distributed on that date. 
+Fiscal 2007 (June 1, 2006 — May 31, 2007) 
+High 
+Low 
+Dividends 
+Declared 
+First Quarter 
+$ 
+42.49 
+$ 
+37.76 
+$ 
+0.155 
+Second Quarter 
+49.65 
+39.93 
+0.185 
+Third Quarter 
+54.45 
+47.40 
+0.185 
+Fourth Quarter 
+57.12 
+51.09 
+0.185 
+Fiscal 2006 (June 1, 2005 — May 31, 2006) 
+High 
+Low 
+Dividends 
+Declared 
+First Quarter 
+$ 
+45.47 
+$ 
+38.68 
+$ 
+0.125 
+Second Quarter 
+44.28 
+38.27 
+0.155 
+Third Quarter 
+45.77 
+40.30 
+0.155 
+Fourth Quarter 
+44.02 
+38.70 
+0.155 
+The following table presents a summary of share repurchases made by NIKE during the quarter ended
+May 31, 2007 under the four-year $3.0 billion share repurchase program authorized by our Board of Directors and announced in June 2006. Amounts prior to April 2, 2007 have been adjusted to reflect the two-for-one stock split distributed on
+that date. 
+Period 
+Total Number of 
+Shares Purchased 
+Average Price 
+Paid per 
+Share 
+Total Number of Shares 
+Purchased as Part of 
+Publicly
+Announced 
+Plans or Programs 
+Maximum Dollar 
+Value of Shares that May 
+Yet Be Purchased 
+Under the Plans or Programs 
+(In millions) 
+March 1 — March 31, 2007 
+1,309,000 
+$ 
+53.04 
+1,309,000 
+$ 
+2,399.1 
+April 1 — April 30, 2007 
+1,827,000 
+$ 
+53.76 
+1,827,000 
+2,300.9 
+May 1 — May 31, 2007 
+2,119,600 
+$ 
+53.59 
+2,119,600 
+2,187.3 
+5,255,600 
+$ 
+53.51 
+5,255,600 
+Performance Graph 
+The following graph demonstrates a five-year comparison of cumulative total returns for NIKE’s Class B Common Stock, the Standard & Poor’s 500 Stock Index, the Standard & Poor’s
+Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. The graph assumes an investment of $100 on May 31, 2002 in each of our Class B Common Stock, and the stocks comprising the Standard &
+Poor’s 500 Stock Index, the Standard & Poor’s Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. Each of the indices assumes that all dividends were reinvested. 
+19 
+Table of Contents 
+COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG NIKE, INC., S&P 500 
+INDEX, S&P APPAREL, ACCESSORIES & LUXURY GOODS INDEX, 
+AND THE DOW JONES U.S. FOOTWEAR INDEX 
+The Dow Jones U.S. Footwear Index consists of NIKE, Stride Rite Corp., Timberland Co., Wolverine World Wide,
+Inc., and Crocs, Inc. Because NIKE is part of the Dow Jones U.S. Footwear Index, the price and returns of NIKE stock have a substantial effect on this index. The Standard & Poor’s Apparel, Accessories & Luxury Goods Index
+consists of Liz Claiborne Inc., VF Corp., Coach, Inc., Jones Apparel Group, Inc. and Polo Ralph Lauren Corporation. The Dow Jones U.S. Footwear Index and the Standard & Poor’s Apparel, Accessories, and Luxury Goods Index include
+companies in two major lines of business in which the Company competes. The indices do not encompass all of the Company’s competitors, nor all product categories and lines of business in which the Company is engaged. 
+The stock performance shown on the performance graph above is not necessarily indicative of future performance. The Company will not make nor endorse any
+predictions as to future stock performance. 
+20 
+Table of Contents 
+Item 6. Selected 
+Financial Data 
+Financial History 
+2007 
+2006 
+2005 
+2004 
+2003 
+(In millions, except per share data and financial ratios) (1) 
+Year Ended May 31, 
+Revenues 
+$ 
+16,325.9 
+$ 
+14,954.9 
+$ 
+13,739.7 
+$ 
+12,253.1 
+$ 
+10,697.0 
+Gross margin 
+7,160.5 
+6,587.0 
+6,115.4 
+5,251.7 
+4,383.4 
+Gross margin % 
+43.9 
+% 
+44.0 
+% 
+44.5 
+% 
+42.9 
+% 
+41.0 
+% 
+Income before cumulative effect of accounting change 
+1,491.5 
+1,392.0 
+1,211.6 
+945.6 
+740.1 
+Cumulative effect of accounting change 
+— 
+— 
+— 
+— 
+266.1 
+Net income 
+1,491.5 
+1,392.0 
+1,211.6 
+945.6 
+474.0 
+Basic earnings per common share: 
+Income before cumulative effect of accounting change 
+2.96 
+2.69 
+2.31 
+1.80 
+1.40 
+Cumulative effect of accounting change 
+— 
+— 
+— 
+— 
+0.51 
+Net income 
+2.96 
+2.69 
+2.31 
+1.80 
+0.89 
+Diluted earnings per common share: (2) 
+Income before cumulative effect of accounting change 
+2.93 
+2.64 
+2.24 
+1.75 
+1.38 
+Cumulative effect of accounting change 
+— 
+— 
+— 
+— 
+0.50 
+Net income 
+2.93 
+2.64 
+2.24 
+1.75 
+0.89 
+Weighted average common shares outstanding 
+503.8 
+518.0 
+525.2 
+526.4 
+529.0 
+Diluted weighted average common shares outstanding 
+509.9 
+527.6 
+540.6 
+539.4 
+535.2 
+Cash dividends declared per common share 
+0.71 
+0.59 
+0.475 
+0.37 
+0.27 
+Cash flow from operations 
+1,878.7 
+1,667.9 
+1,570.7 
+1,518.5 
+922.0 
+Price range of common stock 
+High 
+57.12 
+45.77 
+46.22 
+39.28 
+28.93 
+Low 
+37.76 
+38.27 
+34.31 
+24.80 
+19.27 
+At May 31, 
+Cash and equivalents 
+$ 
+1,856.7 
+$ 
+954.2 
+$ 
+1,388.1 
+$ 
+828.0 
+$ 
+634.0 
+Short-term investments 
+990.3 
+1,348.8 
+436.6 
+400.8 
+— 
+Inventories 
+2,121.9 
+2,076.7 
+1,811.1 
+1,650.2 
+1,514.9 
+Working capital 
+5,492.5 
+4,733.6 
+4,339.7 
+3,498.1 
+2,766.5 
+Total assets 
+10,688.3 
+9,869.6 
+8,793.6 
+7,908.7 
+6,821.1 
+Long-term debt 
+409.9 
+410.7 
+687.3 
+682.4 
+551.6 
+Redeemable Preferred Stock 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+Shareholders’ equity 
+7,025.4 
+6,285.2 
+5,644.2 
+4,781.7 
+3,990.7 
+Year-end stock price 
+56.75 
+40.16 
+41.10 
+35.58 
+28.00 
+Market capitalization 
+28,472.3 
+20,564.5 
+21,462.3 
+18,724.2 
+14,758.8 
+Financial Ratios: 
+Return on equity 
+22.4 
+% 
+23.3 
+% 
+23.2 
+% 
+21.6 
+% 
+18.9 
+% 
+Return on assets 
+14.5 
+% 
+14.9 
+% 
+14.5 
+% 
+12.8 
+% 
+11.2 
+% 
+Inventory turns 
+4.4 
+4.3 
+4.4 
+4.4 
+4.4 
+Current ratio at May 31 
+3.1 
+2.8 
+3.2 
+2.7 
+2.4 
+Price/Earnings ratio at May 31 (Diluted before accounting change) 
+19.4 
+15.2 
+18.3 
+20.3 
+20.2 
+(1) 
+All share and per share
+information has been restated to reflect the two-for-one stock split effected in the form of a 100% common stock dividend distributed on April 2, 2007. 
+(2) 
+Diluted earnings per common
+share for the year ended May 31, 2003 do not recalculate due to rounding. 
+21 
+Table of Contents 
+Selected Quarterly Financial Data 
+1st Quarter 
+2nd Quarter 
+3rd Quarter 
+4th Quarter 
+2007 
+2006 
+2007 
+2006 
+2007 
+2006 
+2007 
+2006 
+(Unaudited) 
+(In millions, except per share data) (1) 
+Revenues 
+$ 
+4,194.1 
+$ 
+3,862.0 
+$ 
+3,821.7 
+$ 
+3,474.7 
+$ 
+3,926.9 
+$ 
+3,612.8 
+$ 
+4,383.2 
+$ 
+4,005.4 
+Gross margin 
+1,849.2 
+1,748.1 
+1,657.1 
+1,511.4 
+1,735.2 
+1,574.1 
+1,919.0 
+1,753.4 
+Gross margin % 
+44.1 
+% 
+45.3 
+% 
+43.4 
+% 
+43.5 
+% 
+44.2 
+% 
+43.6 
+% 
+43.8 
+% 
+43.8 
+% 
+Net income 
+377.2 
+432.3 
+325.6 
+301.1 
+350.8 
+325.8 
+437.9 
+332.8 
+Basic earnings per common share 
+0.75 
+0.83 
+0.65 
+0.58 
+0.69 
+0.63 
+0.87 
+0.65 
+Diluted earnings per common share 
+0.74 
+0.80 
+0.64 
+0.57 
+0.68 
+0.62 
+0.86 
+0.64 
+Average common shares outstanding 
+505.4 
+521.9 
+502.4 
+518.1 
+504.5 
+517.8 
+502.8 
+514.4 
+Diluted average common shares outstanding 
+512.0 
+537.2 
+507.3 
+527.5 
+510.8 
+526.9 
+510.2 
+522.8 
+Cash dividends declared per common share 
+0.155 
+0.125 
+0.185 
+0.155 
+0.185 
+0.155 
+0.185 
+0.155 
+Price range of common stock 
+High 
+42.49 
+45.47 
+49.65 
+44.28 
+54.45 
+45.77 
+57.12 
+44.02 
+Low 
+37.76 
+38.68 
+39.93 
+38.27 
+47.40 
+40.30 
+51.09 
+38.70 
+(1) 
+All share and per share
+information has been restated to reflect the two-for-one stock split effected in the form of a 100% common stock dividend distributed on April 2, 2007. Basic and diluted earnings per common share for the third quarter ended February 28,
+2007 do not recalculate due to rounding. 
+Item 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+Overview 
+NIKE designs, develops and markets high quality footwear, apparel, equipment and accessory
+products worldwide. We are the largest seller of athletic footwear and apparel in the world and sell our products primarily through a combination of retail accounts, NIKE-owned retail, including stores and e-commerce, and independent distributors
+and licensees in the United States and worldwide. Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear, apparel, equipment and accessories. Through this diverse portfolio of brands, our
+strategy is to create long-term revenue growth by connecting with consumers across geographies. We strive to convert revenue growth to value in three key areas: 
+• 
+Creating the marketplace: 
+• 
+Delivering premium experiences to our consumers 
+• 
+Delivering superior, innovative products to the marketplace 
+• 
+Operational and organizational excellence: 
+• 
+Making our supply chain a competitive advantage, through operational discipline and excellence 
+• 
+Reducing product costs through a continued focus on lean manufacturing designed to eliminate waste 
+• 
+Improving selling and administrative expense productivity by focusing on investments that drive economic returns in the form of incremental revenue and gross margin
+• 
+Improving working capital efficiency 
+• 
+Deploying capital effectively: 
+• 
+Utilizing capital capacity to create value for our shareholders 
+By executing this strategy, we aim to deliver the following long-term financial goals: 
+• 
+High single-digit revenue growth; 
+• 
+Mid-teens earnings per share growth; 
+22 
+Table of Contents 
+• 
+Increased return on invested capital and accelerated cash flows; and 
+• 
+Consistent results through effective management of our diversified portfolio of businesses. 
+In fiscal 2007, we met the majority of these financial goals. Our revenues grew 9% to $16.3 billion, net income grew 7% to $1.5 billion, and we delivered
+diluted earnings per share of $2.93, an 11% increase versus fiscal 2006. These reported results included a $141.9 million pre-tax charge, related to stock-based compensation expense recognized in accordance with Statement of Financial Accounting
+Standards (“SFAS”) No. 123R “Share-Based Payment” (“FAS 123R”), which we adopted during the first quarter of fiscal 2007 (see Note 1— Summary of Significant Accounting Policies and Note 10 — Common
+Stock in the accompanying Notes to Consolidated Financial Statements for more information on the adoption of FAS 123R), and the effects of the Converse arbitration ruling in fiscal 2006 and subsequent settlement in fiscal 2007. Excluding
+these items, our net income grew 11% and we delivered diluted earnings per share of $3.10, a 15% increase versus fiscal 2006 (see Reconciliation of Net Income and Diluted Earnings Per Share Excluding the Converse Arbitration and Stock-Based
+Compensation Expense below). 
+Fiscal 2007 results were positively affected by a reduction in our effective tax rate of 2.8 percentage
+points as compared to fiscal 2006, primarily as a result of the European tax agreement the Company finalized in the second quarter of fiscal 2007. For the year, the increase in net income was below our rate of revenue growth due to higher selling
+and administrative expenses versus the same period in the prior year. The increase in selling and administrative expenses was attributable to the adoption of FAS 123R and higher investments in growth drivers such as demand creation and
+operating overhead. Our earnings per share for the year grew at a higher rate than net income given lower outstanding shares due to repurchases made under our share repurchase program. In addition, we increased cash flow from operations and
+continued to return larger amounts of cash to shareholders through higher dividends and increased share repurchases. Our return on invested capital declined slightly as compared to fiscal 2006 as a result of the adoption of FAS 123R. Although we may
+not meet all of the financial goals outlined above in any particular fiscal quarter or fiscal year, we continue to believe these are appropriate long-term goals. 
+Results of Operations 
+Fiscal 2007 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+Fiscal 2005 
+FY06 vs. 
+FY05 
+% Change 
+(In millions, except per share data) (1 ) 
+Revenues 
+$ 
+16,325.9 
+$ 
+14,954.9 
+9 
+% 
+$ 
+13,739.7 
+9 
+% 
+Cost of sales 
+9,165.4 
+8,367.9 
+10 
+% 
+7,624.3 
+10 
+% 
+Gross margin 
+7,160.5 
+6,587.0 
+9 
+% 
+6,115.4 
+8 
+% 
+Gross margin % 
+43.9 
+% 
+44.0 
+% 
+44.5 
+% 
+Selling and administrative expense 
+5,028.7 
+4,477.8 
+12 
+% 
+4,221.7 
+6 
+% 
+% of Revenues 
+30.8 
+% 
+29.9 
+% 
+30.7 
+% 
+Income before income taxes 
+2,199.9 
+2,141.6 
+3 
+% 
+1,859.8 
+15 
+% 
+Net income 
+1,491.5 
+1,392.0 
+7 
+% 
+1,211.6 
+15 
+% 
+Diluted earnings per share 
+2.93 
+2.64 
+11 
+% 
+2.24 
+18 
+% 
+(1) 
+All per share information has been restated to reflect the two-for-one stock split effected in the form
+of a 100% common stock dividend distributed on April 2, 2007. 
+23 
+Table of Contents 
+Reconciliation of Net Income and
+Diluted Earnings Per Share Excluding the Converse Arbitration and Stock-Based Compensation Expense (1 ) 
+Fiscal 2007 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+(In millions, except per share data) (2) 
+Net income, as reported 
+$ 
+1,491.5 
+$ 
+1,392.0 
+7 
+% 
+Exclude: Converse arbitration ( 3) , net of tax (expense) benefit of ($4.6) and $21.1 
+(9.6 
+) 
+30.8 
+— 
+Stock-based compensation expense (4) , net of tax of $45.2 
+96.7 
+— 
+— 
+Net income, excluding Converse arbitration and stock-based compensation 
+$ 
+1,578.6 
+$ 
+1,422.8 
+11 
+% 
+Diluted EPS, as reported 
+$ 
+2.93 
+$ 
+2.64 
+11 
+% 
+Diluted EPS, excluding Converse arbitration and stock-based compensation 
+$ 
+3.10 
+$ 
+2.70 
+15 
+% 
+(1) 
+This schedule is intended to satisfy the quantitative reconciliation for non-GAAP financial measures in
+accordance with Regulation G of the Securities and Exchange Commission (“SEC”). 
+(2) 
+All per share information has
+been restated to reflect the two-for-one stock split effected in the form of a 100% common stock dividend distributed on April 2, 2007. 
+(3) 
+The Converse arbitration relates to a ruling involving a contract dispute between NIKE, Inc.’s
+Converse subsidiary and a former South American licensee. The dispute was settled during the first quarter ended August 31, 2006. 
+(4) 
+This charge relates to stock-based compensation associated with stock options and ESPP purchase rights
+issued to employees and expensed in accordance with FAS 123R, which was adopted by the Company during its first fiscal quarter ended August 31, 2006. 
+Consolidated Operating Results 
+Revenues 
+Fiscal 2007 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+Fiscal 2005 
+FY06 vs. 
+FY05 
+% Change 
+(In millions) 
+Revenues 
+$ 
+16,325.9 
+$ 
+14,954.9 
+9 
+% 
+$ 
+13,739.7 
+9 
+% 
+Fiscal 2007 Compared to Fiscal 2006 
+During fiscal 2007, changes in foreign currency exchange rates contributed 2 percentage points of consolidated revenue growth. Strong demand for NIKE
+brand products continued to drive revenue growth, as all four of our geographic regions and, on a consolidated basis, all three of our product business units delivered revenue growth. Excluding the effects of changes in currency exchange rates, both
+the U.S. Region and our international regions each contributed more than 2.5 percentage points to the consolidated revenue growth for fiscal 2007. Our Other businesses, comprised of results from Cole Haan, Converse, Exeter Brands Group, Hurley
+International, NIKE Bauer Hockey, and NIKE Golf contributed the remaining 2 percentage points of the consolidated constant-currency revenue growth, as each business within the group posted higher revenues. 
+By product group, our worldwide NIKE brand footwear revenue grew 7% and contributed nearly $550 million of incremental revenue for fiscal 2007. Our
+worldwide NIKE brand equipment and apparel businesses reported revenue growth of 12% and 10% for the year, respectively, and combined added more than $500 million of incremental revenue. 
+24 
+Table of Contents 
+Fiscal 2006 Compared to Fiscal 2005 
+In fiscal 2006, changes in currency exchange rates reduced reported consolidated revenue growth by 1 percentage point. The U.S. Region contributed 4
+percentage points of the consolidated revenue growth for fiscal 2006. Excluding the impact of changes in currency exchange rates, revenue growth in our international regions contributed 4 percentage points of the consolidated revenue growth for
+fiscal 2006, as all of our international regions posted higher revenues. Sales in our Other businesses drove the remainder of the consolidated revenue growth for fiscal 2006. 
+Gross Margin 
+Fiscal 2007 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+Change 
+Fiscal 2005 
+FY06 vs. 
+FY05 
+Change 
+(In millions) 
+Gross Margin 
+$ 
+7,160.5 
+$ 
+6,587.0 
+9% 
+$ 
+6,115.4 
+8% 
+Gross Margin % 
+43.9 
+% 
+44.0 
+% 
+(10) bps 
+44.5 
+% 
+(50) bps 
+Fiscal 2007 Compared to Fiscal 2006 
+During fiscal 2007, the primary factors contributing to the 10 basis point decrease in gross margin percentage versus the prior year were as follows:
+(1) 
+Lower footwear net pricing margins in the U.S. and Europe, Middle East and Africa (“EMEA”) Regions, primarily due to sales discounts, combined with a higher closeout mix;
+partially offset by 
+(2) 
+Favorable hedge results relative to the prior year, primarily in the Asia Pacific Region; 
+(3) 
+Better inventory management, most notably in our Asia Pacific Region; and 
+(4) 
+Improved gross margins in our Other businesses, driven primarily by the growth in Converse’s international licensing business, partially offset by the expected effects of the
+transition in Exeter’s business from a licensing model to a wholesale model. 
+Fiscal 2006 Compared to Fiscal 2005
+During fiscal 2006, our consolidated gross margin percentage declined 50 basis points versus the prior year. The primary factors
+contributing to the reduced gross margin percentage for fiscal 2006 were as follows: 
+(1) 
+Lower footwear in-line net pricing margins in the U.S., EMEA and Asia Pacific Regions. The lower footwear in-line net pricing margins were due to higher product costs, primarily the
+result of higher oil prices; additional costs incurred to meet strong footwear unit demand in the U.S.; higher sales incentives in EMEA and Asia Pacific; strategies to improve consumer value in EMEA and Japan; and a shift in the mix of footwear
+models sold towards models with lower margins within EMEA and Japan. 
+(2) 
+A shift in the mix of revenues reported from our operating segments towards regions and subsidiaries with lower margins. 
+The factors driving a reduced gross margin percentage were partially offset by: 
+(1) 
+Year-over-year currency hedge rate improvements, primarily for the euro. 
+(2) 
+Improved gross margin percentages in our Other businesses driven by improvements at Converse, Hurley and NIKE Golf. 
+25 
+Table of Contents 
+Selling and Administrative Expense 
+Fiscal 2007 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+Change 
+Fiscal 2005 
+FY06 vs. 
+FY05 
+Change 
+(In millions) 
+Operating overhead expense, excluding stock-based compensation expense 
+$ 
+2,974.4 
+$ 
+2,737.6 
+9% 
+$ 
+2,621.0 
+4% 
+Stock-based compensation expense (1) 
+141.9 
+— 
+— 
+— 
+— 
+Operating overhead expense, as reported 
+3,116.3 
+2,737.6 
+14% 
+2,621.0 
+4% 
+Demand creation expense (2) 
+1,912.4 
+1,740.2 
+10% 
+1,600.7 
+9% 
+Selling and administrative expense 
+5,028.7 
+4,477.8 
+12% 
+4,221.7 
+6% 
+% of Revenues 
+30.8 
+% 
+29.9 
+% 
+90 bps 
+30.7 
+% 
+(80) bps 
+* 
+This schedule is intended to satisfy the quantitative reconciliation for non-GAAP financial measures in accordance with Regulation G of the SEC. In addition, this schedule is
+provided to enhance the visibility of the underlying business trends excluding this identifiable expense by presenting our results for fiscal 2007 using the same accounting policy for stock-based compensation expense applied during the comparable
+prior year periods. 
+(1) 
+This charge relates to
+stock-based compensation associated with stock options and ESPP shares issued to employees and expensed in accordance with FAS 123R. We adopted FAS 123R during the first quarter of fiscal 2007 using the modified prospective transition method. While
+this expense was not reflected in our results of operations for fiscal 2006 and 2005, it will continue to be reflected in future accounting periods. 
+(2) 
+Demand creation consists of
+advertising and promotion expenses, including costs of endorsement contracts. 
+Fiscal 2007 Compared to Fiscal 2006
+In fiscal 2007, selling and administrative expenses increased as a percentage of revenues by 90 basis points; however, excluding the
+$141.9 million pre-tax charge relating to the change in accounting for stock-based compensation, selling and administrative expense as a percentage of revenues was consistent with the prior year. 
+On a constant-currency basis, demand creation expense increased 7% versus the prior year. The year-over-year increase was primarily attributable to
+investments in the NIKE Air ® , NIKE+, NIKE Pro, and
+Force Basketball campaigns. For fiscal year 2007, constant-currency growth in demand creation expense was consistent with our constant-currency revenue growth. 
+Excluding stock-based compensation expense and the effects of changes in exchange rates, operating overhead increased 7%, which was in line with our constant-currency revenue growth. The increase in operating overhead
+was attributable to investments in growth drivers such as NIKE-owned retail and non-NIKE brands, as well as normal wage inflation. 
+Fiscal 2006 Compared to Fiscal 2005 
+In fiscal 2006, selling and administrative expenses decreased as a percentage of
+revenues by 80 basis points for the year driven by operating overhead leverage. Changes in currency exchange rates reduced selling and administrative expense growth by 1 percentage point. 
+In fiscal 2006, changes in currency exchange rates reduced the rate of growth in demand creation by 1 percentage point. The growth in demand
+creation spending in fiscal 2006 was in line with our revenue growth. The year-over-year increase in demand creation spending was primarily due to increased spending on sports 
+26 
+Table of Contents 
+marketing endorsement contracts and events, increased spending on retail marketing programs (in-store marketing at our retail partners), and advertising
+primarily around the global World Cup and Winter Olympics campaigns and for the global Air Max 360™ footwear launch. 
+While
+consolidated revenues grew 9% in fiscal 2006, operating overhead for fiscal 2006 increased only 4% over fiscal 2005 as a result of expense management strategies to slow the growth of operating overhead spending. Changes in currency exchange rates
+reduced the rate of growth in operating overhead by 1 percentage point. Excluding the effects of changes in foreign currency exchange rates, the increase in operating overhead for fiscal 2006 versus fiscal 2005 was mainly attributable to higher
+personnel costs (both increased headcount and higher compensation) to support the growth of our business, including our Other businesses and new NIKE-owned retail stores. 
+Other (Income) Expense, net 
+Fiscal 2007 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+Fiscal 2005 
+FY06 vs. 
+FY05 
+% Change 
+(In millions) 
+Other (income) expense, net 
+$ 
+(0.9 
+) 
+$ 
+4.4 
+(120 
+)% 
+$ 
+29.1 
+(85 
+)% 
+Fiscal 2007 Compared to Fiscal 2006 
+Other (income) expense, net is comprised substantially of gains and losses associated with the conversion of non-functional currency receivables and
+payables, the re-measurement of foreign currency derivative instruments, disposals of fixed assets, as well as other unusual or non-recurring transactions that are outside the normal course of business. 
+For fiscal 2007, other (income) expense, net was primarily comprised of the $14.7 million gain on the sale-leaseback of our Oregon footwear distribution
+center and the $14.2 million benefit from the settlement of the Converse arbitration, offset by foreign currency hedge losses. The foreign currency hedge losses recognized in fiscal 2007 primarily reflect the strengthening of the euro since we
+entered into these hedge contracts. 
+The change in other (income) expense, net versus the prior year period was primarily the result of
+foreign currency hedge losses in fiscal 2007, which were more than offset by the Converse arbitration settlement and gain on the sale of our Oregon footwear distribution center discussed above, compared to foreign currency hedge gains in fiscal
+2006, which were more than offset by the $51.9 million charge taken during the fourth quarter as a result of the Converse arbitration. Foreign currency hedge gains and losses reported in other (income) expense, net are reflected in the Corporate
+line, the gain on the sale of the Oregon footwear distribution center is reflected in the U.S. Region line, and the Converse arbitration settlement is reflected in the Other line in our segment presentation of pre-tax income in the Notes to
+Consolidated Financial Statements (Note 17 — Operating Segments and Related Information) . 
+In fiscal 2007, the net foreign
+currency hedge losses discussed above were partially offset by favorable U.S. dollar translation of foreign currency denominated profits, most notably in the EMEA Region. We estimate that the combination of net foreign currency hedge losses in other
+(income) expense, net, and the favorable U.S. dollar translation of foreign currency denominated profits did not have a significant impact on consolidated income before income taxes for fiscal 2007 compared to the prior year. 
+Fiscal 2006 Compared to Fiscal 2005 
+The significant reduction in other (income) expense, net for fiscal 2006 as compared to fiscal 2005 was primarily driven by foreign currency hedge gains in fiscal 2006 compared to foreign currency hedge losses in the prior year, partially
+offset by the Converse arbitration charge. The fiscal 2006 hedge gains primarily reflected that the euro had weakened since we entered into these hedge contracts. 
+27 
+Table of Contents 
+In fiscal 2006, these net foreign currency hedge gains were partially offset by unfavorable U.S. dollar
+translation of foreign currency denominated profits, most significantly in the EMEA Region. We estimate that the combination of net foreign currency hedge gains in other (income) expense, net, and the unfavorable U.S. dollar translation of foreign
+currency denominated profits resulted in an increase to consolidated income before income taxes of approximately $55 million for fiscal 2006 compared to the prior year. 
+Income Taxes 
+Fiscal 2007 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+Change 
+Fiscal 2005 
+FY06 vs. 
+FY05 
+Change 
+Effective tax rate 
+32.2 
+% 
+35.0 
+% 
+(280) bps 
+34.9 
+% 
+10 bps 
+Fiscal 2007 Compared to Fiscal 2006 
+In fiscal 2007, our effective tax rate reflects tax benefits from our operations outside the United States; our tax rate on these operations is generally
+lower than the U.S. statutory rate. These benefits included the 10-year European tax agreement finalized in the second quarter of fiscal 2007, which is effective for fiscal years 2006 through 2015. This agreement, which provided a retroactive tax
+benefit for fiscal 2006 and the first quarter of fiscal 2007, favorably impacted our effective tax rate for fiscal 2007. 
+Fiscal 2006
+Compared to Fiscal 2005 
+Our effective tax rate for fiscal 2006 was consistent with the rate reported for fiscal 2005. 
+During the second quarter of fiscal 2006, our CEO and Board of Directors approved a domestic reinvestment plan as required by the American Jobs Creation
+Act of 2004 (the “Act”) to repatriate $500 million of foreign earnings in fiscal 2006. The Act creates a temporary incentive for U.S. multinational corporations to repatriate accumulated income earned outside the U.S. by providing an 85%
+dividend received deduction for certain dividends from controlled foreign corporations. A $500 million repatriation was made during the quarter ended May 31, 2006 comprised of both foreign earnings for which U.S. taxes have previously been
+provided and foreign earnings that had been designated as permanently reinvested. Accordingly, the provisions made did not have a material impact on the Company’s income tax expense or effective tax rate for the year. 
+Futures Orders 
+Worldwide
+futures and advance orders for footwear and apparel scheduled for delivery from June through November 2007 were nearly 12% higher than such orders reported for the comparable period of fiscal 2006. This futures growth rate is calculated based upon
+our forecasts of the actual exchange rates under which our revenues will be translated during this period, which approximate current spot rates. The net effect from changes in currency exchange rates contributed approximately 1 percentage point to
+this reported futures growth versus the same period in the prior year. Excluding this currency impact, unit sales volume increases for both footwear and apparel drove the growth in overall futures and advance orders. The reported futures and advance
+orders growth is not necessarily indicative of our expectation of revenue growth during this period. This is because the mix of orders can shift between advance/futures and at-once orders. In addition, exchange rate fluctuations as well as differing
+levels of order cancellations and discounts can cause differences in the comparisons between futures and advance orders, and actual revenues. Moreover, a significant portion of our revenue is not derived from futures and advance orders, including
+at-once and closeout sales of NIKE footwear and apparel, wholesale sales of equipment, Cole Haan, Converse, Exeter Brands Group, Hurley, NIKE Bauer Hockey, NIKE Golf and retail sales across all brands. 
+28 
+Table of Contents 
+Operating Segments 
+The breakdown of revenues follows: 
+Fiscal 2007 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+Fiscal 2005 
+FY06 vs. 
+FY05 
+% Change 
+(In millions) 
+U.S. Region 
+Footwear 
+$ 
+4,067.2 
+$ 
+3,832.2 
+6 
+% 
+$ 
+3,358.2 
+14 
+% 
+Apparel 
+1,716.1 
+1,591.6 
+8 
+% 
+1,457.7 
+9 
+% 
+Equipment 
+323.8 
+298.7 
+8 
+% 
+313.4 
+(5 
+)% 
+Total U.S 
+6,107.1 
+5,722.5 
+7 
+% 
+5,129.3 
+12 
+% 
+EMEA Region 
+Footwear 
+2,608.0 
+2,454.3 
+6 
+% 
+2,500.0 
+(2 
+)% 
+Apparel 
+1,757.2 
+1,559.0 
+13 
+% 
+1,497.1 
+4 
+% 
+Equipment 
+358.1 
+313.3 
+14 
+% 
+284.5 
+10 
+% 
+Total EMEA 
+4,723.3 
+4,326.6 
+9 
+% 
+4,281.6 
+1 
+% 
+Asia Pacific Region 
+Footwear 
+1,159.2 
+1,044.1 
+11 
+% 
+962.9 
+8 
+% 
+Apparel 
+909.3 
+815.6 
+11 
+% 
+755.5 
+8 
+% 
+Equipment 
+214.9 
+194.1 
+11 
+% 
+178.9 
+8 
+% 
+Total Asia Pacific 
+2,283.4 
+2,053.8 
+11 
+% 
+1,897.3 
+8 
+% 
+Americas Region 
+Footwear 
+679.6 
+635.3 
+7 
+% 
+478.6 
+33 
+% 
+Apparel 
+193.9 
+201.8 
+(4 
+)% 
+169.1 
+19 
+% 
+Equipment 
+79.0 
+67.8 
+17 
+% 
+48.1 
+41 
+% 
+Total Americas 
+952.5 
+904.9 
+5 
+% 
+695.8 
+30 
+% 
+14,066.3 
+13,007.8 
+8 
+% 
+12,004.0 
+8 
+% 
+Other 
+2,259.6 
+1,947.1 
+16 
+% 
+1,735.7 
+12 
+% 
+Total Revenues 
+$ 
+16,325.9 
+$ 
+14,954.9 
+9 
+% 
+$ 
+13,739.7 
+9 
+% 
+The breakdown of income before income taxes (“pre-tax income”) follows: 
+Fiscal 2007 
+Fiscal 2006 (1 ) 
+FY07 vs. 
+FY06 
+% Change 
+Fiscal 2005 (1 ) 
+FY06 vs. 
+FY05 
+% Change 
+(In millions) 
+U.S. Region 
+$ 
+1,300.3 
+$ 
+1,244.5 
+4 
+% 
+$ 
+1,127.9 
+10 
+% 
+EMEA Region 
+1,000.7 
+960.7 
+4 
+% 
+917.5 
+5 
+% 
+Asia Pacific Region 
+483.7 
+412.5 
+17 
+% 
+399.8 
+3 
+% 
+Americas Region 
+187.4 
+172.6 
+9 
+% 
+116.5 
+48 
+% 
+Other 
+303.7 
+153.6 
+98 
+% 
+154.8 
+(1 
+)% 
+Corporate 
+(1,075.9 
+) 
+(802.3 
+) 
+(34 
+)% 
+(856.7 
+) 
+6 
+% 
+Total Pre-tax Income 
+$ 
+2,199.9 
+$ 
+2,141.6 
+3 
+% 
+$ 
+1,859.8 
+15 
+% 
+(1 ) 
+Certain prior year amounts have been reclassified to conform to fiscal year 2007 presentation. These
+changes had no impact on previously reported results of operations or shareholders’ equity. 
+29 
+Table of Contents 
+The following discussion includes disclosure of pre-tax income for our operating segments. We have
+reported pre-tax income for each of our operating segments in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” As discussed in Note 17 — Operating Segments and Related
+Information in the accompanying Notes to Consolidated Financial Statements, certain corporate costs are not included in pre-tax income of our operating segments. 
+U.S. Region 
+Fiscal 2007 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+Fiscal 2005 
+FY06 vs. 
+FY05 
+% Change 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+4,067.2 
+$ 
+3,832.2 
+6 
+% 
+$ 
+3,358.2 
+14 
+% 
+Apparel 
+1,716.1 
+1,591.6 
+8 
+% 
+1,457.7 
+9 
+% 
+Equipment 
+323.8 
+298.7 
+8 
+% 
+313.4 
+(5 
+)% 
+Total Revenues 
+$ 
+6,107.1 
+$ 
+5,722.5 
+7 
+% 
+$ 
+5,129.3 
+12 
+% 
+Pre-tax Income 
+$ 
+1,300.3 
+$ 
+1,244.5 
+4 
+% 
+$ 
+1,127.9 
+10 
+% 
+Fiscal 2007 Compared to Fiscal 2006 
+During fiscal 2007, the increase in U.S. footwear revenue was attributable to high single-digit growth in unit sales, partially offset by a slight
+decrease in the average selling price per pair. The growth in unit sales was driven by higher demand for our NIKE brand sport culture products; kids’ product, including boys and girls sport culture; Brand Jordan products; and men’s running
+products, due to the growth of our Nike+ performance models. The decrease in average selling price per pair compared to the prior year was the result of a higher mix of off-price products, combined with growth in lower priced kids’ product.
+The year-over-year increase in U.S. apparel revenues during fiscal 2007 reflected mid single-digit growth in unit sales combined with a
+low single-digit increase in average price per unit. The increase in unit sales versus the prior year was driven by double-digit growth in NIKE brand sport performance apparel, while the improvement in average selling prices was driven by team and
+licensed apparel and Brand Jordan products. 
+Pre-tax income for the U.S. Region grew at a slower rate than revenue in fiscal 2007 as a
+result of lower gross margins. The gross margin decline was primarily attributable to a higher level of closeout sales and sales discounts compared to the prior year, most notably in our footwear business. Selling and administrative expenses were
+higher than fiscal 2006, but represented a lower percentage of revenue due to operating overhead leverage. 
+Fiscal 2006 Compared to
+Fiscal 2005 
+During fiscal 2006, the increase in footwear revenues was due to a double-digit growth in unit sales, combined with low
+single-digit growth in the average selling price per pair. The strong unit increase was driven by increased consumer demand across a majority of the footwear product categories, most significantly high demand for our Jordan branded and sport culture
+products. The higher average selling price per pair was primarily due to increased consumer demand for products with a suggested retail price over $100, driven by Jordan branded products as well as NIKE branded sport performance and sport culture
+products. 
+The increase in U.S. apparel sales for fiscal 2006 was driven by increased unit sales in NIKE and Jordan branded apparel,
+partially offset by sales declines in licensed apparel, primarily due to the expiration of our license agreement with the NBA in the second quarter of fiscal 2005. The increases in NIKE branded apparel were primarily due to increased sales of sport
+performance products. 
+30 
+Table of Contents 
+For the U.S. Region, the increase in pre-tax income for fiscal 2006 as compared to 2005 was driven by
+higher revenues and lower selling and administrative expenses as a percentage of revenues, more than offsetting a lower gross margin percentage. The lower gross margin percentage was primarily the result of lower in-line net pricing margins for
+footwear due to higher product costs, primarily the result of higher oil prices, and additional costs incurred to meet strong footwear unit demand. Selling and administrative expenses were higher than fiscal 2005, but represented a lower percentage
+of revenues due to operating overhead leverage. The increase in selling and administrative costs was due to increases in both demand creation and operating overhead. The increase in demand creation was primarily driven by increased spending on
+sports marketing endorsements and events and increased advertising, primarily due to the global campaigns discussed above. The increase in operating overhead spending was driven by increased spending for new NIKE-owned retail stores, higher
+personnel costs and higher travel and meeting expenses. 
+EMEA Region 
+Fiscal 2007 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+Fiscal 2005 
+FY06 vs. 
+FY05 
+% Change 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+2,608.0 
+$ 
+2,454.3 
+6 
+% 
+$ 
+2,500.0 
+(2 
+)% 
+Apparel 
+1,757.2 
+1,559.0 
+13 
+% 
+1,497.1 
+4 
+% 
+Equipment 
+358.1 
+313.3 
+14 
+% 
+284.5 
+10 
+% 
+Total Revenues 
+$ 
+4,723.3 
+$ 
+4,326.6 
+9 
+% 
+$ 
+4,281.6 
+1 
+% 
+Pre-tax Income 
+$ 
+1,000.7 
+$ 
+960.7 
+4 
+% 
+$ 
+917.5 
+5 
+% 
+Fiscal 2007 Compared to Fiscal 2006 
+For the EMEA Region, changes in currency exchange rates contributed 6 percentage points of the revenue growth during fiscal 2007. Excluding changes in
+currency exchange rates, all markets within the region except the U.K. and France increased revenues during the year. The emerging markets in the region grew over 30%, driven by strong results in Greece, Russia, Turkey and South Africa. Increases in
+Northern Europe, Italy and Spain also contributed significantly to the revenue growth. After experiencing challenging retail conditions in the U.K. and France during fiscal 2007, we have started to see signs of improvement in these markets,
+including year-over-year futures growth. 
+Excluding changes in exchange rates, footwear revenues increased 1 percentage point during fiscal
+2007 compared to the prior year. The increase in footwear revenue was attributable to low single-digit growth in unit sales, partially offset by a slight decrease in the average selling price per pair. The growth in unit sales was driven primarily
+by higher demand for our NIKE brand sport culture products, most notably “metro” and outdoor products. The growth in unit sales more than offset a decline in the average selling price per pair, which resulted from a shift in product mix
+from higher priced to lower priced product styles, combined with an increase in closeout sales. 
+Excluding changes in exchange rates,
+apparel revenues increased 7 percentage points during fiscal 2007 compared to the prior year. The year-over-year increase reflected high single-digit growth in unit sales, driven by both sports culture and sports performance products, combined with
+a low single-digit increase in average price per unit. 
+The increase in pre-tax income for the EMEA Region during fiscal 2007 compared to
+the prior year was primarily driven by the increase in revenues and favorable foreign currency translation, partially offset by a lower gross margin percentage and higher selling and administrative expenses, which on a currency-neutral basis,
+increased 4 percentage points versus fiscal 2006. The lower gross margin percentage in fiscal 2007 was attributable to an increase in warehousing costs and lower in-line net pricing margins, primarily in footwear, 
+31 
+Table of Contents 
+attributable to sales discounts, higher product costs and a shift in product mix to lower priced models. The increase in selling and administrative expenses
+was primarily driven by an increase in operating overhead, most notably normal wage inflation and growth in the emerging markets, combined with a slight increase in demand creation. 
+Fiscal 2006 Compared to Fiscal 2005 
+For the EMEA Region, changes in currency exchange rates reduced revenue growth by 4 percentage points in fiscal 2006. Excluding changes in currency exchange rates, all three product business units grew. Excluding currency changes, the
+increase in footwear revenues reflected increased unit sales partially offset by declines in the average selling price per pair. The increased unit sales were driven by increased demand for sport culture products. The declines in the average selling
+price per pair were due in part to changes in the mix of in-line products sold towards products with a lower average selling price and higher sales incentives as a result of a difficult retail environment in Western Europe. The increase in EMEA
+apparel revenue was driven by increased unit sales and average selling prices of NIKE branded apparel, primarily increased unit sales of sport performance products, including soccer products driven by the World Cup, and increased average selling
+prices across most apparel categories. Excluding changes in currency exchange rates, sales increases in the emerging markets of our Central Europe, Middle East and Africa unit led the revenue growth, while sales increases in Western and Northern
+Europe also contributed to the EMEA sales growth for fiscal 2006. 
+The increase in pre-tax income for the EMEA Region for fiscal 2006 was
+driven by higher revenues and lower selling and administrative expenses as a percentage of revenues more than offsetting a lower gross margin percentage and unfavorable foreign currency translation versus fiscal 2005. The lower gross margin
+percentage was primarily the result of lower in-line net pricing margins in footwear and apparel, partially offset by improved year-over-year hedge rates. The lower in-line net pricing margins for footwear were due to higher product costs, primarily
+the result of higher oil prices, higher sales incentives, strategies to improve consumer value, and a shift in the mix of products sold towards products with lower margins. The reduced in-line net pricing margins for apparel were primarily due to
+higher product costs and higher sales incentives. Excluding changes in currency exchange rates, selling and administrative expenses in fiscal 2006 were higher than in fiscal 2005 but represented a lower percentage of revenues due to operating
+overhead leverage. Excluding currency changes, the increase in selling and administrative costs was driven by higher demand creation expenses partially offset by slightly lower operating overhead expenses. The higher demand creation expenses were
+primarily due to spending related to the World Cup campaign and increased spending on retail marketing programs. The slightly lower operating overhead expenses were due to lower spending on travel and meeting expenses, lower bad debt expense and
+slightly lower personnel costs related to our wholesale business, partially offset by increased spending to support the growth of NIKE-owned retail stores. 
+Asia Pacific Region 
+Fiscal 2007 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+Fiscal 2005 
+FY06 vs. 
+FY05 
+% Change 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+1,159.2 
+$ 
+1,044.1 
+11 
+% 
+$ 
+962.9 
+8 
+% 
+Apparel 
+909.3 
+815.6 
+11 
+% 
+755.5 
+8 
+% 
+Equipment 
+214.9 
+194.1 
+11 
+% 
+178.9 
+8 
+% 
+Total Revenues 
+$ 
+2,283.4 
+$ 
+2,053.8 
+11 
+% 
+$ 
+1,897.3 
+8 
+% 
+Pre-tax Income 
+$ 
+483.7 
+$ 
+412.5 
+17 
+% 
+$ 
+399.8 
+3 
+% 
+32 
+Table of Contents 
+Fiscal 2007 Compared to Fiscal 2006 
+In the Asia Pacific Region, changes in currency exchange rates contributed 1 percentage point of revenue growth for fiscal 2007. While the majority of
+countries within the region reported double-digit sales increases for the year, China continues to be the primary driver of growth within the region, as revenues increased nearly 26% on a currency-neutral basis. The revenue growth in China is
+primarily due to expansion in both the number of stores selling NIKE product, as well as sales through existing doors. Constant-currency revenues in Japan increased only slightly during fiscal 2007. Despite sustained softness in the Japan market, we
+are starting to see positive signs, including higher gross margins, improvements in sell through at retail and improving futures conversion trends. 
+The growth in footwear revenue for fiscal 2007 reflected increased unit sales, most notably in China and Korea, partially offset by lower average selling prices, which resulted primarily from strategies to improve consumer value in Japan
+and Korea, combined with a change in the mix of products sold across the region. The year-over-year increase in apparel revenue was also driven by increased demand in China and Korea. 
+The increase in pre-tax income for the Asia Pacific Region for fiscal 2007 was driven by higher revenues, improved gross margins and favorable foreign
+currency translation, which more than offset higher selling and administrative expenses. The gross margin improvement versus the prior year was primarily driven by better inventory management, improved year-over-year hedge rates and reduced
+warehousing costs. The improvement in margins was partially offset by higher sales incentives, most notably in Japan, combined with efforts to improve consumer value in Japan and Korea. The increase in selling and administrative expenses during
+fiscal 2007 was attributable to increased investments in demand creation, most notably the Just Do It and Force Basketball campaigns. Overall business growth across the region, combined with retail expansion in China and Korea, also contributed to
+an increase in operating overhead expenses. 
+Fiscal 2006 Compared to Fiscal 2005 
+In the Asia Pacific Region, changes in currency exchange rates reduced revenue growth by 1 percentage point for fiscal 2006. Excluding the changes in
+currency exchange rates, revenues for each Asia Pacific product business unit were higher than fiscal 2005. Excluding changes in currency exchange rates, footwear revenues reflected increased unit sales (driven by increased unit sales across most
+countries and categories), partially offset by lower average selling prices (due to strategies to improve consumer value in Japan). The increase in apparel revenues was driven by increases across sport performance and sport culture categories.
+Increased revenue in China (driven by expansion of retail distribution and strong consumer demand) was the primary growth driver for fiscal 2006, partially offset by lower sales in Japan driven by lower average selling prices due to investments in
+consumer value and a challenging retail marketplace. 
+The increase in fiscal 2006 pre-tax income for the Asia Pacific Region was driven by
+higher revenues and lower selling and administrative expenses as a percentage of revenues, partially offset by a lower gross margin percentage. The lower gross margin percentage was primarily attributable to lower in-line net pricing margins due to
+higher footwear product costs, primarily the result of higher oil prices; strategies to improve consumer value for footwear in Japan; and a shift in the mix of footwear and apparel products sold in Japan toward products with lower margins. Selling
+and administrative expenses in fiscal 2006 were higher than fiscal 2005, but represented a lower percentage of revenues due to operating overhead leverage. The increased selling and administrative expenses were due to increases in demand creation,
+primarily driven by spending related to the World Cup campaign, and slightly higher operating overhead, primarily due to higher personnel costs to support growth in China. 
+33 
+Table of Contents 
+Americas Region 
+Fiscal 2007 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+Fiscal 2005 
+FY06 vs. 
+FY05 
+% Change 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+679.6 
+$ 
+635.3 
+7 
+% 
+$ 
+478.6 
+33 
+% 
+Apparel 
+193.9 
+201.8 
+(4 
+)% 
+169.1 
+19 
+% 
+Equipment 
+79.0 
+67.8 
+17 
+% 
+48.1 
+41 
+% 
+Total Revenues 
+$ 
+952.5 
+$ 
+904.9 
+5 
+% 
+$ 
+695.8 
+30 
+% 
+Pre-tax Income 
+$ 
+187.4 
+$ 
+172.6 
+9 
+% 
+$ 
+116.5 
+48 
+% 
+Fiscal 2007 Compared to Fiscal 2006 
+In the Americas Region, changes in currency exchange rates contributed 1 percentage point of revenue growth for fiscal 2007. Excluding changes in foreign
+currency exchange rates, growth in most markets within the region, led by constant-currency revenue growth of 29% in Argentina, more than offset softer results in Brazil. While currency-neutral footwear and equipment revenues increased 6% and 15%,
+respectively, versus the prior year, apparel revenues decreased 4% as a result of tough World Cup comparisons. We expect to return to apparel revenue growth in fiscal 2008 as a result of moving from a licensed to a wholesale apparel distribution
+model in Brazil. 
+The increase in pre-tax income for fiscal 2007 versus the prior year was primarily attributable to higher revenues and
+improved gross margins, partially offset by higher selling and administrative expenses. The gross margin improvement was driven by higher in-line net pricing margins resulting from fewer discounts being offered in fiscal 2007 compared to fiscal
+2006, combined with a change in product mix. The increase in selling and administrative expenses during fiscal 2007 was primarily attributable to investments in demand creation, most notably the Run Americas II and women’s fitness campaigns,
+the World Cup and retail resources. 
+Fiscal 2006 Compared to Fiscal 2005 
+In the Americas Region, 11 percentage points of the revenue growth for fiscal 2006 were due to changes in currency exchange rates. Even excluding the
+changes in currency exchange rates, sales in each Americas product business unit grew in fiscal 2006. The revenue growth was driven by increased sales in every country in the region, with significant sales increases in Brazil, Argentina and Mexico.
+The increase in fiscal 2006 pre-tax income for the Americas Region was attributable to higher revenues, an improved gross margin
+percentage, lower selling and administrative expenses as a percentage of revenues and favorable currency translation. Selling and administrative expenses were higher than fiscal 2005, but represented a lower percentage of revenues for fiscal 2006.
+The increased selling and administrative expenses were due to increases in both demand creation (due to increased sports marketing endorsement contracts, and increased advertising spending and retail marketing programs primarily related to the World
+Cup campaign) and operating overhead (driven by increased personnel costs as a result of continued expansion of the business across the region). 
+34 
+Table of Contents 
+Other Businesses 
+Fiscal 2007 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+Fiscal 2005 
+FY06 vs. 
+FY05 
+% Change 
+(In millions) 
+Revenues 
+$ 
+2,259.6 
+$ 
+1,947.1 
+16 
+% 
+$ 
+1,735.7 
+12 
+% 
+Pre-tax Income 
+$ 
+303.7 
+$ 
+153.6 
+98 
+% 
+$ 
+154.8 
+(1 
+)% 
+Converse arbitration 
+(14.2 
+) 
+51.9 
+— 
+— 
+Pre-tax Income, excluding the Converse arbitration 
+$ 
+289.5 
+$ 
+205.5 
+41 
+% 
+$ 
+154.8 
+33 
+% 
+We are providing pre-tax income excluding the Converse arbitration to enhance the visibility of
+the underlying earnings trend excluding these non-recurring amounts. 
+Fiscal 2007 Compared to Fiscal 2006 
+The increase in Other business revenues for fiscal 2007 compared to the same period in the prior year was driven by double-digit revenue growth across
+nearly all businesses, led by Converse and NIKE Golf. In fiscal 2007, revenues at Converse increased more than 20% versus the prior year to over $550 million, driven by strong consumer demand in the United States and internationally, while NIKE Golf
+grew 12% to nearly $650 million. 
+During fiscal 2007, improved profitability at Converse, driven by increased wholesale revenues in the
+United States and growth in our international licensing business, combined with growth at NIKE Golf, contributed to the increase in pre-tax income versus fiscal 2006. As previously discussed, fiscal 2007 results include the benefit of the $14.2
+million settlement of the arbitration ruling involving Converse and a former South American licensee, as discussed below. 
+Fiscal 2006
+Compared to Fiscal 2005 
+Revenue increases for our Other businesses in fiscal 2006 as compared to fiscal 2005 were driven primarily by
+growth at Cole Haan, Converse, Hurley and NIKE Golf. 
+Pre-tax income from the Other businesses for fiscal 2006 was consistent with fiscal
+2005 and included a $51.9 million charge related to the unfavorable arbitration ruling involving a licensing agreement contract dispute with our Converse subsidiary and a former South American licensee. This charge reduced reported pre-tax income
+for the Other businesses by 33 percentage points. Excluding the Converse arbitration charge, the pre-tax income improvement was driven by improved profitability at Converse, Hurley and NIKE Golf, partially offset by a loss at NIKE Bauer Hockey. The
+loss at NIKE Bauer Hockey was largely the result of costs incurred in connection with a re-branding initiative. 
+Liquidity and Capital Resources
+Fiscal 2007 Cash Flow Activity 
+Cash provided by operations was $1.9 billion in fiscal 2007, compared to $1.7 billion in fiscal 2006. Our primary source of operating cash flow was net income of $1.5 billion, and non-cash depreciation and stock-based
+compensation, offset by investments in working capital and other assets and liabilities to support growth in the business. The increase in working capital during fiscal 2007 was primarily attributable to an increase in prepaid expenses and other
+current assets and inventories, partially offset by increases in accounts payable and accrued liabilities. The increase in prepaid expenses and other current assets was primarily due to the timing of payments, while the increase in inventories
+reflects year-over-year growth in reported futures and higher inventories to support the expansion of NIKE-owned retail stores, slightly offset by better inventory management. The increase in accounts payable and accrued liabilities was primarily
+due to the timing of payments and inventory receipts compared to the prior year. 
+35 
+Table of Contents 
+Cash provided by investing activities was $0.1 billion during fiscal 2007, compared to $1.3 billion used
+in investing activities during fiscal 2006. The year-over-year change was due to a net decrease of $382.4 million in short-term investments during fiscal 2007, compared to a net increase of $909.9 million in short-term investments during fiscal
+2006. The decrease in short-term investments was the result of a strategic shift to highly liquid instruments with maturities of three months or less. 
+Cash used in financing activities was $1.1 billion during fiscal 2007, compared to $0.9 billion used in fiscal 2006. The increase versus fiscal 2006 was primarily due to the $250 million repayment of corporate bonds,
+combined with an increase in share repurchases, discussed below, partially offset by an increase in notes payable, proceeds from the issuance of long-term debt and exercise of stock options. 
+In fiscal 2007, we purchased approximately 22.1 million shares of NIKE’s Class B Common Stock for $975.3 million. In the first quarter of
+fiscal 2007, 4.0 million of the shares repurchased completed the previous four-year, $1.5 billion share repurchase program approved by the Board of Directors in June 2004. As of the end of fiscal 2007, we have repurchased 18.1 million
+shares for $812.7 million under the new $3 billion program approved by our Board of Directors in June 2006. We expect to fund share repurchases from operating cash flow, excess cash, and/or debt. The timing and the ultimate amount of shares
+purchased under the programs will be dictated by our capital needs and stock market conditions. 
+Dividends declared per share of common
+stock for fiscal 2007 were $0.71, compared to $0.59 in fiscal 2006. We have paid a dividend every quarter since February 1984. Our current dividend policy is to provide an annual dividend equal to 20% to 30% of the trailing twelve-months’
+earnings per share, paid out on a quarterly basis. We review our dividend policy from time to time, and based upon current projected earnings and cash flow requirements, we anticipate continuing to pay a quarterly dividend in the foreseeable future.
+Off-Balance Sheet Arrangements 
+In connection with various contracts and agreements, we provide routine indemnifications relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items that fall
+under the scope of Financial Accounting Standards Board (“FASB”) Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.”
+Currently, we have several such agreements in place. However, based on our historical experience and the estimated probability of future loss, we have determined that the fair value of such indemnifications is not material to our financial position
+or results of operations. 
+Contractual Obligations 
+Our significant long-term contractual obligations as of May 31, 2007, and significant endorsement contracts entered into through the date of this
+report are as follows: 
+Cash Payments Due During the Year Ending May 31, 
+Description of Commitment 
+2008 
+2009 
+2010 
+2011 
+2012 
+Thereafter 
+Total 
+(In millions) 
+Operating Leases 
+$ 
+260.9 
+$ 
+219.9 
+$ 
+183.3 
+$ 
+156.7 
+$ 
+128.4 
+$ 
+587.0 
+$ 
+1,536.2 
+Long-term Debt 
+30.5 
+5.5 
+30.5 
+5.5 
+133.0 
+236.5 
+441.5 
+Endorsement Contracts (1) 
+541.0 
+483.2 
+398.7 
+310.5 
+268.6 
+792.1 
+2,794.1 
+Product Purchase Obligations (2) 
+2,063.4 
+0.3 
+— 
+— 
+— 
+— 
+2,063.7 
+Other (3),(4 ) 
+269.8 
+51.3 
+10.7 
+3.2 
+1.1 
+0.9 
+337.0 
+Total 
+$ 
+3,165.6 
+$ 
+760.2 
+$ 
+623.2 
+$ 
+475.9 
+$ 
+531.1 
+$ 
+1,616.5 
+$ 
+7,172.5 
+(1 ) 
+The amounts listed for endorsement contracts represent approximate amounts of base compensation and
+minimum guaranteed royalty fees we are obligated to pay athlete and sport team endorsers of our products. Actual payments under some contracts may be higher than the amounts listed as these contracts provide for 
+36 
+Table of Contents 
+bonuses to be paid to the endorsers based upon athletic achievements and/or royalties on product sales in future periods. Actual payments under some
+contracts may also be lower as these contracts include provisions for reduced payments if athletic performance declines in future periods. 
+In addition to the cash payments, we are obligated to furnish our endorsers with NIKE products for their use. It is not possible to determine how much we will spend on this product
+on an annual basis as the contracts do not stipulate a specific amount of cash to be spent on the product. The amount of product provided to the endorsers will depend on many factors including general playing conditions, the number of sporting
+events in which they participate, and our own decisions regarding product and marketing initiatives. In addition, the costs to design, develop, source, and purchase the products furnished to the endorsers are incurred over a period of time and are
+not necessarily tracked separately from similar costs incurred for products sold to customers. 
+(2) 
+We generally order product at least four to five months in advance of sale based primarily on advanced
+futures orders received from customers. The amounts listed for product purchase obligations represent agreements (including open purchase orders) to purchase products in the ordinary course of business, that are enforceable and legally binding and
+that specify all significant terms. In some cases, prices are subject to change throughout the production process. The reported amounts exclude product purchase liabilities included in accounts payable on the Consolidated Balance Sheet as of
+May 31, 2007. 
+(3) 
+Other amounts primarily include service and marketing commitments made in the ordinary course of
+business. The amounts represent the minimum payments required by legally binding contracts and agreements that specify all significant terms, including open purchase orders for non-product purchases. The reported amounts exclude those liabilities
+included in accounts payable or accrued liabilities on the Consolidated Balance Sheet as of May 31, 2007. 
+(4) 
+Included in Other is a commitment to an outsourcing contractor that provides us with information
+technology operations management services for fiscal 2008 and part of fiscal 2009. The amount of future payments depends on our level of monthly usage of the different elements of the contractor’s services. If we were to terminate the entire
+contract as of May 31, 2007, we would be required to provide the contractor with four months’ notice and pay a termination fee of $16.3 million. Our monthly payments to the contractor currently approximate $5.3 million.
+We also have the following outstanding short-term debt obligations as of May 31, 2007. Please refer to the
+accompanying Notes to Consolidated Financial Statements (Note 6 — Short-Term Borrowings and Credit Lines) for further description and interest rates related to the short-term debt obligations listed below. 
+Outstanding as of 
+May 31, 2007 
+(In millions) 
+Notes payable, due at mutually agreed-upon dates within one year of issuance or on demand 
+$ 
+100.8 
+Payable to Sojitz America for the purchase of inventories, generally due 60 days after shipment of goods from a foreign port 
+$ 
+44.6 
+As of May 31, 2007, letters of credit of $165.9 million were outstanding, generally for the
+purchase of inventory. 
+Capital Resources 
+In October 2001, we filed a shelf registration statement with the SEC under which $1 billion in debt securities may be issued. In May 2002, we commenced a medium-term note program under the shelf registration that
+allows us to issue up to $500 million in medium-term notes, as our capital needs dictate. We entered into this program to provide additional liquidity to meet our working capital and general corporate cash requirements and since commencement of the
+medium-term note program we have issued $240.0 million in medium-term notes. 
+37 
+Table of Contents 
+During fiscal 2007, no medium-term notes were issued under the program. We may issue additional notes under the shelf registration in fiscal 2008 depending
+on general corporate needs. 
+During fiscal 2007, one of the Company’s Japanese subsidiaries entered into a 3.0 billion yen
+(approximately $24.7 million as of May 31, 2007) loan facility that replaced certain intercompany borrowings. The interest rate on the facility is based on the six-month Japanese Yen London Interbank Offer Rate (“LIBOR”) plus a
+spread, resulting in an all-in rate of 0.805% at May 31, 2007. The facility expires on December 31, 2007 unless both parties agree to an extension. 
+During fiscal 2007, the Company’s same Japanese subsidiary entered into a 5.0 billion yen (approximately $41.1 million as of May 31, 2007) term loan that replaces certain intercompany borrowings and matures
+on February 14, 2012. The interest rate on the loan is approximately 1.5% and interest is paid semi-annually. 
+As of May 31,
+2007, we had a multi-year $1 billion revolving credit facility in place with a group of banks, and we currently have no amounts outstanding under the facility. The facility matures in December 2011, and can be extended for one additional year on
+both the first and second anniversary date. Based on our current long-term senior unsecured debt ratings of A+ and A2 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively, the interest rate charged on any
+outstanding borrowings would be the prevailing LIBOR plus 0.15%. The facility fee is 0.05% of the total commitment. 
+If our long-term debt
+rating were to decline, the facility fee and interest rate under our committed credit facility would increase. Conversely, if our long-term debt rating were to improve, the facility fee and interest rate would decrease. Changes in our long-term debt
+rating would not trigger acceleration of maturity of any then outstanding borrowings or any future borrowings under the committed credit facility. Under this committed credit facility, we have agreed to various covenants. These covenants include
+limits on our disposal of fixed assets and the amount of debt secured by liens we may incur, and set a minimum capitalization ratio. In the event we were to have any borrowings outstanding under this facility, failed to meet any covenant, and were
+unable to obtain a waiver from a majority of the banks, any borrowings would become immediately due and payable. As of May 31, 2007, we were in full compliance with each of these covenants and believe it is unlikely we will fail to meet any of
+these covenants in the foreseeable future. 
+Liquidity is also provided by our commercial paper program, under which there was no amount
+outstanding at May 31, 2007 or May 31, 2006. We currently have short-term debt ratings of A1 and P1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively. 
+We currently believe that cash generated by operations, together with access to external sources of funds as described above, will be sufficient to meet
+our operating and capital needs in the foreseeable future. 
+Recently Issued Accounting Standards 
+In June 2006, the FASB ratified the consensus reached on Emerging Issues Task Force (“EITF”) Issue No. 06-3, “How Taxes Collected from
+Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)” (“EITF 06-3”). EITF 06-3 requires disclosure of the method of accounting for the applicable
+assessed taxes and the amount of assessed taxes that are included in revenues if they are accounted for under the gross method. EITF 06-3 was adopted in the fourth quarter ended May 31, 2007; however, since we present revenues net of any taxes
+collected from customers, no additional disclosures were required. 
+In September 2006, the FASB issued SFAS No. 158,
+“Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“FAS 158”). FAS 158 requires employers to fully recognize the obligations associated with single-employer defined benefit pension, retiree
+healthcare and other postretirement plans in their financial statements. We adopted the provisions of FAS 158 in the fourth quarter ended May 31, 2007. See Note 
+38 
+Table of Contents 
+12— Benefit Plans in the accompanying Notes to Consolidated Financial Statements for more information on the adoption of FAS 158.
+In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements
+when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires public companies to quantify errors using both a balance sheet and income statement approach and evaluate whether either approach
+results in quantifying a misstatement as material, when all relevant quantitative and qualitative factors are considered. The adoption of SAB 108 at May 31, 2007 did not have a material impact on our consolidated financial position or results
+of operations. 
+In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
+(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in our financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. The provisions of FIN 48 are
+effective for our fiscal year beginning June 1, 2007. We have evaluated the provisions of FIN 48 and do not expect that the adoption will have a material impact on our consolidated financial position or results of operations. 
+In June 2006, the FASB ratified the consensus reached on EITF Issue No. 06-2, “Accounting for Sabbatical Leave and Other Similar Benefits
+Pursuant to FASB Statement No. 43” (“EITF 06-2”). EITF 06-2 clarifies recognition guidance on the accrual of employees’ rights to compensated absences under a sabbatical or other similar benefit arrangement. The provisions
+of EITF 06-2 are effective for the fiscal year beginning June 1, 2007 and will be applied through a cumulative effect adjustment to retained earnings. We have evaluated the provisions of EITF 06-2 and do not expect that the adoption will have a
+material impact on our consolidated financial position or results of operations. 
+In September 2006, the FASB issued SFAS No. 157,
+“Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value
+measurements. The provisions of FAS 157 are effective for the fiscal year beginning June 1, 2008. We are currently evaluating the impact of the provisions of FAS 157. 
+In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an
+Amendment of FASB Statement No. 115” (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value
+option has been elected will be recognized in earnings at each subsequent reporting date. The provisions of FAS 159 are effective for the fiscal year beginning June 1, 2008. The Company is currently evaluating the impact of the provisions of
+FAS 159. 
+Critical Accounting Policies 
+Our previous discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the
+United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
+liabilities. 
+We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the
+greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical
+accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, the allowance for uncollectible accounts receivable, inventory reserves, and contingent
+payments under endorsement contracts. These policies require that we make estimates in the preparation of our financial statements as of a given date. However, since 
+39 
+Table of Contents 
+our business cycle is relatively short, actual results related to these estimates are generally known within the six-month period following the financial
+statement date. Thus, these policies generally affect only the timing of reported amounts across two to three fiscal quarters. 
+Within the
+context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. 
+Revenue Recognition 
+We record
+wholesale revenues when title passes and the risks and rewards of ownership have passed to the customer, based on the terms of sale. Title passes generally upon shipment or upon receipt by the customer depending on the country of the sale and the
+agreement with the customer. Retail store revenues are recorded at the time of sale. 
+In some instances, we ship product directly from our
+supplier to the customer and recognize revenue when the product is delivered to and accepted by the customer. Our revenues may fluctuate in cases when our customers delay accepting shipment of product for periods up to several weeks. 
+In certain countries outside of the U.S., precise information regarding the date of receipt by the customer is not readily available. In these cases, we
+estimate the date of receipt by the customer based upon historical delivery times by geographic location. On the basis of our tests of actual transactions, we have no indication that these estimates have been materially inaccurate historically.
+As part of our revenue recognition policy, we record estimated sales returns and miscellaneous claims from customers as reductions to
+revenues at the time revenues are recorded. We base our estimates on historical rates of product returns and claims, and specific identification of outstanding claims and outstanding returns not yet received from customers. Actual returns and claims
+in any future period are inherently uncertain and thus may differ from our estimates. If actual or expected future returns and claims were significantly greater or lower than the reserves we had established, we would record a reduction or increase
+to net revenues in the period in which we made such determination. 
+Allowance for Uncollectible Accounts Receivable
+We make ongoing estimates relating to the collectibility of our accounts receivable and maintain an allowance for estimated losses
+resulting from the inability of our customers to make required payments. In determining the amount of the allowance, we consider our historical level of credit losses and make judgments about the creditworthiness of significant customers based on
+ongoing credit evaluations. Since we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to
+deteriorate, resulting in their inability to make payments, a larger allowance might be required. In the event we determine that a smaller or larger allowance is appropriate, we would record a credit or a charge to selling and administrative expense
+in the period in which such a determination is made. 
+Inventory Reserves 
+We also make ongoing estimates relating to the net realizable value of inventories, based upon our assumptions about future demand and market conditions.
+If we estimate that the net realizable value of our inventory is less than the cost of the inventory recorded on our books, we record a reserve equal to the difference between the cost of the inventory and the estimated net realizable value. This
+reserve is recorded as a charge to cost of sales. If changes in market conditions result in reductions in the estimated net realizable value of our inventory below our previous estimate, we would increase our reserve in the period in which we made
+such a determination and record a charge to cost of sales. 
+40 
+Table of Contents 
+Contingent Payments under Endorsement Contracts 
+A significant portion of our demand creation expense relates to payments under endorsement contracts. In general, endorsement payments are expensed
+uniformly over the term of the contract. However, certain contract elements may be accounted for differently, based upon the facts and circumstances of each individual contract. 
+Some of the contracts provide for contingent payments to endorsers based upon specific achievements in their sports (e.g., winning a championship). We
+record selling and administrative expense for these amounts when the endorser achieves the specific goal. 
+Some of the contracts provide
+for payments based upon endorsers maintaining a level of performance in their sport over an extended period of time (e.g., maintaining a top ranking in a sport for a year). These amounts are reported in selling and administrative expense when we
+determine that it is probable that the specified level of performance will be maintained throughout the period. In these instances, to the extent that actual payments to the endorser differ from our estimate due to changes in the endorser’s
+athletic performance, increased or decreased selling and administrative expense may be reported in a future period. 
+Some of the contracts
+provide for royalty payments to endorsers based upon a predetermined percentage of sales of particular products. We expense these payments in cost of sales as the related sales occur. In certain contracts, we offer minimum guaranteed royalty
+payments. For contractual obligations for which we estimate that we will not meet the minimum guaranteed amount of royalty fees through sales of product, we record the amount of the guaranteed payment in excess of that earned through sales of
+product in selling and administrative expense uniformly over the remaining guarantee period. 
+Property, Plant and Equipment
+Property, plant and equipment, including buildings, equipment, and computer hardware and software is recorded at cost (including,
+in some cases, the cost of internal labor) and is depreciated over its estimated useful life. Changes in circumstances (such as technological advances or changes to our business operations) can result in differences between the actual and estimated
+useful lives. In those cases where we determine that the useful life of a long-lived asset should be shortened, we increase depreciation expense over the remaining useful life to depreciate the asset’s net book value to its salvage value.
+When events or circumstances indicate that the carrying value of property, plant and equipment may be impaired, we estimate the future
+undiscounted cash flows to be derived from the asset to determine whether or not a potential impairment exists. If the carrying value exceeds our estimate of future undiscounted cash flows, we then calculate the impairment as the excess of the
+carrying value of the asset over our estimate of its fair market value. Any impairment charges are recorded within other (income) expense, net. We estimate future undiscounted cash flows using assumptions about our expected future operating
+performance. Our estimates of undiscounted cash flows may change in future periods due to, among other things, technological changes, economic conditions, changes to our business operations or inability to meet business plans. Such changes may
+result in impairment charges in the period in which such changes in estimates are made. 
+Goodwill and Other Intangible Assets
+In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”), goodwill and
+intangible assets with indefinite lives are not amortized but instead measured for impairment at least annually in the fourth fiscal quarter, or when events indicate that an impairment exists. As required by FAS 142, in our impairment tests for
+goodwill and other indefinite-lived intangible assets, we compare the estimated fair value of goodwill and other intangible assets to the carrying value. If the carrying value exceeds our estimate of fair value, we calculate impairment as the excess
+of the carrying value over our estimate of fair value. Our estimates of fair value utilized in goodwill and other indefinite-lived intangible asset tests may be based upon a number of factors, including our assumptions about the expected future
+operating performance of our reporting units. Our estimates 
+41 
+Table of Contents 
+may change in future periods due to, among other things, technological change, economic conditions, changes to our business operations or inability to meet
+business plans. Such changes may result in impairment charges recorded in future periods. Any impairment charge related to goodwill would be classified as a separate line item on our consolidated statement of income as part of income before income
+taxes and any impairment charge related to other indefinite-lived intangible assets would be classified within other (income) expense, net. 
+Intangible assets that are determined to have definite lives are amortized over their useful lives and are measured for impairment only when events or circumstances indicate the carrying value may be impaired. In these cases, we estimate
+the future undiscounted cash flows to be derived from the asset to determine whether or not a potential impairment exists. If the carrying value exceeds our estimate of future undiscounted cash flows, we then calculate the impairment as the excess
+of the carrying value of the asset over our estimate of its fair value. Any significant impairment charges would be classified within other (income) expense, net. 
+Hedge Accounting for Derivatives 
+We use forward exchange contracts and option contracts to
+hedge certain anticipated foreign currency exchange transactions, as well as any resulting receivable or payable balance. When specific criteria required by SFAS No. 133, “Accounting for Derivative and Hedging Activities,” as amended
+and interpreted (“FAS 133”), have been met, changes in fair values of hedge contracts relating to anticipated transactions are recorded in other comprehensive income rather than net income until the underlying hedged transaction affects
+net income. In most cases, this results in gains and losses on hedge derivatives being released from other comprehensive income into net income some time after the maturity of the derivative. One of the criteria for this accounting treatment is that
+the forward exchange contract amount should not be in excess of specifically identified anticipated transactions. By their very nature, our estimates of anticipated transactions may fluctuate over time and may ultimately vary from actual
+transactions. When anticipated transaction estimates or actual transaction amounts decrease below hedged levels, or when the timing of transactions changes significantly, we are required to reclassify at least a portion of the cumulative changes in
+fair values of the related hedge contracts from other comprehensive income to other (income) expense, net during the quarter in which such changes occur. Once an anticipated transaction estimate or actual transaction amount decreases below hedged
+levels, we make adjustments to the related hedge contract in order to reduce the amount of the hedge contract to that of the revised anticipated transaction. 
+Stock-based Compensation 
+As of the first quarter of fiscal 2007, we account for stock-based
+compensation in accordance with FAS 123R. Under the provisions of FAS 123R, the fair value of stock-based compensation is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model
+requires the input of highly subjective assumptions including volatility. Expected volatility is estimated based on implied volatility in market traded options on our common stock with a term greater than one year, along with other factors. Our
+decision to use implied volatility was based on the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility. If factors
+change and we use different assumptions for estimating stock-based compensation expense in future periods, stock-based compensation expense may differ materially in the future from that recorded in the current period. 
+Taxes 
+We record valuation
+allowances against our deferred tax assets, when necessary, in accordance with SFAS No. 109, “Accounting for Income Taxes.” Realization of deferred tax assets (such as net operating loss carryforwards) is dependent on future
+taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a
+valuation allowance against our deferred tax asset, increasing our income tax expense in the period such determination is made. 
+42 
+Table of Contents 
+In addition, we have not recorded U.S. income tax expense for foreign earnings that we have determined to
+be indefinitely reinvested offshore, thus reducing our overall income tax expense. The amount of earnings designated as indefinitely reinvested offshore is based upon the actual deployment of such earnings in our offshore assets and our expectations
+of the future cash needs of our U.S. and foreign entities. Income tax considerations are also a factor in determining the amount of foreign earnings to be indefinitely reinvested offshore. 
+We carefully review all factors that drive the ultimate disposition of foreign earnings determined to be reinvested offshore, and apply stringent
+standards to overcoming the presumption of repatriation. Despite this approach, because the determination involves our future plans and expectations of future events, the possibility exists that amounts declared as indefinitely reinvested offshore
+may ultimately be repatriated. For instance, the actual cash needs of our U.S. entities may exceed our current expectations, or the actual cash needs of our foreign entities may be less than our current expectations. This would result in additional
+income tax expense in the year we determined that amounts were no longer indefinitely reinvested offshore. Conversely, our approach may also result in a determination that accumulated foreign earnings (for which U.S. income taxes have been provided)
+will be indefinitely reinvested offshore. In this case, our income tax expense would be reduced in the year of such determination. 
+On an
+interim basis, we estimate what our effective tax rate will be for the full fiscal year. The estimated annual effective tax rate is then applied to the year-to-date pre-tax income excluding significant or infrequently occurring items, to determine
+the year-to-date tax expense. The income tax effects of infrequent or unusual items are recognized in the interim period in which they occur. As the fiscal year progresses, we continually refine our estimate based upon actual events and earnings by
+jurisdiction during the year. This continual estimation process periodically results in a change to our expected effective tax rate for the fiscal year. When this occurs, we adjust the income tax provision during the quarter in which the change in
+estimate occurs so that the year-to-date provision equals the expected annual rate. 
+Other Contingencies 
+In the ordinary course of business, we are involved in legal proceedings regarding contractual and employment relationships, product liability claims,
+trademark rights, and a variety of other matters. We record contingent liabilities resulting from claims against us, including related legal costs, when it is probable that a liability has been incurred and the amount of the loss is reasonably
+estimable. We disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will materially exceed the recorded liability. Estimating probable losses requires analysis of multiple factors, in some cases including
+judgments about the potential actions of third party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. Currently, we do not believe that any of our pending legal proceedings or claims will have a material
+impact on our financial position or results of operations. However, if actual or estimated probable future losses exceed our recorded liability for such claims, we would record additional charges as other (income) expense, net during the period in
+which the actual loss or change in estimate occurred. 
+Item 7A. Quantitative and Qualitative Disclosures about Market Risk 
+In the normal course of business and consistent with established policies and procedures, we employ a variety of financial instruments to manage exposure to fluctuations in the value of foreign currencies and interest rates. It is our
+policy to utilize these financial instruments only where necessary to finance our business and manage such exposures; we do not enter into these transactions for speculative purposes. 
+43 
+Table of Contents 
+We are exposed to foreign currency fluctuation as a result of our international sales, product sourcing
+and funding activities. Our foreign currency risk management objective is to reduce the variability of local entity cash flows as a result of exchange rate movements. We use forward exchange contracts and options to hedge certain anticipated but not
+yet firmly committed transactions as well as certain firm commitments and the related receivables and payables, including third party and intercompany transactions. 
+When we begin hedging exposures, the type and duration of each hedge depends on the nature of the exposure and market conditions. Generally, all anticipated and firmly committed transactions that are hedged are to be
+recognized within twelve months, although at May 31, 2007 we had forward contracts hedging anticipated transactions that will be recognized in as many as 18 months. The majority of the contracts expiring in more than twelve months relate to the
+anticipated purchase of inventory by our European subsidiary. We use forward contracts to hedge non-functional currency denominated payments under intercompany loan agreements. When intercompany loans are hedged, it is typically for their expected
+duration. Hedged transactions are principally denominated in euros, British pounds, Japanese yen, Korean won, Canadian dollars and Mexican pesos. 
+Our earnings are also exposed to movements in short and long-term market interest rates. Our objective in managing this interest rate exposure is to limit the impact of interest rate changes on earnings and cash flows, and to reduce overall
+borrowing costs. To achieve these objectives, we maintain a mix of medium and long-term fixed rate debt, commercial paper, and bank loans and have entered into interest rate swaps. 
+Market Risk Measurement 
+We monitor foreign exchange risk, interest rate risk and related derivatives
+using a variety of techniques including a review of market value, sensitivity analysis, and Value-at-Risk (“VaR”). Our market-sensitive derivative and other financial instruments, as defined by the SEC, are foreign currency forward
+contracts, foreign currency option contracts, interest rate swaps, intercompany loans denominated in non-functional currencies, fixed interest rate U.S. dollar denominated debt, and fixed interest rate Japanese yen denominated debt. 
+We use VaR to monitor the foreign exchange risk of our foreign currency forward and foreign currency option derivative instruments only. The VaR
+determines the maximum potential one-day loss in the fair value of these foreign exchange rate-sensitive financial instruments. The VaR model estimates assume normal market conditions and a 95% confidence level. There are various modeling techniques
+that can be used in the VaR computation. Our computations are based on interrelationships between currencies and interest rates (a “variance/co-variance” technique). These interrelationships are a function of foreign exchange currency
+market changes and interest rate changes over the preceding one year period. The value of foreign currency options does not change on a one-to-one basis with changes in the underlying currency rate. We adjusted the potential loss in option value for
+the estimated sensitivity (the “delta” and “gamma”) to changes in the underlying currency rate. This calculation reflects the impact of foreign currency rate fluctuations on the derivative instruments only, and does not include
+the impact of such rate fluctuations on non-functional currency transactions (such as anticipated transactions, firm commitments, cash balances, and accounts and loans receivable and payable), including those which are hedged by these instruments.
+The VaR model is a risk analysis tool and does not purport to represent actual losses in fair value that we will incur, nor does it
+consider the potential effect of favorable changes in market rates. It also does not represent the full extent of the possible loss that may occur. Actual future gains and losses will differ from those estimated because of changes or differences in
+market rates and interrelationships, hedging instruments and hedge percentages, timing and other factors. 
+The estimated maximum one-day
+loss in fair value on our foreign currency sensitive financial instruments, derived using the VaR model, was $13.7 million and $17.5 million at May 31, 2007 and May 31, 2006, respectively. The decrease in VaR as of May 31, 2007
+occurred due to a lower notional value of outstanding foreign currency derivative instruments as of May 31, 2007 compared to May 31, 2006. Such a hypothetical loss in fair value of our derivatives would be offset by increases in the value
+of the underlying transactions being 
+44 
+Table of Contents 
+hedged. The average monthly change in the fair values of foreign currency forward and foreign currency option derivative instruments was $36.5 million and
+$34.9 million for fiscal 2007 and fiscal 2006, respectively. 
+Details of other market-sensitive financial instruments and derivative
+financial instruments not included in the VaR calculation above are provided in the table below, except the interest rate swaps which are described below. These instruments include intercompany loans denominated in non-functional currencies, fixed
+interest rate Japanese yen denominated debt, fixed interest rate U.S. dollar denominated debt and interest rate swaps. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity
+dates. 
+Expected Maturity Date 
+Year Ended May 31, 
+2008 
+2009 
+2010 
+2011 
+2012 
+Thereafter 
+Total 
+Fair Value 
+(In millions, except interest rates) 
+Foreign Exchange Risk 
+Euro Functional Currency 
+Intercompany loan — U.S. dollar denominated — Fixed rate 
+Principal payments 
+— 
+— 
+— 
+— 
+— 
+$ 
+270.4 
+$ 
+270.4 
+$ 
+270.4 
+Average interest rate 
+— 
+— 
+— 
+— 
+— 
+5.7 
+% 
+5.7 
+% 
+Intercompany loan — British pound denominated — Fixed rate 
+Principal payments 
+$ 
+29.3 
+— 
+— 
+— 
+— 
+— 
+$ 
+29.3 
+$ 
+29.3 
+Average interest rate 
+5.1 
+% 
+— 
+— 
+— 
+— 
+— 
+5.1 
+% 
+U.S. Dollar Functional Currency 
+Intercompany loan — Japanese yen denominated — Fixed rate 
+Principal payments 
+$ 
+112.7 
+32.9 
+— 
+— 
+— 
+— 
+$ 
+145.6 
+$ 
+145.6 
+Average interest rate 
+1.0 
+% 
+0.8 
+% 
+— 
+— 
+— 
+— 
+1.0 
+% 
+Intercompany loan — Canadian dollar denominated—Fixed rate 
+Principal payments 
+$ 
+69.6 
+— 
+— 
+— 
+— 
+— 
+$ 
+69.6 
+$ 
+69.6 
+Average interest rate 
+4.0 
+% 
+— 
+— 
+— 
+— 
+— 
+4.0 
+% 
+Japanese Yen Functional Currency 
+Long-term Japanese yen debt — Fixed rate 
+Principal payments 
+$ 
+5.5 
+5.5 
+5.5 
+5.5 
+133.0 
+46.5 
+$ 
+201.5 
+$ 
+210.5 
+Average interest rate 
+3.0 
+% 
+3.1 
+% 
+3.1 
+% 
+3.1 
+% 
+3.0 
+% 
+2.4 
+% 
+2.9 
+% 
+Interest Rate Risk 
+Japanese Yen Functional Currency 
+Long-term Japanese yen debt — Fixed rate 
+Principal payments 
+$ 
+5.5 
+5.5 
+5.5 
+5.5 
+133.0 
+46.5 
+$ 
+201.5 
+$ 
+210.5 
+Average interest rate 
+3.0 
+% 
+3.1 
+% 
+3.1 
+% 
+3.1 
+% 
+3.0 
+% 
+2.4 
+% 
+2.9 
+% 
+U.S. Dollar Functional Currency Long-term U.S. dollar debt — Fixed rate 
+Principal payments 
+$ 
+25.0 
+— 
+25.0 
+— 
+— 
+190.0 
+$ 
+240.0 
+$ 
+232.7 
+Average interest rate 
+5.1 
+% 
+5.1 
+% 
+5.1 
+% 
+5.1 
+% 
+5.1 
+% 
+5.1 
+% 
+5.1 
+% 
+Intercompany loans and related interest amounts eliminate in consolidation. Intercompany loans are
+generally hedged against foreign exchange risk through the use of forward contracts with third parties, as discussed above. 
+The fixed
+interest rate Japanese yen denominated debts were issued by and are accounted for by one of our Japanese subsidiaries. Accordingly, the monthly remeasurement of these instruments due to changes in foreign exchange rates is recognized in accumulated
+other comprehensive income upon the consolidation of this subsidiary. 
+There were no significant changes in debt market risks during fiscal
+2007. We did not issue any long-term fixed-rate corporate bonds during fiscal 2007 or 2006; however, in previous years we issued a total of $240 million in long-term fixed-rate corporate bonds that mature between July 2007 and October 2015.
+Fixed interest 
+45 
+Table of Contents 
+rates on these bonds range from 4.7% to 5.66%. For each of the bonds issued, we have entered into interest rate swap agreements whereby we receive fixed
+interest payments at the same rate as the bonds and pay variable interest payments based on the three-month or six-month LIBOR plus a spread. As a result of the interest rate swap agreements, the average effective interest rate payable on these
+bonds was 5.38% at May 31, 2007 and 6.07% at May 31, 2006. For $190 million of the issued bonds, the associated swaps have the same notional amount and maturity date as the corresponding bond. These interest rate swaps are accounted for as
+fair value hedges, so changes in the recorded fair values of the swaps are offset by changes in the recorded fair value of the related debt. The remaining $50 million bond matures in October 2013, whereas the associated interest rate swap expired in
+October 2006. Accordingly, changes in the fair value of this swap were recorded in net income each period. The recorded fair value of the interest rate swaps accounted for as fair value hedges was a net loss of $2.6 million and $5.6 million at
+May 31, 2007 and May 31, 2006, respectively, and a $9.0 million gain at May 31, 2005. The change in fair value of the $50 million interest rate swap that expired in October 2006 was not material for the years ended May 31, 2007,
+2006 and 2005. 
+In fiscal 2003 we also entered into an interest rate swap agreement related to a Japanese yen denominated intercompany loan
+with one of our Japanese subsidiaries. The Japanese subsidiary pays variable interest on the intercompany loan based on 3-month LIBOR plus a spread. Under the interest rate swap agreement, the subsidiary pays fixed interest payments at 0.8% and
+receives variable interest payments based on 3-month LIBOR plus a spread based on a notional amount of 8.0 billion Japanese yen. This interest rate swap is not accounted for as a hedge. Accordingly, changes in the fair value of the swap are recorded
+to net income each period. The change in fair value of the swap was not material for the years ended May 31, 2007, 2006 and 2005. 
+Item 8. Financial Statements and Supplemental Data 
+Management of
+NIKE, Inc. is responsible for the information and representations contained in this report. The financial statements have been prepared in conformity with the generally accepted accounting principles we considered appropriate in the circumstances
+and include some amounts based on our best estimates and judgments. Other financial information in this report is consistent with these financial statements. 
+Our accounting systems include controls designed to reasonably assure that assets are safeguarded from unauthorized use or disposition and which provide for the preparation of financial statements in conformity with
+generally accepted accounting principles. These systems are supplemented by the selection and training of qualified financial personnel and an organizational structure providing for appropriate segregation of duties. 
+An Internal Audit department reviews the results of its work with the Audit Committee of the Board of Directors, presently consisting of three outside
+directors. The Audit Committee is responsible for the appointment of the independent registered public accounting firm and reviews with the independent registered public accounting firm, management and the internal audit staff, the scope and the
+results of the annual examination, the effectiveness of the accounting control system and other matters relating to the financial affairs of NIKE as they deem appropriate. The independent registered public accounting firm and the internal auditors
+have full access to the Committee, with and without the presence of management, to discuss any appropriate matters. 
+Management’s Annual Report on
+Internal Control Over Financial Reporting 
+Management is responsible for establishing and maintaining adequate internal control over
+financial reporting, as such term is defined in Exchange Act rule 13a-15(f). Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of
+our internal control over financial reporting based upon the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management
+concluded that our internal control over financial reporting is effective as of May 31, 2007. 
+46 
+Table of Contents 
+Internal control over financial reporting cannot provide absolute assurance of achieving financial
+reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal
+control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control
+over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. 
+PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited (1) the consolidated financial statements,
+(2) management’s assessment of the effectiveness of our internal control over financial reporting as of May 31, 2007 and (3) the effectiveness of our internal control over financial reporting as of May 31, 2007, as stated in
+their report herein. 
+Mark G. Parker 
+Donald W. Blair 
+Chief Executive Officer and President 
+Chief Financial Officer 
+47 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+To the Board of Directors and 
+Shareholders of NIKE, Inc.: 
+We have completed integrated
+audits of NIKE, Inc.’s consolidated financial statements and of its internal control over financial reporting as of May 31, 2007, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our
+opinions, based on our audits, are presented below. 
+Consolidated financial statements and financial statement schedule 
+In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the
+financial position of NIKE, Inc. and its subsidiaries at May 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2007 in conformity with accounting principles
+generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein
+when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
+financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
+plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures
+in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
+As discussed in Note 1 to the consolidated financial statements, effective June 1, 2006, the Company changed the manner in which it
+accounts for stock-based compensation in accordance with the Statement of Financial Accounting Standards No. 123R “Share-Based Payment.” 
+Internal control over financial reporting 
+Also, in our opinion, management’s assessment, included in
+“Management’s Annual Report on Internal Control Over Financial Reporting” appearing under Item 8, that the Company maintained effective internal control over financial reporting as of May 31, 2007 based on criteria
+established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), is fairly stated, in all material respects, based on those criteria. Furthermore,
+in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the COSO.
+The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on
+management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the
+Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
+respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness
+of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. 
+A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
+reporting and the preparation of financial statements for external purposes in 
+48 
+Table of Contents 
+accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
+that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
+of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
+of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+/s/ P RICEWATERHOUSE C OOPERS LLP 
+Portland, Oregon 
+July 26, 2007 
+49 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF INCOME 
+Year Ended May 31, 
+2007 
+2006 
+2005 
+(In millions, except per share data) 
+Revenues 
+$ 
+16,325.9 
+$ 
+14,954.9 
+$ 
+13,739.7 
+Cost of sales 
+9,165.4 
+8,367.9 
+7,624.3 
+Gross margin 
+7,160.5 
+6,587.0 
+6,115.4 
+Selling and administrative expense 
+5,028.7 
+4,477.8 
+4,221.7 
+Interest (income) expense, net (Notes 1, 6 and 7) 
+(67.2 
+) 
+(36.8 
+) 
+4.8 
+Other (income) expense, net (Notes 5 and 16) 
+(0.9 
+) 
+4.4 
+29.1 
+Income before income taxes 
+2,199.9 
+2,141.6 
+1,859.8 
+Income taxes (Note 8) 
+708.4 
+749.6 
+648.2 
+Net income 
+$ 
+1,491.5 
+$ 
+1,392.0 
+$ 
+1,211.6 
+Basic earnings per common share (Notes 1 and 11) 
+$ 
+2.96 
+$ 
+2.69 
+$ 
+2.31 
+Diluted earnings per common share (Notes 1 and 11) 
+$ 
+2.93 
+$ 
+2.64 
+$ 
+2.24 
+Dividends declared per common share 
+$ 
+0.71 
+$ 
+0.59 
+$ 
+0.475 
+The accompanying notes to consolidated financial statements are an integral part of this
+statement. 
+50 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED BALANCE SHEETS 
+May 31, 
+2007 
+2006 
+(In millions) 
+ASSETS 
+Current assets: 
+Cash and equivalents 
+$ 
+1,856.7 
+$ 
+954.2 
+Short-term investments 
+990.3 
+1,348.8 
+Accounts receivable, net 
+2,494.7 
+2,382.9 
+Inventories (Note 2) 
+2,121.9 
+2,076.7 
+Deferred income taxes (Note 8) 
+219.7 
+203.3 
+Prepaid expenses and other current assets 
+393.2 
+380.1 
+Total current assets 
+8,076.5 
+7,346.0 
+Property, plant and equipment, net (Note 3) 
+1,678.3 
+1,657.7 
+Identifiable intangible assets, net (Note 4) 
+409.9 
+405.5 
+Goodwill (Note 4) 
+130.8 
+130.8 
+Deferred income taxes and other assets (Note 8) 
+392.8 
+329.6 
+Total assets 
+$ 
+10,688.3 
+$ 
+9,869.6 
+LIABILITIES AND SHAREHOLDERS’ EQUITY 
+Current liabilities: 
+Current portion of long-term debt (Note 7) 
+$ 
+30.5 
+$ 
+255.3 
+Notes payable (Note 6) 
+100.8 
+43.4 
+Accounts payable (Note 6) 
+1,040.3 
+952.2 
+Accrued liabilities (Notes 5 and 16) 
+1,303.4 
+1,276.0 
+Income taxes payable 
+109.0 
+85.5 
+Total current liabilities 
+2,584.0 
+2,612.4 
+Long-term debt (Note 7) 
+409.9 
+410.7 
+Deferred income taxes and other liabilities (Note 8) 
+668.7 
+561.0 
+Commitments and contingencies (Notes 14 and 16) 
+— 
+— 
+Redeemable Preferred Stock (Note 9) 
+0.3 
+0.3 
+Shareholders’ equity: 
+Common stock at stated value (Note 10): 
+Class A convertible — 117.6 and 127.8 shares outstanding 
+0.1 
+0.1 
+Class B — 384.1 and 384.2 shares outstanding 
+2.7 
+2.7 
+Capital in excess of stated value 
+1,960.0 
+1,447.3 
+Accumulated other comprehensive income (Note 13) 
+177.4 
+121.7 
+Retained earnings 
+4,885.2 
+4,713.4 
+Total shareholders’ equity 
+7,025.4 
+6,285.2 
+Total liabilities and shareholders’ equity 
+$ 
+10,688.3 
+$ 
+9,869.6 
+The accompanying notes to consolidated financial statements are an integral part of this statement.
+51 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+Year Ended May 31, 
+2007 
+2006 
+2005 
+(In millions) 
+Cash provided (used) by operations: 
+Net income 
+$ 
+1,491.5 
+$ 
+1,392.0 
+$ 
+1,211.6 
+Income charges not affecting cash: 
+Depreciation 
+269.7 
+282.0 
+257.2 
+Deferred income taxes 
+34.1 
+(26.0 
+) 
+21.3 
+Stock-based compensation (Notes 1 and 10) 
+147.7 
+11.8 
+4.9 
+Amortization and other 
+0.5 
+(2.9 
+) 
+25.6 
+Income tax benefit from exercise of stock options 
+— 
+54.2 
+63.1 
+Changes in certain working capital components and other assets and liabilities: 
+Increase in accounts receivable 
+(39.6 
+) 
+(85.1 
+) 
+(93.5 
+) 
+Increase in inventories 
+(49.5 
+) 
+(200.3 
+) 
+(103.3 
+) 
+(Increase) decrease in prepaid expenses and other current assets 
+(60.8 
+) 
+(37.2 
+) 
+71.4 
+Increase in accounts payable, accrued liabilities and income taxes payable 
+85.1 
+279.4 
+112.4 
+Cash provided by operations 
+1,878.7 
+1,667.9 
+1,570.7 
+Cash provided (used) by investing activities: 
+Purchases of short-term investments 
+(2,133.8 
+) 
+(2,619.7 
+) 
+(1,527.2 
+) 
+Maturities of short-term investments 
+2,516.2 
+1,709.8 
+1,491.9 
+Additions to property, plant and equipment 
+(313.5 
+) 
+(333.7 
+) 
+(257.1 
+) 
+Disposals of property, plant and equipment 
+28.3 
+1.6 
+7.2 
+Increase in other assets, net of other liabilities 
+(4.3 
+) 
+(34.6 
+) 
+(28.0 
+) 
+Acquisition of subsidiary, net of cash acquired 
+— 
+— 
+(47.2 
+) 
+Cash provided (used) by investing activities 
+92.9 
+(1,276.6 
+) 
+(360.4 
+) 
+Cash provided (used) by financing activities: 
+Proceeds from issuance of long-term debt 
+41.8 
+— 
+— 
+Reductions in long-term debt, including current portion 
+(255.7 
+) 
+(6.0 
+) 
+(9.2 
+) 
+Increase (decrease) in notes payable 
+52.6 
+(18.2 
+) 
+(81.7 
+) 
+Proceeds from exercise of stock options and other stock issuances 
+322.9 
+225.3 
+226.8 
+Excess tax benefits from share-based payment arrangements 
+55.8 
+— 
+— 
+Repurchase of common stock 
+(985.2 
+) 
+(761.1 
+) 
+(556.2 
+) 
+Dividends — common and preferred 
+(343.7 
+) 
+(290.9 
+) 
+(236.7 
+) 
+Cash used by financing activities 
+(1,111.5 
+) 
+(850.9 
+) 
+(657.0 
+) 
+Effect of exchange rate changes 
+42.4 
+25.7 
+6.8 
+Net increase (decrease) in cash and equivalents 
+902.5 
+(433.9 
+) 
+560.1 
+Cash and equivalents, beginning of year 
+954.2 
+1,388.1 
+828.0 
+Cash and equivalents, end of year 
+$ 
+1,856.7 
+$ 
+954.2 
+$ 
+1,388.1 
+Supplemental disclosure of cash flow information: 
+Cash paid during the year for: 
+Interest, net of capitalized interest 
+$ 
+60.0 
+$ 
+54.2 
+$ 
+33.9 
+Income taxes 
+601.1 
+752.6 
+585.3 
+Dividends declared and not paid 
+92.9 
+79.4 
+65.3 
+The accompanying notes to consolidated financial statements are an integral part of this statement.
+52 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY 
+Common Stock 
+Capital in 
+Excess of 
+Stated 
+Value 
+Accumulated 
+Other 
+Comprehensive 
+Income (Loss) 
+Retained 
+Earnings 
+Total 
+Class A 
+Class B 
+Shares 
+Amount 
+Shares 
+Amount 
+(In millions, except per share data) 
+Balance at May 31, 2004 
+155.2 
+$ 
+0.1 
+371.0 
+$ 
+2.7 
+$ 
+882.3 
+$ 
+(86.3 
+) 
+$ 
+3,982.9 
+$ 
+4,781.7 
+Stock options exercised 
+8.8 
+272.2 
+272.2 
+Conversion to Class B Common Stock 
+(11.4 
+) 
+11.4 
+— 
+Repurchase of Class B Common Stock 
+(13.8 
+) 
+(8.3 
+) 
+(547.9 
+) 
+(556.2 
+) 
+Dividends on Common stock ($0.475 per share) 
+(249.4 
+) 
+(249.4 
+) 
+Issuance of shares to employees 
+1.0 
+21.9 
+21.9 
+Stock-based compensation (Note 10): 
+4.9 
+4.9 
+Forfeiture of shares from employees 
+(1.5 
+) 
+(0.7 
+) 
+(2.2 
+) 
+Comprehensive income (Note 13): 
+Net income 
+1,211.6 
+1,211.6 
+Other comprehensive income (net of tax expense of $40.2): 
+Foreign currency translation 
+70.1 
+70.1 
+Adjustment for fair value of hedge derivatives 
+89.6 
+89.6 
+Comprehensive income 
+159.7 
+1,211.6 
+1,371.3 
+Balance at May 31, 2005 
+143.8 
+$ 
+0.1 
+378.4 
+$ 
+2.7 
+$ 
+1,171.5 
+$ 
+73.4 
+$ 
+4,396.5 
+$ 
+5,644.2 
+Stock options exercised 
+8.0 
+253.7 
+253.7 
+Conversion to Class B Common Stock 
+(16.0 
+) 
+16.0 
+— 
+Repurchase of Class B Common Stock 
+(19.0 
+) 
+(11.3 
+) 
+(769.9 
+) 
+(781.2 
+) 
+Dividends on Common stock ($0.59 per share) 
+(304.9 
+) 
+(304.9 
+) 
+Issuance of shares to employees 
+1.0 
+26.9 
+26.9 
+Stock-based compensation (Note 10): 
+11.8 
+11.8 
+Forfeiture of shares from employees 
+(0.2 
+) 
+(5.3 
+) 
+(0.3 
+) 
+(5.6 
+) 
+Comprehensive income (Note 13): 
+Net income 
+1,392.0 
+1,392.0 
+Other comprehensive income (net of tax benefit of $37.8): 
+Foreign currency translation 
+87.1 
+87.1 
+Adjustment for fair value of hedge derivatives 
+(38.8 
+) 
+(38.8 
+) 
+Comprehensive income 
+48.3 
+1,392.0 
+1,440.3 
+Balance at May 31, 2006 
+127.8 
+$ 
+0.1 
+384.2 
+$ 
+2.7 
+$ 
+1,447.3 
+$ 
+121.7 
+$ 
+4,713.4 
+$ 
+6,285.2 
+Stock options exercised 
+10.7 
+349.7 
+349.7 
+Conversion to Class B Common Stock 
+(10.2 
+) 
+10.2 
+— 
+Repurchase of Class B Common Stock 
+(22.1 
+) 
+(13.2 
+) 
+(962.0 
+) 
+(975.2 
+) 
+Dividends on Common stock ($0.71 per share) 
+(357.2 
+) 
+(357.2 
+) 
+Issuance of shares to employees 
+1.2 
+30.1 
+30.1 
+Stock-based compensation (Note 10): 
+147.7 
+147.7 
+Forfeiture of shares from employees 
+(0.1 
+) 
+(1.6 
+) 
+(0.5 
+) 
+(2.1 
+) 
+Comprehensive income (Note 13): 
+Net income 
+1,491.5 
+1,491.5 
+Other comprehensive income (net of tax benefit of $0.5): 
+Foreign currency translation 
+84.6 
+84.6 
+Adjustment for fair value of hedge derivatives 
+(16.7 
+) 
+(16.7 
+) 
+Comprehensive income 
+67.9 
+1,491.5 
+1,559.4 
+Adoption of FAS 158 (net of tax benefit of $5.4) (Note 12): 
+(12.2 
+) 
+(12.2 
+) 
+Balance at May 31, 2007 
+117.6 
+$ 
+0.1 
+384.1 
+$ 
+2.7 
+$ 
+1,960.0 
+$ 
+177.4 
+$ 
+4,885.2 
+$ 
+7,025.4 
+The accompanying notes to consolidated financial statements are an integral part of this statement.
+53 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+Note 1 — Summary of Significant Accounting Policies 
+Basis of Consolidation 
+The consolidated financial statements include the accounts of NIKE, Inc. and its subsidiaries
+(the “Company”). All significant intercompany transactions and balances have been eliminated. 
+Stock Split
+On February 15, 2007 the Board of Directors declared a two-for-one stock split of the Company’s Class A and Class B
+common shares, which was effected in the form of a 100% common stock dividend distributed on April 2, 2007. All references to share and per share amounts in the consolidated financial statements and accompanying notes to the consolidated
+financial statements have been retroactively restated to reflect the two-for-one stock split. 
+Recognition of Revenues
+Wholesale revenues are recognized when the risks and rewards of ownership have passed to the customer, based on the terms of sale.
+This occurs upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale. Provisions for sales discounts, returns and miscellaneous
+claims from customers are made at the time of sale. 
+Shipping and Handling Costs 
+Shipping and handling costs are expensed as incurred and included in cost of sales. 
+Advertising and Promotion 
+Advertising production costs are expensed the first time the advertisement is run. Media (TV and print) placement costs are expensed in the month the advertising appears. 
+A significant amount of the Company’s promotional expenses result from payments under endorsement contracts. Accounting for endorsement payments is
+based upon specific contract provisions. Generally, endorsement payments are expensed on a straight-line basis over the term of the contract after giving recognition to periodic performance compliance provisions of the contracts. Prepayments made
+under contracts are included in prepaid expenses or other assets depending on the period to which the prepayment applies. 
+Through
+cooperative advertising programs, the Company reimburses its retail customers for certain of their costs of advertising the Company’s products. The Company records these costs in selling and administrative expense at the point in time when it
+is obligated to its customers for the costs, which is when the related revenues are recognized. This obligation may arise prior to the related advertisement being run. 
+Total advertising and promotion expenses were $1,912.4 million, $1,740.2 million, and $1,600.7 million for the years ended May 31, 2007, 2006 and 2005, respectively. Prepaid advertising and promotion expenses
+recorded in prepaid expenses and other assets totaled $253.0 million and $177.1 million at May 31, 2007 and 2006, respectively. 
+Cash and Equivalents 
+Cash and equivalents represent cash and short-term, highly liquid investments with maturities
+of three months or less at date of purchase. The carrying amounts reflected in the consolidated balance sheet for cash and equivalents approximate fair value. 
+54 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Short-term Investments 
+Short-term investments consist of highly liquid investments, primarily U.S. Treasury debt securities, with maturities over three months from the date of
+purchase. Debt securities which the Company has the ability and positive intent to hold to maturity are carried at amortized cost. Available-for-sale debt securities are recorded at fair value with any net unrealized gains and losses reported, net
+of tax, in other comprehensive income. Realized gains or losses are determined based on the specific identification method. The Company holds no investments considered to be trading securities. Amortized cost of both available-for-sale and
+held-to-maturity debt securities approximates fair market value due to their short maturities. Substantially all short-term investments held at May 31, 2007 have remaining maturities of 180 days or less. Included in interest (income) expense,
+net for the years ended May 31, 2007, 2006, and 2005, was interest income of $116.9 million, $87.3 million and $34.9 million, respectively, related to short-term investments and cash and equivalents. 
+Allowance for Uncollectible Accounts Receivable 
+Accounts receivable consists principally of amounts receivable from customers. We make ongoing estimates relating to the collectibility of our accounts receivable and maintain an allowance for estimated losses
+resulting from the inability of our customers to make required payments. In determining the amount of the allowance, we consider our historical level of credit losses and make judgments about the creditworthiness of significant customers based on
+ongoing credit evaluations. Accounts receivable with anticipated collection dates greater than twelve months from the balance sheet date and related allowances are considered non-current and recorded in other assets. The allowance for uncollectible
+accounts receivable was $71.5 million and $67.6 million at May 31, 2007 and 2006, respectively, of which $33.3 million and $29.2 million was recorded in other assets. 
+Inventory Valuation 
+Inventories related to our wholesale operations are stated at lower of cost or market and valued on a first-in, first-out (“FIFO”) or moving average cost basis. Inventories related to our retail operations are stated at the
+lower of average cost or market using the retail inventory method. Under the retail inventory method, the valuation of inventories at cost is calculated by applying a cost-to-retail ratio to the retail value inventories. Permanent and point of
+sale markdowns, when recorded, reduce both the retail and cost components of inventory on hand so as to maintain the already established cost-to-retail relationship. 
+Property, Plant and Equipment and Depreciation 
+Property, plant and equipment are recorded at
+cost. Depreciation for financial reporting purposes is determined on a straight-line basis for buildings and leasehold improvements over 2 to 40 years and for machinery and equipment over 2 to 15 years. Computer software (including, in some cases,
+the cost of internal labor) is depreciated on a straight-line basis over 3 to 10 years. 
+Impairment of Long-Lived Assets
+The Company estimates the future undiscounted cash flows to be derived from an asset to assess whether or not a potential
+impairment exists when events or circumstances indicate the carrying value of a long-lived asset may be impaired. If the carrying value exceeds the Company’s estimate of future undiscounted cash flows, the Company then calculates the impairment
+as the excess of the carrying value of the asset over the Company’s estimate of its fair market value. 
+55 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Identifiable Intangible Assets and Goodwill 
+Goodwill and intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually in the fourth quarter, or
+when events indicate that an impairment exists. As required by Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and other Intangible Assets” (“FAS 142”), in the Company’s impairment test
+of goodwill, the Company compares the fair value of the applicable reporting unit to its carrying value. The Company estimates the fair value of its reporting units by using a combination of discounted cash flow analysis and comparisons with the
+market values of similar publicly traded companies. If the carrying value of the reporting unit exceeds the estimate of fair value, the Company calculates the impairment as the excess of the carrying value of goodwill over its implied fair value. In
+the impairment tests for indefinite-lived intangible assets, the Company compares the estimated fair value of the indefinite-lived intangible assets to the carrying value. The Company estimates the fair value of indefinite-lived intangible assets
+and trademarks using the relief from royalty approach, which is a standard form of discounted cash flow analysis used for the valuation of trademarks. If the carrying value exceeds the estimate of fair value, the Company calculates impairment as the
+excess of the carrying value over the estimate of fair value. 
+Intangible assets that are determined to have definite lives are amortized
+over their useful lives and are measured for impairment only when events or circumstances indicate the carrying value may be impaired. 
+Foreign Currency Translation and Foreign Currency Transactions 
+Adjustments resulting from translating foreign
+functional currency financial statements into U.S. dollars are included in the foreign currency translation adjustment, a component of accumulated other comprehensive income in shareholders’ equity. 
+Transaction gains and losses generated by the effect of foreign exchange rates on recorded assets and liabilities denominated in a currency different
+from the functional currency of the applicable Company entity are recorded in other (income) expense, net, in the period in which they occur. 
+Accounting for Derivatives and Hedging Activities 
+The Company uses derivative financial instruments to limit
+exposure to changes in foreign currency exchange rates and interest rates. The Company accounts for derivatives pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted
+(“FAS 133”). FAS 133 establishes accounting and reporting standards for derivative instruments and requires that all derivatives be recorded at fair value on the balance sheet. Changes in the fair value of derivative financial instruments
+are either recognized in other comprehensive income (a component of shareholders’ equity) or net income depending on whether the derivative is being used to hedge changes in cash flows or fair value. 
+See Note 16 for more information on the Company’s Risk Management program and derivatives. 
+Stock-Based Compensation 
+On
+June 1, 2006, the Company adopted SFAS No. 123R “Share-Based Payment” (“FAS 123R”) which requires the Company to record expense for stock-based compensation to employees using a fair value method. Under FAS 123R, the
+Company estimates the fair value of options granted under the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”) (see Note 10) and employees’ purchase rights under the Employee Stock Purchase Plans (“ESPPs”) using the
+Black-Scholes option pricing model. The Company recognizes this fair value, net of estimated forfeitures, as selling and administrative expense in the Consolidated Statements of Income over the vesting period using the straight-line method.
+56 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The Company has adopted the modified prospective transition method prescribed by FAS 123R, which does
+not require the restatement of financial results for previous periods. In accordance with this transition method, the Company’s Consolidated Statement of Income for the year ended May 31, 2007 includes (1) amortization of outstanding
+stock-based compensation granted prior to, but not vested, as of June 1, 2006, based on the fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (“FAS
+123”) and (2) amortization of all stock-based awards granted subsequent to June 1, 2006, based on the fair value estimated in accordance with the provisions of FAS 123R. 
+The following table summarizes the effects of applying FAS 123R during the year ended May 31, 2007. The resulting stock-based compensation expense
+primarily relates to stock options. 
+(in millions, except per share data) 
+Addition to selling and administrative expense 
+$ 
+141.9 
+Reduction to income tax expense 
+(45.2 
+) 
+Reduction to net income (1) 
+$ 
+96.7 
+Reduction to earnings per share: 
+Basic 
+$ 
+0.19 
+Diluted 
+$ 
+0.18 
+(1) 
+In accordance with FAS 123R, stock-based compensation expense reported during the year ended
+May 31, 2007, includes $24.2 million, net of tax, or $0.04 per diluted share, of accelerated stock-based compensation expense recorded for employees eligible for accelerated stock option vesting upon retirement. 
+Prior to the adoption of FAS 123R, the Company used the intrinsic value method to account for stock options and ESPP shares in accordance with Accounting
+Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” as permitted by FAS 123. If the Company had instead accounted for stock options and ESPP shares issued to employees using the fair value method prescribed by
+FAS 123 during the years ended May 31, 2006 and 2005 the Company’s pro forma net income and pro forma earnings per share would have been reported as follows: 
+Year Ended May 31, 
+2006 
+2005 
+(In millions, except per share data) 
+Net income as reported 
+$ 
+1,392.0 
+$ 
+1,211.6 
+Add: Stock option expense included in reported net income, net of tax 
+0.2 
+0.6 
+Deduct: Total stock option and ESPP expense under fair value based method for all awards, net of tax (1) 
+(76.8 
+) 
+(64.1 
+) 
+Pro forma net income 
+$ 
+1,315.4 
+$ 
+1,148.1 
+Earnings per share: 
+Basic — as reported 
+$ 
+2.69 
+$ 
+2.31 
+Basic — pro forma 
+2.54 
+2.19 
+Diluted — as reported 
+2.64 
+2.24 
+Diluted — pro forma 
+2.50 
+2.14 
+(1) 
+Accelerated stock-based compensation expense for options subject to accelerated vesting due to employee
+retirement is not included in the pro forma figures shown above for the years ended May 31, 2006 and 2005. This disclosure reflects the expense of such options ratably over the stated vesting period or upon actual employee retirement. Had the
+Company recognized the fair value for such stock options on an accelerated 
+57 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+basis in this pro forma disclosure, the Company would have recognized additional stock-based compensation expense of $17.5 million, net of tax, or $0.03 per
+diluted share for the year ended May 31, 2006 and $21.8 million, net of tax, or $0.04 per diluted share for the year ended May 31, 2005. 
+To calculate the excess tax benefits available for use in offsetting future tax shortfalls as of the date of implementation, the Company is following the alternative transition method discussed in FASB Staff Position
+No. 123R-3, “Transition Election Relating to Accounting for the Tax Effects of Share-Based Payment Awards.” 
+See Note 10 for
+more information on the Company’s stock programs. 
+Income Taxes 
+The Company accounts for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities
+for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. United States income taxes are provided currently on financial statement earnings of non-U.S. subsidiaries
+that are expected to be repatriated. The Company determines annually the amount of undistributed non-U.S. earnings to invest indefinitely in its non-U.S. operations. See Note 8 for further discussion. 
+Earnings Per Share 
+Basic
+earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming
+conversion of all potentially dilutive stock options and awards. See Note 11 for further discussion. 
+Management Estimates
+The preparation of financial statements in conformity with generally accepted accounting principles requires management to make
+estimates, including estimates relating to assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and
+expenses during the reporting period. Actual results could differ from these estimates. 
+Reclassifications 
+Certain prior year amounts have been reclassified to conform to fiscal year 2007 presentation. These changes had no impact on previously reported results
+of operations or shareholders’ equity. 
+Recently Issued Accounting Standards 
+In June 2006, the Financial Accounting Standards Board (“FASB”) ratified the consensus reached on Emerging Issues Task Force (“EITF”)
+Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)” (“EITF 06-3”). EITF 06-3 requires disclosure
+of the method of accounting for the applicable assessed taxes and the amount of assessed taxes that are included in revenues if they are accounted for under the gross method. EITF 06-3 was adopted in the fourth quarter ended May 31, 2007;
+however, since the Company presents revenues net of any taxes collected from customers, no additional disclosures were required. 
+58 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
+Benefit Pension and Other Postretirement Plans” (“FAS 158”). FAS 158 requires employers to fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare and other postretirement plans in
+their financial statements. The Company adopted the provisions of FAS 158 in the fourth quarter ended May 31, 2007. See Note 12 for additional details. 
+In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”
+(“SAB 108”). SAB 108 requires public companies to quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in quantifying a misstatement as material, when all relevant
+quantitative and qualitative factors are considered. The adoption of SAB 108 at May 31, 2007 did not have a material impact on the Company’s consolidated financial position or results of operations. 
+In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48
+clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. The provisions of FIN 48 are effective for
+the fiscal year beginning June 1, 2007. The Company has evaluated the impact of the provisions of FIN 48 and does not expect that the adoption will have a material impact on the Company’s consolidated financial position or results of
+operations. 
+In June 2006, the FASB ratified the consensus reached on EITF Issue No. 06-2, “Accounting for Sabbatical Leave and
+Other Similar Benefits Pursuant to FASB Statement No. 43” (“EITF 06-2”). EITF 06-2 clarifies recognition guidance on the accrual of employees’ rights to compensated absences under a sabbatical or other similar benefit
+arrangement. The provisions of EITF 06-2 are effective for the fiscal year beginning June 1, 2007 and will be applied through a cumulative effect adjustment to retained earnings. The Company has evaluated the provisions of EITF 06-2 and does
+not expect that the adoption will have a material impact on the Company’s consolidated financial position or results of operations. 
+In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting
+principles, and expands disclosures about fair value measurements. The provisions of FAS 157 are effective for the fiscal year beginning June 1, 2008. The Company is currently evaluating the impact of the provisions of FAS 157. 
+In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an
+Amendment of FASB Statement No. 115” (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value
+option has been elected will be recognized in earnings at each subsequent reporting date. The provisions of FAS 159 are effective for the fiscal year beginning June 1, 2008. The Company is currently evaluating the impact of the provisions of
+FAS 159. 
+Note 2 — Inventories 
+Inventory balances of $2,121.9 million and $2,076.7 million at May 31, 2007 and 2006, respectively, were substantially all finished goods. 
+59 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 3 — Property, Plant and Equipment 
+Property, plant and equipment includes the following: 
+May 31, 
+2007 
+2006 
+(In millions) 
+Land 
+$ 
+193.8 
+$ 
+195.9 
+Buildings 
+840.9 
+842.6 
+Machinery and equipment 
+1,817.2 
+1,661.7 
+Leasehold improvements 
+672.8 
+626.7 
+Construction in process 
+94.4 
+81.4 
+3,619.1 
+3,408.3 
+Less accumulated depreciation 
+1,940.8 
+1,750.6 
+$ 
+1,678.3 
+$ 
+1,657.7 
+Capitalized interest was not material for the years ended May 31, 2007, 2006 and 2005.
+Note 4 — Identifiable Intangible Assets and Goodwill: 
+The following table summarizes the Company’s identifiable intangible assets and goodwill balances as of May 31, 2007 and May 31, 2006: 
+May 31, 2007 
+May 31, 2006 
+Gross 
+Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net 
+Carrying 
+Amount 
+Gross 
+Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net 
+Carrying 
+Amount 
+(In millions) 
+Amortized intangible assets: 
+Patents 
+$ 
+44.1 
+$ 
+(12.3 
+) 
+$ 
+31.8 
+$ 
+34.1 
+$ 
+(10.5 
+) 
+$ 
+23.6 
+Trademarks 
+49.8 
+(17.5 
+) 
+32.3 
+46.4 
+(11.8 
+) 
+34.6 
+Other 
+21.6 
+(17.3 
+) 
+4.3 
+21.5 
+(15.7 
+) 
+5.8 
+Total 
+$ 
+115.5 
+$ 
+(47.1 
+) 
+$ 
+68.4 
+$ 
+102.0 
+$ 
+(38.0 
+) 
+$ 
+64.0 
+Unamortized intangible assets — Trademarks 
+$ 
+341.5 
+$ 
+341.5 
+Total 
+$ 
+409.9 
+$ 
+405.5 
+Goodwill 
+$ 
+130.8 
+$ 
+130.8 
+Amortization expense of identifiable assets with definite lives, which is included in selling and
+administrative expense, was $9.9 million, $9.8 million and $9.3 million for the years ended May 31, 2007, 2006, and 2005, respectively. The estimated amortization expense for intangible assets subject to amortization for each of the years
+ending May 31, 2008 through May 31, 2012 is as follows: 2008: $9.7 million; 2009: $8.7 million; 2010: $8.2 million; 2011: $7.7 million; 2012: $6.9 million. 
+60 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 5 — Accrued Liabilities 
+Accrued liabilities include the following: 
+May 31, 
+2007 
+2006 
+(In millions) 
+Compensation and benefits, excluding taxes 
+$ 
+451.6 
+$ 
+427.2 
+Endorser compensation 
+139.9 
+124.7 
+Taxes other than income taxes 
+133.4 
+115.1 
+Dividends payable 
+92.9 
+79.5 
+Fair value of derivatives 
+90.5 
+111.2 
+Import and logistics costs 
+81.4 
+63.3 
+Advertising and marketing 
+70.6 
+75.4 
+Converse arbitration (1) 
+— 
+51.9 
+Other (2) 
+243.1 
+227.7 
+$ 
+1,303.4 
+$ 
+1,276.0 
+(1) 
+The Converse arbitration relates
+to a charge taken during the fourth quarter ended May 31, 2006 as a result of a contract dispute between Converse and a former South American licensee. The dispute was settled during the first quarter ended August 31, 2006.
+(2) 
+Other consists of various
+accrued expenses and no individual item accounted for more than $50 million of the balance at May 31, 2007 or 2006. 
+Note 6
+— Short-Term Borrowings and Credit Lines 
+Notes payable to banks and interest-bearing accounts payable to Sojitz Corporation of
+America (“Sojitz America”) as of May 31, 2007 and 2006, are summarized below: 
+May 31, 
+2007 
+2006 
+Borrowings 
+Interest 
+Rate 
+Borrowings 
+Interest 
+Rate 
+(In millions) 
+Notes payable: 
+U.S. operations 
+$ 
+14.6 
+0.00 
+% (1) 
+$ 
+21.0 
+0.00 
+% (1) 
+Non-U.S. operations 
+86.2 
+9.85 
+% 
+22.4 
+7.72 
+% 
+$ 
+100.8 
+$ 
+43.4 
+Sojitz America 
+$ 
+44.6 
+6.09 
+% 
+$ 
+69.7 
+5.83 
+% 
+(1) 
+Weighted average interest rate includes non-interest bearing overdrafts. 
+The carrying amounts reflected in the consolidated balance sheet for notes payable approximate fair value. 
+The Company purchases through Sojitz America certain athletic footwear, apparel and equipment it acquires from non-U.S. suppliers. These purchases are
+for the Company’s operations outside of the United States, the Europe, Middle East, and Africa Region and Japan. Accounts payable to Sojitz America are generally due up to 60 days after shipment of goods from the foreign port. The interest rate
+on such accounts payable is the 60-day London Interbank Offered Rate (“LIBOR”) as of the beginning of the month of the invoice date, plus 0.75%. 
+61 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The Company had no borrowings outstanding under its commercial paper program at May 31, 2007 and
+2006. 
+In December 2006, the Company entered into a $1 billion multi-year credit facility that replaced the Company’s previous $750
+million facility. The facility matures in December 2011, and can be extended for one additional year on both the first and second anniversary date for a total extension of two years. Based on the Company’s current long-term senior unsecured
+debt ratings, the interest rate charged on any outstanding borrowings would be the prevailing LIBOR plus 0.15%. The facility fee is 0.05% of the total commitment. Under this agreement, the Company must maintain, among other things, certain minimum
+specified financial ratios with which the Company was in compliance at May 31, 2007. No amounts were outstanding under these facilities as of May 31, 2007 or 2006. 
+In January 2007, one of the Company’s Japanese subsidiaries entered into a 3.0 billion yen (approximately $24.7 million as of May 31, 2007)
+loan facility that replaced certain intercompany borrowings. The interest rate on the facility is based on the six-month Japanese Yen LIBOR plus a spread, resulting in an all-in rate of 0.805% at May 31, 2007. The facility expires
+December 31, 2007 unless both parties agree to an extension. 
+Note 7 — Long-Term Debt 
+Long-term debt includes the following: 
+May 31, 
+2007 
+2006 
+(In millions) 
+5.5% Corporate Bond, payable August 15, 2006 
+$ 
+— 
+$ 
+249.3 
+4.8% Corporate Bond, payable July 9, 2007 
+25.0 
+24.7 
+5.375% Corporate Bond, payable July 8, 2009 
+24.8 
+24.6 
+5.66% Corporate Bond, payable July 23, 2012 
+24.8 
+24.6 
+5.4% Corporate Bond, payable August 7, 2012 
+14.6 
+14.4 
+4.7% Corporate Bond, payable October 1, 2013 
+50.0 
+50.0 
+5.15% Corporate Bonds, payable October 15, 2015 
+99.6 
+98.2 
+4.3% Japanese yen note, payable June 26, 2011 
+86.4 
+93.8 
+1.5% Japanese yen note, payable February 14, 2012 
+41.1 
+— 
+2.6% Japanese yen note, maturing August 20, 2001 through November 20, 2020 
+51.2 
+59.7 
+2.0% Japanese yen note, maturing August 20, 2001 through November 20, 2020 
+22.9 
+26.6 
+Other 
+— 
+0.1 
+Total 
+440.4 
+666.0 
+Less current maturities 
+30.5 
+255.3 
+$ 
+409.9 
+$ 
+410.7 
+The fair value of long-term debt is estimated using discounted cash flow analyses, based on the
+Company’s incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company’s long-term debt, including current portion, is approximately $443.2 million at May 31, 2007 and $674.0 million at
+May 31, 2006. 
+The Company had interest rate swap agreements with the same notional amount and maturity dates as the $250.0 million
+corporate bond that matured on August 15, 2006, whereby the Company received fixed interest payments at the same rate as the bond and paid variable interest payments based on the three-month LIBOR plus a spread. The interest rate payable on
+these swap agreements was approximately 6.6% at May 31, 2006. 
+62 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The Company has an effective shelf registration statement with the Securities and Exchange Commission
+for $1 billion of debt securities. The Company has a medium-term note program under the shelf registration (“medium-term note program”) that allows the Company to issue up to $500 million in medium-term notes. The Company has issued $240
+million in medium-term notes under this program. During the years ended May 31, 2007 and 2006, no notes were issued under the medium-term note program. The issued notes have coupon rates that range from 4.70% to 5.66%. The maturities range from
+July 9, 2007 to October 15, 2015. For each of these notes, except for the swap for the $50 million note maturing October 1, 2013, the Company has entered into interest rate swap agreements whereby the Company receives fixed interest
+payments at the same rate as the notes and pays variable interest payments based on the three-month or six-month LIBOR plus a spread. Each swap has the same notional amount and maturity date as the corresponding note. The swap for the $50 million
+note maturing October 1, 2013, expired October 2, 2006. At May 31, 2007, the interest rates payable on these swap agreements range from approximately 5.2% to 5.9%. 
+In June 1996, one of the Company’s Japanese subsidiaries, NIKE Logistics YK, borrowed 10.5 billion Japanese yen in a private placement with a
+maturity of June 26, 2011. Interest is paid semi-annually. The agreement provides for early retirement after year ten. 
+In July 1999,
+NIKE Logistics YK assumed 13.0 billion in Japanese yen loans as part of its agreement to purchase a distribution center in Japan, which serves as collateral for the loans. These loans mature in equal quarterly installments during the period
+August 20, 2001 through November 20, 2020. Interest is also paid quarterly. 
+In February 2007, NIKE Logistics YK entered into a
+5.0 billion yen (approximately $41.1 million at May 31, 2007) term loan maturing February 14, 2012 that replaces certain intercompany borrowings. The interest rate on the loan is approximately 1.5% and interest is paid semi-annually.
+Amounts of long-term debt maturities in each of the years ending May 31, 2008 through 2012 are $30.5 million, $5.5 million,
+$30.5 million, $5.5 million and $133.0 million, respectively. 
+Note 8 — Income Taxes 
+Income before income taxes is as follows: 
+Year Ended May 31, 
+2007 
+2006 
+2005 
+(In millions) 
+Income before income taxes: 
+United States 
+$ 
+805.1 
+$ 
+838.6 
+$ 
+755.5 
+Foreign 
+1,394.8 
+1,303.0 
+1,104.3 
+$ 
+2,199.9 
+$ 
+2,141.6 
+$ 
+1,859.8 
+63 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The provision for income taxes is as follows: 
+Year Ended May 31, 
+2007 
+2006 
+2005 
+(In millions) 
+Current: 
+United States 
+Federal 
+$ 
+352.6 
+$ 
+359.0 
+$ 
+279.6 
+State 
+59.6 
+60.6 
+50.7 
+Foreign 
+261.9 
+356.0 
+292.5 
+674.1 
+775.6 
+622.8 
+Deferred: 
+United States 
+Federal 
+38.7 
+(4.2 
+) 
+21.9 
+State 
+(4.8 
+) 
+(6.8 
+) 
+(5.3 
+) 
+Foreign 
+0.4 
+(15.0 
+) 
+8.8 
+34.3 
+(26.0 
+) 
+25.4 
+$ 
+708.4 
+$ 
+749.6 
+$ 
+648.2 
+Deferred tax (assets) and liabilities are comprised of the following: 
+May 31, 
+2007 
+2006 
+(In millions) 
+Deferred tax assets: 
+Allowance for doubtful accounts 
+$ 
+(12.4 
+) 
+$ 
+(10.9 
+) 
+Inventories 
+(45.8 
+) 
+(43.9 
+) 
+Sales return reserves 
+(42.1 
+) 
+(39.4 
+) 
+Deferred compensation 
+(132.5 
+) 
+(110.6 
+) 
+Stock-based compensation 
+(30.3 
+) 
+— 
+Reserves and accrued liabilities 
+(46.2 
+) 
+(50.6 
+) 
+Property, plant, and equipment 
+(16.3 
+) 
+(28.6 
+) 
+Foreign loss carryforwards 
+(37.5 
+) 
+(29.2 
+) 
+Foreign tax credit carryforwards 
+(3.4 
+) 
+(9.5 
+) 
+Hedges 
+(26.2 
+) 
+(25.5 
+) 
+Other 
+(33.0 
+) 
+(29.1 
+) 
+Total deferred tax assets 
+(425.7 
+) 
+(377.3 
+) 
+Valuation allowance 
+42.3 
+36.6 
+Total deferred tax assets after valuation allowance 
+(383.4 
+) 
+(340.7 
+) 
+Deferred tax liabilities: 
+Undistributed earnings of foreign subsidiaries 
+232.6 
+135.3 
+Property, plant and equipment 
+66.1 
+91.4 
+Intangibles 
+97.2 
+96.8 
+Hedges 
+2.5 
+7.8 
+Other 
+17.8 
+12.5 
+Total deferred tax liabilities 
+416.2 
+343.8 
+Net deferred tax liability 
+$ 
+32.8 
+$ 
+3.1 
+64 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate
+follows: 
+Year Ended May 31, 
+2007 
+2006 
+2005 
+Federal income tax rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State taxes, net of federal benefit 
+1.6 
+1.5 
+1.8 
+Foreign earnings 
+(4.1 
+) 
+(1.5 
+) 
+(2.8 
+) 
+Other, net 
+(0.3 
+) 
+— 
+0.9 
+Effective income tax rate 
+32.2 
+% 
+35.0 
+% 
+34.9 
+% 
+The effective tax rate for the year ended May 31, 2007 of 32.2% has decreased from the fiscal
+2006 effective tax rate of 35%. The decrease is primarily due to a European tax agreement entered into during the three months ended November 30, 2006. The Company recorded a retroactive benefit for the European tax agreement during the year
+ended May 31, 2007. 
+During the quarter ended November 30, 2005, the Company’s CEO and Board of Directors approved a
+domestic reinvestment plan as required by the American Jobs Creation Act of 2004 (the “Act”) to repatriate $500 million of foreign earnings in fiscal 2006. The Act created a temporary incentive for U.S. multinational corporations to
+repatriate accumulated income earned outside the U.S. by providing an 85% dividend received deduction for certain dividends from controlled foreign corporations. A $500 million repatriation was made during the quarter ended May 31, 2006
+comprised of both foreign earnings for which U.S. taxes have previously been provided and foreign earnings that had been designated as permanently reinvested. Accordingly, the provisions made did not have a material impact on the Company’s
+income tax expense or effective tax rate for the years ended May 31, 2007, 2006 and 2005. 
+The Company has indefinitely reinvested
+approximately $1,185.0 million of the cumulative undistributed earnings of certain foreign subsidiaries. Such earnings would be subject to U.S. taxation if repatriated to the U.S. The amount of unrecognized deferred tax liability associated with the
+permanently reinvested cumulative undistributed earnings was approximately $248.3 million as of May 31, 2007. 
+Deferred tax assets at
+May 31, 2007 and 2006 were reduced by a valuation allowance relating to tax benefits of certain foreign subsidiaries with operating losses where it is more likely than not that the deferred tax assets will not be realized. 
+During the years ended May 31, 2007, 2006, and 2005, income tax benefits attributable to employee stock-based compensation transactions of $56.6
+million, $54.2 million, and $63.1 million, respectively, were allocated to shareholders’ equity. 
+Note 9 — Redeemable Preferred Stock
+Sojitz America is the sole owner of the Company’s authorized Redeemable Preferred Stock, $1 par value, which is redeemable at the
+option of Sojitz America or the Company at par value aggregating $0.3 million. A cumulative dividend of $0.10 per share is payable annually on May 31 and no dividends may be declared or paid on the common stock of the Company unless dividends
+on the Redeemable Preferred Stock have been declared and paid in full. There have been no changes in the Redeemable Preferred Stock in the three years ended May 31, 2007, 2006 and 2005. As the holder of the Redeemable Preferred Stock, Sojitz
+America does not have general voting rights but does have the right to vote as a separate class on the sale of all or substantially all of the assets of the Company and its subsidiaries, on merger, consolidation, liquidation or dissolution of the
+Company or on the sale or assignment of the NIKE trademark for athletic footwear sold in the United States. 
+65 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 10 — Common Stock 
+The authorized number of shares of Class A Common Stock, no par value, and Class B Common Stock, no par value, are 350 million and 1.5 billion, respectively. Each share of Class A Common Stock is
+convertible into one share of Class B Common Stock. Voting rights of Class B Common Stock are limited in certain circumstances with respect to the election of directors. 
+In 1990, the Board of Directors adopted, and the shareholders approved, the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”). The 1990 Plan provides for the issuance of up to 132 million
+previously unissued shares of Class B Common Stock in connection with stock options and other awards granted under the plan. The 1990 Plan authorizes the grant of non-statutory stock options, incentive stock options, stock appreciation rights, stock
+bonuses and the issuance and sale of restricted stock. The exercise price for non-statutory stock options, stock appreciation rights and the grant price of restricted stock may not be less than 75% of the fair market value of the underlying shares
+on the date of grant. The exercise price for incentive stock options may not be less than the fair market value of the underlying shares on the date of grant. A committee of the Board of Directors administers the 1990 Plan. The committee has the
+authority to determine the employees to whom awards will be made, the amount of the awards, and the other terms and conditions of the awards. The committee has granted substantially all stock options and restricted stock at 100% of the market price
+on the date of grant. Substantially all stock option grants outstanding under the 1990 plan were granted in the first quarter of each fiscal year, vest ratably over four years, and expire 10 years from the date of grant. 
+The weighted average fair value per share of the options granted during the years ended May 31, 2007, 2006 and 2005, as computed using the
+Black-Scholes pricing model, was $8.80, $9.68 and $13.95, respectively. The weighted average assumptions used to estimate these fair values are as follows: 
+Year Ended May 31, 
+2007 
+2006 
+2005 
+Dividend yield 
+1.6 
+% 
+1 
+% 
+1 
+% 
+Expected volatility 
+19 
+% 
+21 
+% 
+42 
+% 
+Weighted average expected life (in years) 
+5.0 
+4.5 
+5.0 
+Risk-free interest rate 
+5.0 
+% 
+4.0 
+% 
+3.7 
+% 
+For the years ended May 31, 2007 and 2006, the Company estimated the expected volatility
+based on the implied volatility in market traded options on the Company’s common stock with a term greater than one year, along with other factors. For the year ended May 31, 2005, the Company estimated the expected volatility based on the
+historical volatility of the Company’s common stock. The weighted average expected life of options is based on an analysis of historical and expected future exercise patterns. The interest rate is based on the U.S. Treasury (constant maturity)
+risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options. 
+66 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The following summarizes the stock option transactions under the plan discussed above: 
+Shares 
+Weighted 
+Average 
+Option 
+Price 
+(In millions) 
+Options outstanding May 31, 2004 
+37.6 
+$ 
+23.71 
+Exercised 
+(8.8 
+) 
+23.17 
+Forfeited 
+(0.9 
+) 
+26.33 
+Granted 
+10.8 
+36.96 
+Options outstanding May 31, 2005 
+38.7 
+27.49 
+Exercised 
+(8.0 
+) 
+24.68 
+Forfeited 
+(1.8 
+) 
+35.75 
+Granted 
+11.5 
+43.68 
+Options outstanding May 31, 2006 
+40.4 
+32.31 
+Exercised 
+(10.7 
+) 
+27.55 
+Forfeited 
+(1.6 
+) 
+37.17 
+Granted 
+11.6 
+39.54 
+Options outstanding May 31, 2007 
+39.7 
+$ 
+35.50 
+Options exercisable at May 31, 
+2005 
+14.7 
+$ 
+23.01 
+2006 
+16.6 
+25.68 
+2007 
+15.3 
+29.52 
+The weighted average contractual life remaining for options outstanding and options exercisable at
+May 31, 2007 was 7.2 years and 5.4 years, respectively. The aggregate intrinsic value for options outstanding and exercisable at May 31, 2007 was $843.7 million and $417.0 million, respectively. The aggregate intrinsic value was the amount
+by which the market value of the underlying stock exceeded the exercise price of the options. The total intrinsic value of the options exercised during the years ended May 31, 2007, 2006 and 2005 was $204.9 million, $144.0 million and $145.7
+million, respectively. 
+As of May 31, 2007, the Company had $132.4 million of unrecognized compensation costs from stock options, net
+of estimated forfeitures, to be recognized as selling and administrative expense over a weighted average period of 2.1 years. 
+In addition
+to the 1990 Plan, the Company gives employees the right to purchase shares at a discount to the market price under employee stock purchase plans (“ESPPs”). Employees are eligible to participate through payroll deductions up to 10% of their
+compensation. At the end of each six-month offering period, shares are purchased by the participants at 85% of the lower of the fair market value at the beginning or the ending of the offering period. During the years ended May 31, 2007, 2006
+and 2005, employees purchased 0.8 million, 0.8 million and 0.6 million shares, respectively. 
+From time to time, the Company
+grants restricted stock and unrestricted stock to key employees under the 1990 Plan. The number of shares granted to employees during the years ended May 31, 2007, 2006 and 2005 were 345,000, 141,000 and 229,000 with weighted average prices of
+$39.38, $43.38 and $44.65, respectively. Recipients of restricted shares are entitled to cash dividends and to vote their respective shares throughout the period of restriction. The value of all of the granted shares was established by the market
+price on the date of grant. 
+67 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The following table summarizes the Company’s total stock-based compensation expense recognized
+in selling and administrative expense: 
+Year Ended May 31, 
+2007 
+2006 
+2005 
+(in millions) 
+Stock options 
+$ 
+134.9 
+$ 
+0.3 
+$ 
+1.0 
+ESPPs 
+7.0 
+— 
+— 
+Restricted stock (1) 
+5.8 
+11.5 
+3.9 
+Total stock-based compensation expense 
+$ 
+147.7 
+$ 
+11.8 
+$ 
+4.9 
+(1) 
+The expense related to restricted stock awards was included in selling and administrative expense in
+prior years and was not affected by the adoption of FAS 123R. 
+During the years ended May 31, 2007, 2006 and 2005,
+the Company also granted shares of stock under the Long-Term Incentive Plan (“LTIP”), adopted by the Board of Directors and approved by shareholders in September 1997. The LTIP provides for the issuance of up to 2.0 million shares of
+Class B Common Stock. Under the LTIP, awards are made to certain executives in their choice of either cash or stock, based on performance targets established over three-year time periods. Once performance targets are achieved, cash or shares of
+stock are issued. The shares are immediately vested upon grant. The value of the shares is established by the market price on the date of issuance. Under the LTIP, 3,000, 6,000 and 8,000 shares with a price of $38.84, $40.79 and $34.85,
+respectively, were issued during the years ended May 31, 2007, 2006 and 2005 for the plan years ended May 31, 2006, 2005 and 2004, respectively. The Company recognized nominal expense related to the shares issued during the years
+ended May 31, 2007 and 2006, and $0.1 million during the year ended May 31, 2005. The Company recognized $30.0 million, $21.7 million and $22.1 million of selling and administrative expense related to the cash awards during the years
+ended May 31, 2007, 2006 and 2005, respectively. During the year ended May 31, 2007, LTIP participants agreed to amend their grant agreements to eliminate the ability to receive payments in shares of stock, so shares of stock are no longer
+awarded. Beginning with the plan year ended May 31, 2007, cash will be awarded if performance targets are achieved. 
+Note 11 — Earnings Per
+Share 
+The following represents a reconciliation from basic earnings per share to diluted earnings per share. Options to purchase an
+additional 9.5 million, 11.3 million and 0.5 million shares of common stock were outstanding at May 31, 2007, 2006 and 2005, respectively, but were not included in the computation of diluted earnings per share because the options
+were antidilutive. 
+Year Ended May 31, 
+2007 
+2006 
+2005 
+(In millions, except per share data) 
+Determination of shares: 
+Weighted average common shares outstanding 
+503.8 
+518.0 
+525.2 
+Assumed conversion of dilutive stock options and awards 
+6.1 
+9.6 
+15.4 
+Diluted weighted average common shares outstanding 
+509.9 
+527.6 
+540.6 
+Basic earnings per common share 
+$ 
+2.96 
+$ 
+2.69 
+$ 
+2.31 
+Diluted earnings per common share 
+$ 
+2.93 
+$ 
+2.64 
+$ 
+2.24 
+68 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 12 — Benefit Plans 
+The Company has a profit sharing plan available to most U.S.-based employees. The terms of the plan call for annual contributions by the Company as determined by the Board of Directors. A subsidiary of the Company
+also has a profit sharing plan available to its U.S.-based employees. The terms of the plan call for annual contributions as determined by the subsidiary’s executive management. Contributions of $31.8 million, $33.2 million, and $29.1
+million were made to the plans and are included in selling and administrative expenses in the consolidated financial statements for the years ended May 31, 2007, 2006 and 2005, respectively. The Company has various 401(k) employee savings plans
+available to U.S.-based employees. The Company matches a portion of employee contributions with common stock or cash. Company contributions to the savings plans were $24.9 million, $22.5 million, and $20.3 million for the years ended May 31,
+2007, 2006 and 2005, respectively, and are included in selling and administrative expenses. 
+The Company has pension plans in various
+countries worldwide. The pension plans are only available to local employees and are generally government mandated. Upon adoption of FAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” on
+May 31, 2007, the Company recorded a liability of $17.6 million related to the unfunded pension liabilities of the plans. 
+Note 13 —
+Comprehensive Income 
+Comprehensive income is as follows: 
+Year Ended May 31, 
+2007 
+2006 
+2005 
+(In millions) 
+Net income 
+$ 
+1,491.5 
+$ 
+1,392.0 
+$ 
+1,211.6 
+Other comprehensive income: 
+Change in cumulative translation adjustment and other (net of tax (expense) benefit of ($5.4) in 2007, $19.7 in 2006, and $3.9 in
+2005) 
+84.6 
+87.1 
+70.1 
+Changes due to cash flow hedging instruments (Note 16): 
+Net loss on hedge derivatives (net of tax benefit of $9.5 in 2007, $2.8 in 2006 and $28.7 in 2005) 
+(38.1 
+) 
+(5.6 
+) 
+(54.0 
+) 
+Reclassification to net income of previously deferred losses and (gains) related to hedge derivatives (net of tax expense (benefit) of ($3.6)
+in 2007, $15.3 in 2006 and ($72.8) in 2005) 
+21.4 
+(33.2 
+) 
+143.6 
+Other comprehensive income 
+67.9 
+48.3 
+159.7 
+Total comprehensive income 
+$ 
+1,559.4 
+$ 
+1,440.3 
+$ 
+1,371.3 
+The components of accumulated other comprehensive income are as follows: 
+May 31, 
+2007 
+2006 
+(In millions) 
+Cumulative translation adjustment and other (1) 
+$ 
+234.3 
+$ 
+161.9 
+Net deferred loss on hedge derivatives 
+(56.9 
+) 
+(40.2 
+) 
+$ 
+177.4 
+$ 
+121.7 
+(1) 
+Cumulative translation adjustment and other for the year ended May 31, 2007 includes a $12.2
+million net-of-tax adjustment relating to the adoption of FAS 158. See Note 12 for additional details. 
+69 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 14 — Commitments and Contingencies 
+The Company leases space for certain of its offices, warehouses and retail stores under leases expiring from one to twenty-seven years after May 31,
+2007. Rent expense was $285.2 million, $252.0 million and $232.6 million for the years ended May 31, 2007, 2006 and 2005, respectively. Amounts of minimum future annual rental commitments under non-cancelable operating leases in each of
+the five years ending May 31, 2008 through 2012 are $260.9 million, $219.9 million, $183.3 million, $156.7 million, $128.4 million, respectively, and $587.0 million in later years. 
+As of May 31, 2007 and 2006, the Company had letters of credit outstanding totaling $165.9 million and $347.6 million, respectively. These letters
+of credit were generally issued for the purchase of inventory. 
+In connection with various contracts and agreements, the Company provides
+routine indemnifications relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items that fall under the scope of FASB Interpretation No. 45, “Guarantor’s Accounting and
+Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Currently, the Company has several such agreements in place. However, based on the Company’s historical experience and the estimated
+probability of future loss, the Company has determined that the fair value of such indemnifications is not material to the Company’s financial position or results of operations. 
+In the ordinary course of its business, the Company is involved in various legal proceedings involving contractual and employment relationships, product
+liability claims, trademark rights, and a variety of other matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position or results of operations. 
+Note 15 — Acquisitions 
+In August 2004, the
+Company acquired 100% of the equity interests in Official Starter LLC and Official Starter Properties LLC (collectively “Official Starter”). The Exeter Brands Group LLC, a wholly-owned subsidiary of the Company, was formed soon thereafter
+to develop the Company’s business in retail channels serving value-conscious consumers and to operate the Official Starter business. The acquisition was accounted for under the purchase method of accounting. The cash purchase price, including
+acquisition costs net of cash acquired, was $47.2 million. All assets and liabilities of Exeter Brands Group were initially recorded in the Company’s Consolidated Balance Sheet based on their estimated fair values at the date of acquisition.
+The results of Exeter Brands Group’s operations have been included in the consolidated financial statements since the date of acquisition as part of the Company’s Other operating segment. The pro forma effect of the acquisition on the
+combined results of operations was not significant. 
+Note 16 — Risk Management and Derivatives 
+The Company is exposed to global market risks, including the effect of changes in foreign currency exchange rates and interest rates. The Company uses
+derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading purposes. 
+The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking hedge transactions. This process includes linking
+all derivatives to either specific assets and liabilities on the balance sheet or specific firm commitments or forecasted transactions. 
+70 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Substantially all derivatives outstanding as of May 31, 2007 and 2006 are designated as either
+cash flow or fair value hedges. All derivatives are recognized on the balance sheet at their fair value. Unrealized gain positions are recorded as other current assets or other non-current assets, depending on the instrument’s maturity date.
+Unrealized loss positions are recorded as accrued liabilities or other non-current liabilities. All changes in fair values of outstanding cash flow hedge derivatives, except the ineffective portion, are recorded in other comprehensive income, until
+net income is affected by the variability of cash flows of the hedged transaction. Fair value hedges are recorded in net income and are offset by the change in fair value of the underlying asset or liability being hedged. 
+Cash Flow Hedges 
+The purpose
+of the Company’s foreign currency hedging activities is to protect the Company from the risk that the eventual cash flows resulting from transactions in foreign currencies, including revenues, product costs, selling and administrative expenses,
+investments in U.S. dollar-denominated available-for-sale debt securities and intercompany transactions, including intercompany borrowings, will be adversely affected by changes in exchange rates. It is the Company’s policy to utilize
+derivatives to reduce foreign exchange risks where internal netting strategies cannot be effectively employed. 
+Derivatives used by the
+Company to hedge foreign currency exchange risks are forward exchange contracts and options. Hedged transactions are denominated primarily in euros, British pounds, Japanese yen, Korean won, Canadian dollars and Mexican pesos. The Company hedges up
+to 100% of anticipated exposures typically twelve months in advance, but has hedged as much as 32 months in advance. When intercompany loans are hedged, it is typically for their expected duration. 
+Substantially all foreign currency derivatives outstanding as of May 31, 2007 and 2006 qualify for and are designated as foreign-currency cash flow
+hedges, including those hedging foreign currency denominated firm commitments. 
+Changes in fair values of outstanding cash flow hedge
+derivatives, except the ineffective portion, are recorded in other comprehensive income, until net income is affected by the variability of cash flows of the hedged transaction. In most cases amounts recorded in other comprehensive income will be
+released to net income some time after the maturity of the related derivative. The consolidated statement of income classification of effective hedge results is the same as that of the underlying exposure. Results of hedges of revenue and product
+costs are recorded in revenue and cost of sales, respectively, when the underlying hedged transaction affects net income. Results of hedges of selling and administrative expense are recorded together with those costs when the related expense is
+recorded. Results of hedges of anticipated purchases and sales of U.S. dollar-denominated available-for-sale securities are recorded in other (income) expense, net when the securities are sold. 
+Results of hedges of anticipated intercompany transactions are recorded in other (income) expense, net when the transaction occurs. Hedges of recorded
+balance sheet positions are recorded in other (income) expense, net currently together with the transaction gain or loss from the hedged balance sheet position. Net foreign currency transaction gains and losses, which includes hedge results captured
+in revenues, cost of sales, selling and administrative expense and other (income) expense, net, were a $27.9 million loss, a $49.9 million gain, and a $217.8 million loss for the years ended May 31, 2007, 2006, and 2005, respectively.
+Premiums paid on options are initially recorded as deferred charges. The Company assesses effectiveness on options based on the total cash
+flows method and records total changes in the options’ fair value to other comprehensive income to the degree they are effective. 
+71 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+As of May 31, 2007, $52.8 million of deferred net losses (net of tax) on both outstanding and
+matured derivatives accumulated in other comprehensive income are expected to be reclassified to net income during the next twelve months as a result of underlying hedged transactions also being recorded in net income. Actual amounts ultimately
+reclassified to net income are dependent on the exchange rates in effect when derivative contracts that are currently outstanding mature. As of May 31, 2007, the maximum term over which the Company is hedging exposures to the variability of
+cash flows for all forecasted and recorded transactions is 18 months. 
+The Company formally assesses, both at a hedge’s inception and
+on an ongoing basis, whether the derivatives that are used in the hedging transaction have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in
+future periods. When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, the Company discontinues hedge accounting prospectively. 
+The Company discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer highly effective in offsetting changes in the cash flows of a hedged item (including hedged items
+such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) management determines that
+designating the derivative as a hedging instrument is no longer appropriate. 
+When the Company discontinues hedge accounting because it is
+no longer probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified to net income when the forecasted transaction
+affects net income. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in
+other comprehensive income will be recognized immediately in net income. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance
+sheet, recognizing future changes in the fair value in other (income) expense, net. Any hedge ineffectiveness is recorded in other (income) expense, net. Effectiveness for cash flow hedges is assessed based on forward rates. 
+For each of the years ended May 31, 2007, 2006 and 2005, the Company recorded in other (income) expense, net an insignificant loss representing the
+total ineffectiveness of all derivatives. Net income for each of the years ended May 31, 2007, 2006 and 2005 was not materially affected due to discontinued hedge accounting. 
+Fair Value Hedges 
+The Company
+is also exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in interest rates. Derivatives currently used by the Company to hedge this risk are receive-fixed, pay-variable interest rate swaps.
+Substantially all interest rate swap agreements are designated as fair value hedges of the related long-term debt and meet the shortcut
+method requirements under FAS 133. Accordingly, changes in the fair values of the interest rate swap agreements are exactly offset by changes in the fair value of the underlying long-term debt. No ineffectiveness has been recorded to net income
+related to interest rate swaps designated as fair value hedges for the years ended May 31, 2007, 2006 and 2005. 
+As discussed in Note
+7, during the year ended May 31, 2004, the Company issued a $50 million medium-term note maturing October 1, 2013 and simultaneously entered into a receive-fixed, pay-variable interest rate swap with the same notional amount and fixed
+interest rate as the note. However, the swap expired 
+72 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+October 2, 2006. This interest rate swap was not accounted for as a fair value hedge. Accordingly, changes in the fair value of the swap were
+recorded to net income each period as a component of other (income) expense, net. The change in the fair value of the swap was not material for the years ended May 31, 2007, 2006 and 2005. 
+In fiscal 2003, the Company entered into an interest rate swap agreement related to a Japanese yen denominated intercompany loan with one of the
+Company’s Japanese subsidiaries. The Japanese subsidiary pays variable interest on the intercompany loan based on 3-month LIBOR plus a spread. Under the interest rate swap agreement, the subsidiary pays fixed interest payments at 0.8% and
+receives variable interest payments based on 3-month LIBOR plus a spread based on a notional amount of 8 billion Japanese yen. This interest rate swap is not accounted for as a fair value hedge. Accordingly, changes in the fair value of the swap are
+recorded to net income each period as a component of other (income) expense, net. The change in the fair value of the swap was not material for the years ended May 31, 2007, 2006 and 2005. 
+The fair values of all derivatives recorded on the consolidated balance sheet are as follows: 
+May 31, 
+2007 
+2006 
+(In millions) 
+Unrealized Gains: 
+Foreign currency exchange contracts and options 
+$ 
+43.5 
+$ 
+75.7 
+Interest rate swaps 
+0.5 
+0.9 
+Unrealized (Losses): 
+Foreign currency exchange contracts and options 
+(90.6 
+) 
+(122.2 
+) 
+Interest rate swaps 
+(2.6 
+) 
+(6.0 
+) 
+Concentration of Credit Risk 
+The Company is exposed to credit-related losses in the event of non-performance by counterparties to hedging instruments. The counterparties to all
+derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate the Company’s exposure to credit risk with these institutions. This credit risk is generally limited to the
+unrealized gains in such contracts should any of these counterparties fail to perform as contracted. To manage this risk, the Company has established strict counterparty credit guidelines that are continually monitored and reported to senior
+management according to prescribed guidelines. The Company utilizes a portfolio of financial institutions either headquartered or operating in the same countries the Company conducts its business. As a result of the above considerations, the Company
+considers the risk of counterparty default to be minimal. 
+In addition to hedging instruments, the Company is subject to concentrations of
+credit risk associated with cash and equivalents and accounts receivable. The Company places cash and equivalents with financial institutions with investment grade credit ratings and, by policy, limits the amount of credit exposure to any one
+financial institution. The Company considers its concentration risk related to accounts receivable to be mitigated by the Company’s credit policy, the significance of outstanding balances owed by each individual customer at any point in time
+and the geographic dispersion of these customers. 
+Note 17 — Operating Segments and Related Information 
+Operating Segments. The Company’s operating segments are evidence of the structure of the Company’s internal
+organization. The major segments are defined by geographic regions for operations participating in NIKE brand sales activity excluding NIKE Golf and NIKE Bauer Hockey. Each NIKE brand geographic segment operates predominantly in one industry: the
+design, production, marketing and selling of sports and fitness 
+73 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+footwear, apparel, and equipment. The “Other” category shown below represents activities of Cole Haan, Converse, Exeter Brands Group (beginning
+August 11, 2004), Hurley, NIKE Bauer Hockey, and NIKE Golf, which are considered immaterial for individual disclosure based on the aggregation criteria in SFAS No. 131 “Disclosures about Segments of an Enterprise and Related
+Information”. 
+Where applicable, “Corporate” represents items necessary to reconcile to the consolidated financial
+statements, which generally include corporate activity and corporate eliminations. 
+Net revenues as shown below represent sales to external
+customers for each segment. Intercompany revenues have been eliminated and are immaterial for separate disclosure. The Company evaluates performance of individual operating segments based on pre-tax income. On a consolidated basis, this amount
+represents income before income taxes as shown in the Consolidated Statements of Income. Reconciling items for pre-tax income represent corporate costs that are not allocated to the operating segments for management reporting including corporate
+activity, certain currency exchange rate gains and losses on transactions and intercompany eliminations for specific income statement items in the Consolidated Statements of Income. 
+Additions to long-lived assets as presented in the following table represent capital expenditures. 
+74 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Accounts receivable, inventories and property, plant and equipment for operating segments are
+regularly reviewed by management and are therefore provided below. 
+Certain prior year amounts have been reclassed to conform to fiscal
+2007 presentation. 
+Year Ended May 31, 
+2007 
+2006 
+2005 
+(In millions) 
+Net Revenue 
+United States 
+$ 
+6,107.1 
+$ 
+5,722.5 
+$ 
+5,129.3 
+Europe, Middle East and Africa 
+4,723.3 
+4,326.6 
+4,281.6 
+Asia Pacific 
+2,283.4 
+2,053.8 
+1,897.3 
+Americas 
+952.5 
+904.9 
+695.8 
+Other 
+2,259.6 
+1,947.1 
+1,735.7 
+$ 
+16,325.9 
+$ 
+14,954.9 
+$ 
+13,739.7 
+Pre-tax Income 
+United States 
+$ 
+1,300.3 
+$ 
+1,244.5 
+$ 
+1,127.9 
+Europe, Middle East and Africa 
+1,000.7 
+960.7 
+917.5 
+Asia Pacific 
+483.7 
+412.5 
+399.8 
+Americas 
+187.4 
+172.6 
+116.5 
+Other 
+303.7 
+153.6 
+154.8 
+Corporate 
+(1,075.9 
+) 
+(802.3 
+) 
+(856.7 
+) 
+$ 
+2,199.9 
+$ 
+2,141.6 
+$ 
+1,859.8 
+Additions to Long-lived Assets 
+United States 
+$ 
+67.3 
+$ 
+59.8 
+$ 
+54.8 
+Europe, Middle East and Africa 
+94.9 
+73.6 
+38.8 
+Asia Pacific 
+20.7 
+16.8 
+22.0 
+Americas 
+5.3 
+6.9 
+6.8 
+Other 
+36.0 
+33.2 
+31.3 
+Corporate 
+89.3 
+143.4 
+103.4 
+$ 
+313.5 
+$ 
+333.7 
+$ 
+257.1 
+Depreciation 
+United States 
+$ 
+45.4 
+$ 
+54.2 
+$ 
+49.0 
+Europe, Middle East and Africa 
+47.4 
+46.9 
+45.2 
+Asia Pacific 
+25.2 
+28.4 
+28.3 
+Americas 
+6.1 
+6.4 
+4.0 
+Other 
+28.2 
+29.0 
+28.5 
+Corporate 
+117.4 
+117.1 
+102.2 
+$ 
+269.7 
+$ 
+282.0 
+$ 
+257.2 
+75 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Year Ended May 31, 
+2007 
+2006 
+2005 
+(In millions) 
+Accounts Receivable, net 
+United States 
+$ 
+806.8 
+$ 
+717.2 
+$ 
+627.0 
+Europe, Middle East and Africa 
+739.1 
+703.3 
+711.4 
+Asia Pacific 
+296.6 
+319.7 
+309.8 
+Americas 
+184.1 
+174.5 
+168.7 
+Other 
+404.9 
+410.0 
+394.0 
+Corporate 
+63.2 
+58.2 
+39.0 
+$ 
+2,494.7 
+$ 
+2,382.9 
+$ 
+2,249.9 
+Inventories 
+United States 
+$ 
+796.0 
+$ 
+725.9 
+$ 
+639.9 
+Europe, Middle East and Africa 
+554.5 
+590.1 
+496.5 
+Asia Pacific 
+214.1 
+238.3 
+228.9 
+Americas 
+132.0 
+147.6 
+96.8 
+Other 
+378.7 
+330.5 
+316.2 
+Corporate 
+46.6 
+44.3 
+32.8 
+$ 
+2,121.9 
+$ 
+2,076.7 
+$ 
+1,811.1 
+Property, Plant and Equipment, net 
+United States 
+$ 
+232.7 
+$ 
+219.3 
+$ 
+216.0 
+Europe, Middle East and Africa 
+325.4 
+266.6 
+230.0 
+Asia Pacific 
+326.1 
+354.8 
+380.4 
+Americas 
+16.9 
+17.0 
+15.7 
+Other 
+103.6 
+98.2 
+93.4 
+Corporate 
+673.6 
+701.8 
+670.3 
+$ 
+1,678.3 
+$ 
+1,657.7 
+$ 
+1,605.8 
+Revenues by Major Product Lines. Revenues to external customers for
+NIKE brand products are attributable to sales of footwear, apparel and equipment. Other revenues to external customers primarily include external sales by Cole Haan Holdings Incorporated, Converse Inc., Exeter Brands Group LLC (beginning
+August 11, 2004), Hurley International LLC, NIKE Bauer Hockey Corp., and NIKE Golf. 
+Year Ended May 31, 
+2007 
+2006 
+2005 
+(In millions) 
+Footwear 
+$ 
+8,514.0 
+$ 
+7,965.9 
+$ 
+7,299.7 
+Apparel 
+4,576.5 
+4,168.0 
+3,879.4 
+Equipment 
+975.8 
+873.9 
+824.9 
+Other 
+2,259.6 
+1,947.1 
+1,735.7 
+$ 
+16,325.9 
+$ 
+14,954.9 
+$ 
+13,739.7 
+Revenues and Long-Lived Assets by Geographic Area. Geographical area
+information is similar to that shown previously under operating segments with the exception of the Other activity, which has been allocated to the geographical areas based on the location where the sales originated. Revenues derived in the United
+States were $7,593.7 million, $7,019.0 million, and $6,284.5 million, for the years ended May 31, 2007, 2006, and 
+76 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+2005, respectively. The Company’s largest concentrations of long-lived assets are in the United States and Japan. Long-lived assets attributable to
+operations in the United States, which are comprised of net property, plant & equipment were $991.3 million, $998.2 million, and $956.6 million at May 31, 2007, 2006, and 2005, respectively. Long-lived assets attributable to operations
+in Japan were $260.6 million, $296.3 million, and $321.0 million at May 31, 2007, 2006, and 2005, respectively. 
+Major
+Customers. During the years ended May 31, 2007, 2006 and 2005, revenues derived from Foot Locker, Inc. represented 10 percent, 10 percent and 11 percent of the Company’s consolidated revenues, respectively. Sales
+to this customer are included in all segments of the Company. 
+Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
+There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or practices or financial statement disclosure required to be reported under this Item. 
+Item 9A. Controls and Procedures 
+We maintain disclosure controls and
+procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and
+forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and
+evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is
+required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 
+We carry out a variety of
+on-going procedures, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and
+procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of May 31, 2007. 
+“Management’s Annual Report on Internal Control Over Financial Reporting” and the related attestation report of PricewaterhouseCoopers LLP
+are included in Item 8 on pages 46-49 of this Report. 
+There has been no change in our internal control over financial reporting
+during our most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting. 
+Item 9B. Other Information 
+No disclosure is required under this
+Item. 
+77 
+Table of Contents 
+PART III 
+Item 10. Directors, Executive Officers and Corporate Governance 
+The
+information required by Item 401 of Regulation S-K regarding directors is included under “Election of Directors” in the definitive Proxy Statement for our 2007 Annual Meeting of Shareholders and is incorporated herein by reference.
+The information required by Item 401 of Regulation S-K regarding executive officers is included under “Executive Officers of the Registrant” in Item 1 of this Report. The information required by Item 405 of Regulation S-K is
+included under “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for our 2007 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 406 of
+Regulation S-K is included under “Code of Business Conduct and Ethics” in the definitive Proxy Statement for our 2007 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 407(d)(4)
+and (d)(5) of Regulation S-K regarding the Audit Committee of the Board of Directors is included under “Election of Directors” in the definitive Proxy Statement for our 2007 Annual Meeting of Shareholders and is incorporated herein by
+reference. 
+Item 11. Executive Compensation 
+The information required by
+Item 402 of Regulation S-K regarding executive compensation is included under “Director Compensation for Fiscal 2007,” “Executive Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee
+Interlocks and Insider Participation” and “Compensation Committee Report” in the definitive Proxy Statement for our 2007 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+The information required by Item 201(d) of Regulation S-K is included under “Stock Holdings of Certain Owners and Management” and under
+“Equity Compensation Plans” in the definitive Proxy Statement for our 2007 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 13. Certain Relationships and Related Transactions , and Director Independence 
+The information required by this Item is included under “Transactions with Related Persons” and “Board of directors and Committees” in
+the definitive Proxy Statement for our 2007 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 14. Principal Accountant Fees and Services 
+The information
+required by Item 404 of Regulation S-K is included under “Ratification Of Independent Registered Public Accounting Firm” in the definitive Proxy Statement for our 2007 Annual Meeting of Shareholders and is incorporated herein by
+reference. 
+78 
+Table of Contents 
+PART IV 
+Item 15. Exhibits and Financial Statement Schedules 
+(a) 
+The following documents are filed as part of this report: 
+Form 10-K 
+Page No. 
+1. 
+FINANCIAL STATEMENTS: 
+Report of Independent Registered Public Accounting Firm 
+48 
+Consolidated Statements of Income for each of the three years ended May 31, 2007, May 31, 2006 and May 31, 2005 
+50 
+Consolidated Balance Sheets at May 31, 2007 and May 31, 2006 
+51 
+Consolidated Statements of Cash Flows for each of the three years ended May 31, 2007, May 31, 2006 and May 31, 2005 
+52 
+Consolidated Statements of Shareholders’ Equity for each of the three years ended May 31, 2007, May 31, 2006 and May 31, 2005 
+53 
+Notes to Consolidated Financial Statements 
+54 
+2. 
+FINANCIAL STATEMENT SCHEDULE: 
+II — Valuation and Qualifying Accounts 
+F-1 
+All other schedules are omitted because they are not applicable or the required information is
+shown in the financial statements or notes thereto. 
+3. EXHIBITS: 
+3.1 
+Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31,
+2005). 
+3.2 
+Third Restated Bylaws, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed February 20, 2007). 
+4.1 
+Restated Articles of Incorporation, as amended (see Exhibit 3.1). 
+4.2 
+Third Restated Bylaws, as amended (see Exhibit 3.2). 
+4.3 
+Indenture dated as of December 13, 1996 between the Company and Bank One Trust Company, National Association (successor in interest to The First National Bank of Chicago), as Trustee
+(incorporated by reference to Exhibit 4.01 to Amendment No. 1 to Registration Statement No. 333-15953 filed by the Company on November 26, 1996). 
+4.4 
+Form of Officers’ Certificate relating to the Company’s 5.5% Notes and form of 5.5% Note (incorporated by reference to Exhibits 4.2 and 4.3 of the Company’s Current Report on
+Form 8-K dated August 17, 2001). 
+4.5 
+Form of Officers’ Certificate relating to the Company’s Fixed Rate Medium-Term Notes and the Company’s Floating Rate Medium-Term Notes, form of Fixed Rate Note and form of
+Floating Rate Note (incorporated by reference to Exhibits 4.2, 4.3 and 4.4 of the Company’s Current Report on Form 8-K dated May 29, 2002). 
+79 
+Table of Contents 
+4.6 
+Credit Agreement dated as of December 1, 2006 among NIKE, Inc., Bank of America, N.A., individually and as Agent, and the other banks party thereto (incorporated by reference to Exhibit 4.01
+to the Company’s Current Report on Form 8-K filed December 6, 2006). 
+10.1 
+Form of Non-statutory Stock Option Agreement for options granted to non-employee directors under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s
+Current Report on Form 8-K filed June 21, 2005).* 
+10.2 
+Form of Indemnity Agreement entered into between the Company and each of its officers and directors (incorporated by reference to the Company’s definitive proxy statement filed in
+connection with its annual meeting of shareholders held on September 21, 1987). 
+10.3 
+NIKE, Inc. 1990 Stock Incentive Plan.* 
+10.4 
+NIKE, Inc. Executive Performance Sharing Plan.* 
+10.5 
+NIKE, Inc. Long-Term Incentive Plan (incorporated by reference to the Company’s definitive proxy statement filed in connection with its annual meeting of shareholders held on September
+18, 2002).* 
+10.6 
+NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective January 1, 2005) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
+December 19, 2006).* 
+10.7 
+NIKE, Inc. Foreign Subsidiary Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
+February 28, 2003).* 
+10.8 
+Covenant Not To Compete And Non-Disclosure Agreement between NIKE, Inc. and Mark G. Parker dated February 28, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Current
+Report on Form 8-K/A filed March 6, 2006).* 
+10.9 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Charles D. Denson dated December 28, 2004 (incorporated by reference to Exhibit 10.2 to the Company’s Current
+Report on Form 8-K filed December 30, 2004).* 
+10.10 
+Form of Non-Statutory Stock Option Agreement for options granted to executives under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current
+Report on Form 8-K filed November 18, 2004).* 
+10.11 
+Form of Long-Term Incentive Award Agreement under the Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 20,
+2007).* 
+10.12 
+Form of Restricted Stock Bonus Agreement under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 21,
+2005).* 
+10.13 
+Commercial Paper Agreement between NIKE, Inc., as Issuer, and Goldman, Sachs & Co., as Dealer (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form
+10-Q for the fiscal quarter ended February 28, 2007). 
+10.14 
+Commercial Paper Agreement between NIKE, Inc., as Issuer, and Merrill Lynch Money Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Dealer (incorporated by reference
+to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2007). 
+10.15 
+Commercial Paper Agreement between NIKE, Inc., as Issuer, and Wells Fargo Brokerage Services, LLC, as Dealer (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report
+on Form 10-Q for the fiscal quarter ended February 28, 2007). 
+80 
+Table of Contents 
+10.16 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Donald W. Blair dated November 10, 1999 (incorporated by reference to Exhibit 10.15 to the Company’s Annual
+Report on Form 10-K for the fiscal year ended May 31, 2006).* 
+10.17 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Gary DeStefano (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
+August 11, 2006).* 
+10.18 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Adam Helfant (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on
+September 21, 2006).* 
+10.19 
+Employment Agreement between NIKE, Inc. and Adam Helfant (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 21,
+2006).* 
+12.1 
+Computation of Ratio of Earnings to Fixed Charges. 
+21 
+Subsidiaries of the Registrant. 
+23 
+Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm (set forth on page F-2 of this Annual Report on Form 10-K). 
+31 
+Rule 13a-14(a) Certifications. 
+32 
+Section 1350 Certifications. 
+* 
+Management contract or compensatory plan or arrangement. 
+The exhibits filed herewith do not include certain instruments with respect to long-term debt of NIKE and its subsidiaries, inasmuch as the total amount of debt authorized under any such instrument does not exceed 10 percent of the total
+assets of NIKE and its subsidiaries on a consolidated basis. NIKE agrees, pursuant to Item 601(b)(4)(iii) of Regulation S-K, that it will furnish a copy of any such instrument to the SEC upon request. 
+Upon written request to Investor Relations, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453, NIKE will furnish shareholders with a copy of
+any Exhibit upon payment of $.10 per page, which represents our reasonable expenses in furnishing Exhibits. 
+81 
+Table of Contents 
+SCHEDULE II 
+VALUATION AND QUALIFYING ACCOUNTS 
+Description 
+Balance at 
+Beginning 
+of
+Period 
+Charged to 
+Costs and 
+Expenses 
+Charged to 
+Other 
+Accounts 
+Write-Offs 
+Net of 
+Recoveries 
+Balance at 
+End of 
+Period 
+(In millions) 
+Allowance for doubtful accounts (current and non-current) (1 ) 
+For the year ended May 31, 2005 
+$ 
+95.3 
+$ 
+33.5 
+$ 
+1.8 
+$ 
+(50.2 
+) 
+$ 
+80.4 
+For the year ended May 31, 2006 
+80.4 
+13.6 
+1.8 
+(28.2 
+) 
+67.6 
+For the year ended May 31, 2007 
+67.6 
+18.5 
+1.6 
+(16.2 
+) 
+71.5 
+(1) 
+The non-current portion of the
+allowance for doubtful accounts is classified in deferred income taxes and other assets on the consolidated balance sheet. 
+F-1 
+Table of Contents 
+CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (333-71324) and Form S-8 (Nos. 033-63995, 333-63581,
+333-63583, 333-68864, 333-68886, 333-71660, 333-104822, 333-104824, 333-117059, and 333-133360) of NIKE, Inc. of our report dated July 26, 2007 relating to the financial statements, financial statement schedule, management’s assessment of
+the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. 
+/s/ P RICEWATERHOUSE C OOPERS LLP 
+Portland, Oregon 
+July 26, 2007 
+F-2 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
+the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 
+NIKE, INC. 
+By: 
+/s/ M ARK G.
+P ARKER 
+Mark G. Parker 
+Chief Executive Officer and President 
+Date: July 27, 2007 
+Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of
+the registrant and in the capacities and on the dates indicated. 
+Signature 
+Title 
+Date 
+Principal Executive Officer and Director: 
+/s/ M ARK G.
+P ARKER 
+Director, Chief Executive Officer and 
+President 
+July 27, 2007 
+Mark G. Parker 
+Principal Financial and Accounting Officer: 
+/s/ D ONALD W.
+B LAIR 
+Chief Financial Officer 
+July 27, 2007 
+Donald W. Blair 
+Directors: 
+/s/ P HILIP H.
+K NIGHT 
+Director 
+July 27, 2007 
+Philip H. Knight 
+/s/ J OHN G.
+C ONNORS 
+Director 
+July 27, 2007 
+John G. Connors 
+/s/ J ILL K.
+C ONWAY 
+Director 
+July 27, 2007 
+Jill K. Conway 
+/s/ T IMOTHY D.
+C OOK 
+Director 
+July 27, 2007 
+Timothy D. Cook 
+Director 
+Ralph D. DeNunzio 
+/s/ A LAN B. G RAF ,
+J R . 
+Director 
+July 27, 2007 
+Alan B. Graf, Jr. 
+S-1 
+Table of Contents 
+Signature 
+Title 
+Date 
+/s/ D OUGLAS G.
+H OUSER 
+Director 
+July 27, 2007 
+Douglas G. Houser 
+/s/ J EANNE P.
+J ACKSON 
+Director 
+July 27, 2007 
+Jeanne P. Jackson 
+/s/ J OHNATHAN A.
+R ODGERS 
+Director 
+July 27, 2007 
+Johnathan A. Rodgers 
+/s/ O RIN C.
+S MITH 
+Director 
+July 27, 2007 
+Orin C. Smith 
+/s/ J OHN R. T HOMPSON ,
+J R . 
+Director 
+July 27, 2007 
+John R. Thompson, Jr. 
+S-2
\ No newline at end of file
diff --git a/raw/filings/0000320187/2006/0001193125-07-164166/filing_metadata.csv b/raw/filings/0000320187/2006/0001193125-07-164166/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..6e22af539a41b298ae2832e0ca961b820c202f04
--- /dev/null
+++ b/raw/filings/0000320187/2006/0001193125-07-164166/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000320187,NKE,"NIKE, Inc.",10-K,2007-07-27,2007-05-31,2007-07-28T00:16:21.000Z,0001193125-07-164166,d10k.htm,FORM 10-K,1370510,0,0,https://www.sec.gov/Archives/edgar/data/320187/000119312507164166/d10k.htm,https://www.sec.gov/Archives/edgar/data/320187/000119312507164166/,2006,2006,1
diff --git a/raw/filings/0000320187/2006/0001193125-07-164166/item1.txt b/raw/filings/0000320187/2006/0001193125-07-164166/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8e2d29fe3834e7ccfb4fd6644149e14cae3df65a
--- /dev/null
+++ b/raw/filings/0000320187/2006/0001193125-07-164166/item1.txt
@@ -0,0 +1,286 @@
+Item 1. Business 
+General 
+NIKE, 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 the context indicates otherwise. Our Internet address is www.nike.com. On our
+NIKE Corporate web site, located at www.nikebiz.com, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the 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 furnished 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 free of charge. Also available on the NIKE Corporate web site are the charters of the committees of our board of directors, as well as our corporate governance guidelines and code of ethics;
+copies of any of these documents 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 worldwide marketing of high quality footwear, 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 NIKE-owned retail stores, and through a mix of independent distributors and licensees, in over 180 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.
+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-inspired urban shoes, and children’s shoes are currently our top-selling product categories and we expect them to continue to lead in product sales in the near future. We also market shoes designed for tennis, golf, baseball, football,
+lacrosse, walking, outdoor activities, skateboarding, bicycling, volleyball, wrestling, cheerleading, aquatic activities 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 are designed to complement
+our athletic footwear products, 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, including bags, socks, sport balls, eyewear, timepieces, electronic devices, bats, gloves, protective equipment, and other equipment designed for sports activities. We also have agreements for licensees to produce and sell NIKE
+brand swimwear, cycling apparel, children’s clothing, school supplies, electronic devices, eyewear, golf accessories, and belts. We also sell small amounts of various plastic products to other manufacturers through our wholly-owned subsidiary,
+NIKE IHM, Inc. 
+We sell a line of dress and casual footwear, apparel and accessories for men and women under the brand names Cole Haan ® , G Series ® and Bragano ® through our wholly-owned subsidiary, Cole Haan Holdings Incorporated (“Cole Haan”), headquartered in
+Yarmouth, Maine. 
+Our wholly-owned subsidiary Converse Inc. (“Converse”), headquartered in North Andover, Massachusetts, designs
+and distributes athletic and casual footwear, apparel and accessories under the Converse ® , Chuck Taylor ® , All Star ® , One
+Star ® and Jack Purcell ® trademarks, and footwear under the Hurley ® trademark. 
+2 
+Table of Contents 
+Our wholly-owned subsidiary Hurley International LLC (“Hurley”), headquartered in Costa Mesa,
+California, designs and distributes a line of action sports apparel for surfing, skateboarding, and snowboarding, youth lifestyle apparel, and accessories under the Hurley ® trademark. 
+Our wholly-owned subsidiaries NIKE Bauer Hockey Corp. and NIKE Bauer Hockey U.S.A., Inc. (collectively, “NIKE Bauer Hockey”), headquartered in Toronto, Ontario and Greenland, New Hampshire, respectively, manufactures and
+distributes ice skates, skate blades, protective gear, hockey sticks, licensed and team apparel and accessories under the NIKE Bauer ® , and NIKE ® trademarks. NIKE Bauer ® also offers a full selection of products for street and roller hockey. 
+Our wholly-owned subsidiary
+Exeter Brands Group LLC (“Exeter Brands Group”), headquartered in Beaverton, Oregon, sells athletic footwear and apparel in retail channels for value-conscious consumers, and markets licensed athletic footwear and apparel under the Starter
+brand name and “S” logo. 
+Sales and Marketing 
+Financial information about geographic and segment operations appears in Note 17 of the
+consolidated financial statements on page 73. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically,
+revenues in the first and fourth fiscal quarters have slightly exceeded those in the second and third quarters. However, the mix of product sales may vary considerably from time to time 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 fitness activities and changing design trends affect the demand for our products. We must therefore respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles
+and categories, and influencing sports and fitness preferences through aggressive marketing. This is a continuing risk. Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability.
+United States Market 
+In fiscal 2007, sales in the United States (including U.S. sales of Cole Haan, Converse,
+Exeter Brands Group, Hurley, NIKE Bauer Hockey and NIKE Golf) accounted for approximately 47 percent of total revenues, compared to 47 percent in fiscal 2006 and 46 percent in fiscal 2005. We sell to approximately 21,000 retail accounts in the
+United States. The NIKE brand domestic retail 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 fiscal year 2007, our
+three largest customers accounted for approximately 29 percent of NIKE brand sales in the United States excluding sales from NIKE Bauer Hockey and NIKE Golf, and 24 percent of total sales in the United States. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in advance of delivery with
+the commitment that 90 percent of their orders will be delivered within a set time period at a fixed price. In fiscal year 2007, 94 percent of our U.S. wholesale footwear shipments (excluding Cole Haan, Converse, Exeter Brands Group, Hurley, NIKE
+Bauer Hockey and NIKE Golf) were made under the futures program, compared to 90 percent in fiscal 2006 and 91 percent in fiscal 2005. In fiscal 2007, 81 percent of our U.S. wholesale apparel shipments (excluding Cole Haan, Converse, Exeter Brands
+Group, Hurley, NIKE Bauer Hockey and NIKE Golf) were made under the futures program, compared to 69 percent in fiscal 2006, and 71 percent in fiscal 2005. 
+3 
+Table of Contents 
+We utilize 18 NIKE sales offices to solicit sales in the United States. We also utilize 14 independent
+sales representatives to sell specialty products for golf. In addition, we sell NIKE brand products through our internet website, www.nikestore.com , and we operate the following retail outlets in the United States: 
+U.S. Retail Stores 
+Number 
+NIKE factory stores (which carry primarily overstock and closeout merchandise) 
+102 
+NIKE stores (including NIKE Women stores) 
+14 
+NIKETOWNs (designed to showcase NIKE products) 
+12 
+NIKE employee-only stores 
+4 
+Cole Haan stores (including factory and employee stores) 
+95 
+Converse stores (including factory and employee stores) 
+20 
+Hurley stores 
+7 
+Total 
+254 
+NIKE’s domestic distribution centers for footwear are located in Wilsonville, Oregon, and
+Memphis, Tennessee. Apparel and equipment products are shipped from our Memphis, Tennessee, Tigard, Oregon, and Foothill Ranch, California distribution centers. Cole Haan and NIKE Bauer Hockey products are distributed primarily from Greenland, New
+Hampshire, and Converse products are shipped from Ontario and Fontana, California. 
+International Markets 
+In fiscal 2007, non-U.S. sales (including non-U.S. sales of Cole Haan, Converse, Exeter
+Brands Group, Hurley, NIKE Bauer Hockey and NIKE Golf) accounted for 53 percent of total revenues in fiscal 2007, compared to 53 percent in fiscal 2006 and 54 percent in fiscal 2005. We sell our products to retail accounts, through NIKE-owned retail
+stores, and through a mix of independent distributors and licensees around the world. We estimate that we sell to more than 25,000 retail accounts outside the United States, excluding sales by independent distributors and licensees. We operate 11
+distribution centers in Europe, Asia, Australia, Africa and Canada. In many countries and regions, including Canada, Asia, some Latin American countries, and Europe, we have a futures ordering program for retailers similar to the United States
+futures program described above. NIKE’s three largest customers outside of the U.S. accounted for approximately 9 percent of NIKE brand sales outside the United States excluding sales from NIKE Bauer Hockey and NIKE Golf, and approximately
+9 percent of total non-U.S. sales. 
+We operate the following retail outlets outside the United States: 
+Non-U.S. Retail Stores 
+Number 
+NIKE factory stores 
+126 
+NIKE stores 
+33 
+NIKETOWNs 
+3 
+NIKE employee-only stores 
+9 
+Cole Haan stores 
+61 
+Total 
+232 
+International branch offices and subsidiaries of NIKE are located in Argentina, Australia,
+Austria, Belgium, Brazil, Bulgaria, Canada, Chile, Croatia, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, Indonesia, India, Ireland, Israel, Italy, Japan, Korea, Lebanon, Malaysia, Mexico, New Zealand,
+the Netherlands, Norway, People’s Republic of China, the Philippines, Poland, Portugal, Russia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom, Uruguay and
+Vietnam. 
+4 
+Table of Contents 
+Significant Customer 
+Foot Locker, Inc., which operates a chain of retail stores specializing in athletic
+footwear and apparel, accounted for approximately 10 percent of global net sales of NIKE, Inc. during fiscal 2007. No other customer accounted for 10 percent or more of our net sales during fiscal 2007. 
+Orders 
+Worldwide futures and advance orders for NIKE brand athletic footwear and apparel, scheduled for
+delivery from June through November 2007, were $7.7 billion compared to $6.6 billion for the same period last year. This futures and advance order amount is calculated based upon our forecast of the actual exchange rates under which our revenues
+will be translated during this period, which approximate current spot rates. Based upon historical data, we expect that approximately 95 percent of these orders will be filled in that time period, although some orders may be cancelled. 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 advance/futures and at-once orders. 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 and advance orders and actual revenues. Moreover, a significant portion of our revenue is not derived from futures
+and advance orders, including at-once and closeout sales of NIKE footwear and apparel, wholesale sales of equipment, Cole Haan, Converse, Exeter Brands Group, Hurley, NIKE Bauer Hockey, NIKE Golf, and retail sales across all brands. 
+Product Research and Development 
+We believe that 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 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, 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 and concepts for
+product improvement. Employee athletes and other athletes wear-test and evaluate products during the design and development process. 
+Manufacturing 
+Virtually all of our footwear is produced outside of the United States. In fiscal 2007, contract
+suppliers in China, Vietnam, Indonesia and Thailand manufactured 35 percent, 31 percent, 21 percent and 12 percent of total NIKE brand footwear, respectively. We also have manufacturing agreements with independent factories in Argentina, Brazil,
+India, Italy, and South Africa to manufacture footwear for sale primarily within those countries. Our largest single footwear factory accounted for approximately 6 percent of total fiscal 2007 footwear production. 
+Almost all of NIKE brand apparel production for sale to the United States market, and all of our apparel production for sale to the international market,
+was manufactured outside of the United States by independent contract manufacturers located in 36 countries. Most of this apparel production occurred in China, Thailand, Indonesia, Malaysia, Turkey, Honduras, Vietnam, Sri Lanka, Mexico, Taiwan,
+Cambodia, India and Bangladesh. Our largest single apparel factory accounted for approximately 6 percent of total fiscal 2007 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. NIKE IHM, Inc.,
+NIKE (Suzhou) Sports Company, Ltd., wholly-owned subsidiaries of NIKE, and independent contractors in China and Taiwan, are 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 
+5 
+Table of Contents 
+threads, plastic and metal hardware, and specialized performance fabrics designed to repel rain, retain heat, or efficiently transport body moisture. NIKE
+and its contractors and suppliers buy raw materials in bulk. Most raw materials are available 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, has performed significant import-export
+financing services for us. During fiscal 2007, Sojitz America provided such financing services for NIKE Brand products sold in Argentina, Uruguay, Canada, Chile, Mexico, Brazil, India, Panama, The Philippines, Malaysia, South Africa, China, Korea,
+and Thailand excluding products produced and sold in the same country. Approximately 13 percent 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 outside of the United States, Europe, Middle East, Africa and Japan. 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, 2008. 
+International Operations and Trade 
+Our international operations and sources of supply are subject to the usual
+risks of doing business abroad, such as possible revaluation of currencies, export duties, anti-dumping duties, 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 developments occurring. 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 outside of the United States. 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 that we could abate any such disruption within a period of no more than 12 months, and that much of the adverse impact on supply would, therefore, be of a short-term nature. We
+believe that our principal competitors are subject to similar risks. 
+As a result of the Trade Act of 2003, the United States implemented
+significant new Federal requirements for cargo security, focused on imports of containerized cargo. We are a significant importer of containerized cargo. Accordingly, we participate actively in appropriate governmental programs, such as the Customs
+Trade Partnership Against Terrorism, to reduce risks of possible supply disruptions caused by U.S. and international cargo security mandates and terrorism. We and a broad coalition of businesses have been actively working with the United States
+Congress as it considers legislation to make U.S. ports more secure. We are actively following this proposed legislation and believe that any legislation, if passed, will not have a significant impact on our supply chain. We believe that our major
+competitors stand in much the same position of risk regarding this potential legislation. 
+All of our products manufactured overseas and
+imported into the United States, the European Union (“EU”) and other countries are subject to customs duties collected by customs authorities. Customs information submitted by us is routinely subject to review by customs authorities. We
+are unable to predict whether additional customs duties, anti-dumping duties, quotas, safeguard measures, or other trade restrictions may be imposed on the importation of our products in the future. Such actions could result in increases in the cost
+of our products generally which might adversely affect the sales or profitability of NIKE and the imported footwear and apparel industry as a whole. Accordingly, we are actively monitoring the developments described below. 
+6 
+Table of Contents 
+Footwear Imports into the European Union 
+From 1994 through January 1, 2005, the EU imposed limits (or “quotas”) on the import of certain types of footwear manufactured in China.
+Footwear designed for use in sporting activities, meeting certain technical criteria and having a CIF (cost, insurance and freight) price above nine euros (“Special Technology Athletic Footwear” or “STAF”), was excluded from the
+quotas. As a result of the STAF exclusion, and the amount of quota made available to us, the quotas did not have a material effect on our business. However, as part of China’s 2001 accession to the World Trade Organization (“WTO”),
+China entered into an agreement with the EU and other WTO members to abide by a special safeguard arrangement whereby quotas could be imposed on any product sourced in China, including footwear, if there was a surge in imports from China into
+another WTO country, and after a legal proceeding it was determined that such imports were injuring a domestic producer. Additionally, under longstanding WTO rules, all WTO member countries reserved the right to impose (1) safeguard measures
+(temporary quotas) if it can be demonstrated in a legal proceeding that increased imports are injuring another WTO member’s domestic industry; and (2) anti-dumping measures if it can be demonstrated in a legal proceeding that imports are
+being sold at an unfair low price in another WTO member’s home market, and those imports were causing or threatening to cause material injury to the domestic industry. 
+Accordingly, with the phase-out of the quotas at the beginning of 2005, and the expiration of a separate EU anti-dumping case in 2003 against footwear
+made in China, Indonesia, and Thailand, there has been renewed pressure from some parts of the EU footwear manufacturing sector to re-impose some level of trade protection on imported footwear from China, India, Vietnam, and other exporting
+countries. In July 2005, the European Commission, at the request of the European domestic footwear industry, initiated investigations into leather footwear imported from China and Vietnam. NIKE and all other major athletic footwear manufacturers
+participated actively as respondents in this investigation and took the position that athletic footwear (i) should not be within the product scope of the investigation, and (ii) does not meet the legal requirements of injury and price in
+an anti-dumping investigation. Our arguments were successful and the EU agreed in October 2006 on definitive duties of 16.5% for China and 10% for Vietnam, but excluded STAF from the measures, and also agreed to implement the duties for two rather
+than the normal five-year period. As a result, these measures did not significantly impact our business and we believe that our major competitors stand in much the same position regarding these trade measures. 
+Vietnam Imports into the United States 
+We currently source a portion of our footwear and apparel products from factories in Vietnam. In 2001, the United States Congress and the Vietnamese National Assembly approved a comprehensive bilateral trade agreement, which, among other
+things, provides reciprocal, non-discriminatory Normal Trade Relations (“NTR”) between the U.S. and Vietnam. Following Congressional approval of granting Vietnam Permanent Normal Trade Relations in 2006, Vietnam is now a full member of the
+WTO. Vietnam’s entry into the WTO will provide us greater certainty about our business within Vietnam. It will likewise enable us to further expand our production and marketing opportunities in Vietnam and allow for Vietnamese-sourced products
+to continue to enter the United States at NTR tariff rates. 
+Trade Relations with China 
+China represents a critically important sourcing and marketing country for us. Many governments around the world are concerned about China’s growing
+and fast-paced economy, compliance with WTO rules, and high trade deficits. As a result there is a wide range of legislative proposals that have been introduced to address these concerns. While some of these concerns are justified, we are working
+with broad coalitions of global businesses and trade associations who represent a wide variety of sectors (e.g. services, manufacturing, agriculture) to help ensure that any legislation enacted and implemented (i) addresses legitimate and core
+concerns, (ii) is consistent with international trade rules, and (iii) is reflective and considerate of China’s domestic economy and important role in the global economic community. We believe that our major competitors as well as
+most other multi-national companies stand in much the same position regarding these trade measures. 
+7 
+Table of Contents 
+Competition 
+The athletic footwear, apparel and equipment industry is keenly competitive in the United States
+and on a worldwide basis. We compete internationally with an increasing number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and
+leisure shoes, apparel and equipment, including Adidas, Puma, and 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 and athletic apparel in the world.
+Performance and reliability of shoes, apparel, and equipment, new product development, price, product identity through marketing and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel
+and equipment industry. To help market our products, we contract with prominent and influential 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 are competitive in all of these areas. 
+Trademarks and Patents 
+We utilize trademarks on nearly all of our products and believe that having distinctive
+marks that are readily identifiable is an important factor in creating a market for our goods, in identifying 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 over 100 countries. In
+addition, we own many other trademarks that we utilize in marketing our products. We continue to vigorously protect our trademarks against infringement. 
+NIKE has an exclusive, worldwide license to make and sell footwear using patented “Air” technology. The process utilizes pressurized gas encapsulated in polyurethane. Some of the early NIKE AIR ® patents have expired, which may enable competitors to
+use certain types of similar technology. Subsequent NIKE AIR ® patents will not expire for several years. We also have hundreds of U.S. and foreign utility patents, and thousands of U.S. and foreign design patents covering components and features used in various athletic and
+leisure shoes, apparel, and equipment. These patents expire at various times, and have a remaining duration of from now to at least 2021 for design patents, and from now to at least 2027 for utility patents. We believe that our success 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 filing applications for United States and foreign patents on inventions, designs and
+improvements that we deem valuable. 
+Employees 
+We had approximately 30,200 employees at May 31, 2007. Management considers its relationship
+with employees to be excellent. None of our employees is represented by a union, with the exception of NIKE Bauer Hockey. Of NIKE Bauer Hockey’s employees, approximately 39 percent, or approximately 157, are covered by two union collective
+bargaining agreements with two separate bargaining units. The collective bargaining agreements expire on various dates from 2007 through 2008. There has never been a material interruption of operations due to labor disagreements. 
+Executive Officers of the Registrant 
+The executive officers of NIKE as of July 25, 2007 are as follows:
+Philip H. Knight, Chairman of the Board — Mr. Knight, 69, a director since 1968, is a co-founder of NIKE and, except for
+the period from June 1983 through September 1984, served as its President from 1968 to 1990, and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand
+and was an Assistant Professor of Business Administration at Portland State University. 
+8 
+Table of Contents 
+Mark G. Parker, Chief Executive Officer and President — Mr. Parker, 51, was appointed
+CEO and President in January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in
+charge of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. 
+David J. Ayre, Vice President, Global Human Resources — Mr. Ayre, 47, joined NIKE as Vice President, Global Human Resources in July
+2007. Prior to joining NIKE, he held a number of senior human resource positions with Pepsico, Inc. since 1990, most recently as head of Talent and Performance Rewards. 
+Lewis L. Bird III, President, Subsidiaries — Mr. Bird, 43, joined NIKE as President, Subsidiaries in July 2006. Prior to joining NIKE, he held a number of management positions within multinational
+companies with diverse brand portfolios. He was Executive Vice President of New Business Development for Gap Inc. from September 2005 to March 2006. Prior to that, Mr. Bird served as Chief Operating Officer of Gap Inc.’s
+North American division from March 2003 to September 2005, Chief Financial Officer of Gap Inc.’s Old Navy division from 2001 to 2003, Vice President Finance & Operations of Gateway, Inc. from 1999 to 2001, Director of Business
+Analysis & Planning at AlliedSignal Inc. from 1998 to 1999, and prior to that held financial management positions with AlliedSignal, Ford Motor Company and BayBanks, Inc. 
+Donald W. Blair, Vice President and Chief Financial Officer — Mr. Blair, 49, joined NIKE in November 1999. Prior to joining NIKE, he
+held a number of financial management positions with Pepsico, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice President, Planning of PepsiCo’s Pizza Hut Division, and Senior Vice President, Finance of The Pepsi Bottling Group,
+Inc. Prior to joining Pepsico, Mr. Blair was a certified public accountant with Deloitte, Haskins, and Sells. 
+Mary Kate Buckley,
+Vice President/General Manager, Americas — Ms. Buckley, 47, has been employed by NIKE since 1998. She was appointed Director of New Business Development in 1998, Director of nike.com in 1998, divisional Vice President of nike.com in
+1999, and divisional Vice President and General Manger, Americas Region in 2001. Ms. Buckley was appointed corporate Vice President and General Manager, Americas in July 2006. Prior to joining NIKE, Ms. Buckley worked in several positions
+in finance, marketing and strategic planning for The Walt Disney Company. 
+Craig Cheek, Vice President and General Manager, USA
+Region, Mr. Cheek, 45, has been employed by NIKE since 1990. Mr. Cheek held several sales management positions in the USA Region of the Company, and was appointed General Manager, USA Footwear in 2003, and divisional Vice President, USA
+Footwear from 2004 to 2006. Mr. Cheek was appointed corporate Vice President and General Manager, USA Region in July 2006. Prior to joining NIKE, Mr. Cheek held management positions at Nordstrom and Hilton Hotels. 
+Thomas E. Clarke, President of New Ventures — Dr. Clarke, 56, a director from 1994 to 2004, joined NIKE in 1980. He was appointed
+divisional Vice President in charge of marketing in 1987, elected corporate Vice President in 1989, appointed General Manager in 1990, and served as President and Chief Operating Officer from 1994 to 2000. Dr. Clarke previously held
+various positions with the Company, primarily in research, design, development and marketing. Dr. Clarke holds a doctorate degree in biomechanics. 
+Charles D. Denson, President of the NIKE Brand — Mr. Denson, 51, has been employed by NIKE since 1979. Mr. Denson held several management positions within the Company, including his appointments
+as Director of USA Apparel Sales in 1994, divisional Vice President, U.S. Sales in 1994, divisional Vice President European Sales in 1997, divisional Vice President and General Manager, NIKE Europe in 1998, Vice President and General Manager of NIKE
+USA in 2000, and President of the NIKE Brand in 2001. 
+Gary M. DeStefano, President of Global Operations — Mr. DeStefano,
+50, has been employed by NIKE since 1982, with primary responsibilities in sales and regional administration. Mr. DeStefano was appointed Director of Domestic Sales in 1990, divisional Vice President in charge of domestic sales in 1992, Vice
+President 
+9 
+Table of Contents 
+of Global Sales in 1996, Vice President and General Manager of Asia Pacific in 1997, President of USA Operations in 2001 and President of Global Operations
+in 2006. 
+Trevor Edwards, Vice President, Global Brand and Category Management — Mr. Edwards, 44, joined NIKE in 1992. He
+was appointed Marketing Manager, Strategic Accounts, Foot Locker in 1993, Director of Marketing, the Americas in 1995, Director of Marketing, Europe in 1997, Vice President, Marketing for Europe, Middle East and Africa in 1999, and Vice President,
+U.S. Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in 2002 and Vice President, Global Brand and Category Management in 2006. 
+Adam S. Helfant, Vice President, Global Sports Marketing — Mr. Helfant, 42, joined NIKE in 1995 in the Company’s legal department,
+and was appointed Director of Business Affairs for Global Sports Marketing in 1997, Director of Global Sports Marketing in 1998, Director of U.S. Sports Marketing in 2001, Vice President of U.S. Sports Marketing in 2003, and corporate Vice
+President, Global Sports Marketing in August 2004. Prior to joining NIKE, he was in private practice and an attorney for NHL Enterprises, Inc. 
+Joaquin Hidalgo, Vice President, Global Marketing and Soccer — Mr. Hidalgo, 46, joined NIKE in 1990. Mr. Hidalgo held various sales and marketing management positions in the Company’s USA and Americas Regions. He
+was appointed Director, CBF Business Unit, NIKE Football in 1997, Vice President and Global Brand Director, NIKE Football in 1998, Vice President, USA Marketing and Brand Management in 2002, and corporate Vice President, Global Marketing and Soccer
+in July 2006. Prior to joining NIKE, he was a marketing representative and product line manager at IBM. 
+Elliott Hill, Vice
+President, Global Retail — Mr. Hill, 43, has been employed by NIKE since 1988, with primary responsibilities in sales and retail operations. Mr. Hill was appointed divisional Vice President, EMEA Sales and Retail in 2000, Vice
+President and General Manager, NIKE USA Retail in 2003, Vice President, USA Commerce in 2004, and corporate Vice President, Global Retail in August 2006. Prior to joining NIKE, Mr. Hill worked as an assistant athletic trainer for the Dallas
+Cowboys. Mr. Hill is a member of the Board of Directors of Big Brothers Big Sisters Northwest. 
+P. Eunan McLaughlin, Vice
+President, Europe, Middle East & Africa — Mr. McLaughlin, 49, joined NIKE as Director of Sales, NIKE Europe in 1999, and was appointed Vice President Commercial Sales and Retail in 2000, Vice President, Asia Pacific in 2001, and
+Vice President, Europe, Middle East & Africa in May 2004. Prior to joining NIKE, he was Partner and Vice President of Consumer & Retail Practices Division, Korn/Ferry International from 1996 to 1999. From 1983 to 1996
+Mr. McLaughlin held various positions with Mars, Inc. in finance, sales, marketing and general management. 
+Eric D. Sprunk,
+Vice President, Global Footwear — Mr. Sprunk, 43, joined NIKE in 1993. He was appointed Finance Director and General Manager of the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General Manager, NIKE Europe Footwear
+in 1998, and Vice President & General Manager of the Americas in 2000. Mr. Sprunk was appointed corporate Vice President, Global Footwear in 2001. Prior to joining NIKE, Mr. Sprunk was a certified public accountant with Price
+Waterhouse from 1987 to 1993. 
+Lindsay D. Stewart, Vice President and Chief of Staff — Mr. Stewart, 60, joined NIKE as
+Assistant Corporate Counsel in 1981. Mr. Stewart became Corporate Counsel in 1983. He was appointed Vice President and General Counsel in 1991, and Chief of Staff in 2001. Prior to joining NIKE, Mr. Stewart was in private practice and an
+attorney for Georgia-Pacific Corporation. 
+Hans van Alebeek, Vice President, Global Operations & Technology —
+Mr. van Alebeek, 41, joined NIKE as Director of Operations of Europe in 1999, and was appointed Vice President, Operations & Administration in EMEA in 2001, Vice President, Global Operations in 2003, Vice President, Global
+Operations & Technology in 2004, and Corporate Vice President in November 2005. Prior to joining NIKE, Mr. van Alebeek worked for McKinsey & Company as a management consultant, and at N.V. Indivers in business development.
+10 
+Table of Contents 
+Roland P. Wolfram, Vice President and General Manager, Asia Pacific — Mr. Wolfram, 47,
+joined NIKE as Vice President, Strategic Planning in 1998, and was appointed Vice President, Global Operations & Technology in 2002, and Corporate Vice President, Asia Pacific in April 2004. Prior to NIKE, Mr. Wolfram was
+Vice President and General Manager at Pacific Bell Video Services. 
+Roger S. Wyett, Vice President, Global Apparel —
+Mr. Wyett, 50, returned to NIKE in April 2005 as President and Chief Operating Officer of the Company’s Hurley brand and was appointed Vice President, Global Apparel in 2006. Mr. Wyett first joined NIKE in 1994, holding a number of
+management positions in soccer and NIKE Team Sports. In 2000, Mr. Wyett joined The Walt Disney Company where he was Senior Vice President for Global Apparel, Accessories and Footwear, and later promoted to Executive Vice President for Global
+Sales and Marketing for Consumer Products.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2006/0001193125-07-164166/item13.txt b/raw/filings/0000320187/2006/0001193125-07-164166/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4ce53e7079b75e03f143fc622cb9f27e5dc1c068
--- /dev/null
+++ b/raw/filings/0000320187/2006/0001193125-07-164166/item13.txt
@@ -0,0 +1,3 @@
+Item 13. Certain Relationships and Related Transactions , and Director Independence 
+The information required by this Item is included under “Transactions with Related Persons” and “Board of directors and Committees” in
+the definitive Proxy Statement for our 2007 Annual Meeting of Shareholders and is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2006/0001193125-07-164166/item9a.txt b/raw/filings/0000320187/2006/0001193125-07-164166/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8560a9dbbd2f7e8c016fc29d999532b38a38acac
--- /dev/null
+++ b/raw/filings/0000320187/2006/0001193125-07-164166/item9a.txt
@@ -0,0 +1,13 @@
+Item 9A. Controls and Procedures 
+We maintain disclosure controls and
+procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and
+forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and
+evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is
+required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 
+We carry out a variety of
+on-going procedures, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and
+procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of May 31, 2007. 
+“Management’s Annual Report on Internal Control Over Financial Reporting” and the related attestation report of PricewaterhouseCoopers LLP
+are included in Item 8 on pages 46-49 of this Report. 
+There has been no change in our internal control over financial reporting
+during our most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2006/0001193125-07-164166/rp_note.txt b/raw/filings/0000320187/2006/0001193125-07-164166/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2006/0001193125-07-164166/rpt_disclosure.txt b/raw/filings/0000320187/2006/0001193125-07-164166/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2007/0001193125-08-159004/filing.txt b/raw/filings/0000320187/2007/0001193125-08-159004/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..21208aec10e3f87d270b194a924312a77a78fbbb
--- /dev/null
+++ b/raw/filings/0000320187/2007/0001193125-08-159004/filing.txt
@@ -0,0 +1,5362 @@
+10-K
+1
+d10k.htm
+FORM 10-K
+Form 10-K 
+Table of Contents 
+SECURITIES AND EXCHANGE COMMISSION
+Washington, D.C. 20549 
+Form 10-K 
+(Mark One) 
+þ 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended May 31, 2008 
+or 
+¨ 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the transition period from 
+to . 
+Commission File No. 1-10635 
+NIKE, Inc. 
+(Exact name of Registrant as specified in its charter) 
+Oregon 
+93-0584541 
+(State or other jurisdiction 
+of incorporation) 
+(IRS Employer 
+Identification No.) 
+One Bowerman Drive 
+(503) 671-6453 
+Beaverton, Oregon 97005-6453 
+(Registrant’s Telephone Number, Including Area Code) 
+(Address of principal executive offices) (Zip Code) 
+Securities registered pursuant to Section 12(b) of the Act: 
+Class B Common Stock 
+New York Stock Exchange 
+(Title of Each Class) 
+(Name of Each Exchange on Which Registered) 
+Securities registered pursuant to Section 12(g) of the Act: 
+None 
+Indicate by check mark if the registrant
+is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨ 
+Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
+Act. Yes ¨ No þ 
+Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
+period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨ 
+Indicate by check
+mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained to the best of Registrant’s knowledge, in definitive proxy or information
+statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ 
+Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,”
+“accelerated filer” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
+Large accelerated filer þ 
+Accelerated filer ¨ 
+Non-accelerated filer ¨ 
+Smaller Reporting Company ¨ 
+Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
+Act). Yes ¨ No þ 
+As of November 30, 2007, the aggregate market value of the Registrant’s Class A Common Stock held by nonaffiliates of the Registrant was $335,114,101 and the aggregate market value of the
+Registrant’s Class B Common Stock held by nonaffiliates of the Registrant was $25,690,498,658. 
+As of July 25, 2008, the number of
+shares of the Registrant’s Class A Common Stock outstanding was 96,191,444 and the number of shares of the Registrant’s Class B Common Stock outstanding was 394,220,937. 
+DOCUMENTS INCORPORATED BY REFERENCE: 
+Parts of Registrant’s Proxy Statement
+for the annual meeting of shareholders to be held on September 22, 2008 are incorporated by reference into Part III of this Report. 
+Table of Contents 
+NIKE, INC. 
+ANNUAL REPORT ON FORM 10-K 
+TABLE OF CONTENTS 
+Page 
+PART I 
+Item 1. 
+Business 
+2 
+General 
+2 
+Products 
+2 
+Sales and Marketing 
+3 
+United States Market 
+3 
+International Markets 
+4 
+Significant Customer 
+5 
+Orders 
+5 
+Product Research and Development 
+5 
+Manufacturing 
+5 
+International Operations and Trade 
+6 
+Competition 
+7 
+Trademarks and Patents 
+8 
+Employees 
+8 
+Executive Officers of the Registrant 
+8 
+Item 1A. 
+Risk Factors 
+10 
+Item 1B. 
+Unresolved Staff Comments 
+17 
+Item 2. 
+Properties 
+17 
+Item 3. 
+Legal Proceedings 
+17 
+Item 4. 
+Submission of Matters to a Vote of Security Holders 
+17 
+PART II 
+Item 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+18 
+Item 6. 
+Selected Financial Data 
+20 
+Item 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+21 
+Item 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+42 
+Item 8. 
+Financial Statements and Supplemental Data 
+45 
+Item 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+78 
+Item 9A. 
+Controls and Procedures 
+78 
+Item 9B. 
+Other Information 
+78 
+PART III 
+(Except for the information set forth under “Executive Officers of the Registrant” in Item 1 above, Part III is incorporated by reference from the Proxy Statement for the NIKE, Inc.
+2008 annual meeting of shareholders.) 
+Item 10. 
+Directors, Executive Officers and Corporate Governance 
+79 
+Item 11. 
+Executive Compensation 
+79 
+Item 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+79 
+Item 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+79 
+Item 14. 
+Principal Accountant Fees and Services 
+79 
+PART IV 
+Item 15. 
+Exhibits, Financial Statement Schedules 
+80 
+Signatures 
+S-1 
+Table of Contents 
+PART I 
+Item 1. Business 
+General 
+NIKE, 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 the context indicates otherwise. Our Internet address is
+www.nike.com. On our NIKE Corporate web site, located at www.nikebiz.com, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the 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 furnished 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 free of charge. Also available on the NIKE Corporate web site are the charters of the committees of our board of directors, as well as our corporate governance guidelines and
+code of ethics; copies of any of these documents 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 worldwide marketing of high quality footwear, 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 NIKE-owned retail including stores and internet sales, and through a mix of independent distributors and licensees,
+in over 180 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. 
+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-inspired urban shoes, and children’s 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 shoes designed for aquatic activities, baseball, bicycling, 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 are designed to complement our athletic footwear products, 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, including bags, socks, sport balls, eyewear, timepieces, electronic devices, bats,
+gloves, protective equipment, golf clubs, and other equipment designed for sports activities. We also have agreements for licensees to produce and sell NIKE brand swimwear, team sports apparel, training equipment, children’s clothing,
+electronic devices, eyewear, golf accessories, and belts. We also sell small amounts of various plastic products to other manufacturers through our wholly-owned subsidiary, NIKE IHM, Inc. 
+Our wholly-owned subsidiary, Cole Haan (“Cole Haan”), headquartered in Yarmouth, Maine,
+designs and distributes dress and casual footwear, apparel and accessories for men and women under the brand names Cole Haan ® and Bragano ® . 
+2 
+Table of Contents 
+Our wholly-owned subsidiary, Converse Inc.
+(“Converse”), headquartered in North Andover, Massachusetts, designs, distributes, and licenses athletic and casual footwear, apparel and accessories under the Converse ® , Chuck
+Taylor ® , All Star ® , One Star ® , John Varvatos ® , and Jack Purcell ® trademarks and footwear under the Hurley ® trademark.
+Our wholly-owned subsidiary, Hurley International LLC (“Hurley”),
+headquartered in Costa Mesa, California, designs and distributes a line of action sports apparel for surfing, skateboarding, and snowboarding, youth lifestyle apparel, and accessories under the Hurley ® trademark. 
+On March 3, 2008, we acquired all of the capital stock of Umbro Ltd. (“Umbro”).
+Headquartered in Manchester, England. Umbro designs, distributes, and licenses athletic and casual footwear, apparel and equipment, primarily for the sport of soccer, under the Umbro trademarks. 
+Sales and Marketing 
+Financial information about geographic and segment operations appears in Note 17 of the consolidated financial statements on page 75. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly exceeded those in the second and third quarters. However, the mix of product sales
+may vary considerably from time to time 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 fitness activities and changing design trends affect the demand for our products. We must therefore respond to trends and
+shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories, and influencing sports and fitness preferences through aggressive marketing. Failure to respond in a timely and
+adequate manner could have a material adverse effect on our sales and profitability. This is a continuing risk. 
+United States
+Market 
+In fiscal 2008, sales in the United States including U.S. sales of Cole Haan, Converse, Exeter Brands Group (which we sold
+in December, 2007), Hurley, Umbro, NIKE Bauer Hockey (which we sold in April, 2008) and NIKE Golf accounted for approximately 43 percent of total revenues, compared to 47 percent in fiscal 2007 and 47 percent in fiscal 2006. We estimate that we sell
+to more than 25,000 retail accounts in the United States. The NIKE brand domestic retail 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 fiscal year 2008, our three largest customers accounted for approximately 24 percent of NIKE brand sales in the United States. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in advance of delivery with the commitment that their orders will be delivered within a set
+time period at a fixed price. In fiscal year 2008, 86 percent of our U.S. wholesale footwear shipments (excluding Cole Haan, Converse, Exeter Brands Group, Hurley, NIKE Golf, Umbro, and NIKE Bauer Hockey) were made under the futures program,
+compared to 94 percent in fiscal 2007 and 90 percent in fiscal 2006. In fiscal 2008, 62 percent of our U.S. wholesale apparel shipments (excluding Cole Haan, Converse, Exeter Brands Group, Hurley, NIKE Golf, Umbro, and NIKE Bauer Hockey) were made
+under the futures program, compared to 65 percent in fiscal 2007 and 2006. 
+3 
+Table of Contents 
+We utilize 18 NIKE sales offices to solicit sales in the United States. We also utilize 4 independent
+sales representatives to sell specialty products for golf, and 2 for skating and outdoor products. In addition, we sell NIKE brand products through our internet website, www.nikestore.com , and we operate the following retail outlets in the
+United States: 
+U.S. Retail Stores 
+Number 
+NIKE factory stores (which carry primarily overstock and close-out merchandise) 
+121 
+NIKE stores (including one NIKE Women store) 
+14 
+NIKETOWNs (designed to showcase NIKE products) 
+12 
+NIKE employee-only stores 
+3 
+Cole Haan stores (including factory and employee stores) 
+102 
+Converse stores (including factory and employee stores) 
+35 
+Hurley stores 
+9 
+Total 
+296 
+NIKE’s United States distribution centers for footwear are located in Wilsonville, Oregon,
+and Memphis, Tennessee. Apparel and equipment products are shipped from our Memphis, Tennessee, Tigard, Oregon, and Foothill Ranch, California distribution centers. Cole Haan products are distributed primarily from Greenland, New Hampshire, Converse
+products are shipped from Ontario, California, and Hurley products are distributed from Irvine, California. 
+International
+Markets 
+In fiscal 2008, non-U.S. sales (including non-U.S. sales of Cole Haan, Converse, Exeter Brands Group, Hurley, NIKE Bauer
+Hockey, Umbro, and NIKE Golf) accounted for 57 percent of total revenues, compared to 53 percent in fiscal 2007 and 53 percent in fiscal 2006. We sell our products to retail accounts, through NIKE-owned retail stores, and through a mix of
+independent distributors and licensees around the world. We estimate that we sell to more than 27,000 retail accounts outside the United States, excluding sales by independent distributors and licensees. We operate 11 distribution centers outside of
+the United States. In many countries and regions, including Canada, Asia, some Latin American countries, and Europe, we have a futures ordering program for retailers similar to the United States futures program described above. NIKE’s three
+largest customers outside of the U.S. accounted for approximately 9 percent of total non-U.S. sales. 
+We operate the following retail
+outlets outside the United States: 
+Non-U.S. Retail Stores 
+Number 
+NIKE factory stores 
+141 
+NIKE stores 
+46 
+NIKETOWNs 
+3 
+NIKE employee-only stores 
+12 
+Cole Haan stores 
+57 
+Hurley stores 
+1 
+Total 
+260 
+International branch offices and subsidiaries of NIKE are located in Argentina, Australia,
+Austria, Belgium, Brazil, Bulgaria, Canada, Chile, Croatia, Cyprus, 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, People’s Republic of China, 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. 
+4 
+Table of Contents 
+Significant Customer 
+No customer accounted for 10 percent or more of our net sales during fiscal 2008. 
+Orders 
+Worldwide futures and advance orders for NIKE brand athletic footwear
+and apparel, scheduled for delivery from June through November 2008, were $8.8 billion compared to $7.7 billion for the same period last year. This futures and advance order amount is calculated based upon our forecast of the actual exchange rates
+under which our revenues will be translated during this period, which approximate current spot rates. Based upon historical data, we expect that approximately 95 percent of these orders will be filled in that time period, although some orders may be
+cancelled. 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 advance/futures and at-once orders. 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 and advance orders and actual revenues. Moreover, a significant portion of our revenue is not
+derived from futures and advance orders, including at-once and close-out sales of NIKE footwear and apparel, wholesale sales of equipment, Cole Haan, Converse, Hurley, Umbro, NIKE Golf, and retail sales across all brands. 
+Product Research and Development 
+We believe that 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 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, 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 and concepts for product improvement. Employee athletes and other athletes wear-test and evaluate products during the design and development process. 
+Manufacturing 
+Virtually all
+of our footwear is produced outside of the United States. In fiscal 2008, contract suppliers in China, Vietnam, Indonesia and Thailand manufactured 36 percent, 33 percent, 21 percent and 9 percent of total NIKE brand footwear, respectively. We also
+have manufacturing agreements with independent factories in Argentina, Brazil, India, Italy, and South Africa to manufacture footwear for sale primarily within those countries. Our largest single footwear factory accounted for approximately 6
+percent of total fiscal 2008 footwear production. 
+Almost all of NIKE brand apparel production was manufactured outside of the United
+States by independent contract manufacturers located in 34 countries. Most of this apparel production occurred in China, Thailand, Indonesia, Malaysia, Vietnam, Turkey, Sri Lanka, Honduras, Mexico, Taiwan, Israel, Cambodia, India and Bangladesh. Our
+largest single apparel factory accounted for approximately 8 percent of total fiscal 2008 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. NIKE IHM, Inc., and NIKE (Suzhou) Sports Company,
+Ltd., both wholly-owned subsidiaries of NIKE, and independent contractors in China and Taiwan, are our largest suppliers of the Air-Sole cushioning components used in footwear. The principal materials used in our apparel products are natural and
+synthetic 
+5 
+Table of Contents 
+fabrics and threads, plastic and metal hardware, and specialized performance fabrics designed to repel rain, retain heat, or efficiently transport body
+moisture. NIKE’s contractors and suppliers buy raw materials in bulk. Most raw materials are available 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, has performed significant
+import-export financing services for us. During fiscal 2008, Sojitz America provided financing and purchasing services for NIKE Brand products sold in Argentina, Uruguay, Canada, Chile, Brazil, India, Indonesia, The Philippines, Malaysia, South
+Africa, China, Korea, and Thailand excluding products produced and sold in the same country. Approximately 14 percent 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 outside of the United States, Europe, Middle East, Africa and Japan. 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 in 2011. 
+International Operations and Trade 
+Our international operations and sources of supply are subject to the usual risks of doing business abroad, such as possible revaluation of currencies,
+export duties, anti-dumping duties, 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 developments occurring. 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 outside
+of the United States. 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 that we could
+abate any such disruption within a period of no more than 12 months, and that much of the adverse impact on supply would, therefore, be of a short-term nature. We believe that our principal competitors are subject to similar risks. 
+All of our products manufactured overseas and imported into the United States, the European Union (“EU”) and other countries are subject to
+customs duties collected by customs authorities. Customs information submitted by us is routinely subject to review by customs authorities. We are unable to predict whether additional customs duties, anti-dumping duties, quotas, safeguard measures,
+or other trade restrictions may be imposed on the importation of our products in the future. Such actions could result in increases in the cost of our products generally which might adversely affect the sales or profitability of NIKE and the
+imported footwear and apparel industry as a whole. Accordingly, we are actively monitoring the developments described below. 
+Footwear
+Imports into the European Union 
+From 1994 through January 1, 2005, the EU imposed limits (or “quotas”) on the import of
+certain types of footwear manufactured in China. Footwear designed for use in sporting activities, meeting certain technical criteria and having a CIF (cost, insurance and freight) price above nine euros (“Special Technology Athletic
+Footwear” or “STAF”), was excluded from the quotas. As a result of the STAF exclusion, and the amount of quota made available to us, the quotas did not have a material effect on our business. However, as part of China’s 2001
+accession to the World Trade Organization (“WTO”), China entered into an agreement with the EU and other WTO members to abide by a special safeguard arrangement whereby quotas could be imposed on any product sourced in China, including
+footwear, if there was a surge in imports from China into another WTO country, and after a legal proceeding it was determined that such imports were injuring a domestic producer. Additionally, under longstanding WTO rules, all WTO member countries
+reserved the right to impose (1) safeguard measures (temporary quotas) if it can be demonstrated in a legal proceeding that increased imports 
+6 
+Table of Contents 
+are injuring another WTO member’s domestic industry; and (2) anti-dumping measures if it can be demonstrated in a legal proceeding that imports are
+being sold at an unfair low price in another WTO member’s home market, and those imports were causing or threatening to cause material injury to the domestic industry. 
+Accordingly, with the phase-out of the quotas at the beginning of 2005, and the expiration of a separate EU anti-dumping case in 2003 against footwear
+made in China, Indonesia, and Thailand, there has been renewed pressure from some parts of the EU footwear manufacturing sector to re-impose some level of trade protection on imported footwear from China, India, Vietnam, and other exporting
+countries. In July 2005, the European Commission (“EC”), at the request of the European domestic footwear industry, initiated investigations into leather footwear imported from China and Vietnam. NIKE and all other major athletic footwear
+manufacturers participated actively as respondents in this investigation and took the position that athletic footwear (i) should not be within the product scope of the investigation, and (ii) does not meet the legal requirements of injury
+and price in an anti-dumping investigation. Our arguments were successful and the EU agreed in October 2006 on definitive duties of 16.5% for China and 10% for Vietnam, but excluded STAF from the measures, and also agreed to implement the duties for
+two years rather than the normal five-year period. As a result, these measures did not significantly impact our business and we believe that our major competitors stand in much the same position regarding these trade measures. 
+We understand that since the anti-dumping duties on non-STAF leather footwear imposed in 2006 will expire on October 8, 2008 the EU domestic
+footwear industry has requested that the EC initiate a review of those measures. The EC will scrutinize the request closely, and make a decision by early October 2008 whether to initiate a review, and if so, the scope of that review. If the EC
+conducts a review, the current definitive anti-dumping duties will remain in force for an additional 15 months until the conclusion of the review in late 2009 or early 2010. It is also possible that the EC could initiate a so-called
+“interim” review of the anti-dumping measures, in which case the EC may review the scope of the STAF exemption and the level of the duties, among other things. 
+Trade Relations with China 
+China represents an important sourcing and marketing country for us. Many
+governments around the world are concerned about China’s growing and fast-paced economy, compliance with WTO rules, currency valuation, and high trade deficits. As a result there is a wide range of legislative proposals that have been
+introduced to address these concerns. While some of these concerns are justified, we are working with broad coalitions of global businesses and trade associations representing a wide variety of sectors (e.g. services, manufacturing, agriculture) to
+help ensure that any legislation enacted and implemented (i) addresses legitimate and core concerns, (ii) is consistent with international trade rules, and (iii) is reflective and considerate of China’s domestic economy and
+important role in the global economic community. We believe that our major competitors as well as most other multi-national companies stand in much the same position regarding these trade measures. 
+Competition 
+The athletic
+footwear, apparel and equipment industry is keenly competitive in the United States and on a worldwide basis. We compete internationally with an increasing number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports
+equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel and equipment, including Adidas, Puma, and 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 and athletic apparel in the world. Performance and reliability of shoes, apparel, and equipment, new product development, price, product identity through marketing and promotion, and customer support and
+service are important aspects of competition in the athletic footwear, apparel and equipment industry. To help market our products, we contract with prominent and influential 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 are competitive in all of these areas. 
+7 
+Table of Contents 
+Trademarks and Patents 
+We utilize trademarks on nearly all of our products and believe that having distinctive marks that
+are readily identifiable is an important factor in creating a market for our goods, in identifying 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 over 100 countries. In addition, we own many
+other trademarks that we utilize in marketing our products. We continue to vigorously protect our trademarks against infringement. 
+NIKE has an exclusive, worldwide license to make and sell footwear using patented “Air”
+technology. The process utilizes pressurized gas encapsulated in polyurethane. Some of the early NIKE AIR ® patents have expired, which may enable competitors to use certain types of similar
+technology. Subsequent NIKE AIR ® patents will not expire for several years. We also have hundreds of U.S. and foreign utility patents, and thousands of U.S. and foreign design patents
+covering components and features used in various athletic and leisure shoes, apparel, and equipment. These patents expire at various times, and patents issued for applications filed this year will have a remaining duration of from now to 2022 for
+design patents, and from now to 2028 for utility patents. We believe that our success 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 filing applications for United States and foreign patents on inventions, designs and improvements that we deem valuable. 
+Employees 
+We had approximately 32,500 employees at May 31, 2008. Management considers its relationship with employees to be
+excellent. None of our employees is represented by a union, with the exception of 23 employees in Mexico, the collective bargaining agreement for which expires in 2009. Also, in some countries outside of the United States, local laws require
+representation for employees by works councils (such as in the EU, in which they are entitled to information and consultation on certain Company decisions) or other representation by an organization similar to a union, although collective bargaining
+agreements are not involved. There has never been a material interruption of operations due to labor disagreements. 
+Executive
+Officers of the Registrant 
+The executive officers of NIKE as of July 25, 2008 are as follows: 
+Philip H. Knight, Chairman of the Board — Mr. Knight, 70, a director since 1968, is a co-founder of NIKE and, except for the period from
+June 1983 through September 1984, served as its President from 1968 to 1990, and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an
+Assistant Professor of Business Administration at Portland State University. 
+Mark G. Parker, Chief Executive Officer and President
+— Mr. Parker, 52, was appointed CEO and President in January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was
+appointed divisional Vice President in charge of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. 
+David J. Ayre, Vice President, Global Human Resources — Mr. Ayre, 48, joined NIKE as Vice President, Global Human Resources in July
+2007. Prior to joining NIKE, he held a number of senior human resource positions with Pepsico, Inc. since 1990, most recently as head of Talent and Performance Rewards. 
+Lewis L. Bird III, President, Affliates — Mr. Bird, 44, joined NIKE in July 2006 as President, Affiliates, which currently includes the businesses of Cole Haan, Converse, Hurley, and Umbro. Prior to
+joining NIKE, he held a number of management positions within multinational companies with diverse brand portfolios. He was 
+8 
+Table of Contents 
+Executive Vice President of New Business Development for Gap Inc. from September 2005 to March 2006. Prior to that, Mr. Bird served as Chief Operating
+Officer of Gap Inc.’s North American division from March 2003 to September 2005, Chief Financial Officer of Gap Inc.’s Old Navy division from 2001 to 2003, Vice President Finance & Operations of Gateway, Inc. from 1999 to
+2001, Director of Business Analysis & Planning at AlliedSignal Inc. from 1998 to 1999, and prior to that held financial management positions with AlliedSignal, Ford Motor Company and BayBanks, Inc. 
+Donald W. Blair, Vice President and Chief Financial Officer — Mr. Blair, 50, joined NIKE in November 1999. Prior to joining NIKE, he
+held a number of financial management positions with Pepsico, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice President, Planning of PepsiCo’s Pizza Hut Division, and Senior Vice President, Finance of The Pepsi Bottling Group,
+Inc. Prior to joining Pepsico, Mr. Blair was a certified public accountant with Deloitte, Haskins, and Sells. 
+Charles D. Denson,
+President of the NIKE Brand — Mr. Denson, 52, has been employed by NIKE since 1979. Mr. Denson held several management positions within the Company, including his appointments as Director of USA Apparel Sales in 1994, divisional
+Vice President, U.S. Sales in 1994, divisional Vice President European Sales in 1997, divisional Vice President and General Manager, NIKE Europe in 1998, Vice President and General Manager of NIKE USA in 2000, and President of the NIKE Brand in
+2001. 
+Gary M. DeStefano, President of Global Operations — Mr. DeStefano, 51, has been employed by NIKE since 1982, with
+primary responsibilities in sales and regional administration. Mr. DeStefano was appointed Director of Domestic Sales in 1990, divisional Vice President in charge of domestic sales in 1992, Vice President of Global Sales in 1996, Vice President
+and General Manager of Asia Pacific in 1997, President of USA Operations in 2001 and President of Global Operations in 2006. 
+Trevor
+Edwards, Vice President, Global Brand and Category Management — Mr. Edwards, 45, joined NIKE in 1992. He was appointed Marketing Manager, Strategic Accounts, Foot Locker in 1993, Director of Marketing, the Americas in 1995, Director of
+Marketing, Europe in 1997, Vice President, Marketing for Europe, Middle East and Africa in 1999, and Vice President, U.S. Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in 2002 and Vice
+President, Global Brand and Category Management in 2006. 
+Ronald D. McCray, Vice President, Chief Administrative Officer —
+Mr. McCray, 51, joined NIKE as Vice President, Chief Administrative Officer in August 2007. Prior to joining NIKE, he held a number of positions at Kimberly-Clark Corporation since 1987, most recently as Senior Vice President, Law and
+Government Affairs and Chief Compliance Officer. Mr. McCray is a member of the Council of Foreign Relations. 
+Bernard F.
+Pliska, Vice President, Corporate Controller — Mr. Pliska, 46, joined NIKE as Corporate Controller in 1995. He was appointed Vice President, Corporate Controller in 2003. Prior to NIKE, Mr. Pliska was with Price Waterhouse from
+1984 to 1995. Mr. Pliska is a certified public accountant. 
+John F. Slusher, Vice President, Global Sports Marketing —
+Mr. Slusher, 39, has been employed by NIKE since 1998 with primary responsibilities in global sports marketing. Mr. Slusher was appointed Director of Sports Marketing for the Asia Pacific and Americas regions in 2006, divisional Vice
+President, Asia Pacific & Americas Sports Marketing in September 2007 and Vice President, Global Sports Marketing in November 2007. Prior to joining NIKE, Mr. Slusher was an attorney at the law firm of O’Melveny & Myers
+from 1995 to 1998. 
+Eric D. Sprunk, Vice President, Global Footwear — Mr. Sprunk, 44, joined NIKE in 1993. He was
+appointed Finance Director and General Manager of the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General Manager, NIKE Europe Footwear in 1998, and Vice President & General Manager of the Americas in 2000.
+Mr. Sprunk was appointed corporate Vice President, Global Footwear in 2001. Prior to joining NIKE, Mr. Sprunk was a certified public accountant with Price Waterhouse from 1987 to 1993. 
+9 
+Table of Contents 
+Hans van Alebeek, Vice President, Global Operations & Technology — Mr. van
+Alebeek, 42, joined NIKE as Director of Operations of Europe in 1999, and was appointed Vice President, Operations & Administration in EMEA in 2001, Vice President, Global Operations in 2003, Vice President, Global Operations &
+Technology in 2004, and Corporate Vice President in November 2005. Prior to joining NIKE, Mr. van Alebeek worked for McKinsey & Company as a management consultant, and at N.V. Indivers in business development. 
+Item 1A. 
+Risk Factors 
+Special Note Regarding
+Forward-Looking Statements and Analyst Reports 
+Certain written and oral statements, other than purely historical information,
+including estimates, projections, statements relating to NIKE’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, made or incorporated by reference from time to time by NIKE or
+its representatives in this report, other reports, filings with the Securities and Exchange Commission, or SEC, press releases, conferences, or otherwise, are “forward-looking statements” within the meaning of the Private Securities
+Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or
+achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” or words or phrases
+of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by
+NIKE with the SEC, including Forms 8-K, 10-Q, and 10-K, and include, among others, the following: international, national and local general economic and market conditions; the size and growth of the overall athletic footwear, apparel, and equipment
+markets; intense competition among designers, marketers, distributors and sellers of athletic footwear, apparel, and equipment for consumers and endorsers; demographic changes; changes in consumer preferences; popularity of particular designs,
+categories of products, and sports; seasonal and geographic demand for NIKE products; difficulties in anticipating or forecasting changes in consumer preferences, consumer demand for NIKE products, and the various market factors described above;
+difficulties in implementing, operating, and maintaining NIKE’s increasingly complex information systems and controls, including, without limitation, the systems related to demand and supply planning, and inventory control; interruptions in
+data and communications systems; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that advance “futures” orders may not be indicative of future revenues due to the changing mix of
+futures and at-once orders, currency exchange rate fluctuations, order cancellations, and the fact that a significant portion of our revenue is not derived from futures orders; the ability of NIKE to sustain, manage or forecast its growth and
+inventories; the size, timing and mix of purchases of NIKE’s products; increases in the cost of materials and energy used to manufacture products, new product development and introduction; the ability to secure and protect trademarks, patents,
+and other intellectual property; performance and reliability of products; customer service; adverse publicity; the loss of significant customers or suppliers; dependence on distributors; business disruptions; increased costs of freight and
+transportation to meet delivery deadlines; increases in borrowing costs due to any decline in our debt ratings; changes in business strategy or development plans; general risks associated with doing business outside the United States, including
+without limitation, import duties, tariffs, quotas, political and economic instability, and terrorism; changes in government regulations; liability and other claims asserted against NIKE; the ability to attract and retain qualified personnel; and
+other factors referenced or incorporated by reference in this report and other reports. 
+The risks included here are not exhaustive. Other
+sections of this report may include additional factors which could adversely affect NIKE’s business and financial performance. Moreover, NIKE operates in a very competitive and rapidly changing environment. New risk factors emerge from time to
+time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on NIKE’s business or the extent to which any factor, or combination of factors, may cause actual results to
+differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. 
+10 
+Table of Contents 
+Our products face intense competition. 
+NIKE is a consumer products company and the relative popularity of various sports and fitness activities and changing design trends affect the demand for
+our products. The athletic footwear, apparel and equipment industry is keenly competitive in the United States and on a worldwide basis. We compete internationally with an increasing number of athletic and leisure shoe companies, athletic and
+leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel and equipment. We also compete with other companies for the production capacity of independent manufacturers
+that produce our products and for import quota capacity. 
+Our competitors’ product offerings, technologies, marketing expenditures
+(including for advertising and endorsements), pricing, costs of production, and customer service are areas of intense competition. This, in addition to 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. If we do not adequately and timely anticipate and respond to our competitors, our costs may increase or the consumer demand for our products may
+decline significantly. 
+If we are unable to anticipate consumer preferences and develop new products, we may not be able to maintain or increase our
+net revenues and profits. 
+Our success depends on our ability to identify, originate and define product trends as well as to
+anticipate, gauge and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. Our new products may not receive consumer acceptance as consumer
+preferences could shift rapidly to different types of performance or other sports apparel or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes. If we fail
+to anticipate accurately and respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, designs, styles and categories, and influencing sports and fitness preferences through
+aggressive marketing, we could experience lower sales, excess inventories and lower profit margins, any of which could have an adverse effect on our results of operations and financial condition. 
+We rely on technical innovation and high quality products to compete in the market for our products. 
+Although design and aesthetics of our products appear to be the most important factor for consumer acceptance of our products, technical innovation and
+quality control in the design of footwear, apparel, and athletic equipment is also essential to the commercial success of our products. Research and development plays a key role in technical innovation. We rely upon specialists in the fields of
+biomechanics, exercise physiology, engineering, industrial design and related fields, as well as research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists and other experts to
+develop and test cutting edge performance products. While we strive to produce products that help to reduce injury, enhance athletic performance and maximize comfort, if we fail to introduce technical innovation in our products the consumer demand
+for our products could decline, and if we experience problems with the quality of our products, we may incur substantial expense to remedy the problems. 
+Failure to continue to obtain high quality endorsers of our products could harm our business. 
+We establish
+relationships with professional athletes and sports teams and leagues to evaluate and promote our products, and establish the authenticity of our products with consumers. If certain of our endorsers were to stop using our products contrary to their
+endorsement agreements, our business could be adversely affected. In addition, actions taken by athletes, teams or leagues associated with our products that harm the reputations of those athletes, teams or leagues could also harm our brand image
+with consumers and, as a result, could have an adverse effect on our sales and financial condition. In addition, poor performance by our endorsers, a failure to continue to correctly identify promising athletes to use and endorse our products, or a
+failure to enter into cost effective endorsement arrangements with prominent athletes and sports organizations could adversely affect our brand and result in decreased sales of our products. 
+11 
+Table of Contents 
+Failure of our contractors to comply with our code of conduct, local laws, and other standards could harm our
+business. 
+We contract with hundreds of contractors outside of the United States to manufacture NIKE Brand products, and we impose
+on those contractors a code of conduct and other environmental, health, and safety standards for the benefit of workers. However, from time to time contractors may not be in compliance with such standards or applicable local law. Significant or
+continuing noncompliance with such standards and laws by one or more contractors could harm our reputation and, as a result, could have an adverse effect on our sales and financial condition. 
+Our business is affected by seasonality, which could result in fluctuations in our operating results and stock price. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have
+slightly exceeded those in the second and third fiscal quarters. However, the mix of product sales may vary considerably from time to time as a result of changes in seasonal and geographic demand for particular types of footwear, apparel and
+equipment. In addition, our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice. As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our results of
+operations are likely to fluctuate significantly from period to period. This seasonality, along with other factors that are beyond our control, including general economic conditions, changes in consumer preferences, weather conditions, availability
+of import quotas and currency exchange rate fluctuations, could adversely affect our business and cause our results of operations to fluctuate. Our operating margins are also sensitive to a number of factors that are beyond our control, including
+shifts in product sales mix, geographic sales trends, and currency exchange rate fluctuations, all of which we expect to continue. Results of operations in any period should not be considered indicative of the results to be expected for any future
+period. 
+“Futures” orders may not be an accurate indication of our future revenues. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in advance of delivery with the
+commitment that 90 percent of their orders will be delivered within a set period at a fixed price. Our futures ordering program allows us to minimize the amount of products we hold in inventory, purchasing costs, the time necessary to fill customer
+orders, and the risk of non-delivery. We report changes in futures orders in our periodic financial reports. Although we believe futures orders are an important indicator of our future revenues, reported futures orders are not necessarily indicative
+of our expectation of changes in revenues for any future period. This is because the mix of orders can shift between advance/futures and at-once orders. In addition, foreign currency exchange rate fluctuations, order cancellations, returns, 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 close-out sales of NIKE footwear and apparel,
+wholesale sales of equipment, Cole Haan, Converse, Exeter Brands Group, Hurley, NIKE Bauer Hockey, NIKE Golf, and retail sales across all brands. 
+Our “futures” ordering program does not prevent excess inventories or inventory shortages, which could result in decreased operating margins and harm to our business. 
+We purchase products from manufacturers outside of our futures ordering program and in advance of customer orders, which we hold in inventory and re-sell
+to customers. There is a risk that we may be unable to sell excess products that we have ordered from manufacturers. Inventory levels in excess of customer demand may result in inventory write-downs, and the sale of excess inventory at discounted
+prices could significantly impair our brand image and have an adverse effect on our operating results and financial condition. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply the products that
+we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer and distributor relationships, and diminish brand loyalty. 
+12 
+Table of Contents 
+The difficulty in forecasting demand also makes it difficult to estimate our future results of operations
+and financial condition from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in advance.
+We may be adversely affected by the financial health of our retailers. 
+We extend credit to our customers based on an assessment of a customer’s financial condition, generally without requiring collateral. To assist in
+the scheduling of production and the shipping of seasonal products, we offer customers the ability to place orders five to six months ahead of delivery under our “futures” ordering program. These advance orders may be cancelled, and the
+risk of cancellation may increase when dealing with financially ailing retailers or retailers struggling with economic uncertainty. In the past, some customers have experienced financial difficulties, which in turn have had an adverse effect on our
+business. From time to time retailers will be more cautious than usual with orders as a result of weakness in the retail economy. A slowing economy in our key markets could have an adverse effect on the financial health of our customers, which could
+in turn have an adverse effect on our results of operations and financial condition. In addition, sales of our products depend in part on high quality merchandising and an appealing store environment to attract consumers, which requires continuing
+investments by retailers. Retailers who experience financial difficulties may fail to make such investments or delay them, resulting in reduced sales of and orders for our products. 
+Consolidation of retailers or concentration of retail market share among a few retailers may increase and concentrate our credit risk, and impair our ability to sell our products. 
+The athletic footwear, apparel, and equipment retail markets in some countries are dominated by a few large athletic footwear, apparel, and equipment
+retailers with many stores. These significant retailers have been increasing their market share by expanding through acquisitions and construction of additional stores. These situations concentrate our credit risk in a relatively small number of
+retailers, and, if any of these retailers were to experience a shortage of liquidity, it would increase the risk that their outstanding payables to us may not be paid. In addition, increasing market share concentration among one or a few retailers
+in a particular country or region increases the risk that if any one of them substantially reduces their purchases of our products, we may be unable to find a sufficient number of other retail outlets for our products to sustain the same level of
+sales and revenues. 
+Failure to adequately protect our intellectual property rights could adversely affect our business. 
+We utilize trademarks on nearly all of our products and believe that having distinctive marks that
+are readily identifiable is an important factor in creating a market for our goods, in identifying us, 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 over 100 countries. In addition, we own many other trademarks that we utilize in
+marketing our products. We believe that our trademarks, patents, and other intellectual property rights are important to our brand, our success and our competitive position. We periodically discover products that are counterfeit reproductions of our
+products or that otherwise infringe on our intellectual property rights. If we are unsuccessful in challenging a party’s products on the basis of trademark or design or utility patent infringement, continued sales of these products could
+adversely affect our sales and our brand and result in the shift of consumer preference away from our products. The actions we take to establish and protect trademarks, patents, and other intellectual property rights may not be adequate to prevent
+imitation of our products by others or to prevent others from seeking to block sales of our products as violations of proprietary rights. 
+In addition, the laws of certain foreign countries may not protect intellectual property rights to the same extent as do the laws of the United States. We may face significant expenses and liability in connection with the protection of our
+intellectual property rights outside the United States, and if we are unable to successfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition may be adversely affected. 
+13 
+Table of Contents 
+We are subject to periodic litigation and other regulatory proceedings, which could result in unexpected expense of
+time and resources. 
+We are a defendant from time to time in lawsuits and regulatory actions relating to our business. Due to the
+inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on our business, financial condition and results of
+operations. In addition, any significant litigation in the future, regardless of its merits, could divert management’s attention from our operations and result in substantial legal fees. 
+Our international operations involve inherent risks which could result in harm to our business. 
+Virtually all of our athletic footwear and apparel is manufactured outside of the United States, and the majority of our products are sold outside of the
+United States. Accordingly, we are subject to the risks generally associated with global trade and doing business abroad, which include foreign laws and regulations, varying consumer preferences across geographic regions, political unrest,
+disruptions or delays in cross-border shipments and changes in economic conditions in countries in which we manufacture or sell products. In addition, disease outbreaks, terrorist acts and military conflict have increased the risks of doing business
+abroad. These factors, among others, could affect our ability to manufacture products or procure materials, our ability to import products, our ability to sell products in international markets, and our cost of doing business. If any of these or
+other factors make the conduct of business in a particular country undesirable or impractical, our business could be adversely affected. In addition, many of our imported products are subject to duties, tariffs or quotas that affect the cost and
+quantity of various types of goods imported into the United States and other countries. Any country in which our products are produced or sold may eliminate, adjust or impose new quotas, duties, tariffs, safeguard measures, anti-dumping duties,
+cargo restrictions to prevent terrorism, restrictions on the transfer of currency, or other charges or restrictions, any of which could have an adverse effect on our results of operations and financial condition. 
+Currency exchange rate fluctuations could result in higher costs and decreased margins. 
+A majority of our products are sold outside of the United States. As a result, we conduct transactions in various currencies, which increases our exposure
+to fluctuations in foreign currency exchange rates relative to the U.S. dollar. Our international revenues and expenses generally are derived from sales and operations in foreign currencies, and these revenues and expenses could be affected by
+currency fluctuations, including amounts recorded in foreign currencies and translated into U.S. dollars for consolidated financial reporting. Currency exchange rate fluctuations could also disrupt the business of the independent manufacturers that
+produce our products by making their purchases of raw materials more expensive and more difficult to finance. Foreign currency fluctuations could have an adverse effect on our results of operations and financial condition. 
+We engage in hedging activities to mitigate the impact of foreign currencies on our financial results. See Note 16 to our financial statements, Risk
+Management and Derivatives. Our hedging activities are designed to reduce and delay, but not to completely eliminate, the effects of foreign currency fluctuations. Factors that could affect the effectiveness of our hedging activities include
+accuracy of sales forecasts, volatility of currency markets, and the availability of hedging instruments. Since the hedging activities are designed to reduce volatility, they not only reduce the negative impact of a stronger U.S. dollar, but they
+also reduce the positive impact of a weaker U.S. dollar. Our future financial results could be significantly affected by the value of the U.S. dollar in relation to the foreign currencies in which we conduct business. The degree to which our
+financial results are affected for any given time period will depend in part upon our hedging activities. 
+Our products are subject to risks
+associated with overseas sourcing, manufacturing, and financing. 
+The principal materials used in our apparel products —
+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 — are available in countries where our manufacturing takes
+place. The principal materials used in 
+14 
+Table of Contents 
+our footwear products — natural and synthetic rubber, plastic compounds, foam cushioning materials, nylon, leather, canvas and polyurethane films —
+are also locally available to manufacturers. NIKE contractors and suppliers buy raw materials in bulk. 
+There could be a significant
+disruption in the supply of fabrics or raw materials from current sources or, in the event of a disruption, we might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price, or at all. In addition, we
+cannot be certain that our unaffiliated manufacturers will be able to fill our orders in a timely manner. If we experience significant increases in demand, or need to replace an existing manufacturer, there can be no assurance that additional
+supplies of fabrics or raw materials or additional manufacturing capacity will be available when required on terms that are acceptable to us, or at all, or that any supplier or manufacturer would allocate sufficient capacity to us in order to meet
+our requirements. In addition, even if we are able to expand existing or find new manufacturing or sources of materials, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers
+in our methods, products, quality control standards, and labor, health and safety standards. Any delays, interruption or increased costs in the supply of materials or manufacture of our products could have an adverse effect on our ability to meet
+retail customer and consumer demand for our products and result in lower revenues and net income both in the short and long term. 
+Because
+independent manufacturers manufacture a majority of our products outside of our principal sales markets, our products must be transported by third parties over large geographic distances. Delays in the shipment or delivery of our products due to the
+availability of transportation, work stoppages, port strikes, infrastructure congestion, or other factors, and costs and delays associated with transitioning between manufacturers, could adversely impact our financial performance. In addition,
+manufacturing delays or unexpected demand for our products may require us to use faster, but more expensive, transportation methods such as aircraft, which could adversely affect our profit margins. The cost of fuel is a significant component in
+manufacturing and transportation costs, so increases in the price of petroleum products can adversely affect our profit margins. 
+In
+addition, Sojitz America performs significant import-export financing services for most of the NIKE brand products sold outside of the United States, Europe, Middle East, Africa and Japan, excluding products produced and sold in the same country.
+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 outside of the United States, Europe,
+Middle East, Africa, and Japan. Such a disruption could result in cancelled orders that would adversely affect sales and profitability. 
+Our success
+depends on our global distribution facilities. 
+We distribute our products to customers directly from the factory and through
+distribution centers located throughout the world. Our ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies depends on the proper operation of our distribution facilities, the
+development or expansion of additional distribution capabilities, and the timely performance of services by third parties (including those involved in shipping product to and from our distribution facilities). Our distribution facilities could be
+interrupted by information technology problems and disasters such as earthquakes or fires. Any significant failure in our distribution facilities could result in an adverse affect on our business. We maintain business interruption insurance, but it
+may not adequately protect us from any adverse effects that could be caused by significant disruptions in our distribution facilities. 
+We rely
+significantly on information technology in our supply chain, and any failure, inadequacy, interruption or security failure of that technology could harm our ability to effectively operate our business. 
+We are heavily dependent on information technology systems across our supply chain, including for design, production, forecasting, ordering,
+manufacturing, transportation, sales, and distribution. Our ability to effectively manage and maintain our inventory and to ship products to customers on a timely basis depends significantly on 
+15 
+Table of Contents 
+the reliability of these supply chain systems. Over the last several years, as part of the ongoing initiative to upgrade our worldwide supply chain, we have
+implemented new systems in all of our geographical regions in which we operate. Over the next few years, we will work to continue to enhance the systems and related processes in our global operations. The failure of these systems to operate
+effectively, problems with transitioning to upgraded or replacement systems, or a breach in security of these systems could cause delays in product fulfillment and reduced efficiency of our operations, and it could require significant capital
+investments to remediate the problem, and may have an adverse effect on our results of operations and financial condition. 
+Our financial results may
+be adversely affected if substantial investments in businesses and operations fail to produce expected returns. 
+From time to time,
+we may invest in business infrastructure, acquisitions of new businesses, and expansion of existing businesses, such as our retail operations, which require substantial cash investments and management attention. We believe cost effective investments
+are essential to business growth and profitability. However, significant investments are subject to typical risks and uncertainties inherent in acquiring or expanding a business. The failure if any significant investment to provide the returns or
+profitability that we expect could have a material adverse effect on our financial results and divert management attention from more profitable business operations. 
+We depend on key personnel, the loss of whom would harm our business. 
+Our future success will
+depend in part on the continued service of key executive officers and personnel. The loss of the services of any key individuals could harm us. Our future success also depends on our ability to identify, attract and retain additional qualified
+personnel. Competition for employees in our industry is intense and we may not be successful in attracting and retaining such personnel. 
+The sale of
+a large number of shares held by our Chairman could depress the market price of our common stock. 
+Philip H. Knight, Co-founder and
+Chairman of our Board of Directors, beneficially owns over 90 percent of our Class A Common Stock. If all of his Class A Common Stock were converted into Class B Common Stock, Mr. Knight would own over 18 percent of our Class B Common Stock. These
+shares are available for resale, subject to the requirements of the U.S. securities laws. The sale or prospect of the sale of a substantial number of these shares could have an adverse effect on the market price of our common stock. 
+Anti-takeover provisions may impair an acquisition of the company or reduce the price of our common stock. 
+There are provisions of our articles of incorporation and Oregon law that are intended to protect shareholder interests by providing the Board of
+Directors a means to attempt to deny coercive takeover attempts or to negotiate with a potential acquirer in order to obtain more favorable terms. Such provisions include a control share acquisition statute, a freezeout statute, two classes of stock
+that vote separately on certain issues, and the fact that the holders of Class A Common Stock shares elect three-fourths of the Board of Directors rounded down to the next whole number. However, such provisions could discourage, delay or prevent an
+unsolicited merger, acquisition or other change in control of our company that some shareholders might believe to be in their best interests, or in which shareholders might receive a premium for their common stock over the prevailing market price.
+These provisions could also discourage proxy contests for control of the Company. 
+We may fail to meet analyst expectations, which could cause the
+price of our stock to decline. 
+Our common stock is traded publicly, and at any given time various securities analysts follow our
+financial results and issue reports on us. These reports include information about our historical financial results as well as the analysts’ estimates of our future performance. The analysts’ estimates are based upon their own opinions and
+16 
+Table of Contents 
+are often different from our estimates or expectations. If our operating results are below the estimates or expectations of public market analysts and
+investors, our stock price could decline. In the past, securities class action litigation has been brought against NIKE and other companies following a decline in the market price of their securities. If our stock price is volatile, we may become
+involved in this type of litigation in the future. Any litigation could result in substantial costs and a diversion of management’s attention and resources that are needed to successfully run our business. 
+Item 1B. Unresolved Staff Comments 
+Not applicable. 
+Item 2. Properties 
+The following is a summary of
+principal properties owned or leased by NIKE. 
+The NIKE World Campus, owned by NIKE and located in Beaverton, Oregon, USA, is a 176 acre
+facility of 17 buildings which functions as our world headquarters and is occupied by almost 6,000 employees engaged in management, research, design, development, marketing, finance, and other administrative functions from nearly all of our
+divisions of the Company. We also lease various office facilities in the surrounding metropolitan area. We lease a similar, but smaller, administrative facility in Hilversum, The Netherlands, which serves as the headquarters for the Europe, Middle
+East and Africa (“EMEA”) Region. 
+There are three significant distribution and customer service facilities for NIKE brand
+products in the United States. Two of them are located in Memphis, Tennessee, one of which is leased, and one is located in Wilsonville, Oregon, which is also leased. Cole Haan also operates a distribution facility in Greenland, New Hampshire, which
+is owned by us. Smaller leased distribution facilities for other brands and non-NIKE brand businesses are located in various parts of the United States. We also own or lease distribution and customer service facilities in many parts of the world,
+the most significant of which are the distribution facilities located in Tomisatomachi, Japan, and in Laakdal, Belgium, both of which we own. 
+We manufacture NIKE AIR-SOLE cushioning materials and components at NIKE IHM, Inc. manufacturing facilities located in Beaverton, Oregon and St. Charles, Missouri, which are owned by us, and at NIKE (Suzhou) Sports Company, Ltd., facilities
+in the People’s Republic of China, which are owned by us. 
+Aside from the principal properties described above, we lease 6 production
+offices outside the United States, over 100 sales offices and showrooms worldwide, and over 70 administrative offices worldwide. We lease approximately 556 retail stores worldwide, which consist primarily of factory outlet stores. See
+“United States Market” and “International Markets” on page 4 of this Report. Our leases expire at various dates through the year 2034. 
+Item 3. Legal Proceedings 
+There are no material
+pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or of which any of our property is the subject. 
+Item 4. Submission of Matters to a Vote of Security Holders 
+No matter was submitted during the fourth quarter of the 2008 fiscal year to a vote of security holders, through the solicitation of proxies or otherwise.
+17 
+Table of Contents 
+PART II 
+Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+NIKE’s Class B Common Stock is listed on the New York Stock Exchange and trades under the symbol NKE. At July 25, 2008, there were 16,542
+holders of record of our Class B Common Stock and 21 holders of record of our Class A Common Stock. These figures do not include beneficial owners who hold shares in nominee name. The Class A Common Stock is not publicly traded but
+each share is convertible upon request of the holder into one share of Class B Common Stock. The following tables set forth, for each of the quarterly periods indicated, the high and low sales prices for the Class B Common Stock as reported on
+the New York Stock Exchange Composite Tape and dividends declared on the Class A and Class B Common Stock. 
+Fiscal 2008 (June 1, 2007 — May 31, 2008) 
+High 
+Low 
+Dividends 
+Declared 
+First Quarter 
+$ 
+60.35 
+$ 
+51.87 
+$ 
+0.185 
+Second Quarter 
+66.57 
+54.15 
+0.23 
+Third Quarter 
+67.93 
+51.50 
+0.23 
+Fourth Quarter 
+70.60 
+56.70 
+0.23 
+Fiscal 2007 (June 1, 2006 — May 31, 2007) 
+High 
+Low 
+Dividends 
+Declared 
+First Quarter 
+$ 
+42.49 
+$ 
+37.76 
+$ 
+0.155 
+Second Quarter 
+49.65 
+39.93 
+0.185 
+Third Quarter 
+54.45 
+47.40 
+0.185 
+Fourth Quarter 
+57.12 
+51.09 
+0.185 
+The following table presents a summary of share repurchases made by NIKE during the quarter ended
+May 31, 2008 under the four-year $3.0 billion share repurchase program authorized by our Board of Directors and announced in June 2006. 
+Period 
+Total Number of 
+Shares Purchased 
+Average Price 
+Paid per 
+Share 
+Total Number of Shares 
+Purchased as Part of 
+Publicly Announced 
+Plans or Programs 
+Maximum Dollar 
+Value of Shares that
+May 
+Yet Be Purchased 
+Under the Plans or Programs 
+(In thousands) 
+(In thousands) 
+(In millions) 
+March 1 — March 31, 2008 
+1,744.0 
+$ 
+62.01 
+1,744.0 
+$ 
+1,121.0 
+April 1 — April 30, 2008 
+1,641.3 
+$ 
+67.57 
+1,641.3 
+1,010.1 
+May 1 — May 31, 2008 
+1,062.3 
+$ 
+66.76 
+1,062.3 
+939.2 
+4,447.6 
+$ 
+65.20 
+4,447.6 
+18 
+Table of Contents 
+Performance Graph 
+The following graph demonstrates a five-year comparison of cumulative total returns for NIKE’s Class B Common Stock, the Standard & Poor’s 500 Stock Index, the Standard & Poor’s
+Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. The graph assumes an investment of $100 on May 31, 2003 in each of our Class B Common Stock, and the stocks comprising the Standard &
+Poor’s 500 Stock Index, the Standard & Poor’s Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. Each of the indices assumes that all dividends were reinvested. 
+COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG NIKE, INC., S&P 500 
+INDEX, S&P APPAREL, ACCESSORIES & LUXURY GOODS INDEX, 
+AND THE
+DOW JONES U.S. FOOTWEAR INDEX 
+The Dow Jones U.S. Footwear Index consists of NIKE, Deckers Outdoor Corp., Timberland Co., Wolverine World
+Wide, Inc., and Crocs, Inc. Because NIKE is part of the Dow Jones U.S. Footwear Index, the price and returns of NIKE stock have a substantial effect on this index. The Standard & Poor’s Apparel, Accessories & Luxury Goods
+Index consists of Liz Claiborne Inc., VF Corp., Coach, Inc., Jones Apparel Group, Inc. and Polo Ralph Lauren Corporation. The Dow Jones U.S. Footwear Index and the Standard & Poor’s Apparel, Accessories, and Luxury Goods Index include
+companies in two major lines of business in which the Company competes. The indices do not encompass all of the Company’s competitors, nor all product categories and lines of business in which the Company is engaged. 
+The stock performance shown on the performance graph above is not necessarily indicative of future performance. The Company will not make nor endorse any
+predictions as to future stock performance. 
+19 
+Table of Contents 
+Item 6. Selected Financial Data 
+Financial History 
+2008 
+2007 
+2006 
+2005 
+2004 
+(In millions, except per share data and financial ratios) (1) 
+Year Ended May 31, 
+Revenues 
+$ 
+18,627.0 
+$ 
+16,325.9 
+$ 
+14,954.9 
+$ 
+13,739.7 
+$ 
+12,253.1 
+Gross margin 
+8,387.4 
+7,160.5 
+6,587.0 
+6,115.4 
+5,251.7 
+Gross margin % 
+45.0 
+% 
+43.9 
+% 
+44.0 
+% 
+44.5 
+% 
+42.9 
+% 
+Net income 
+1,883.4 
+1,491.5 
+1,392.0 
+1,211.6 
+945.6 
+Basic earnings per common share 
+3.80 
+2.96 
+2.69 
+2.31 
+1.80 
+Diluted earnings per common share 
+3.74 
+2.93 
+2.64 
+2.24 
+1.75 
+Weighted average common shares outstanding 
+495.6 
+503.8 
+518.0 
+525.2 
+526.4 
+Diluted weighted average common shares outstanding 
+504.1 
+509.9 
+527.6 
+540.6 
+539.4 
+Cash dividends declared per common share 
+0.875 
+0.71 
+0.59 
+0.475 
+0.37 
+Cash flow from operations 
+1,936.3 
+1,878.7 
+1,667.9 
+1,570.7 
+1,518.5 
+Price range of common stock 
+High 
+70.60 
+57.12 
+45.77 
+46.22 
+39.28 
+Low 
+51.50 
+37.76 
+38.27 
+34.31 
+24.80 
+At May 31, 
+Cash and equivalents 
+$ 
+2,133.9 
+$ 
+1,856.7 
+$ 
+954.2 
+$ 
+1,388.1 
+$ 
+828.0 
+Short-term investments 
+642.2 
+990.3 
+1,348.8 
+436.6 
+400.8 
+Inventories 
+2,438.4 
+2,121.9 
+2,076.7 
+1,811.1 
+1,650.2 
+Working capital 
+5,517.8 
+5,492.5 
+4,733.6 
+4,339.7 
+3,498.1 
+Total assets 
+12,442.7 
+10,688.3 
+9,869.6 
+8,793.6 
+7,908.7 
+Long-term debt 
+441.1 
+409.9 
+410.7 
+687.3 
+682.4 
+Redeemable Preferred Stock 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+Shareholders’ equity 
+7,825.3 
+7,025.4 
+6,285.2 
+5,644.2 
+4,781.7 
+Year-end stock price 
+68.37 
+56.75 
+40.16 
+41.10 
+35.58 
+Market capitalization 
+33,576.5 
+28,472.3 
+20,564.5 
+21,462.3 
+18,724.2 
+Financial Ratios: 
+Return on equity 
+25.4 
+% 
+22.4 
+% 
+23.3 
+% 
+23.2 
+% 
+21.6 
+% 
+Return on assets 
+16.3 
+% 
+14.5 
+% 
+14.9 
+% 
+14.5 
+% 
+12.8 
+% 
+Inventory turns 
+4.5 
+4.4 
+4.3 
+4.4 
+4.4 
+Current ratio at May 31 
+2.7 
+3.1 
+2.8 
+3.2 
+2.7 
+Price/Earnings ratio at May 31 
+18.3 
+19.4 
+15.2 
+18.3 
+20.3 
+(1) 
+All share and per share information has been restated to reflect the two-for-one stock split effected in the form of a
+100% common stock dividend distributed on April 2, 2007. 
+20 
+Table of Contents 
+Selected Quarterly Financial Data 
+1st Quarter 
+2nd Quarter 
+3rd Quarter 
+4th Quarter 
+2008 
+2007 
+2008 
+2007 
+2008 
+2007 
+2008 
+2007 
+(Unaudited) 
+(In millions, except per share data) (1) 
+Revenues 
+$ 
+4,655.1 
+$ 
+4,194.1 
+$ 
+4,339.5 
+$ 
+3,821.7 
+$ 
+4,544.4 
+$ 
+3,926.9 
+$ 
+5,088.0 
+$ 
+4,383.2 
+Gross margin 
+2,087.0 
+1,849.2 
+1,921.1 
+1,657.1 
+2,047.9 
+1,735.2 
+2,331.4 
+1,919.0 
+Gross margin % 
+44.8 
+% 
+44.1 
+% 
+44.3 
+% 
+43.4 
+% 
+45.1 
+% 
+44.2 
+% 
+45.8 
+% 
+43.8 
+% 
+Net income 
+569.7 
+377.2 
+359.4 
+325.6 
+463.8 
+350.8 
+490.5 
+437.9 
+Basic earnings per common share 
+1.14 
+0.75 
+0.72 
+0.65 
+0.94 
+0.69 
+1.00 
+0.87 
+Diluted earnings per common share 
+1.12 
+0.74 
+0.71 
+0.64 
+0.92 
+0.68 
+0.98 
+0.86 
+Weighted average common shares outstanding 
+499.4 
+505.4 
+497.6 
+502.4 
+493.9 
+504.5 
+491.4 
+502.8 
+Diluted weighted average common shares outstanding 
+507.3 
+512.0 
+506.2 
+507.3 
+502.5 
+510.8 
+500.1 
+510.2 
+Cash dividends declared per common share 
+0.185 
+0.155 
+0.23 
+0.185 
+0.23 
+0.185 
+0.23 
+0.185 
+Price range of common stock 
+High 
+60.35 
+42.49 
+66.57 
+49.65 
+67.93 
+54.45 
+70.60 
+57.12 
+Low 
+51.87 
+37.76 
+54.15 
+39.93 
+51.50 
+47.40 
+56.70 
+51.09 
+(1) 
+All share and per share information has been restated to reflect the two-for-one stock split affected in the form of a
+100% common stock dividend distributed on April 2, 2007. Basic and diluted earnings per common share for the third quarter ended February 28, 2007 do not recalculate due to rounding. 
+Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
+Overview 
+NIKE designs,
+develops and markets high quality footwear, apparel, equipment and accessory products worldwide. We are the largest seller of athletic footwear and apparel in the world and sell our products primarily through a combination of retail accounts,
+NIKE-owned retail, including stores and e-commerce, and independent distributors, franchisees and licensees in the United States and worldwide. Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded
+footwear, apparel, equipment and accessories businesses. Our strategy is to create long-term revenue growth by creating compelling consumer experiences by creating and delivering innovative, “must have” products; deep personal connections
+with our brands; and compelling retail presentation. 
+We strive to convert revenue growth to shareholder value by driving operating
+excellence in several key areas: 
+• 
+Making our supply chain a competitive advantage, through operational discipline 
+• 
+Reducing product costs through a continued focus on lean manufacturing and product design that strives to eliminate waste 
+• 
+Improving selling and administrative expense productivity by focusing on investments that drive economic returns in the form of incremental revenue and gross
+margin, and leveraging existing infrastructure across our portfolio of brands to eliminate duplicative costs 
+• 
+Improving working capital efficiency 
+• 
+Deploying capital effectively to create value for our shareholders 
+By executing this strategy, we aim to deliver the following long-term financial goals: 
+• 
+High single-digit revenue growth; 
+• 
+Mid-teens earnings per share growth; 
+21 
+Table of Contents 
+• 
+Increased return on invested capital and accelerated cash flows; and 
+• 
+Consistent results through effective management of our diversified portfolio of businesses. 
+In fiscal 2008 we met or exceeded these financial goals. Our revenues grew 14% to $18.6 billion, net income grew 26% to $1.9 billion, and we delivered
+diluted earnings per share of $3.74, a 28% increase versus fiscal 2007. These reported results included combined gains from the sale of our Starter Brand and NIKE Bauer Hockey businesses of $35.4 million, net of tax, in fiscal 2008 and the gain
+recognized on the sale-leaseback of the Oregon Footwear Distribution Center of $10.0 million, net of tax, in fiscal 2007, one-time tax benefits of $105.4 million and $25.5 million recognized in fiscal 2008 and 2007, respectively, operational losses
+of $13.3 million, net of tax, from Umbro, which we acquired in the fourth quarter of fiscal 2008, and a $9.6 million gain, net of tax, from the Converse arbitration ruling settlement in fiscal 2007. We estimate that the combination of favorable
+translation of foreign currency-denominated profits from international businesses and the foreign currency losses included in other (expense) income, net resulted in a year-over-year increase in consolidated income before income taxes of
+approximately 6%. 
+For the year, the increase in net income was higher than our rate of revenue growth due to a reduction in our effective
+tax rate and improved gross margins, partially offset by higher selling and administrative expenses as a percentage of revenue. Fiscal 2008 results were positively affected by a reduction in our effective tax rate of 7.4 percentage points as
+compared to fiscal 2007, primarily as a result of the $105.4 million one-time tax benefit received in the first quarter of fiscal 2008. Also reflected in the year-over-year effective tax rate improvement was a reduction in our ongoing effective tax
+rate resulting from our profits earned outside of the United States; our effective tax rates for these operations are generally lower than the U.S. statutory rate. Gross margins for the year grew 110 basis points versus the prior year as inventory
+management and strategic price increases were partially offset by higher product costs and increased close-out sales. The increase in selling and administrative expenses was attributable to higher investments in growth drivers such as athlete and
+sport team endorsers of our products, spending around major sporting events, key product initiatives, investments in company owned retail and non-NIKE brand businesses as well as normal wage increases. Our earnings per share for the year grew at a
+higher rate than net income given lower outstanding shares due to repurchases made under our share repurchase program. In addition, we increased cash flow from operations and continued to return larger amounts of cash to shareholders through higher
+dividends and increased cash paid for share repurchases. Our return on invested capital increased as compared to fiscal 2007. Although we may not meet all of the financial goals outlined above in any particular fiscal quarter or fiscal year, we
+continue to believe these are appropriate long-term goals. 
+Results of Operations 
+Fiscal 2008 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+(In millions, except per share data) (1) 
+Revenues 
+$ 
+18,627.0 
+$ 
+16,325.9 
+14 
+% 
+$ 
+14,954.9 
+9 
+% 
+Cost of sales 
+10,239.6 
+9,165.4 
+12 
+% 
+8,367.9 
+10 
+% 
+Gross margin 
+8,387.4 
+7,160.5 
+17 
+% 
+6,587.0 
+9 
+% 
+Gross margin % 
+45.0 
+% 
+43.9 
+% 
+44.0 
+% 
+Selling and administrative expense 
+5,953.7 
+5,028.7 
+18 
+% 
+4,477.8 
+12 
+% 
+% of Revenues 
+32.0 
+% 
+30.8 
+% 
+29.9 
+% 
+Income before income taxes 
+2,502.9 
+2,199.9 
+14 
+% 
+2,141.6 
+3 
+% 
+Net income 
+1,883.4 
+1,491.5 
+26 
+% 
+1,392.0 
+7 
+% 
+Diluted earnings per share 
+3.74 
+2.93 
+28 
+% 
+2.64 
+11 
+% 
+(1) 
+All per share information has been restated to reflect the two-for-one stock split affected in the form of a 100% common
+stock dividend distributed on April 2, 2007. 
+22 
+Table of Contents 
+Consolidated Operating Results 
+Revenues 
+Fiscal 2008 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+(In millions) 
+Revenues 
+$ 
+18,627.0 
+$ 
+16,325.9 
+14 
+% 
+$ 
+14,954.9 
+9 
+% 
+Fiscal 2008 Compared to Fiscal 2007 
+During fiscal 2008, changes in foreign currency exchange rates contributed 5 percentage points of consolidated revenue growth. Strong demand for NIKE
+brand products continued to drive revenue growth, as all four of our geographic regions and, on a consolidated basis, all three of our product business units delivered revenue growth. The U.S. Region contributed nearly 2 percentage points of the
+consolidated revenue growth for fiscal 2008. Excluding the effects of changes in currency exchange rates, our international regions contributed nearly 7 percentage points of the consolidated revenue growth for fiscal 2008, as all of our
+international regions posted higher revenues. Our Other businesses, comprised of results from Cole Haan, Converse, Exeter Brands Group (whose primary business was the Starter brand business which was sold on December 17, 2007), Hurley
+International, NIKE Bauer Hockey (which was sold on April 17, 2008), NIKE Golf, and Umbro (which was acquired on March 3, 2008) contributed the remaining consolidated constant-currency revenue growth, as Cole Haan, Converse, Hurley and
+NIKE Golf posted higher year-over-year revenues. 
+By product group, our worldwide NIKE brand footwear revenue grew 14% and contributed more
+than $1.2 billion of incremental revenue for fiscal 2008. Our worldwide NIKE branded apparel and equipment businesses reported revenue growth of 14% and 10% for the year, respectively, and combined added approximately $750 million of incremental
+revenue. Our Other Businesses reported revenue growth of 15% and combined added more than $330 million of incremental revenue. 
+Fiscal
+2007 Compared to Fiscal 2006 
+During fiscal 2007, changes in foreign currency exchange rates contributed 2 percentage points of
+consolidated revenue growth. All four of our geographic regions and, on a consolidated basis, all three of our product business units delivered revenue growth. Excluding the effects of changes in currency exchange rates, both the U.S. Region and our
+international regions each contributed more than 2.5 percentage points to the consolidated revenue growth for fiscal 2007. Sales in our Other businesses contributed the remaining 2 percentage points of the consolidated constant-currency revenue
+growth, as each business within the group posted higher revenues. 
+By product group, our worldwide NIKE brand footwear revenue grew 7% and
+contributed nearly $550 million of incremental revenue for fiscal 2007. Our worldwide NIKE branded apparel and equipment businesses reported revenue growth of 10% and 12% for the year, respectively, and combined added more than $500 million of
+incremental revenue. 
+Gross Margin 
+Fiscal 2008 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+Change 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+Change 
+(In millions) 
+Gross Margin 
+$ 
+8,387.4 
+$ 
+7,160.5 
+17% 
+$ 
+6,587.0 
+9% 
+Gross Margin % 
+45.0 
+% 
+43.9 
+% 
+110 bps 
+44.0 
+% 
+(10)bps 
+23 
+Table of Contents 
+Fiscal 2008 Compared to Fiscal 2007 
+During fiscal 2008, the primary factors contributing to the 110 basis point increase in the consolidated gross margin percentage versus the prior year
+were as follows: 
+(1) 
+Higher footwear in-line gross pricing margins, most notably in the U.S. Region, primarily due to strategic price increases; 
+(2) 
+Improved hedge rates relative to the prior year, primarily in the Europe, Middle East and Africa (“EMEA”) Region; 
+(3) 
+Higher footwear close-out net pricing margins, most notably in the EMEA Region, primarily due to better inventory management. 
+The factors driving an increased gross margin percentage were partially offset by lower apparel in-line gross pricing margins primarily driven by higher
+product costs, most notably in the U.S. and EMEA Regions, and increased apparel close-out sales, primarily in the U.S. Region. 
+Fiscal
+2007 Compared to Fiscal 2006 
+During fiscal 2007, the primary factors contributing to the 10 basis point decrease in the consolidated
+gross margin percentage versus the prior year were as follows: 
+(1) 
+Lower footwear close-out net pricing margins in the U.S. and EMEA Regions, primarily due to sales discounts, combined with a higher close-out mix; partially offset by
+(2) 
+Improved hedge rates relative to the prior year, primarily in the EMEA and Asia Pacific Regions; 
+(3) 
+Better inventory management, most notably in our Asia Pacific Region; and 
+(4) 
+Improved gross margins in our Other businesses, driven primarily by the growth in Converse’s international licensing business, partially offset by the expected effects of the
+transition in Exeter’s business from a licensing model to a wholesale model. 
+Selling and Administrative Expense
+Fiscal 2008 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+Change 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+Change 
+(In millions) 
+Operating overhead expense (1) 
+3,645.4 
+3,116.3 
+17% 
+2,737.6 
+14% 
+Demand creation expense (2) 
+2,308.3 
+1,912.4 
+21% 
+1,740.2 
+10% 
+Selling and administrative expense 
+5,953.7 
+5,028.7 
+18% 
+4,477.8 
+12% 
+% of Revenues 
+32 
+% 
+30.8 
+% 
+120 bps 
+29.9 
+% 
+90 bps 
+(1) 
+Fiscal 2008 and fiscal 2007 operating overhead expense includes charges related to stock-based compensation associated
+with stock options and ESPP shares issued to employees and expensed in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R “Share Based Payment” (“FAS 123R”). We adopted FAS 123R during
+the first quarter of fiscal 2007 using the modified prospective transition method. This expense was not reflected in our results of operations for fiscal 2006. (See Note 1 — Summary of Significant Accounting Policies in the Notes to the
+Consolidated Financial Statements) 
+(2) 
+Demand creation consists of advertising and promotion expenses, including costs of endorsement contracts.
+24 
+Table of Contents 
+Fiscal 2008 Compared to Fiscal 2007 
+In fiscal 2008, selling and administrative expenses increased as a percentage of revenues by 120 basis points, driven primarily by strategic investments
+in both demand creation and operating overhead. Changes in currency exchange rates increased selling and administrative expense growth by four percentage points. 
+On a constant-currency basis, demand creation expense increased 15% versus the prior year. The year-over-year increase was primarily attributable to investments in athlete and sport team endorsers of our products,
+spending around major sporting events including the 2008 Olympics in Beijing and the European Football Championships, key product initiatives such as Men’s Training in the U.S. and retail presentation. 
+Excluding the effects of changes in exchange rates, operating overhead increased 14% versus the prior year. The increase in operating overhead was
+attributable to investments in growth drivers such as NIKE-owned retail, non-NIKE brand businesses, emerging markets and normal wage inflation and performance compensation. 
+We believe total selling and administrative expenses will grow faster than our rate of revenue growth in fiscal 2009 driven primarily by strategic
+investments in demand creation, including spending around the 2008 Olympics in Beijing and the European Football Championships and increased investments in athlete and team endorsers of our products. 
+Fiscal 2007 Compared to Fiscal 2006 
+In fiscal 2007, selling and administrative expenses increased as a percentage of revenues by 90 basis points; however, excluding the $141.9 million pre-tax charge relating to the change in accounting for stock-based compensation, selling
+and administrative expense as a percentage of revenues was consistent with the prior year. 
+On a constant-currency basis, demand creation expense increased 7% versus the prior year. The year-over-year increase was primarily attributable to investments in the NIKE Air ® ,
+NIKE+, NIKE Pro, and Force Basketball campaigns. For fiscal year 2007, constant-currency growth in demand creation expense was consistent with our constant-currency revenue growth. 
+Excluding stock-based compensation expense and the effects of changes in exchange rates, operating overhead increased 7%, which was in line with our
+constant-currency revenue growth. The increase in operating overhead was attributable to investments in growth drivers such as NIKE-owned retail and non-NIKE brands, as well as normal wage inflation and performance based compensation. 
+Other (Expense) Income, net 
+Fiscal 2008 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+(In millions) 
+Other (expense) income, net 
+$ 
+(7.9 
+) 
+$ 
+0.9 
+978 
+% 
+$ 
+(4.4 
+) 
+120 
+% 
+Fiscal 2008 Compared to Fiscal 2007 
+Other (expense) income, net is comprised substantially of gains and losses from hedging and re-measurement of non-functional currency balances, disposals
+of fixed assets, as well as other unusual or non-recurring transactions that are outside the normal course of business. Foreign currency hedge gains and losses reported in other (expense) income, net are reflected in the Corporate line in our
+segment presentation of pre-tax income in the Notes to Consolidated Financial Statements (Note 17 — Operating Segments and Related Information) . 
+In fiscal 2008, other (expense) income, net included foreign currency hedge losses that were partially offset by the $32.0 million gain on the sale of NIKE Bauer Hockey and the $28.6 million gain on the sale of the
+Starter 
+25 
+Table of Contents 
+brand business. Other (expense) income, net in fiscal 2007 is primarily comprised of the $14.7 million gain on the sale-leaseback of our Oregon footwear
+distribution center and the $14.2 million benefit from the settlement of the Converse arbitration, partially offset by foreign currency hedge losses. 
+In fiscal 2008, we estimate that the combination of favorable translation of foreign currency-denominated profits from international businesses and the foreign currency losses included in other (expense) income, net
+resulted in a year-over-year increase in consolidated income before income taxes of approximately $122 million. 
+Fiscal 2007 Compared to
+Fiscal 2006 
+For fiscal 2007, other (expense) income, net was primarily comprised of the $14.7 million gain on the sale-leaseback of our
+Oregon footwear distribution center and the $14.2 million benefit from the settlement of the Converse arbitration, offset by foreign currency hedge losses. The foreign currency hedge losses recognized in fiscal 2007 primarily reflect the
+strengthening of the Euro since we entered into these hedge contracts. 
+The change in other (expense) income, net versus the prior year
+period was primarily the result of foreign currency hedge losses in fiscal 2007, which were more than offset by the Converse arbitration settlement and gain on the sale of our Oregon footwear distribution center discussed above, compared to foreign
+currency hedge gains in fiscal 2006, which were more than offset by the $51.9 million charge taken during the fourth quarter as a result of the Converse arbitration. The gain on the sale of the Oregon footwear distribution center is reflected in the
+U.S. Region line and the Converse arbitration settlement is reflected in the Other line in our segment presentation of pre-tax income in the Notes to Consolidated Financial Statements (Note 17 — Operating Segments and Related
+Information) . 
+In fiscal 2007, the net foreign currency hedge losses discussed above were partially offset by favorable U.S. dollar
+translation of foreign currency denominated profits, most notably in the EMEA Region. We estimate that the combination of net foreign currency hedge losses in other (expense) income, net, and the favorable U.S. dollar translation of foreign currency
+denominated profits did not have a significant impact on consolidated income before income taxes for fiscal 2007 compared to the prior year. 
+Income Taxes 
+Fiscal 2008 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+Change 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+Change 
+Effective tax rate 
+24.8 
+% 
+32.2 
+% 
+(740) bps 
+35.0 
+% 
+(280) bps 
+Fiscal 2008 Compared to Fiscal 2007 
+Our effective tax rate for fiscal 2008 was 24.8%, 7.4 percentage points lower than the prior year. Over the last few years, several of our international
+entities generated losses for which we did not recognize the corresponding tax benefits, as the realization of those benefits was uncertain. In the first quarter of fiscal 2008, we took steps necessary to realize these benefits, resulting in a
+one-time tax benefit of $105.4 million. Also reflected in the year-over-year effective tax rate improvement was a reduction in our on-going effective tax rate resulting from our profits earned outside the United States; our effective tax rates for
+these operations are generally lower than the U.S. statutory rate. 
+Fiscal 2007 Compared to Fiscal 2006 
+In fiscal 2007, our effective tax rate reflects tax benefits from our operations outside the United States; our tax rate on these operations is generally
+lower than the U.S. statutory rate. These benefits included the 10-year European tax agreement finalized in the second quarter of fiscal 2007, which is effective for fiscal years 2006 through 2015. This agreement, which provided a retroactive tax
+benefit for fiscal 2006 and the first quarter of fiscal 2007, favorably impacted our effective tax rate for fiscal 2007. 
+26 
+Table of Contents 
+Futures Orders 
+Worldwide futures and advance orders for footwear and apparel scheduled for delivery from June through November 2008 were more than 11% higher than such
+orders reported for the comparable period of fiscal 2007. This futures growth rate is calculated based upon our forecasts of the actual exchange rates under which our revenues will be translated during this period, which approximate current spot
+rates. The net effect from changes in currency exchange rates contributed approximately 3 percentage points to this reported futures growth versus the same period in the prior year. Excluding this currency impact, unit sales volume increases for
+both footwear and apparel drove the growth in overall futures and advance orders. The reported futures and advance orders growth is not necessarily indicative of our expectation of revenue growth during this period. This is because the mix of orders
+can shift between advance/futures and at-once orders. In addition, exchange rate fluctuations as well as differing levels of order cancellations and discounts can cause differences in the comparisons between futures and advance orders, and actual
+revenues. Moreover, a significant portion of our revenue is not derived from futures and advance orders, including at-once and close-out sales of NIKE footwear and apparel, wholesale sales of equipment, Cole Haan, Converse, Hurley, Umbro, NIKE Golf
+and retail sales across all brands. 
+Operating Segments 
+The breakdown of revenues follows: 
+Fiscal 2008 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+(In millions) 
+U.S. Region 
+Footwear 
+$ 
+4,326.8 
+$ 
+4,067.2 
+6 
+% 
+$ 
+3,832.2 
+6 
+% 
+Apparel 
+1,745.1 
+1,716.1 
+2 
+% 
+1,591.6 
+8 
+% 
+Equipment 
+306.1 
+323.8 
+(5 
+)% 
+298.7 
+8 
+% 
+Total U.S 
+6,378.0 
+6,107.1 
+4 
+% 
+5,722.5 
+7 
+% 
+EMEA Region 
+Footwear 
+3,112.6 
+2,608.0 
+19 
+% 
+2,454.3 
+6 
+% 
+Apparel 
+2,083.5 
+1,757.2 
+19 
+% 
+1,559.0 
+13 
+% 
+Equipment 
+424.3 
+358.1 
+18 
+% 
+313.3 
+14 
+% 
+Total EMEA 
+5,620.4 
+4,723.3 
+19 
+% 
+4,326.6 
+9 
+% 
+Asia Pacific Region 
+Footwear 
+1,499.5 
+1,159.2 
+29 
+% 
+1,044.1 
+11 
+% 
+Apparel 
+1,140.0 
+909.3 
+25 
+% 
+815.6 
+11 
+% 
+Equipment 
+242.2 
+214.9 
+13 
+% 
+194.1 
+11 
+% 
+Total Asia Pacific 
+2,881.7 
+2,283.4 
+26 
+% 
+2,053.8 
+11 
+% 
+Americas Region 
+Footwear 
+792.7 
+679.6 
+17 
+% 
+635.3 
+7 
+% 
+Apparel 
+265.4 
+193.9 
+37 
+% 
+201.8 
+(4 
+)% 
+Equipment 
+96.0 
+79.0 
+22 
+% 
+67.8 
+17 
+% 
+Total Americas 
+1,154.1 
+952.5 
+21 
+% 
+904.9 
+5 
+% 
+16,034.2 
+14,066.3 
+14 
+% 
+13,007.8 
+8 
+% 
+Other 
+2,592.8 
+2,259.6 
+15 
+% 
+1,947.1 
+16 
+% 
+Total Revenues 
+$ 
+18,627.0 
+$ 
+16,325.9 
+14 
+% 
+$ 
+14,954.9 
+9 
+% 
+27 
+Table of Contents 
+The breakdown of income before income taxes (“pre-tax income”) follows: 
+Fiscal 2008 
+Fiscal 2007 (1) 
+FY08 vs. 
+FY07 
+% Change 
+Fiscal 2006 (1) 
+FY07 vs. 
+FY06 
+% Change 
+(In millions) 
+U.S. Region 
+$ 
+1,391.9 
+$ 
+1,367.3 
+2 
+% 
+$ 
+1,315.2 
+4 
+% 
+EMEA Region 
+1,266.2 
+1,036.2 
+22 
+% 
+992.6 
+4 
+% 
+Asia Pacific Region 
+692.6 
+508.3 
+36 
+% 
+436.4 
+16 
+% 
+Americas Region 
+239.3 
+192.7 
+24 
+% 
+177.6 
+9 
+% 
+Other 
+336.4 
+299.7 
+12 
+% 
+153.6 
+95 
+% 
+Corporate 
+(1,423.5 
+) 
+(1,204.3 
+) 
+(18 
+)% 
+(933.8 
+) 
+(29 
+)% 
+Total Pre-tax Income 
+$ 
+2,502.9 
+$ 
+2,199.9 
+14 
+% 
+$ 
+2,141.6 
+3 
+% 
+(1) 
+Certain prior year amounts have been reclassified to conform to fiscal year 2008 presentation. These changes had no
+impact on previously reported results of operations or shareholders’ equity. 
+The following discussion includes
+disclosure of pre-tax income for our operating segments. We have reported pre-tax income for each of our operating segments in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” As
+discussed in Note 17 — Operating Segments and Related Information in the accompanying Notes to Consolidated Financial Statements, certain corporate costs are not included in pre-tax income of our operating segments. 
+U.S. Region 
+Fiscal 2008 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+4,326.8 
+$ 
+4,067.2 
+6 
+% 
+$ 
+3,832.2 
+6 
+% 
+Apparel 
+1,745.1 
+1,716.1 
+2 
+% 
+1,591.6 
+8 
+% 
+Equipment 
+306.1 
+323.8 
+(5 
+)% 
+298.7 
+8 
+% 
+Total Revenues 
+$ 
+6,378.0 
+$ 
+6,107.1 
+4 
+% 
+$ 
+5,722.5 
+7 
+% 
+Pre-tax Income 
+$ 
+1,391.9 
+$ 
+1,367.3 
+2 
+% 
+$ 
+1,315.2 
+4 
+% 
+Fiscal 2008 Compared to Fiscal 2007 
+During fiscal 2008, the increase in U.S. footwear revenue was the result of low-single digit growth in unit sales and a slight increase in the average
+selling price per pair. The growth in unit sales and average selling price per pair was driven by higher demand for our NIKE brand sportswear products and Brand Jordan products, partially offset by a decrease in demand for our NIKE brand basketball
+products. The increase in average selling price per pair was also attributable to strategic price increases and an increased sales mix of higher priced NIKE brand sportswear and Brand Jordan products. 
+The year-over-year increase in U.S. apparel revenues during fiscal 2008 reflected an increase in unit sales, mostly offset by lower average selling
+prices. The increase in unit sales was primarily driven by higher close-out sales and increased demand for NIKE brand sports performance products, partially offset by lower unit sales of sportswear and Brand Jordan products. Average selling prices
+decreased primarily as a result of a higher mix of close-out sales. 
+The year-over-year decrease in U.S. equipment revenues during fiscal
+2008 was primarily the result of lower unit sales of accessory products and fewer close-out sales. 
+28 
+Table of Contents 
+Pre-tax income for the U.S. Region grew at a slower rate than revenue in fiscal 2008 as a result of
+higher demand creation and operating overhead expenses, partially offset by higher gross margins, driven by footwear. The increase in demand creation was driven by higher sports marketing expenses and investments in the retail presentation of our
+key wholesale customers. The increase in operating overhead was attributable to investments in NIKE-owned retail and normal wage inflation. 
+Fiscal 2007 Compared to Fiscal 2006 
+During fiscal 2007, the increase in U.S. footwear revenue was attributable to high
+single-digit growth in unit sales, partially offset by a slight decrease in the average selling price per pair. The growth in unit sales was driven by higher demand for our NIKE brand sportswear products; kids’ product, including boys and girls
+sportswear; Brand Jordan products; and men’s running products, due to the growth of our Nike+ performance models. The decrease in average selling price per pair compared to the prior year was the result of a higher mix of off-price products,
+combined with growth in lower priced kids’ product. 
+The year-over-year increase in U.S. apparel revenues during fiscal 2007 reflected
+mid single-digit growth in unit sales combined with a low single-digit increase in average price per unit. The increase in unit sales versus the prior year was driven by double-digit growth in NIKE brand sport performance apparel, while the
+improvement in average selling prices was driven by team and licensed apparel and Brand Jordan products. 
+Pre-tax income for the U.S.
+Region grew at a slower rate than revenue in fiscal 2007 as a result of lower gross margins. The gross margin decline was primarily attributable to a higher level of close-out sales and sales discounts compared to the prior year, most notably in our
+footwear business. Selling and administrative expenses were higher than fiscal 2006, but represented a lower percentage of revenue due to operating overhead leverage. 
+EMEA Region 
+Fiscal 2008 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+3,112.6 
+$ 
+2,608.0 
+19 
+% 
+$ 
+2,454.3 
+6 
+% 
+Apparel 
+2,083.5 
+1,757.2 
+19 
+% 
+1,559.0 
+13 
+% 
+Equipment 
+424.3 
+358.1 
+18 
+% 
+313.3 
+14 
+% 
+Total Revenues 
+$ 
+5,620.4 
+$ 
+4,723.3 
+19 
+% 
+$ 
+4,326.6 
+9 
+% 
+Pre-tax Income 
+$ 
+1,266.2 
+$ 
+1,036.2 
+22 
+% 
+$ 
+992.6 
+4 
+% 
+Fiscal 2008 Compared to Fiscal 2007 
+For the EMEA Region, changes in currency exchange rates contributed 11 percentage points of the revenue growth during fiscal 2008. Nearly all markets
+within the region increased revenues during the year. The emerging markets in the region grew nearly 25%, driven by strong results in Russia, Turkey and South Africa. Increases in Northern Europe and the U.K. also contributed significantly to the
+revenue growth. 
+Excluding changes in exchange rates, footwear revenues increased 8 percentage points during fiscal 2008 compared to the
+prior year. The increase in footwear revenue was attributable to double-digit growth in unit sales, partially offset by a low single-digit decrease in the average selling price per pair. The growth in unit sales was driven primarily by higher demand
+for our NIKE brand soccer and sportswear products. The decrease in average selling price per pair resulted from a shift in product mix from higher priced to lower priced product models, most notably within our NIKE brand sportswear product lines.
+29 
+Table of Contents 
+On a currency neutral basis, EMEA apparel revenue increased 8 percentage points during fiscal 2008
+compared to the prior year, primarily as a result of increased unit sales and a slight increase in average selling prices. The increase in unit sales was driven primarily by increased demand for sports performance products, most notably soccer.
+The increase in pre-tax income for the EMEA Region during fiscal 2008 compared to the prior year was primarily driven by the increase in
+revenues, favorable foreign currency translation and a higher gross margin percentage, partially offset by higher selling and administrative expenses as a percentage of revenues. The gross margin improvement in fiscal 2008 was primarily attributable
+to improved year-over-year hedge rates and improved margins on close-out product. The increase in selling and administrative expenses was driven by an increase in demand creation spending, primarily attributable to spending around the European
+Football Championships. As a result of retail expansion and overall business growth across the region, operating overhead expenses increased for the year, but at a slower rate than revenue growth. 
+Fiscal 2007 Compared to Fiscal 2006 
+For the EMEA Region, changes in currency exchange rates contributed 6 percentage points of the revenue growth during fiscal 2007. Excluding changes in currency exchange rates, all markets within the region except the U.K. and France
+increased revenues during the year. The emerging markets in the region grew over 30%, driven by strong results in Greece, Russia, Turkey and South Africa. Increases in Northern Europe, Italy and Spain also contributed significantly to the revenue
+growth. After experiencing challenging retail conditions in the U.K. and France during fiscal 2007, we have started to see signs of improvement in these markets, including year-over-year futures growth. 
+Excluding changes in exchange rates, footwear revenues increased 1 percentage point during fiscal 2007 compared to the prior year. The increase in
+footwear revenue was attributable to low single-digit growth in unit sales, partially offset by a slight decrease in the average selling price per pair. The growth in unit sales was driven primarily by higher demand for our NIKE brand sport culture
+products, most notably “metro” and outdoor products. The growth in unit sales more than offset a decline in the average selling price per pair, which resulted from a shift in product mix from higher priced to lower priced product styles,
+combined with an increase in close-out sales. 
+Excluding changes in exchange rates, apparel revenues increased 7 percentage points during
+fiscal 2007 compared to the prior year. The year-over-year increase reflected high single-digit growth in unit sales, driven by both sports culture and sports performance products, combined with a low single-digit increase in average price per unit.
+The increase in pre-tax income for the EMEA Region during fiscal 2007 compared to the prior year was primarily driven by the increase in
+revenues and favorable foreign currency translation, partially offset by a lower gross margin percentage and higher selling and administrative expenses, which on a currency-neutral basis, increased 4 percentage points versus fiscal 2006. The lower
+gross margin percentage in fiscal 2007 was attributable to an increase in warehousing costs and lower in-line net pricing margins, primarily in footwear, attributable to sales discounts, higher product costs and a shift in product mix to lower
+priced models. The increase in selling and administrative expenses was primarily driven by an increase in operating overhead, most notably normal wage inflation and growth in the emerging markets, combined with a slight increase in demand creation.
+30 
+Table of Contents 
+Asia Pacific Region 
+Fiscal 2008 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+1,499.5 
+$ 
+1,159.2 
+29 
+% 
+$ 
+1,044.1 
+11 
+% 
+Apparel 
+1,140.0 
+909.3 
+25 
+% 
+815.6 
+11 
+% 
+Equipment 
+242.2 
+214.9 
+13 
+% 
+194.1 
+11 
+% 
+Total Revenues 
+$ 
+2,881.7 
+$ 
+2,283.4 
+26 
+% 
+$ 
+2,053.8 
+11 
+% 
+Pre-tax Income 
+$ 
+692.6 
+$ 
+508.3 
+36 
+% 
+$ 
+436.4 
+16 
+% 
+Fiscal 2008 Compared to Fiscal 2007 
+In the Asia Pacific Region, changes in currency exchange rates contributed 6 percentage points of revenue growth for fiscal 2008. Nearly all countries
+across the region delivered revenue growth on a currency neutral basis. China continues to be the primary driver of growth within the region as fiscal 2008 revenues increased 50% on a currency-neutral basis, driven by the expansion in both the
+number of stores selling NIKE product and sales through existing stores. Constant-currency revenues in Japan increased at a low single digit rate during fiscal 2008. 
+Footwear revenue growth for fiscal 2008 reflected increased unit sales, most notably in China, partially offset by lower average selling prices driven primarily by a shift in mix from higher priced to lower priced
+models. The year-over-year increase in apparel revenue was driven by increased demand in China. 
+The increase in pre-tax income for the
+Asia Pacific Region for fiscal 2008 was driven by higher revenues, improved gross margins and favorable foreign currency translation, which more than offset slightly higher selling and administrative expenses as a percentage of revenue. The gross
+margin improvement versus the prior year was primarily driven by reduced warehousing costs, improved year-over-year currency hedge rates and improved margins on close-out product. The increase in selling and administrative expenses during fiscal
+2008 was primarily attributable to spending around the 2008 Olympics in Beijing. Overall business growth across the region combined with retail expansion, primarily in China, also contributed to an increase in operating overhead expenses, which grew
+slightly slower than revenues. 
+Fiscal 2007 Compared to Fiscal 2006 
+In the Asia Pacific Region, changes in currency exchange rates contributed 1 percentage point of revenue growth for fiscal 2007. While the majority of
+countries within the region reported double-digit sales increases for the year, China continues to be the primary driver of growth within the region, as revenues increased nearly 26% on a currency-neutral basis. The revenue growth in China is
+primarily due to expansion in both the number of stores selling NIKE product, as well as sales through existing doors. Constant-currency revenues in Japan increased only slightly during fiscal 2007. Despite sustained softness in the Japan market, we
+are starting to see positive signs, including higher gross margins, improvements in sell through at retail and improving futures conversion trends. 
+The growth in footwear revenue for fiscal 2007 reflected increased unit sales, most notably in China and Korea, partially offset by lower average selling prices, which resulted primarily from strategies to improve consumer value in Japan
+and Korea, combined with a change in the mix of products sold across the region. The year-over-year increase in apparel revenue was also driven by increased demand in China and Korea. 
+The increase in pre-tax income for the Asia Pacific Region for fiscal 2007 was driven by higher revenues, improved gross margins and favorable foreign
+currency translation, which more than offset higher selling and 
+31 
+Table of Contents 
+administrative expenses. The gross margin improvement versus the prior year was primarily driven by better inventory management, improved year-over-year
+hedge rates and reduced warehousing costs. The improvement in margins was partially offset by higher sales incentives, most notably in Japan, combined with efforts to improve consumer value in Japan and Korea. The increase in selling and
+administrative expenses during fiscal 2007 was attributable to increased investments in demand creation, most notably the Just Do It and Force Basketball campaigns. Overall business growth across the region, combined with retail expansion in China
+and Korea, also contributed to an increase in operating overhead expenses. 
+Americas Region 
+Fiscal 2008 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+792.7 
+$ 
+679.6 
+17 
+% 
+$ 
+635.3 
+7 
+% 
+Apparel 
+265.4 
+193.9 
+37 
+% 
+201.8 
+(4 
+)% 
+Equipment 
+96.0 
+79.0 
+22 
+% 
+67.8 
+17 
+% 
+Total Revenues 
+$ 
+1,154.1 
+$ 
+952.5 
+21 
+% 
+$ 
+904.9 
+5 
+% 
+Pre-tax Income 
+$ 
+239.3 
+$ 
+192.7 
+24 
+% 
+$ 
+177.6 
+9 
+% 
+Fiscal 2008 Compared to Fiscal 2007 
+In the Americas Region, changes in currency exchange rates contributed 7 percentage points of revenue growth for fiscal 2008. Excluding changes in foreign
+currency exchange rates, the Americas Region reported growth in all markets, led by Argentina, Mexico and Brazil. 
+The increase in pre-tax
+income for fiscal 2008 versus the prior year was primarily attributable to higher revenues, improved gross margins and operating overhead leverage, combined with favorable foreign currency translation. These factors were partially offset by higher
+demand creation spending as a percentage of revenue. The gross margin improvement was driven primarily by higher in-line net pricing margins resulting from a better mix of products sold and fewer discounts offered in fiscal 2008 compared to fiscal
+2007. The increase in demand creation spending during fiscal 2008 was primarily attributable to investments in sports marketing, most notably in soccer, brand events including spending around Run Americas III and investments in the retail
+presentation of NIKE + and NIKE Pro products. 
+Fiscal 2007 Compared to Fiscal 2006 
+In the Americas Region, changes in currency exchange rates contributed 1 percentage point of revenue growth for fiscal 2007. Excluding changes in foreign
+currency exchange rates, growth in most markets within the region, led by constant-currency revenue growth of 29% in Argentina, more than offset softer results in Brazil. While currency-neutral footwear and equipment revenues increased 6% and 15%,
+respectively, versus the prior year, apparel revenues decreased 4% as a result of tough World Cup comparisons. We expect to return to apparel revenue growth in fiscal 2008 as a result of moving from a licensed to a wholesale apparel distribution
+model in Brazil. 
+The increase in pre-tax income for fiscal 2007 versus the prior year was primarily attributable to higher revenues and
+improved gross margins, partially offset by higher selling and administrative expenses. The gross margin improvement was driven by higher in-line net pricing margins resulting from fewer discounts being offered in fiscal 2007 compared to fiscal
+2006, combined with a change in product mix. The increase in selling and administrative expenses during fiscal 2007 was primarily attributable to investments in demand creation, most notably the Run Americas II and women’s fitness campaigns,
+the World Cup and retail resources. 
+32 
+Table of Contents 
+Other Businesses 
+Fiscal 2008 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+Fiscal 2006 
+FY07 vs. 
+FY06 
+% Change 
+(In millions) 
+Revenues 
+$ 
+2,592.8 
+$ 
+2,259.6 
+15 
+% 
+$ 
+1,947.1 
+16 
+% 
+Pre-tax Income 
+$ 
+336.4 
+$ 
+299.7 
+12 
+% 
+$ 
+153.6 
+95 
+% 
+Fiscal 2008 Compared to Fiscal 2007 
+The increase in Other business revenues was driven by higher revenues across all businesses, most notably Converse and NIKE Golf. In fiscal 2008, revenues
+at Converse increased more than 29% versus the prior year to approximately $729 million, driven by strong consumer demand in the United States and internationally, while NIKE Golf grew 12% to nearly $725 million. Revenues at Cole Haan increased 6%
+to $496 million, driven by strong results at company-owned retail stores. Revenues at Hurley increased 14% to $171 million. 
+During fiscal
+2008, growth at Converse and NIKE Golf, combined with margin improvements across most businesses drove the year-over-year increase in pre-tax income. Fiscal 2007 pre-tax income included a $14.2 million benefit relating to the settlement of an
+arbitration ruling involving Converse and a former South American licensee. Fiscal 2008 pre-tax income for our Other businesses would have increased approximately 18% versus fiscal 2007 excluding this favorable settlement. 
+As part of our long term growth strategy, we continually evaluate our existing portfolio of businesses as well as new business opportunities to ensure
+the Company is investing in those businesses with the largest growth potential and highest returns. On March 3, 2008 we completed the acquisition of 100% of the outstanding shares of Umbro Plc (“Umbro”), a leading United Kingdom-based
+global soccer brand, for a purchase price of £290.5 million in cash (approximately $576.4 million), inclusive of direct transaction costs. This acquisition is intended to significantly strengthen our market position in the United Kingdom
+and expand NIKE’s global leadership in soccer, a key area of growth for the Company. This acquisition also provides scaled positions in emerging soccer markets such as China, Russia and Brazil. The results of Umbro’s operations have been
+included in the Company’s consolidated financial statements and in the Other operating segment since the date of acquisition. Umbro, which was listed on the London Stock Exchange prior to our acquisition, reported in their 2006 annual report
+that revenues for calendar year 2006 were approximately $276 million (£149.5 million), and estimated that the combination of Umbro’s calendar year 2006 wholesale revenue and estimated sales revenue earned by Umbro’s licensees from
+the sale of Umbro products totaled approximately $755 million (£409.4 million). 
+Following a strategic review of the Company’s
+existing business portfolio, we concluded that the Starter and Bauer Hockey businesses did not align with our long-term growth priorities. On December 17, 2007 we completed the sale of the Starter brand business for $60 million in cash. On
+April 17, 2008 we completed the sale of the Bauer Hockey business for net proceeds of $189.2 million after working capital adjustments. These transactions resulted in gains of approximately $28.6 million and $32.0 million, respectively, which
+are reflected in the Corporate line in our segment presentation of pre-tax income in the Notes to Consolidated Financial Statements (Note 17 — Operating Segments). 
+Fiscal 2007 Compared to Fiscal 2006 
+The increase in Other business revenues for fiscal 2007 compared to the same period in the prior year was driven by double-digit revenue growth across nearly all businesses, led by Converse and NIKE Golf. In fiscal 2007, revenues at
+Converse increased more than 20% versus the prior year to over $550 million, driven by strong consumer demand in the United States and internationally, while NIKE Golf grew 12% to nearly $650 million. 
+33 
+Table of Contents 
+During fiscal 2007, improved profitability at Converse, driven by increased wholesale revenues in the
+United States and growth in our international licensing business, combined with growth at NIKE Golf, contributed to the increase in pre-tax income versus fiscal 2006. Fiscal 2007 results also include the benefit of the $14.2 million settlement of
+the arbitration ruling involving Converse and a former South American licensee. This dispute was settled during the first quarter ended August 31, 2006. 
+Liquidity and Capital Resources 
+Fiscal 2008 Cash Flow Activity 
+Cash provided by operations was approximately $1.9 billion in both fiscal 2008 and fiscal 2007. Our primary source of operating cash flow in fiscal 2008
+was net income of $1.9 billion. Adjustments for non-cash depreciation and stock-based compensation were offset by increases in deferred income taxes as well as investments in working capital and other assets and liabilities to support growth in the
+business. The increase in working capital during fiscal 2008 was primarily attributable to an increase in inventories and accounts receivable, partially offset by increases in accounts payable and accrued liabilities. The increase in accounts
+receivable is attributable to higher sales in the last quarter of 2008. The increase in inventories reflects year-over-year growth in reported futures and higher inventories to support the expansion of NIKE-owned retail stores, slightly offset by
+better inventory management. The increase in accounts payable and accrued liabilities was primarily due to the timing of payments and inventory receipts compared to the prior year. 
+Cash used by investing activities was $0.4 billion during fiscal 2008, compared to $0.1 billion provided by investing activities during fiscal 2007. The
+year-over-year increase in cash used by investing activities was primarily due to our acquisition of Umbro for approximately $0.6 billion offset by proceeds from the divestitures of our NIKE Bauer Hockey and Starter brand businesses of $0.2 billion.
+Cash used in financing activities was $1.2 billion during fiscal 2008, compared to $1.1 billion used in fiscal 2007. The increase versus
+fiscal 2007 was primarily due to an increase in share repurchases and dividends paid, discussed below, partially offset by a decrease in payments of long term debt as we made a $250 million repayment of corporate bonds in fiscal 2007. 
+In fiscal 2008, we purchased approximately 20.6 million shares of NIKE’s Class B Common Stock for $1.2 billion. As of the end of fiscal 2008,
+we have repurchased 38.6 million shares for $2.1 billion under the $3 billion program approved by our Board of Directors in June 2006. We expect to fund share repurchases from operating cash flow, excess cash and/or debt. The timing and the
+ultimate amount of shares purchased under the programs will be dictated by our capital needs and stock market conditions. 
+Dividends
+declared per share of common stock for fiscal 2008 were $0.875, compared to $0.71 in fiscal 2007. We have paid a dividend every quarter since February 1984. Our current dividend policy is to provide an annual dividend equal to 20% to 30% of the
+trailing twelve-months’ earnings per share, paid out on a quarterly basis. We review our dividend policy from time to time, and based upon current projected earnings and cash flow requirements, we anticipate continuing to pay a quarterly
+dividend in the foreseeable future. 
+Off-Balance Sheet Arrangements 
+In connection with various contracts and agreements, we provide routine indemnifications relating to the enforceability of intellectual property rights,
+coverage for legal issues that arise and other items that fall under the scope of Financial Accounting Standards Board (“FASB”) Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees,
+Including Indirect Guarantees of Indebtedness of Others.” Currently, we have several such agreements in place. However, based on our historical experience and the estimated probability of future loss, we have determined that the fair value of
+such indemnifications is not material to our financial position or results of operations. 
+34 
+Table of Contents 
+Contractual Obligations 
+Our significant long-term contractual obligations as of May 31, 2008, and significant endorsement contracts entered into through the date of this
+report are as follows: 
+Cash Payments Due During the Year Ending May 31, 
+Description of Commitment 
+2009 
+2010 
+2011 
+2012 
+2013 
+Thereafter 
+Total 
+(In millions) 
+Operating Leases 
+$ 
+312.4 
+$ 
+264.4 
+$ 
+228.9 
+$ 
+192.1 
+$ 
+163.9 
+$ 
+692.3 
+$ 
+1,854.0 
+Long-term Debt 
+6.3 
+31.3 
+6.3 
+153.4 
+46.3 
+197.5 
+441.1 
+Endorsement Contracts (1) 
+700.4 
+599.3 
+518.3 
+480.3 
+407.2 
+1,122.0 
+3,827.5 
+Product Purchase Obligations (2) 
+2,272.0 
+1.9 
+— 
+— 
+— 
+— 
+2,273.9 
+Other (3) 
+250.7 
+76.4 
+62.6 
+55.1 
+50.7 
+1.2 
+496.7 
+Total 
+$ 
+3,541.8 
+$ 
+973.3 
+$ 
+816.1 
+$ 
+880.9 
+$ 
+668.1 
+$ 
+2,013.0 
+$ 
+8,893.2 
+(1) 
+The amounts listed for endorsement contracts represent approximate amounts of base compensation and minimum guaranteed
+royalty fees we are obligated to pay athlete and sport team endorsers of our products. Actual payments under some contracts may be higher than the amounts listed as these contracts provide for bonuses to be paid to the endorsers based upon athletic
+achievements and/or royalties on product sales in future periods. Actual payments under some contracts may also be lower as these contracts include provisions for reduced payments if athletic performance declines in future periods.
+In addition to the cash payments, we are obligated to furnish our endorsers with NIKE products for their use. It is not
+possible to determine how much we will spend on this product on an annual basis as the contracts do not stipulate a specific amount of cash to be spent on the product. The amount of product provided to the endorsers will depend on many factors
+including general playing conditions, the number of sporting events in which they participate, and our own decisions regarding product and marketing initiatives. In addition, the costs to design, develop, source, and purchase the products furnished
+to the endorsers are incurred over a period of time and are not necessarily tracked separately from similar costs incurred for products sold to customers. 
+(2) 
+We generally order product at least four to five months in advance of sale based primarily on advanced futures orders
+received from customers. The amounts listed for product purchase obligations represent agreements (including open purchase orders) to purchase products in the ordinary course of business, that are enforceable and legally binding and that specify all
+significant terms. In some cases, prices are subject to change throughout the production process. The reported amounts exclude product purchase liabilities included in accounts payable on the Consolidated Balance Sheet as of May 31, 2008.
+(3) 
+Other amounts primarily include service and marketing commitments made in the ordinary course of business. The amounts
+represent the minimum payments required by legally binding contracts and agreements that specify all significant terms, including open purchase orders for non-product purchases. The reported amounts exclude those liabilities included in accounts
+payable or accrued liabilities on the Consolidated Balance Sheet as of May 31, 2008. 
+The total long-term liability
+for uncertain tax positions was $251.1 million, excluding related interest and penalties, at May 31, 2008. We are not able to reasonably estimate when or if cash payments of the long-term liability for uncertain tax positions will occur.
+35 
+Table of Contents 
+We also have the following outstanding short-term debt obligations as of May 31, 2008. Please refer
+to the accompanying Notes to Consolidated Financial Statements (Note 6 — Short-Term Borrowings and Credit Lines) for further description and interest rates related to the short-term debt obligations listed below. 
+Outstanding as of 
+May 31, 2008 
+(In millions) 
+Notes payable, due at mutually agreed-upon dates within one year of issuance or on demand 
+$ 
+177.7 
+Payable to Sojitz America for the purchase of inventories, generally due 60 days after shipment of goods from a foreign port 
+$ 
+65.9 
+As of May 31, 2008, letters of credit of $193.4 million were outstanding, generally for the
+purchase of inventory. 
+Capital Resources 
+In October 2001, we filed a shelf registration statement with the SEC under which $1 billion in debt securities may be issued. In May 2002, we commenced a medium-term note program under the shelf registration that
+allows us to issue up to $500.0 million in medium-term notes as our capital needs dictate. We entered into this program to provide additional liquidity to meet our working capital and general corporate cash requirements and since commencement of the
+program have issued $240.0 million in medium-term notes. As of May 31, 2008, $215.0 million in medium-term notes remained outstanding. We may issue additional notes under the shelf registration in fiscal 2009 depending on general corporate
+needs. 
+During fiscal 2008, one of our Japanese subsidiaries entered into a total of ¥5.0 billion (approximately $47.4 million as of
+May 31, 2008) in short-term loans to meet general operating needs. The interest rates on the loans are based on the prevailing Tokyo Interbank Offer Rate of our election plus a spread, resulting in a weighted average all-in rate of 1.06% at
+May 31, 2008. 
+During fiscal 2007, another of our Japanese subsidiaries entered into a ¥3.0 billion (approximately $28.5 million
+as of May 31, 2008) loan facility that replaced certain intercompany borrowings. The interest rate on the facility is based on the six-month Japanese Yen London Interbank Offer Rate (“JPY LIBOR”) plus a spread resulting in an all in
+rate of approximately 1.12% at May 31, 2008. This loan facility was renewed during fiscal 2008. Subsequent to May 31, 2008, this loan facility expired and was replaced with intercompany borrowings. 
+During fiscal 2007, the same Japanese subsidiary entered into a ¥5.0 billion (approximately $47.4 million as of May 31, 2008) term loan that
+replaced certain intercompany borrowings and matures on February 14, 2012. The interest rate on the loan is approximately 1.5% and interest is paid semi-annually. 
+As of May 31, 2008, we had no amounts outstanding under our multi-year, $1 billion revolving credit facility in place with a group of banks. The facility matures in December 2012 and can be extended for one
+additional year on its next anniversary date. Based on our current long-term senior unsecured debt ratings of A+ and A1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively, the interest rate charged on any
+outstanding borrowings would be the prevailing London Interbank Offer Rate (“LIBOR”) plus 0.15%. The facility fee is 0.05% of the total commitment. 
+If our long-term debt rating were to decline, the facility fee and interest rate under our committed credit facility would increase. Conversely, if our long-term debt rating were to improve, the facility fee and
+interest rate would decrease. Changes in our long-term debt rating would not trigger acceleration of maturity of any then outstanding borrowings or any future borrowings under the committed credit facility. Under this committed credit facility, we
+have agreed to various covenants. These covenants include limits on our disposal of fixed assets and the amount of debt secured by liens we may incur as well as a minimum capitalization ratio. In the 
+36 
+Table of Contents 
+event we were to have any borrowings outstanding under this facility, failed to meet any covenant, and were unable to obtain a waiver from a majority of the
+banks, any borrowings would become immediately due and payable. As of May 31, 2008, we were in full compliance with each of these covenants and believe it is unlikely we will fail to meet any of these covenants in the foreseeable future.
+Liquidity is also provided by our commercial paper program, under which there was no amount outstanding at May 31, 2008 or
+May 31, 2007. We currently have short-term debt ratings of A1 and P1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively. 
+We currently believe that cash generated by operations, together with access to external sources of funds as described above, will be sufficient to meet our operating and capital needs in the foreseeable future.
+Recently Adopted Accounting Standards 
+In June 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in our financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” We adopted
+the provisions of FIN 48 on June 1, 2007. See Note 8 in the accompanying Notes to Consolidated Financial Statements for further discussion. 
+In June 2006, the FASB ratified the consensus reached in Emerging Issues Task Force (“EITF”) Issue No. 06-2, “Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43”
+(“EITF 06-2”). EITF 06-2 clarifies recognition guidance on the accrual of employees’ rights to compensated absences under a sabbatical or other similar benefit arrangement. The adoption of EITF 06-2 on June 1, 2007 did not have a
+material impact on our consolidated financial position, results of operations or cash flows. 
+Recently Issued Accounting Standards 
+In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a
+framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of FAS 157 for financial assets and liabilities are effective for our fiscal year
+beginning June 1, 2008 and the provisions of FAS 157 for non-financial assets and liabilities except for items recognized at fair value on a recurring basis are effective for the fiscal year beginning June 1, 2009. We are currently
+evaluating the impact of the provisions for non-financial assets and liabilities. We have evaluated the provisions of FAS 157 for financial assets and liabilities and do not expect that the adoption will have a material impact on our consolidated
+financial position or results of operations. 
+In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
+Financial Assets and Financial Liabilities including an Amendment of FASB Statement No. 115” (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The
+provisions of FAS 159 are effective for the fiscal year beginning June 1, 2008. We have evaluated the provisions of FAS 159 and do not expect that the adoption will have a material impact on our consolidated financial position or results of
+operations. 
+In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)”)
+and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”). These standards aim to improve, simplify, and converge internationally the accounting for business combinations and the reporting
+of noncontrolling interests in consolidated financial statements. The provisions of FAS 141(R) and FAS 160 are effective for the fiscal year beginning June 1, 2009. We are currently evaluating the impact of the provisions of FAS 141(R) and FAS
+160. 
+37 
+Table of Contents 
+In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and
+Hedging Activities” (“FAS 161”). FAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an
+entity’s financial position, financial performance, and cash flows. The provisions of FAS 161 are effective for the quarter ending February 28, 2009. We do not expect that the adoption of FAS 161 will have a material impact on our
+consolidated financial position or results of operations. 
+Critical Accounting Policies 
+Our previous discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have
+been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
+liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. 
+We believe that the estimates,
+assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these
+matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, the
+allowance for uncollectible accounts receivable, inventory reserves, and contingent payments under endorsement contracts. These policies require that we make estimates in the preparation of our financial statements as of a given date. However, since
+our business cycle is relatively short, actual results related to these estimates are generally known within the six-month period following the financial statement date. Thus, these policies generally affect only the timing of reported amounts
+across two to three fiscal quarters. 
+Within the context of these critical accounting policies, we are not currently aware of any
+reasonably likely events or circumstances that would result in materially different amounts being reported. 
+Revenue Recognition
+We record wholesale revenues when title passes and the risks and rewards of ownership have passed to the customer, based on the
+terms of sale. Title passes generally upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale. 
+In some instances, we ship product directly from our supplier to the customer and recognize revenue when the product is delivered to and accepted by the
+customer. Our revenues may fluctuate in cases when our customers delay accepting shipment of product for periods up to several weeks. 
+In
+certain countries outside of the U.S., precise information regarding the date of receipt by the customer is not readily available. In these cases, we estimate the date of receipt by the customer based upon historical delivery times by geographic
+location. On the basis of our tests of actual transactions, we have no indication that these estimates have been materially inaccurate historically. 
+As part of our revenue recognition policy, we record estimated sales returns and miscellaneous claims from customers as reductions to revenues at the time revenues are recorded. We base our estimates on historical
+rates of product returns and claims, and specific identification of outstanding claims and outstanding returns not yet received from customers. Actual returns and claims in any future period are inherently uncertain and thus may differ from our
+estimates. If actual or expected future returns and claims were significantly greater or lower than the reserves we had established, we would record a reduction or increase to net revenues in the period in which we made such determination.
+38 
+Table of Contents 
+Allowance for Uncollectible Accounts Receivable 
+We make ongoing estimates relating to the ability to collect our accounts receivable and maintain an allowance for estimated losses resulting from the
+inability of our customers to make required payments. In determining the amount of the allowance, we consider our historical level of credit losses and make judgments about the creditworthiness of significant customers based on ongoing credit
+evaluations. Since we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to deteriorate,
+resulting in their inability to make payments, a larger allowance might be required. In the event we determine that a smaller or larger allowance is appropriate, we would record a credit or a charge to selling and administrative expense in the
+period in which such a determination is made. 
+Inventory Reserves 
+We also make ongoing estimates relating to the net realizable value of inventories, based upon our assumptions about future demand and market conditions.
+If we estimate that the net realizable value of our inventory is less than the cost of the inventory recorded on our books, we record a reserve equal to the difference between the cost of the inventory and the estimated net realizable value. This
+reserve is recorded as a charge to cost of sales. If changes in market conditions result in reductions in the estimated net realizable value of our inventory below our previous estimate, we would increase our reserve in the period in which we made
+such a determination and record a charge to cost of sales. 
+Contingent Payments under Endorsement Contracts 
+A significant portion of our demand creation expense relates to payments under endorsement contracts. In general, endorsement payments are expensed
+uniformly over the term of the contract. However, certain contract elements may be accounted for differently, based upon the facts and circumstances of each individual contract. 
+Some of the contracts provide for contingent payments to endorsers based upon specific achievements in their sports (e.g., winning a championship). We
+record selling and administrative expense for these amounts when the endorser achieves the specific goal. 
+Some of the contracts provide
+for payments based upon endorsers maintaining a level of performance in their sport over an extended period of time (e.g., maintaining a top ranking in a sport for a year). These amounts are reported in selling and administrative expense when we
+determine that it is probable that the specified level of performance will be maintained throughout the period. In these instances, to the extent that actual payments to the endorser differ from our estimate due to changes in the endorser’s
+athletic performance, increased or decreased selling and administrative expense may be reported in a future period. 
+Some of the contracts
+provide for royalty payments to endorsers based upon a predetermined percentage of sales of particular products. We expense these payments in cost of sales as the related sales occur. In certain contracts, we offer minimum guaranteed royalty
+payments. For contractual obligations for which we estimate that we will not meet the minimum guaranteed amount of royalty fees through sales of product, we record the amount of the guaranteed payment in excess of that earned through sales of
+product in selling and administrative expense uniformly over the remaining guarantee period. 
+Property, Plant and Equipment 
+Property, plant and equipment, including buildings, equipment, and computer hardware and software is recorded at cost (including, in some
+cases, the cost of internal labor) and is depreciated over its estimated useful life. Changes in circumstances (such as technological advances or changes to our business operations) can result 
+39 
+Table of Contents 
+in differences between the actual and estimated useful lives. In those cases where we determine that the useful life of a long-lived asset should be
+shortened, we increase depreciation expense over the remaining useful life to depreciate the asset’s net book value to its salvage value. 
+When events or circumstances indicate that the carrying value of property, plant and equipment may be impaired, we estimate the future undiscounted cash flows to be derived from the asset to determine whether or not a potential impairment
+exists. If the carrying value exceeds our estimate of future undiscounted cash flows, we then calculate the impairment as the excess of the carrying value of the asset over our estimate of its fair market value. Any impairment charges are recorded
+within other (expense) income, net. We estimate future undiscounted cash flows using assumptions about our expected future operating performance. Our estimates of undiscounted cash flows may change in future periods due to, among other things,
+technological changes, economic conditions, and changes to our business operations or inability to meet business plans. Such changes may result in impairment charges in the period in which such changes in estimates are made. 
+Goodwill and Other Intangible Assets 
+In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”), goodwill and intangible assets with indefinite lives are not amortized but instead measured for impairment at least annually in
+the fourth fiscal quarter, or when events indicate that an impairment exists. As required by FAS 142, in our impairment tests for goodwill and other indefinite-lived intangible assets, we compare the estimated fair value of goodwill and other
+intangible assets to the carrying value. If the carrying value exceeds our estimate of fair value, we calculate impairment as the excess of the carrying value over our estimate of fair value. Our estimates of fair value utilized in goodwill and
+other indefinite-lived intangible asset tests require the use of discounted cash flow valuation models. Those models require estimates of future revenue, profits, expenditures and working capital. These estimates are determined by evaluating
+historical trends, current budgets, operating plans and industry data. Our estimates may change in future periods due to, among other things, technological change, economic conditions, changes to our business operations or inability to meet business
+plans. Such changes may result in impairment charges recorded in future periods. Any impairment charge related to goodwill would be classified as a separate line item on our consolidated statement of income as part of income before income taxes and
+any impairment charge related to other indefinite-lived intangible assets would be classified within other (expense) income, net. 
+Intangible assets that are determined to have definite lives are amortized over their useful lives and are measured for impairment only when events or circumstances indicate the carrying value may be impaired. In these cases, we estimate
+the future undiscounted cash flows to be derived from the asset to determine whether or not a potential impairment exists. If the carrying value exceeds our estimate of future undiscounted cash flows, we then calculate the impairment as the excess
+of the carrying value of the asset over our estimate of its fair value. Any significant impairment charges would be classified within other (expense) income, net. 
+Hedge Accounting for Derivatives 
+We use forward exchange contracts and option contracts to
+hedge certain anticipated foreign currency exchange transactions, as well as any resulting receivable or payable balance. When specific criteria required by SFAS No. 133, “Accounting for Derivative and Hedging Activities,” as amended
+and interpreted (“FAS 133”), have been met, changes in fair values of hedge contracts relating to anticipated transactions are recorded in other comprehensive income rather than net income until the underlying hedged transaction affects
+net income. In most cases, this results in gains and losses on hedge derivatives being released from other comprehensive income into net income some time after the maturity of the derivative. One of the criteria for this accounting treatment is that
+the forward exchange contract amount should not be in excess of specifically identified anticipated transactions. By their very nature, our estimates of anticipated transactions may fluctuate over time and may ultimately vary from actual
+transactions. When anticipated transaction estimates or actual transaction amounts decrease below hedged levels, or when the timing of transactions changes beyond the threshold allowed by FAS 133, we are 
+40 
+Table of Contents 
+required to reclassify at least a portion of the cumulative changes in fair values of the related hedge contracts from other comprehensive income to other
+(expense) income, net during the quarter in which such changes occur. Once an anticipated transaction estimate or actual transaction amount decreases below hedged levels, we make adjustments to the related hedge contract in order to reduce the
+amount of the hedge contract to that of the revised anticipated transaction. 
+We use forward contracts to hedge our investment in the net
+assets of certain international subsidiaries to offset foreign currency translation and economic exposures related to our net investment in those subsidiaries. When appropriately designated as a hedge in accordance with FAS 133, the change in fair
+value of the forward contracts hedging our net investments is reported in the cumulative translation adjustment component of accumulated other comprehensive income within stockholders’ equity to offset the foreign currency translation
+adjustments on those investments. 
+As the value of our underlying net investments in wholly-owned international subsidiaries is known at
+the time a hedge is placed, the designated hedge is matched to the portion of our net investment at risk. Accordingly, the variability involved in net investment hedges is substantially less than that of other types of hedge transactions and we do
+not expect any material ineffectiveness. In accordance with FAS 133, we consider, on a quarterly basis, the need to redesignate existing hedge relationships based on changes in the underlying net investment. Should the level of our net investment
+decrease below hedged levels, any resulting ineffectiveness would be reported directly to earnings in the period incurred. 
+Stock-based Compensation 
+As of the first quarter of fiscal 2007, we account for stock-based compensation in
+accordance with FAS 123R. Under the provisions of FAS 123R, the fair value of stock-based compensation is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of
+highly subjective assumptions including volatility. Expected volatility is estimated based on implied volatility in market traded options on our common stock with a term greater than one year, along with other factors. Our decision to use implied
+volatility was based on the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility. If factors change and we use different
+assumptions for estimating stock-based compensation expense in future periods, stock-based compensation expense may differ materially in the future from that recorded in the current period. 
+Taxes 
+We record valuation
+allowances against our deferred tax assets, when necessary, in accordance with SFAS No. 109, “Accounting for Income Taxes.” Realization of deferred tax assets (such as net operating loss carry-forwards) is dependent on future
+taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a
+valuation allowance against our deferred tax asset, increasing our income tax expense in the period such determination is made. 
+In
+addition, we have not recorded U.S. income tax expense for foreign earnings that we have determined to be indefinitely reinvested offshore, thus reducing our overall income tax expense. The amount of earnings designated as indefinitely reinvested
+offshore is based upon the actual deployment of such earnings in our offshore assets and our expectations of the future cash needs of our U.S. and foreign entities. Income tax considerations are also a factor in determining the amount of foreign
+earnings to be indefinitely reinvested offshore. 
+We carefully review all factors that drive the ultimate disposition of foreign earnings
+determined to be reinvested offshore, and apply stringent standards to overcoming the presumption of repatriation. Despite this approach, because the determination involves our future plans and expectations of future events, the possibility exists
+41 
+Table of Contents 
+that amounts declared as indefinitely reinvested offshore may ultimately be repatriated. For instance, the actual cash needs of our U.S. entities may exceed
+our current expectations, or the actual cash needs of our foreign entities may be less than our current expectations. This would result in additional income tax expense in the year we determined that amounts were no longer indefinitely reinvested
+offshore. Conversely, our approach may also result in a determination that accumulated foreign earnings (for which U.S. income taxes have been provided) will be indefinitely reinvested offshore. In this case, our income tax expense would be reduced
+in the year of such determination. 
+On an interim basis, we estimate what our effective tax rate will be for the full fiscal year. The
+estimated annual effective tax rate is then applied to the year-to-date pre-tax income excluding infrequently occurring or unusual items, to determine the year-to-date tax expense. The income tax effects of infrequent or unusual items are recognized
+in the interim period in which they occur. As the fiscal year progresses, we continually refine our estimate based upon actual events and earnings by jurisdiction during the year. This continual estimation process periodically results in a change to
+our expected effective tax rate for the fiscal year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision equals the expected annual rate. 
+We account for uncertain tax positions in accordance with FIN 48. On a quarterly basis, we reevaluate the probability that a tax position will be
+effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity. Changes in our
+assessment may result in the recognition of a tax benefit or an additional charge to the tax provision in the period our assessment changes. We recognize interest and penalties related to income tax matters in income tax expense. 
+Other Contingencies 
+In the
+ordinary course of business, we are involved in legal proceedings regarding contractual and employment relationships, product liability claims, trademark rights, and a variety of other matters. We record contingent liabilities resulting from claims
+against us, including related legal costs, when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including in
+some cases judgments about the potential actions of third party claimants and courts. Recorded contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain. If future adjustments
+to estimated probable future losses or actual losses exceed our recorded liability for such claims, we would record additional charges as other (expense) income, net during the period in which the actual loss or change in estimate occurred. In
+addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will materially exceed the recorded liability. Currently, we do not believe that any of
+our pending legal proceedings or claims will have a material impact on our financial position or results of operations. 
+Item 7A. Quantitative and Qualitative Disclosures about Market Risk 
+In the normal course of business and consistent with established policies and procedures, we employ a variety of financial instruments to manage exposure to fluctuations in the value of foreign currencies and interest
+rates. It is our policy to utilize these financial instruments only where necessary to finance our business and manage such exposures; we do not enter into these transactions for speculative purposes. 
+We are exposed to foreign currency fluctuation as a result of our international sales, product sourcing and funding activities. Our foreign currency risk
+management objective is to reduce the variability of local entity cash flows as a result of exchange rate movements. We use forward exchange contracts and options to hedge certain anticipated but not yet firmly committed transactions as well as
+certain firm commitments and the related receivables and payables, including third party and intercompany transactions. We also use forward contracts to hedge our investment in the net assets of certain international subsidiaries to offset foreign
+currency translation and economic exposures related to our net investment in those subsidiaries. 
+42 
+Table of Contents 
+When we begin hedging exposures, the type and duration of each hedge depends on the nature of the
+exposure and market conditions. Generally, all anticipated and firmly committed transactions that are hedged are to be recognized within twelve to eighteen months, although at May 31, 2008 we had forward contracts hedging anticipated
+transactions that will be recognized in as many as 34 months. The majority of the contracts expiring in more than twelve months relate to the anticipated purchase of inventory by one of our European subsidiaries. When intercompany loans are hedged,
+it is typically for their expected duration. Hedged transactions are principally denominated in euros, British pounds, and Japanese yen. 
+Our earnings are also exposed to movements in short and long-term market interest rates. Our objective in managing this interest rate exposure is to limit the impact of interest rate changes on earnings and cash flows and to reduce overall
+borrowing costs. To achieve these objectives, we maintain a mix of commercial paper, bank loans and fixed rate debt of varying maturities and have entered into receive-fixed, pay-variable interest rate swaps. 
+Market Risk Measurement 
+We monitor foreign exchange
+risk, interest rate risk and related derivatives using a variety of techniques including a review of market value, sensitivity analysis, and Value-at-Risk (“VaR”). Our market-sensitive derivative and other financial instruments, as defined
+by the SEC, are foreign currency forward contracts, foreign currency option contracts, interest rate swaps, intercompany loans denominated in non-functional currencies, fixed interest rate U.S. dollar denominated debt, and fixed interest rate
+Japanese yen denominated debt. 
+We use VaR to monitor the foreign exchange risk of our foreign currency forward and foreign currency option
+derivative instruments only. The VaR determines the maximum potential one-day loss in the fair value of these foreign exchange rate-sensitive financial instruments. The VaR model estimates assume normal market conditions and a 95% confidence level.
+There are various modeling techniques that can be used in the VaR computation. Our computations are based on interrelationships between currencies and interest rates (a “variance/co-variance” technique). These interrelationships are a
+function of foreign exchange currency market changes and interest rate changes over the preceding one year period. The value of foreign currency options does not change on a one-to-one basis with changes in the underlying currency rate. We adjusted
+the potential loss in option value for the estimated sensitivity (the “delta” and “gamma”) to changes in the underlying currency rate. This calculation reflects the impact of foreign currency rate fluctuations on the derivative
+instruments only, and does not include the impact of such rate fluctuations on non-functional currency transactions (such as anticipated transactions, firm commitments, cash balances, and accounts and loans receivable and payable), including those
+which are hedged by these instruments. 
+The VaR model is a risk analysis tool and does not purport to represent actual losses in fair value
+that we will incur, nor does it consider the potential effect of favorable changes in market rates. It also does not represent the full extent of the possible loss that may occur. Actual future gains and losses will differ from those estimated
+because of changes or differences in market rates and interrelationships, hedging instruments and hedge percentages, timing and other factors. 
+The estimated maximum one-day loss in fair value on our foreign currency sensitive financial instruments, derived using the VaR model, was $34.9 million and $13.7 million at May 31, 2008 and May 31, 2007, respectively. The
+increase in VaR as of May 31, 2008 occurred due to a higher notional value of outstanding foreign currency derivative instruments coupled with increased foreign currency volatility as of May 31, 2008 compared to May 31, 2007. Such a
+hypothetical loss in fair value of our derivatives would be offset by increases in the value of the underlying transactions being hedged. The average monthly change in the fair values of foreign currency forward and foreign currency option
+derivative instruments was $32.3 million and $36.5 million during fiscal 2008 and fiscal 2007, respectively. 
+43 
+Table of Contents 
+Details of other market-sensitive financial instruments and derivative financial instruments not included
+in the VaR calculation above are provided in the table below. The instruments not included in the VaR are intercompany loans denominated in non-functional currencies, fixed interest rate Japanese yen denominated debt, fixed interest rate U.S. dollar
+denominated debt and interest rate swaps. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. Weighted average interest rates for the fixed rate swapped to floating
+rate debt reflect the effective interest rates as of May 31, 2008. 
+Expected Maturity Date 
+Year Ended May 31, 
+2009 
+2010 
+2011 
+2012 
+2013 
+Thereafter 
+Total 
+Fair Value 
+(In millions, except interest rates) 
+Foreign Exchange Risk 
+Euro Functional Currency 
+Intercompany loan — U.S. dollar denominated — Fixed rate 
+Principal payments 
+$ 
+190.0 
+— 
+— 
+— 
+— 
+$ 
+270.4 
+$ 
+460.4 
+$ 
+460.4 
+Average interest rate 
+2.4 
+% 
+— 
+— 
+— 
+— 
+3.2 
+% 
+2.9 
+% 
+Intercompany loan — British pound denominated — Fixed rate 
+Principal payments 
+92.6 
+— 
+— 
+— 
+— 
+118.6 
+$ 
+211.2 
+$ 
+211.2 
+Average interest rate 
+5.3 
+% 
+— 
+— 
+— 
+— 
+6.4 
+% 
+5.9 
+% 
+U.S. Dollar Functional Currency 
+Intercompany loan — Euro denominated — Fixed rate 
+Principal payments 
+— 
+— 
+— 
+— 
+— 
+$ 
+656.8 
+$ 
+656.8 
+$ 
+656.8 
+Average interest rate 
+— 
+— 
+— 
+— 
+— 
+1.8 
+% 
+1.8 
+% 
+Intercompany loan — Japanese yen denominated — Fixed rate 
+Principal payments 
+$ 
+190.7 
+— 
+— 
+— 
+— 
+— 
+$ 
+190.7 
+$ 
+190.7 
+Average interest rate 
+1.2 
+% 
+— 
+— 
+— 
+— 
+— 
+1.2 
+% 
+Japanese Yen Functional Currency 
+Japanese yen debt — Fixed rate 
+Principal payments 
+$ 
+6.3 
+6.3 
+6.3 
+153.4 
+6.3 
+47.3 
+$ 
+225.9 
+$ 
+233.6 
+Average interest rate 
+3.1 
+% 
+3.1 
+% 
+3.1 
+% 
+3.0 
+% 
+2.4 
+% 
+2.4 
+% 
+2.6 
+% 
+Interest Rate Risk 
+Japanese Yen Functional Currency 
+Long-term Japanese yen debt — Fixed rate 
+Principal payments 
+$ 
+6.3 
+6.3 
+6.3 
+153.4 
+6.3 
+47.3 
+$ 
+225.9 
+$ 
+233.6 
+Average interest rate 
+3.1 
+% 
+3.1 
+% 
+3.1 
+% 
+3.0 
+% 
+2.4 
+% 
+2.4 
+% 
+2.6 
+% 
+U.S. Dollar Functional Currency 
+Long-term U.S. dollar debt — Fixed rate swapped to Floating rate 
+Principal payments 
+$ 
+— 
+25.0 
+— 
+— 
+40.0 
+100.0 
+$ 
+165.0 
+$ 
+167.5 
+Average interest rate 
+— 
+3.4 
+% 
+— 
+— 
+3.2 
+% 
+2.7 
+% 
+2.9 
+% 
+Long-term U.S. dollar debt — Fixed rate 
+Principal payments 
+$ 
+— 
+— 
+— 
+— 
+— 
+50.0 
+$ 
+50.0 
+$ 
+49.7 
+Average interest rate 
+— 
+— 
+— 
+— 
+— 
+4.7 
+% 
+4.7 
+% 
+Intercompany loans and related interest amounts eliminate in consolidation. Intercompany loans are
+generally hedged against foreign exchange risk through the use of forward contracts with third parties, as discussed above. 
+The fixed
+interest rate Japanese yen denominated debts were issued by and are accounted for by one of our Japanese subsidiaries. Accordingly, the monthly re-measurement of these instruments due to changes in foreign exchange rates is recognized in accumulated
+other comprehensive income upon the consolidation of this subsidiary. 
+44 
+Table of Contents 
+In fiscal 2003 we also entered into an interest rate swap agreement related to a Japanese yen denominated
+intercompany loan with one of our Japanese subsidiaries. The Japanese subsidiary pays variable interest on the intercompany loan based on 3-month LIBOR plus a spread. Under the interest rate swap agreement, the subsidiary pays fixed interest
+payments at 0.80% and receives variable interest payments based on 3-month LIBOR plus a spread based on a notional amount of 8.0 billion Japanese yen. This interest rate swap is not accounted for as a hedge. Accordingly, changes in the fair value of
+the swap are recorded to net income each period. The change in fair value of the swap was not material for the years ended May 31, 2008, 2007 and 2006. 
+Item 8. Financial Statements and Supplemental Data 
+Management of NIKE, Inc. is responsible for the information and representations contained in this report. The financial statements have been prepared in conformity with the generally accepted accounting principles we considered appropriate
+in the circumstances and include some amounts based on our best estimates and judgments. Other financial information in this report is consistent with these financial statements. 
+Our accounting systems include controls designed to reasonably assure that assets are safeguarded from unauthorized use or disposition and which provide
+for the preparation of financial statements in conformity with generally accepted accounting principles. These systems are supplemented by the selection and training of qualified financial personnel and an organizational structure providing for
+appropriate segregation of duties. 
+An Internal Audit department reviews the results of its work with the Audit Committee of the Board of
+Directors, presently consisting of three outside directors. The Audit Committee is responsible for the appointment of the independent registered public accounting firm and reviews with the independent registered public accounting firm, management
+and the internal audit staff, the scope and the results of the annual examination, the effectiveness of the accounting control system and other matters relating to the financial affairs of NIKE as they deem appropriate. The independent registered
+public accounting firm and the internal auditors have full access to the Committee, with and without the presence of management, to discuss any appropriate matters. 
+Management’s Annual Report on Internal Control Over Financial Reporting 
+Management is
+responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act rule 13a-15(f). Under the supervision and with the participation of our Chief Executive Officer and Chief
+Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring
+Organizations of the Treadway Commission. We have excluded from our evaluation the internal controls over financial reporting of Umbro Ltd., which we acquired on March 3, 2008. As of May 31, 2008 and for the period from March 3, 2008
+through May 31, 2008, total assets and total revenues subject to Umbro Ltd.’s internal control over financial reporting represented 7.3% and 0.3% of the Company’s consolidated total assets and total revenues, respectively. Based on
+the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of May 31, 2008. 
+Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human
+diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations,
+there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is
+possible to design into the process safeguards to reduce, though not eliminate, this risk. 
+45 
+Table of Contents 
+PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited (1) the
+consolidated financial statements and (2) the effectiveness of our internal control over financial reporting as of May 31, 2008, as stated in their report herein. 
+Mark G. Parker 
+Donald W. Blair 
+Chief Executive Officer and President 
+Chief Financial Officer 
+46 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+To the Board of Directors and 
+Shareholders of NIKE, Inc.: 
+In our opinion, the consolidated financial statements listed in the index
+appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of NIKE, Inc. and its subsidiaries at May 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three
+years in the period ended May 31, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the appendix appearing under
+Item 15(a)(2) presents fairly in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects,
+effective internal control over financial reporting as of May 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
+The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
+financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on these financial statements, on the financial statement schedule,
+and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
+that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our
+audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
+evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
+testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
+provide a reasonable basis for our opinions. 
+As discussed in Note 1 to the consolidated financial statements, effective June 1, 2006,
+the Company changed the manner in which it accounts for stock-based compensation in accordance with the Statement of Financial Accounting Standards No. 123R “Share-Based Payment.” 
+A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
+reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
+(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
+of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
+of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+47 
+Table of Contents 
+As described in Management’s Annual Report on Internal Control Over Financial Reporting, management
+has excluded Umbro Ltd. from its assessment of internal control over financial reporting as of May 31, 2008 because it was acquired by the Company in a purchase business combination during fiscal 2008. We have also excluded Umbro Ltd. from our
+audit of internal control over financial reporting. Umbro Ltd. is a wholly-owned subsidiary whose total assets and total revenues represent 7.3% and 0.3%, respectively, of the related consolidated financial statement amounts as of and for the year
+ended May 31, 2008. 
+/s/ P RICEWATERHOUSE C OOPERS LLP 
+Portland, Oregon 
+July 24, 2008 
+48 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF INCOME 
+Year Ended May 31, 
+2008 
+2007 
+2006 
+(In millions, except per share data) 
+Revenues 
+$ 
+18,627.0 
+$ 
+16,325.9 
+$ 
+14,954.9 
+Cost of sales 
+10,239.6 
+9,165.4 
+8,367.9 
+Gross margin 
+8,387.4 
+7,160.5 
+6,587.0 
+Selling and administrative expense 
+5,953.7 
+5,028.7 
+4,477.8 
+Interest income, net (Notes 1, 6 and 7) 
+77.1 
+67.2 
+36.8 
+Other (expense) income, net (Notes 15 and 16) 
+(7.9 
+) 
+0.9 
+(4.4 
+) 
+Income before income taxes 
+2,502.9 
+2,199.9 
+2,141.6 
+Income taxes (Note 8) 
+619.5 
+708.4 
+749.6 
+Net income 
+$ 
+1,883.4 
+$ 
+1,491.5 
+$ 
+1,392.0 
+Basic earnings per common share (Notes 1 and 11) 
+$ 
+3.80 
+$ 
+2.96 
+$ 
+2.69 
+Diluted earnings per common share (Notes 1 and 11) 
+$ 
+3.74 
+$ 
+2.93 
+$ 
+2.64 
+Dividends declared per common share 
+$ 
+0.875 
+$ 
+0.71 
+$ 
+0.59 
+The accompanying notes to consolidated financial statements are an integral part of this
+statement. 
+49 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED BALANCE SHEETS 
+May 31, 
+2008 
+2007 
+(In millions) 
+ASSETS 
+Current assets: 
+Cash and equivalents 
+$ 
+2,133.9 
+$ 
+1,856.7 
+Short-term investments 
+642.2 
+990.3 
+Accounts receivable, net 
+2,795.3 
+2,494.7 
+Inventories (Note 2) 
+2,438.4 
+2,121.9 
+Deferred income taxes (Note 8) 
+227.2 
+219.7 
+Prepaid expenses and other current assets 
+602.3 
+393.2 
+Total current assets 
+8,839.3 
+8,076.5 
+Property, plant and equipment, net (Note 3) 
+1,891.1 
+1,678.3 
+Identifiable intangible assets, net (Note 4) 
+743.1 
+409.9 
+Goodwill (Note 4) 
+448.8 
+130.8 
+Deferred income taxes and other assets (Note 8) 
+520.4 
+392.8 
+Total assets 
+$ 
+12,442.7 
+$ 
+10,688.3 
+LIABILITIES AND SHAREHOLDERS’ EQUITY 
+Current liabilities: 
+Current portion of long-term debt (Note 7) 
+$ 
+6.3 
+$ 
+30.5 
+Notes payable (Note 6) 
+177.7 
+100.8 
+Accounts payable (Note 6) 
+1,287.6 
+1,040.3 
+Accrued liabilities (Notes 5 and 16) 
+1,761.9 
+1,303.4 
+Income taxes payable 
+88.0 
+109.0 
+Total current liabilities 
+3,321.5 
+2,584.0 
+Long-term debt (Note 7) 
+441.1 
+409.9 
+Deferred income taxes and other liabilities (Note 8) 
+854.5 
+668.7 
+Commitments and contingencies (Notes 14 and 16) 
+— 
+— 
+Redeemable Preferred Stock (Note 9) 
+0.3 
+0.3 
+Shareholders’ equity: 
+Common stock at stated value (Note 10): 
+Class A convertible — 96.8 and 117.6 shares outstanding 
+0.1 
+0.1 
+Class B — 394.3 and 384.1 shares outstanding 
+2.7 
+2.7 
+Capital in excess of stated value 
+2,497.8 
+1,960.0 
+Accumulated other comprehensive income (Note 13) 
+251.4 
+177.4 
+Retained earnings 
+5,073.3 
+4,885.2 
+Total shareholders’ equity 
+7,825.3 
+7,025.4 
+Total liabilities and shareholders’ equity 
+$ 
+12,442.7 
+$ 
+10,688.3 
+The accompanying notes to consolidated financial statements are an integral part of this statement.
+50 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+Year Ended May 31, 
+2008 
+2007 
+2006 
+(In millions) 
+Cash provided (used) by operations: 
+Net income 
+$ 
+1,883.4 
+$ 
+1,491.5 
+$ 
+1,392.0 
+Income charges not affecting cash: 
+Depreciation 
+303.6 
+269.7 
+282.0 
+Deferred income taxes 
+(300.6 
+) 
+34.1 
+(26.0 
+) 
+Stock-based compensation (Notes 1 and 10) 
+141.0 
+147.7 
+11.8 
+Gain on divestitures (Note 15) 
+(60.6 
+) 
+— 
+— 
+Amortization and other 
+17.9 
+0.5 
+(2.9 
+) 
+Income tax benefit from exercise of stock options 
+— 
+— 
+54.2 
+Changes in certain working capital components and other assets and liabilities excluding the impact of acquisition and
+divestitures: 
+Increase in accounts receivable 
+(118.3 
+) 
+(39.6 
+) 
+(85.1 
+) 
+Increase in inventories 
+(249.8 
+) 
+(49.5 
+) 
+(200.3 
+) 
+Increase in prepaid expenses and other current assets 
+(11.2 
+) 
+(60.8 
+) 
+(37.2 
+) 
+Increase in accounts payable, accrued liabilities and income taxes payable 
+330.9 
+85.1 
+279.4 
+Cash provided by operations 
+1,936.3 
+1,878.7 
+1,667.9 
+Cash provided (used) by investing activities: 
+Purchases of short-term investments 
+(1,865.6 
+) 
+(2,133.8 
+) 
+(2,619.7 
+) 
+Maturities of short-term investments 
+2,246.0 
+2,516.2 
+1,709.8 
+Additions to property, plant and equipment 
+(449.2 
+) 
+(313.5 
+) 
+(333.7 
+) 
+Disposals of property, plant and equipment 
+1.9 
+28.3 
+1.6 
+Increase in other assets, net of other liabilities 
+(21.8 
+) 
+(4.3 
+) 
+(34.6 
+) 
+Acquisition of subsidiary, net of cash acquired (Note 15) 
+(571.1 
+) 
+— 
+— 
+Proceeds from divestitures (Note 15) 
+246.0 
+— 
+— 
+Cash (used) provided by investing activities 
+(413.8 
+) 
+92.9 
+(1,276.6 
+) 
+Cash provided (used) by financing activities: 
+Proceeds from issuance of long-term debt 
+— 
+41.8 
+— 
+Reductions in long-term debt, including current portion 
+(35.2 
+) 
+(255.7 
+) 
+(6.0 
+) 
+Increase (decrease) in notes payable 
+63.7 
+52.6 
+(18.2 
+) 
+Proceeds from exercise of stock options and other stock issuances 
+343.3 
+322.9 
+225.3 
+Excess tax benefits from share-based payment arrangements 
+63.0 
+55.8 
+— 
+Repurchase of common stock 
+(1,248.0 
+) 
+(985.2 
+) 
+(761.1 
+) 
+Dividends — common and preferred 
+(412.9 
+) 
+(343.7 
+) 
+(290.9 
+) 
+Cash used by financing activities 
+(1,226.1 
+) 
+(1,111.5 
+) 
+(850.9 
+) 
+Effect of exchange rate changes 
+(19.2 
+) 
+42.4 
+25.7 
+Net increase (decrease) in cash and equivalents 
+277.2 
+902.5 
+(433.9 
+) 
+Cash and equivalents, beginning of year 
+1,856.7 
+954.2 
+1,388.1 
+Cash and equivalents, end of year 
+$ 
+2,133.9 
+$ 
+1,856.7 
+$ 
+954.2 
+Supplemental disclosure of cash flow information: 
+Cash paid during the year for: 
+Interest, net of capitalized interest 
+$ 
+44.1 
+$ 
+60.0 
+$ 
+54.2 
+Income taxes 
+717.5 
+601.1 
+752.6 
+Dividends declared and not paid 
+112.9 
+92.9 
+79.4 
+The accompanying notes to consolidated financial statements are an integral part of this statement.
+51 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY 
+Common Stock 
+Capital in 
+Excess
+of 
+Stated 
+Value 
+Accumulated 
+Other 
+Comprehensive 
+Income (Loss) 
+Retained 
+Earnings 
+Total 
+Class A 
+Class B 
+Shares 
+Amount 
+Shares 
+Amount 
+(In millions, except per share data) 
+Balance at May 31, 2005 
+143.8 
+$ 
+0.1 
+378.4 
+$ 
+2.7 
+$ 
+1,171.5 
+$ 
+73.4 
+$ 
+4,396.5 
+$ 
+5,644.2 
+Stock options exercised 
+8.0 
+253.7 
+253.7 
+Conversion to Class B Common Stock 
+(16.0 
+) 
+16.0 
+— 
+Repurchase of Class B Common Stock 
+(19.0 
+) 
+(11.3 
+) 
+(769.9 
+) 
+(781.2 
+) 
+Dividends on Common stock ($0.59 per share) 
+(304.9 
+) 
+(304.9 
+) 
+Issuance of shares to employees 
+1.0 
+26.9 
+26.9 
+Stock-based compensation (Note 10): 
+11.8 
+11.8 
+Forfeiture of shares from employees 
+(0.2 
+) 
+(5.3 
+) 
+(0.3 
+) 
+(5.6 
+) 
+Comprehensive income (Note 13): 
+Net income 
+1,392.0 
+1,392.0 
+Other comprehensive income: 
+Foreign currency translation and other (net of tax benefit of $19.7) 
+87.1 
+87.1 
+Net loss on cash flow hedges (net of tax benefit of $2.8) 
+(5.6 
+) 
+(5.6 
+) 
+Reclassification to net income of previously deferred gains related to hedge derivatives (net of tax expense of $15.3) 
+(33.2 
+) 
+(33.2 
+) 
+Comprehensive income 
+48.3 
+1,392.0 
+1,440.3 
+Balance at May 31, 2006 
+127.8 
+$ 
+0.1 
+384.2 
+$ 
+2.7 
+$ 
+1,447.3 
+$ 
+121.7 
+$ 
+4,713.4 
+$ 
+6,285.2 
+Stock options exercised 
+10.7 
+349.7 
+349.7 
+Conversion to Class B Common Stock 
+(10.2 
+) 
+10.2 
+— 
+Repurchase of Class B Common Stock 
+(22.1 
+) 
+(13.2 
+) 
+(962.0 
+) 
+(975.2 
+) 
+Dividends on Common stock ($0.71 per share) 
+(357.2 
+) 
+(357.2 
+) 
+Issuance of shares to employees 
+1.2 
+30.1 
+30.1 
+Stock-based compensation (Note 10): 
+147.7 
+147.7 
+Forfeiture of shares from employees 
+(0.1 
+) 
+(1.6 
+) 
+(0.5 
+) 
+(2.1 
+) 
+Comprehensive income (Note 13): 
+Net income 
+1,491.5 
+1,491.5 
+Other comprehensive income: 
+Foreign currency translation and other (net of tax expense of $5.4) 
+84.6 
+84.6 
+Net loss on cash flow hedges (net of tax benefit of $9.5) 
+(38.1 
+) 
+(38.1 
+) 
+Reclassification to net income of previously deferred losses related to hedge derivatives (net of tax benefit of $3.6) 
+21.4 
+21.4 
+Comprehensive income 
+67.9 
+1,491.5 
+1,559.4 
+Adoption of FAS 158 (net of tax benefit of $5.4) (Note 12): 
+(12.2 
+) 
+(12.2 
+) 
+Balance at May 31, 2007 
+117.6 
+$ 
+0.1 
+384.1 
+$ 
+2.7 
+$ 
+1,960.0 
+$ 
+177.4 
+$ 
+4,885.2 
+$ 
+7,025.4 
+Stock options exercised 
+9.1 
+372.2 
+372.2 
+Conversion to Class B Common Stock 
+(20.8 
+) 
+20.8 
+— 
+Repurchase of Class B Common Stock 
+(20.6 
+) 
+(12.3 
+) 
+(1,235.7 
+) 
+(1,248.0 
+) 
+Dividends on Common stock ($0.875 per share) 
+(432.8 
+) 
+(432.8 
+) 
+Issuance of shares to employees 
+1.0 
+39.2 
+39.2 
+Stock-based compensation (Notes 1 and 10): 
+141.0 
+141.0 
+Forfeiture of shares from employees 
+(0.1 
+) 
+(2.3 
+) 
+(1.1 
+) 
+(3.4 
+) 
+Comprehensive income (Note 13): 
+Net income 
+1,883.4 
+1,883.4 
+Other comprehensive income: 
+Foreign currency translation and other (net of tax expense of $101.6) 
+211.9 
+211.9 
+Realized foreign currency translation gain due to divestiture (Note 15) 
+(46.3 
+) 
+(46.3 
+) 
+Net loss on cash flow hedges (net of tax benefit of $67.7) 
+(175.8 
+) 
+(175.8 
+) 
+Net loss on net investment hedges (net of tax benefit of $25.1) 
+(43.5 
+) 
+(43.5 
+) 
+Reclassification to net income of previously deferred losses related to hedge derivatives (net of tax benefit of $49.6) 
+127.7 
+127.7 
+Comprehensive income 
+74.0 
+1,883.4 
+1,957.4 
+Adoption of FIN 48 (Notes 1 and 8) 
+(15.6 
+) 
+(15.6 
+) 
+Adoption of EITF 06-2 Sabbaticals (net of tax benefit of $6.2) (Note 1) 
+(10.1 
+) 
+(10.1 
+) 
+Balance at May 31, 2008 
+96.8 
+$ 
+0.1 
+394.3 
+$ 
+2.7 
+$ 
+2,497.8 
+$ 
+251.4 
+$ 
+5,073.3 
+$ 
+7,825.3 
+The accompanying notes to consolidated financial statements are an integral part of this statement.
+52 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+Note 1 — Summary of Significant Accounting Policies
+Basis of Consolidation 
+The consolidated financial statements include the accounts of NIKE, Inc. and its subsidiaries (the “Company”). All significant intercompany transactions and balances have been eliminated. 
+Stock Split 
+On
+February 15, 2007 the Board of Directors declared a two-for-one stock split of the Company’s Class A and Class B common shares, which was effected in the form of a 100% common stock dividend distributed on April 2, 2007. All
+references to share and per share amounts in the consolidated financial statements and accompanying notes to the consolidated financial statements have been retroactively restated to reflect the two-for-one stock split. 
+Recognition of Revenues 
+Wholesale revenues are recognized when the risks and rewards of ownership have passed to the customer, based on the terms of sale. This occurs upon shipment or upon receipt by the customer depending on the country of the sale and the
+agreement with the customer. Retail store revenues are recorded at the time of sale. Provisions for sales discounts, returns and miscellaneous claims from customers are made at the time of sale. 
+Shipping and Handling Costs 
+Shipping and handling costs are expensed as incurred and included in cost of sales. 
+Advertising and Promotion
+Advertising production costs are expensed the first time the advertisement is run. Media (TV and print) placement costs are
+expensed in the month the advertising appears. 
+A significant amount of the Company’s promotional expenses result from payments under
+endorsement contracts. Accounting for endorsement payments is based upon specific contract provisions. Generally, endorsement payments are expensed on a straight-line basis over the term of the contract after giving recognition to periodic
+performance compliance provisions of the contracts. Prepayments made under contracts are included in prepaid expenses or other assets depending on the period to which the prepayment applies. 
+Through cooperative advertising programs, the Company reimburses its retail customers for certain of their costs of advertising the Company’s
+products. The Company records these costs in selling and administrative expense at the point in time when it is obligated to its customers for the costs, which is when the related revenues are recognized. This obligation may arise prior to the
+related advertisement being run. 
+Total advertising and promotion expenses were $2,308.3 million, $1,912.4 million, and $1,740.2 million
+for the years ended May 31, 2008, 2007 and 2006, respectively. Prepaid advertising and promotion expenses recorded in prepaid expenses and other assets totaled $266.7 million and $253.0 million at May 31, 2008 and 2007, respectively.
+53 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Cash and Equivalents 
+Cash and equivalents represent cash and short-term, highly liquid investments with maturities of three months or less at date of purchase. The carrying
+amounts reflected in the consolidated balance sheet for cash and equivalents approximate fair value. 
+Short-term Investments 
+Short-term investments consist of highly liquid investments, primarily commercial paper, U.S. Treasury, U.S. agency, and corporate debt
+securities, with maturities over three months from the date of purchase. Debt securities which the Company has the ability and positive intent to hold to maturity are carried at amortized cost, which approximates fair value. Short-term investments
+of $124.9 million and $975.4 million at May 31, 2008 and 2007, respectively, were classified as held-to-maturity and primarily comprised of U.S. Treasury and U.S. agency securities. All held-to-maturity securities at May 31, 2008 have
+maturity dates within one year. 
+Available-for-sale debt securities are recorded at fair value with net unrealized gains and losses
+reported, net of tax, in other comprehensive income, unless unrealized losses are determined to be other than temporary. The Company considers all available-for-sale securities, including those with maturity dates beyond 12 months, as available to
+support current operational liquidity needs and therefore classifies these securities as current assets within Short-term investments on the consolidated balance sheet. As of May 31, 2008, the Company held $432.3 million of available-for-sale
+securities with maturity dates within one year and $85.0 million with maturity dates over one year and less than five years. 
+Investments
+classified as available-for-sale consist of the following at fair value: 
+As of May 31, 
+2008 
+2007 
+(In millions) 
+Available-for-sale investments: 
+U.S. treasury and agencies 
+$ 
+194.1 
+$ 
+6.6 
+Corporate commercial paper and bonds 
+323.2 
+8.3 
+Total available-for-sale investments 
+$ 
+517.3 
+$ 
+14.9 
+Included in interest income, net for the years ended May 31, 2008, 2007, and 2006, was
+interest income of $115.8 million, $116.9 million and $87.3 million, respectively, related to short-term investments and cash and equivalents. 
+Allowance for Uncollectible Accounts Receivable 
+Accounts receivable consists principally of amounts receivable from
+customers. We make ongoing estimates relating to the collectibility of our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the
+allowance, we consider our historical level of credit losses and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Accounts receivable with anticipated collection dates greater than twelve months
+from the balance sheet date and related allowances are considered non-current and recorded in other assets. The allowance for uncollectible accounts receivable was $78.4 million and $71.5 million at May 31, 2008 and 2007, respectively, of which
+$36.7 million and $33.3 million was recorded in other assets. 
+54 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Inventory Valuation 
+Inventories related to our wholesale operations are stated at lower of cost or market and valued on a first-in, first-out (“FIFO”) or moving
+average cost basis. Inventories related to our retail operations are stated at the lower of average cost or market using the retail inventory method. Under the retail inventory method, the valuation of inventories at cost is calculated by
+applying a cost-to-retail ratio to the retail value inventories. Permanent and point of sale markdowns, when recorded, reduce both the retail and cost components of inventory on hand so as to maintain the already established cost-to-retail
+relationship. 
+Property, Plant and Equipment and Depreciation 
+Property, plant and equipment are recorded at cost. Depreciation for financial reporting purposes is determined on a straight-line basis for buildings and
+leasehold improvements over 2 to 40 years and for machinery and equipment over 2 to 15 years. Computer software (including, in some cases, the cost of internal labor) is depreciated on a straight-line basis over 3 to 10 years. 
+Impairment of Long-Lived Assets 
+The Company estimates the future undiscounted cash flows to be derived from an asset to assess whether or not a potential impairment exists when events or circumstances indicate the carrying value of a long-lived asset may be impaired. If
+the carrying value exceeds the Company’s estimate of future undiscounted cash flows, the Company then calculates the impairment as the excess of the carrying value of the asset over the Company’s estimate of its fair market value.
+Identifiable Intangible Assets and Goodwill 
+Goodwill and intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually in the fourth quarter, or when events indicate that an impairment exists. As required by
+Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and other Intangible Assets” (“FAS 142”), in the Company’s impairment test of goodwill, the Company compares the fair value of the
+applicable reporting unit to its carrying value. The Company estimates the fair value of its reporting units by using a combination of discounted cash flow analysis and comparisons with the market values of similar publicly traded companies. If the
+carrying value of the reporting unit exceeds the estimate of fair value, the Company calculates the impairment as the excess of the carrying value of goodwill over its implied fair value. In the impairment tests for indefinite-lived intangible
+assets, the Company compares the estimated fair value of the indefinite-lived intangible assets to the carrying value. The Company estimates the fair value of indefinite-lived intangible assets and trademarks using the relief from royalty approach,
+which is a standard form of discounted cash flow analysis used for the valuation of trademarks. If the carrying value exceeds the estimate of fair value, the Company calculates impairment as the excess of the carrying value over the estimate of fair
+value. 
+Intangible assets that are determined to have definite lives are amortized over their useful lives and are measured for impairment
+only when events or circumstances indicate the carrying value may be impaired. 
+Foreign Currency Translation and Foreign Currency
+Transactions 
+Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are included
+in the foreign currency translation adjustment, a component of accumulated other comprehensive income in shareholders’ equity. 
+55 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Transaction gains and losses generated by the effect of foreign exchange rates on recorded assets and
+liabilities denominated in a currency different from the functional currency of the applicable Company entity are recorded in other (expense) income, net, in the period in which they occur. 
+Accounting for Derivatives and Hedging Activities 
+The Company uses derivative financial instruments to limit exposure to changes in foreign currency exchange rates and interest rates. The Company accounts for derivatives pursuant to SFAS No. 133,
+“Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted (“FAS 133”). FAS 133 establishes accounting and reporting standards for derivative instruments and requires that all derivatives be
+recorded at fair value on the balance sheet. Changes in the fair value of derivative financial instruments are either recognized in other comprehensive income (a component of shareholders’ equity) or net income depending on whether the
+derivative is being used to hedge changes in cash flows or fair value. 
+See Note 16 for more information on the Company’s Risk
+Management program and derivatives. 
+Stock-Based Compensation 
+On June 1, 2006, the Company adopted SFAS No. 123R “Share-Based Payment” (“FAS 123R”) which requires the Company to record
+expense for stock-based compensation to employees using a fair value method. Under FAS 123R, the Company estimates the fair value of options granted under the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”) (see Note 10) and
+employees’ purchase rights under the Employee Stock Purchase Plans (“ESPPs”) using the Black-Scholes option pricing model. The Company recognizes this fair value, net of estimated forfeitures, as selling and administrative expense in
+the Consolidated Statements of Income over the vesting period using the straight-line method. 
+The Company has adopted the modified
+prospective transition method prescribed by FAS 123R, which does not require the restatement of financial results for previous periods. In accordance with this transition method, the Company’s Consolidated Statement of Income for the year ended
+May 31, 2008 and 2007 includes (1) amortization of outstanding stock-based compensation granted prior to, but not vested, as of June 1, 2006, based on the fair value estimated in accordance with the original provisions of SFAS
+No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”) and (2) amortization of all stock-based awards granted subsequent to June 1, 2006, based on the fair value estimated in accordance with the provisions
+of FAS 123R. 
+The following table summarizes the Company’s total stock-based compensation expense recognized in selling and
+administrative expense: 
+Year Ended May 31, 
+2008 
+2007 
+2006 
+(in millions) 
+Stock options (1) 
+$ 
+127.0 
+$ 
+134.9 
+$ 
+0.3 
+ESPPs 
+7.2 
+7.0 
+— 
+Restricted stock 
+6.8 
+5.8 
+11.5 
+Total stock-based compensation expense 
+$ 
+141.0 
+$ 
+147.7 
+$ 
+11.8 
+(1) 
+In accordance with FAS 123R, stock-based compensation expense
+reported during the years ended May 31, 2008 and 2007 includes $40.7 million and $36.3 million, respectively, of accelerated stock-based compensation expense recorded for employees eligible for stock option vesting upon retirement.
+56 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Prior to the adoption of FAS 123R, the Company used the intrinsic value method to account for stock
+options and ESPP shares in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” as permitted by FAS 123. If the Company had instead accounted for stock options and ESPP shares issued
+to employees using the fair value method prescribed by FAS 123 during the year ended May 31, 2006 the Company’s pro forma net income and pro forma earnings per share would have been reported as follows: 
+Year Ended May 31, 
+2006 
+(In millions, except per 
+share data) 
+Net income as reported 
+$ 
+1,392.0 
+Add: Stock option expense included in reported net income, net of tax 
+0.2 
+Deduct: Total stock option and ESPP expense under fair value based method for all awards, net of tax (1) 
+(76.8 
+) 
+Pro forma net income 
+$ 
+1,315.4 
+Earnings per share: 
+Basic — as reported 
+$ 
+2.69 
+Basic — pro forma 
+2.54 
+Diluted — as reported 
+2.64 
+Diluted — pro forma 
+2.50 
+(1) 
+Accelerated stock-based compensation expense for options subject to accelerated vesting due to employee retirement is
+not included in the pro forma figures shown above for the year ended May 31, 2006. This disclosure reflects the expense of such options ratably over the stated vesting period or upon actual employee retirement. Had the Company recognized the
+fair value for such stock options on an accelerated basis in this pro forma disclosure, the Company would have recognized additional stock-based compensation expense of $17.5 million, net of tax, or $0.03 per diluted share for the year ended
+May 31, 2006. 
+To calculate the excess tax benefits available for use in offsetting future tax shortfalls as of the
+date of implementation, the Company is following the alternative transition method discussed in FASB Staff Position No. 123R-3, “Transition Election Relating to Accounting for the Tax Effects of Share-Based Payment Awards.”
+See Note 10 for more information on the Company’s stock programs. 
+Income Taxes 
+The Company
+accounts for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax
+basis of assets and liabilities. United States income taxes are provided currently on financial statement earnings of non-U.S. subsidiaries that are expected to be repatriated. The Company determines annually the amount of undistributed non-U.S.
+earnings to invest indefinitely in its non-U.S. operations. The Company recognizes interest and penalties related to income tax matters in income tax expense. See Note 8 for further discussion. 
+57 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Earnings Per Share 
+Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the year. Diluted
+earnings per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive stock options and awards. See Note 11 for further discussion. 
+Management Estimates 
+The
+preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, including estimates relating to assumptions that affect the reported amounts of assets and liabilities and
+disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 
+Reclassifications 
+Certain
+prior year amounts have been reclassified to conform to fiscal year 2008 presentation. These changes had no impact on previously reported results of operations or shareholders’ equity. 
+Recently Adopted Accounting Standards 
+In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty
+in income taxes recognized in the Company’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” The Company adopted the provisions of FIN 48 on June 1, 2007. See Note 8 for further
+discussion. 
+In June 2006, the FASB ratified the consensus reached on Emerging Issues Task Force (“EITF”) Issue No. 06-2,
+“Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43” (“EITF 06-2”). EITF 06-2 clarifies recognition guidance on the accrual of employees’ rights to compensated absences under a
+sabbatical or other similar benefit arrangement. The adoption of EITF 06-2 on June 1, 2007 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. 
+Recently Issued Accounting Standards 
+In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting
+principles, and expands disclosures about fair value measurements. The provisions of FAS 157 for financial assets and liabilities are effective for the fiscal year beginning June 1, 2008 and the provisions of FAS 157 for non financial assets
+and liabilities except for items recognized at fair value on a recurring basis are effective for the fiscal year beginning June 1, 2009. The Company is currently evaluating the impact of the provisions for non financial assets and liabilities.
+The Company has evaluated the provisions of FAS 157 for financial assets and liabilities and does not expect that the adoption will have a material impact on the Company’s consolidated financial position or results of operations. 
+In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities including an Amendment of
+FASB Statement No. 115” (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The provisions of 
+58 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+FAS 159 are effective for the fiscal year beginning June 1, 2008. The Company has evaluated the impact of the provisions of FAS 159 and does not expect
+that the adoption will have a material impact on the Company’s consolidated financial position or results of operations. 
+In December
+2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)”) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”). These
+standards aim to improve, simplify, and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The provisions of FAS 141(R) and FAS 160 are effective for
+the fiscal year beginning June 1, 2009. The Company is currently evaluating the impact of the provisions of FAS 141(R) and FAS 160. 
+In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is intended to improve financial reporting about derivative instruments and hedging
+activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The provisions of FAS 161 are effective for the quarter ending
+February 28, 2009. The Company does not expect that the adoption will have a material impact on the Company’s consolidated financial position or results of operations. 
+Note 2 — Inventories 
+Inventory balances of $2,438.4 million and $2,121.9 million at
+May 31, 2008 and 2007, respectively, were substantially all finished goods. 
+Note 3 — Property, Plant and Equipment 
+Property, plant and equipment includes the following: 
+May 31, 
+2008 
+2007 
+(In millions) 
+Land 
+$ 
+209.4 
+$ 
+193.8 
+Buildings 
+934.6 
+840.9 
+Machinery and equipment 
+2,005.0 
+1,817.2 
+Leasehold improvements 
+757.3 
+672.8 
+Construction in process 
+196.7 
+94.4 
+4,103.0 
+3,619.1 
+Less accumulated depreciation 
+2,211.9 
+1,940.8 
+$ 
+1,891.1 
+$ 
+1,678.3 
+Capitalized interest was not material for the years ended May 31, 2008, 2007 and 2006.
+59 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 4 — Identifiable Intangible Assets and Goodwill: 
+The following table summarizes the Company’s identifiable intangible assets balances as of May 31, 2008 and May 31, 2007: 
+May 31, 2008 
+May 31, 2007 
+Gross 
+Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net 
+Carrying 
+Amount 
+Gross 
+Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net 
+Carrying 
+Amount 
+(In millions) 
+Amortized intangible assets: 
+Patents 
+$ 
+47.5 
+$ 
+(14.4 
+) 
+$ 
+33.1 
+$ 
+44.1 
+$ 
+(12.3 
+) 
+$ 
+31.8 
+Trademarks 
+13.2 
+(7.8 
+) 
+5.4 
+49.8 
+(17.5 
+) 
+32.3 
+Other 
+65.2 
+(19.7 
+) 
+45.5 
+21.6 
+(17.3 
+) 
+4.3 
+Total 
+$ 
+125.9 
+$ 
+(41.9 
+) 
+$ 
+84.0 
+$ 
+115.5 
+$ 
+(47.1 
+) 
+$ 
+68.4 
+Unamortized intangible assets — Trademarks 
+$ 
+659.1 
+$ 
+341.5 
+Total 
+$ 
+743.1 
+$ 
+409.9 
+Amortization expense of identifiable assets with definite lives, which is included in selling and
+administrative expense, was $9.2 million, $9.9 million and $9.8 million for the years ended May 31, 2008, 2007, and 2006, respectively. The estimated amortization expense for intangible assets subject to amortization for each of the years
+ending May 31, 2009 through May 31, 2013 is as follows: 2009: $9.0 million; 2010: $8.6 million; 2011: $8.2 million; 2012: $7.5 million; 2013: $5.7 million. 
+During the fourth quarter ended May 31, 2008 the Company completed the acquisition of Umbro Plc (“Umbro”). As a result, $378.4 million was allocated to unamortized trademarks, $319.2 million was
+allocated to goodwill and $41.1 million was allocated to other amortized intangible assets consisting of Umbro’s sourcing network, established customer relationships and the United Soccer League Franchise. The gross carrying amount of
+unamortized and amortized trademarks were reduced by $59.6 million and $37.5 million, respectively, as a result of our divestitures of the Starter brand business and NIKE Bauer Hockey Corp. during the year ended May 31, 2008. See Note 15 for
+more information on the Company’s acquisition and divestitures. 
+The following table summarizes the Company’s goodwill balances
+as of May 31, 2008 and May 31, 2007 (in millions): 
+Goodwill, May 31, 2007 
+$ 
+130.8 
+Acquisition of Umbro Plc (Note 15) 
+319.2 
+Other (1) 
+(1.2 
+) 
+Goodwill, May 31, 2008 
+$ 
+448.8 
+(1) 
+Other consists of foreign currency translation adjustments on Umbro goodwill. 
+60 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 5 — Accrued Liabilities 
+Accrued liabilities include the following: 
+May 31, 
+2008 
+2007 
+(In millions) 
+Compensation and benefits, excluding taxes 
+$ 
+538.0 
+$ 
+451.6 
+Endorser compensation 
+203.5 
+139.9 
+Fair value of derivatives 
+173.3 
+90.5 
+Taxes other than income taxes 
+147.6 
+133.4 
+Advertising and marketing 
+121.4 
+70.6 
+Dividends payable 
+112.9 
+92.9 
+Import and logistics costs 
+78.8 
+81.4 
+Other (1) 
+386.4 
+243.1 
+$ 
+1,761.9 
+$ 
+1,303.4 
+(1) 
+Other consists of various accrued expenses and no individual item accounted for more than $65 million of the balance at
+May 31, 2008 or 2007. 
+Note 6 — Short-Term Borrowings and Credit Lines 
+Notes payable to banks and interest-bearing accounts payable to Sojitz Corporation of America (“Sojitz America”) as of May 31, 2008 and
+2007, are summarized below: 
+May 31, 
+2008 
+2007 
+Borrowings 
+Interest 
+Rate 
+Borrowings 
+Interest 
+Rate 
+(In millions) 
+Notes payable: 
+U.S. operations 
+$ 
+18.6 
+0.00 
+% (1) 
+$ 
+14.6 
+0.00 
+% (1) 
+Non-U.S. operations 
+159.1 
+6.80 
+% 
+86.2 
+9.85 
+% 
+$ 
+177.7 
+$ 
+100.8 
+Sojitz America 
+$ 
+65.9 
+3.51 
+% 
+$ 
+44.6 
+6.09 
+% 
+(1) 
+Weighted average interest rate includes non-interest bearing overdrafts. 
+The carrying amounts reflected in the consolidated balance sheet for notes payable approximate fair value. 
+The Company purchases through Sojitz America certain athletic footwear, apparel and equipment it acquires from non-U.S. suppliers. These purchases are
+for the Company’s operations outside of the United States, the Europe, Middle East, and Africa Region and Japan. Accounts payable to Sojitz America are generally due up to 60 days after shipment of goods from the foreign port. The interest rate
+on such accounts payable is the 60-day London Interbank Offered Rate (“LIBOR”) as of the beginning of the month of the invoice date, plus 0.75%. 
+The Company had no borrowings outstanding under its commercial paper program at May 31, 2008 and 2007. 
+61 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+In December 2006, the Company entered into a $1 billion revolving credit facility with a group of
+banks. The facility matures in December 2012 and can be extended for one additional year on its next anniversary date. Based on the Company’s current long-term senior unsecured debt ratings of A+ and A2 from Standard and Poor’s Corporation
+and Moody’s Investor Services, respectively, the interest rate charged on any outstanding borrowings would be the prevailing London Interbank Offer Rate (“LIBOR”) plus 0.15%. The facility fee is 0.05% of the total commitment. Under
+this agreement, the Company must maintain, among other things, certain minimum specified financial ratios with which the Company was in compliance at May 31, 2008. No amounts were outstanding under these facilities as of May 31, 2008 or
+2007. 
+During the year ended May 31, 2008, one of the Company’s Japanese subsidiaries entered into a total of ¥5.0 billion
+(approximately $47.4 million as of May 31, 2008) in short-term loans to meet general operating needs. The interest rates on the loans are based on the prevailing Tokyo Interbank Offer Rate of our election plus a spread, resulting in a weighted
+average all-in rate of 1.06% at May 31, 2008. 
+In January 2007, another one of the Company’s Japanese subsidiaries entered into a
+¥3.0 billion (approximately $28.5 million as of May 31, 2008) loan facility that replaced certain intercompany borrowings. The interest rate on the facility is based on the six-month Japanese Yen London Interbank Offer Rate plus a spread
+resulting in an all-in-rate of approximately 1.12% at May 31, 2008. The loan facility was replaced with intercompany borrowings subsequent to May 31, 2008. 
+Note 7 — Long-Term Debt 
+Long-term debt includes the following: 
+May 31, 
+2008 
+2007 
+(In millions) 
+4.8% Corporate Bond, payable July 9, 2007 
+— 
+$ 
+25.0 
+5.375% Corporate Bond, payable July 8, 2009 
+25.5 
+24.8 
+5.66% Corporate Bond, payable July 23, 2012 
+26.1 
+24.8 
+5.4% Corporate Bond, payable August 7, 2012 
+15.4 
+14.6 
+4.7% Corporate Bond, payable October 1, 2013 
+50.0 
+50.0 
+5.15% Corporate Bonds, payable October 15, 2015 
+104.5 
+99.6 
+4.3% Japanese yen note, payable June 26, 2011 
+99.6 
+86.4 
+1.5% Japanese yen note, payable February 14, 2012 
+47.4 
+41.1 
+2.6% Japanese yen note, maturing August 20, 2001 through November 20, 2020 
+54.5 
+51.2 
+2.0% Japanese yen note, maturing August 20, 2001 through November 20, 2020 
+24.4 
+22.9 
+Total 
+447.4 
+440.4 
+Less current maturities 
+6.3 
+30.5 
+$ 
+441.1 
+$ 
+409.9 
+The fair value of long-term debt is estimated using discounted cash flow analyses, based on the
+Company’s incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company’s long-term debt, including current portion, is approximately $450.8 million at May 31, 2008 and $443.2 million at
+May 31, 2007. 
+Since 2001, the Company has had an effective shelf registration statement with the Securities and Exchange Commission
+for $1 billion of debt securities. The Company has a medium-term note program under the shelf 
+62 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+registration (“medium-term note program”) that allows the Company to issue up to $500 million in medium-term notes. Since commencement of this
+program, the Company has issued $240 million in medium-term notes of which $215 million and $240 million were outstanding as of May 31, 2008 and 2007, respectively. The issued notes have coupon rates that range from 4.70% to 5.66%. The
+remaining maturities range from July 8, 2009 to October 15, 2015. For each of these notes, except for the swap for the $50 million note maturing October 1, 2013, the Company has entered into interest rate swap agreements whereby the
+Company receives fixed interest payments at the same rate as the notes and pays variable interest payments based on the three-month or six-month LIBOR plus a spread. Each swap has the same notional amount and maturity date as the corresponding note.
+The swap for the $50 million note maturing October 1, 2013, expired October 2, 2006. At May 31, 2008, the interest rates payable on these swap agreements range from approximately 2.6% to 3.5%. 
+In June 1996, one of the Company’s Japanese subsidiaries, NIKE Logistics YK, borrowed ¥10.5 billion (approximately $99.6 million as of
+May 31, 2008) in a private placement with a maturity of June 26, 2011. Interest is paid semi-annually. The agreement provides for early retirement after year ten. 
+In July 1999, NIKE Logistics YK assumed ¥13.0 billion in loans as part of its agreement to purchase a distribution center in Japan, which serves as
+collateral for the loans. These loans mature in equal quarterly installments during the period August 20, 2001 through November 20, 2020. Interest is also paid quarterly. As of May 31, 2008, ¥8.3 billion in loans were outstanding
+(approximately $78.9 million). 
+In February 2007, NIKE Logistics YK entered into a ¥5.0 billion (approximately $47.4 million as of
+May 31, 2008) term loan that replaced certain intercompany borrowings and matures on February 14, 2012. The interest rate on the loan is approximately 1.5% and interest is paid semi-annually. 
+Amounts of long-term debt maturities in each of the years ending May 31, 2009 through 2013 are $6.3 million, $31.3 million, $6.3 million,
+$153.4 million and $46.3 million, respectively. 
+Note 8 — Income Taxes 
+Income before income taxes is as follows: 
+Year Ended May 31, 
+2008 
+2007 
+2006 
+(In millions) 
+Income before income taxes: 
+United States 
+$ 
+713.0 
+$ 
+805.1 
+$ 
+838.6 
+Foreign 
+1,789.9 
+1,394.8 
+1,303.0 
+$ 
+2,502.9 
+$ 
+2,199.9 
+$ 
+2,141.6 
+63 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The provision for income taxes is as follows: 
+Year Ended May 31, 
+2008 
+2007 
+2006 
+(In millions) 
+Current: 
+United States 
+Federal 
+$ 
+469.9 
+$ 
+352.6 
+$ 
+359.0 
+State 
+58.4 
+59.6 
+60.6 
+Foreign 
+391.8 
+261.9 
+356.0 
+920.1 
+674.1 
+775.6 
+Deferred: 
+United States 
+Federal 
+(273.0 
+) 
+38.7 
+(4.2 
+) 
+State 
+(5.0 
+) 
+(4.8 
+) 
+(6.8 
+) 
+Foreign 
+(22.6 
+) 
+0.4 
+(15.0 
+) 
+(300.6 
+) 
+34.3 
+(26.0 
+) 
+$ 
+619.5 
+$ 
+708.4 
+$ 
+749.6 
+Deferred tax assets and (liabilities) are comprised of the following: 
+May 31, 
+2008 
+2007 
+(In millions) 
+Deferred tax assets: 
+Allowance for doubtful accounts 
+$ 
+13.1 
+$ 
+12.4 
+Inventories 
+49.2 
+45.8 
+Sales return reserves 
+49.2 
+42.1 
+Deferred compensation 
+158.4 
+132.5 
+Stock-based compensation 
+55.2 
+30.3 
+Reserves and accrued liabilities 
+57.0 
+46.2 
+Property, plant, and equipment 
+7.9 
+16.3 
+Foreign loss carry-forwards 
+40.1 
+37.5 
+Foreign tax credit carry-forwards 
+91.9 
+3.4 
+Hedges 
+42.9 
+26.2 
+Other 
+40.5 
+33.0 
+Total deferred tax assets 
+605.4 
+425.7 
+Valuation allowance 
+(40.7 
+) 
+(42.3 
+) 
+Total deferred tax assets after valuation allowance 
+564.7 
+383.4 
+Deferred tax liabilities: 
+Undistributed earnings of foreign subsidiaries 
+(113.2 
+) 
+(232.6 
+) 
+Property, plant and equipment 
+(67.4 
+) 
+(66.1 
+) 
+Intangibles 
+(214.2 
+) 
+(97.2 
+) 
+Hedges 
+(1.3 
+) 
+(2.5 
+) 
+Other 
+(0.7 
+) 
+(17.8 
+) 
+Total deferred tax liability 
+(396.8 
+) 
+(416.2 
+) 
+Net deferred tax asset (liability) 
+$ 
+167.9 
+$ 
+(32.8 
+) 
+64 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate
+follows: 
+Year Ended May 31, 
+2008 
+2007 
+2006 
+Federal income tax rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State taxes, net of federal benefit 
+1.4 
+1.6 
+1.5 
+Foreign earnings 
+(12.9 
+) 
+(4.1 
+) 
+(1.5 
+) 
+Other, net 
+1.3 
+(0.3 
+) 
+— 
+Effective income tax rate 
+24.8 
+% 
+32.2 
+% 
+35.0 
+% 
+The effective tax rate for the year ended May 31, 2008 of 24.8% decreased from the fiscal
+2007 effective tax rate of 32.2%. Over the last few years, a number of international entities generated losses for which the Company did not recognize offsetting tax benefits because the realization of those benefits was uncertain. The
+necessary steps to realize these benefits have now been taken resulting in a one-time reduction of the effective tax rate for the year ended May 31, 2008 of 4.2 percentage points. Also reflected in the effective tax rate for the year ended
+May 31, 2008 is a reduction in our on-going effective tax rate resulting from our operations outside of the United States; our tax rates on these operations are generally lower than the U.S. statutory rate. The effective tax rate for the year
+ended May 31, 2007 of 32.2% decreased from the fiscal 2006 effective tax rate of 35.0%. The decrease is primarily due to a European tax agreement entered into during the three months ended November 30, 2006. The Company recorded a
+retroactive benefit for the European tax agreement during the year ended May 31, 2007. 
+The Company adopted FIN 48 effective
+June 1, 2007. Upon adoption, the Company recognized an additional long-term liability of $89.4 million for unrecognized tax benefits, $15.6 million of which was recorded as a reduction to the Company’s beginning retained earnings, and the
+remaining $73.8 million was recorded as a reduction to the Company’s noncurrent deferred tax liability. In addition, the Company reclassified $12.2 million of unrecognized tax benefits from income taxes payable to other long term liabilities in
+conjunction with the adoption of FIN 48. 
+At the adoption date of June 1, 2007, the Company had $122.5 million of gross unrecognized
+tax benefits, excluding related interest and penalties, $30.7 million of which would affect the Company’s effective tax rate if recognized in future periods. Including related interest and penalties and net of federal benefit of interest and
+unrecognized state tax benefits, at June 1, 2007, the Company had $135.0 million of total unrecognized tax benefits, $52.0 million of which would affect the Company’s effective tax rate if recognized in future periods. As of May 31,
+2008, the total gross unrecognized tax benefits, excluding related interest and penalties, were $251.1 million, $60.6 million of which would affect the Company’s effective tax rate if recognized in future periods. The Company does not
+anticipate that total unrecognized tax benefits will change significantly within the next 12 months. 
+The following is a reconciliation of
+the changes in the gross balance of unrecognized tax benefits for the year (in millions): 
+Unrecognized tax benefits — June 1, 2007 
+$ 
+122.5 
+Gross increases related to prior period tax positions 
+71.6 
+Gross decreases related to prior period tax positions 
+(23.1 
+) 
+Gross increases related to current period tax positions 
+87.7 
+Settlements 
+(13.4 
+) 
+Lapse of statute of limitations 
+(0.7 
+) 
+Changes due to currency translation 
+6.5 
+Unrecognized tax benefits — May 31, 2008 
+$ 
+251.1 
+65 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The Company is subject to taxation primarily in the United States, China and the Netherlands as well
+as various state and other foreign jurisdictions. The Company has concluded substantially all U.S. federal income tax matters through fiscal year 2004. The Company is currently under audit by the Internal Revenue Service for the 2005 and 2006 tax
+years. The Company’s major foreign jurisdictions, China and the Netherlands, have concluded substantially all income tax matters through calendar year 1997 and fiscal year 2002, respectively. 
+The Company recognizes interest and penalties related to income tax matters in income tax expense. Upon adoption at June 1, 2007, the Company had
+$32.0 million (excluding federal benefit) accrued for interest and penalties related to uncertain tax positions. The liability for payment of interest and penalties increased $41.2 million during the year ended May 31, 2008. As of May 31,
+2008, accrued interest and penalties related to uncertain tax positions was $73.2 million (excluding federal benefit). 
+During the quarter
+ended November 30, 2005, the Company’s CEO and Board of Directors approved a domestic reinvestment plan as required by the American Jobs Creation Act of 2004 (the “Act”) to repatriate $500 million of foreign earnings in
+fiscal 2006. The Act created a temporary incentive for U.S. multinational corporations to repatriate accumulated income earned outside the U.S. by providing an 85% dividend received deduction for certain dividends from controlled foreign
+corporations. A $500 million repatriation was made during the quarter ended May 31, 2006 comprised of both foreign earnings for which U.S. taxes have previously been provided and foreign earnings that had been designated as permanently
+reinvested. Accordingly, the provisions made did not have a material impact on the Company’s income tax expense or effective tax rate for the years ended May 31, 2008, 2007 and 2006. 
+The Company has indefinitely reinvested approximately $1,808.6 million of the cumulative undistributed earnings of certain foreign subsidiaries. Such
+earnings would be subject to U.S. taxation if repatriated to the U.S. Determination of the amount of unrecognized deferred tax liability associated with the permanently reinvested cumulative undistributed earnings is not practicable. 
+Deferred tax assets at May 31, 2008, 2007 and 2006 were reduced by a valuation allowance relating to tax benefits of certain foreign subsidiaries
+with operating losses where it is more likely than not that the deferred tax assets will not be realized. 
+During the years ended
+May 31, 2008, 2007, and 2006, income tax benefits attributable to employee stock-based compensation transactions of $68.9 million, $56.6 million, and $54.2 million, respectively, were allocated to shareholders’ equity. 
+Note 9 — Redeemable Preferred Stock 
+Sojitz
+America is the sole owner of the Company’s authorized Redeemable Preferred Stock, $1 par value, which is redeemable at the option of Sojitz America or the Company at par value aggregating $0.3 million. A cumulative dividend of $0.10 per share
+is payable annually on May 31 and no dividends may be declared or paid on the common stock of the Company unless dividends on the Redeemable Preferred Stock have been declared and paid in full. There have been no changes in the Redeemable
+Preferred Stock in the three years ended May 31, 2008, 2007 and 2006. As the holder of the Redeemable Preferred Stock, Sojitz America does not have general voting rights but does have the right to vote as a separate class on the sale of all or
+substantially all of the assets of the Company and its subsidiaries, on merger, consolidation, liquidation or dissolution of the Company or on the sale or assignment of the NIKE trademark for athletic footwear sold in the United States. 
+66 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 10 — Common Stock 
+The authorized number of shares of Class A Common Stock, no par value, and Class B Common Stock, no par value, are 175 million and 750 million, respectively. Each share of Class A Common Stock is convertible
+into one share of Class B Common Stock. Voting rights of Class B Common Stock are limited in certain circumstances with respect to the election of directors. 
+In 1990, the Board of Directors adopted, and the shareholders approved, the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”). The 1990 Plan provides for the issuance of up to 132 million
+previously unissued shares of Class B Common Stock in connection with stock options and other awards granted under the plan. The 1990 Plan authorizes the grant of non-statutory stock options, incentive stock options, stock appreciation rights, stock
+bonuses and the issuance and sale of restricted stock. The exercise price for non-statutory stock options, stock appreciation rights and the grant price of restricted stock may not be less than 75% of the fair market value of the underlying shares
+on the date of grant. The exercise price for incentive stock options may not be less than the fair market value of the underlying shares on the date of grant. A committee of the Board of Directors administers the 1990 Plan. The committee has the
+authority to determine the employees to whom awards will be made, the amount of the awards, and the other terms and conditions of the awards. The committee has granted substantially all stock options at 100% of the market price on the date of grant.
+Substantially all stock option grants outstanding under the 1990 plan were granted in the first quarter of each fiscal year, vest ratably over four years, and expire 10 years from the date of grant. 
+The weighted average fair value per share of the options granted during the years ended May 31, 2008, 2007 and 2006, as computed using the
+Black-Scholes pricing model, was $13.87, $8.80 and $9.68, respectively. The weighted average assumptions used to estimate these fair values are as follows: 
+Year Ended May 31, 
+2008 
+2007 
+2006 
+Dividend yield 
+1.4 
+% 
+1.6 
+% 
+1 
+% 
+Expected volatility 
+20 
+% 
+19 
+% 
+21 
+% 
+Weighted average expected life (in years) 
+5.0 
+5.0 
+4.5 
+Risk-free interest rate 
+4.8 
+% 
+5.0 
+% 
+4.0 
+% 
+The Company estimates the expected volatility based on the implied volatility in market traded
+options on the Company’s common stock with a term greater than one year, along with other factors. The weighted average expected life of options is based on an analysis of historical and expected future exercise patterns. The interest rate is
+based on the U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options. 
+67 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The following summarizes the stock option transactions under the plan discussed above: 
+Shares 
+Weighted 
+Average 
+Option 
+Price 
+(In millions) 
+Options outstanding May 31, 2005 
+38.7 
+$ 
+27.49 
+Exercised 
+(8.0 
+) 
+24.68 
+Forfeited 
+(1.8 
+) 
+35.75 
+Granted 
+11.5 
+43.68 
+Options outstanding May 31, 2006 
+40.4 
+32.31 
+Exercised 
+(10.7 
+) 
+27.55 
+Forfeited 
+(1.6 
+) 
+37.17 
+Granted 
+11.6 
+39.54 
+Options outstanding May 31, 2007 
+39.7 
+$ 
+35.50 
+Exercised 
+(9.1 
+) 
+33.45 
+Forfeited 
+(0.9 
+) 
+44.44 
+Granted 
+6.9 
+58.50 
+Options outstanding May 31, 2008 
+36.6 
+$ 
+40.14 
+Options exercisable at May 31, 
+2006 
+16.6 
+$ 
+25.68 
+2007 
+15.3 
+29.52 
+2008 
+16.2 
+32.35 
+The weighted average contractual life remaining for options outstanding and options exercisable at
+May 31, 2008 was 6.9 years and 5.4 years, respectively. The aggregate intrinsic value for options outstanding and exercisable at May 31, 2008 was $1,034.1 million and $582.3 million, respectively. The aggregate intrinsic value was the
+amount by which the market value of the underlying stock exceeded the exercise price of the options. The total intrinsic value of the options exercised during the years ended May 31, 2008, 2007 and 2006 was $259.4 million, $204.9 million and
+$144.0 million, respectively. 
+As of May 31, 2008, the Company had $90.9 million of unrecognized compensation costs from stock
+options, net of estimated forfeitures, to be recognized as selling and administrative expense over a weighted average period of 1.9 years. 
+In addition to the 1990 Plan, the Company gives employees the right to purchase shares at a discount to the market price under employee stock purchase plans (“ESPPs”). Employees are eligible to participate through payroll
+deductions up to 10% of their compensation. At the end of each six-month offering period, shares are purchased by the participants at 85% of the lower of the fair market value at the beginning or the ending of the offering period. Employees
+purchased 0.8 million shares in each of the years ended May 31, 2008, 2007 and 2006. 
+From time to time, the Company grants
+restricted stock and unrestricted stock to key employees under the 1990 Plan. The number of shares granted to employees during the years ended May 31, 2008, 2007 and 2006 were 110,000, 345,000 and 141,000 with weighted average values per share
+of $59.50, $39.38 and $43.38, respectively. Recipients of restricted shares are entitled to cash dividends and to vote their respective shares throughout the period of restriction. The value of all of the granted shares was established by the market
+price on the date of grant. During the years ended May 31, 2008, 2007 and 2006, the fair value of restricted shares vested was $9.0 million, $5.5 million and $13.4 million, respectively, determined as of the date of vesting. 
+68 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+During the years ended May 31, 2007 and 2006, the Company also granted shares of stock under the
+Long-Term Incentive Plan (“LTIP”), adopted by the Board of Directors and approved by shareholders in September 1997. During the year ended May 31, 2007, LTIP participants agreed to amend their grant agreements to eliminate the ability
+to receive payments in shares of stock; shares of stock are no longer awarded. Prior to the amendment, the LTIP provided for the issuance of cash or up to 2.0 million shares of Class B Common Stock to certain executives based on performance
+targets established over three-year time periods. Once performance targets are achieved, cash or shares of stock are issued. The shares are immediately vested upon grant. The value of the shares is established by the market price on the date of
+issuance. Under the LTIP, 3,000 and 6,000 shares with a price of $38.84 and $40.79, respectively, were issued during the years ended May 31, 2007 and 2006 for the plan years ended May 31, 2006 and 2005, respectively. Compensation expense
+recognized relating to shares issued during the years ended May 31, 2007 and 2006 was not material. The Company recognized $35.9 million, $30.0 million and $21.7 million of selling and administrative expense related to the cash awards
+during the years ended May 31, 2008, 2007 and 2006, respectively. 
+Note 11 — Earnings Per Share 
+The following represents a reconciliation from basic earnings per common share to diluted earnings per common share. Options to purchase an additional
+6.6 million, 9.5 million and 11.3 million shares of common stock were outstanding at May 31, 2008, 2007 and 2006, respectively, but were not included in the computation of diluted earnings per share because the options were
+antidilutive. 
+Year Ended May 31, 
+2008 
+2007 
+2006 
+(In millions, except per share data) 
+Determination of shares: 
+Weighted average common shares outstanding 
+495.6 
+503.8 
+518.0 
+Assumed conversion of dilutive stock options and awards 
+8.5 
+6.1 
+9.6 
+Diluted weighted average common shares outstanding 
+504.1 
+509.9 
+527.6 
+Basic earnings per common share 
+$ 
+3.80 
+$ 
+2.96 
+$ 
+2.69 
+Diluted earnings per common share 
+$ 
+3.74 
+$ 
+2.93 
+$ 
+2.64 
+Note 12 — Benefit Plans 
+The Company has a profit sharing plan available to most U.S.-based employees. The terms of the plan call for annual contributions by the Company as determined by the Board of Directors. A subsidiary of the Company
+also has a profit sharing plan available to its U.S.-based employees. The terms of the plan call for annual contributions as determined by the subsidiary’s executive management. Contributions of $37.3 million, $31.8 million, and $33.2
+million were made to the plans and are included in selling and administrative expense for the years ended May 31, 2008, 2007 and 2006, respectively. The Company has various 401(k) employee savings plans available to U.S.-based employees. The
+Company matches a portion of employee contributions with common stock or cash. Company contributions to the savings plans were $33.9 million, $24.9 million, and $22.5 million for the years ended May 31, 2008, 2007 and 2006, respectively, and
+are included in selling and administrative expense. 
+The Company has pension plans in various countries worldwide. The pension plans are
+only available to local employees and are generally government mandated. The liability related to the unfunded pension liabilities of the plans was $90.6 million and $69.3 million at May 31, 2008 and 2007, respectively. Upon adoption of 
+69 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“FAS 158”) on May 31,
+2007, the Company recorded a liability of $17.6 million related to the unfunded pension liabilities of the plans. 
+Note 13 — Accumulated Other
+Comprehensive Income 
+The components of accumulated other comprehensive income are as follows: 
+May 31, 
+2008 
+2007 
+(In millions) 
+Cumulative translation adjustment and other (1) 
+$ 
+356.4 
+$ 
+234.3 
+Net deferred loss on cash flow hedge derivatives 
+(105.0 
+) 
+(56.9 
+) 
+$ 
+251.4 
+$ 
+177.4 
+(1) 
+Cumulative translation adjustment and other for the year ended May 31, 2007 includes a $12.2 million net-of-tax
+adjustment relating to the adoption of FAS 158. See Note 12 for additional details. 
+Note 14 — Commitments and Contingencies 
+The Company leases space for certain of its offices, warehouses and retail stores under leases expiring from one to twenty-six years after
+May 31, 2008. Rent expense was $344.2 million, $285.2 million and $252.0 million for the years ended May 31, 2008, 2007 and 2006, respectively. Amounts of minimum future annual rental commitments under non-cancelable operating leases
+in each of the five years ending May 31, 2009 through 2013 are $312.4 million, $264.4 million, $228.9 million, $192.1 million, $163.9 million, respectively, and $692.3 million in later years. 
+As of May 31, 2008 and 2007, the Company had letters of credit outstanding totaling $193.4 million and $165.9 million, respectively. These letters
+of credit were generally issued for the purchase of inventory. 
+In connection with various contracts and agreements, the Company provides
+routine indemnifications relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items that fall under the scope of FASB Interpretation No. 45, “Guarantor’s Accounting and
+Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Currently, the Company has several such agreements in place. However, based on the Company’s historical experience and the estimated
+probability of future loss, the Company has determined that the fair value of such indemnifications is not material to the Company’s financial position or results of operations. 
+In the ordinary course of its business, the Company is involved in various legal proceedings involving contractual and employment relationships, product
+liability claims, trademark rights, and a variety of other matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position or results of operations. 
+Note 15 — Acquisition and Divestitures 
+Acquisition 
+On March 3, 2008 the Company completed its acquisition of 100% of the outstanding shares of Umbro,
+a leading United Kingdom-based global soccer brand, for a purchase price of 290.5 million British pounds sterling 
+70 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+in cash (approximately $576.4 million), inclusive of direct transaction costs. This acquisition is intended to significantly strengthen our market position
+in the United Kingdom and expand NIKE’s global leadership in soccer, a key area of growth for the Company. This acquisition also provides scaled positions in emerging soccer markets such as China, Russia and Brazil. The results of Umbro’s
+operations have been included in the Company’s consolidated financial statements since the date of acquisition as part of the Company’s Other operating segment. 
+The acquisition of Umbro was accounted for as a purchase business combination in accordance with SFAS No. 141 “Business Combinations.” The purchase price was allocated to tangible and identifiable
+intangible assets acquired and liabilities assumed based on their respective estimated fair values on the date of acquisition, with the remaining purchase price recorded as goodwill. The valuation of these tangible and identifiable intangible assets
+and liabilities may be adjusted in future periods, subject to the availability of additional information during the allocation period regarding a pre-acquisition legal contingency. 
+Based on our purchase price allocation, identifiable intangible assets and goodwill relating to the purchase approximated $419.5 million and $319.2
+million, respectively. Goodwill recognized in this transaction is deductible for tax purposes. Identifiable intangible assets include $378.4 million for trademarks that have an indefinite life, and $41.1 million for other intangible assets
+consisting of Umbro’s sourcing network, established customer relationships, and the United Soccer League Franchise. These intangible assets will be amortized on a straight line basis over estimated lives of 12 to 20 years. 
+The following table summarizes the allocation of the purchase price, including transaction costs of the acquisition, to the assets acquired and
+liabilities assumed at the date of acquisition based on their estimated fair values (in millions): 
+Current assets 
+$ 
+87.2 
+Non-current assets 
+90.2 
+Identified intangible assets 
+419.5 
+Goodwill 
+319.2 
+Current liabilities 
+(60.3 
+) 
+Non-current liabilities 
+(279.4 
+) 
+Net assets acquired 
+$ 
+576.4 
+The pro forma effect of the acquisition on the combined results of operations was not material.
+Divestitures 
+On December 17, 2007, the Company completed the sale of the Starter brand business to Iconix Brand Group, Inc. for $60.0 million in cash. This transaction resulted in a gain of $28.6 million during the year ended May 31, 2008.
+On April 17, 2008, the Company completed the sale of NIKE Bauer Hockey Corp. for $189.2 million in cash to a group of private
+investors (“the Buyer”). The sale resulted in a net gain of $32.0 million recorded in the fourth quarter of the year ended May 31, 2008. This gain included the recognition of a $46.3 million cumulative foreign currency translation
+adjustment previously included in accumulated other comprehensive income. As part of the terms of the sale agreement, the Company granted the Buyer a royalty free limited license for the use of 
+71 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+certain NIKE trademarks for a transitional period of approximately two years. The Company deferred $41.0 million of the sale proceeds related to this license
+agreement, to be recognized over the license period. 
+The gains resulting from these divestitures are reflected in other (expense) income,
+net and in the corporate line in the segment presentation of pre-tax income in Note 17. 
+Note 16 — Risk Management and Derivatives 
+The Company is exposed to global market risks, including the effect of changes in foreign currency exchange rates and interest rates. The Company uses
+derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading purposes. 
+The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking hedge transactions. This process includes linking
+all derivatives to either specific assets or liabilities on the balance sheet or specific firm commitments or forecasted transactions. 
+Substantially all derivatives outstanding as of May 31, 2008 and 2007 are designated as either cash flow, fair value hedges or net investment hedges. All derivatives are recognized on the balance sheet at their fair value. Unrealized
+gain positions are recorded as other current assets or other non-current assets, depending on the instrument’s maturity date. Unrealized loss positions are recorded as accrued liabilities or other non-current liabilities. All changes in fair
+values of outstanding cash flow hedge derivatives, except the ineffective portion, are recorded in other comprehensive income, until net income is affected by the variability of cash flows of the hedged transaction. Changes in the fair value of
+hedges designated as fair value hedges are recorded in net income and are offset by the change in fair value of the underlying asset or liability being hedged. Changes in the fair values of outstanding net investment hedges, except any ineffective
+portion, are recorded within the cumulative translation adjustment component of other comprehensive income. 
+Cash Flow Hedges
+The purpose of the Company’s foreign currency hedging activities is to protect the Company from the risk that the eventual
+cash flows resulting from transactions in foreign currencies, including revenues, product costs, selling and administrative expenses, investments in U.S. dollar-denominated available-for-sale debt securities and intercompany transactions, including
+intercompany borrowings, will be adversely affected by changes in exchange rates. It is the Company’s policy to utilize derivatives to reduce foreign exchange risks where internal netting strategies cannot be effectively employed. 
+Derivatives used by the Company to hedge foreign currency exchange risks are forward exchange contracts and options. Hedged transactions are
+denominated primarily in euros, British pounds and Japanese yen. The Company hedges up to 100% of anticipated exposures typically twelve months in advance, but has hedged as much as 34 months in advance. When intercompany loans are hedged, it is
+typically for their expected duration. 
+All changes in fair values of outstanding cash flow hedge derivatives, except the ineffective
+portion, are recorded in other comprehensive income, until net income is affected by the variability of cash flows of the hedged transaction. In most cases, amounts recorded in other comprehensive income will be released to net income some time
+after the maturity of the related derivative. The consolidated statement of income classification of effective hedge results is the same as that of the underlying exposure. Results of hedges of revenue and product costs are recorded in revenue and
+cost of sales, respectively, when the underlying hedged 
+72 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+transaction affects net income. Results of hedges of selling and administrative expense are recorded together with those costs when the related expense is
+recorded. Results of hedges of anticipated purchases and sales of U.S. dollar-denominated available-for-sale securities are recorded in other (expense) income, net when the securities are sold. 
+Results of hedges of anticipated intercompany transactions are recorded in other (expense) income, net when the transaction occurs. Hedges of recorded
+balance sheet positions are recorded in other (expense) income, net, together with the transaction gain or loss from the hedged balance sheet position. 
+Net foreign currency transaction gains and losses, which include hedge results captured in revenues, cost of sales, selling and administrative expense and other (expense) income, net, were a $197.3 million loss, a
+$27.9 million loss, and a $49.9 million gain for the years ended May 31, 2008, 2007, and 2006, respectively. 
+Premiums paid on options
+are initially recorded as deferred charges. The Company assesses the effectiveness of options based on the total cash flows method and records total changes in the options’ fair value to other comprehensive income to the degree they are
+effective. 
+As of May 31, 2008, $87.7 million of deferred net losses (net of tax) on both outstanding and matured derivatives
+accumulated in other comprehensive income are expected to be reclassified to net income during the next twelve months as a result of underlying hedged transactions also being recorded in net income. Actual amounts ultimately reclassified to net
+income are dependent on the exchange rates in effect when derivative contracts that are currently outstanding mature. As of May 31, 2008, the maximum term over which the Company is hedging exposures to the variability of cash flows for its
+forecasted and recorded transactions is 34 months. 
+The Company formally assesses both at a hedge’s inception and on an ongoing basis,
+whether the derivatives that are used in the hedging transaction have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods.
+Effectiveness for cash flow hedges is assessed based on forward rates. When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, the Company discontinues hedge accounting prospectively. 
+The Company discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer highly effective in offsetting
+changes in the cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted
+transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate. 
+When the Company discontinues hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive
+income and is reclassified to net income when the forecasted transaction affects net income. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month
+period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be recognized immediately in net income. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the
+Company will carry the derivative at its fair value on the balance sheet, recognizing future changes in the fair value in other (expense) income, net. Any hedge ineffectiveness is recorded in other (expense) income, net. 
+73 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+For each of the years ended May 31, 2008, 2007 and 2006, the Company recorded in other (expense)
+income, net an insignificant loss representing the total ineffectiveness of all cash flow hedges. The discontinuation of hedge accounting for any of the other aforementioned reasons did not materially impact net income for each of the years ended
+May 31, 2008, 2007 and 2006. 
+Fair Value Hedges 
+The Company is also exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in interest rates. Derivatives
+currently used by the Company to hedge this risk are receive-fixed, pay-variable interest rate swaps. 
+Substantially all interest rate swap
+agreements are designated as fair value hedges of the related long-term debt and meet the shortcut method requirements under FAS 133. Accordingly, changes in the fair values of the interest rate swap agreements are exactly offset by changes in the
+fair value of the underlying long-term debt. No ineffectiveness has been recorded to net income related to interest rate swaps designated as fair value hedges for the years ended May 31, 2008, 2007 and 2006. 
+As discussed in Note 7, during the year ended May 31, 2004, the Company issued a $50 million medium-term note maturing October 1, 2013 and
+simultaneously entered into a receive-fixed, pay-variable interest rate swap with the same notional amount and fixed interest rate as the note. However, the swap expired October 2, 2006. This interest rate swap was not accounted for as a fair
+value hedge. Accordingly, changes in the fair value of the swap were recorded to net income each period as a component of other (expense) income, net. The change in the fair value of the swap was not material for the years ended May 31, 2007
+and 2006. 
+In fiscal 2003, the Company entered into an interest rate swap agreement related to a Japanese yen denominated intercompany loan
+with one of the Company’s Japanese subsidiaries. The Japanese subsidiary pays variable interest on the intercompany loan based on 3-month LIBOR plus a spread. Under the interest rate swap agreement, the subsidiary pays fixed interest payments
+at 0.8% and receives variable interest payments based on 3-month LIBOR plus a spread based on a notional amount of 8 billion Japanese yen. This interest rate swap is not accounted for as a fair value hedge. Accordingly, changes in the fair value of
+the swap are recorded to net income each period as a component of interest income (expense), net. The change in the fair value of the swap was not material for the years ended May 31, 2008, 2007 and 2006. 
+Net Investment Hedges 
+During
+2008, the Company began to hedge the risk of variability in foreign-currency-denominated net investments in wholly-owned international operations. Derivatives used by the Company to hedge this foreign currency exposure are forward exchange contracts
+and the underlying hedged investments are denominated in euros. All changes in fair value of the derivatives designated as net investment hedges, except ineffective portions, are reported in the cumulative translation adjustment component of other
+comprehensive income along with the foreign currency translation adjustments on those investments. 
+The Company assesses hedge
+effectiveness based on changes in forward rates. The Company recorded no ineffectiveness from its net investment hedges in 2008. 
+As of
+May 31, 2008, $68.6 million of deferred net losses on both outstanding and matured derivatives was included in the cumulative translation adjustment component of other comprehensive income. 
+74 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The fair values of all derivatives recorded on the consolidated balance sheet are as follows:
+May 31, 
+2008 
+2007 
+(In millions) 
+Unrealized Gains: 
+Foreign currency exchange contracts and options 
+$ 
+145.4 
+$ 
+43.5 
+Interest rate swaps 
+5.4 
+0.5 
+Unrealized (Losses): 
+Foreign currency exchange contracts and options 
+(194.4 
+) 
+(90.6 
+) 
+Interest rate swaps 
+— 
+(2.6 
+) 
+Concentration of Credit Risk 
+The Company is exposed to credit-related losses in the event of non-performance by counterparties to hedging instruments. The counterparties to all
+derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate the Company’s exposure to credit risk with these institutions. This credit risk is generally limited to the
+unrealized gains in such contracts should any of these counterparties fail to perform as contracted. To manage this risk, the Company has established strict counterparty credit guidelines that are continually monitored and reported to senior
+management according to prescribed guidelines. The Company utilizes a portfolio of financial institutions either headquartered or operating in the same countries the Company conducts its business. As a result of the above considerations, the Company
+considers the risk of counterparty default to be minimal. 
+In addition to hedging instruments, the Company is subject to concentrations of
+credit risk associated with cash and equivalents and accounts receivable. The Company places cash and equivalents with financial institutions with investment grade credit ratings and, by policy, limits the amount of credit exposure to any one
+financial institution. The Company considers its concentration risk related to accounts receivable to be mitigated by the Company’s credit policy, the lack of significance of outstanding balances owed by each individual customer at any point in
+time and the geographic dispersion of these customers. 
+Note 17 — Operating Segments and Related Information 
+Operating Segments. The Company’s operating segments are evidence of the structure of the Company’s internal
+organization. The major segments are defined by geographic regions for operations participating in NIKE brand sales activity excluding NIKE Golf and NIKE Bauer Hockey. Each NIKE brand geographic segment operates predominantly in one industry: the
+design, production, marketing and selling of sports and fitness footwear, apparel, and equipment. The “Other” category shown below represents activities of Cole Haan, Converse, Exeter Brands Group (whose primary business was the Starter
+brand business which was sold on December 17, 2007), Hurley, NIKE Bauer Hockey (through April 16, 2008), NIKE Golf, and Umbro (beginning March 3, 2008) which are considered immaterial for individual disclosure based on the aggregation
+criteria in SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information”. 
+Where applicable,
+“Corporate” represents items necessary to reconcile to the consolidated financial statements, which generally include corporate activity and corporate eliminations. 
+Net revenues as shown below represent sales to external customers for each segment. Intercompany revenues have been eliminated and are immaterial for
+separate disclosure. The Company evaluates performance of individual operating segments based on pre-tax income. On a consolidated basis, this amount represents 
+75 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+income before income taxes as shown in the Consolidated Statements of Income. Reconciling items for pre-tax income represent corporate costs that are not
+allocated to the operating segments for management reporting including corporate activity, certain currency exchange rate gains and losses on transactions and intercompany eliminations for specific income statement items in the Consolidated
+Statements of Income. 
+Additions to long-lived assets as presented in the following table represent capital expenditures. 
+Accounts receivable, inventories and property, plant and equipment for operating segments are regularly reviewed by management and are therefore provided
+below. 
+Certain prior year amounts have been reclassed to conform to fiscal 2008 presentation. 
+Year Ended May 31, 
+2008 
+2007 
+2006 
+(In millions) 
+Net Revenue 
+United States 
+$ 
+6,378.0 
+$ 
+6,107.1 
+$ 
+5,722.5 
+Europe, Middle East and Africa 
+5,620.4 
+4,723.3 
+4,326.6 
+Asia Pacific 
+2,881.7 
+2,283.4 
+2,053.8 
+Americas 
+1,154.1 
+952.5 
+904.9 
+Other 
+2,592.8 
+2,259.6 
+1,947.1 
+$ 
+18,627.0 
+$ 
+16,325.9 
+$ 
+14,954.9 
+Pre-tax Income 
+United States 
+$ 
+1,391.9 
+$ 
+1,367.3 
+$ 
+1,315.2 
+Europe, Middle East and Africa 
+1,266.2 
+1,036.2 
+992.6 
+Asia Pacific 
+692.6 
+508.3 
+436.4 
+Americas 
+239.3 
+192.7 
+177.6 
+Other 
+336.4 
+299.7 
+153.6 
+Corporate 
+(1,423.5 
+) 
+(1,204.3 
+) 
+(933.8 
+) 
+$ 
+2,502.9 
+$ 
+2,199.9 
+$ 
+2,141.6 
+Additions to Long-lived Assets 
+United States 
+$ 
+138.4 
+$ 
+67.3 
+$ 
+59.8 
+Europe, Middle East and Africa 
+69.0 
+94.9 
+73.6 
+Asia Pacific 
+42.4 
+20.7 
+16.8 
+Americas 
+8.6 
+5.3 
+6.9 
+Other 
+61.5 
+36.0 
+33.2 
+Corporate 
+129.3 
+89.3 
+143.4 
+$ 
+449.2 
+$ 
+313.5 
+$ 
+333.7 
+Depreciation 
+United States 
+$ 
+49.2 
+$ 
+45.4 
+$ 
+54.2 
+Europe, Middle East and Africa 
+64.8 
+47.4 
+46.9 
+Asia Pacific 
+31.1 
+25.2 
+28.4 
+Americas 
+6.7 
+6.1 
+6.4 
+Other 
+28.1 
+28.2 
+29.0 
+Corporate 
+123.7 
+117.4 
+117.1 
+$ 
+303.6 
+$ 
+269.7 
+$ 
+282.0 
+76 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Year Ended May 31, 
+2008 
+2007 
+2006 
+(In millions) 
+Accounts Receivable, net 
+United States 
+$ 
+823.9 
+$ 
+806.8 
+$ 
+717.2 
+Europe, Middle East and Africa 
+843.0 
+739.1 
+703.3 
+Asia Pacific 
+406.1 
+296.6 
+319.7 
+Americas 
+246.0 
+184.1 
+174.5 
+Other 
+424.0 
+404.9 
+410.0 
+Corporate 
+52.3 
+63.2 
+58.2 
+$ 
+2,795.3 
+$ 
+2,494.7 
+$ 
+2,382.9 
+Inventories 
+United States 
+$ 
+834.0 
+$ 
+796.0 
+$ 
+725.9 
+Europe, Middle East and Africa 
+705.7 
+554.5 
+590.1 
+Asia Pacific 
+280.9 
+214.1 
+238.3 
+Americas 
+181.1 
+132.0 
+147.6 
+Other 
+396.6 
+378.7 
+330.5 
+Corporate 
+40.1 
+46.6 
+44.3 
+$ 
+2,438.4 
+$ 
+2,121.9 
+$ 
+2,076.7 
+Property, Plant and Equipment, net 
+United States 
+$ 
+318.4 
+$ 
+232.7 
+$ 
+219.3 
+Europe, Middle East and Africa 
+370.5 
+325.4 
+266.6 
+Asia Pacific 
+375.6 
+326.1 
+354.8 
+Americas 
+20.4 
+16.9 
+17.0 
+Other 
+126.9 
+103.6 
+98.2 
+Corporate 
+679.3 
+673.6 
+701.8 
+$ 
+1,891.1 
+$ 
+1,678.3 
+$ 
+1,657.7 
+Revenues by Major Product Lines. Revenues to external customers for
+NIKE brand products are attributable to sales of footwear, apparel and equipment. Other revenues to external customers primarily include external sales by Cole Haan Holdings Incorporated, Converse Inc., Exeter Brands Group LLC (whose primary
+business was the Starter brand business which was sold December 17, 2007), Hurley International LLC, NIKE Bauer Hockey Corp. (through April 16, 2008), NIKE Golf, and Umbro Ltd. (beginning March 3, 2008). 
+Year Ended May 31, 
+2008 
+2007 
+2006 
+(In millions) 
+Footwear 
+$ 
+9,731.6 
+$ 
+8,514.0 
+$ 
+7,965.9 
+Apparel 
+5,234.0 
+4,576.5 
+4,168.0 
+Equipment 
+1,068.6 
+975.8 
+873.9 
+Other 
+2,592.8 
+2,259.6 
+1,947.1 
+$ 
+18,627.0 
+$ 
+16,325.9 
+$ 
+14,954.9 
+Revenues and Long-Lived Assets by Geographic Area. Geographical area
+information is similar to that shown previously under operating segments with the exception of the Other activity, which has been allocated to the geographical areas based on the location where the sales originated. Revenues derived in the United
+States 
+77 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+were $7,938.5 million, $7,593.7 million, and $7,019.0 million, for the years ended May 31, 2008, 2007, and 2006, respectively. The Company’s
+largest concentrations of long-lived assets primarily consist of the Company’s world headquarters and distribution facilities in the United States and distribution facilities in Japan and Belgium. Long-lived assets attributable to operations in
+the United States, which are comprised of net property, plant & equipment were $1,109.9 million, $991.3 million, and $998.2 million at May 31, 2008, 2007, and 2006, respectively. Long-lived assets attributable to operations in Japan
+were $303.8 million, $260.6 million, and $296.3 million at May 31, 2008, 2007, and 2006, respectively. Long-lived assets attributable to operations in Belgium were $219.1 million, $198.3 million and $145.4 million at May 31, 2008, 2007,
+and 2006, respectively. 
+Major Customers. During the years ended May 31, 2008, 2007 and 2006, revenues
+derived from Foot Locker, Inc. represented 9 percent, 10 percent and 10 percent of the Company’s consolidated revenues, respectively. Sales to this customer are included in all segments of the Company. 
+Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
+There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or practices or
+financial statement disclosure required to be reported under this Item. 
+Item 9A. Controls and Procedures 
+We maintain
+disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
+Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required
+disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
+objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 
+We carry out a variety of on-going procedures, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation
+of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of May 31,
+2008. 
+“Management’s Annual Report on Internal Control Over Financial Reporting” is included in Item 8 on pages 45-48
+of this Report. 
+There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has
+materially affected, or is reasonable likely to materially affect, our internal control over financial reporting. 
+Item 9B. Other Information 
+No disclosure is
+required under this Item. 
+78 
+Table of Contents 
+PART III 
+Item 10. Directors, Executive Officers and Corporate Governance 
+The information required by Item 401 of Regulation S-K regarding directors is included under “Election of Directors” in the definitive
+Proxy Statement for our 2008 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 401 of Regulation S-K regarding executive officers is included under “Executive Officers of the
+Registrant” in Item 1 of this Report. The information required by Item 405 of Regulation S-K is included under “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for our 2008 Annual
+Meeting of Shareholders and is incorporated herein by reference. The information required by Item 406 of Regulation S-K is included under “Code of Business Conduct and Ethics” in the definitive Proxy Statement for our 2008 Annual
+Meeting of Shareholders and is incorporated herein by reference. The information required by Item 407(d)(4) and (d)(5) of Regulation S-K regarding the Audit Committee of the Board of Directors is included under “Election of Directors”
+in the definitive Proxy Statement for our 2008 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 11. Executive Compensation 
+The information
+required by Items 402, 407(e)(4) and 407(e)(5) of Regulation S-K regarding executive compensation is included under “Director Compensation for Fiscal 2008,” “Executive Compensation,” “Compensation Discussion and
+Analysis,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in the definitive Proxy Statement for our 2008 Annual Meeting of Shareholders and is incorporated herein by
+reference. 
+Item 12. Security Ownership of Certain Beneficial Owners and Management and
+Related Stockholder Matters 
+The information required by Item 201(d) of Regulation S-K is included under “Equity
+Compensation Plans” in the definitive Proxy Statement for our 2008 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 403 of Regulation S-K is included under “Stock Holdings of Certain
+Owners and Management” in the definitive Proxy Statement for our 2008 Annual meeting of Shareholders and is incorporated herein by reference. 
+Item 13. Certain Relationships and Related Transactions, and Director Independence 
+The information required by Item 404 and 407(a) of Regulation S-K is included under “Transactions with Related Persons” and “Board of Directors and Committees” in the definitive Proxy Statement for our 2008 Annual
+Meeting of Shareholders and is incorporated herein by reference. 
+Item 14. Principal
+Accountant Fees and Services 
+The information required by this Item of Regulation S-K is included under “Ratification Of
+Independent Registered Public Accounting Firm” in the definitive Proxy Statement for our 2008 Annual Meeting of Shareholders and is incorporated herein by reference. 
+79 
+Table of Contents 
+PART IV 
+Item 15. Exhibits and Financial Statement Schedules 
+(a) 
+The following documents are filed as part of this report: 
+Form 10-K 
+Page No. 
+1. 
+FINANCIAL STATEMENTS: 
+Report of Independent Registered Public Accounting Firm 
+47 
+Consolidated Statements of Income for each of the three years ended May 31, 2008, May 31, 2007 and May 31, 2006 
+49 
+Consolidated Balance Sheets at May 31, 2008 and May 31, 2007 
+50 
+Consolidated Statements of Cash Flows for each of the three years ended May 31, 2008, May 31, 2007 and May 31, 2006 
+51 
+Consolidated Statements of Shareholders’ Equity for each of the three years ended May 31, 2008, May 31, 2007 and May 31, 2006 
+52 
+Notes to Consolidated Financial Statements 
+53 
+2. 
+FINANCIAL STATEMENT SCHEDULE: 
+II — Valuation and Qualifying Accounts 
+F-1 
+All other schedules are omitted because they are not applicable or the required information is
+shown in the financial statements or notes thereto. 
+3. EXHIBITS: 
+2.1 
+Implementation Agreement, dated October 23, 2007, between Umbro Plc, NIKE Vapor Ltd., and NIKE, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on
+Form 8-K filed October 25, 2007).* 
+3.1 
+Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31,
+2005). 
+3.2 
+Third Restated Bylaws, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed February 20, 2007). 
+4.1 
+Restated Articles of Incorporation, as amended (see Exhibit 3.1). 
+4.2 
+Third Restated Bylaws, as amended (see Exhibit 3.2). 
+4.3 
+Indenture dated as of December 13, 1996 between the Company and Bank One Trust Company, National Association (successor in interest to The First National Bank of Chicago), as Trustee
+(incorporated by reference to Exhibit 4.01 to Amendment No. 1 to Registration Statement No. 333-15953 filed by the Company on November 26, 1996). 
+4.4 
+Form of Officers’ Certificate relating to the Company’s Fixed Rate Medium-Term Notes and the Company’s Floating Rate Medium-Term Notes, form of Fixed Rate Note and form of
+Floating Rate Note (incorporated by reference to Exhibits 4.2, 4.3 and 4.4 of the Company’s Current Report on Form 8-K dated May 29, 2002). 
+80 
+Table of Contents 
+4.5 
+Credit Agreement dated as of December 1, 2006 among NIKE, Inc., Bank of America, N.A., individually and as Agent, and the other banks party thereto (incorporated by reference to Exhibit 4.01
+to the Company’s Current Report on Form 8-K filed December 6, 2006). 
+4.6 
+First Amendment to the Credit Agreement, dated August 24, 2007, among NIKE, Inc., Bank of America, N.A., as Administrative Agent, Citicorp USA, Inc., as Syndication Agent, and HSBC Bank USA,
+N.A., The Bank of Tokyo Mitsubishi UFG, Ltd. and Deutsche Bank Securities Inc., as Co-Documentation Agents, and the other Banks named therein. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on for 10-Q for the
+fiscal quarter ended February 29, 2008) 
+4.7 
+Extension and Second Amendment to the Credit Agreement, dated November 1, 2007, among NIKE, Inc., Bank of America, N.A., as Administrative Agent, Citicorp USA, Inc., as Syndication Agent, and
+HSBC Bank USA, N.A., The Bank of Tokyo Mitsubishi UFG, Ltd. and Deutsche Bank Securities Inc., as Co-Documentation Agents, and the other Banks named therein. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on for
+10-Q for the fiscal quarter ended February 29, 2008) 
+10.1 
+Form of Non-statutory Stock Option Agreement for options granted to non-employee directors under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s
+Current Report on Form 8-K filed June 21, 2005).* 
+10.2 
+Form of Indemnity Agreement entered into between the Company and each of its officers and directors.* 
+10.3 
+NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2007).* 
+10.4 
+NIKE, Inc. Executive Performance Sharing Plan (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31,
+2007).* 
+10.5 
+NIKE, Inc. Long-Term Incentive Plan.* 
+10.6 
+NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective January 1, 2008).* 
+10.7 
+NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective June 1, 2004) (applicable to amounts deferred before January 1, 2005) (incorporated by reference to Exhibit 10.6 to the
+Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004). 
+10.8 
+NIKE, Inc. Foreign Subsidiary Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
+February 28, 2003).* 
+10.9 
+Amended and Restated Covenant Not To Compete And Non-Disclosure Agreement between NIKE, Inc. and Mark G. Parker dated July 24, 2008 (incorporated by reference to Exhibit 10.1 to the
+Company’s Current Report on Form 8-K filed July 24, 2008).* 
+10.10 
+Amended and Restated Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Charles D. Denson dated July 24, 2008 (incorporated by reference to Exhibit 10.2 to the
+Company’s Current Report on Form 8-K filed July 24, 2008).* 
+10.11 
+Form of Non-Statutory Stock Option Agreement for options granted to executives under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current
+Report on Form 8-K filed November 18, 2004).* 
+10.12 
+Form of Long-Term Incentive Award Agreement under the Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 20,
+2007).* 
+10.13 
+Form of Restricted Stock Bonus Agreement under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 21, 2005).*
+81 
+Table of Contents 
+10.14 
+Commercial Paper Agreement between NIKE, Inc., as Issuer, and Goldman, Sachs & Co., as Dealer (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form
+10-Q for the fiscal quarter ended February 28, 2007). 
+10.15 
+Commercial Paper Agreement between NIKE, Inc., as Issuer, and Merrill Lynch Money Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Dealer (incorporated by reference
+to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2007). 
+10.16 
+Commercial Paper Agreement between NIKE, Inc., as Issuer, and Wells Fargo Brokerage Services, LLC, as Dealer (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report
+on Form 10-Q for the fiscal quarter ended February 28, 2007). 
+10.17 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Donald W. Blair dated November 10, 1999 (incorporated by reference to Exhibit 10.15 to the Company’s Annual
+Report on Form 10-K for the fiscal year ended May 31, 2006).* 
+10.18 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Gary DeStefano (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
+August 11, 2006).* 
+10.19 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Trevor A. Edwards dated November 14, 2002.* 
+12.1 
+Computation of Ratio of Earnings to Fixed Charges. 
+21 
+Subsidiaries of the Registrant. 
+23 
+Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm (set forth on page F-2 of this Annual Report on Form 10-K). 
+31 
+Rule 13a-14(a) Certifications. 
+32 
+Section 1350 Certifications. 
+* 
+Management contract or compensatory plan or arrangement. 
+The exhibits filed herewith do not include certain instruments with respect to long-term debt of NIKE and its subsidiaries, inasmuch as the total amount of debt authorized under any such instrument does not exceed 10 percent of the total
+assets of NIKE and its subsidiaries on a consolidated basis. NIKE agrees, pursuant to Item 601(b)(4)(iii) of Regulation S-K, that it will furnish a copy of any such instrument to the SEC upon request. 
+Upon written request to Investor Relations, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453, NIKE will furnish shareholders with a copy of
+any Exhibit upon payment of $.10 per page, which represents our reasonable expenses in furnishing Exhibits. 
+82 
+Table of Contents 
+SCHEDULE II 
+VALUATION AND QUALIFYING ACCOUNTS 
+Description 
+Balance at 
+Beginning 
+of Period 
+Charged to 
+Costs and 
+Expenses 
+Charged to 
+Other 
+Accounts 
+Write-Offs 
+Net of 
+Recoveries 
+Balance at 
+End of 
+Period 
+(In millions) 
+Allowance for doubtful accounts (current and non-current) (1) 
+For the year ended May 31, 2006 
+$ 
+80.4 
+$ 
+13.6 
+$ 
+1.8 
+$ 
+(28.2 
+) 
+$ 
+67.6 
+For the year ended May 31, 2007 
+67.6 
+18.5 
+1.8 
+(16.2 
+) 
+71.5 
+For the year ended May 31, 2008 
+71.5 
+25.7 
+4.2 
+(23.0 
+) 
+78.4 
+(1) 
+The non-current portion of the allowance for doubtful accounts is classified in deferred income taxes and other assets
+on the consolidated balance sheet. 
+F-1 
+Table of Contents 
+CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (333-71324) and Form S-8 (Nos. 033-63995, 333-63581,
+333-63583, 333-68864, 333-68886, 333-71660, 333-104822, 333-104824, 333-117059, and 333-133360) of NIKE, Inc. of our report dated July 24, 2008 relating to the financial statements, financial statement schedule and the effectiveness of internal
+control over financial reporting, which appears in this Form 10-K. 
+/s/ P RICEWATERHOUSE C OOPERS LLP 
+Portland, Oregon 
+July 24, 2008 
+F-2 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
+on its behalf by the undersigned, thereunto duly authorized. 
+NIKE, INC. 
+By: 
+/s/ M ARK G.
+P ARKER 
+Mark G. Parker 
+Chief Executive Officer and President 
+Date: July 28, 2008 
+Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of
+the registrant and in the capacities and on the dates indicated. 
+Signature 
+Title 
+Date 
+Principal Executive Officer and Director: 
+/s/ M ARK G.
+P ARKER 
+Mark G. Parker 
+Director, Chief Executive Officer and 
+President 
+July 28, 2008 
+Principal Financial and Accounting Officer: 
+/s/ D ONALD W.
+B LAIR 
+Donald W. Blair 
+Chief Financial Officer 
+July 28, 2008 
+Directors: 
+/s/ P HILIP H.
+K NIGHT 
+Philip H. Knight 
+Director 
+July 28, 2008 
+/s/ J OHN G.
+C ONNORS 
+John G. Connors 
+Director 
+July 28, 2008 
+/s/ J ILL K.
+C ONWAY 
+Jill K. Conway 
+Director 
+July 28, 2008 
+/s/ T IMOTHY D.
+C OOK 
+Timothy D. Cook 
+Director 
+July 28, 2008 
+/s/ R ALPH D.
+D E N UNZIO 
+Ralph D. DeNunzio 
+Director 
+July 28, 2008 
+/s/ A LAN B. G RAF ,
+J R . 
+Alan B. Graf, Jr. 
+Director 
+July 28, 2008 
+/s/ D OUGLAS G.
+H OUSER 
+Douglas G. Houser 
+Director 
+July 28, 2008 
+S-1 
+Table of Contents 
+Signature 
+Title 
+Date 
+/s/ J EANNE P.
+J ACKSON 
+Jeanne P. Jackson 
+Director 
+July 28, 2008 
+/s/ J OHNATHAN A.
+R ODGERS 
+Johnathan A. Rodgers 
+Director 
+July 28, 2008 
+/s/ O RIN C.
+S MITH 
+Orin C. Smith 
+Director 
+July 28, 2008 
+/s/ J OHN R. T HOMPSON ,
+J R . 
+John R. Thompson, Jr. 
+Director 
+July 28, 2008 
+S-2
\ No newline at end of file
diff --git a/raw/filings/0000320187/2007/0001193125-08-159004/rp_note.txt b/raw/filings/0000320187/2007/0001193125-08-159004/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2007/0001193125-08-159004/rpt_disclosure.txt b/raw/filings/0000320187/2007/0001193125-08-159004/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..49616f3f0479ad389097a88de3b69063afd690d5
--- /dev/null
+++ b/raw/filings/0000320187/2007/0001193125-08-159004/rpt_disclosure.txt
@@ -0,0 +1,16 @@
+Transactions with Related Persons 
+Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft. Mr. Knight has reimbursed the Company $578,158 for NIKE’s operating costs related to his
+personal use of this aircraft during fiscal 2009, determined based on the cost of fuel and other variable costs associated with the flights under FAR 91-501(d). 
+Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health insurance and for life insurance policies for Howard Slusher, the father of John Slusher, Vice President of
+Sports Marketing, following expiration of the agreement. During fiscal 2009 the Company paid Howard Slusher $134,392 for health and life insurance premiums. 
+Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker is a Strategic Account Manager, and has been employed by the Company for over 25 years; Stephen Parker is the
+General Manager, China-Converse, and has been employed by the Company for over 21 years; and Ann Parker is a Senior Design Recruiter, and has been employed by the Company for over 20 years. During fiscal year 2009, the Company paid aggregate
+compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $321,636, $440,396, and $200,270, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of
+14 
+salary, performance bonus, the grant date fair value of stock options granted during the fiscal year estimated using the Black-Scholes pricing model, and
+profit sharing and matching contributions to Company-sponsored retirement plans. 
+Compensation Committee Interlocks and Insider Participation
+The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2009 were Ralph D.
+DeNunzio, Timothy D. Cook, Jeanne P. Jackson, and Johnathan A. Rodgers. Ms. Jackson resigned from the Compensation Committee and the board of directors on March 4, 2009, when she was appointed an officer of the Company. On June 18,
+2009, the Board of Directors appointed John C. Lechleiter to the Board of Directors, and also to the Compensation Committee. The Committee is composed solely of independent, non-employee directors. 
+15
\ No newline at end of file
diff --git a/raw/filings/0000320187/2008/0001193125-09-155951/filing.txt b/raw/filings/0000320187/2008/0001193125-09-155951/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c2dff83d31791aa34fe1b91c5abebbddef5d2745
--- /dev/null
+++ b/raw/filings/0000320187/2008/0001193125-09-155951/filing.txt
@@ -0,0 +1,5935 @@
+10-K
+1
+d10k.htm
+FORM 10-K
+Form 10-K 
+Table of Contents 
+SECURITIES AND EXCHANGE COMMISSION
+Washington, D.C. 20549 
+Form 10-K 
+(Mark One) 
+þ 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended May 31, 2009 
+or 
+¨ 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the transition period from 
+to . 
+Commission File No. 1-10635 
+NIKE, Inc. 
+(Exact name of Registrant as specified in its charter) 
+Oregon 
+93-0584541 
+(State or other jurisdiction 
+of incorporation) 
+(IRS Employer 
+Identification No.) 
+One Bowerman Drive 
+(503) 671-6453 
+Beaverton, Oregon 97005-6453 
+(Registrant’s Telephone Number, Including Area Code) 
+(Address of principal executive offices) (Zip Code) 
+Securities registered pursuant to Section 12(b) of the Act: 
+Class B Common Stock 
+New York Stock Exchange 
+(Title of Each Class) 
+(Name of Each Exchange on Which Registered) 
+Securities registered pursuant to Section 12(g) of the Act: 
+None 
+Indicate by check mark if the registrant
+is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨ 
+Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
+Act. Yes ¨ No þ 
+Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
+period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨ 
+Indicate by check
+mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the
+preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨ 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
+(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
+this Form 10-K. þ 
+Indicate by check mark whether the Registrant is a large
+accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” “non-accelerated filer” and “smaller reporting
+company” in Rule 12b-2 of the Exchange Act. 
+Large accelerated filer þ 
+Accelerated filer ¨ 
+Non-accelerated filer ¨ 
+Smaller Reporting Company ¨ 
+Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
+Act). Yes ¨ No þ 
+As of November 30, 2008, the aggregate market value of the Registrant’s Class A Common Stock held by nonaffiliates of the Registrant was $221,932,688 and the aggregate market value of the
+Registrant’s Class B Common Stock held by nonaffiliates of the Registrant was $20,688,140,567. 
+As of July 24, 2009, the number of
+shares of the Registrant’s Class A Common Stock outstanding was 95,299,318 and the number of shares of the Registrant’s Class B Common Stock outstanding was 390,631,331. 
+DOCUMENTS INCORPORATED BY REFERENCE: 
+Parts of Registrant’s Proxy Statement
+for the annual meeting of shareholders to be held on September 21, 2009 are incorporated by reference into Part III of this Report. 
+Table of Contents 
+NIKE, INC. 
+ANNUAL REPORT ON FORM 10-K 
+TABLE OF CONTENTS 
+Page 
+PART I 
+Item 1. 
+Business 
+1 
+General 
+1 
+Products 
+1 
+Sales and Marketing 
+2 
+United States Market 
+2 
+International Markets 
+3 
+Significant Customer 
+4 
+Orders 
+4 
+Product Research and Development 
+4 
+Manufacturing 
+4 
+International Operations and Trade 
+5 
+Competition 
+6 
+Trademarks and Patents 
+7 
+Employees 
+7 
+Executive Officers of the Registrant 
+7 
+Item 1A. 
+Risk Factors 
+9 
+Item 1B. 
+Unresolved Staff Comments 
+17 
+Item 2. 
+Properties 
+17 
+Item 3. 
+Legal Proceedings 
+18 
+Item 4. 
+Submission of Matters to a Vote of Security Holders 
+18 
+PART II 
+Item 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+19 
+Item 6. 
+Selected Financial Data 
+21 
+Item 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+22 
+Item 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+48 
+Item 8. 
+Financial Statements and Supplemental Data 
+50 
+Item 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+88 
+Item 9A. 
+Controls and Procedures 
+88 
+Item 9B. 
+Other Information 
+88 
+PART III 
+(Except for the information set forth under “Executive Officers of the Registrant” in Item 1 above, Part III is incorporated by reference from the Proxy Statement for the NIKE, Inc.
+2009 annual meeting of shareholders.) 
+Item 10. 
+Directors, Executive Officers and Corporate Governance 
+89 
+Item 11. 
+Executive Compensation 
+89 
+Item 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+89 
+Item 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+89 
+Item 14. 
+Principal Accountant Fees and Services 
+89 
+PART IV 
+Item 15. 
+Exhibits, Financial Statement Schedules 
+90 
+Signatures 
+S-1 
+Table of Contents 
+PART I 
+Item 1. 
+Business 
+General 
+NIKE, 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 the context indicates otherwise. Our Internet address is www.nike.com. On our NIKE Corporate web site,
+located at www.nikebiz.com, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the 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 furnished 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 free of charge. Also available on the NIKE Corporate web site are the charters of the committees of our board of directors, as well as our corporate governance guidelines and code of ethics; copies of any of these documents 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 worldwide marketing of high quality footwear, 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 NIKE-owned retail including stores and internet sales, and 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. 
+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-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 aquatic activities, 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 are designed to complement our athletic footwear products, 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, including 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 directly to customers, we have entered into license agreements that permit unaffiliated parties to manufacture and sell various apparel, equipment and accessory items, such as
+swimwear, children’s apparel, training equipment, eyewear, electronic devices and golf accessories. 
+Our
+wholly-owned subsidiary, Cole Haan (“Cole Haan”), headquartered in Yarmouth, Maine, designs and distributes dress and casual footwear, apparel and accessories for men and women under the brand names Cole Haan ® and Bragano ® . 
+1 
+Table of Contents 
+Our wholly-owned subsidiary, Converse Inc. (“Converse”), headquartered in
+North Andover, Massachusetts, designs, distributes, and licenses athletic and casual footwear, apparel and accessories under the Converse ® , Chuck Taylor ® , All Star ® , One Star ® 
+, and Jack Purcell ® trademarks. 
+Our wholly-owned subsidiary, Hurley International LLC (“Hurley”), headquartered in Costa Mesa, California, designs and
+distributes a line of action sports apparel for surfing, skateboarding, and snowboarding, youth lifestyle apparel, and accessories under the Hurley ® trademark. 
+Our wholly-owned
+subsidiary, Umbro Ltd. (“Umbro”), headquartered in Manchester, England, designs, distributes and licenses athletic and casual footwear, apparel and equipment, primarily for the sport of soccer, under the Umbro ® trademarks. 
+Sales and
+Marketing 
+Financial information about geographic and segment operations appears in Note 19 of the accompanying consolidated financial
+statements on page 85. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first
+and fourth fiscal quarters have slightly 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 fitness activities and changing
+design trends affect the demand for our products. We must therefore respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories, and influencing sports and
+fitness preferences through aggressive marketing. Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability. This is a continuing risk. 
+We report our NIKE brand operations based on our internal geographic organization. Each NIKE brand geography operates predominantly in one industry:
+the design, production, marketing and selling of sports and fitness footwear, apparel, and equipment. The geographic organization consists of the following four regions: U.S., Europe, Middle East and Africa (collectively,
+“EMEA”), Asia Pacific, and Americas. As previously announced, in the fourth quarter of fiscal 2009, we initiated a reorganization of the NIKE brand into a new model consisting of six geographies. As a result of the
+reorganization, beginning in the first quarter of fiscal 2010, our new organizational structure will consist of the following geographies: North America, Western Europe, Central/Eastern Europe, Greater China, Japan, and Emerging Markets. 
+United States Market 
+In
+fiscal 2009, sales in the United States including U.S. sales of our Other businesses accounted for approximately 42% of total revenues, compared to 43% in fiscal 2008 and 47% in fiscal 2007. For fiscal 2009, our Other businesses were
+primarily comprised of Cole Haan, Converse, Hurley, NIKE Golf and Umbro (which was acquired on March 3, 2008). For fiscal 2008 and 2007, our Other businesses were primarily comprised of Cole Haan, Converse, Exeter (whose primary
+business was the Starter brand business which was sold on December 17, 2007), Hurley, NIKE Bauer Hockey (which was sold on April 17, 2008), NIKE Golf and Umbro. We estimate that we sell to more than 23,000 retail accounts in the United
+States. The NIKE brand domestic retail 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 fiscal 2009, our three
+largest customers accounted for approximately 25% of sales in the United States. 
+We make substantial use of our “futures”
+ordering program, which allows retailers to order five to six months in advance of delivery with the commitment that their orders will be delivered within a set time 
+2 
+Table of Contents 
+period at a fixed price. In fiscal 2009, 89% of our U.S. wholesale footwear shipments (excluding our Other businesses) were made under the futures program,
+compared to 90% in fiscal 2008 and fiscal 2007. In fiscal 2009, 60% of our U.S. wholesale apparel shipments (excluding our Other businesses) were made under the futures program, compared to 62% in fiscal 2008 and 65% in fiscal 2007. 
+We utilize 20 NIKE sales offices to solicit sales in the United States. We also utilize 5 independent sales representatives to sell specialty products
+for golf, and 3 for skateboarding and outdoor products. In addition, we sell NIKE brand products through our internet website, www.nikestore.com , and we operate the following retail outlets in the United States: 
+U.S. Retail Stores 
+Number 
+NIKE factory stores (which carry primarily overstock and close-out merchandise) 
+140 
+NIKE stores (including one NIKE Women store) 
+16 
+NIKETOWNs (designed to showcase NIKE products) 
+11 
+NIKE employee-only stores 
+3 
+Cole Haan stores (including factory stores) 
+111 
+Converse factory stores 
+43 
+Hurley stores (including factory and employee stores) 
+14 
+Total 
+338 
+NIKE’s three United States distribution centers for footwear are located in Memphis,
+Tennessee. Apparel and equipment products are shipped from our Memphis, Tennessee, and Foothill Ranch, California distribution centers. Cole Haan products are distributed primarily from Greenland, New Hampshire, Converse products are shipped
+primarily from Ontario, California, and Hurley products are distributed from Irvine, California. 
+International Markets 
+In fiscal 2009, non-U.S. sales (including non-U.S. sales of our Other businesses) accounted for 58% of total revenues, compared to 57% in
+fiscal 2008 and 53% in fiscal 2007. We sell our products to retail accounts, through NIKE-owned retail stores, and through a mix of independent distributors and licensees around the world. We estimate that we sell to more than 28,000 retail accounts
+outside the United States, excluding sales by independent distributors and licensees. We operate 14 distribution centers outside of the United States. In many countries and regions, including Canada, Asia, some Latin American countries, and Europe,
+we have a futures ordering program for retailers similar to the United States futures program described above. NIKE’s three largest customers outside of the U.S. accounted for approximately 11% of total non-U.S. sales. 
+We operate the following retail outlets outside the United States: 
+Non-U.S. Retail Stores 
+Number 
+NIKE factory stores 
+184 
+NIKE stores 
+61 
+NIKETOWNs 
+4 
+NIKE employee-only stores 
+12 
+Cole Haan stores 
+74 
+Hurley stores 
+1 
+Total 
+336 
+International branch offices and subsidiaries of NIKE are located in Argentina, Australia,
+Austria, Belgium, Bermuda, Brazil, Canada, Chile, Croatia, Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, Indonesia, India, Ireland, Israel, Italy, Japan, Korea, Lebanon, Macau, Malaysia, 
+3 
+Table of Contents 
+Mexico, New Zealand, the Netherlands, Norway, the People’s Republic of China, 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 2009.
+Orders 
+Worldwide futures and advance orders for NIKE brand athletic footwear and apparel, scheduled for delivery from June through November 2009, were $7.8 billion compared to $8.8 billion for the same period last year. This futures and advance
+order amount is calculated based upon our forecast of the actual exchange 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 advance/futures and at-once orders and the fulfillment of certain of these advance/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 and advance orders and actual revenues. Moreover, a significant
+portion of our revenue is not derived from futures and advance orders, including at-once and close-out sales of NIKE footwear and apparel, wholesale sales of equipment, Cole Haan, Converse, Hurley, Umbro, NIKE Golf, and retail sales across all
+brands. 
+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 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 and concepts for product improvement. 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 outside of the United States. In fiscal 2009, contract suppliers in China, Vietnam, Indonesia and Thailand
+manufactured 36%, 36%, 22% and 6% 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.
+Our largest single footwear factory accounted for approximately 5% of total fiscal 2009 footwear production. 
+Almost all of NIKE brand
+apparel is manufactured outside of the United States by independent contract manufacturers located in 34 countries. Most of this apparel production occurred in China, Thailand, Indonesia, Malaysia, Vietnam, Turkey, Sri Lanka, Cambodia, Taiwan, El
+Salvador, Mexico, India and Israel. Our largest single apparel factory accounted for approximately 5% of total fiscal 2009 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
+2009, NIKE IHM, Inc. and NIKE (Suzhou) Sports Company, Ltd., both 
+4 
+Table of Contents 
+wholly-owned subsidiaries of NIKE, and 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 contractors and suppliers buy raw materials in bulk. Most raw materials are available 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, has performed significant
+import-export financing services for us. During fiscal 2009, Sojitz America provided financing and purchasing services for NIKE brand products sold in Argentina, Uruguay, Canada, Chile, Brazil, India, Indonesia, the Philippines, Malaysia, South
+Africa, China, Korea, and Thailand, excluding products produced and sold in the same country. Approximately 16% 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 outside of the United States, EMEA and Japan. 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 in
+2011. 
+International Operations and Trade 
+Our international operations and sources of supply are subject to the usual risks 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 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 developments occurring. 
+The global economic crisis has resulted in a significant 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 profitability and the imported footwear and apparel industry as a whole. Accordingly, we are actively monitoring the developments described
+below. 
+Footwear Imports into the European Union 
+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 within the scope of the investigation, and (ii) does not meet the legal requirements of injury and price in an anti-dumping
+investigation. Our arguments were successful and the EU agreed in October 2006 on definitive duties of 16.5% for China and 10% for Vietnam for non-STAF leather footwear, but excluded STAF from the final measures. Prior to the scheduled expiration in
+October 2008 of the measures imposed on the non-STAF footwear, the domestic industry requested and the EC agreed to review a petition to extend these restrictions on non-STAF leather footwear. We are working in broad coalition with other companies
+in our industry to challenge this request for extension, and we expect a decision by the end of calendar year 2009 or early 2010. 
+Footwear Imports into Brazil and Argentina 
+At the request of certain domestic footwear industries, both Brazil and
+Argentina have initiated independent anti-dumping investigations against footwear made in China. We are working in broad coalition with other companies in our industry to challenge these cases on the basis that the athletic footwear being imported
+from 
+5 
+Table of Contents 
+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. We anticipate final decisions in both cases will be made in late 2009. 
+Footwear Imports into Turkey 
+In 2006, Turkey introduced a safeguard measure on all imported footwear into Turkey with the goal of protecting its local shoe manufacturing industry
+until August 2009. In June 2009, Turkish shoe-manufacturers submitted, and the Turkish Government agreed to review, a request for extension of the safeguard measures claiming that the rehabilitation process of the local Turkish industry was
+interrupted due to the continuing increase of footwear imports. We are working in broad coalition with other companies in our industry to oppose the continuation of these safeguard measures. We anticipate a final decision in this review will be made
+in early fall 2009. 
+Trade Relations with China 
+China represents an important sourcing and marketing country for us. Many governments around the world are concerned about China’s growing and fast-paced economy, compliance with World Trade Organization rules,
+currency valuation, and high trade surpluses. As a result, a wide range of legislative proposals have been introduced to address these concerns. While some of these concerns may be justified, we are working with broad coalitions of global businesses
+and trade associations representing a wide variety of sectors (e.g., services, manufacturing, and agriculture) to help ensure 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. We believe other companies in our industry as well as most other multi-national companies
+are in a similar position regarding these trade measures. 
+In the event any of these trade protection measures were 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 that we could abate any such disruption, and that much of the adverse impact on supply would, therefore, be of a short-term
+nature. We believe our principal competitors are subject to similar risks. 
+Competition 
+The athletic footwear, apparel and equipment industry is keenly competitive in the United States and on a worldwide basis. We compete internationally with
+a significant number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel and equipment, including Adidas,
+Puma, and 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 and athletic apparel in the world. Performance and reliability of shoes, apparel, and
+equipment, new product development, price, product identity through marketing and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel and equipment industry. To help market our products,
+we contract with prominent and influential 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 are competitive in all of these
+areas. 
+6 
+Table of Contents 
+Trademarks and Patents 
+We utilize trademarks on nearly all of our products and believe that having distinctive marks that are readily identifiable is an
+important factor in creating a market for our goods, in identifying 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 over 150 countries. In addition, we own many other trademarks that we utilize in marketing our products. We continue to vigorously protect our trademarks against infringement.
+NIKE has an exclusive, worldwide license to make and sell footwear using patented “Air” technology. The
+process utilizes pressurized gas encapsulated in polyurethane. Some of the early NIKE AIR ® patents have expired, which may
+enable competitors to use certain types of similar technology. Subsequent NIKE AIR ® patents will not expire for several
+years. We also have hundreds of U.S. and foreign utility patents, and thousands of U.S. and foreign design patents covering components and features used in various athletic and leisure shoes, apparel, and equipment. These patents expire at various
+times, and patents issued for applications filed this year will have a remaining duration of from now to 2023 for design patents, and from now to 2029 for utility patents. We believe that our success 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 filing applications for United States and foreign patents on inventions, designs and improvements that we deem valuable.
+Employees 
+We had approximately 34,300 employees at May 31, 2009. Management considers its relationship with employees to be excellent. None of our employees is represented by a union, except for certain employees in the Americas Region, where
+local law requires those employees to be represented by a trade union. Also, in some countries outside of the United States, local laws require representation for employees by works councils (such as in the European Union, in which they are entitled
+to information and consultation on certain Company decisions) or other representation by an organization similar to a union, although collective bargaining agreements are not involved. There has never been a material interruption of operations due
+to labor disagreements. 
+Executive Officers of the Registrant 
+The executive officers of NIKE as of July 24, 2009 are as follows: 
+Philip H. Knight, Chairman of the Board — Mr. Knight, 71, a director since 1968, is a co-founder of NIKE and, except for the period from June 1983 through September 1984, served as its President from
+1968 to 1990, and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State
+University. 
+Mark G. Parker, Chief Executive Officer and President — Mr. Parker, 53, was appointed CEO and President in
+January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge of development
+in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. 
+David J. Ayre, Vice President, Global Human Resources — Mr. Ayre, 49, joined NIKE as Vice President, Global Human Resources in July 2007. Prior to joining NIKE, he held a number of senior human
+resource positions with PepsiCo, Inc. since 1990, most recently as head of Talent and Performance Rewards. 
+Donald W. Blair, Vice
+President and Chief Financial Officer — Mr. Blair, 51, joined NIKE in November 1999. Prior to joining NIKE, he held a number of financial management positions with PepsiCo, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice
+President, Planning of PepsiCo’s Pizza Hut Division, and 
+7 
+Table of Contents 
+Senior Vice President, Finance of The Pepsi Bottling Group, Inc. Prior to joining PepsiCo, Mr. Blair was a certified public accountant with Deloitte,
+Haskins, and Sells. 
+Charles D. Denson, President of the NIKE Brand — Mr. Denson, 53, has been employed by NIKE since
+1979. Mr. Denson held several management positions within the Company, including his appointments as Director of USA Apparel Sales in 1994, divisional Vice President, U.S. Sales in 1994, divisional Vice President European Sales in 1997,
+divisional Vice President and General Manager, NIKE Europe in 1998, Vice President and General Manager of NIKE USA in 2000, and President of the NIKE Brand in 2001. 
+Gary M. DeStefano, President, Global Operations — Mr. DeStefano, 52, has been employed by NIKE since 1982, with primary responsibilities in sales and regional administration. Mr. DeStefano was
+appointed Director of Domestic Sales in 1990, divisional Vice President in charge of domestic sales in 1992, Vice President of Global Sales in 1996, Vice President and General Manager of Asia Pacific in 1997, President of USA Operations in 2001,
+President of Global Operations in 2006. 
+Trevor Edwards, Vice President, Global Brand and Category Management —
+Mr. Edwards, 46, joined NIKE in 1992. He was appointed Marketing Manager, Strategic Accounts, Foot Locker in 1993, Director of Marketing, the Americas in 1995, Director of Marketing, Europe in 1997, Vice President, Marketing for Europe, Middle
+East and Africa in 1999, and Vice President, U.S. Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in 2002 and Vice President, Global Brand and Category Management in 2006. Prior to NIKE,
+Mr. Edwards was with the Colgate-Palmolive Company. 
+Jeanne P. Jackson, President, Direct to Consumer
+— Ms. Jackson, 57, served as a member of the NIKE, Inc. Board of Directors from 2001 through March 2009, when she resigned from our Board and was appointed President, Direct to Consumer. She is founder and CEO of MSP
+Capital, a private investment company. Ms. Jackson was CEO of Walmart.com from March 2000 to January 2002. She was with Gap, Inc., as President and CEO of Banana Republic from 1995-2000, also serving as CEO of Gap, Inc. Direct from
+1998-2000. Since 1978, she has held various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated Department Stores. Ms. Jackson is the President of the United States Ski and
+Snowboard Foundation Board of Trustees, and serves on the Board of Advisors of the University of California, Irvine. She is also a director of McDonald’s Corporation, Nordstrom, Inc., and Harrah’s Entertainment, Inc. 
+P. Eunan McLaughlin, President, Affiliates — Mr. McLaughlin, 51, joined NIKE as Director of Sales, NIKE Europe in 1999, and was
+appointed Vice President Commercial Sales and Retail in 2000, Vice President, Asia Pacific in 2001, Vice President, Europe, Middle East & Africa in May 2004, and President of Affiliates in April 2009. Prior to joining NIKE, he was
+Partner and Vice President of Consumer & Retail Practices Division, Korn/Ferry International from 1996 to 1999. From 1983 to 1996, Mr. McLaughlin held various positions with Mars, Inc. in finance, sales, marketing and general
+management. 
+Bernard F. Pliska, Vice President, Corporate Controller — Mr. Pliska, 47, joined NIKE as Corporate Controller
+in 1995. He was appointed Vice President, Corporate Controller in 2003. Prior to NIKE, Mr. Pliska was with Price Waterhouse from 1984 to 1995. Mr. Pliska is a certified public accountant. 
+John F. Slusher, Vice President, Global Sports Marketing — Mr. Slusher, 40, has been employed by NIKE since 1998 with primary
+responsibilities in global sports marketing. Mr. Slusher was appointed Director of Sports Marketing for the Asia Pacific and Americas Regions in 2006, divisional Vice President, Asia Pacific & Americas Sports Marketing in September
+2007 and Vice President, Global Sports Marketing in November 2007. Prior to joining NIKE, Mr. Slusher was an attorney at the law firm of O’Melveny & Myers from 1995 to 1998. 
+Eric D. Sprunk, Vice President, Merchandising and Product — Mr. Sprunk, 45, joined NIKE in 1993. He was appointed Finance Director and
+General Manager of the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General Manager, NIKE Europe Footwear in 1998, and Vice President & General Manager of 
+8 
+Table of Contents 
+the Americas in 2000. Mr. Sprunk was appointed corporate Vice President, Global Footwear in 2001 and Vice President, Merchandising and Product in 2009.
+Prior to joining NIKE, Mr. Sprunk was a certified public accountant with Price Waterhouse from 1987 to 1993. 
+Hans van Alebeek,
+Vice President, Global Operations and Technology — Mr. van Alebeek, 43, joined NIKE as Director of Operations of Europe in 1999, and was appointed Vice President, Operations & Administration in EMEA in 2001, Vice
+President, Global Operations in 2003, Vice President, Global Operations & Technology in 2004, and Corporate Vice President in November 2005. Prior to joining NIKE, Mr. van Alebeek worked for McKinsey & Company as a management
+consultant, and at N.V. Indivers in business development. 
+Item 1A. 
+Risk Factors 
+Special Note Regarding
+Forward-Looking Statements and Analyst Reports 
+Certain written and oral statements, other than purely historical information,
+including estimates, projections, statements relating to NIKE’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, made or incorporated by reference from time to time by NIKE or
+its representatives in this report, other reports, filings with the Securities and Exchange Commission, press releases, conferences, or otherwise, are “forward-looking statements” within the meaning of the Private Securities Litigation
+Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or
+achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” or words or phrases
+of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by
+NIKE with the Securities and Exchange Commission, including Forms 8-K, 10-Q, and 10-K, and include, among others, the following: international, national and local general economic and market conditions; the size and growth of the overall athletic
+footwear, apparel, and equipment markets; intense competition among designers, marketers, distributors and sellers of athletic footwear, apparel, and equipment for consumers and endorsers; demographic changes; changes in consumer preferences;
+popularity of particular designs, categories of products, and sports; seasonal and geographic demand for NIKE products; difficulties in anticipating or forecasting changes in consumer preferences, consumer demand for NIKE products, and the various
+market factors described above; difficulties in implementing, operating, and maintaining NIKE’s increasingly complex information systems and controls, including, without limitation, the systems related to demand and supply planning, and
+inventory control; interruptions in data and communications systems; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that advance “futures” orders may not be indicative of future
+revenues due to changes in shipment timing, and the changing mix of futures and at-once orders and order cancellations; the ability of NIKE to sustain, manage or forecast its growth and inventories; the size, timing and mix of purchases of
+NIKE’s products; increases in the cost of materials and energy used to manufacture products, new product development and introduction; the ability to secure and protect trademarks, patents, and other intellectual property; performance and
+reliability of products; customer service; adverse publicity; the loss of significant customers or suppliers; dependence on distributors; business disruptions; increased costs of freight and transportation to meet delivery deadlines; increases in
+borrowing costs due to any decline in our debt ratings; changes in business strategy or development plans; general risks associated with doing business outside the United States, including, without limitation, exchange rate fluctuations, import
+duties, tariffs, quotas, political and economic instability, and terrorism; changes in government regulations; liability and other claims asserted against NIKE; the ability to attract and retain qualified personnel; and other factors referenced or
+incorporated by reference in this report and other reports. 
+The risks included here are not exhaustive. Other sections of this report may
+include additional factors which could adversely affect NIKE’s business and financial performance. Moreover, NIKE operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible
+9 
+Table of Contents 
+for management to predict all such risk factors, nor can it assess the impact of all such risk factors on NIKE’s business or the extent to which any
+factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as
+a prediction of actual results. 
+Investors should also be aware that while NIKE does, from time to time, communicate with securities
+analysts, it is against NIKE’s policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that NIKE agrees with any statement or report issued by any
+analyst irrespective of the content of the statement or report. Furthermore, NIKE has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain
+any projections, forecasts or opinions, such reports are not the responsibility of NIKE. 
+Our products face intense competition. 
+NIKE is a consumer products company and the relative popularity of various sports and fitness activities and changing design trends affect the demand
+for our products. The athletic footwear, apparel and equipment industry is keenly competitive in the United States and on a worldwide basis. We compete internationally with a significant number of athletic and leisure shoe companies, athletic and
+leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel and equipment. We also compete with other companies for the production capacity of independent manufacturers
+that produce our products and for import quota capacity. 
+Our competitors’ product offerings, technologies, marketing expenditures
+(including expenditures for advertising and endorsements), pricing, costs of production, and customer service are areas of intense competition. This, in addition to 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. If we do not adequately and timely anticipate and respond to our competitors, our costs may increase or the consumer demand for our products
+may decline significantly. 
+If we are unable to anticipate consumer preferences and develop new products, we may not be able to maintain or increase
+our net revenues and profits. 
+Our success depends on our ability to identify, originate and define product trends as well as to
+anticipate, gauge and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. Our new products may not receive consumer acceptance as consumer
+preferences could shift rapidly to different types of performance or other sports apparel or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes. If we fail
+to anticipate accurately and respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, designs, styles and categories, and influencing sports and fitness preferences through
+aggressive marketing, we could experience lower sales, excess inventories and lower profit margins, any of which could have an adverse effect on our results of operations and financial condition. 
+We rely on technical innovation and high quality products to compete in the market for our products. 
+Although design and aesthetics of our products appear to be the most important factor for consumer acceptance of our products, technical innovation and
+quality control in the design of footwear, apparel, and athletic equipment is also essential to the commercial success of our products. Research and development plays a key role in technical innovation. We rely upon specialists in the fields of
+biomechanics, exercise physiology, engineering, industrial design and related fields, as well as research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists and other experts to
+develop and test 
+10 
+Table of Contents 
+cutting edge performance products. While we strive to produce products that help to reduce injury, enhance athletic performance and maximize comfort, if we
+fail to introduce technical innovation in our products the consumer demand for our products could decline, and if we experience problems with the quality of our products, we may incur substantial expense to remedy the problems. 
+Failure to continue to obtain high quality endorsers of our products could harm our business. 
+We establish relationships with professional athletes, sports teams and leagues to evaluate, promote, and establish product authenticity with consumers.
+If certain endorsers were to stop using our products contrary to their endorsement agreements, our business could be adversely affected. In addition, actions taken by athletes, teams or leagues associated with our products that harm the reputations
+of those athletes, teams or leagues could also harm our brand image with consumers and, as a result, could have an adverse effect on our sales and financial condition. In addition, poor performance by our endorsers, a failure to continue to
+correctly identify promising athletes to use and endorse our products, or a failure to enter into cost effective endorsement arrangements with prominent athletes and sports organizations could adversely affect our brand and result in decreased sales
+of our products. 
+Failure of our contractors to comply with our code of conduct, local laws, and other standards could harm our business. 
+We contract with hundreds of contractors outside of the United States to manufacture our products, and we impose on those contractors a
+code of conduct and other environmental, health, and safety standards for the benefit of workers. However, from time to time contractors may not comply with such standards or applicable local law. Significant or continuing noncompliance with such
+standards and laws by one or more contractors could harm our reputation and, as a result, could have an adverse effect on our sales and financial condition. 
+Global capital and credit market conditions, and resulting declines in consumer confidence and spending, could have a material adverse effect on our business, operating results, and financial condition. 
+Volatility and disruption in the global capital and credit markets in 2008 and 2009 have led to a tightening of business credit and liquidity, a
+contraction of consumer credit, business failures, higher unemployment, and declines in consumer confidence and spending in the United States and internationally. If global economic and financial market conditions deteriorate or remain weak for
+an extended period of time, the following factors could have a material adverse effect on our business, operating results, and financial condition: 
+• 
+Slower consumer spending may result in reduced demand for our products, reduced orders from retailers for our products, order cancellations, lower revenues,
+increased inventories, and lower gross margins. 
+• 
+We may be unable to find suitable investments that are safe, liquid, and provide a reasonable return. This could result in lower interest income or longer
+investment horizons. Disruptions to capital markets or the banking system may also impair the value of investments or bank deposits we currently consider safe or liquid. 
+• 
+We may be unable to access financing in the credit and capital markets at reasonable rates in the event we find it desirable to do so. 
+• 
+The failure of financial institution counterparties to honor their obligations to us under credit and derivative instruments could jeopardize our ability to rely on
+and benefit from those instruments. Our ability to replace those instruments on the same or similar terms may be limited under poor market conditions. 
+• 
+We conduct transactions in various currencies, which increases our exposure to fluctuations in foreign currency exchange rates relative to the U.S.
+dollar. Continued volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies could have a significant impact on our reported financial results and condition. 
+11 
+Table of Contents 
+• 
+Continued volatility in the markets and prices for commodities and raw materials we use in our products and in our supply chain (such as petroleum) could have a
+material adverse effect on our costs, gross margins, and profitability. 
+• 
+If retailers of our products experience declining revenues, or retailers experience difficulty obtaining financing in the capital and credit markets to purchase our
+products, this could result in reduced orders for our products, order cancellations, inability of retailers to timely meet their payment obligations to us, extended payment terms, higher accounts receivable, reduced cash flows, greater expense
+associated with collection efforts, and increased bad debt expense. 
+• 
+If retailers of our products experience severe financial difficulty, some may become insolvent and cease business operations, which could reduce the availability of
+our products to consumers. 
+• 
+If contract manufacturers of our products or other participants in our supply chain experience difficulty obtaining financing in the capital and credit markets to
+purchase raw materials or to finance general working capital needs, it may result in delays or non-delivery of shipments of our products. 
+Our business is affected by seasonality, which could result in fluctuations in our operating results and stock price. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly exceeded those in the second and third fiscal quarters. However, the mix of product
+sales may vary considerably from time to time as a result of changes in seasonal and geographic demand for particular types of footwear, apparel and equipment. In addition, our customers may cancel orders, change delivery schedules or change the mix
+of products ordered with minimal notice. As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our results of operations are likely to fluctuate significantly from period to period. This seasonality, along with
+other factors that are beyond our control, including general economic conditions, changes in consumer preferences, weather conditions, availability of import quotas and currency exchange rate fluctuations, could adversely affect our business and
+cause our results of operations to fluctuate. Our operating margins are also sensitive to a number of factors that are beyond our control, including shifts in product sales mix, geographic sales trends, and currency exchange rate fluctuations, all
+of which we expect to continue. Results of operations in any period should not be considered indicative of the results to be expected for any future period. 
+“Futures” orders may not be an accurate indication of our future revenues. 
+We make substantial use of our
+“futures” ordering program, which allows retailers to order five to six months in advance of delivery with the commitment that their orders will be delivered within a set period at a fixed price. Our futures ordering program allows us to
+minimize the amount of products we hold in inventory, purchasing costs, the time necessary to fill customer orders, and the risk of non-delivery. We report changes in futures orders in our periodic financial reports. Although we believe futures
+orders are an important indicator of our future revenues, reported futures orders are not necessarily indicative of our expectation of changes in revenues for any future period. This is because the mix of orders can shift between advance/futures and
+at-once orders. In addition, foreign currency exchange rate fluctuations, order cancellations, returns, 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 close-out sales of NIKE footwear and apparel, wholesale sales of equipment, Cole Haan, Converse, Hurley, NIKE Golf and Umbro, and retail sales across all brands. 
+Our “futures” ordering program does not prevent excess inventories or inventory shortages, which could result in decreased operating margins and harm to
+our business. 
+We purchase products from manufacturers outside of our futures ordering program and in advance of customer orders,
+which we hold in inventory and resell to customers. There is a risk we may be unable to sell 
+12 
+Table of Contents 
+excess products ordered from manufacturers. Inventory levels in excess of customer demand may result in inventory write-downs, and the sale of excess
+inventory at discounted prices could significantly impair our brand image and have an adverse effect on our operating results and financial condition. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to
+supply products we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer and distributor relationships, and diminish brand loyalty. 
+The difficulty in forecasting demand also makes it difficult to estimate our future results of operations and financial condition from period to period.
+A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in advance. 
+We may be adversely affected by the financial health of our retailers. 
+We extend credit to our customers based on an assessment of a customer’s financial condition, generally without requiring collateral. To assist in the scheduling of production and the shipping of seasonal
+products, we offer customers the ability to place orders five to six months ahead of delivery under our “futures” ordering program. These advance orders may be cancelled, and the risk of cancellation may increase when dealing with
+financially ailing retailers or retailers struggling with economic uncertainty. In the past, some customers have experienced financial difficulties, which have had an adverse effect on our business. As a result, retailers may be more cautious than
+usual with orders as a result of weakness in the retail economy. A slowing economy in our key markets could have an adverse effect on the financial health of our customers, which in turn could have an adverse effect on our results of operations and
+financial condition. In addition, product sales are dependent in part on high quality merchandising and an appealing store environment to attract consumers, which requires continuing investments by retailers. Retailers who experience financial
+difficulties may fail to make such investments or delay them, resulting in lower sales and orders for our products. 
+Consolidation of retailers or
+concentration of retail market share among a few retailers may increase and concentrate our credit risk, and impair our ability to sell our products. 
+The athletic footwear, apparel, and equipment retail markets in some countries are dominated by a few large athletic footwear, apparel, and equipment retailers with many stores. These retailers have in the past
+increased their market share and may continue to do so in the future by expanding through acquisitions and construction of additional stores. These situations concentrate our credit risk with a relatively small number of retailers, and, if any of
+these retailers were to experience a shortage of liquidity, it would increase the risk that their outstanding payables to us may not be paid. In addition, increasing market share concentration among one or a few retailers in a particular country or
+region increases the risk that if any one of them substantially reduces their purchases of our products, we may be unable to find a sufficient number of other retail outlets for our products to sustain the same level of sales and revenues.
+Failure to adequately protect our intellectual property rights could adversely affect our business. 
+We utilize trademarks on nearly all of our products and believe that having distinctive marks that are readily identifiable is an
+important factor in creating a market for our goods, in identifying us, 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 over 150 countries. In addition, we own many other trademarks that we utilize in marketing our products. We believe that our trademarks, patents, and other intellectual property
+rights are important to our brand, our success and our competitive position. We periodically discover products that are counterfeit reproductions of our products or that otherwise infringe on our intellectual property rights. If we are unsuccessful
+in challenging a party’s products on the basis of trademark or design or utility patent infringement, continued sales of these products could adversely affect our sales and our brand and result in the shift of consumer preference away from our
+products. The actions we take to establish and protect 
+13 
+Table of Contents 
+trademarks, patents, and other intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from
+seeking to block sales of our products as violations of proprietary rights. 
+In addition, the laws of certain foreign countries may not
+protect intellectual property rights to the same extent as the laws of the United States. We may face significant expenses and liability in connection with the protection of our intellectual property rights outside the United States, and if we are
+unable to successfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition may be adversely affected. 
+We are subject to periodic litigation and other regulatory proceedings, which could result in unexpected expense of time and resources. 
+From time to time we are called upon to defend ourselves against lawsuits and regulatory actions relating to our business. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot
+accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on our business, financial condition and results of operations. In addition, any significant litigation in the future, regardless of
+its merits, could divert management’s attention from our operations and result in substantial legal fees. 
+Our international operations involve
+inherent risks which could result in harm to our business. 
+Virtually all of our athletic footwear and apparel is manufactured
+outside of the United States, and the majority of our products are sold outside of the United States. Accordingly, we are subject to the risks generally associated with global trade and doing business abroad, which include foreign laws and
+regulations, varying consumer preferences across geographic regions, political unrest, disruptions or delays in cross-border shipments and changes in economic conditions in countries in which we manufacture or sell products. In addition, disease
+outbreaks, terrorist acts and military conflict have increased the risks of doing business abroad. These factors, among others, could affect our ability to manufacture products or procure materials, our ability to import products, our ability to
+sell products in international markets, and our cost of doing business. If any of these or other factors make the conduct of business in a particular country undesirable or impractical, our business could be adversely affected. In addition, many of
+our imported products are subject to duties, tariffs or quotas that affect the cost and quantity of various types of goods imported into the United States and other countries. Any country in which our products are produced or sold may eliminate,
+adjust or impose new quotas, duties, tariffs, safeguard measures, anti-dumping duties, cargo restrictions to prevent terrorism, restrictions on the transfer of currency, or other charges or restrictions, any of which could have an adverse effect on
+our results of operations and financial condition. 
+Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income
+tax rate and profitability. 
+We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective
+income tax rate in the future could be adversely affected by a number of factors, including: changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in
+tax laws, the outcome of income tax audits in various jurisdictions around the world, and any repatriation of non-US earnings for which we have not previously provided for U.S. taxes. We regularly assess all of these matters to determine the
+adequacy of our tax provision, which is subject to significant discretion. Recently, the Obama administration proposed legislation that would change how U.S. multinational corporations are taxed on their foreign income. If such legislation is
+enacted, it may have a material adverse impact to our tax rate and in turn, our profitability. 
+14 
+Table of Contents 
+Currency exchange rate fluctuations could result in higher costs and decreased margins. 
+A majority of our products are sold outside of the United States. As a result, we conduct transactions in various currencies, which increases our exposure
+to fluctuations in foreign currency exchange rates relative to the U.S. dollar. Our international revenues and expenses generally are derived from sales and operations in foreign currencies, and these revenues and expenses could be affected by
+currency fluctuations, including amounts recorded in foreign currencies and translated into U.S. dollars for consolidated financial reporting. Currency exchange rate fluctuations could also disrupt the business of the independent manufacturers that
+produce our products by making their purchases of raw materials more expensive and more difficult to finance. Foreign currency fluctuations could have an adverse effect on our results of operations and financial condition. 
+Our hedging activities (s ee Note 18, Risk Management and Derivatives on the accompanying note to the consolidated financial statement), which are
+designed to minimize and delay, but not to completely eliminate, the effects of foreign currency fluctuations may not sufficiently mitigate the impact of foreign currencies on our financial results. Factors that could affect the effectiveness of our
+hedging activities include accuracy of sales forecasts, volatility of currency markets, and the availability of hedging instruments. Since the hedging activities are designed to minimize volatility, they not only reduce the negative impact of a
+stronger U.S. dollar, but they also reduce the positive impact of a weaker U.S. dollar. Our future financial results could be significantly affected by the value of the U.S. dollar in relation to the foreign currencies in which we conduct business.
+The degree to which our financial results are affected for any given time period will depend in part upon our hedging activities. 
+Our products are
+subject to risks associated with overseas sourcing, manufacturing, and financing. 
+The principal materials used in our apparel
+products — 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 — are available in countries where our
+manufacturing takes place. The principal materials used in our footwear products — natural and synthetic rubber, plastic compounds, foam cushioning materials, nylon, leather, canvas and polyurethane films — are also locally available to
+manufacturers. NIKE contractors and suppliers buy raw materials in bulk. 
+There could be a significant disruption in the supply of fabrics
+or raw materials from current sources or, in the event of a disruption, we might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price, or at all. In addition, we cannot be certain that our
+unaffiliated manufacturers will be able to fill our orders in a timely manner. If we experience significant increases in demand, or need to replace an existing manufacturer, there can be no assurance that additional supplies of fabrics or raw
+materials or additional manufacturing capacity will be available when required on terms that are acceptable to us, or at all, or that any supplier or manufacturer would allocate sufficient capacity to us in order to meet our requirements. In
+addition, even if we are able to expand existing or find new manufacturing or sources of materials, we may encounter delays in production and added costs as a result of the time it takes to train suppliers and manufacturers in our methods, products,
+quality control standards, and labor, health and safety standards. Any delays, interruption or increased costs in the supply of materials or manufacture of our products could have an adverse effect on our ability to meet retail customer and consumer
+demand for our products and result in lower revenues and net income both in the short and long term. 
+Because independent manufacturers
+manufacture a majority of our products outside of our principal sales markets, our products must be transported by third parties over large geographic distances. Delays in the shipment or delivery of our products due to the availability of
+transportation, work stoppages, port strikes, infrastructure congestion, or other factors, and costs and delays associated with consolidating or transitioning between manufacturers, could adversely impact our financial performance. In addition,
+manufacturing delays or unexpected demand for our products may require us to use faster, but more expensive, transportation methods such as aircraft, which could adversely affect our profit margins. The cost of fuel is a significant component in
+manufacturing and transportation costs, so increases in the price of petroleum products can adversely affect our profit margins. 
+15 
+Table of Contents 
+In addition, Sojitz America performs significant import-export financing services for most of the NIKE
+brand products sold outside of the United States, Europe, Middle East, Africa and Japan, excluding products produced and sold in the same country. 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 outside of the United States, Europe, Middle East, Africa, and Japan. Such a disruption could result in cancelled orders that would adversely
+affect sales and profitability. 
+Our success depends on our global distribution facilities. 
+We distribute our products to customers directly from the factory and through distribution centers located throughout the world. Our ability to meet
+customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies depends on the proper operation of our distribution facilities, the development or expansion of additional distribution capabilities, and the
+timely performance of services by third parties (including those involved in shipping product to and from our distribution facilities). Our distribution facilities could be interrupted by information technology problems and disasters such as
+earthquakes or fires. Any significant failure in our distribution facilities could result in an adverse affect on our business. We maintain business interruption insurance, but it may not adequately protect us from adverse effects that could be
+caused by significant disruptions in our distribution facilities. 
+We rely significantly on information technology in our supply chain, and any
+failure, inadequacy, interruption or security failure of that technology could harm our ability to effectively operate our business. 
+We are heavily dependent on information technology systems across our supply chain, including product design, production, forecasting, ordering, manufacturing, transportation, sales, and distribution. Our ability to effectively manage and
+maintain our inventory and to ship products to customers on a timely basis depends significantly on the reliability of these supply chain systems. Over the last several years, as part of the ongoing initiative to upgrade our worldwide supply chain,
+we have implemented new systems in all of our geographical regions in which we operate. Over the next few years, we will work to continue to enhance the systems and related processes in our global operations. The failure of these systems to operate
+effectively, problems with transitioning to upgraded or replacement systems, or a breach in security of these systems could cause delays in product fulfillment and reduced efficiency of our operations, and could require significant capital
+investments to remediate the problem, and may have an adverse effect on our results of operations and financial condition. 
+Our financial results may
+be adversely affected if substantial investments in businesses and operations fail to produce expected returns. 
+From time to time,
+we may invest in business infrastructure, acquisitions of new businesses, and expansion of existing businesses, such as our retail operations, which require substantial cash investments and management attention. We believe cost effective investments
+are essential to business growth and profitability. However, significant investments are subject to typical risks and uncertainties inherent in acquiring or expanding a business. The failure of any significant investment to provide the returns or
+profitability we expect could have a material adverse effect on our financial results and divert management attention from more profitable business operations. 
+We depend on key personnel, the loss of whom would harm our business. 
+Our future success will depend in part on the
+continued service of key executive officers and personnel. The loss of the services of any key individual could harm us. Our future success also depends on our ability to identify, attract and retain additional qualified personnel. Competition for
+employees in our industry is intense and we may not be successful in attracting and retaining such personnel. 
+16 
+Table of Contents 
+The sale of a large number of shares held by our Chairman could depress the market price of our common stock.
+Philip H. Knight, Co-founder and Chairman of our Board of Directors, beneficially owns over 96% of our Class A Common Stock.
+If all of his Class A Common Stock were converted into Class B Common Stock, Mr. Knight would own over 19% of our Class B Common Stock. These shares are available for resale, subject to the requirements of the U.S. securities laws. The
+sale or prospect of the sale of a substantial number of these shares could have an adverse effect on the market price of our common stock. 
+Anti-takeover provisions may impair an acquisition of the Company or reduce the price of our common stock. 
+There are
+provisions of our articles of incorporation and Oregon law that are intended to protect shareholder interests by providing the Board of Directors a means to attempt to deny coercive takeover attempts or to negotiate with a potential acquirer in
+order to obtain more favorable terms. Such provisions include a control share acquisition statute, a freezeout statute, two classes of stock that vote separately on certain issues, and the fact holders of Class A Common Stock shares elect
+three-fourths of the Board of Directors rounded down to the next whole number. However, such provisions could discourage, delay or prevent an unsolicited merger, acquisition or other change in control of our company that some shareholders might
+believe to be in their best interests or in which shareholders might receive a premium for their common stock over the prevailing market price. These provisions could also discourage proxy contests for control of the Company. 
+We may fail to meet analyst expectations, which could cause the price of our stock to decline. 
+Our common stock is traded publicly, and at any given time various securities analysts follow our financial results and issue reports on us. These reports
+include information about our historical financial results as well as the analysts’ estimates of our future performance. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations.
+If our operating results are below the estimates or expectations of public market analysts and investors, our stock price could decline. In the past, securities class action litigation has been brought against NIKE and other companies following a
+decline in the market price of their securities. If our stock price is volatile, we may become involved in this type of litigation in the future. Any litigation could result in substantial costs and a diversion of management’s attention and
+resources that are needed to successfully run our business. 
+Item 1B. 
+Unresolved Staff Comments 
+Not applicable. 
+Item 2. 
+Properties 
+The following is
+a summary of principal properties owned or leased by NIKE. 
+The NIKE World Campus, owned by NIKE and located in Beaverton, Oregon, USA, is
+a 176 acre facility of 18 buildings which functions as our world headquarters and is occupied by almost 5,700 employees engaged in management, research, design, development, marketing, finance, and other administrative functions from nearly all of
+our divisions. We also lease various office facilities in the surrounding metropolitan area. We lease a similar, but smaller, administrative facility in Hilversum, the Netherlands, which serves as the headquarters for the EMEA Region. 
+There are three significant distribution and customer service facilities for NIKE brand products in the United States. All three of them are located in
+Memphis, Tennessee, one of which is leased. Cole Haan also operates a distribution facility in Greenland, New Hampshire, which we lease. Smaller leased distribution facilities for other brands and non-NIKE brand businesses are located in various
+parts of the United States. We 
+17 
+Table of Contents 
+also own or lease distribution and customer service facilities in many parts of the world, the most significant of which are the distribution facilities
+located in Tomisatomachi, Japan, and in Laakdal, Belgium, both of which we own. 
+We manufacture Air-Sole cushioning materials and
+components at NIKE IHM, Inc. manufacturing facilities located in Beaverton, Oregon and St. Charles, Missouri, which we own. We also manufacture and sell small amounts of various plastic products to other manufacturers through NIKE IHM, Inc.
+Aside from the principal properties described above, we lease three production offices outside the United States, over 100 sales offices
+and showrooms worldwide, and approximately 60 administrative offices worldwide. We lease more than 600 retail stores worldwide, which consist primarily of factory outlet stores. See “United States Market” and “International
+Markets” starting on page 2 of this Report. Our leases expire at various dates through the year 2034. 
+Item 3. 
+Legal Proceedings 
+There are
+no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or of which any of our property is the subject. 
+Item 4. 
+Submission of Matters to a Vote of Security Holders 
+No matter was submitted during the fourth quarter of the 2009 fiscal year to a vote of security holders, through the solicitation of proxies or otherwise. 
+18 
+Table of Contents 
+PART II 
+Item 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+NIKE’s Class B Common Stock is listed on the New York Stock Exchange and trades under the symbol NKE. At July 24, 2009, there were 20,672
+holders of record of our Class B Common Stock and 16 holders of record of our Class A Common Stock. These figures do not include beneficial owners who hold shares in nominee name. The Class A Common Stock is not publicly traded but
+each share is convertible upon request of the holder into one share of Class B Common Stock. The following tables set forth, for each of the quarterly periods indicated, the high and low sales prices for the Class B Common Stock as reported on
+the New York Stock Exchange Composite Tape and dividends declared on the Class A and Class B Common Stock. 
+Fiscal 2009 (June 1, 2008 — May 31, 2009) 
+High 
+Low 
+Dividends 
+Declared 
+First Quarter 
+$ 
+70.28 
+$ 
+54.64 
+$ 
+0.23 
+Second Quarter 
+68.00 
+42.68 
+0.25 
+Third Quarter 
+57.33 
+40.08 
+0.25 
+Fourth Quarter 
+57.14 
+38.24 
+0.25 
+Fiscal 2008 (June 1, 2007 — May 31, 2008) 
+High 
+Low 
+Dividends 
+Declared 
+First Quarter 
+$ 
+60.35 
+$ 
+51.87 
+$ 
+0.185 
+Second Quarter 
+66.57 
+54.15 
+0.23 
+Third Quarter 
+67.93 
+51.50 
+0.23 
+Fourth Quarter 
+70.60 
+56.70 
+0.23 
+No share repurchases were made by NIKE during the fourth quarter ended May 31, 2009 under the
+four-year $3.0 billion share repurchase program authorized by our Board of Directors and announced in June 2006. As of May 31, 2009, the maximum dollar value of shares available for repurchase under this program is $300.2 million. In September
+2008, our Board of Directors approved a new $5 billion share repurchase program. This new program will commence upon completion of our current $3 billion share repurchase program. 
+19 
+Table of Contents 
+Performance Graph 
+The following graph demonstrates a five-year comparison of cumulative total returns for NIKE’s Class B Common Stock, the Standard & Poor’s 500 Stock Index, the Standard & Poor’s
+Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. The graph assumes an investment of $100 on May 31, 2004 in each of our Class B Common Stock, and the stocks comprising the Standard &
+Poor’s 500 Stock Index, the Standard & Poor’s Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. Each of the indices assumes that all dividends were reinvested. 
+COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG NIKE, INC., S&P 500 
+INDEX, S&P APPAREL, ACCESSORIES & LUXURY GOODS INDEX, 
+AND THE
+DOW JONES U.S. FOOTWEAR INDEX 
+The Dow Jones U.S. Footwear Index consists of NIKE, Deckers Outdoor Corp., Timberland Co., Wolverine World
+Wide, Inc., and Crocs, Inc. Because NIKE is part of the Dow Jones U.S. Footwear Index, the price and returns of NIKE stock have a substantial effect on this index. The Standard & Poor’s Apparel, Accessories & Luxury Goods
+Index consists of VF Corp., Coach, Inc., and Polo Ralph Lauren Corporation. The Dow Jones U.S. Footwear Index and the Standard & Poor’s Apparel, Accessories, and Luxury Goods Index include companies in two major lines of business in
+which the Company competes. The indices do not encompass all of the Company’s competitors, nor all product categories and lines of business in which the Company is engaged. 
+The stock performance shown on the performance graph above is not necessarily indicative of future performance. The Company will not make nor endorse any
+predictions as to future stock performance. 
+The performance graph above is being furnished solely to accompany this Report pursuant to
+Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after
+the date hereof, regardless of any general incorporation language in such filing. 
+20 
+Table of Contents 
+Item 6. 
+Selected Financial Data 
+Financial History 
+2009 
+2008 
+2007 
+2006 
+2005 
+(In millions, except per share data and financial ratios) (1) 
+Year Ended May 31, 
+Revenues 
+$ 
+19,176.1 
+$ 
+18,627.0 
+$ 
+16,325.9 
+$ 
+14,954.9 
+$ 
+13,739.7 
+Gross margin 
+8,604.4 
+8,387.4 
+7,160.5 
+6,587.0 
+6,115.4 
+Gross margin % 
+44.9 
+% 
+45.0 
+% 
+43.9 
+% 
+44.0 
+% 
+44.5 
+% 
+Restructuring charges 
+195.0 
+— 
+— 
+— 
+— 
+Goodwill impairment 
+199.3 
+— 
+— 
+— 
+— 
+Intangible and other asset impairment 
+202.0 
+— 
+— 
+— 
+— 
+Net income 
+1,486.7 
+1,883.4 
+1,491.5 
+1,392.0 
+1,211.6 
+Basic earnings per common share 
+3.07 
+3.80 
+2.96 
+2.69 
+2.31 
+Diluted earnings per common share 
+3.03 
+3.74 
+2.93 
+2.64 
+2.24 
+Weighted average common shares outstanding 
+484.9 
+495.6 
+503.8 
+518.0 
+525.2 
+Diluted weighted average common shares outstanding 
+490.7 
+504.1 
+509.9 
+527.6 
+540.6 
+Cash dividends declared per common share 
+0.98 
+0.875 
+0.71 
+0.59 
+0.475 
+Cash flow from operations 
+1,736.1 
+1,936.3 
+1,878.7 
+1,667.9 
+1,570.7 
+Price range of common stock 
+High 
+70.28 
+70.60 
+57.12 
+45.77 
+46.22 
+Low 
+38.24 
+51.50 
+37.76 
+38.27 
+34.31 
+At May 31, 
+Cash and equivalents 
+$ 
+2,291.1 
+$ 
+2,133.9 
+$ 
+1,856.7 
+$ 
+954.2 
+$ 
+1,388.1 
+Short-term investments 
+1,164.0 
+642.2 
+990.3 
+1,348.8 
+436.6 
+Inventories 
+2,357.0 
+2,438.4 
+2,121.9 
+2,076.7 
+1,811.1 
+Working capital 
+6,457.0 
+5,517.8 
+5,492.5 
+4,733.6 
+4,339.7 
+Total assets 
+13,249.6 
+12,442.7 
+10,688.3 
+9,869.6 
+8,793.6 
+Long-term debt 
+437.2 
+441.1 
+409.9 
+410.7 
+687.3 
+Redeemable Preferred Stock 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+Shareholders’ equity 
+8,693.1 
+7,825.3 
+7,025.4 
+6,285.2 
+5,644.2 
+Year-end stock price 
+57.05 
+68.37 
+56.75 
+40.16 
+41.10 
+Market capitalization 
+27,697.8 
+33,576.5 
+28,472.3 
+20,564.5 
+21,462.3 
+Financial Ratios: 
+Return on equity 
+18.0 
+% 
+25.4 
+% 
+22.4 
+% 
+23.3 
+% 
+23.2 
+% 
+Return on assets 
+11.6 
+% 
+16.3 
+% 
+14.5 
+% 
+14.9 
+% 
+14.5 
+% 
+Inventory turns 
+4.4 
+4.5 
+4.4 
+4.3 
+4.4 
+Current ratio at May 31 
+3.0 
+2.7 
+3.1 
+2.8 
+3.2 
+Price/Earnings ratio at May 31 
+18.8 
+18.3 
+19.4 
+15.2 
+18.3 
+(1) 
+All share and per share information has been restated to reflect a two-for-one stock split affected in the form of a 100% common stock dividend distributed on
+April 2, 2007. 
+21 
+Table of Contents 
+Selected Quarterly Financial Data 
+1st Quarter 
+2nd Quarter 
+3rd Quarter 
+4th Quarter 
+2009 
+2008 
+2009 
+2008 
+2009 
+2008 
+2009 
+2008 
+(Unaudited) 
+(In millions, except per share data) 
+Revenues 
+$ 
+5,432.2 
+$ 
+4,655.1 
+$ 
+4,590.1 
+$ 
+4,339.5 
+$ 
+4,440.8 
+$ 
+4,544.4 
+$ 
+4,713.0 
+$ 
+5,088.0 
+Gross margin 
+2,562.1 
+2,087.0 
+2,050.0 
+1,921.1 
+1,948.5 
+2,047.9 
+2,043.8 
+2,331.4 
+Gross margin % 
+47.2 
+% 
+44.8 
+% 
+44.7 
+% 
+44.3 
+% 
+43.9 
+% 
+45.1 
+% 
+43.4 
+% 
+45.8 
+% 
+Restructuring charges 
+— 
+— 
+— 
+— 
+— 
+— 
+195.0 
+— 
+Goodwill impairment 
+— 
+— 
+— 
+— 
+199.3 
+— 
+— 
+— 
+Intangible and other asset impairment 
+— 
+— 
+— 
+— 
+202.0 
+— 
+— 
+— 
+Net income 
+510.5 
+569.7 
+391.0 
+359.4 
+243.8 
+463.8 
+341.4 
+490.5 
+Basic earnings per common share 
+1.05 
+1.14 
+0.81 
+0.72 
+0.50 
+0.94 
+0.70 
+1.00 
+Diluted earnings per common share 
+1.03 
+1.12 
+0.80 
+0.71 
+0.50 
+0.92 
+0.70 
+0.98 
+Weighted average common shares outstanding 
+487.2 
+499.4 
+483.7 
+497.6 
+484.0 
+493.9 
+484.8 
+491.4 
+Diluted weighted average common shares outstanding 
+494.9 
+507.3 
+489.8 
+506.2 
+488.1 
+502.5 
+489.4 
+500.1 
+Cash dividends declared per common share 
+0.23 
+0.185 
+0.25 
+0.23 
+0.25 
+0.23 
+0.25 
+0.23 
+Price range of common stock 
+High 
+70.28 
+60.35 
+68.00 
+66.57 
+57.33 
+67.93 
+57.14 
+70.60 
+Low 
+54.64 
+51.87 
+42.68 
+54.15 
+40.08 
+51.50 
+38.24 
+56.70 
+Item 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+Overview 
+NIKE designs, develops and markets high
+quality footwear, apparel, equipment and accessory products worldwide. We are the largest seller of athletic footwear and apparel in the world and sell our products primarily through a combination of retail accounts, NIKE-owned retail, including
+stores and e-commerce, independent distributors, franchisees and licensees worldwide. Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear, apparel, equipment and accessories businesses. Our
+strategy is to achieve long-term revenue growth by creating innovative, “must have” products; building deep personal consumer connections with our brands; and delivering compelling retail presentation and experiences. 
+We strive to convert revenue growth to shareholder value by driving operating excellence in several key areas: 
+• 
+Making our supply chain a competitive advantage, through operational discipline 
+• 
+Reducing product costs through a continued focus on lean manufacturing and product design that strives to eliminate waste 
+• 
+Improving selling and administrative expense productivity by focusing on investments that drive economic returns in the form of incremental revenue and gross
+margin, and leveraging existing infrastructure across our portfolio of brands to eliminate duplicative costs 
+• 
+Improving working capital efficiency 
+• 
+Deploying capital effectively to create value for our shareholders 
+Through execution of this strategy, our long-term financial goal is to achieve: 
+• 
+High single-digit revenue growth 
+• 
+Mid-teens earnings per share growth 
+• 
+Increased return on invested capital and accelerated cash flows, and 
+• 
+Consistent results through effective management of our diversified portfolio of businesses 
+22 
+Table of Contents 
+Since the adoption of this long-term strategy in 2001, on an annual compounded basis, NIKE, Inc.’s
+revenues and earnings per share have grown 9% and 14%, respectively. During the same period, our return on invested capital increased from 14% to 18%. In fiscal 2009, deteriorating macroeconomic conditions caused significant volatility in global
+financial markets and put significant pressure on discretionary consumer spending worldwide. NIKE’s fiscal 2009 revenues grew 3% to $19.2 billion, net income decreased 21% to $1.5 billion, and we delivered diluted earnings per share of $3.03, a
+19% decrease versus fiscal 2008. Our fiscal 2009 reported results also contain significant non-comparable transactions, including after-tax charges of $144.5 million for our restructuring activities, which were completed in the fourth quarter of
+fiscal 2009, and $240.7 million for the impairment of goodwill, intangible and other assets of Umbro, which was recorded in the third quarter of fiscal 2009. Our fiscal 2008 reported results include combined gains from the sale of our Starter Brand
+and NIKE Bauer Hockey businesses of $35.4 million, net of tax, and a one-time tax benefit of $105.4 million. Excluding these non-comparable items, net income would have increased 7% to $1.9 billion and diluted earnings per share would have increased
+10% to $3.81 compared to fiscal 2008 (see Reconciliation of Net Income and Diluted Earnings Per Share Excluding Non-Comparable items below). The increase in our net income excluding non-comparable items was higher than our rate of revenue growth in
+fiscal 2009 due primarily to an increase in other (income) expense, net, which included foreign currency conversion gains of $43.4 million compared to foreign currency conversion losses of $76.6 million in fiscal 2008, and the recognition of
+licensing income of $24.0 million related to our fiscal 2008 sale of the NIKE Bauer Hockey business. Excluding non-comparable items, our earnings per share for the year grew at a higher rate than net income given lower outstanding shares due to
+repurchases made under our share repurchase program in the first half of fiscal 2009. Our cash flows from operations and return on invested capital both declined as compared to fiscal 2008. 
+During fiscal 2009, we took steps we believe prudent and necessary to identify and manage potential exposures and to position ourselves for sustainable,
+profitable long-term growth. In the fourth quarter of fiscal 2009, we executed a plan of restructuring the organization to streamline our management structure, enhance consumer focus, drive innovation more quickly to market, and establish a
+more scalable cost structure. As a result of these actions, we reduced our global workforce by approximately 5% and incurred pre-tax restructuring charges of $195 million, primarily consisting of cash charges related to severance costs. As
+part of this restructuring plan, we also initiated a reorganization of the NIKE brand business into a new operating model consisting of six geographies. As a result of the reorganization, beginning in the first quarter of fiscal 2010, our new
+organizational structure will consist of the following geographies: North America, Western Europe, Central/Eastern Europe, Greater China, Japan, and Emerging Markets. 
+Other steps taken in fiscal 2009 included reductions in planned selling and administrative expenses, including the implementation of a hiring freeze, reductions in planned spending for travel, meetings and demand
+creation, as well as tighter inventory purchasing and working capital management. We also placed increased focus on monitoring the financial health of suppliers and customers and continued to take proactive measures to consolidate production with
+our strongest, most efficient and innovative manufacturing contractors to ensure we maintain a healthy production base for the present and the future. These capacity consolidation actions could result in additional costs associated with
+production and logistics as well as supply chain disruptions in the first half of fiscal year 2010 as we transition production between manufacturing contractors; however, we do not believe these potential additional costs will have a material impact
+on our operating results. 
+We continue to believe that the Company is well positioned from a business and financial perspective, but we are
+not immune to the current challenging global economic conditions. These conditions could continue to affect our business in a number of direct and indirect ways, including lower revenue from slowing consumer/customer demand for our products,
+reduced profit margins and/or increased costs, changes in interest and currency exchange rates, lack of credit availability and business disruptions due to difficulties experiences by suppliers and customers. Our future performance is subject to the
+inherent uncertainty presented by the evolving macroeconomic conditions and our continued actions to respond to these conditions. 
+23 
+Table of Contents 
+Results of Operations 
+Fiscal 2009 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+(In millions, except per share data) 
+Revenues 
+$ 
+19,176.1 
+$ 
+18,627.0 
+3 
+% 
+$ 
+16,325.9 
+14 
+% 
+Cost of sales 
+10,571.7 
+10,239.6 
+3 
+% 
+9,165.4 
+12 
+% 
+Gross margin 
+8,604.4 
+8,387.4 
+3 
+% 
+7,160.5 
+17 
+% 
+Gross margin % 
+44.9 
+% 
+45.0 
+% 
+43.9 
+% 
+Selling and administrative expense 
+6,149.6 
+5,953.7 
+3 
+% 
+5,028.7 
+18 
+% 
+% of Revenues 
+32.1 
+% 
+32.0 
+% 
+30.8 
+% 
+Restructuring charges 
+195.0 
+— 
+— 
+— 
+— 
+Goodwill impairment 
+199.3 
+— 
+— 
+— 
+— 
+Intangible and other asset impairment 
+202.0 
+— 
+— 
+— 
+— 
+Income before income taxes 
+1,956.5 
+2,502.9 
+-22 
+% 
+2,199.9 
+14 
+% 
+Net income 
+1,486.7 
+1,883.4 
+-21 
+% 
+1,491.5 
+26 
+% 
+Diluted earnings per share 
+3.03 
+3.74 
+-19 
+% 
+2.93 
+28 
+% 
+Reconciliation of Net Income and Diluted Earnings Per Share Excluding Non-Comparable
+Items (1) 
+Fiscal 2009 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+Change 
+(In millions, except per share data) 
+Net income, as reported 
+$ 
+1,486.7 
+$ 
+1,883.4 
+-21 
+% 
+Add: 
+Restructuring charges, net of tax (2) 
+144.5 
+— 
+Umbro impairment of goodwill, intangible and other assets, net of tax (3) 
+240.7 
+— 
+Gain recognized on sale of NIKE Bauer Hockey, net of tax 
+— 
+(17.7 
+) 
+Gain recognized on sale of Starter Business, net of tax 
+— 
+(17.7 
+) 
+One-time tax benefits (4) 
+— 
+(105.4 
+) 
+Net income, excluding non-comparable items 
+$ 
+1,871.9 
+$ 
+1,742.6 
+7 
+% 
+Diluted earnings per share, as reported 
+$ 
+3.03 
+$ 
+3.74 
+-19 
+% 
+Add: 
+Restructuring charges, net of tax (2) 
+0.29 
+— 
+Umbro impairment of goodwill, intangible and other assets, net of tax (3) 
+0.49 
+— 
+Gain recognized on sale of NIKE Bauer Hockey, 
+net of tax 
+— 
+(0.04 
+) 
+Gain recognized on sale of Starter Business, net of tax 
+— 
+(0.04 
+) 
+One-time tax benefits (4) 
+— 
+(0.21 
+) 
+Diluted earnings per share, excluding non-comparable items 
+$ 
+3.81 
+$ 
+3.45 
+10 
+% 
+Diluted weighted average common shares outstanding 
+490.7 
+504.1 
+( 
+1 ) 
+This schedule is intended to satisfy the quantitative reconciliation for non-GAAP financial measures in accordance with Regulation G and Item 10(e) of
+Regulation S-K of the Securities and Exchange Commission. In addition, this schedule is provided to enhance the visibility of the underlying business trends excluding these non-comparable items for the years ended May 31, 2009 and 2008.
+24 
+Table of Contents 
+( 
+2 ) 
+In the fourth quarter of fiscal 2009, we took necessary steps to streamline our management structure, enhance consumer focus, drive innovation more quickly to
+market, and establish a more scalable, long-term cost structure. As a result, we incurred a $195 million pre-tax restructuring charge primarily consisting of severance costs related to the workforce reduction. 
+( 
+3 ) 
+We recorded a non-cash impairment charge during the third quarter of fiscal 2009 to reduce the carrying value of Umbro’s goodwill, indefinite-lived trademark
+and other assets. The impairment charge is a result of both the deteriorating global consumer markets, particularly in Umbro’s primary market, the United Kingdom, and management’s decision to adjust planned investment in the brand. In
+addition, the deterioration of the financial markets has reduced both the present value of future cash flows and the market value of comparable businesses. 
+( 
+4 ) 
+The tax benefit realized during fiscal 2008 relates to steps taken to realize losses generated by several international entities for which we had not previously
+recognized the offsetting tax benefit because the realization of those benefits had been uncertain. The necessary steps to realize those tax benefits were taken during fiscal 2008 resulting in a one-time reduction of the effective tax rate.
+Consolidated Operating Results 
+Revenues 
+Fiscal 2009 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+(In millions) 
+Revenues 
+$ 
+19,176.1 
+$ 
+18,627.0 
+3 
+% 
+$ 
+16,325.9 
+14 
+% 
+Fiscal 2009 Compared to Fiscal 2008 
+During fiscal 2009, changes in foreign currency exchange rates decreased revenues by 1 percentage point. The U.S. Region contributed nearly 1 percentage
+point of the consolidated revenue growth for fiscal 2009. Excluding the effects of changes in currency exchange rates, our international regions contributed over 3 percentage points of the consolidated revenue growth for fiscal 2009, as all of our
+international regions posted higher revenues on a currency neutral basis. By product group, our worldwide NIKE brand footwear business reported revenue growth of 6% and contributed $575 million of incremental revenue for fiscal 2009. Worldwide NIKE
+branded apparel revenues were in line with the prior year, while equipment revenues declined 2% or $20 million. 
+Our Other businesses,
+comprised primarily of results from Cole Haan, Converse Inc., Hurley International LLC, NIKE Golf, and Umbro in fiscal 2009, constituted the remaining revenue. In fiscal 2008, our Other businesses also included Exeter Brands Group (whose primary
+business was the Starter brand business which was sold on December 17, 2007) and NIKE Bauer Hockey (which was sold on April 17, 2008). Umbro was acquired on March 3, 2008. Revenues for these businesses declined 1% or $17 million.
+Fiscal 2008 Compared to Fiscal 2007 
+During fiscal 2008, changes in foreign currency exchange rates contributed 5 percentage points of consolidated revenue growth. Strong demand for NIKE brand products continued to drive revenue growth, as all four of
+our geographic regions and, on a consolidated basis, all three of our product business units delivered revenue growth. The U.S. Region contributed nearly 2 percentage points of the consolidated revenue growth for fiscal 2008. Excluding the effects
+of changes in currency exchange rates, our international regions contributed nearly 7 percentage points of the consolidated revenue growth for fiscal 2008, as all of our international regions posted higher revenues. Our Other businesses contributed
+the remaining consolidated constant-currency revenue growth, as Cole Haan, Converse, Hurley and NIKE Golf posted higher year-over-year revenues. 
+25 
+Table of Contents 
+By product group, worldwide NIKE brand footwear revenue grew 14% and contributed more than $1.2 billion
+of incremental revenue for fiscal 2008. Worldwide NIKE branded apparel and equipment businesses reported revenue growth of 14% and 6% for the year, respectively, and combined added approximately $750 million of incremental revenue in fiscal 2008.
+Our Other businesses reported revenue growth of 17% and combined added more than $360 million of incremental revenue. 
+Gross Margin
+Fiscal 2009 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+(In millions) 
+Gross Margin 
+$ 
+8,604.4 
+$ 
+8,387.4 
+3% 
+$ 
+7,160.5 
+17% 
+Gross Margin % 
+44.9 
+% 
+45.0 
+% 
+(10 bps 
+) 
+43.9 
+% 
+110 bps 
+Fiscal 2009 Compared to Fiscal 2008 
+During fiscal 2009, the primary factors contributing to the 10 basis point decline in consolidated gross margin percentage versus the prior year were
+lower gross pricing margins and increased discounts which, when combined, decreased consolidated gross margins by approximately 60 basis points. This decrease was partially offset by improved hedge rates relative to the prior year, primarily in the
+Europe, Middle East and Africa (“EMEA”) Region. Gross pricing margins were lower, primarily driven by higher product input costs, most notably for footwear products. Higher levels of discounts were provided across all businesses in fiscal
+2009 to manage inventory levels. 
+We anticipate our gross margins in fiscal 2010 will be negatively impacted by hedge rates that are
+unfavorable in comparison to the prior year. 
+Fiscal 2008 Compared to Fiscal 2007 
+During fiscal 2008, the primary factors contributing to the 110 basis point increase in the consolidated gross margin percentage versus the prior year
+included: higher footwear in-line gross pricing margins, most notably in the U.S. Region, primarily due to strategic price increases; improved currency hedge rates relative to the prior year, primarily in the EMEA Region; and higher footwear
+close-out net pricing margins, most notably in the EMEA Region, primarily due to better inventory management. The factors driving an increased gross margin percentage were partially offset by lower apparel in-line gross pricing margins primarily
+driven by higher product costs, most notably in the U.S. and EMEA regions, and increased apparel close-out sales, primarily in the U.S. Region. 
+Selling and Administrative Expense 
+Fiscal 2009 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+(In millions) 
+Operating overhead expense 
+$ 
+3,798.2 
+$ 
+3,645.4 
+4% 
+$ 
+3,116.3 
+17% 
+Demand creation expense (1) 
+2,351.4 
+2,308.3 
+2% 
+1,912.4 
+21% 
+Selling and administrative expense 
+$ 
+6,149.6 
+$ 
+5,953.7 
+3% 
+$ 
+5,028.7 
+18% 
+% of Revenues 
+32.1 
+% 
+32.0% 
+10 bps 
+30.8 
+% 
+120 bps 
+(1) 
+Demand creation consists of advertising and promotion expenses, including costs of endorsement contracts. 
+26 
+Table of Contents 
+Fiscal 2009 Compared to Fiscal 2008 
+Changes in foreign currency exchange rates decreased selling and administrative expense by 2 percentage points in fiscal 2009. Excluding changes in
+exchange rates, operating overhead increased 6% during fiscal 2009. The increase in operating overhead in fiscal 2009 was primarily attributable to investments in growth drivers such as NIKE-owned retail in the U.S., EMEA and Asia Pacific regions,
+infrastructure for emerging markets in the EMEA and Asia Pacific regions and non-NIKE brand businesses, which more than offset the steps taken to reduce operating overhead spending including implementation of a hiring freeze and reductions in
+spending for travel and meetings. 
+On a constant-currency basis, demand creation expense increased 3% during fiscal 2009. Demand creation
+spending decreased in the second half of fiscal 2009 as a result of actions taken to reduce spending across nearly all demand creation related activities, most notably traditional media and print advertising. The increase in demand creation the
+first half of fiscal 2009 was primarily attributable to strategic investments in demand creation, including first quarter spending around the Beijing Summer Olympics and the European Football Championships, and increased investments in athlete and
+team endorsements across all regions. 
+In fiscal 2010, we intend to reduce selling and administrative spending while shifting resources to
+fund initiatives that are critical to the achievement of our long-term growth goals. We expect our selling and administrative expenses to decline in the first half of fiscal 2010 compared to the same period in the prior year, reflecting both lower
+operating overhead and demand creation spending, with the latter driven partially by the comparison to the significant prior year demand creation investment around the Beijing Summer Olympics and European Football Championships. Future selling and
+administrative expense may vary from our current expectations due to changes in the rapidly evolving macroeconomic environment and our reaction to those changes. 
+Fiscal 2008 Compared to Fiscal 2007 
+In fiscal 2008, selling and administrative expenses increased as
+a percentage of revenues by 120 basis points, driven primarily by strategic investments in both demand creation and operating overhead. Changes in currency exchange rates increased selling and administrative expense growth by 4 percentage points.
+On a constant-currency basis, demand creation expense increased 15% versus the prior year. The year-over-year increase was primarily
+attributable to investments in athlete and sport team endorsers of our products, spending around major sporting events including the European Football Championships and the Beijing Summer Olympics, key product initiatives such as Men’s Training
+in the U.S. and retail presentation. 
+Excluding the effects of changes in exchange rates, operating overhead increased 14% versus the prior
+year. The increase in operating overhead was attributable to investments in growth drivers such as NIKE-owned retail, non-NIKE brand businesses, emerging markets and normal wage inflation and performance-based compensation. 
+Restructuring Charges 
+During
+the fourth quarter of fiscal 2009, we executed a plan to restructure the organization to streamline our management structure, enhance consumer focus, drive innovation more quickly to market and establish a more scalable cost structure. As a result
+of these actions, we reduced our global workforce by approximately 5% and incurred pre-tax restructuring charges of $195 million, primarily consisting of cash charges related to severance costs. These charges are included in our
+“Corporate” category for segment reporting purposes. 
+Goodwill, Intangible and Other Asset Impairment 
+In the third quarter of fiscal 2009, we recognized a $401.3 million pre-tax non-cash impairment charge to reduce the carrying value of Umbro’s
+goodwill, intangible and other assets. Although Umbro’s financial 
+27 
+Table of Contents 
+performance for fiscal 2009 was slightly better than we had originally expected, projected future cash flows had fallen below the levels we expected at the
+time of acquisition. This erosion is a result of both the unprecedented decline in global consumer markets, particularly in the United Kingdom, and our decision to adjust the level of investment in the business. 
+We measured the fair value of Umbro by using an equal weighting of the fair value implied by a discounted cash flow analysis and by comparisons with the
+market values of similar publicly traded companies. We believe the blended use of both models compensates for the inherent risk associated with either model if used on a stand-alone basis, and this combination is indicative of the factors a market
+participant would consider when performing a similar valuation. The fair value of Umbro’s indefinite-lived trademark was estimated using the relief from royalty method, which assumes that the trademark has value to the extent that Umbro is
+relieved of the obligation to pay royalties for the benefits received from the trademark. Our assessments have resulted in the recognition of impairment charges of $199.3 million and $181.3 million related to Umbro’s goodwill and trademark,
+respectively, in fiscal 2009. In addition to the impairment analysis, we determined an equity investment held by Umbro was impaired, and recognized a charge of $20.7 million related to the impairment of this investment. These charges are included in
+our “Other” category for segment reporting purposes. 
+For additional information about our impairment charges, see Note 4 —
+Acquisition, Identifiable Intangible Assets, Goodwill and Umbro Impairment in the accompanying notes to the consolidated financial statements. 
+Other (Income) Expense, net 
+Fiscal 2009 Compared to Fiscal 2008 
+For fiscal 2009, other (income) expense, net was a gain of $88.5 million compared to a loss of $7.9 million in fiscal 2008. Other (income) expense, net is
+primarily comprised of foreign currency conversion gains and losses from the remeasurement of monetary assets and liabilities in non-functional currencies and results of foreign currency derivative instruments, as well as disposals of fixed assets
+and other unusual or non-recurring transactions that are outside the normal course of business. For fiscal 2009, other (income) expense, net was primarily comprised of $43.4 million of foreign currency conversion gains and the recognition of $24.0
+million of licensing income related to our fiscal 2008 sale of the NIKE Bauer Hockey business. For fiscal 2008, other (income) expense, net was primarily comprised of a $32.0 million gain on the sale of NIKE Bauer Hockey and a $28.6 million gain on
+the sale of the Starter brand business, as well as foreign currency conversion losses of $76.6 million. 
+Foreign currency conversion gains
+and losses reported in other (income) expense, net, with the exception of gains and losses generated by the EMEA Region and Other businesses, are reflected in the Corporate line in our segment presentation of pre-tax income in the accompanying notes
+to the consolidated financial statements (Note 19 — Operating Segments and Related Information). 
+For fiscal 2009, we
+estimate that the combination of foreign currency conversion gains in other (income) expense, net and the modestly favorable translation of foreign currency-denominated profits from our international businesses resulted in a year-over-year increase
+in consolidated income before income taxes of approximately $124 million. 
+Fiscal 2008 Compared to Fiscal 2007 
+For fiscal 2008, other (income) expense, net was a loss of $7.9 million compared to a gain of $0.9 million in fiscal 2007. In fiscal 2008, other (income)
+expense, net included foreign currency conversion losses that were partially offset by the $32.0 million gain on the sale of NIKE Bauer Hockey and the $28.6 million gain on the sale of the Starter brand business. Other (income) expense, net in
+fiscal 2007 is primarily comprised of the $14.7 million gain on the sale-leaseback of our Oregon footwear distribution center and the $14.2 million benefit from the settlement of the Converse arbitration, partially offset by foreign currency
+conversion losses. 
+28 
+Table of Contents 
+In fiscal 2008, we estimate that the combination of favorable translation of foreign currency-denominated
+profits from international businesses and the foreign currency conversion losses included in other (income) expense, net resulted in a year-over-year increase in consolidated income before income taxes of approximately $122 million. 
+Income Taxes 
+Fiscal 2009 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+Effective tax rate 
+24.0 
+% 
+24.8 
+% 
+(80 
+) bps 
+32.2 
+% 
+(740 
+) bps 
+Fiscal 2009 Compared to Fiscal 2008 
+Our effective tax rate for fiscal 2009 was 80 basis points lower than the effective tax rate for fiscal 2008 due primarily to the tax benefit related to
+the impairment of goodwill, intangible and other assets of Umbro that had a favorable impact of 250 basis points. Profits earned outside of the U.S., the impact of the resolution of foreign audit items and the retroactive reinstatement of the
+research and development tax credit also favorably impacted our fiscal 2009 effective tax rate. Reflected in the effective tax rate for fiscal 2008 was a one-time tax benefit of $105.4 million, which had a favorable impact of 420 basis points on our
+effective tax rate. We estimate that our effective tax rate for fiscal year 2010 will be approximately 25.5%. 
+Fiscal 2008 Compared to
+Fiscal 2007 
+Our effective tax rate for fiscal 2008 was 24.8%, 740 basis points lower than the prior year. Over the last few years,
+several of our international entities generated losses for which we did not recognize the corresponding tax benefits, as the realization of those benefits was uncertain. In the first quarter of fiscal 2008, we took steps necessary to realize these
+benefits, resulting in a one-time tax benefit of $105.4 million. Also reflected in the year-over-year effective tax rate improvement was a reduction in our on-going effective tax rate resulting from our profits earned outside the United States; our
+effective tax rates for these operations are generally lower than the U.S. statutory rate. 
+Futures Orders 
+Worldwide futures and advance orders for footwear and apparel scheduled for delivery from June through November 2009 declined 12% compared to orders
+reported for the comparable period of fiscal 2009. This futures growth rate is calculated based upon our forecasts of the actual exchange rates under which our revenues will be translated during this period, which approximate current spot rates. The
+net effect from changes in currency exchange rates contributed approximately 7 percentage points to this reported futures decline versus the same period in the prior year. Excluding this currency impact, lower apparel orders drove most of the
+decline in overall futures and advance orders. 
+The reported futures and advance orders are not necessarily indicative of our expectation
+of revenue growth during this period. This is because the mix of orders can shift between advance/futures and at-once orders and that the fulfillment of certain orders may fall outside of the scheduled noted above. In addition, exchange rate
+fluctuations as well as differing levels of order cancellations and discounts can cause differences in the comparisons between futures and advance orders, and actual revenues. Moreover, a significant portion of our revenue is not derived from
+futures and advance orders, including at-once and close-out sales of NIKE footwear and apparel, wholesale sales of equipment, Cole Haan, Converse, Hurley, Umbro, NIKE Golf and retail sales across all brands. 
+29 
+Table of Contents 
+Operating Segments 
+The breakdown of revenues follows: 
+Fiscal 2009 
+Fiscal 2008 (1) 
+FY09 vs. 
+FY08 
+% Change 
+Fiscal 2007 (1) 
+FY08 vs. 
+FY07 
+% Change 
+(In millions) 
+U.S. Region 
+$ 
+6,542.9 
+$ 
+6,414.5 
+2 
+% 
+$ 
+6,131.7 
+5 
+% 
+EMEA Region 
+5,512.2 
+5,629.2 
+-2 
+% 
+4,764.1 
+18 
+% 
+Asia Pacific Region 
+3,322.0 
+2,887.6 
+15 
+% 
+2,295.7 
+26 
+% 
+Americas Region 
+1,284.7 
+1,164.7 
+10 
+% 
+966.7 
+20 
+% 
+Total NIKE Brand Revenues 
+16,661.8 
+16,096.0 
+4 
+% 
+14,158.2 
+14 
+% 
+Other 
+2,514.3 
+2,531.0 
+-1 
+% 
+2,167.7 
+17 
+% 
+Total NIKE, Inc. Revenues 
+$ 
+19,176.1 
+$ 
+18,627.0 
+3 
+% 
+$ 
+16,325.9 
+14 
+% 
+(1) 
+Certain prior year amounts have been reclassified to conform to fiscal year 2009 presentation. These changes had no impact on previously reported results of
+operations or shareholders’ equity. 
+The breakdown of income before income taxes (“pre-tax income”)
+follows: 
+Fiscal 2009 
+Fiscal 2008 (1) 
+FY09 vs. 
+FY08 
+% Change 
+Fiscal 2007 (1) 
+FY08 vs. 
+FY07 
+% Change 
+(In millions) 
+U.S. Region 
+$ 
+1,337.9 
+$ 
+1,402.0 
+-5 
+% 
+$ 
+1,386.1 
+1 
+% 
+EMEA Region 
+1,316.9 
+1,281.9 
+3 
+% 
+1,050.1 
+22 
+% 
+Asia Pacific Region 
+853.4 
+694.2 
+23 
+% 
+515.4 
+35 
+% 
+Americas Region 
+274.1 
+242.3 
+13 
+% 
+199.3 
+22 
+% 
+Other 
+(196.7 
+) 
+364.9 
+-154 
+% 
+299.7 
+22 
+% 
+Corporate Expense 
+(1,629.1 
+) 
+(1,482.4 
+) 
+-10 
+% 
+(1,250.7 
+) 
+-19 
+% 
+Total Pre-tax Income 
+$ 
+1,956.5 
+$ 
+2,502.9 
+-22 
+% 
+$ 
+2,199.9 
+14 
+% 
+(1) 
+Certain prior year amounts have been reclassified to conform to fiscal year 2009 presentation. These changes had no impact on previously reported results of
+operations or shareholders’ equity. 
+The following discussion includes disclosure of pre-tax income for our
+operating segments. We have reported pre-tax income for each of our operating segments in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related
+Information.” As discussed in Note 19 — Operating Segments and Related Information in the accompanying notes to the consolidated financial statements, certain corporate costs are not included in pre-tax income of our operating segments.
+U.S. Region 
+Fiscal 2009 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+4,550.8 
+$ 
+4,326.8 
+5 
+% 
+$ 
+4,067.2 
+6 
+% 
+Apparel 
+1,664.4 
+1,745.1 
+-5 
+% 
+1,716.1 
+2 
+% 
+Equipment 
+327.7 
+342.6 
+-4 
+% 
+348.4 
+-2 
+% 
+Total Revenues 
+$ 
+6,542.9 
+$ 
+6,414.5 
+2 
+% 
+$ 
+6,131.7 
+5 
+% 
+Pre-tax Income 
+$ 
+1,337.9 
+$ 
+1,402.0 
+-5 
+% 
+$ 
+1,386.1 
+1 
+% 
+30 
+Table of Contents 
+Fiscal 2009 Compared to Fiscal 2008 
+During fiscal 2009, the increase in U.S. footwear revenue was the result of low-single digit growth in both unit sales and average selling price per pair.
+The growth in unit sales was primarily driven by higher demand for our Jordan brand, action sports and kids’ products. The increase in average selling price per pair was attributable to selective price increases, primarily during the first half
+of fiscal 2009, and increased sales mix of higher priced Jordan brand products, partially offset by increased sales mix of kids’ products which are lower priced. 
+The year-over-year decrease in U.S. apparel revenues during fiscal 2009 reflected a mid-single digit decrease in unit sales, primarily driven by a reduction in products sold to value channel retailers and generally
+softer demand in the overall apparel market. Average selling prices increased slightly as a result of the reduction in products sold to value retailers, mostly offset by an increased mix of close-out sales and higher levels of discounts provided
+retailers to manage inventory levels. 
+Pre-tax income for the U.S. Region declined in fiscal 2009 as a result of higher operating overhead
+expenses and lower gross margins. The increase in operating overhead was attributable to investments in NIKE-owned retail. Gross margins decreased as a result of higher warehousing costs, higher retail inventory markdowns and increased customer
+discounts provided to manage inventory levels. 
+Fiscal 2008 Compared to Fiscal 2007 
+During fiscal 2008, the increase in U.S. footwear revenue was the result of low-single digit growth in unit sales and a slight increase in the average
+selling price per pair. The growth in unit sales and average selling price per pair was driven by higher demand for our NIKE brand sportswear products and Jordan brand products, partially offset by a decrease in demand for our NIKE brand basketball
+products. The increase in average selling price per pair was also attributable to strategic price increases and an increased sales mix of higher priced NIKE brand sportswear and Jordan brand products. 
+The year-over-year increase in U.S. apparel revenues during fiscal 2008 reflected an increase in unit sales, mostly offset by lower average selling
+prices. The increase in unit sales was primarily driven by higher close-out sales and increased demand for NIKE brand sports performance products, partially offset by lower unit sales of sportswear and Jordan brand products. Average selling prices
+decreased primarily as a result of a higher mix of close-out sales. 
+The year-over-year decrease in U.S. equipment revenues during fiscal
+2008 was primarily the result of lower unit sales of accessory products and fewer close-out sales. 
+Pre-tax income for the U.S. Region grew
+at a slower rate than revenue in fiscal 2008 as a result of higher demand creation and operating overhead expenses, partially offset by higher gross margins, driven by footwear. The increase in demand creation was driven by higher sports marketing
+expenses and investments in the retail presentation of our key wholesale customers. The increase in operating overhead was attributable to investments in NIKE-owned retail and normal wage inflation. 
+31 
+Table of Contents 
+EMEA Region 
+Fiscal 2009 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+3,136.7 
+$ 
+3,112.6 
+1 
+% 
+$ 
+2,608.0 
+19 
+% 
+Apparel 
+1,970.2 
+2,083.5 
+-5 
+% 
+1,757.2 
+19 
+% 
+Equipment 
+405.3 
+433.1 
+-6 
+% 
+398.9 
+9 
+% 
+Total Revenues 
+$ 
+5,512.2 
+$ 
+5,629.2 
+-2 
+% 
+$ 
+4,764.1 
+18 
+% 
+Pre-tax Income 
+$ 
+1,316.9 
+$ 
+1,281.9 
+3 
+% 
+$ 
+1,050.1 
+22 
+% 
+Fiscal 2009 Compared to Fiscal 2008 
+For the EMEA Region, changes in currency exchange rates negatively impacted revenue growth by approximately 2 percentage points in fiscal 2009. Excluding
+changes in currency exchange rates, a number of markets within the region experienced lower revenues, reflecting a more difficult retail environment in these markets. The U.K. remained flat for fiscal 2009 while the emerging markets in the region
+grew 14%, driven by stronger results in Russia during the first half of fiscal 2009. These results were offset by lower revenues in Southern European markets, including Spain, Italy and France. 
+Excluding changes in exchange rates, footwear revenues increased 4 percentage points during fiscal 2009. The increase in footwear revenue was
+attributable to mid single-digit growth in unit sales, partially offset by a low single-digit decrease in the average selling price per pair. The growth in unit sales was driven primarily by higher demand for NIKE brand sportswear and kids’
+products. The decrease in average selling price per pair was mainly attributable to higher customer discounts and a shift in product mix to lower priced product models, most notably higher volume of kids’ products. 
+On a currency neutral basis, EMEA apparel revenue decreased 4 percentage points during fiscal 2009, primarily driven by lower average selling prices
+resulting from a higher mix of close-out sales and higher levels of discounts provided retailers to manage inventory levels, which more than offset a mid single-digit increase in unit sales. 
+The year-over-year increase in pre-tax income for the EMEA Region during fiscal 2009 was primarily driven by a higher gross margin percentage, partially
+offset by slightly higher selling and administrative expenses as a percentage of revenues. The gross margin improvement in fiscal 2009 was primarily attributable to improved year-over-year currency hedge rates which more than offset higher
+warehousing costs and discounts on in-line products. The increase in selling and administrative expenses was mainly driven by retail expansion across the region. 
+Fiscal 2008 Compared to Fiscal 2007 
+For the EMEA Region, changes in currency exchange rates
+contributed 11 percentage points of the revenue growth during fiscal 2008. Nearly all markets within the region increased revenues during the year. The emerging markets in the region grew nearly 25%, driven by strong results in Russia, Turkey and
+South Africa. Increases in Northern Europe and the U.K. also contributed significantly to the revenue growth. 
+Excluding changes in
+exchange rates, footwear revenues increased 8 percentage points during fiscal 2008 compared to the prior year. The increase in footwear revenue was attributable to double-digit growth in unit sales, partially offset by a low single-digit decrease in
+the average selling price per pair. The growth in unit sales was driven primarily by higher demand for our NIKE brand soccer and sportswear products. The decrease in 
+32 
+Table of Contents 
+average selling price per pair resulted from a shift in product mix from higher priced to lower priced product models, most notably within our NIKE brand
+sportswear product lines. 
+On a currency neutral basis, EMEA apparel revenue increased 8 percentage points during fiscal 2008 compared to
+the prior year, primarily as a result of increased unit sales and a slight increase in average selling prices. The increase in unit sales was driven primarily by increased demand for sports performance products, most notably soccer. 
+The increase in pre-tax income for the EMEA Region during fiscal 2008 compared to the prior year was primarily driven by the increase in revenues,
+favorable foreign currency translation and a higher gross margin percentage, partially offset by higher selling and administrative expenses as a percentage of revenues. The gross margin improvement in fiscal 2008 was primarily attributable to
+improved year-over-year hedge rates and improved margins on close-out product. The increase in selling and administrative expenses was driven by an increase in demand creation spending, primarily attributable to spending around the European Football
+Championships. As a result of retail expansion and overall business growth across the region, operating overhead expenses increased for the year, but at a slower rate than revenue growth. 
+Asia Pacific Region 
+Fiscal 2009 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+1,727.1 
+$ 
+1,499.5 
+15 
+% 
+$ 
+1,159.2 
+29 
+% 
+Apparel 
+1,322.3 
+1,140.0 
+16 
+% 
+909.3 
+25 
+% 
+Equipment 
+272.6 
+248.1 
+10 
+% 
+227.2 
+9 
+% 
+Total Revenues 
+$ 
+3,322.0 
+$ 
+2,887.6 
+15 
+% 
+$ 
+2,295.7 
+26 
+% 
+Pre-tax Income 
+$ 
+853.4 
+$ 
+694.2 
+23 
+% 
+$ 
+515.4 
+35 
+% 
+Fiscal 2009 Compared to Fiscal 2008 
+In the Asia Pacific Region, changes in currency exchange rates contributed 3 percentage points of revenue growth for fiscal 2009. Excluding changes in
+currency exchange rates, all countries across the region delivered revenue growth. China continues to be the primary driver of growth within the region as fiscal 2009 revenues increased 22% on a currency-neutral basis, driven by expansion in both
+the number of stores selling NIKE products and sales through existing stores. China’s rate of revenue growth slowed to 6% in the fourth quarter of fiscal 2009 as we lapped very strong growth in the fourth quarter of fiscal 2008. On a currency
+neutral basis, revenues in Japan were up 1% compared to fiscal 2008. 
+Footwear and apparel revenue growth for fiscal 2009 were driven
+primarily by an increase in unit sales, most notably in China. The growth in unit sales was slightly offset by a low-single digit reduction in average selling prices in fiscal 2009 resulting primarily from increased discounts on in-line products
+provided retailers to manage inventory levels. 
+The increase in pre-tax income for the Asia Pacific Region for fiscal 2009 was driven by
+higher revenues and improved gross margins, which more than offset higher selling and administrative expenses. Gross margins improved versus the prior year, primarily driven by improved year-over-year standard foreign currency rates and reduced
+warehousing costs, which more than offset increased product discounts. Selling and administrative expenses increased, but represented a lower percentage of revenues in fiscal 2009 versus fiscal 2008. The increase in selling and administrative
+expenses during fiscal 2009 was primarily due to retail and infrastructure expansion, primarily in China, and spending around brand events. 
+33 
+Table of Contents 
+Fiscal 2008 Compared to Fiscal 2007 
+In the Asia Pacific Region, changes in currency exchange rates contributed 6 percentage points of revenue growth for fiscal 2008. Nearly all countries
+across the region delivered revenue growth on a currency neutral basis. China continues to be the primary driver of growth within the region as fiscal 2008 revenues increased 50% on a currency-neutral basis, driven by the expansion in both the
+number of stores selling NIKE products and sales through existing stores. Constant-currency revenues in Japan increased 2% during fiscal 2008. 
+Footwear revenue growth for fiscal 2008 reflected increased unit sales, most notably in China, partially offset by lower average selling prices driven primarily by a shift in mix from higher priced to lower priced models. The year-over-year
+increase in apparel revenue was driven by increased demand in China. 
+The increase in pre-tax income for the Asia Pacific Region for fiscal
+2008 was driven by higher revenues, improved gross margins and favorable foreign currency translation, which more than offset slightly higher selling and administrative expenses as a percentage of revenue. The gross margin improvement versus the
+prior year was primarily driven by reduced warehousing costs, improved year-over-year standard currency rates and improved margins on close-out product. The increase in selling and administrative expenses during fiscal 2008 was primarily
+attributable to spending around the Beijing Summer Olympics. Overall business growth across the region combined with retail expansion, primarily in China, also contributed to an increase in operating overhead expenses, which grew slightly slower
+than revenues. 
+Americas Region 
+Fiscal 2009 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+892.1 
+$ 
+792.7 
+13 
+% 
+$ 
+679.6 
+17 
+% 
+Apparel 
+287.8 
+265.4 
+8 
+% 
+193.9 
+37 
+% 
+Equipment 
+104.8 
+106.6 
+-2 
+% 
+93.2 
+14 
+% 
+Total Revenues 
+$ 
+1,284.7 
+$ 
+1,164.7 
+10 
+% 
+$ 
+966.7 
+20 
+% 
+Pre-tax Income 
+$ 
+274.1 
+$ 
+242.3 
+13 
+% 
+$ 
+199.3 
+22 
+% 
+Fiscal 2009 Compared to Fiscal 2008 
+In the Americas Region, changes in currency exchange rates negatively impacted revenue growth by approximately 9 percentage points in fiscal 2009.
+Excluding changes in foreign currency exchange rates, the Americas Region reported growth in all markets, led by Brazil, Argentina and Mexico. 
+The increase in pre-tax income for fiscal 2009 was primarily attributable to higher revenues and selling and administrative expense leverage, which more than offset lower gross margins. Selling and administrative expenses were higher than
+fiscal 2008, but represented a lower percentage of revenues for fiscal 2009. The increase in selling and administrative expense was due to increases in both demand creation and operating overhead expenses mainly driven by spending around retail
+marketing programs, brand events and normal wage inflation. The slight decrease in gross margin percentage in fiscal 2009 was mainly due to a higher sales mix of lower margin footwear products and higher import costs, which more than offset improved
+year-on-year standard foreign currency rates. 
+Fiscal 2008 Compared to Fiscal 2007 
+In the Americas Region, changes in currency exchange rates contributed 7 percentage points of revenue growth for fiscal 2008. Excluding changes in foreign
+currency exchange rates, the Americas Region reported growth in all markets, led by Argentina, Mexico and Brazil. 
+34 
+Table of Contents 
+The increase in pre-tax income for fiscal 2008 versus the prior year was primarily attributable to higher
+revenues, improved gross margins and operating overhead leverage, combined with favorable foreign currency translation. These factors were partially offset by higher demand creation spending as a percentage of revenue. The gross margin improvement
+was driven primarily by higher in-line net pricing margins resulting from a better mix of products sold and fewer discounts offered in fiscal 2008 compared to fiscal 2007. The increase in demand creation spending during fiscal 2008 was primarily
+attributable to investments in sports marketing, most notably in soccer, brand events and investments in our retail presentation. 
+Other Businesses 
+Fiscal 2009 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+(In millions) 
+Revenues 
+Converse 
+$ 
+915.3 
+$ 
+729.0 
+26 
+% 
+$ 
+563.8 
+29 
+% 
+NIKE Golf 
+648.3 
+725.2 
+-11 
+% 
+646.3 
+12 
+% 
+Cole Haan 
+471.6 
+496.2 
+-5 
+% 
+468.6 
+6 
+% 
+Hurley 
+202.9 
+171.1 
+19 
+% 
+150.6 
+14 
+% 
+Umbro 
+174.0 
+53.9 
+223 
+% 
+— 
+— 
+Bauer 
+— 
+201.9 
+-100 
+% 
+166.1 
+22 
+% 
+Exeter 
+— 
+35.1 
+-100 
+% 
+67.7 
+-48 
+% 
+Other 
+102.2 
+118.6 
+-14 
+% 
+104.6 
+13 
+% 
+Revenues 
+$ 
+2,514.3 
+$ 
+2,531.0 
+-1 
+% 
+$ 
+2,167.7 
+17 
+% 
+Pre-tax Income 
+$ 
+(196.7 
+) 
+$ 
+364.9 
+-154 
+% 
+$ 
+299.7 
+22 
+% 
+Fiscal 2009 Compared to Fiscal 2008 
+For fiscal 2009, our Other businesses were primarily comprised of Cole Haan, Converse, Hurley, NIKE Golf and Umbro. For fiscal 2008, our Other
+businesses were primarily comprised of Cole Haan, Converse, Exeter (whose primary business was the Starter brand business which was sold on December 17, 2007), Hurley, NIKE Bauer Hockey (which was sold on April 17, 2008), NIKE Golf
+and Umbro (which was acquired on March 3, 2008). 
+The slight decrease in Other businesses revenues for fiscal 2009 was primarily
+attributable to the loss of revenue from NIKE Bauer Hockey and the Starter brand business. Excluding the loss of revenue from NIKE Bauer Hockey and the Starter brand business and the addition of Umbro, Other businesses revenues for fiscal 2009 would
+have increased 5%, driven by the strong performance from Converse and Hurley, offset by sales decreases at NIKE Golf and Cole Haan, due to reductions in consumer discretionary spending in their respective markets. 
+Pre-tax income for Other businesses declined for fiscal 2009 primarily as a result of a $401.3 million pre-tax non-cash impairment charge to reduce the
+carrying value of Umbro’s goodwill, intangible and other assets. Excluding the impairment charge, the loss of income from NIKE Bauer Hockey and the Starter brand business along with the dilutive impact of Umbro, pre-tax income for Other
+businesses would have decreased by 28%, driven by declines in operating results at NIKE Golf and Cole Haan. 
+For additional information
+about our impairment charges, see Note 4 — Acquisition, Identifiable Intangible Assets, Goodwill and Umbro Impairment in the accompanying notes to the consolidated financial statements. 
+35 
+Table of Contents 
+Fiscal 2008 Compared to Fiscal 2007 
+The increase in Other business revenues was driven by higher revenues across most businesses, most notably Converse and NIKE Golf. The increase in
+Converse and NIKE Golf is mainly driven by strong consumer demand both in the United States and international markets. The growth at Cole Haan is mainly driven by the strong results at Company-owned retail stores. 
+During fiscal 2008, growth at Converse and NIKE Golf, combined with margin improvements across most businesses drove the year-over-year increase in
+pre-tax income. Fiscal 2007 pre-tax income included a $14.2 million benefit relating to the settlement of an arbitration ruling involving Converse and a former South American licensee. Fiscal 2008 pre-tax income for our Other businesses would have
+increased approximately 18% versus fiscal 2007 excluding this favorable settlement. 
+On March 3, 2008, we completed the acquisition of
+100% of the outstanding shares of Umbro, a United Kingdom-based global soccer brand, for a purchase price of £290.5 million in cash (approximately $576.4 million), inclusive of direct transaction costs. This acquisition was intended to
+strengthen our market position in the United Kingdom and expand NIKE’s global leadership in soccer, a key area of growth for the Company. This acquisition also provides positions in emerging soccer markets such as China, Russia and Brazil. The
+results of Umbro’s operations have been included in the Company’s consolidated financial statements and in the “Other” operating segment since the date of acquisition. Umbro, which was listed on the London Stock Exchange prior to
+our acquisition, reported in their 2006 annual report that revenues for calendar year 2006 were approximately $276 million (£149.5 million), and estimated that the combination of Umbro’s calendar year 2006 wholesale revenue and estimated
+sales revenue earned by Umbro’s licensees from the sale of Umbro products totaled approximately $755 million (£409.4 million). 
+Following a strategic review of the Company’s existing business portfolio, we concluded that the Starter and NIKE Bauer Hockey businesses did not align with our long-term growth priorities. On December 17, 2007 we completed the
+sale of the Starter brand business for $60 million in cash. On April 17, 2008, we completed the sale of the NIKE Bauer Hockey business for net proceeds of $189.2 million after working capital adjustments. These transactions resulted in gains of
+approximately $28.6 million and $32.0 million, respectively, which are reflected in the Corporate line in our segment presentation of pre-tax income in the accompanying notes to the consolidated financial statements (Note 19 — Operating
+Segments and Related Information). 
+Corporate Expense 
+Fiscal 2009 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+Fiscal 2007 
+FY08 vs. 
+FY07 
+% Change 
+(In millions) 
+Corporate Expense 
+$ 
+(1,629.1 
+) 
+$ 
+(1,482.4 
+) 
+-10 
+% 
+$ 
+(1,250.7 
+) 
+-19 
+% 
+Fiscal 2009 Compared to Fiscal 2008 
+Corporate expense consists of unallocated general and administrative expenses, which includes expenses associated with centrally managed departments,
+depreciation and amortization related to the Company’s corporate headquarters, unallocated insurance and benefit programs, foreign currency gains and losses, including hedge gains and losses, corporate eliminations and other items. 
+The increase in corporate expense in fiscal 2009 was primarily attributable to pre-tax restructuring charges of $195 million, consisting primarily of
+cash charges related to severance costs. 
+36 
+Table of Contents 
+Foreign currency gains and losses include conversion gains and losses generated by our centrally managed
+foreign currency hedging program and other conversion gains and losses. Foreign currency gains and losses also include gains and losses resulting from the difference between actual foreign currency rates and standard rates assigned to our regions.
+With the exception of foreign currency gains and losses generated by the EMEA Region and Other businesses, which are reported within their respective operating results, substantially all of the Company’s remaining conversion gains and losses as
+well as standard to actual foreign currency gains and losses reside at Corporate. In fiscal 2009, foreign currency conversion gains (losses) reported in Corporate expense totaled $45.9 million compared to ($76.3) million in fiscal 2008, which was
+primarily driven by a net gain from currency hedges in fiscal 2009 versus a net hedge loss in fiscal 2008. 
+Fiscal 2008 Compared to
+Fiscal 2007 
+The increase in corporate expense from fiscal 2007 to fiscal 2008 was primarily driven by increased employee compensation
+expense due to the increase in centralized corporate functions, higher performance-based compensation as well as increased investments in demand creation, including other spending around the Beijing Summer Olympics. 
+In fiscal 2008, foreign currency conversion loss reported in Corporate expense totaled $76.3 million compared to $31.7 million in fiscal 2007, which was
+primarily driven by a larger net loss from currency hedges in fiscal 2008 versus 2007. 
+Foreign Currency Exposures and Hedging Practices 
+Overview 
+As a global
+company with significant operations outside the U.S., in the normal course of business we are exposed to risk arising from changes in currency exchange rates. Foreign currency fluctuations affect the recording of transactions, such as sales,
+purchases and intercompany transactions denominated in non-functional currencies and the translation of foreign currency denominated results of operations, financial position and cash flows into U.S. dollars for consolidated reporting. Our primary
+foreign currency exposures are related to U.S. dollar transactions at wholly-owned foreign subsidiaries, as well as transactions and translation of results denominated in the Euro, British pound, Chinese renminbi and Japanese yen. 
+Our foreign exchange risk management program is intended to minimize both the positive and negative effects of currency fluctuations on our reported
+consolidated results of operations, financial position and cash flows. This also has the effect of delaying the impact of current market rates on our consolidated financial statements, dependent upon hedge horizons. We manage global foreign exchange
+risk centrally on a portfolio basis, to manage those risks that are material to NIKE, Inc. on a consolidated basis. We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio, and by
+hedging remaining material exposures, where practical, using derivative instruments such as forward contracts and options. The Company’s hedging policies are designed to partially or entirely offset changes in the underlying exposures being
+hedged. We account for derivative financial instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as issued and amended (“FAS 133”). We do not hold or issue
+derivative financial instruments for speculative trading purposes. 
+Transactional exposures 
+We transact business in various currencies and have significant revenues and costs denominated in currencies other than the functional currency of the
+relevant subsidiary, which subjects us to foreign currency risk. Our most significant transactional foreign currency exposures are: 
+1. 
+Inventory Purchases — Most of our inventory purchases around the world are denominated in U.S. dollars. This generates foreign currency exposures for all
+subsidiaries with a functional currency other 
+37 
+Table of Contents 
+than the U.S. dollar. A weaker U.S. dollar reduces the inventory cost in the purchasing subsidiary’s functional currency whereas a stronger
+U.S. dollar increases the inventory cost. 
+2. 
+Non-Functional Currency Revenues — A portion of our EMEA Region revenues are earned in currencies other than the Euro (e.g. British pound), but are recognized at a subsidiary
+that uses the Euro as its functional currency, generating foreign currency exposures. 
+3. 
+Other Revenues and Costs — Non-functional currency revenues and costs, such as endorsement contracts, intercompany royalties and other payments, generate foreign currency risk
+to a lesser extent. 
+4. 
+Non-functional currency asset and liabilities — Our global subsidiaries have various assets and liabilities, primarily receivables and payables, that are denominated in
+currencies other than their functional currency. These balance sheet items are subject to remeasurement under SFAS No. 52, “Foreign Currency Translation,” (“FAS 52”), which may create fluctuations in other (income) expense
+within our consolidated results of operations. 
+Managing transactional exposures 
+Transactional exposures are managed on a portfolio basis within our foreign currency risk management program. We use currency forward contracts and
+options with maturities up to 23 months to hedge the effect of exchange rate fluctuations on probable forecasted future cash flows, including non-functional currency revenues and expenses. These are accounted for as cash flow hedges in accordance
+with FAS 133. The fair value of these instruments at May 31, 2009 and 2008 was $248.0 million and $95.3 million in assets and $12.2 million and $149.8 million in liabilities, respectively. The effective portion of the changes in fair value of
+these instruments is reported in other comprehensive income (“OCI”), a component of shareholders’ equity, and reclassified into earnings in the same financial statement line item and in the same period or periods during which the
+related hedged transactions affect earnings. The ineffective portion, which was not material for any year presented, is immediately recognized in earnings as a component of other (income) expense, net. 
+Certain currency forward contracts used to manage foreign exchange exposure of non-functional currency assets and liabilities subject to remeasurement
+are not designated as hedges under FAS 133. In these cases, the change in value of the instruments is intended to offset the foreign currency impact of the remeasurement of the related asset or liability. The fair value of these instruments at
+May 31, 2009 and 2008, was $13.2 million and $34.2 million in assets and $34.3 million and $7.3 million in liabilities, respectively. The change in value of these instruments is immediately recognized in earnings. The impact of such instruments
+is included in other (income) expense, net and aims to offset foreign currency remeasurement gains and losses of the exposures being hedged. 
+Refer to Note 18 — Risk Management and Derivatives in the accompanying notes to the consolidated financial statements for additional quantitative detail. 
+Translational exposures 
+Substantially all of our foreign subsidiaries operate in functional
+currencies other than the U.S. dollar. Fluctuations in currency exchange rates create volatility in our reported results as we are required to translate the balance sheets and operational results of these foreign currency denominated subsidiaries
+into U.S. dollars for consolidated reporting. The translation of foreign subsidiaries non-U.S. dollar balance sheets into U.S. dollars for consolidated reporting results in a cumulative translation adjustment to OCI within shareholders’ equity.
+In preparing our consolidated statements of income, foreign exchange rate fluctuations impact our operating results as the revenues and expenses of our foreign operations are translated into U.S. dollars. In translation, a weaker
+U.S. dollar in relation to foreign functional currencies benefits our consolidated earnings whereas a stronger U.S. dollar reduces our consolidated earnings. The impact of foreign exchange rate fluctuations on the translation of our
+consolidated revenues and pre-tax income was a net translation benefit (detriment) of ($199.4) million and $4.0 million, respectively, for the twelve months ended May 31, 2009. 
+38 
+Table of Contents 
+Managing translational exposures 
+To minimize the impact of translating foreign currency denominated revenues and expenses into U.S. dollars for consolidated reporting, certain foreign
+subsidiaries use excess cash to purchase U.S. dollar denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of these U.S. dollar denominated securities at non-U.S. dollar
+functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting under FAS 133. We utilize forward contracts and options to partially, or entirely, hedge the variability of the forecasted future purchases and
+sales of these U.S. dollar investments. This has the effect of partially offsetting the year-over-year foreign currency translation impact on net earnings in the period the investments are sold. Hedges of available-for-sale investments are accounted
+for as cash flow hedges. The fair value of instruments used in this manner at May 31, 2009 and 2008 was $103.6 million and $7.8 million in assets and $0 and $14.4 million in liabilities, respectively. The effective portion of the changes in
+fair value of these instruments is reported in OCI and reclassified into earnings in other (income) expense, net in the period during which the hedged available-for-sale investment is sold and affects earnings. Any ineffective portion, which was not
+material for any year presented, is immediately recognized in earnings as a component of other (income) expense, net. 
+For fiscal 2009, we
+estimate that the combination of foreign currency conversion gains in other (income) expense, net and the modestly favorable translation of foreign currency-denominated profits from our international businesses resulted in a year-over-year increase
+in consolidated income before income taxes of approximately $124 million. 
+Refer to Note 18 — Risk Management and Derivatives in the
+accompanying notes to the consolidated financial statements for additional quantitative detail. 
+Net investments in foreign subsidiaries
+We are also exposed to the impact of foreign exchange fluctuations on our investments in wholly-owned foreign subsidiaries denominated
+in a currency other than the U.S. dollar, which could adversely impact the U.S. dollar value of these investments and therefore the value of future repatriated earnings. During fiscal 2008, we began to hedge certain net investment positions in
+Euro-functional currency foreign subsidiaries to mitigate the effects of foreign exchange fluctuations on net investments, with the effect of preserving the value of future repatriated earnings. In accordance with FAS 133, the effective portion of
+the change in fair value of the forward contracts designated as net investment hedges is recorded in the cumulative translation adjustment component of accumulated other comprehensive income. Any ineffective portion, which was not material for any
+year presented, is immediately recognized in earnings as a component of other (income) expense, net. To minimize credit risk, we have structured these net investment hedges to be generally less than six months in duration. Upon maturity, the hedges
+are settled based on the current fair value of the forward contracts with the realized gain or loss remaining in OCI; concurrent with settlement, we enter into new forward contracts at the current market rate. The impact of net investment hedges
+reflected in OCI was a pre-tax gain (loss) of $161.4 million and ($68.6) million in 2009 and 2008, respectively. Cash flows from net investment hedge settlements totaled $191.3 million and ($76.0) million in 2009 and 2008, respectively. 
+Liquidity and Capital Resources 
+Cash Flow
+Activity 
+Cash provided by operations was $1.7 billion for fiscal 2009 compared to $1.9 billion for fiscal 2008. This decrease was
+mainly due to an increase in cash used for our working capital as a result of lower accounts payable and a higher accounts receivable balance. The decrease in accounts payable was primarily due to lower purchases of inventory as well as a reduction
+in overall spending. The higher accounts receivable balance is a result of a longer collection cycle, reflecting a more challenging retail environment experienced by our customers in the EMEA and U.S. regions. 
+39 
+Table of Contents 
+Cash used by investing activities was $0.8 billion during fiscal 2009 compared to $0.5 billion in fiscal
+2008. The year-over-year increase was primarily due to a net increase in short-term investments purchased in fiscal 2009. The increase in net purchases of short-term investments in fiscal 2009 was partially offset by proceeds from settlement of
+net investment hedges of $191.3 million. During the second half of fiscal 2008, we began to use net investment hedges to mitigate the risk of variability in foreign-currency-denominated net investments in certain
+wholly-owned international subsidiaries. 
+Cash used in financing activities was $0.7 billion during fiscal 2009, compared to $1.2
+billion in fiscal 2008. The decrease in fiscal 2009 was primarily due to a decrease in share repurchases to preserve liquidity given the current financial market conditions. 
+In fiscal 2009, we purchased approximately 10.6 million shares of NIKE’s Class B Common Stock for $639.0 million. As of the end of fiscal 2009,
+we have repurchased 49.2 million shares for $2.7 billion under the $3 billion program approved by our Board of Directors in June 2006. In September 2008, our Board of Directors approved a new $5 billion share repurchase program. The new
+program will commence upon completion of our current $3 billion share repurchase program. We expect to fund share repurchases from operating cash flow, excess cash, and/or debt. The timing and the amount of shares purchased will be dictated by our
+capital needs and stock market conditions. 
+Off-Balance Sheet Arrangements 
+In connection with various contracts and agreements, we provide routine indemnifications relating to the enforceability of intellectual property rights,
+coverage for legal issues that arise and other items that fall under the scope of Financial Accounting Standards Board (“FASB”) Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees,
+Including Indirect Guarantees of Indebtedness of Others.” Currently, we have several such agreements in place. However, based on our historical experience and the estimated probability of future loss, we have determined that the fair value of
+such indemnifications is not material to our financial position or results of operations. 
+Contractual Obligations
+Our significant long-term contractual obligations as of May 31, 2009, and significant endorsement contracts entered into
+through the date of this report are as follows: 
+Cash Payments Due During the Year Ending May 31, 
+Description of Commitment 
+2010 
+2011 
+2012 
+2013 
+2014 
+Thereafter 
+Total 
+(In millions) 
+Operating Leases 
+$ 
+330.2 
+$ 
+281.3 
+$ 
+233.6 
+$ 
+195.6 
+$ 
+168.6 
+$ 
+588.5 
+$ 
+1,797.8 
+Long-term Debt 
+32.0 
+6.9 
+167.1 
+46.9 
+56.9 
+144.6 
+$ 
+454.4 
+Endorsement Contracts (1) 
+711.7 
+654.6 
+601.0 
+509.7 
+431.0 
+1,293.9 
+$ 
+4,201.9 
+Product Purchase Obligations (2) 
+1,985.7 
+— 
+— 
+— 
+— 
+— 
+$ 
+1,985.7 
+Other (3) 
+247.1 
+106.3 
+67.8 
+78.0 
+3.0 
+2.0 
+$ 
+504.2 
+Total 
+$ 
+3,306.7 
+$ 
+1,049.1 
+$ 
+1,069.5 
+$ 
+830.2 
+$ 
+659.5 
+$ 
+2,029.0 
+$ 
+8,944.0 
+(1) 
+The amounts listed for endorsement contracts represent approximate amounts of base compensation and minimum guaranteed royalty fees we are obligated to pay athlete
+and sport team endorsers of our products. Actual payments under some contracts may be higher than the amounts listed as these contracts provide for bonuses to be paid to the endorsers based upon athletic achievements and/or royalties on product
+sales in future periods. Actual payments under some contracts may also be lower as these contracts include provisions for reduced payments if athletic performance declines in future periods. 
+In addition to the cash payments, we are obligated to furnish our endorsers with NIKE product for their use. It is not possible to determine how much we
+will spend on this product on an annual basis as the contracts generally do not stipulate a specific amount of cash to be spent on the product. The amount of 
+40 
+Table of Contents 
+product provided to the endorsers will depend on many factors including general playing conditions, the number of sporting events in which they participate,
+and our own decisions regarding product and marketing initiatives. In addition, the costs to design, develop, source, and purchase the products furnished to the endorsers are incurred over a period of time and are not necessarily tracked separately
+from similar costs incurred for products sold to customers. 
+(2) 
+We generally order product at least four to five months in advance of sale based primarily on advanced futures orders received from customers. The amounts listed
+for product purchase obligations represent agreements (including open purchase orders) to purchase products in the ordinary course of business, that are enforceable and legally binding and that specify all significant terms. In some cases, prices
+are subject to change throughout the production process. The reported amounts exclude product purchase liabilities included in accounts payable on the consolidated balance sheet as of May 31, 2009. 
+(3) 
+Other amounts primarily include service and marketing commitments made in the ordinary course of business. The amounts represent the minimum payments required by
+legally binding contracts and agreements that specify all significant terms, including open purchase orders for non-product purchases. The reported amounts exclude those liabilities included in accounts payable or accrued liabilities on the
+consolidated balance sheet as of May 31, 2009. 
+The total liability for uncertain tax positions was $273.9 million,
+excluding related interest and penalties, at May 31, 2009. We are not able to reasonably estimate when or if cash payments of the long-term liability for uncertain tax positions will occur. 
+We also have the following outstanding short-term debt obligations as of May 31, 2009. Please refer to the accompanying notes to the consolidated
+financial statements (Note 7 — Short-Term Borrowings and Credit Lines) for further description and interest rates related to the short-term debt obligations listed below. 
+Outstanding as of 
+May 31, 2009 
+(In millions) 
+Notes payable, due at mutually agreed-upon dates within one year of issuance or on demand 
+$ 
+342.9 
+Payable to Sojitz America for the purchase of inventories, generally due 60 days after shipment of goods from a foreign port 
+$ 
+78.5 
+As of May 31, 2009, letters of credit of $154.8 million were outstanding, generally for the
+purchase of inventory. 
+Capital Resources 
+In December 2008, we filed a shelf registration statement with the Securities and Exchange Commission under which $760 million in debt securities may be issued. As of May 31, 2009, no debt securities had been
+issued under this shelf registration. We may issue debt securities under the shelf registration in fiscal 2010 depending on general corporate needs. 
+As of May 31, 2009, we had no amounts outstanding under our multi-year, $1 billion revolving credit facility in place with a group of banks. The facility matures in December 2012. Based on our current long-term
+senior unsecured debt ratings of A+ and A1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively, the interest rate charged on any outstanding borrowings would be the prevailing London Interbank Offer Rate
+(“LIBOR”) plus 0.15%. The facility fee is 0.05% of the total commitment. 
+If our long-term debt rating were to decline, the
+facility fee and interest rate under our committed credit facility would increase. Conversely, if our long-term debt rating were to improve, the facility fee and interest rate would decrease. Changes in our long-term debt rating would not trigger
+acceleration of maturity of any then outstanding borrowings or any future borrowings under the committed credit facility. Under this committed credit facility, we have agreed to various covenants. These covenants include limits on our disposal of
+fixed assets and the amount of debt secured by liens we may incur as well as a minimum capitalization ratio. In the 
+41 
+Table of Contents 
+event we were to have any borrowings outstanding under this facility, failed to meet any covenant, and were unable to obtain a waiver from a majority of the
+banks, any borrowings would become immediately due and payable. As of May 31, 2009, we were in full compliance with each of these covenants and believe it is unlikely we will fail to meet any of these covenants in the foreseeable future.
+Liquidity is also provided by our $1 billion commercial paper program. As of May 31, 2009, $100 million was outstanding under this
+program at a weighted average interest rate of 0.40%. This borrowing was repaid subsequent to May 31, 2009. We may issue commercial paper from time to time during fiscal 2010 depending on general corporate needs. We currently have short-term
+debt ratings of A1 and P1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively. 
+Despite recent
+uncertainties in the financial markets, to date we have not experienced difficulty accessing the credit markets or incurred higher interest costs. Continuing volatility in the capital markets, however, may increase costs associated with issuing
+commercial paper or other debt instruments or affect our ability to access those markets. Notwithstanding these adverse market conditions, we believe that current cash and short-term investment balances and cash generated by operations, together
+with access to external sources of funds as described above, will be sufficient to meet our operating and capital needs in the foreseeable future. 
+Recently Adopted Accounting Standards 
+On December 1, 2008, we adopted SFAS No. 161, “Disclosures about
+Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“FAS 161”), which provides revised guidance for enhanced disclosures about how and why an entity uses derivative instruments, how
+derivative instruments and the related hedged items are accounted for under FAS 133, and how derivative instruments and the related hedged items affect an entity’s financial position, financial performance and cash flows. The adoption of FAS
+161 did not have an impact on our consolidated financial position or results of operations. For additional information, see Note 18 — Risk Management and Derivatives in the accompanying notes to the consolidated financial statements.
+On June 1, 2008, we adopted SFAS No. 157, “Fair Value Measurements” (“FAS 157”) for financial assets and
+liabilities, which clarifies the meaning of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined under FAS 157 as the exchange price that would be received for
+an asset or paid to transfer a liability in the principal or most advantageous market for the assets or liability in an orderly transaction between market participants on the measurement date. Subsequent changes in fair value of these financial
+assets and liabilities are recognized in earnings or other comprehensive income when they occur. The effective date of the provisions of FAS 157 for non-financial assets and liabilities, except for items recognized at fair value on a recurring
+basis, was deferred by FASB Staff Position FAS 157-2 (“FSP FAS 157-2”) and is effective for the fiscal year beginning June 1, 2009. The adoption of FAS 157 for financial assets and liabilities did not have an impact on our
+consolidated financial position or results of operations. The adoption of FAS 157 for non-financial assets and liabilities is not expected to have a significant impact on our consolidated financial position or results of operations. See Note 6
+— Fair Value Measurements in the accompanying notes to the consolidated financial statements for further discussion. 
+Also effective
+June 1, 2008, we adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”), which allows an entity the irrevocable option to elect fair value for the initial and subsequent
+measurement for certain financial assets and liabilities on a contract-by-contract basis. As of May 31, 2009, we have not elected the fair value option for any additional financial assets and liabilities beyond those already prescribed by
+accounting principles generally accepted in the United States. 
+In October 2008, the FASB issued Staff Position No. FAS 157-3,
+“Determining the Fair Value of a Financial Asset in a Market That Is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3 clarifies the application of FAS 157 in a market that is not active and defines additional key
+criteria in determining the fair value of a 
+42 
+Table of Contents 
+financial asset when the market for that financial asset is not active. FSP FAS 157-3 applies to financial assets within the scope of
+accounting pronouncements that require or permit fair value measurements in accordance with FAS 157. FSP FAS 157-3 was effective upon issuance and the application of FSP FAS 157-3 did not have a material impact on our
+consolidated financial statements. 
+Recently Issued Accounting Standards 
+In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“FAS 165”), which establishes general standards of accounting and
+disclosure for events that occur after the balance sheet date but before financial statements are issued. The provisions of FAS 165 are effective for the quarter ending August 31, 2009. We do not expect the adoption will have a material impact
+on our consolidated financial position or results of operations. 
+In April 2009, the FASB issued Staff Position No. FAS 107-1 and APB 28-1,
+“Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”), which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, and APB Opinion No. 28,
+“Interim Financial Reporting,” to require disclosures about fair value of financial instruments in interim and annual reporting periods. The provisions of FSP FAS 107-1 and APB 28-1 are effective for the quarter ending August 31,
+2009. We do not expect the adoption will have an impact on our consolidated financial position or results of operations. 
+In December 2007,
+the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)”) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”). These standards aim
+to improve, simplify, and converge international standards of accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The provisions of FAS 141(R) are effective for business
+combinations for which the acquisition date is on or after June 1, 2009. Generally, the effects of FAS 141(R) will depend on future acquisitions. The provisions of FAS No. 160 are effective for the Company beginning June 1, 2009.
+We do not expect that the adoption of FAS 160 will have a material impact on the Company’s consolidated financial position or results of operations. 
+In April 2008, the FASB issued Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that
+should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” The intent of the position is to
+improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS 141(R), and other U.S. generally accepted
+accounting principles. The provisions of FSP FAS 142-3 are effective for the fiscal year beginning June 1, 2009. We do not expect the adoption of FSP FAS 142-3 will have a material impact on our consolidated financial position or results
+of operations. 
+Critical Accounting Policies 
+Our previous discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the
+United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
+liabilities. 
+We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the
+greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical
+accounting policies. Certain of these critical accounting policies affect 
+43 
+Table of Contents 
+working capital account balances, including the policies for revenue recognition, the allowance for uncollectible accounts receivable, inventory reserves,
+and contingent payments under endorsement contracts. These policies require that we make estimates in the preparation of our financial statements as of a given date. However, since our business cycle is relatively short, actual results related to
+these estimates are generally known within the six-month period following the financial statement date. Thus, these policies generally affect only the timing of reported amounts across two to three fiscal quarters. 
+Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result
+in materially different amounts being reported. 
+Revenue Recognition 
+We record wholesale revenues when title passes and the risks and rewards of ownership have passed to the customer, based on the terms of sale. Title
+passes generally upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale. 
+In some instances, we ship product directly from our supplier to the customer and recognize revenue when the product is delivered to and accepted by the
+customer. Our revenues may fluctuate in cases when our customers delay accepting shipment of product for periods up to several weeks. 
+In
+certain countries outside of the U.S., precise information regarding the date of receipt by the customer is not readily available. In these cases, we estimate the date of receipt by the customer based upon historical delivery times by geographic
+location. On the basis of our tests of actual transactions, we have no indication that these estimates have been materially inaccurate historically. 
+As part of our revenue recognition policy, we record estimated sales returns and miscellaneous claims from customers as reductions to revenues at the time revenues are recorded. We base our estimates on historical
+rates of product returns and claims, and specific identification of outstanding claims and outstanding returns not yet received from customers. Actual returns and claims in any future period are inherently uncertain and thus may differ from our
+estimates. If actual or expected future returns and claims were significantly greater or lower than the reserves we had established, we would record a reduction or increase to net revenues in the period in which we made such determination.
+Allowance for Uncollectible Accounts Receivable 
+We make ongoing estimates relating to the ability to collect our accounts receivable and maintain an allowance for estimated losses resulting from the
+inability of our customers to make required payments. In determining the amount of the allowance, we consider our historical level of credit losses and make judgments about the creditworthiness of significant customers based on ongoing credit
+evaluations. Since we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to deteriorate,
+resulting in their inability to make payments, a larger allowance might be required. In the event we determine that a smaller or larger allowance is appropriate, we would record a credit or a charge to selling and administrative expense in the
+period in which such a determination is made. 
+Inventory Reserves 
+We also make ongoing estimates relating to the net realizable value of inventories, based upon our assumptions about future demand and market conditions.
+If we estimate that the net realizable value of our inventory is less than the cost of the inventory recorded on our books, we record a reserve equal to the difference between the cost of the inventory and the estimated net realizable value. This
+reserve is recorded as a charge to 
+44 
+Table of Contents 
+cost of sales. If changes in market conditions result in reductions in the estimated net realizable value of our inventory below our previous estimate, we
+would increase our reserve in the period in which we made such a determination and record a charge to cost of sales. 
+Contingent
+Payments under Endorsement Contracts 
+A significant portion of our demand creation expense relates to payments under endorsement
+contracts. In general, endorsement payments are expensed uniformly over the term of the contract. However, certain contract elements may be accounted for differently, based upon the facts and circumstances of each individual contract. 
+Some of the contracts provide for contingent payments to endorsers based upon specific achievements in their sports (e.g., winning a championship). We
+record selling and administrative expense for these amounts when the endorser achieves the specific goal. 
+Some of the contracts provide
+for payments based upon endorsers maintaining a level of performance in their sport over an extended period of time (e.g., maintaining a top ranking in a sport for a year). These amounts are reported in selling and administrative expense when we
+determine that it is probable that the specified level of performance will be maintained throughout the period. In these instances, to the extent that actual payments to the endorser differ from our estimate due to changes in the endorser’s
+athletic performance, increased or decreased selling and administrative expense may be reported in a future period. 
+Some of the contracts
+provide for royalty payments to endorsers based upon a predetermined percentage of sales of particular products. We expense these payments in cost of sales as the related sales occur. In certain contracts, we offer minimum guaranteed royalty
+payments. For contractual obligations for which we estimate that we will not meet the minimum guaranteed amount of royalty fees through sales of product, we record the amount of the guaranteed payment in excess of that earned through sales of
+product in selling and administrative expense uniformly over the remaining guarantee period. 
+Property, Plant and Equipment and
+Definite-Lived Assets 
+Property, plant and equipment, including buildings, equipment, and computer hardware and software are
+recorded at cost (including, in some cases, the cost of internal labor) and are depreciated over the estimated useful life. Changes in circumstances (such as technological advances or changes to our business operations) can result in differences
+between the actual and estimated useful lives. In those cases where we determine that the useful life of a long-lived asset should be shortened, we increase depreciation expense over the remaining useful life to depreciate the asset’s net book
+value to its salvage value. 
+We review the carrying value of long-lived assets or asset groups to be used in operations whenever events or
+changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a
+significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, we would
+assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining
+economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we will estimate the fair value of the asset group using appropriate valuation methodologies
+which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset groups carrying amount and its estimated fair value. 
+45 
+Table of Contents 
+Goodwill and Indefinite-Lived Intangible Assets 
+In accordance with SFAS No. 142 “Goodwill and Other Intangible Assets” (“FAS 142”), we perform annual impairment tests on goodwill and
+intangible assets with indefinite lives in the fourth quarter of each fiscal year, or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite
+life below its carrying value. Events or changes in circumstances that may trigger interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, or an expectation that the
+carrying amount may not be recoverable, among other factors. The impairment test requires us to estimate the fair value of our reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is
+potentially impaired and we proceed to step two of the impairment analysis. In step two of the analysis, we measure and record an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair
+value should such a circumstance arise. 
+We generally base our measurement of the fair value of a reporting unit on a blended analysis of
+the present value of future discounted cash flows and the market valuation approach. The discounted cash flows model indicates the fair value of the reporting unit based on the present value of the cash flows that we expect the reporting unit to
+generate in the future. Our significant estimates in the discounted cash flows model include: our weighted average cost of capital; long-term rate of growth and profitability of the reporting unit’s business; and working capital effects. The
+market valuation approach indicates the fair value of the business based on a comparison of the reporting unit to comparable publicly traded firms in similar lines of business. Significant estimates in the market valuation approach model include
+identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit.
+We believe the weighted use of discounted cash flows and the market valuation approach is the best method for determining the fair value
+of our reporting units because these are the most common valuation methodologies used within our industry; and the blended use of both models compensates for the inherent risks associated with either model if used on a stand-alone basis. 
+Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks. In measuring the fair value for these intangible assets,
+we utilize the relief-from-royalty method. This method assumes that trade names and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to
+estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. 
+Hedge
+Accounting for Derivatives 
+We use forward exchange contracts and option contracts to hedge certain anticipated foreign currency
+exchange transactions, as well as any resulting receivable or payable balance. When specific criteria required by SFAS No. 133, “Accounting for Derivative and Hedging Activities,” as amended and interpreted (“FAS 133”), have
+been met, changes in fair values of hedge contracts relating to anticipated transactions are recorded in other comprehensive income rather than net income until the underlying hedged transaction affects net income. In most cases, this results in
+gains and losses on hedge derivatives being released from other comprehensive income into net income some time after the maturity of the derivative. One of the criteria for this accounting treatment is that the forward exchange contract amount
+should not be in excess of specifically identified anticipated transactions. By their very nature, our estimates of anticipated transactions may fluctuate over time and may ultimately vary from actual transactions. When anticipated transaction
+estimates or actual transaction amounts decrease below hedged levels, or when the timing of transactions changes beyond the threshold allowed by FAS 133, we are required to reclassify at least a portion of the cumulative changes in fair values of
+the related hedge contracts from other comprehensive income to other (income) expense, net during the quarter in which such changes 
+46 
+Table of Contents 
+occur. Once an anticipated transaction estimate or actual transaction amount decreases below hedged levels, we make adjustments to the related hedge contract
+in order to reduce the amount of the hedge contract to that of the revised anticipated transaction. 
+We use forward contracts to hedge our
+investment in the net assets of certain international subsidiaries to offset foreign currency translation and economic exposures related to our net investment in those subsidiaries. When appropriately designated as a hedge in accordance with FAS
+133, the change in fair value of the forward contracts hedging our net investments is reported in the cumulative translation adjustment component of accumulated other comprehensive income within stockholders’ equity to offset the foreign
+currency translation adjustments on those investments. 
+As the value of our underlying net investments in wholly-owned international
+subsidiaries is known at the time a hedge is placed, the designated hedge is matched to the portion of our net investment at risk. Accordingly, the variability involved in net investment hedges is substantially less than that of other types of hedge
+transactions and we do not expect any material ineffectiveness. In accordance with FAS 133, we consider, on a quarterly basis, the need to redesignate existing hedge relationships based on changes in the underlying net investment. Should the level
+of our net investment decrease below hedged levels, any resulting ineffectiveness would be reported directly to earnings in the period incurred. 
+Stock-based Compensation 
+As of the first quarter of fiscal 2007, we account for stock-based compensation in
+accordance with SFAS No. 123R “Share-Based Payment” (“FAS 123R”). Under the provisions of FAS 123R, the fair value of stock-based compensation is estimated on the date of grant using the Black-Scholes option pricing model.
+The Black-Scholes option pricing model requires the input of highly subjective assumptions including volatility. Expected volatility is estimated based on implied volatility in market traded options on our common stock with a term greater than one
+year, along with other factors. Our decision to use implied volatility was based on the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than
+historical volatility. If factors change and we use different assumptions for estimating stock-based compensation expense in future periods, stock-based compensation expense may differ materially in the future from that recorded in the current
+period. 
+Taxes 
+We record valuation allowances against our deferred tax assets, when necessary, in accordance with SFAS No. 109, “Accounting for Income Taxes” (“FAS 109”). Realization of deferred tax assets (such as net
+operating loss carry-forwards) is dependent on future taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we
+believe that recovery is not likely, we establish a valuation allowance against our deferred tax asset, which increases our income tax expense in the period when such determination is made. 
+In addition, we have not recorded U.S. income tax expense for foreign earnings that we have determined to be indefinitely reinvested offshore, thus
+reducing our overall income tax expense. The amount of earnings designated as indefinitely reinvested offshore is based upon the actual deployment of such earnings in our offshore assets and our expectations of the future cash needs of our U.S. and
+foreign entities. Income tax considerations are also a factor in determining the amount of foreign earnings to be indefinitely reinvested offshore. 
+We carefully review all factors that drive the ultimate disposition of foreign earnings determined to be reinvested offshore, and apply stringent standards to overcoming the presumption of repatriation. Despite this approach, because the
+determination involves our future plans and expectations of future events, the possibility exists that amounts declared as indefinitely reinvested offshore may ultimately be repatriated. For instance, the 
+47 
+Table of Contents 
+actual cash needs of our U.S. entities may exceed our current expectations, or the actual cash needs of our foreign entities may be less than our current
+expectations. This would result in additional income tax expense in the year we determined that amounts were no longer indefinitely reinvested offshore. Conversely, our approach may also result in a determination that accumulated foreign earnings
+(for which U.S. income taxes have been provided) will be indefinitely reinvested offshore. In this case, our income tax expense would be reduced in the year of such determination. 
+On an interim basis, we estimate what our effective tax rate will be for the full fiscal year. The estimated annual effective tax rate is then applied to
+the year-to-date pre-tax income excluding infrequently occurring or unusual items, to determine the year-to-date tax expense. The income tax effects of infrequent or unusual items are recognized in the interim period in which they occur. As the
+fiscal year progresses, we continually refine our estimate based upon actual events and earnings by jurisdiction during the year. This continual estimation process periodically results in a change to our expected effective tax rate for the fiscal
+year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision equals the expected annual rate. 
+We account for uncertain tax positions in accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
+(“FIN 48”). On a quarterly basis, we reevaluate the probability that a tax position will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on factors including changes in facts or
+circumstances, changes in tax law, settled audit issues and new audit activity. Changes in our assessment may result in the recognition of a tax benefit or an additional charge to the tax provision in the period our assessment changes. We recognize
+interest and penalties related to income tax matters in income tax expense. 
+Other Contingencies 
+In the ordinary course of business, we are involved in legal proceedings regarding contractual and employment relationships, product liability claims,
+trademark rights, and a variety of other matters. We record contingent liabilities resulting from claims against us, including related legal costs, when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Assessing
+probability of loss and estimating probable losses requires analysis of multiple factors, including in some cases judgments about the potential actions of third party claimants and courts. Recorded contingent liabilities are based on the best
+information available and actual losses in any future period are inherently uncertain. If future adjustments to estimated probable future losses or actual losses exceed our recorded liability for such claims, we would record additional charges as
+other (income) expense, net during the period in which the actual loss or change in estimate occurred. In addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility that
+the ultimate loss will materially exceed the recorded liability. Currently, we do not believe that any of our pending legal proceedings or claims will have a material impact on our financial position or results of operations. 
+Item 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+In the normal course of business and consistent with established policies and procedures, we employ a variety of financial instruments to manage exposure to fluctuations in the value of foreign currencies and interest
+rates. It is our policy to utilize these financial instruments only where necessary to finance our business and manage such exposures; we do not enter into these transactions for speculative purposes. 
+We are exposed to foreign currency fluctuation as a result of our international sales, product sourcing and funding activities. Our foreign exchange risk
+management program is intended to minimize both the positive or negative effects of currency fluctuations on our consolidated results of operations, financial position and cash flows. This also has the effect of delaying the impact of current market
+rates on our consolidated financial statements dependent upon hedge horizons. We use forward exchange contracts and options to hedge certain 
+48 
+Table of Contents 
+anticipated but not yet firmly committed transactions as well as certain firm commitments and the related receivables and payables, including third party and
+intercompany transactions. We also use forward contracts to hedge our investment in the net assets of certain international subsidiaries to offset foreign currency translation and economic exposures related to our net investment in those
+subsidiaries. 
+When we begin hedging exposures, the type and duration of each hedge depends on the nature of the exposure and market
+conditions. Generally, all anticipated and firmly committed transactions that are hedged are to be recognized within twelve to eighteen months, although at May 31, 2009 we had forward contracts hedging anticipated transactions that will be
+recognized in as many as 23 months. The majority of the contracts expiring in more than twelve months relate to the anticipated purchase of inventory by one of our European subsidiaries. When intercompany loans are hedged, it is typically for their
+expected duration. Hedged transactions are principally denominated in Euro, Japanese yen and British pound. See Section “Foreign Currency Exposures and Hedging Practices” under Item 7 for additional detail. 
+Our earnings are also exposed to movements in short and long-term market interest rates. Our objective in managing this interest rate exposure is to
+limit the impact of interest rate changes on earnings and cash flows and to reduce overall borrowing costs. To achieve these objectives, we maintain a mix of commercial paper, bank loans and fixed rate debt of varying maturities and have entered
+into receive-fixed, pay-variable interest rate swaps. 
+Market Risk Measurement 
+We monitor foreign exchange risk, interest rate risk and related derivatives using a variety of techniques including a review of market value, sensitivity
+analysis, and Value-at-Risk (“VaR”). Our market-sensitive derivative and other financial instruments are foreign currency forward contracts, foreign currency option contracts, interest rate swaps, intercompany loans denominated in
+non-functional currencies, fixed interest rate U.S. dollar denominated debt, and fixed interest rate Japanese yen denominated debt. 
+We use
+VaR to monitor the foreign exchange risk of our foreign currency forward and foreign currency option derivative instruments only. The VaR determines the maximum potential one-day loss in the fair value of these foreign exchange rate-sensitive
+financial instruments. The VaR model estimates assume normal market conditions and a 95% confidence level. There are various modeling techniques that can be used in the VaR computation. Our computations are based on interrelationships between
+currencies and interest rates (a “variance/co-variance” technique). These interrelationships are a function of foreign exchange currency market changes and interest rate changes over the preceding one year period. The value of foreign
+currency options does not change on a one-to-one basis with changes in the underlying currency rate. We adjusted the potential loss in option value for the estimated sensitivity (the “delta” and “gamma”) to changes in the
+underlying currency rate. This calculation reflects the impact of foreign currency rate fluctuations on the derivative instruments only, and does not include the impact of such rate fluctuations on non-functional currency transactions (such as
+anticipated transactions, firm commitments, cash balances, and accounts and loans receivable and payable), including those which are hedged by these instruments. 
+The VaR model is a risk analysis tool and does not purport to represent actual losses in fair value that we will incur, nor does it consider the potential effect of favorable changes in market rates. It also does not
+represent the full extent of the possible loss that may occur. Actual future gains and losses will differ from those estimated because of changes or differences in market rates and interrelationships, hedging instruments and hedge percentages,
+timing and other factors. 
+The estimated maximum one-day loss in fair value on our foreign currency sensitive derivative financial
+instruments, derived using the VaR model, was $67.8 million and $34.9 million at May 31, 2009 and May 31, 2008, respectively. The VaR increased, despite a reduction in the total notional value of our foreign currency derivative
+instruments, as a result of increased foreign currency volatilities at May 31, 2009 as compared to 
+49 
+Table of Contents 
+May 31, 2008. Such a hypothetical loss in fair value of our derivatives would be offset by increases in the value of the underlying transactions being
+hedged. The average monthly change in the fair values of foreign currency forward and foreign currency option derivative instruments was $207.4 million and $32.3 million during fiscal 2009 and fiscal 2008, respectively. 
+The instruments not included in the VaR are intercompany loans denominated in non-functional currencies, fixed interest rate Japanese yen denominated
+debt, fixed interest rate U.S. dollar denominated debt and interest rate swaps. Intercompany loans and related interest amounts are eliminated in consolidation. Furthermore, our non-functional currency intercompany loans are substantially hedged
+against foreign exchange risk through the use of forward contracts, which are included in the VaR calculation above. We, therefore, consider the interest rate and foreign currency market risks associated with our non-functional currency intercompany
+loans to be immaterial to our consolidated financial position, results from operations and cash flows. 
+Details of third party debt and
+interest rate swaps are provided in the table below. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. Weighted average interest rates for the fixed rate swapped to floating rate debt
+reflect the effective interest rates as of May 31, 2009. 
+Expected Maturity Date 
+Year Ended May 31, 
+2010 
+2011 
+2012 
+2013 
+2014 
+Thereafter 
+Total 
+Fair Value 
+(In millions, except interest rates) 
+Foreign Exchange Risk 
+Japanese Yen Functional Currency 
+Long Term Japanese yen debt — Fixed rate 
+Principal payments 
+$ 
+6.9 
+$ 
+6.9 
+$ 
+167.1 
+$ 
+6.9 
+$ 
+6.9 
+$ 
+44.7 
+$ 
+239.4 
+$ 
+235.9 
+Average interest rate 
+2.4 
+% 
+2.4 
+% 
+3.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.5 
+% 
+Interest Rate Risk 
+Japanese Yen Functional Currency 
+Long-term Japanese yen debt — Fixed rate 
+Principal payments 
+$ 
+6.9 
+$ 
+6.9 
+$ 
+167.1 
+$ 
+6.9 
+$ 
+6.9 
+$ 
+44.7 
+$ 
+239.4 
+$ 
+235.9 
+Average interest rate 
+2.4 
+% 
+2.4 
+% 
+3.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.5 
+% 
+U.S. Dollar Functional Currency 
+Long-term U.S. dollar debt — Fixed rate swapped to Floating rate 
+Principal payments 
+$ 
+25.0 
+$ 
+— 
+$ 
+— 
+$ 
+40.0 
+$ 
+— 
+$ 
+100.0 
+$ 
+165.0 
+$ 
+169.0 
+Average interest rate 
+3.1 
+% 
+— 
+— 
+3.1 
+% 
+— 
+1.6 
+% 
+2.2 
+% 
+Long-term U.S. dollar debt — Fixed rate 
+Principal payments 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+50.0 
+$ 
+50.0 
+$ 
+51.5 
+Average interest rate 
+— 
+— 
+— 
+— 
+— 
+4.7 
+% 
+4.7 
+% 
+The fixed interest rate Japanese yen denominated debts were issued by and are accounted for by one
+of our Japanese subsidiaries. Accordingly, the monthly re-measurement of these instruments due to changes in foreign exchange rates is recognized in accumulated other comprehensive income upon the consolidation of this subsidiary. 
+In fiscal 2003, we entered into a receive-floating, pay-fixed interest rate swap related to a Japanese yen denominated intercompany loan with one of our
+Japanese subsidiaries. This interest rate swap was not designated as a hedge instrument under FAS 133. Accordingly, changes in the fair value of the swap were recorded to consolidated net income each period. The change in fair value of the swap was
+not material for the years ended May 31, 2009, 2008 and 2007. Both the intercompany loan and the related interest rate swap matured during fiscal 2009. 
+Item 8. 
+Financial Statements and Supplemental Data 
+Management of NIKE, Inc. is responsible for the information and representations contained in this report. The financial statements have been prepared in conformity with the generally accepted accounting principles we
+considered appropriate in the circumstances and include some amounts based on our best estimates and judgments. Other financial information in this report is consistent with these financial statements. 
+50 
+Table of Contents 
+Our accounting systems include controls designed to reasonably assure assets are safeguarded from
+unauthorized use or disposition and provide for the preparation of financial statements in conformity with generally accepted accounting principles. These systems are supplemented by the selection and training of qualified financial personnel and an
+organizational structure providing for appropriate segregation of duties. 
+An Internal Audit department reviews the results of its work
+with the Audit Committee of the Board of Directors, presently consisting of three outside directors. The Audit Committee is responsible for the appointment of the independent registered public accounting firm and reviews with the independent
+registered public accounting firm, management and the internal audit staff, the scope and the results of the annual examination, the effectiveness of the accounting control system and other matters relating to the financial affairs of NIKE as they
+deem appropriate. The independent registered public accounting firm and the internal auditors have full access to the Committee, with and without the presence of management, to discuss any appropriate matters. 
+Management’s Annual Report on Internal Control Over Financial Reporting 
+Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Securities Exchange Act of 1934, as
+amended. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with
+generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately
+and fairly reflect the transactions and dispositions of assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
+accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of
+unauthorized acquisition, use or disposition of assets of the company that could have a material effect on the financial statements. 
+While
+“reasonable assurance” is a high level of assurance, it does not mean absolute assurance. Because of its inherent limitations, internal control over financial reporting may not prevent or detect every misstatement and instance of fraud.
+Controls are susceptible to manipulation, especially in instances of fraud caused by the collusion of two or more people, including our senior management. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
+that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting
+based upon the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of our evaluation, our management concluded that our internal
+control over financial reporting was effective as of May 31, 2009. 
+PricewaterhouseCoopers LLP, an independent registered public
+accounting firm, has audited (1) the consolidated financial statements and (2) the effectiveness of our internal control over financial reporting as of May 31, 2009, as stated in their report herein. 
+Mark G. Parker 
+Donald W. Blair 
+Chief Executive Officer and President 
+Chief Financial Officer 
+51 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+To the Board of Directors and 
+Shareholders of NIKE, Inc.: 
+In our opinion, the consolidated financial statements listed in the index
+appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of NIKE, Inc. and its subsidiaries at May 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three
+years in the period ended May 31, 2009 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the appendix appearing under
+Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects,
+effective internal control over financial reporting as of May 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
+Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
+financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on these financial statements, on the financial statement schedule,
+and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
+that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our
+audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
+evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
+testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
+provide a reasonable basis for our opinions. 
+A company’s internal control over financial reporting is a process designed to provide
+reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
+reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
+reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
+accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could
+have a material effect on the financial statements. 
+Because of its inherent limitations, internal control over financial reporting may not
+prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
+or procedures may deteriorate. 
+/s/ P RICEWATERHOUSE C OOPERS LLP 
+Portland, Oregon 
+July 27, 2009 
+52 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF INCOME 
+Year Ended May 31, 
+2009 
+2008 
+2007 
+(In millions, except per share data) 
+Revenues 
+$ 
+19,176.1 
+$ 
+18,627.0 
+$ 
+16,325.9 
+Cost of sales 
+10,571.7 
+10,239.6 
+9,165.4 
+Gross margin 
+8,604.4 
+8,387.4 
+7,160.5 
+Selling and administrative expense 
+6,149.6 
+5,953.7 
+5,028.7 
+Restructuring charges (Note 16) 
+195.0 
+— 
+— 
+Goodwill impairment (Note 4) 
+199.3 
+— 
+— 
+Intangible and other asset impairment (Note 4) 
+202.0 
+— 
+— 
+Interest income, net (Notes 1, 7 and 8) 
+(9.5 
+) 
+(77.1 
+) 
+(67.2 
+) 
+Other (income) expense, net (Notes 17 and 18) 
+(88.5 
+) 
+7.9 
+(0.9 
+) 
+Income before income taxes 
+1,956.5 
+2,502.9 
+2,199.9 
+Income taxes (Note 9) 
+469.8 
+619.5 
+708.4 
+Net income 
+1,486.7 
+1,883.4 
+1,491.5 
+Basic earnings per common share (Note 12) 
+$ 
+3.07 
+$ 
+3.80 
+$ 
+2.96 
+Diluted earnings per common share (Note 12) 
+$ 
+3.03 
+$ 
+3.74 
+$ 
+2.93 
+Dividends declared per common share 
+$ 
+0.98 
+$ 
+0.875 
+$ 
+0.71 
+The accompanying notes to consolidated financial statements are an integral part of this
+statement. 
+53 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED BALANCE SHEETS 
+May 31, 
+2009 
+2008 
+(In millions) 
+ASSETS 
+Current assets: 
+Cash and equivalents 
+$ 
+2,291.1 
+$ 
+2,133.9 
+Short-term investments 
+1,164.0 
+642.2 
+Accounts receivable, net (Note 1) 
+2,883.9 
+2,795.3 
+Inventories (Notes 1 and 2) 
+2,357.0 
+2,438.4 
+Deferred income taxes (Note 9) 
+272.4 
+227.2 
+Prepaid expenses and other current assets 
+765.6 
+602.3 
+Total current assets 
+9,734.0 
+8,839.3 
+Property, plant and equipment, net (Note 3) 
+1,957.7 
+1,891.1 
+Identifiable intangible assets, net (Note 4) 
+467.4 
+743.1 
+Goodwill (Note 4) 
+193.5 
+448.8 
+Deferred income taxes and other assets (Notes 9 and 18) 
+897.0 
+520.4 
+Total assets 
+$ 
+13,249.6 
+$ 
+12,442.7 
+LIABILITIES AND SHAREHOLDERS’ EQUITY 
+Current liabilities: 
+Current portion of long-term debt (Note 8) 
+$ 
+32.0 
+$ 
+6.3 
+Notes payable (Note 7) 
+342.9 
+177.7 
+Accounts payable (Note 7) 
+1,031.9 
+1,287.6 
+Accrued liabilities (Notes 5 and 18) 
+1,783.9 
+1,761.9 
+Income taxes payable (Note 9) 
+86.3 
+88.0 
+Total current liabilities 
+3,277.0 
+3,321.5 
+Long-term debt (Note 8) 
+437.2 
+441.1 
+Deferred income taxes and other liabilities (Note 9) 
+842.0 
+854.5 
+Commitments and contingencies (Notes 15 and 18) 
+— 
+— 
+Redeemable Preferred Stock (Note 10) 
+0.3 
+0.3 
+Shareholders’ equity: 
+Common stock at stated value (Note 11): 
+Class A convertible — 95.3 and 96.8 shares outstanding 
+0.1 
+0.1 
+Class B — 390.2 and 394.3 shares outstanding 
+2.7 
+2.7 
+Capital in excess of stated value 
+2,871.4 
+2,497.8 
+Accumulated other comprehensive income (Note 14) 
+367.5 
+251.4 
+Retained earnings 
+5,451.4 
+5,073.3 
+Total shareholders’ equity 
+8,693.1 
+7,825.3 
+Total liabilities and shareholders’ equity 
+$ 
+13,249.6 
+$ 
+12,442.7 
+The accompanying notes to consolidated financial statements are an integral part of this statement.
+54 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+Year Ended May 31, 
+2009 
+2008 
+2007 
+(In millions) 
+Cash provided by operations: 
+Net income 
+$ 
+1,486.7 
+$ 
+1,883.4 
+$ 
+1,491.5 
+Income charges (credits) not affecting cash: 
+Depreciation 
+335.0 
+303.6 
+269.7 
+Deferred income taxes 
+(294.1 
+) 
+(300.6 
+) 
+34.1 
+Stock-based compensation (Note 11) 
+170.6 
+141.0 
+147.7 
+Impairment of goodwill, intangibles and other assets (Note 4) 
+401.3 
+— 
+— 
+Gain on divestitures (Note 17) 
+— 
+(60.6 
+) 
+— 
+Amortization and other 
+48.3 
+17.9 
+0.5 
+Changes in certain working capital components and other assets and liabilities excluding the impact of acquisition and
+divestitures: 
+Increase in accounts receivable 
+(238.0 
+) 
+(118.3 
+) 
+(39.6 
+) 
+Decrease (increase) in inventories 
+32.2 
+(249.8 
+) 
+(49.5 
+) 
+Decrease (increase) in prepaid expenses and other current assets 
+14.1 
+(11.2 
+) 
+(60.8 
+) 
+(Decrease) increase in accounts payable, accrued liabilities and income taxes payable 
+(220.0 
+) 
+330.9 
+85.1 
+Cash provided by operations 
+1,736.1 
+1,936.3 
+1,878.7 
+Cash (used) provided by investing activities: 
+Purchases of short-term investments 
+(2,908.7 
+) 
+(1,865.6 
+) 
+(2,133.8 
+) 
+Maturities of short-term investments 
+2,390.0 
+2,246.0 
+2,516.2 
+Additions to property, plant and equipment 
+(455.7 
+) 
+(449.2 
+) 
+(313.5 
+) 
+Disposals of property, plant and equipment 
+32.0 
+1.9 
+28.3 
+Increase in other assets, net of other liabilities 
+(47.0 
+) 
+(21.8 
+) 
+(4.3 
+) 
+Settlement of net investment hedges 
+191.3 
+(76.0 
+) 
+— 
+Acquisition of subsidiary, net of cash acquired (Note 4) 
+— 
+(571.1 
+) 
+— 
+Proceeds from divestitures (Note 17) 
+— 
+246.0 
+— 
+Cash (used) provided by investing activities 
+(798.1 
+) 
+(489.8 
+) 
+92.9 
+Cash used by financing activities: 
+Proceeds from issuance of long-term debt 
+— 
+— 
+41.8 
+Reductions in long-term debt, including current portion 
+(6.8 
+) 
+(35.2 
+) 
+(255.7 
+) 
+Increase in notes payable 
+177.1 
+63.7 
+52.6 
+Proceeds from exercise of stock options and other stock issuances 
+186.6 
+343.3 
+322.9 
+Excess tax benefits from share-based payment arrangements 
+25.1 
+63.0 
+55.8 
+Repurchase of common stock 
+(649.2 
+) 
+(1,248.0 
+) 
+(985.2 
+) 
+Dividends — common and preferred 
+(466.7 
+) 
+(412.9 
+) 
+(343.7 
+) 
+Cash used by financing activities 
+(733.9 
+) 
+(1,226.1 
+) 
+(1,111.5 
+) 
+Effect of exchange rate changes 
+(46.9 
+) 
+56.8 
+42.4 
+Net increase in cash and equivalents 
+157.2 
+277.2 
+902.5 
+Cash and equivalents, beginning of year 
+2,133.9 
+1,856.7 
+954.2 
+Cash and equivalents, end of year 
+$ 
+2,291.1 
+$ 
+2,133.9 
+$ 
+1,856.7 
+Supplemental disclosure of cash flow information: 
+Cash paid during the year for: 
+Interest, net of capitalized interest 
+$ 
+46.7 
+$ 
+44.1 
+$ 
+60.0 
+Income taxes 
+765.2 
+717.5 
+601.1 
+Dividends declared and not paid 
+121.4 
+112.9 
+92.9 
+The accompanying notes to consolidated financial statements are an integral part of this statement.
+55 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY 
+Common Stock 
+Capital in 
+Excess of 
+Stated 
+Value 
+Accumulated 
+Other 
+Comprehensive 
+Income 
+Retained 
+Earnings 
+Total 
+Class A 
+Class B 
+Shares 
+Amount 
+Shares 
+Amount 
+(In millions, except per share data) 
+Balance at May 31, 2006 
+127.8 
+$ 
+0.1 
+384.2 
+$ 
+2.7 
+$ 
+1,447.3 
+$ 
+121.7 
+$ 
+4,713.4 
+$ 
+6,285.2 
+Stock options exercised 
+10.7 
+349.7 
+349.7 
+Conversion to Class B Common Stock 
+(10.2 
+) 
+10.2 
+— 
+Repurchase of Class B Common Stock 
+(22.1 
+) 
+(13.2 
+) 
+(962.0 
+) 
+(975.2 
+) 
+Dividends on Common stock ($0.71 per share) 
+(357.2 
+) 
+(357.2 
+) 
+Issuance of shares to employees 
+1.2 
+30.1 
+30.1 
+Stock-based compensation (Note 11): 
+147.7 
+147.7 
+Forfeiture of shares from employees 
+(0.1 
+) 
+(1.6 
+) 
+(0.5 
+) 
+(2.1 
+) 
+Comprehensive income (Note 14): 
+Net income 
+1,491.5 
+1,491.5 
+Other comprehensive income: 
+— 
+Foreign currency translation and other (net of tax expense of $5.4) 
+84.6 
+84.6 
+Net loss on cash flow hedges (net of tax benefit of $9.5) 
+(38.1 
+) 
+(38.1 
+) 
+Reclassification to net income of previously deferred losses related to hedge derivatives (net of tax benefit of $3.6) 
+21.4 
+21.4 
+Comprehensive income 
+67.9 
+1,491.5 
+1,559.4 
+Adoption of FAS 158 (net of tax benefit of $5.4) (Note 13): 
+(12.2 
+) 
+(12.2 
+) 
+Balance at May 31, 2007 
+117.6 
+$ 
+0.1 
+384.1 
+$ 
+2.7 
+$ 
+1,960.0 
+$ 
+177.4 
+$ 
+4,885.2 
+$ 
+7,025.4 
+Stock options exercised 
+9.1 
+372.2 
+372.2 
+Conversion to Class B Common Stock 
+(20.8 
+) 
+20.8 
+— 
+Repurchase of Class B Common Stock 
+(20.6 
+) 
+(12.3 
+) 
+(1,235.7 
+) 
+(1,248.0 
+) 
+Dividends on Common stock ($0.875 per share) 
+(432.8 
+) 
+(432.8 
+) 
+Issuance of shares to employees 
+1.0 
+39.2 
+39.2 
+Stock-based compensation (Note 11): 
+141.0 
+141.0 
+Forfeiture of shares from employees 
+(0.1 
+) 
+(2.3 
+) 
+(1.1 
+) 
+(3.4 
+) 
+Comprehensive income (Note 14): 
+Net income 
+1,883.4 
+1,883.4 
+Other comprehensive income: 
+Foreign currency translation and other (net of tax expense of $101.6) 
+211.9 
+211.9 
+Realized foreign currency translation gain due to divestiture 
+(Note 17): 
+(46.3 
+) 
+(46.3 
+) 
+Net loss on cash flow hedges (net of tax benefit of $67.7) 
+(175.8 
+) 
+(175.8 
+) 
+Net loss on net investment hedges (net of tax benefit of $25.1) 
+(43.5 
+) 
+(43.5 
+) 
+Reclassification to net income of previously deferred losses related to hedge derivatives (net of tax benefit of $49.6) 
+127.7 
+127.7 
+Comprehensive income 
+74.0 
+1,883.4 
+1,957.4 
+Adoption of FIN 48 (Note 9) 
+(15.6 
+) 
+(15.6 
+) 
+Adoption of EITF 06-2 Sabbaticals (net of tax benefit of $6.2) 
+(10.1 
+) 
+(10.1 
+) 
+Balance at May 31, 2008 
+96.8 
+$ 
+0.1 
+394.3 
+$ 
+2.7 
+$ 
+2,497.8 
+$ 
+251.4 
+$ 
+5,073.3 
+$ 
+7,825.3 
+Stock options exercised 
+4.0 
+167.2 
+167.2 
+Conversion to Class B Common Stock 
+(1.5 
+) 
+1.5 
+— 
+Repurchase of Class B Common Stock 
+(10.6 
+) 
+(6.3 
+) 
+(632.7 
+) 
+(639.0 
+) 
+Dividends on Common stock ($0.98 per share) 
+(475.2 
+) 
+(475.2 
+) 
+Issuance of shares to employees 
+1.1 
+45.4 
+45.4 
+Stock-based compensation (Note 11): 
+170.6 
+170.6 
+Forfeiture of shares from employees 
+(0.1 
+) 
+(3.3 
+) 
+(0.7 
+) 
+(4.0 
+) 
+Comprehensive income (Note 14): 
+Net income 
+1,486.7 
+1,486.7 
+Other comprehensive income: 
+Foreign currency translation and other (net of tax benefit of $177.5) 
+(335.3 
+) 
+(335.3 
+) 
+Net gain on cash flow hedges (net of tax expense of $167.5) 
+453.6 
+453.6 
+Net gain on net investment hedges (net of tax expense of $55.4) 
+106.0 
+106.0 
+Reclassification to net income of previously deferred net gains related to hedge derivatives (net of tax expense of $39.6) 
+(108.2 
+) 
+(108.2 
+) 
+Comprehensive income 
+116.1 
+1,486.7 
+1,602.8 
+Balance at May 31, 2009 
+95.3 
+$ 
+0.1 
+390.2 
+$ 
+2.7 
+$ 
+2,871.4 
+$ 
+367.5 
+$ 
+5,451.4 
+$ 
+8,693.1 
+The accompanying notes to consolidated financial statements are an integral part of this statement.
+56 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+Note 1 — Summary of Significant Accounting
+Policies 
+Description of Business 
+NIKE, Inc. is a worldwide leader in the design, marketing and distribution of athletic and sports-inspired footwear, apparel, equipment and accessories. Wholly-owned Nike subsidiaries include Cole Haan, which designs,
+markets and distributes dress and casual shoes, handbags, accessories and coats; Converse Inc., which designs, markets and distributes athletic and causal footwear, apparel and accessories; Hurley International LLC, which designs, markets and
+distributes action sports and youth lifestyle footwear, apparel and accessories; and Umbro Ltd., which designs, distributes and licenses athletic and casual footwear, apparel and equipment, primarily for the sport of soccer. 
+Basis of Consolidation 
+The
+consolidated financial statements include the accounts of NIKE, Inc. and its subsidiaries (the “Company”). All significant intercompany transactions and balances have been eliminated. 
+Recognition of Revenues 
+Wholesale revenues are recognized when the risks and rewards of ownership have passed to the customer, based on the terms of sale. This occurs upon shipment or upon receipt by the customer depending on the country of the sale and the
+agreement with the customer. Retail store revenues are recorded at the time of sale. Provisions for sales discounts, returns and miscellaneous claims from customers are made at the time of sale. 
+Shipping and Handling Costs 
+Shipping and handling costs are expensed as incurred and included in cost of sales. 
+Advertising and Promotion
+Advertising production costs are expensed the first time the advertisement is run. Media (TV and print) placement costs are
+expensed in the month the advertising appears. 
+A significant amount of the Company’s promotional expenses result from payments under
+endorsement contracts. Accounting for endorsement payments is based upon specific contract provisions. Generally, endorsement payments are expensed on a straight-line basis over the term of the contract after giving recognition to periodic
+performance compliance provisions of the contracts. Prepayments made under contracts are included in prepaid expenses or other assets depending on the period to which the prepayment applies. 
+Through cooperative advertising programs, the Company reimburses retail customers for certain costs of advertising the Company’s products. The
+Company records these costs in selling and administrative expense at the point in time when it is obligated to its customers for the costs, which is when the related revenues are recognized. This obligation may arise prior to the related
+advertisement being run. 
+Total advertising and promotion expenses were $2,351.3 million, $2,308.3 million, and $1,912.4 million for the
+years ended May 31, 2009, 2008 and 2007, respectively. Prepaid advertising and promotion expenses recorded in prepaid expenses and other assets totaled $280.0 million and $266.7 million at May 31, 2009 and 2008, respectively. 
+57 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Cash and Equivalents 
+Cash and equivalents represent cash and short-term, highly liquid investments with maturities of three months or less at date of purchase. The carrying
+amounts reflected in the consolidated balance sheet for cash and equivalents approximate fair value. 
+Short-term Investments 
+Short-term investments consist of highly liquid investments, primarily commercial paper, U.S. Treasury, U.S. agency, and corporate debt
+securities, with maturities over three months from the date of purchase. Debt securities which the Company has the ability and positive intent to hold to maturity are carried at amortized cost, which approximates fair value. At May 31, 2009,
+the Company did not hold any short-term investments that were classified as held-to-maturity. Short-term investments of $124.9 million as of May 31, 2008 were classified as held-to-maturity and were primarily comprised of U.S. Treasury and U.S.
+agency securities. 
+Available-for-sale debt securities are recorded at fair value with net unrealized gains and losses reported, net of
+tax, in other comprehensive income, unless unrealized losses are determined to be other than temporary. The Company considers all available-for-sale securities, including those with maturity dates beyond 12 months, as available to support current
+operational liquidity needs and therefore classifies these securities as short-term investments within current assets on the consolidated balance sheet. As of May 31, 2009, the Company held $1,005.0 million of available-for-sale securities with
+maturity dates within one year and $159.0 million with maturity dates over one year and less than five years. 
+Investments classified as
+available-for-sale consist of the following at fair value: 
+As of May 31, 
+2009 
+2008 
+(In millions) 
+Available-for-sale investments: 
+U.S. treasury and agencies 
+$ 
+772.8 
+$ 
+194.1 
+Corporate commercial paper and bonds 
+391.2 
+323.2 
+Total available-for-sale investments 
+$ 
+1,164.0 
+$ 
+517.3 
+Included in interest income, net for the years ended May 31, 2009, 2008, and 2007, was
+interest income of $49.7 million, $115.8 million and $116.9 million, respectively, related to short-term investments and cash and equivalents. 
+Allowance for Uncollectible Accounts Receivable 
+Accounts receivable consists principally of amounts receivable from
+customers. We make ongoing estimates relating to the collectibility of our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the
+allowance, we consider our historical level of credit losses and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Accounts receivable with anticipated collection dates greater than twelve months
+from the balance sheet date and related allowances are considered non-current and recorded in other assets. The allowance for uncollectible accounts receivable was $110.8 million and $78.4 million at May 31, 2009 and 2008, respectively, of
+which $36.9 million and $36.7 million was recorded in other assets. 
+58 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Inventory Valuation 
+Inventories related to our wholesale operations are stated at lower of cost or market and valued on a first-in, first-out (“FIFO”) or moving
+average cost basis. Inventories related to our retail operations are stated at the lower of average cost or market using the retail inventory method. Under the retail inventory method, the valuation of inventories at cost is calculated by
+applying a cost-to-retail ratio to the retail value inventories. Permanent and point of sale markdowns, when recorded, reduce both the retail and cost components of inventory on hand so as to maintain the already established cost-to-retail
+relationship. 
+Property, Plant and Equipment and Depreciation 
+Property, plant and equipment are recorded at cost. Depreciation for financial reporting purposes is determined on a straight-line basis for buildings and
+leasehold improvements over 2 to 40 years and for machinery and equipment over 2 to 15 years. Computer software (including, in some cases, the cost of internal labor) is depreciated on a straight-line basis over 3 to 10 years. 
+Impairment of Long-Lived Assets 
+The Company reviews the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would
+necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a
+significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, the Company would assess the recoverability of an asset group by determining if the carrying value of the asset group
+exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the
+carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group using appropriate valuation methodologies which would typically include an estimate of discounted cash flows. Any impairment would be
+measured as the difference between the asset groups carrying amount and its estimated fair value. 
+Identifiable Intangible Assets and
+Goodwill 
+In accordance with SFAS No. 142 “Goodwill and Other Intangible Assets” (“FAS 142”), the Company
+performs annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal year, or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting
+unit or an intangible asset with an indefinite life below its carrying value. Events or changes in circumstances that may trigger interim impairment reviews include significant changes in business climate, operating results, planned investments in
+the reporting unit, or an expectation that the carrying amount may not be recoverable, among other factors. The impairment test requires the Company to estimate the fair value of its reporting units. If the carrying value of a reporting unit exceeds
+its fair value, the goodwill of that reporting unit is potentially impaired and the Company proceeds to step two of the impairment analysis. In step two of the analysis, the Company measures and records an impairment loss equal to the excess of the
+carrying value of the reporting unit’s goodwill over its implied fair value should such a circumstance arise. 
+The Company generally
+bases its measurement of fair value of a reporting unit on a blended analysis of the present value of future discounted cash flows and the market valuation approach. The discounted cash flows model indicates the fair value of the reporting unit
+based on the present value of the cash flows that the Company expects the reporting unit to generate in the future. The Company’s significant estimates in the discounted cash flows model include: its weighted average cost of capital; long-term
+rate of growth and profitability of the 
+59 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+reporting unit’s business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of
+the reporting unit to comparable publicly traded companies in similar lines of business. Significant estimates in the market valuation approach model include identifying similar companies with comparable business factors such as size, growth,
+profitability, risk and return on investment and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit. 
+The Company believes the weighted use of discounted cash flows and the market valuation approach is the best method for determining the fair value of its reporting units because these are the most common valuation
+methodologies used within its industry; and the blended use of both models compensates for the inherent risks associated with either model if used on a stand-alone basis. 
+Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks. In measuring the fair value for these intangible assets, the Company utilizes the relief-from-royalty method. This method
+assumes that trade names and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires the Company to estimate the future revenue for the related
+brands, the appropriate royalty rate and the weighted average cost of capital. 
+Foreign Currency Translation and Foreign Currency
+Transactions 
+Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are included
+in the foreign currency translation adjustment, a component of accumulated other comprehensive income in shareholders’ equity. 
+The
+Company’s global subsidiaries have various assets and liabilities, primarily receivables and payables, that are denominated in currencies other than their functional currency. These balance sheet items are subject to remeasurement under SFAS
+No. 52, “Foreign Currency Translation,” (“FAS 52”), the impact of which is recorded in other (income) expense, net, within our consolidated statements of income. 
+Accounting for Derivatives and Hedging Activities 
+The Company uses derivative financial instruments to limit exposure to changes in foreign currency exchange rates and interest rates. The Company accounts for derivatives pursuant to SFAS No. 133,
+“Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted (“FAS 133”). FAS 133 establishes accounting and reporting standards for derivative instruments and requires all derivatives be recorded at
+fair value on the balance sheet. Changes in the fair value of derivative financial instruments are either recognized in other comprehensive income (a component of shareholders’ equity), debt or net income depending on the underlying exposure
+being hedged and the extent to which the derivative is effective. 
+See Note 18 — Risk Management and Derivatives for more information
+on the Company’s risk management program and derivatives. 
+Stock-Based Compensation 
+On June 1, 2006, the Company adopted SFAS No. 123R “Share-Based Payment” (“FAS 123R”), which requires the Company to record
+expense for stock-based compensation to employees using a fair value method. Under FAS 123R, the Company estimates the fair value of options granted under the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”) and employees’
+purchase rights under the Employee Stock Purchase Plans (“ESPPs”) using the Black-Scholes option pricing model. The Company recognizes this fair value, net of estimated forfeitures, as selling and administrative expense in the consolidated
+statements of income over the vesting period using the straight-line method. 
+60 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The Company adopted the modified prospective transition method prescribed by FAS 123R, which does not
+require the restatement of financial results for previous periods. In accordance with this transition method, the Company’s consolidated statements of income for the years ended May 31, 2009, 2008 and 2007 includes (i) amortization of
+outstanding stock-based compensation granted prior to, but not vested, as of June 1, 2006, based on the fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”
+(“FAS 123”) and (ii) amortization of all stock-based awards granted subsequent to June 1, 2006, based on the fair value estimated in accordance with the provisions of FAS 123R. 
+To calculate the excess tax benefits available for use in offsetting future tax shortfalls as of the date of implementation, the Company is following the
+alternative transition method discussed in FASB Staff Position No. 123R-3, “Transition Election Relating to Accounting for the Tax Effects of Share-Based Payment Awards.” 
+See Note 11 — Common Stock and Stock-Based Compensation for more information on the Company’s stock programs. 
+Income Taxes 
+The Company
+accounts for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax
+basis of assets and liabilities. United States income taxes are provided currently on financial statement earnings of non-U.S. subsidiaries that are expected to be repatriated. The Company determines annually the amount of undistributed non-U.S.
+earnings to invest indefinitely in its non-U.S. operations. The Company recognizes interest and penalties related to income tax matters in income tax expense. See Note 9 — Income Taxes for further discussion. 
+Earnings Per Share 
+Basic
+earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming
+conversion of all potentially dilutive stock options and awards. See Note 12 — Earnings Per Share for further discussion. 
+Management Estimates 
+The preparation of financial statements in conformity with generally accepted accounting
+principles requires management to make estimates, including estimates relating to assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the
+reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 
+Reclassifications 
+Certain prior year amounts have been reclassified to conform to fiscal year 2009 presentation,
+including a reclassification to investing activities for the settlement of net investment hedges in the consolidated statement of cash flows. These reclassifications had no impact on previously reported results of operations or
+shareholders’ equity and do not affect previously reported cash flows from operations, financing activities or net change in cash and equivalents. 
+61 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Recently Adopted Accounting Standards 
+On December 1, 2008, the Company adopted Statement of SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities —
+an amendment of FASB Statement No.133” (“FAS 161”), which provides revised guidance for enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and the related hedged items are
+accounted for under FAS 133, and how derivative instruments and the related hedged items affect an entity’s financial position, financial performance and cash flows. The adoption of FAS 161 did not have an impact on the Company’s
+consolidated financial position or results of operations. For additional information, see Note 18 — Risk Management and Derivatives. 
+On June 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“FAS 157”) for financial assets and liabilities, which clarifies the meaning of fair value, establishes a framework for measuring
+fair value and expands disclosures about fair value measurements. Fair value is defined under FAS 157 as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the
+assets or liabilities in an orderly transaction between market participants on the measurement date. Subsequent changes in fair value of these financial assets and liabilities are recognized in earnings or other comprehensive income when they
+occur. The effective date of the provisions of FAS 157 for non-financial assets and liabilities, except for items recognized at fair value on a recurring basis, was deferred by Financial Accounting Standards Board (“FASB”) Staff Position
+FAS 157-2 (“FSP FAS 157-2”) and are effective for the fiscal year beginning June 1, 2009. The adoption of FAS 157 for financial assets and liabilities did not have an impact on the Company’s consolidated financial position
+or results of operations. The adoption of FAS 157 for non-financial assets and liabilities is not expected to have an impact on the Company’s consolidated financial position or results of operations. For additional information on the fair
+value of financial assets and liabilities, see Note 6 — Fair Value Measurements. 
+Also effective June 1, 2008, the Company
+adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”), which allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for
+certain financial assets and liabilities on a contract-by-contract basis. As of May 31, 2009, the Company has not elected the fair value option for any additional financial assets and liabilities beyond those already prescribed by
+accounting principles generally accepted in the United States. 
+In October 2008, the FASB issued Staff Position No. FAS 157-3,
+“Determining the Fair Value of a Financial Asset in a Market That Is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3 clarifies the application of FAS 157 in a market that is not active and defines
+additional key criteria in determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS 157-3 applies to financial assets within the scope of accounting pronouncements that require
+or permit fair value measurements in accordance with FAS 157. FSP FAS 157-3 was effective upon issuance and the application of FSP FAS 157-3 did not have a material impact on the Company’s consolidated
+financial statements. 
+Recently Issued Accounting Standards 
+In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“FAS 165”), which establishes general standards of accounting and
+disclosure for events that occur after the balance sheet date but before financial statements are issued. The provisions of FAS 165 are effective for the quarter ending August 31, 2009. The Company does not expect the adoption will have a
+material impact on its consolidated financial position or results of operations. 
+In April 2009, the FASB issued Staff Position No. FAS
+107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”), which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, and APB
+Opinion No. 28, “Interim Financial 
+62 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Reporting”, to require disclosures about fair value of financial instruments in interim and annual reporting periods. The provisions of FSP FAS 107-1
+and APB 28-1 are effective for the quarter ending August 31, 2009. The Company does not expect the adoption will have an impact on its consolidated financial position or results of operations. 
+In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)”) and SFAS No. 160,
+“Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”). These standards aim to improve, simplify, and converge international standards of accounting for business combinations and the reporting of
+noncontrolling interests in consolidated financial statements. FAS 141(R) is effective for business combinations for which the acquisition date is on or after June 1, 2009. Generally, the effects of FAS 141(R) will depend on future
+acquisitions. FAS 160 is effective for the Company beginning June 1, 2009. The Company does not expect the adoption of FAS 160 will have a material impact on its consolidated financial position or results of operations. 
+In April 2008, the FASB issued Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS
+142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS 142. The intent of the position is to improve
+the consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected cash flows used to measure the fair value of the asset under FAS 141(R), and other U.S. generally accepted accounting
+principles. The provisions of FSP FAS 142-3 are effective for the fiscal year beginning June 1, 2009. The Company does not expect the adoption of FSP FAS 142-3 will have a material impact on its consolidated financial position or results
+of operations. 
+Note 2 — Inventories 
+Inventory balances of $2,357.0 million and $2,438.4 million at May 31, 2009 and 2008, respectively, were substantially all finished goods. 
+Note 3 — Property, Plant and Equipment 
+Property, plant and equipment includes the following: 
+As of May 31, 
+2009 
+2008 
+(In millions) 
+Land 
+$ 
+221.6 
+$ 
+209.4 
+Buildings 
+974.0 
+934.6 
+Machinery and equipment 
+2,094.3 
+2,005.0 
+Leasehold improvements 
+802.0 
+757.3 
+Construction in process 
+163.8 
+196.7 
+4,255.7 
+4,103.0 
+Less accumulated depreciation 
+2,298.0 
+2,211.9 
+$ 
+1,957.7 
+$ 
+1,891.1 
+Capitalized interest was not material for the years ended May 31, 2009, 2008 and 2007.
+63 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 4 — Acquisition, Identifiable Intangible Assets, Goodwill and Umbro Impairment 
+Acquisition 
+On March 3,
+2008, the Company completed its acquisition of 100% of the outstanding shares of Umbro, a leading United Kingdom-based global soccer brand, for a purchase price of 290.5 million British pounds sterling in cash (approximately $576.4 million),
+inclusive of direct transaction costs. This acquisition is intended to strengthen the Company’s market position in the United Kingdom and expand NIKE’s global leadership in soccer, a key area of growth for the Company. This acquisition
+also provides positions in emerging soccer markets such as China, Russia and Brazil. The results of Umbro’s operations have been included in the Company’s consolidated financial statements since the date of acquisition as part of the
+Company’s “Other” operating segment. 
+The acquisition of Umbro was accounted for as a purchase business combination in
+accordance with SFAS No. 141 “Business Combinations.” The purchase price was allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the date of
+acquisition, with the remaining purchase price recorded as goodwill. 
+Based on our preliminary purchase price allocation at May 31,
+2008, identifiable intangible assets and goodwill relating to the purchase approximated $419.5 million and $319.2 million, respectively. Goodwill recognized in this transaction is deductible for tax purposes. Identifiable intangible assets include
+$378.4 million for trademarks that have an indefinite life, and $41.1 million for other intangible assets consisting of Umbro’s sourcing network, established customer relationships, and the United Soccer League Franchise. These intangible
+assets will be amortized on a straight line basis over estimated lives of 12 to 20 years. 
+During the quarter ended February 28, 2009,
+the Company finalized the purchase-price accounting for Umbro and made revisions to preliminary estimates, including valuations of tangible and intangible assets and certain contingencies, as further evaluations were completed and information was
+received from third parties subsequent to the acquisition date. These revisions to preliminary estimates resulted in a $12.4 million decrease in the value of identified intangible assets, primarily Umbro’s sourcing network, and an $11.2 million
+increase in non-current liabilities, primarily related to liabilities assumed for certain contingencies and adjustments made to deferred taxes related to the fair value of assets acquired. These changes in assets acquired and liabilities assumed
+affect the amount of goodwill recorded. 
+The following table summarizes the allocation of the purchase price, including transaction costs
+of the acquisition, to the assets acquired and liabilities assumed at the date of acquisition based on their estimated fair values, including final purchase accounting adjustments (in millions): 
+May 31, 2008 
+Preliminary 
+Adjustments 
+May 31, 2009 
+Final 
+Current assets 
+$ 
+87.2 
+— 
+$ 
+87.2 
+Non-current assets 
+90.2 
+— 
+90.2 
+Identified intangible assets 
+419.5 
+(12.4 
+) 
+407.1 
+Goodwill 
+319.2 
+23.6 
+342.8 
+Current liabilities 
+(60.3 
+) 
+— 
+(60.3 
+) 
+Non-current liabilities 
+(279.4 
+) 
+(11.2 
+) 
+(290.6 
+) 
+Net assets acquired 
+$ 
+576.4 
+$ 
+— 
+$ 
+576.4 
+The pro forma effect of the acquisition on the combined results of operations for fiscal 2008 was
+not material. 
+64 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Umbro Impairment 
+In accordance with FAS 142 “Goodwill and Other Intangible Assets,” the Company performs annual impairment tests on goodwill and intangible
+assets with indefinite lives in the fourth quarter of each fiscal year, or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or intangible assets with an indefinite life below its
+carrying value. As a result of a significant decline in global consumer demand and continued weakness in the macroeconomic environment, as well as decisions by Company management to adjust planned investment in the Umbro brand, the Company concluded
+that sufficient indicators of impairment existed to require the performance of an interim assessment of Umbro’s goodwill and indefinite lived intangible assets as of February 1, 2009. Accordingly, the Company performed the first step of
+the goodwill impairment assessment for Umbro by comparing the estimated fair value of Umbro to its carrying amount, and determined there was a potential impairment of goodwill as the carrying amount exceeded the estimated fair value. Therefore, the
+Company performed the second step of the assessment which compared the implied fair value of Umbro’s goodwill to the book value of goodwill. The implied fair value of goodwill is determined by allocating the estimated fair value of Umbro to all
+of its assets and liabilities, including both recognized and unrecognized intangibles, in the same manner as goodwill was determined in the original business combination. 
+The Company measured the fair value of Umbro by using an equal weighting of the fair value implied by a discounted cash flow analysis and by comparisons with the market values of similar publicly traded companies. The
+Company believes the blended use of both models compensates for the inherent risk associated with either model if used on a stand-alone basis, and this combination is indicative of the factors a market participant would consider when performing a
+similar valuation. The fair value of Umbro’s indefinite-lived trademark was estimated using the relief from royalty method, which assumes that the trademark has value to the extent that Umbro is relieved of the obligation to pay royalties for
+the benefits received from the trademark. The assessments of the Company resulted in the recognition of impairment charges of $199.3 million and $181.3 million related to Umbro’s goodwill and trademark, respectively, during the third quarter
+ended February 28, 2009. A deferred tax benefit of $54.5 million was recognized as a result of the trademark impairment charge. In addition to the above impairment analysis, the Company determined an equity investment held by Umbro was
+impaired, and recognized a charge of $20.7 million related to the impairment of this investment. These charges are included in the Company’s “Other” category for segment reporting purposes. 
+The discounted cash flow analysis calculated the fair value of Umbro using management’s business plans and projections as the basis for expected
+cash flows for the next twelve years and a 3% residual growth rate thereafter. The Company used a weighted average discount rate of 14% in its analysis, which was derived primarily from published sources as well as our adjustment for increased
+market risk given current market conditions. Other significant estimates used in the discounted cash flow analysis include the rates of projected growth and profitability of Umbro’s business and working capital effects. The market valuation
+approach indicates the fair value of Umbro based on a comparison of Umbro to publicly traded companies in similar lines of business. Significant estimates in the market valuation approach include identifying similar companies with comparable
+business factors such as size, growth, profitability, mix of revenue generated from licensed and direct distribution and risk of return on investment. 
+Holding all other assumptions constant at the test date, a 100 basis point increase in the discount rate would reduce the adjusted carrying value of Umbro’s net assets by 12%. 
+65 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Identified Intangible Assets and Goodwill 
+All goodwill balances are included in the Company’s “Other” category for segment reporting purposes. The following table summarizes the
+Company’s goodwill balance as of May 31, 2009 and 2008 (in millions): 
+Goodwill, May 31, 2007 
+$ 130.8 
+Acquisition of Umbro Plc 
+319.2 
+Other (1) 
+(1.2 
+) 
+Goodwill, May 31, 2008 
+448.8 
+Purchase price adjustments 
+23.6 
+Impairment charge 
+(199.3 
+) 
+Other (1) 
+(79.6 
+) 
+Goodwill, May 31, 2009 
+$ 
+193.5 
+( 
+1 ) 
+Other consists of foreign currency translation adjustments on Umbro goodwill. 
+The following table summarizes the Company’s identifiable intangible asset balances as of May 31, 2009 and 2008. 
+May 31, 2009 
+May 31, 2008 
+Gross 
+Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net 
+Carrying 
+Amount 
+Gross 
+Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net 
+Carrying 
+Amount 
+(In millions) 
+Amortized intangible assets: 
+Patents 
+$ 
+56.6 
+$ 
+(17.2 
+) 
+$ 
+39.4 
+$ 
+47.5 
+$ 
+(14.4 
+) 
+$ 
+33.1 
+Trademarks 
+37.5 
+(10.9 
+) 
+26.6 
+13.2 
+(7.8 
+) 
+5.4 
+Other 
+40.0 
+(19.6 
+) 
+20.4 
+65.2 
+(19.7 
+) 
+45.5 
+Total 
+$ 
+134.1 
+$ 
+(47.7 
+) 
+$ 
+86.4 
+$ 
+125.9 
+$ 
+(41.9 
+) 
+$ 
+84.0 
+Unamortized intangible assets — Trademarks 
+$ 
+381.0 
+$ 
+659.1 
+Identifiable intangible assets, net 
+$ 
+467.4 
+$ 
+743.1 
+The effect of foreign exchange fluctuations for the year ended May 31, 2009 reduced
+unamortized intangible assets by approximately $98.2 million, resulting from the strengthening of the U.S. dollar in relation to the British pound sterling. 
+Amortization expense, which is included in selling and administrative expense, was $11.9 million, $9.2 million and $9.9 million for the years ended May 31, 2009, 2008, and 2007, respectively. The estimated
+amortization expense for intangible assets subject to amortization for each of the years ending May 31, 2010 through May 31, 2014 are as follows: 2010: $12.6 million; 2011: $12.2 million; 2012: $11.5 million; 2013: $9.6 million; 2014:
+$7.6 million. 
+During the year ended May 31, 2008, the gross carrying amount of unamortized and amortized trademarks were reduced by
+$59.6 million and $37.5 million, respectively, as a result of the Company’s divestitures of the Starter brand business and NIKE Bauer Hockey during the year ended May 31, 2008. See Note 17 — Divestitures for more
+information the Company’s divestitures. 
+66 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 5 — Accrued Liabilities 
+Accrued liabilities include the following: 
+May 31, 
+2009 
+2008 
+(In millions) 
+Compensation and benefits, excluding taxes 
+$ 
+491.9 
+$ 
+538.0 
+Endorser compensation 
+237.1 
+203.5 
+Taxes other than income taxes 
+161.9 
+147.6 
+Restructuring charges (1)
+149.6 
+— 
+Dividends payable 
+121.4 
+112.9 
+Advertising and marketing 
+97.6 
+121.4 
+Fair value of derivatives 
+68.9 
+173.3 
+Import and logistics costs 
+59.4 
+78.8 
+Other (2) 
+396.1 
+386.4 
+$ 
+1,783.9 
+$ 
+1,761.9 
+(1) 
+Accrued restructuring charges primarily
+consist of severance costs relating to the Company’s restructuring activities that took place during the fourth quarter of fiscal 2009. See Note 16 — Restructuring Charges for more information. 
+(2) 
+Other consists of various accrued expenses and no individual item accounted for more than 5% of the balance at May 31, 2009 or 2008.
+Note 6 — Fair Value Measurements 
+Effective June 1, 2008, the Company adopted FAS 157, “Fair Value Measurements” for financial assets and liabilities. FAS 157 establishes a hierarchy that prioritizes fair value
+measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). FAS 157 is applied under existing accounting pronouncements that require or permit fair value measurements
+and, accordingly, does not require any new fair value measurements. 
+The levels of hierarchy are described below: 
+• 
+Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. 
+• 
+Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar
+assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. 
+• 
+Level 3: Unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.
+The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety
+requires judgment and considers factors specific to the asset or liability. Financial assets and liabilities are classified in their entirety based on the most stringent level of input that is significant to the fair value measurement.
+The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring
+basis as of May 31, 2009 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. 
+67 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Fair Value Measurements Using 
+Assets /Liabilities at 
+Fair Value 
+Balance Sheet Classification 
+Level 1 
+Level 2 
+Level 3 
+(In millions) 
+Assets 
+Derivatives 
+$ 
+— 
+$ 
+378.7 
+$ 
+— 
+$ 
+378.7 
+Other current assets and other long-term assets 
+Available-for-sale securities 
+240.0 
+1,314.8 
+— 
+1,554.8 
+Cash equivalents 
+Available-for-sale securities 
+467.9 
+696.1 
+— 
+1,164.0 
+Short-term investments 
+Total assets 
+$ 
+707.9 
+$ 
+2,389.6 
+$ 
+— 
+$ 
+3,097.5 
+Liabilities 
+Derivatives 
+$ 
+— 
+$ 
+68.9 
+$ 
+— 
+$ 
+68.9 
+Accrued liabilities and other long-term liabilities 
+Total Liabilities 
+$ 
+— 
+$ 
+68.9 
+$ 
+— 
+$ 
+68.9 
+Derivative financial instruments include foreign currency forwards, option contracts and interest
+rate swaps. The fair value of these derivatives contracts is determined using observable market inputs such as the forward pricing curve, currency volatilities, currency correlations, and interest rates, and considers nonperformance risk of the
+Company and that of its counterparties. Adjustments relating to these risks were not material for the year ended May 31, 2009. 
+Available-for-sale securities are primarily comprised of investments in U.S. Treasury and agency securities, corporate commercial paper and bonds. These securities are valued using market prices on both active markets (level 1) and
+less active markets (level 2). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily-available
+pricing sources for comparable instruments. 
+The Company had no material Level 3 measurements as of May 31, 2009. 
+In accordance with the requirements of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, the Company annually discloses
+the fair value of its debt, which is recorded on the consolidated balance sheets at adjusted cost. Refer to Note 8 — Long-Term Debt for additional detail. 
+68 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 7 — Short-Term Borrowings and Credit Lines 
+Notes payable to banks and interest-bearing accounts payable to Sojitz Corporation of America (“Sojitz America”) as of May 31, 2009 and
+2008, are summarized below: 
+May 31, 
+2009 
+2008 
+Borrowings 
+Interest 
+Rate 
+Borrowings 
+Interest 
+Rate 
+(In millions) 
+Notes payable: 
+Commercial Paper 
+$ 
+100.0 
+0.40% 
+$ 
+— 
+— 
+U.S. operations 
+31.2 
+1.81% 
+(1) 
+18.6 
+0.00% 
+(1) 
+Non-U.S. operations 
+211.7 
+4.15% 
+(1) 
+159.1 
+6.80% 
+(1) 
+$ 
+342.9 
+$ 
+177.7 
+Sojitz America 
+$ 
+78.5 
+1.57% 
+$ 
+65.9 
+3.51% 
+(1) 
+Weighted average interest rate includes non-interest bearing overdrafts. 
+The carrying amounts reflected in the consolidated balance sheet for notes payable approximate fair value. 
+The Company purchases through Sojitz America certain athletic footwear, apparel and equipment it acquires from non-U.S. suppliers. These purchases are
+for the Company’s operations outside of the United States, the Europe, Middle East, and Africa Region and Japan. Accounts payable to Sojitz America are generally due up to 60 days after shipment of goods from the foreign port. The interest rate
+on such accounts payable is the 60-day London Interbank Offered Rate (“LIBOR”) as of the beginning of the month of the invoice date, plus 0.75%. 
+As of May 31, 2009, the Company had $100.0 million outstanding under its commercial paper program at a weighted average interest rate of 0.40%. No borrowings were outstanding at May 31, 2008. 
+In December 2006, the Company entered into a $1 billion revolving credit facility with a group of banks. The facility matures in December 2012. Based on
+the Company’s current long-term senior unsecured debt ratings of A+ and A1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively, the interest rate charged on any outstanding borrowings would be the
+prevailing LIBOR plus 0.15%. The facility fee is 0.05% of the total commitment. Under this agreement, the Company must maintain, among other things, certain minimum specified financial ratios with which the Company was in compliance at May 31,
+2009. No amounts were outstanding under this facility as of May 31, 2009 or 2008. 
+69 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 8 — Long-Term Debt 
+Long-term debt, net of unamortized premiums and discounts and swap fair value adjustments, is comprised of the following: 
+May 31, 
+2009 
+2008 
+(In millions) 
+5.375% Corporate Bond, payable July 8, 2009 
+$ 
+25.1 
+$ 
+25.5 
+5.66% Corporate Bond, payable July 23, 2012 
+27.4 
+26.1 
+5.4% Corporate Bond, payable August 7, 2012 
+16.2 
+15.4 
+4.7% Corporate Bond, payable October 1, 2013 
+50.0 
+50.0 
+5.15% Corporate Bonds, payable October 15, 2015 
+111.1 
+104.5 
+4.3% Japanese yen note, payable June 26, 2011 
+108.5 
+99.6 
+1.5% Japanese yen note, payable February 14, 2012 
+51.7 
+47.4 
+2.6% Japanese yen note, maturing August 20, 2001 through November 20, 2020 
+54.7 
+54.5 
+2.0% Japanese yen note, maturing August 20, 2001 through November 20, 2020 
+24.5 
+24.4 
+Total 
+469.2 
+447.4 
+Less current maturities 
+32.0 
+6.3 
+$ 
+437.2 
+$ 
+441.1 
+The scheduled maturity of long-term debt in each of the years ending May 31, 2010 through
+2014 are $32.0 million, $6.9 million, $167.1 million, $46.9 million and $56.9 million, at face value, respectively. 
+The fair value of
+long-term debt is estimated based upon quoted prices for similar instruments. The fair value of the Company’s long-term debt, including the current portion, was approximately $456.4 million at May 31, 2009 and $450.8 million at
+May 31, 2008. 
+In fiscal years 2003 and 2004, the Company issued a total of $240 million in medium-term notes of which $215 million,
+at face value, were outstanding at May 31, 2009 and 2008. The outstanding notes have coupon rates that range from 4.70% to 5.66% and maturity dates ranging from July 2009 to October 2015. For each of these notes, except the $50
+million note maturing in October 2013, the Company has entered into interest rate swap agreements whereby the Company receives fixed interest payments at the same rate as the notes and pays variable interest payments based on the three-month or
+six-month LIBOR plus a spread. Each swap has the same notional amount and maturity date as the corresponding note. At May 31, 2009, the interest rates payable on these swap agreements ranged from approximately 1.5% to 3.2%. 
+In June 1996, one of the Company’s Japanese subsidiaries, NIKE Logistics YK, borrowed ¥10.5 billion (approximately $108.5 million as of
+May 31, 2009) in a private placement with a maturity of June 26, 2011. Interest is paid semi-annually. The agreement provides for early retirement of the borrowing. 
+In July 1999, NIKE Logistics YK assumed a total of ¥13.0 billion in loans as part of its agreement to purchase a distribution center in Japan, which
+serves as collateral for the loans. These loans mature in equal quarterly installments during the period August 20, 2001 through November 20, 2020. Interest is also paid quarterly. As of May 31, 2009, ¥7.7 billion (approximately
+$79.2 million) in loans remain outstanding. 
+In February 2007, NIKE Logistics YK entered into a ¥5.0 billion (approximately $51.7
+million as of May 31, 2009) term loan that replaced certain intercompany borrowings and matures on February 14, 2012. The interest rate on the loan is approximately 1.5% and interest is paid semi-annually. 
+70 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 9 — Income Taxes 
+Income before income taxes is as follows: 
+Year Ended May 31, 
+2009 
+2008 
+2007 
+(In millions) 
+Income before income taxes: 
+United States 
+$ 
+845.7 
+$ 
+713.0 
+$ 
+805.1 
+Foreign 
+1,110.8 
+1,789.9 
+1,394.8 
+$ 
+1,956.5 
+$ 
+2,502.9 
+$ 
+2,199.9 
+The provision for income taxes is as follows: 
+Year Ended May 31, 
+2009 
+2008 
+2007 
+(In millions) 
+Current: 
+United States 
+Federal 
+$ 
+410.1 
+$ 
+469.9 
+$ 
+352.6 
+State 
+46.1 
+58.4 
+59.6 
+Foreign 
+307.7 
+391.8 
+261.9 
+763.9 
+920.1 
+674.1 
+Deferred: 
+United States 
+Federal 
+(251.4 
+) 
+(273.0 
+) 
+38.7 
+State 
+(7.9 
+) 
+(5.0 
+) 
+(4.8 
+) 
+Foreign 
+(34.8 
+) 
+(22.6 
+) 
+0.4 
+(294.1 
+) 
+(300.6 
+) 
+34.3 
+$ 
+469.8 
+$ 
+619.5 
+$ 
+708.4 
+71 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Deferred tax assets and (liabilities) are comprised of the following: 
+May 31, 
+2009 
+2008 
+(In millions) 
+Deferred tax assets: 
+Allowance for doubtful accounts 
+$ 
+17.9 
+$ 
+13.1 
+Inventories 
+52.8 
+49.2 
+Sales return reserves 
+52.8 
+49.2 
+Deferred compensation 
+160.9 
+158.4 
+Stock-based compensation 
+93.7 
+55.2 
+Reserves and accrued liabilities 
+66.7 
+57.0 
+Property, plant, and equipment 
+— 
+7.9 
+Foreign loss carry-forwards 
+31.9 
+40.1 
+Foreign tax credit carry-forwards 
+32.7 
+91.9 
+Hedges 
+1.1 
+42.9 
+Undistributed earnings of foreign subsidiaries 
+272.9 
+— 
+Other 
+46.2 
+40.5 
+Total deferred tax assets 
+829.6 
+605.4 
+Valuation allowance 
+(26.0 
+) 
+(40.7 
+) 
+Total deferred tax assets after valuation allowance 
+803.6 
+564.7 
+Deferred tax liabilities: 
+Undistributed earnings of foreign subsidiaries 
+— 
+(113.2 
+) 
+Property, plant and equipment 
+(92.2 
+) 
+(67.4 
+) 
+Intangibles 
+(100.7 
+) 
+(214.2 
+) 
+Hedges 
+(86.6 
+) 
+(1.3 
+) 
+Other 
+(4.2 
+) 
+(0.7 
+) 
+Total deferred tax liability 
+(283.7 
+) 
+(396.8 
+) 
+Net deferred tax asset 
+$ 
+519.9 
+$ 
+167.9 
+At the end of fiscal 2009, the Company reported a net deferred tax asset of $272.9 million
+associated with its investment in certain non-U.S. subsidiaries. Prior to fiscal 2009, the Company reported a net deferred tax liability for book to tax differences in its investment in non-U.S. subsidiaries. The change to a deferred tax asset
+position at the end of fiscal 2009 is due primarily to the impact of the impairment of Umbro’s goodwill, intangible and other assets as described in Note 4 — Acquisition, Identifiable Intangible Assets, Goodwill and Umbro Impairment.
+A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate follows: 
+Year Ended May 31, 
+2009 
+2008 
+2007 
+Federal income tax rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State taxes, net of federal benefit 
+1.2 
+% 
+1.4 
+% 
+1.6 
+% 
+Foreign earnings 
+-14.9 
+% 
+-12.9 
+% 
+-4.1 
+% 
+Other, net 
+2.7 
+% 
+1.3 
+% 
+-0.3 
+% 
+Effective income tax rate 
+24.0 
+% 
+24.8 
+% 
+32.2 
+% 
+72 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The effective tax rate for the year ended May 31, 2009 of 24.0% decreased from the fiscal 2008
+effective tax rate of 24.8%. The effective tax rate for the year ended May 31, 2009 was favorably impacted by a benefit associated with the impairment of goodwill, intangible, and other assets of Umbro (see Note 4 — Acquisition,
+Identifiable Intangible Assets, Goodwill and Umbro Impairment), the impact of the resolution of audit items and the retroactive reinstatement of the research and development tax credit. The Tax Extenders and Alternative Minimum Tax Relief Act
+of 2008, which was signed into law during the second quarter of fiscal 2009, reinstated the U.S. federal research and development tax credit retroactive to January 1, 2008. The effective tax rate for the year ended May 31, 2008 of
+24.8% decreased from the fiscal 2007 effective tax rate of 32.2%. Over the few years preceding fiscal 2008, a number of international entities generated losses for which the Company did not recognize offsetting tax benefits because the realization
+of those benefits was uncertain. The necessary steps to realize these benefits were taken in the first quarter of fiscal 2008, resulting in a one-time reduction of the effective tax rate for the year ended May 31, 2008. Also reflected in the
+effective tax rate for the years ended May 31, 2009 and May 31, 2008 is a reduction in our on-going effective tax rate resulting from our operations outside of the United States, as our tax rates on those operations are generally lower
+than the U.S. statutory rate. 
+The Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
+(“FIN 48”) effective June 1, 2007. Upon adoption, the Company recognized an additional long-term liability of $89.4 million for unrecognized tax benefits, $15.6 million of which was recorded as a reduction to the Company’s
+beginning retained earnings, and the remaining $73.8 million was recorded as a reduction to the Company’s noncurrent deferred tax liability. In addition, the Company reclassified $12.2 million of unrecognized tax benefits from income taxes
+payable to other long term liabilities in conjunction with the adoption of FIN 48. 
+At the adoption date of June 1, 2007, the Company
+had $122.5 million of gross unrecognized tax benefits, excluding related interest and penalties, $30.7 million of which would affect the Company’s effective tax rate if recognized in future periods. Including related interest and penalties and
+net of federal benefit of interest and unrecognized state tax benefits, at June 1, 2007, the Company had $135.0 million of total unrecognized tax benefits, $52.0 million of which would affect the Company’s effective tax rate if recognized
+in future periods. As of May 31, 2009, the total gross unrecognized tax benefits, excluding related interest and penalties, were $273.9 million, $110.6 million of which would affect the Company’s effective tax rate if recognized in future
+periods. Total gross unrecognized tax benefits, excluding interest and penalties, as of May 31, 2008 was $251.1 million, $60.6 million of which would affect the Company’s effective tax rate if recognized in future periods. The Company does
+not anticipate total unrecognized tax benefits will change significantly within the next 12 months. 
+The following is a reconciliation of
+the changes in the gross balance of unrecognized tax benefits: 
+May 31, 
+2009 
+2008 
+(In millions) 
+Unrecognized tax benefits, as of the beginning of the period 
+$ 
+251.1 
+$ 
+122.5 
+Gross increases related to prior period tax positions 
+53.2 
+71.6 
+Gross decreases related to prior period tax positions 
+(61.7 
+) 
+(23.1 
+) 
+Gross increases related to current period tax positions 
+71.5 
+87.7 
+Settlements 
+(29.3 
+) 
+(13.4 
+) 
+Lapse of statute of limitations 
+(4.1 
+) 
+(0.7 
+) 
+Changes due to currency translation 
+(6.8 
+) 
+6.5 
+Unrecognized tax benefits, as of the end of the period 
+$ 
+273.9 
+$ 
+251.1 
+73 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The Company recognizes interest and penalties related to income tax matters in income tax expense.
+Upon adoption of FIN 48 at June 1, 2007, the Company had $32.0 million (excluding federal benefit) accrued for interest and penalties related to uncertain tax positions. The liability for payment of interest and penalties increased $2.2 million
+and $41.2 million during the years ended May 31, 2009 and 2008, respectively. As of May 31, 2009 and 2008, accrued interest and penalties related to uncertain tax positions was $75.4 million and $73.2 million, respectively (excluding
+federal benefit). 
+The Company is subject to taxation primarily in the United States, China and the Netherlands as well as various state
+and other foreign jurisdictions. The Company has concluded substantially all U.S. federal income tax matters through fiscal year 2006. The Company is currently subject to examination by the Internal Revenue Service for the 2007, 2008 and 2009 tax
+years. The Company’s major foreign jurisdictions, China and the Netherlands, have concluded substantially all income tax matters through calendar year 1998 and fiscal year 2002, respectively. 
+The Company has indefinitely reinvested approximately $2.6 billion of the cumulative undistributed earnings of certain foreign subsidiaries. Such
+earnings would be subject to U.S. taxation if repatriated to the U.S. Determination of the amount of unrecognized deferred tax liability associated with the permanently reinvested cumulative undistributed earnings is not practicable. 
+Deferred tax assets at May 31, 2009 and 2008, respectively, were reduced by a valuation allowance relating to tax benefits of certain foreign
+subsidiaries with operating losses where it is more likely than not that the deferred tax assets will not be realized. The net change in the valuation allowance was a decrease of $14.7 million during fiscal 2009 and a decrease of $1.6 million
+during fiscal 2008. 
+The Company does not anticipate any foreign tax credit carry-forwards will expire. A benefit was recognized for
+foreign loss carry-forwards of $13.1 million at May 31, 2009. Such losses will expire as follows: 
+Year Ending 
+May 31, 2014 
+Indefinite 
+(In millions) 
+Net Operating Losses 
+$ 
+2.2 
+$ 
+10.9 
+During the years ended May 31, 2009, 2008, and 2007, income tax benefits attributable to
+employee stock-based compensation transactions of $25.4 million, $68.9 million, and $56.6 million, respectively, were allocated to shareholders’ equity. 
+Note 10 — Redeemable Preferred Stock 
+Sojitz America is the sole owner of the Company’s authorized Redeemable
+Preferred Stock, $1 par value, which is redeemable at the option of Sojitz America or the Company at par value aggregating $0.3 million. A cumulative dividend of $0.10 per share is payable annually on May 31 and no dividends may be declared or
+paid on the common stock of the Company unless dividends on the Redeemable Preferred Stock have been declared and paid in full. There have been no changes in the Redeemable Preferred Stock in the three years ended May 31, 2009, 2008 and 2007.
+As the holder of the Redeemable Preferred Stock, Sojitz America does not have general voting rights but does have the right to vote as a separate class on the sale of all or substantially all of the assets of the Company and its subsidiaries, on
+merger, consolidation, liquidation or dissolution of the Company or on the sale or assignment of the NIKE trademark for athletic footwear sold in the United States. 
+74 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 11 — Common Stock and Stock-Based Compensation 
+The authorized number of shares of Class A Common Stock, no par value, and Class B Common Stock, no par value, are 175 million and
+750 million, respectively. Each share of Class A Common Stock is convertible into one share of Class B Common Stock. Voting rights of Class B Common Stock are limited in certain circumstances with respect to the election of directors.
+In 1990, the Board of Directors adopted, and the shareholders approved, the NIKE, Inc. 1990 Stock Incentive Plan (the “1990
+Plan”). The 1990 Plan provides for the issuance of up to 132 million previously unissued shares of Class B Common Stock in connection with stock options and other awards granted under the plan. The 1990 Plan authorizes the grant of
+non-statutory stock options, incentive stock options, stock appreciation rights, stock bonuses and the issuance and sale of restricted stock. The exercise price for non-statutory stock options, stock appreciation rights and the grant price of
+restricted stock may not be less than 75% of the fair market value of the underlying shares on the date of grant. The exercise price for incentive stock options may not be less than the fair market value of the underlying shares on the date of
+grant. A committee of the Board of Directors administers the 1990 Plan. The committee has the authority to determine the employees to whom awards will be made, the amount of the awards, and the other terms and conditions of the awards. The committee
+has granted substantially all stock options at 100% of the market price on the date of grant. Substantially all stock option grants outstanding under the 1990 plan were granted in the first quarter of each fiscal year, vest ratably over four years,
+and expire 10 years from the date of grant. 
+The following table summarizes the Company’s total stock-based compensation expense
+recognized in selling and administrative expense: 
+Year Ended May 31, 
+2009 
+2008 
+2007 
+(In millions) 
+Stock options (1) 
+$ 
+128.8 
+$ 
+127.0 
+$ 
+134.9 
+ESPPs 
+14.4 
+7.2 
+7.0 
+Restricted stock 
+7.9 
+6.8 
+5.8 
+Subtotal 
+151.1 
+141.0 
+147.7 
+Stock options and restricted stock expense — restructuring (2) 
+19.5 
+— 
+— 
+Total stock-based compensation expense 
+$ 
+170.6 
+$ 
+141.0 
+$ 
+147.7 
+(1) 
+In accordance with FAS 123R, stock-based compensation expense reported during the years ended May 31, 2009, 2008 and 2007 includes $56.3 million, $40.7 million
+and $36.3 million, respectively, of accelerated stock-based compensation expense recorded for employees eligible for stock option vesting upon retirement. 
+(2) 
+In connection with the restructuring activities that took place during the fourth quarter of fiscal 2009, the Company recognized stock-based compensation expense
+relating to the modification of stock option agreements, allowing for an extended post-termination exercise period, and accelerated vesting of restricted stock as part of severance packages. See Note 16 — Restructuring Charges
+for further details. 
+As of May 31, 2009, the Company had $82.3 million of unrecognized compensation costs from
+stock options, net of estimated forfeitures, to be recognized as selling and administrative expense over a weighted average period of 2.0 years. 
+75 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The weighted average fair value per share of the options granted during the years ended May 31,
+2009, 2008 and 2007, as computed using the Black-Scholes pricing model, was $17.13, $13.87 and $8.80, respectively. The weighted average assumptions used to estimate these fair values are as follows: 
+Year Ended May 31, 
+2009 
+2008 
+2007 
+Dividend yield 
+1.5 
+% 
+1.4 
+% 
+1.6 
+% 
+Expected volatility 
+32.5 
+% 
+20.0 
+% 
+19.0 
+% 
+Weighted average expected life (in years) 
+5.0 
+5.0 
+5.0 
+Risk-free interest rate 
+3.4 
+% 
+4.8 
+% 
+5.0 
+% 
+The Company estimates the expected volatility based on the implied volatility in market traded
+options on the Company’s common stock with a term greater than one year, along with other factors. The weighted average expected life of options is based on an analysis of historical and expected future exercise patterns. The interest rate is
+based on the U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options. 
+The following summarizes the stock option transactions under the plan discussed above: 
+Shares 
+Weighted 
+Average 
+Option 
+Price 
+(In millions) 
+Options outstanding May 31, 2006 
+40.4 
+$ 
+32.31 
+Exercised 
+(10.7 
+) 
+27.55 
+Forfeited 
+(1.6 
+) 
+37.17 
+Granted 
+11.6 
+39.54 
+Options outstanding May 31, 2007 
+39.7 
+$ 
+35.50 
+Exercised 
+(9.1 
+) 
+33.45 
+Forfeited 
+(0.9 
+) 
+44.44 
+Granted 
+6.9 
+58.50 
+Options outstanding May 31, 2008 
+36.6 
+$ 
+40.14 
+Exercised 
+(4.0 
+) 
+35.70 
+Forfeited 
+(1.3 
+) 
+51.19 
+Granted 
+7.5 
+58.17 
+Options outstanding May 31, 2009 
+38.8 
+$ 
+43.69 
+Options exercisable at May 31, 
+2007 
+15.3 
+$ 
+29.52 
+2008 
+16.2 
+32.35 
+2009 
+21.4 
+36.91 
+The weighted average contractual life remaining for options outstanding and options exercisable at
+May 31, 2009 was 6.3 years and 5.0 years, respectively. The aggregate intrinsic value for options outstanding and exercisable at May 31, 2009 was $535.6 million and $433.5 million, respectively. The aggregate intrinsic value was the amount
+by which the market value of the underlying stock exceeded the exercise price of the options. The total intrinsic value of the options exercised during the years ended May 31, 2009, 2008 and 2007 was $108.4 million, $259.4 million and $204.9
+million, respectively. 
+76 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+In addition to the 1990 Plan, the Company gives employees the right to purchase shares at a discount
+to the market price under employee stock purchase plans (“ESPPs”). Employees are eligible to participate through payroll deductions up to 10% of their compensation. At the end of each six-month offering period, shares are purchased by the
+participants at 85% of the lower of the fair market value at the beginning or the ending of the offering period. Employees purchased 1.0 million shares, 0.8 million shares, and 0.8 million shares during the years ended May 31,
+2009, 2008 and 2007, respectively. 
+From time to time, the Company grants restricted stock and unrestricted stock to key employees under
+the 1990 Plan. The number of shares granted to employees during the years ended May 31, 2009, 2008 and 2007 were 75,000, 110,000 and 345,000 with weighted average values per share of $56.97, $59.50 and $39.38, respectively. Recipients of
+restricted shares are entitled to cash dividends and to vote their respective shares throughout the period of restriction. The value of all of the granted shares was established by the market price on the date of grant. During the years ended
+May 31, 2009, 2008 and 2007, the fair value of restricted shares vested was $9.9 million, $9.0 million and $5.5 million, respectively, determined as of the date of vesting. 
+During the year ended May 31, 2007, the Company also granted shares of stock under the Long-Term Incentive Plan (“LTIP”), adopted by the
+Board of Directors and approved by shareholders in September 1997. During the year ended May 31, 2007, LTIP participants agreed to amend their grant agreements to eliminate the ability to receive payments in shares of stock; shares of stock are
+no longer awarded. Prior to the amendment, the LTIP provided for the issuance of cash or up to 2.0 million shares of Class B Common Stock to certain executives based on performance targets established over three-year time periods. Once
+performance targets are achieved, cash or shares of stock are issued. The shares are immediately vested upon grant. The value of the shares is established by the market price on the date of issuance. Under the LTIP, 3,000 shares with a price of
+$38.84 were issued during the year ended May 31, 2007 for the plan year ended May 31, 2006. Compensation expense recognized relating to shares issued during the year ended May 31, 2007 was not material. The Company recognized $17.6
+million, $35.9 million and $30.0 million of selling and administrative expense related to the cash awards during the years ended May 31, 2009, 2008 and 2007, respectively. 
+Note 12 — Earnings Per Share 
+The following represents a reconciliation from basic earnings per
+common share to diluted earnings per common share. Options to purchase an additional 13.2 million, 6.6 million and 9.5 million shares of common stock were outstanding at May 31, 2009, 2008 and 2007, respectively, but were not
+included in the computation of diluted earnings per share because the options were antidilutive. 
+Year Ended May 31, 
+2009 
+2008 
+2007 
+(In millions, except per share data) 
+Determination of shares: 
+Weighted average common shares outstanding 
+484.9 
+495.6 
+503.8 
+Assumed conversion of dilutive stock options and awards 
+5.8 
+8.5 
+6.1 
+Diluted weighted average common shares outstanding 
+490.7 
+504.1 
+509.9 
+Basic earnings per common share 
+$ 
+3.07 
+$ 
+3.80 
+$ 
+2.96 
+Diluted earnings per common share 
+$ 
+3.03 
+$ 
+3.74 
+$ 
+2.93 
+77 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 13 — Benefit Plans 
+The Company has a profit sharing plan available to most U.S.-based employees. The terms of the plan call for annual contributions by the Company as determined by the Board of Directors. A subsidiary of the Company
+also has a profit sharing plan available to its U.S.-based employees. The terms of the plan call for annual contributions as determined by the subsidiary’s executive management. Contributions of $27.6 million, $37.3 million, and
+$31.8 million were made to the plans and are included in selling and administrative expense for the years ended May 31, 2009, 2008 and 2007, respectively. The Company has various 401(k) employee savings plans available to U.S.-based
+employees. The Company matches a portion of employee contributions with common stock or cash. Company contributions to the savings plans were $37.6 million, $33.9 million, and $24.9 million for the years ended May 31, 2009, 2008 and 2007,
+respectively, and are included in selling and administrative expense. 
+The Company has pension plans in various countries worldwide. The
+pension plans are only available to local employees and are generally government mandated. The liability related to the unfunded pension liabilities of the plans was $82.8 million and $90.6 million at May 31, 2009 and 2008, respectively. Upon
+adoption of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“FAS 158”) on May 31, 2007, the Company recorded a liability of $17.6 million related to the
+unfunded pension liabilities of the plans. 
+Note 14 — Accumulated Other Comprehensive Income 
+The components of accumulated other comprehensive income, net of tax, are as follows: 
+May 31, 
+2009 
+2008 
+(In millions) 
+Cumulative translation adjustment and other 
+$ 
+64.6 
+$ 
+399.9 
+Net deferred gain (loss) on net investment hedge derivatives 
+62.5 
+(43.5 
+) 
+Net deferred gain (loss) on cash flow hedge derivatives 
+240.4 
+(105.0 
+) 
+$ 
+367.5 
+$ 
+251.4 
+Note 15 — Commitments and Contingencies 
+The Company leases space for certain of its offices, warehouses and retail stores under leases expiring from one to twenty-five years after May 31,
+2009. Rent expense was $397.0 million, $344.2 million and $285.2 million for the years ended May 31, 2009, 2008 and 2007, respectively. Amounts of minimum future annual rental commitments under non-cancelable operating leases in each of the
+five years ending May 31, 2010 through 2014 are $330.2 million, $281.3 million, $233.6 million, $195.6 million, $168.6 million, respectively, and $588.5 million in later years. 
+As of May 31, 2009 and 2008, the Company had letters of credit outstanding totaling $154.8 million and $193.4 million, respectively. These letters
+of credit were generally issued for the purchase of inventory. 
+In connection with various contracts and agreements, the Company provides
+routine indemnifications relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items that fall under the scope of FASB Interpretation No. 45, “Guarantor’s Accounting and
+Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Currently, the Company has several 
+78 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+such agreements in place. However, based on the Company’s historical experience and the estimated probability of future loss, the Company has determined
+that the fair value of such indemnifications is not material to the Company’s financial position or results of operations. 
+In the
+ordinary course of its business, the Company is involved in various legal proceedings involving contractual and employment relationships, product liability claims, trademark rights, and a variety of other matters. The Company does not believe there
+are any pending legal proceedings that will have a material impact on the Company’s financial position or results of operations. 
+Note 16 —
+Restructuring Charges 
+During the fourth quarter of fiscal 2009, the Company took necessary steps to streamline its management
+structure, enhance consumer focus, drive innovation more quickly to market and establish a more scalable, long-term cost structure. As a result, the Company reduced its global workforce by approximately 5% and incurred pre-tax restructuring charges
+of $195 million, primarily consisting of severance costs related to the workforce reduction. As nearly all of the restructuring activities were completed in the fourth quarter of fiscal 2009, the Company does not expect to recognize additional costs
+in future periods relating to these actions. The restructuring charge is reflected in the corporate expense line in the segment presentation of pre-tax income in Note 19 — Operating Segments and Related Information. 
+The activity in the restructuring accrual for the year ended May 31, 2009 is as follows (in millions): 
+Restructuring accrual — June 1, 2008 
+$ 
+— 
+Severance and related costs 
+195.0 
+Cash payments 
+(29.4 
+) 
+Non-cash stock option and restricted stock expense 
+(19.5 
+) 
+Foreign currency translation and other 
+3.5 
+Restructuring accrual — May 31, 2009 
+$ 
+149.6 
+The accrual balance as of May 31, 2009 will be relieved throughout fiscal year 2010 and early
+2011, as severance payments are completed. The restructuring accrual is included in Accrued liabilities in the Consolidated Balance Sheet. 
+As part of its restructuring activities, the Company reorganized its NIKE brand operations geographic structure. In fiscal 2009, 2008 and 2007, NIKE brand operations were organized into the following four geographic regions: U.S., Europe,
+Middle East and Africa (collectively, “EMEA”), Asia Pacific, and Americas. In the fourth quarter of 2009, the Company initiated a reorganization of the NIKE Brand business into a new operating model. As a result of this
+reorganization, beginning in the first quarter of fiscal 2010, the NIKE brand operations will consist of the following six geographies: North America, Western Europe, Central/Eastern Europe, Greater China, Japan, and Emerging Markets. 
+Note 17 — Divestitures 
+On December 17,
+2007, the Company completed the sale of the Starter brand business to Iconix Brand Group, Inc. for $60.0 million in cash. This transaction resulted in a gain of $28.6 million during the year ended May 31, 2008. 
+79 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+On April 17, 2008, the Company completed the sale of NIKE Bauer Hockey for $189.2 million in
+cash to a group of private investors (“the Buyer”). The sale resulted in a net gain of $32.0 million recorded in the fourth quarter of the year ended May 31, 2008. This gain included the recognition of a $46.3 million cumulative
+foreign currency translation adjustment previously included in accumulated other comprehensive income. As part of the terms of the sale agreement, the Company granted the Buyer a royalty free limited license for the use of certain NIKE trademarks
+for a transitional period of approximately two years. The Company deferred $41.0 million of the sale proceeds related to this license agreement, to be recognized over the license period. 
+The gains resulting from these divestitures are reflected in other (income) expense, net and in the corporate expense line in the segment presentation of
+pre-tax income in Note 19 — Operating Segments and Related Information. 
+Note 18 — Risk Management and Derivatives 
+The Company is exposed to global market risks, including the effect of changes in foreign currency exchange rates and interest rates, and uses derivatives
+to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading purposes. 
+The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. This process includes linking all derivatives to either
+specific firm commitments, forecasted transactions or net investments. The Company also enters into foreign exchange forwards to mitigate the change in fair value of specific assets and liabilities on the balance sheet; these are not designated as
+hedging instruments under FAS 133. Accordingly, changes in the fair value of hedges of recorded balance sheet positions are recognized immediately in other (income) expense, net, on the income statement together with the transaction gain or loss
+from the hedged balance sheet position. 
+Substantially all derivatives outstanding as of May 31, 2009 are designated as either cash
+flow, fair value or net investment hedges. All derivatives are recognized on the balance sheet at their fair value and classified based on the instrument’s maturity date. The total notional amount of outstanding derivatives as of May 31,
+2009 was $7.1 billion, which is primarily comprised of cash flow hedges denominated in Euro, Japanese yen and British pound. 
+80 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The following table presents the fair values of derivative instruments included within the
+consolidated balance sheet as of May 31, 2009: 
+Asset Derivatives 
+Liability Derivatives 
+Balance Sheet Location 
+Fair Value 
+Balance Sheet Location 
+Fair Value 
+(In millions) 
+Derivatives designated as hedging instruments under FAS 133: 
+Foreign exchange forwards and options 
+Prepaid expenses and 
+other current assets 
+$ 
+270.4 
+Accrued liabilities 
+$ 
+— 
+Interest rate swap contracts 
+Prepaid expenses and 
+other current assets 
+0.1 
+Accrued liabilities 
+— 
+Foreign exchange forwards and options 
+Deferred income 
+taxes and other 
+assets 
+81.3 
+Deferred income taxes 
+and other liabilities 
+34.6 
+Interest rate swap contracts 
+Deferred income 
+taxes and other 
+assets 
+13.7 
+Deferred income taxes 
+and other liabilities 
+— 
+Total derivatives designated as hedging instruments under FAS 133 
+365.5 
+34.6 
+Derivatives not designated as hedging instruments under FAS 133: 
+Foreign exchange forwards and options 
+Prepaid expenses and 
+other current assets 
+$ 
+12.8 
+Accrued liabilities 
+$ 
+34.3 
+Foreign exchange forwards and options 
+Deferred income 
+taxes and other 
+assets 
+0.4 
+Deferred income taxes 
+and other liabilities 
+— 
+Total derivatives not designated as hedging instruments under FAS 133 
+13.2 
+34.3 
+Total derivatives 
+$ 
+378.7 
+$ 
+68.9 
+81 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The following tables present the amounts affecting the consolidated statement of income for year
+ended May 31, 2009: 
+Amount of Gain 
+(Loss) 
+Recognized in 
+Other Comprehensive 
+Income on 
+Derivatives (1) 
+Amount of Gain (Loss) Reclassified 
+From
+Accumulated Other 
+Comprehensive Income into Income (1) 
+Derivatives designated under FAS 133 
+Year Ended May 31, 
+2009 
+Location of Gain (Loss) Reclassified 
+From Accumulated
+Other 
+Comprehensive Income 
+Into Income (1) 
+Year Ended May 31, 
+2009 
+(In millions) 
+Derivatives designated as cash flow hedges: 
+Foreign exchange forwards and options 
+$ 
+106.3 
+Revenue 
+$ 
+92.7 
+Foreign exchange forwards and options 
+350.1 
+Cost of sales 
+(13.5 
+) 
+Foreign exchange forwards and options 
+(0.4 
+) 
+Selling and 
+administrative 
+expense 
+0.8 
+Foreign exchange forwards and options 
+165.1 
+Other income 
+(expense) 
+67.8 
+Total designated cash flow hedges 
+$ 
+621.1 
+$ 
+147.8 
+Derivatives designated as net investment hedges: 
+Foreign exchange forwards and options 
+$ 
+161.4 
+Other income 
+(expense) 
+$ 
+— 
+( 
+1 ) 
+For the year ended May 31, 2009, the Company recorded in other (income) expense, net an immaterial amount of ineffectiveness from cash flow hedges.
+Amount of Gain 
+(Loss) recognized in 
+Income on 
+Derivatives 
+Year Ended May 31, 
+2009 
+Location of Gain (Loss) Recognized 
+in Income on Derivatives 
+(In millions) 
+Derivatives designated as fair value hedges: 
+Interest rate swaps (1) 
+$ 
+1.5 
+Interest income (expense) 
+Derivatives not designated as hedging instruments under FAS 133: 
+Foreign exchange forwards and options 
+$ 
+(83.0) 
+Other income (expense) 
+( 
+1 ) 
+Substantially all interest rate swap agreements meet the shortcut method requirements under FAS 133; accordingly, changes in the fair values of the interest rate
+swap agreements are exactly offset by changes in the fair value of the underlying long-term debt. Refer to section “Fair Value Hedges” for additional detail. 
+Refer to Note 5 — Accrued Liabilities for derivative instruments recorded in accrued liabilities, Note 6 — Fair Value
+Measurements for a description of how the above financial instruments are valued in accordance with FAS 157, Note 14 — Accumulated Other Comprehensive Income and the Consolidated Statement of Shareholders’ Equity for additional information
+on changes in other comprehensive income for the year ended May 31, 2009. 
+82 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Cash Flow Hedges 
+The purpose of the Company’s foreign currency hedging activities is to protect the Company from the risk that the eventual cash flows resulting from
+transactions in foreign currencies, including revenues, product costs, selling and administrative expenses, investments in U.S. dollar-denominated available-for-sale debt securities and payments related to intercompany transactions, will be
+adversely affected by changes in exchange rates. It is the Company’s policy to utilize derivatives to reduce foreign exchange risks where internal netting strategies cannot be effectively employed. Hedged transactions are denominated primarily
+in Euro, Japanese yen and British pound. The Company hedges up to 100% of anticipated exposures typically twelve to eighteen months in advance, but has hedged as much as 34 months in advance. 
+All changes in fair values of outstanding cash flow hedge derivatives, except the ineffective portion, are recorded in other comprehensive income, until
+net income is affected by the variability of cash flows of the hedged transaction. In most cases, amounts recorded in other comprehensive income will be released to net income some time after the maturity of the related derivative. The consolidated
+statement of income classification of effective hedge results is the same as that of the underlying exposure. Results of hedges of revenue and product costs are recorded in revenue and cost of sales, respectively, when the underlying hedged
+transaction affects net income. Results of hedges of selling and administrative expense are recorded together with those costs when the related expense is recorded. Results of hedges of anticipated purchases and sales of U.S. dollar-denominated
+available-for-sale securities are recorded in other (income) expense, net when the securities are sold. Results of hedges of anticipated intercompany transactions are recorded in other (income) expense, net when the transaction occurs. 
+Premiums paid on options are initially recorded as deferred charges. The Company assesses the effectiveness of options based on the total cash flows
+method and records total changes in the options’ fair value to other comprehensive income to the degree they are effective. 
+As of
+May 31, 2009, $132.0 million of deferred net gains (net of tax) on both outstanding and matured derivatives accumulated in other comprehensive income are expected to be reclassified to net income during the next twelve months as a result of
+underlying hedged transactions also being recorded in net income. Actual amounts ultimately reclassified to net income are dependent on the exchange rates in effect when derivative contracts that are currently outstanding mature. As of May 31,
+2009, the maximum term over which the Company is hedging exposures to the variability of cash flows for its forecasted and recorded transactions is 23 months. 
+The Company formally assesses both at a hedge’s inception and on an ongoing basis, whether the derivatives that are used in the hedging transaction have been highly effective in offsetting changes in the cash
+flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. Effectiveness for cash flow hedges is assessed based on forward rates. When it is determined that a derivative is not, or has ceased to
+be, highly effective as a hedge, the Company discontinues hedge accounting prospectively. 
+The Company discontinues hedge accounting
+prospectively when (i) it determines the derivative is no longer highly effective in offsetting changes in the cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (ii) the derivative
+expires or is sold, terminated, or exercised; (iii) it is no longer probable that the forecasted transaction will occur; or (iv) management determines that designating the derivative as a hedging instrument is no longer appropriate.
+83 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+When the Company discontinues hedge accounting because it is no longer probable that the forecasted
+transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified to net income when the forecasted transaction affects net income. However, if it is
+probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be
+recognized immediately in net income. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing future changes in the
+fair value in other (income) expense, net. For the years ended May 31, 2009, 2008 and 2007, the Company recorded in other (income) expense an immaterial amount of ineffectiveness from cash flow hedges. 
+Fair Value Hedges 
+The Company
+is also exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in interest rates. Derivatives currently used by the Company to hedge this risk are receive-fixed, pay-variable interest rate swaps. As of
+May 31, 2009, all interest rate swap agreements are designated as fair value hedges of the related long-term debt and meet the shortcut method requirements under FAS 133. Accordingly, changes in the fair values of the interest rate swap agreements
+are exactly offset by changes in the fair value of the underlying long-term debt. No ineffectiveness has been recorded to net income related to interest rate swaps designated as fair value hedges for the years ended May 31, 2009, 2008 and 2007.
+In fiscal 2003, the Company entered into a receive-floating, pay-fixed interest rate swap agreement related to a Japanese yen denominated
+intercompany loan with one of the Company’s Japanese subsidiaries. This interest rate swap was not designated as a hedge under FAS 133. Accordingly, changes in the fair value of the swap were recorded to net income each period through maturity
+as a component of interest (income) expense, net. Both the intercompany loan and the related interest rate swap matured during fiscal 2009. 
+Net Investment Hedges 
+The Company also hedges the risk of variability in foreign-currency-denominated net
+investments in wholly-owned international subsidiaries. All changes in fair value of the derivatives designated as net investment hedges, except ineffective portions, are reported in the cumulative translation adjustment component of other
+comprehensive income along with the foreign currency translation adjustments on those investments. The Company assesses hedge effectiveness based on changes in forward rates. The Company recorded no ineffectiveness from its net investment hedges for
+the years ended May 31, 2009 and 2008. 
+Credit Risk 
+The Company is exposed to credit-related losses in the event of non-performance by counterparties to hedging instruments. This credit risk is limited to
+the unrealized gains in such instruments should any of these counterparties fail to perform as contracted. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However, this does
+not eliminate the Company’s exposure to credit risk with these institutions. To manage this risk, the Company has established strict counterparty credit guidelines that are continually monitored and reported to senior management according to
+prescribed guidelines. The Company utilizes a portfolio of financial institutions either headquartered or operating in the same countries the Company conducts its business. As a result of the above considerations, the Company considers the risk of
+counterparty default to be immaterial. 
+84 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Certain of the Company’s derivative instruments contain credit risk related contingent features.
+As of May 31, 2009, the Company was in compliance with all such credit risk related contingent features. The aggregate fair value of derivative instruments with credit risk related contingent features that are in a net liability position at
+May 31, 2009 was $15.2 million. The Company was not required to post any collateral as a result of these contingent features. 
+Note 19 —
+Operating Segments and Related Information 
+Operating Segments. The Company’s operating segments are
+evidence of the structure of the Company’s internal organization. The major segments are defined by geographic regions for operations participating in NIKE brand sales activity excluding NIKE Golf and NIKE Bauer Hockey. Each NIKE brand
+geographic segment operates predominantly in one industry: the design, production, marketing and selling of sports and fitness footwear, apparel, and equipment. The “Other” category shown below represents activities of Cole Haan, Converse,
+Exeter Brands Group (whose primary business was the Starter brand business which was sold on December 17, 2007), Hurley, NIKE Bauer Hockey (through April 16, 2008), NIKE Golf, and Umbro (beginning March 3, 2008) which are considered
+immaterial for individual disclosure based on the aggregation criteria in SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information.” 
+Net revenues as shown below represent sales to external customers for each segment. Intercompany revenues have been eliminated and are immaterial for
+separate disclosure. The Company evaluates performance of individual operating segments based on pre-tax income. On a consolidated basis, this amount represents income before income taxes as shown in the Consolidated Statements of Income.
+Reconciling items for pre-tax income represent corporate expense items that are not allocated to the operating segments for management reporting. Corporate expense consists of unallocated general and administrative expenses, which includes expenses
+associated with centrally managed departments, depreciation and amortization related to the Company’s corporate headquarters, unallocated insurance and benefit programs, foreign currency gains and losses, including hedge gains and losses,
+corporate eliminations and other items. 
+Additions to long-lived assets as presented in the following table represent capital expenditures.
+Accounts receivable, inventories and property, plant and equipment for operating segments are regularly reviewed by management and are
+therefore provided below. 
+Certain prior year amounts have been reclassed to conform to fiscal 2009 presentation. 
+85 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Year Ended May 31, 
+2009 
+2008 
+2007 
+(In millions) 
+Net Revenue 
+United States 
+$ 
+6,542.9 
+$ 
+6,414.5 
+$ 
+6,131.7 
+Europe, Middle East and Africa 
+5,512.2 
+5,629.2 
+4,764.1 
+Asia Pacific 
+3,322.0 
+2,887.6 
+2,295.7 
+Americas 
+1,284.7 
+1,164.7 
+966.7 
+Other 
+2,514.3 
+2,531.0 
+2,167.7 
+$ 
+19,176.1 
+$ 
+18,627.0 
+$ 
+16,325.9 
+Pre-tax Income 
+United States 
+$ 
+1,337.9 
+$ 
+1,402.0 
+$ 
+1,386.1 
+Europe, Middle East and Africa 
+1,316.9 
+1,281.9 
+1,050.1 
+Asia Pacific 
+853.4 
+694.2 
+515.4 
+Americas 
+274.1 
+242.3 
+199.3 
+Other (1) 
+(196.7 
+) 
+364.9 
+299.7 
+Corporate Expense (2) 
+(1,629.1 
+) 
+(1,482.4 
+) 
+(1,250.7 
+) 
+$ 
+1,956.5 
+$ 
+2,502.9 
+$ 
+2,199.9 
+Additions to Long-lived Assets 
+United States 
+$ 
+95.2 
+$ 
+138.4 
+$ 
+67.3 
+Europe, Middle East and Africa 
+77.7 
+69.0 
+94.9 
+Asia Pacific 
+74.8 
+42.4 
+20.7 
+Americas 
+8.7 
+8.6 
+5.3 
+Other 
+89.6 
+61.5 
+36.0 
+Corporate 
+109.7 
+129.3 
+89.3 
+$ 
+455.7 
+$ 
+449.2 
+$ 
+313.5 
+Depreciation 
+United States 
+$ 
+61.4 
+$ 
+49.2 
+$ 
+45.4 
+Europe, Middle East and Africa 
+55.4 
+64.8 
+47.4 
+Asia Pacific 
+43.6 
+31.1 
+25.2 
+Americas 
+6.5 
+6.7 
+6.1 
+Other 
+37.5 
+28.1 
+28.2 
+Corporate 
+130.6 
+123.7 
+117.4 
+$ 
+335.0 
+$ 
+303.6 
+$ 
+269.7 
+(1) 
+During the year ended May 31, 2009, the Other category included a pre-tax charge of $401.3 million for the impairment of goodwill, intangible and other assets of Umbro, which
+was recorded in the third quarter of fiscal 2009. See Note 4 — Acquisition, Identifiable Intangible Assets, Goodwill and Umbro Impairment for more information. 
+(2) 
+During the year ended May 31, 2009, Corporate expense included pre-tax charges of $195.0 million for the Company’s restructuring activities, which were completed in the
+fourth quarter of fiscal 2009. See Note 16 — Restructuring Charges for more information. 
+86 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Year Ended May 31, 
+2009 
+2008 
+(In millions) 
+Accounts Receivable, net 
+United States 
+$ 
+837.2 
+$ 
+823.9 
+Europe, Middle East and Africa 
+877.1 
+843.0 
+Asia Pacific 
+394.6 
+406.1 
+Americas 
+263.6 
+246.0 
+Other 
+439.8 
+424.0 
+Corporate 
+71.6 
+52.3 
+$ 
+2,883.9 
+$ 
+2,795.3 
+Inventories 
+United States 
+$ 
+831.8 
+$ 
+834.0 
+Europe, Middle East and Africa 
+619.7 
+705.7 
+Asia Pacific 
+295.8 
+280.9 
+Americas 
+205.5 
+181.1 
+Other 
+371.8 
+396.6 
+Corporate 
+32.4 
+40.1 
+$ 
+2,357.0 
+$ 
+2,438.4 
+Property, Plant and Equipment, net 
+United States 
+$ 
+345.2 
+$ 
+318.4 
+Europe, Middle East and Africa 
+341.5 
+370.5 
+Asia Pacific 
+434.0 
+375.6 
+Americas 
+18.8 
+20.4 
+Other 
+163.7 
+126.9 
+Corporate 
+654.5 
+679.3 
+$ 
+1,957.7 
+$ 
+1,891.1 
+Revenues by Major Product Lines. Revenues to external customers for
+NIKE brand products are attributable to sales of footwear, apparel and equipment. Other revenues to external customers primarily include external sales by Cole Haan, Converse, Exeter (whose primary business was the Starter brand business which was
+sold December 17, 2007), Hurley, NIKE Bauer Hockey (through April 16, 2008), NIKE Golf, and Umbro (beginning March 3, 2008). 
+Year Ended May 31, 
+2009 
+2008 
+2007 
+(In millions) 
+Footwear 
+$ 
+10,306.7 
+$ 
+9,731.6 
+$ 
+8,514.0 
+Apparel 
+5,244.7 
+5,234.0 
+4,576.5 
+Equipment 
+1,110.4 
+1,130.4 
+1,067.7 
+Other 
+2,514.3 
+2,531.0 
+2,167.7 
+$ 
+19,176.1 
+$ 
+18,627.0 
+$ 
+16,325.9 
+Revenues and Long-Lived Assets by Geographic Area. Geographical area
+information is similar to what was shown previously under operating segments with the exception of the Other activity, which has been allocated to the geographical areas based on the location where the sales originated. Revenues derived in the
+87 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+United States were $8,019.8 million, $7,938.5 million, and $7,593.7 million, for the years ended May 31, 2009, 2008, and 2007, respectively. The
+Company’s largest concentrations of long-lived assets primarily consist of the Company’s world headquarters and distribution facilities in the United States and distribution facilities in Japan and Belgium. Long-lived assets attributable
+to operations in the United States, which are comprised of net property, plant & equipment, were $1,142.6 million, $1,109.9 million, and $991.3 million at May 31, 2009, 2008, and 2007, respectively. Long-lived assets attributable to
+operations in Japan were $322.3 million, $303.8 million, and $260.6 million at May 31, 2009, 2008, and 2007, respectively. Long-lived assets attributable to operations in Belgium were $191.0 million, $219.1 million and $198.3 million at
+May 31, 2009, 2008, and 2007, respectively. 
+Major Customers. Revenues derived from Foot Locker, Inc.
+represented 9% of the Company’s consolidated revenues for the years ended May 31, 2009 and 2008, and 10% for the year ended May 31, 2007. Sales to this customer are included in all segments of the Company. 
+Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
+There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or
+practices or financial statement disclosure required to be reported under this Item. 
+Item 9A. Controls and Procedures 
+We maintain
+disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
+Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required
+disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
+objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 
+We carry out a variety of on-going procedures, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation
+of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of May 31,
+2009. 
+“Management’s Annual Report on Internal Control Over Financial Reporting” is included in Item 8 on page 51 of
+this Report. 
+There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has
+materially affected, or is reasonable likely to materially affect, our internal control over financial reporting. 
+Item 9B. Other Information 
+No disclosure is
+required under this Item. 
+88 
+Table of Contents 
+PART III 
+Item 10. Directors, Executive Officers and Corporate Governance 
+The information required by Item 401 of Regulation S-K regarding directors is included under “Election of Directors” in the definitive
+Proxy Statement for our 2009 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 401 of Regulation S-K regarding executive officers is included under “Executive Officers of the
+Registrant” in Item 1 of this Report. The information required by Item 405 of Regulation S-K is included under “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for our 2009 Annual
+Meeting of Shareholders and is incorporated herein by reference. The information required by Item 406 of Regulation S-K is included under “Code of Business Conduct and Ethics” in the definitive Proxy Statement for our 2009 Annual
+Meeting of Shareholders and is incorporated herein by reference. The information required by Items 407(d)(4) and (d)(5) of Regulation S-K regarding the Audit Committee of the Board of Directors is included under “Board of Directors and
+Committees” in the definitive Proxy Statement for our 2009 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 11. Executive Compensation 
+The information required by Items 402,
+407(e)(4) and 407(e)(5) of Regulation S-K regarding executive compensation is included under “Director Compensation for Fiscal 2009,” “Executive Compensation,” “Compensation Discussion and Analysis,” “Compensation
+Committee Interlocks and Insider Participation” and “Compensation Committee Report” in the definitive Proxy Statement for our 2009 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
+Matters 
+The information required by Item 201(d) of Regulation S-K is included under “Equity Compensation
+Plans” in the definitive Proxy Statement for our 2009 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 403 of Regulation S-K is included under “Stock Holdings of Certain Owners
+and Management” in the definitive Proxy Statement for our 2009 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 13. Certain Relationships and Related Transactions, and Director Independence 
+The information required by Items 404 and 407(a) of Regulation S-K is included under “Transactions with Related Persons” and “Board of Directors and Committees” in the definitive Proxy Statement for our 2009 Annual
+Meeting of Shareholders and is incorporated herein by reference. 
+Item 14. Principal
+Accountant Fees and Services 
+The information required by Item 9(e) of Schedule 14A is included under
+“Ratification Of Independent Registered Public Accounting Firm” in the definitive Proxy Statement for our 2009 Annual Meeting of Shareholders and is incorporated herein by reference. 
+89 
+Table of Contents 
+PART IV 
+Item 15. Exhibits and Financial Statement Schedules 
+(a) 
+The following documents are filed as part of this report: 
+Form 10-K 
+Page No. 
+1. 
+FINANCIAL STATEMENTS: 
+Report of Independent Registered Public Accounting Firm 
+52 
+Consolidated Statements of Income for each of the three years ended May 31, 2009, May 31, 2008 and May 31, 2007 
+53 
+Consolidated Balance Sheets at May 31, 2009 and May 31, 2008 
+54 
+Consolidated Statements of Cash Flows for each of the three years ended May 31, 2009, May 31, 2008 and May 31, 2007 
+55 
+Consolidated Statements of Shareholders’ Equity for each of the three years ended May 31, 2009, May 31, 2008 and May 31, 2007 
+56 
+Notes to Consolidated Financial Statements 
+57 
+2. 
+FINANCIAL STATEMENT SCHEDULE: 
+II — Valuation and Qualifying Accounts 
+F-1 
+All other schedules are omitted because they are not applicable or the required information is
+shown in the financial statements or notes thereto. 
+3. EXHIBITS: 
+2.1 
+Implementation Agreement, dated October 23, 2007, between Umbro Plc, NIKE Vapor Ltd., and NIKE, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on
+Form 8-K filed October 25, 2007).* 
+3.1 
+Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31,
+2005). 
+3.2 
+Third Restated Bylaws, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed February 20, 2007). 
+4.1 
+Restated Articles of Incorporation, as amended (see Exhibit 3.1). 
+4.2 
+Third Restated Bylaws, as amended (see Exhibit 3.2). 
+4.3 
+Indenture dated as of December 13, 1996 between the Company and Bank One Trust Company, National Association (successor in interest to The First National Bank of Chicago), as Trustee
+(incorporated by reference to Exhibit 4.01 to Amendment No. 1 to Registration Statement No. 333-15953 filed by the Company on November 26, 1996). 
+4.4 
+Form of Officers’ Certificate relating to the Company’s Fixed Rate Medium-Term Notes and the Company’s Floating Rate Medium-Term Notes, form of Fixed Rate Note and form of
+Floating Rate Note (incorporated by reference to Exhibits 4.2, 4.3 and 4.4 of the Company’s Current Report on Form 8-K filed May 29, 2002). 
+90 
+Table of Contents 
+4.5 
+Credit Agreement dated as of December 1, 2006 among NIKE, Inc., Bank of America, N.A., individually and as Agent, and the other banks party thereto (incorporated by reference to Exhibit 4.01
+to the Company’s Current Report on Form 8-K filed December 6, 2006). 
+4.6 
+First Amendment to the Credit Agreement, dated August 24, 2007, among NIKE, Inc., Bank of America, N.A., as Administrative Agent, Citicorp USA, Inc., as Syndication Agent, and HSBC Bank USA,
+N.A., The Bank of Tokyo Mitsubishi UFG, Ltd. and Deutsche Bank Securities Inc., as Co-Documentation Agents, and the other Banks named therein (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
+fiscal quarter ended February 29, 2008). 
+4.7 
+Extension and Second Amendment to the Credit Agreement, dated November 1, 2007, among NIKE, Inc., Bank of America, N.A., as Administrative Agent, Citicorp USA, Inc., as Syndication
+Agent, and HSBC Bank USA, N.A., The Bank of Tokyo Mitsubishi UFG, Ltd. and Deutsche Bank Securities Inc., as Co-Documentation Agents, and the other Banks named therein. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly
+Report on Form 10-Q for the fiscal quarter ended February 29, 2008). 
+10.1 
+Form of Non-Statutory Stock Option Agreement for options granted to executives under the 1990 Stock Incentive Plan (applicable to option grants on or after July 17, 2009).* 
+10.2 
+Form of Non-Statutory Stock Option Agreement for options granted to non-U.S. executives under the 1990 Stock Incentive Plan (applicable to option grants on or after July 17,
+2009).* 
+10.3 
+Form of Indemnity Agreement entered into between the Company and each of its officers and directors (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K
+for the fiscal year ended May 31, 2008).* 
+10.4 
+NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2007).* 
+10.5 
+NIKE, Inc. Executive Performance Sharing Plan (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31,
+2007).* 
+10.6 
+NIKE, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008).* 
+10.7 
+NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective January 1, 2009).* 
+10.8 
+NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective June 1, 2004) (applicable to amounts deferred before January 1, 2005) (incorporated by reference to Exhibit 10.6 to the
+Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004). 
+10.9 
+Amendment No. 1 effective January 1, 2008 to the NIKE, Inc. Deferred Compensation Plan (June 1, 2004 Restatement).* 
+10.10 
+NIKE, Inc. Foreign Subsidiary Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
+November 30, 2008).* 
+10.11 
+Amended and Restated Covenant Not To Compete And Non-Disclosure Agreement between NIKE, Inc. and Mark G. Parker dated July 24, 2008 (incorporated by reference to Exhibit 10.1 to the
+Company’s Current Report on Form 8-K filed July 24, 2008).* 
+10.12 
+Amended and Restated Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Charles D. Denson dated July 24, 2008 (incorporated by reference to Exhibit 10.2 to the
+Company’s Current Report on Form 8-K filed July 24, 2008).* 
+91 
+Table of Contents 
+10.13 
+Form of Long-Term Incentive Award Agreement under the Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 20,
+2007).* 
+10.14 
+Form of Restricted Stock Bonus Agreement under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 21, 2005).*
+10.15 
+Commercial Paper Agreement between NIKE, Inc., as Issuer, and Goldman, Sachs & Co., as Dealer (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form
+10-Q for the fiscal quarter ended February 28, 2007). 
+10.16 
+Commercial Paper Agreement between NIKE, Inc., as Issuer, and Merrill Lynch Money Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Dealer (incorporated by reference
+to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2007). 
+10.17 
+Commercial Paper Agreement between NIKE, Inc., as Issuer, and Wells Fargo Brokerage Services, LLC, as Dealer (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report
+on Form 10-Q for the fiscal quarter ended February 28, 2007). 
+10.18 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Donald W. Blair dated November 10, 1999 (incorporated by reference to Exhibit 10.15 to the Company’s Annual
+Report on Form 10-K for the fiscal year ended May 31, 2006).* 
+10.19 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Gary DeStefano (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
+August 11, 2006).* 
+10.20 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Trevor A. Edwards dated November 14, 2002. (incorporated by reference to Exhibit 10.19 to the Company’s Annual
+Report on Form 10-K for the fiscal year ended May 31, 2008).* 
+12.1 
+Computation of Ratio of Earnings to Fixed Charges. 
+21 
+Subsidiaries of the Registrant. 
+23 
+Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm (set forth on page F-2 of this Annual Report on Form 10-K). 
+31.1 
+Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. 
+31.2 
+Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. 
+32 
+Section 1350 Certifications. 
+* 
+Management contract or compensatory plan or arrangement. 
+The exhibits filed herewith do not include certain instruments with respect to long-term debt of NIKE and its subsidiaries, inasmuch as the total amount of debt authorized under any such instrument does not exceed 10 percent of the total
+assets of NIKE and its subsidiaries on a consolidated basis. NIKE agrees, pursuant to Item 601(b)(4)(iii) of Regulation S-K, that it will furnish a copy of any such instrument to the SEC upon request. 
+Upon written request to Investor Relations, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453, NIKE will furnish shareholders with a copy of
+any Exhibit upon payment of $.10 per page, which represents our reasonable expenses in furnishing Exhibits. 
+92 
+Table of Contents 
+SCHEDULE II 
+VALUATION AND QUALIFYING ACCOUNTS 
+Balance at 
+Beginning 
+of Period 
+Charged to 
+Costs and 
+Expenses 
+Charged to 
+Other 
+Accounts 
+Write-Offs 
+Net of 
+Recoveries 
+Balance at 
+End of 
+Period 
+(In millions) 
+Allowance for doubtful accounts (current and non-current) (1) 
+For the year ended May 31, 2007 
+$ 
+67.6 
+$ 
+18.5 
+$ 
+1.8 
+$ 
+(16.2 
+) 
+$ 
+71.7 
+For the year ended May 31, 2008 
+71.7 
+25.7 
+4.0 
+(23.0 
+) 
+78.4 
+For the year ended May 31, 2009 
+78.4 
+62.4 
+(11.7 
+) 
+(18.3 
+) 
+110.8 
+(1) 
+The non-current portion of the allowance for doubtful accounts is classified in deferred income taxes and other assets on the consolidated balance sheet.
+F-1 
+Table of Contents 
+CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-156406) and Form S-8 (Nos. 033-63995,
+333-63581, 333-63583, 333-68864, 333-68886, 333-71660, 333-104822, 333-117059, and 333-133360) of NIKE, Inc. of our report dated July 27, 2009 relating to the financial statements, financial statement schedule and the effectiveness of internal
+control over financial reporting, which appears in this Form 10-K. 
+/s/ P RICEWATERHOUSE C OOPERS LLP 
+Portland, Oregon 
+July 27, 2009 
+F-2 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
+on its behalf by the undersigned, thereunto duly authorized. 
+NIKE, INC. 
+By: 
+/s/ M ARK G.
+P ARKER 
+Mark G. Parker 
+Chief Executive Officer and President 
+Date: July 27, 2009 
+Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
+Signature 
+Title 
+Date 
+Principal Executive Officer and Director: 
+/s/ M ARK G.
+P ARKER 
+Mark G. Parker 
+Director, Chief Executive Officer and 
+President 
+July 27, 2009 
+Principal Financial Officer: 
+/s/ D ONALD W.
+B LAIR 
+Donald W. Blair 
+Chief Financial Officer 
+July 27, 2009 
+Principal Accounting Officer: 
+/s/ B ERNARD F.
+P LISKA 
+Bernard F. Pliska 
+Corporate Controller 
+July 27, 2009 
+Directors: 
+/s/ P HILIP H.
+K NIGHT 
+Philip H. Knight 
+Director, Chairman of the Board 
+July 27, 2009 
+/s/ J OHN G.
+C ONNORS 
+John G. Connors 
+Director 
+July 27, 2009 
+/s/ J ILL K.
+C ONWAY 
+Jill K. Conway 
+Director 
+July 27, 2009 
+/s/ T IMOTHY D.
+C OOK 
+Timothy D. Cook 
+Director 
+July 27, 2009 
+/s/ R ALPH D.
+D E N UNZIO 
+Ralph D. DeNunzio 
+Director 
+July 27, 2009 
+S-1 
+Table of Contents 
+Signature 
+Title 
+Date 
+/s/ A LAN B. G RAF ,
+J R . 
+Alan B. Graf, Jr. 
+Director 
+July 27, 2009 
+/s/ D OUGLAS G.
+H OUSER 
+Douglas G. Houser 
+Director 
+July 27, 2009 
+/s/ J OHN C.
+L ECHLEITER 
+John C. Lechleiter 
+Director 
+July 27, 2009 
+/s/ J OHNATHAN A.
+R ODGERS 
+Johnathan A. Rodgers 
+Director 
+July 27, 2009 
+/s/ O RIN C.
+S MITH 
+Orin C. Smith 
+Director 
+July 27, 2009 
+/s/ J OHN R. T HOMPSON ,
+J R . 
+John R. Thompson, Jr. 
+Director 
+July 27, 2009 
+S-2
\ No newline at end of file
diff --git a/raw/filings/0000320187/2008/0001193125-09-155951/filing_metadata.csv b/raw/filings/0000320187/2008/0001193125-09-155951/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..91cc02555b42d37946f8cc868c7ef6bb3801c7e5
--- /dev/null
+++ b/raw/filings/0000320187/2008/0001193125-09-155951/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000320187,NKE,"NIKE, Inc.",10-K,2009-07-27,2009-05-31,2009-07-28T01:27:24.000Z,0001193125-09-155951,d10k.htm,FORM 10-K,1790943,0,0,https://www.sec.gov/Archives/edgar/data/320187/000119312509155951/d10k.htm,https://www.sec.gov/Archives/edgar/data/320187/000119312509155951/,2008,2008,1
diff --git a/raw/filings/0000320187/2008/0001193125-09-155951/item1.txt b/raw/filings/0000320187/2008/0001193125-09-155951/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b614298183a971b01e0b5ae515f24eeba135f47c
--- /dev/null
+++ b/raw/filings/0000320187/2008/0001193125-09-155951/item1.txt
@@ -0,0 +1,263 @@
+Item 1. 
+Business 
+General 
+NIKE, 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 the context indicates otherwise. Our Internet address is www.nike.com. On our NIKE Corporate web site,
+located at www.nikebiz.com, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the 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 furnished 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 free of charge. Also available on the NIKE Corporate web site are the charters of the committees of our board of directors, as well as our corporate governance guidelines and code of ethics; copies of any of these documents 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 worldwide marketing of high quality footwear, 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 NIKE-owned retail including stores and internet sales, and 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. 
+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-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 aquatic activities, 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 are designed to complement our athletic footwear products, 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, including 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 directly to customers, we have entered into license agreements that permit unaffiliated parties to manufacture and sell various apparel, equipment and accessory items, such as
+swimwear, children’s apparel, training equipment, eyewear, electronic devices and golf accessories. 
+Our
+wholly-owned subsidiary, Cole Haan (“Cole Haan”), headquartered in Yarmouth, Maine, designs and distributes dress and casual footwear, apparel and accessories for men and women under the brand names Cole Haan ® and Bragano ® . 
+1 
+Table of Contents 
+Our wholly-owned subsidiary, Converse Inc. (“Converse”), headquartered in
+North Andover, Massachusetts, designs, distributes, and licenses athletic and casual footwear, apparel and accessories under the Converse ® , Chuck Taylor ® , All Star ® , One Star ® 
+, and Jack Purcell ® trademarks. 
+Our wholly-owned subsidiary, Hurley International LLC (“Hurley”), headquartered in Costa Mesa, California, designs and
+distributes a line of action sports apparel for surfing, skateboarding, and snowboarding, youth lifestyle apparel, and accessories under the Hurley ® trademark. 
+Our wholly-owned
+subsidiary, Umbro Ltd. (“Umbro”), headquartered in Manchester, England, designs, distributes and licenses athletic and casual footwear, apparel and equipment, primarily for the sport of soccer, under the Umbro ® trademarks. 
+Sales and
+Marketing 
+Financial information about geographic and segment operations appears in Note 19 of the accompanying consolidated financial
+statements on page 85. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first
+and fourth fiscal quarters have slightly 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 fitness activities and changing
+design trends affect the demand for our products. We must therefore respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories, and influencing sports and
+fitness preferences through aggressive marketing. Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability. This is a continuing risk. 
+We report our NIKE brand operations based on our internal geographic organization. Each NIKE brand geography operates predominantly in one industry:
+the design, production, marketing and selling of sports and fitness footwear, apparel, and equipment. The geographic organization consists of the following four regions: U.S., Europe, Middle East and Africa (collectively,
+“EMEA”), Asia Pacific, and Americas. As previously announced, in the fourth quarter of fiscal 2009, we initiated a reorganization of the NIKE brand into a new model consisting of six geographies. As a result of the
+reorganization, beginning in the first quarter of fiscal 2010, our new organizational structure will consist of the following geographies: North America, Western Europe, Central/Eastern Europe, Greater China, Japan, and Emerging Markets. 
+United States Market 
+In
+fiscal 2009, sales in the United States including U.S. sales of our Other businesses accounted for approximately 42% of total revenues, compared to 43% in fiscal 2008 and 47% in fiscal 2007. For fiscal 2009, our Other businesses were
+primarily comprised of Cole Haan, Converse, Hurley, NIKE Golf and Umbro (which was acquired on March 3, 2008). For fiscal 2008 and 2007, our Other businesses were primarily comprised of Cole Haan, Converse, Exeter (whose primary
+business was the Starter brand business which was sold on December 17, 2007), Hurley, NIKE Bauer Hockey (which was sold on April 17, 2008), NIKE Golf and Umbro. We estimate that we sell to more than 23,000 retail accounts in the United
+States. The NIKE brand domestic retail 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 fiscal 2009, our three
+largest customers accounted for approximately 25% of sales in the United States. 
+We make substantial use of our “futures”
+ordering program, which allows retailers to order five to six months in advance of delivery with the commitment that their orders will be delivered within a set time 
+2 
+Table of Contents 
+period at a fixed price. In fiscal 2009, 89% of our U.S. wholesale footwear shipments (excluding our Other businesses) were made under the futures program,
+compared to 90% in fiscal 2008 and fiscal 2007. In fiscal 2009, 60% of our U.S. wholesale apparel shipments (excluding our Other businesses) were made under the futures program, compared to 62% in fiscal 2008 and 65% in fiscal 2007. 
+We utilize 20 NIKE sales offices to solicit sales in the United States. We also utilize 5 independent sales representatives to sell specialty products
+for golf, and 3 for skateboarding and outdoor products. In addition, we sell NIKE brand products through our internet website, www.nikestore.com , and we operate the following retail outlets in the United States: 
+U.S. Retail Stores 
+Number 
+NIKE factory stores (which carry primarily overstock and close-out merchandise) 
+140 
+NIKE stores (including one NIKE Women store) 
+16 
+NIKETOWNs (designed to showcase NIKE products) 
+11 
+NIKE employee-only stores 
+3 
+Cole Haan stores (including factory stores) 
+111 
+Converse factory stores 
+43 
+Hurley stores (including factory and employee stores) 
+14 
+Total 
+338 
+NIKE’s three United States distribution centers for footwear are located in Memphis,
+Tennessee. Apparel and equipment products are shipped from our Memphis, Tennessee, and Foothill Ranch, California distribution centers. Cole Haan products are distributed primarily from Greenland, New Hampshire, Converse products are shipped
+primarily from Ontario, California, and Hurley products are distributed from Irvine, California. 
+International Markets 
+In fiscal 2009, non-U.S. sales (including non-U.S. sales of our Other businesses) accounted for 58% of total revenues, compared to 57% in
+fiscal 2008 and 53% in fiscal 2007. We sell our products to retail accounts, through NIKE-owned retail stores, and through a mix of independent distributors and licensees around the world. We estimate that we sell to more than 28,000 retail accounts
+outside the United States, excluding sales by independent distributors and licensees. We operate 14 distribution centers outside of the United States. In many countries and regions, including Canada, Asia, some Latin American countries, and Europe,
+we have a futures ordering program for retailers similar to the United States futures program described above. NIKE’s three largest customers outside of the U.S. accounted for approximately 11% of total non-U.S. sales. 
+We operate the following retail outlets outside the United States: 
+Non-U.S. Retail Stores 
+Number 
+NIKE factory stores 
+184 
+NIKE stores 
+61 
+NIKETOWNs 
+4 
+NIKE employee-only stores 
+12 
+Cole Haan stores 
+74 
+Hurley stores 
+1 
+Total 
+336 
+International branch offices and subsidiaries of NIKE are located in Argentina, Australia,
+Austria, Belgium, Bermuda, Brazil, Canada, Chile, Croatia, Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, Indonesia, India, Ireland, Israel, Italy, Japan, Korea, Lebanon, Macau, Malaysia, 
+3 
+Table of Contents 
+Mexico, New Zealand, the Netherlands, Norway, the People’s Republic of China, 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 2009.
+Orders 
+Worldwide futures and advance orders for NIKE brand athletic footwear and apparel, scheduled for delivery from June through November 2009, were $7.8 billion compared to $8.8 billion for the same period last year. This futures and advance
+order amount is calculated based upon our forecast of the actual exchange 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 advance/futures and at-once orders and the fulfillment of certain of these advance/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 and advance orders and actual revenues. Moreover, a significant
+portion of our revenue is not derived from futures and advance orders, including at-once and close-out sales of NIKE footwear and apparel, wholesale sales of equipment, Cole Haan, Converse, Hurley, Umbro, NIKE Golf, and retail sales across all
+brands. 
+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 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 and concepts for product improvement. 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 outside of the United States. In fiscal 2009, contract suppliers in China, Vietnam, Indonesia and Thailand
+manufactured 36%, 36%, 22% and 6% 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.
+Our largest single footwear factory accounted for approximately 5% of total fiscal 2009 footwear production. 
+Almost all of NIKE brand
+apparel is manufactured outside of the United States by independent contract manufacturers located in 34 countries. Most of this apparel production occurred in China, Thailand, Indonesia, Malaysia, Vietnam, Turkey, Sri Lanka, Cambodia, Taiwan, El
+Salvador, Mexico, India and Israel. Our largest single apparel factory accounted for approximately 5% of total fiscal 2009 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
+2009, NIKE IHM, Inc. and NIKE (Suzhou) Sports Company, Ltd., both 
+4 
+Table of Contents 
+wholly-owned subsidiaries of NIKE, and 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 contractors and suppliers buy raw materials in bulk. Most raw materials are available 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, has performed significant
+import-export financing services for us. During fiscal 2009, Sojitz America provided financing and purchasing services for NIKE brand products sold in Argentina, Uruguay, Canada, Chile, Brazil, India, Indonesia, the Philippines, Malaysia, South
+Africa, China, Korea, and Thailand, excluding products produced and sold in the same country. Approximately 16% 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 outside of the United States, EMEA and Japan. 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 in
+2011. 
+International Operations and Trade 
+Our international operations and sources of supply are subject to the usual risks 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 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 developments occurring. 
+The global economic crisis has resulted in a significant 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 profitability and the imported footwear and apparel industry as a whole. Accordingly, we are actively monitoring the developments described
+below. 
+Footwear Imports into the European Union 
+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 within the scope of the investigation, and (ii) does not meet the legal requirements of injury and price in an anti-dumping
+investigation. Our arguments were successful and the EU agreed in October 2006 on definitive duties of 16.5% for China and 10% for Vietnam for non-STAF leather footwear, but excluded STAF from the final measures. Prior to the scheduled expiration in
+October 2008 of the measures imposed on the non-STAF footwear, the domestic industry requested and the EC agreed to review a petition to extend these restrictions on non-STAF leather footwear. We are working in broad coalition with other companies
+in our industry to challenge this request for extension, and we expect a decision by the end of calendar year 2009 or early 2010. 
+Footwear Imports into Brazil and Argentina 
+At the request of certain domestic footwear industries, both Brazil and
+Argentina have initiated independent anti-dumping investigations against footwear made in China. We are working in broad coalition with other companies in our industry to challenge these cases on the basis that the athletic footwear being imported
+from 
+5 
+Table of Contents 
+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. We anticipate final decisions in both cases will be made in late 2009. 
+Footwear Imports into Turkey 
+In 2006, Turkey introduced a safeguard measure on all imported footwear into Turkey with the goal of protecting its local shoe manufacturing industry
+until August 2009. In June 2009, Turkish shoe-manufacturers submitted, and the Turkish Government agreed to review, a request for extension of the safeguard measures claiming that the rehabilitation process of the local Turkish industry was
+interrupted due to the continuing increase of footwear imports. We are working in broad coalition with other companies in our industry to oppose the continuation of these safeguard measures. We anticipate a final decision in this review will be made
+in early fall 2009. 
+Trade Relations with China 
+China represents an important sourcing and marketing country for us. Many governments around the world are concerned about China’s growing and fast-paced economy, compliance with World Trade Organization rules,
+currency valuation, and high trade surpluses. As a result, a wide range of legislative proposals have been introduced to address these concerns. While some of these concerns may be justified, we are working with broad coalitions of global businesses
+and trade associations representing a wide variety of sectors (e.g., services, manufacturing, and agriculture) to help ensure 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. We believe other companies in our industry as well as most other multi-national companies
+are in a similar position regarding these trade measures. 
+In the event any of these trade protection measures were 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 that we could abate any such disruption, and that much of the adverse impact on supply would, therefore, be of a short-term
+nature. We believe our principal competitors are subject to similar risks. 
+Competition 
+The athletic footwear, apparel and equipment industry is keenly competitive in the United States and on a worldwide basis. We compete internationally with
+a significant number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel and equipment, including Adidas,
+Puma, and 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 and athletic apparel in the world. Performance and reliability of shoes, apparel, and
+equipment, new product development, price, product identity through marketing and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel and equipment industry. To help market our products,
+we contract with prominent and influential 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 are competitive in all of these
+areas. 
+6 
+Table of Contents 
+Trademarks and Patents 
+We utilize trademarks on nearly all of our products and believe that having distinctive marks that are readily identifiable is an
+important factor in creating a market for our goods, in identifying 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 over 150 countries. In addition, we own many other trademarks that we utilize in marketing our products. We continue to vigorously protect our trademarks against infringement.
+NIKE has an exclusive, worldwide license to make and sell footwear using patented “Air” technology. The
+process utilizes pressurized gas encapsulated in polyurethane. Some of the early NIKE AIR ® patents have expired, which may
+enable competitors to use certain types of similar technology. Subsequent NIKE AIR ® patents will not expire for several
+years. We also have hundreds of U.S. and foreign utility patents, and thousands of U.S. and foreign design patents covering components and features used in various athletic and leisure shoes, apparel, and equipment. These patents expire at various
+times, and patents issued for applications filed this year will have a remaining duration of from now to 2023 for design patents, and from now to 2029 for utility patents. We believe that our success 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 filing applications for United States and foreign patents on inventions, designs and improvements that we deem valuable.
+Employees 
+We had approximately 34,300 employees at May 31, 2009. Management considers its relationship with employees to be excellent. None of our employees is represented by a union, except for certain employees in the Americas Region, where
+local law requires those employees to be represented by a trade union. Also, in some countries outside of the United States, local laws require representation for employees by works councils (such as in the European Union, in which they are entitled
+to information and consultation on certain Company decisions) or other representation by an organization similar to a union, although collective bargaining agreements are not involved. There has never been a material interruption of operations due
+to labor disagreements. 
+Executive Officers of the Registrant 
+The executive officers of NIKE as of July 24, 2009 are as follows: 
+Philip H. Knight, Chairman of the Board — Mr. Knight, 71, a director since 1968, is a co-founder of NIKE and, except for the period from June 1983 through September 1984, served as its President from
+1968 to 1990, and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State
+University. 
+Mark G. Parker, Chief Executive Officer and President — Mr. Parker, 53, was appointed CEO and President in
+January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge of development
+in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. 
+David J. Ayre, Vice President, Global Human Resources — Mr. Ayre, 49, joined NIKE as Vice President, Global Human Resources in July 2007. Prior to joining NIKE, he held a number of senior human
+resource positions with PepsiCo, Inc. since 1990, most recently as head of Talent and Performance Rewards. 
+Donald W. Blair, Vice
+President and Chief Financial Officer — Mr. Blair, 51, joined NIKE in November 1999. Prior to joining NIKE, he held a number of financial management positions with PepsiCo, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice
+President, Planning of PepsiCo’s Pizza Hut Division, and 
+7 
+Table of Contents 
+Senior Vice President, Finance of The Pepsi Bottling Group, Inc. Prior to joining PepsiCo, Mr. Blair was a certified public accountant with Deloitte,
+Haskins, and Sells. 
+Charles D. Denson, President of the NIKE Brand — Mr. Denson, 53, has been employed by NIKE since
+1979. Mr. Denson held several management positions within the Company, including his appointments as Director of USA Apparel Sales in 1994, divisional Vice President, U.S. Sales in 1994, divisional Vice President European Sales in 1997,
+divisional Vice President and General Manager, NIKE Europe in 1998, Vice President and General Manager of NIKE USA in 2000, and President of the NIKE Brand in 2001. 
+Gary M. DeStefano, President, Global Operations — Mr. DeStefano, 52, has been employed by NIKE since 1982, with primary responsibilities in sales and regional administration. Mr. DeStefano was
+appointed Director of Domestic Sales in 1990, divisional Vice President in charge of domestic sales in 1992, Vice President of Global Sales in 1996, Vice President and General Manager of Asia Pacific in 1997, President of USA Operations in 2001,
+President of Global Operations in 2006. 
+Trevor Edwards, Vice President, Global Brand and Category Management —
+Mr. Edwards, 46, joined NIKE in 1992. He was appointed Marketing Manager, Strategic Accounts, Foot Locker in 1993, Director of Marketing, the Americas in 1995, Director of Marketing, Europe in 1997, Vice President, Marketing for Europe, Middle
+East and Africa in 1999, and Vice President, U.S. Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in 2002 and Vice President, Global Brand and Category Management in 2006. Prior to NIKE,
+Mr. Edwards was with the Colgate-Palmolive Company. 
+Jeanne P. Jackson, President, Direct to Consumer
+— Ms. Jackson, 57, served as a member of the NIKE, Inc. Board of Directors from 2001 through March 2009, when she resigned from our Board and was appointed President, Direct to Consumer. She is founder and CEO of MSP
+Capital, a private investment company. Ms. Jackson was CEO of Walmart.com from March 2000 to January 2002. She was with Gap, Inc., as President and CEO of Banana Republic from 1995-2000, also serving as CEO of Gap, Inc. Direct from
+1998-2000. Since 1978, she has held various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated Department Stores. Ms. Jackson is the President of the United States Ski and
+Snowboard Foundation Board of Trustees, and serves on the Board of Advisors of the University of California, Irvine. She is also a director of McDonald’s Corporation, Nordstrom, Inc., and Harrah’s Entertainment, Inc. 
+P. Eunan McLaughlin, President, Affiliates — Mr. McLaughlin, 51, joined NIKE as Director of Sales, NIKE Europe in 1999, and was
+appointed Vice President Commercial Sales and Retail in 2000, Vice President, Asia Pacific in 2001, Vice President, Europe, Middle East & Africa in May 2004, and President of Affiliates in April 2009. Prior to joining NIKE, he was
+Partner and Vice President of Consumer & Retail Practices Division, Korn/Ferry International from 1996 to 1999. From 1983 to 1996, Mr. McLaughlin held various positions with Mars, Inc. in finance, sales, marketing and general
+management. 
+Bernard F. Pliska, Vice President, Corporate Controller — Mr. Pliska, 47, joined NIKE as Corporate Controller
+in 1995. He was appointed Vice President, Corporate Controller in 2003. Prior to NIKE, Mr. Pliska was with Price Waterhouse from 1984 to 1995. Mr. Pliska is a certified public accountant. 
+John F. Slusher, Vice President, Global Sports Marketing — Mr. Slusher, 40, has been employed by NIKE since 1998 with primary
+responsibilities in global sports marketing. Mr. Slusher was appointed Director of Sports Marketing for the Asia Pacific and Americas Regions in 2006, divisional Vice President, Asia Pacific & Americas Sports Marketing in September
+2007 and Vice President, Global Sports Marketing in November 2007. Prior to joining NIKE, Mr. Slusher was an attorney at the law firm of O’Melveny & Myers from 1995 to 1998. 
+Eric D. Sprunk, Vice President, Merchandising and Product — Mr. Sprunk, 45, joined NIKE in 1993. He was appointed Finance Director and
+General Manager of the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General Manager, NIKE Europe Footwear in 1998, and Vice President & General Manager of 
+8 
+Table of Contents 
+the Americas in 2000. Mr. Sprunk was appointed corporate Vice President, Global Footwear in 2001 and Vice President, Merchandising and Product in 2009.
+Prior to joining NIKE, Mr. Sprunk was a certified public accountant with Price Waterhouse from 1987 to 1993. 
+Hans van Alebeek,
+Vice President, Global Operations and Technology — Mr. van Alebeek, 43, joined NIKE as Director of Operations of Europe in 1999, and was appointed Vice President, Operations & Administration in EMEA in 2001, Vice
+President, Global Operations in 2003, Vice President, Global Operations & Technology in 2004, and Corporate Vice President in November 2005. Prior to joining NIKE, Mr. van Alebeek worked for McKinsey & Company as a management
+consultant, and at N.V. Indivers in business development.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2008/0001193125-09-155951/item13.txt b/raw/filings/0000320187/2008/0001193125-09-155951/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1cc16b3ecf58fc52a4e7678caeb1efc3c2009e9c
--- /dev/null
+++ b/raw/filings/0000320187/2008/0001193125-09-155951/item13.txt
@@ -0,0 +1,3 @@
+Item 13. Certain Relationships and Related Transactions, and Director Independence 
+The information required by Items 404 and 407(a) of Regulation S-K is included under “Transactions with Related Persons” and “Board of Directors and Committees” in the definitive Proxy Statement for our 2009 Annual
+Meeting of Shareholders and is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2008/0001193125-09-155951/item9a.txt b/raw/filings/0000320187/2008/0001193125-09-155951/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f8f8ab6602c0a8789e951ce97891c0bd0bc9d904
--- /dev/null
+++ b/raw/filings/0000320187/2008/0001193125-09-155951/item9a.txt
@@ -0,0 +1,13 @@
+Item 9A. Controls and Procedures 
+We maintain
+disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
+Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required
+disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
+objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 
+We carry out a variety of on-going procedures, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation
+of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of May 31,
+2009. 
+“Management’s Annual Report on Internal Control Over Financial Reporting” is included in Item 8 on page 51 of
+this Report. 
+There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has
+materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2008/0001193125-09-155951/rp_note.txt b/raw/filings/0000320187/2008/0001193125-09-155951/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2008/0001193125-09-155951/rpt_disclosure.txt b/raw/filings/0000320187/2008/0001193125-09-155951/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f8b602387052ecc694d78c5c009b9fef9950f0b2
--- /dev/null
+++ b/raw/filings/0000320187/2008/0001193125-09-155951/rpt_disclosure.txt
@@ -0,0 +1,19 @@
+Transactions with Related Persons 
+Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft.
+Mr. Knight has reimbursed the Company $720,633 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2010, determined based on the cost of fuel and other variable costs associated with the flights under FAR
+91-501(d). 
+Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health
+insurance and for life insurance policies for Howard Slusher, the father of John Slusher, Vice President of Sports Marketing, following expiration of the agreement. During fiscal 2010 the Company paid Howard Slusher $129,568 for health and life
+insurance premiums. 
+Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker
+is a Strategic Sales Director, and has been employed by the Company for over 26 years; Stephen Parker is the General Manager, China-Converse, and has been employed by the Company for over 22 years; and Ann
+19 
+Parker is a Talent Development and Community Relations Director at Hurley LLC, and has been employed by the Company for over 20 years. During fiscal year 2010, the Company paid aggregate
+compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $378,898, $487,789, $253,874, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary,
+performance bonus, the grant date fair value of stock options granted during the fiscal year estimated using the Black-Scholes pricing model, and profit sharing and matching contributions to Company-sponsored retirement plans. 
+Mr. Thompson’s son, John Thompson III, is the head basketball coach at Georgetown University, and the Company has a contract
+with him to provide endorsement and consulting services to the Company through August 2014, with base compensation over the 5-year term of the contract of $500,000, and up to $80,000 per year of product and other performance incentives. 
+Compensation Committee Interlocks and Insider Participation 
+The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2010 were Ralph D.
+DeNunzio, Timothy D. Cook, John C. Lechleiter, and Johnathan A. Rodgers. The Committee is composed solely of independent, non-employee directors. 
+20
\ No newline at end of file
diff --git a/raw/filings/0000320187/2009/0001193125-10-161874/filing.txt b/raw/filings/0000320187/2009/0001193125-10-161874/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..97ed1a6c27c4d4cec7b6c529210c9168002281fc
--- /dev/null
+++ b/raw/filings/0000320187/2009/0001193125-10-161874/filing.txt
@@ -0,0 +1,7084 @@
+10-K
+1
+d10k.htm
+FORM 10-K
+Form 10-K 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+Form 10-K 
+(Mark One) 
+þ 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended May 31, 2010 
+or 
+¨ 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the transition period from
+to .
+Commission File No. 1-10635 
+NIKE, Inc. 
+(Exact name of Registrant as specified in its charter) 
+Oregon 
+93-0584541 
+(State or other jurisdiction 
+of incorporation) 
+(IRS Employer 
+Identification No.) 
+One Bowerman Drive 
+(503) 671-6453 
+Beaverton, Oregon 97005-6453 
+(Registrant’s Telephone Number, Including Area Code) 
+(Address of principal executive offices) (Zip Code) 
+Securities registered pursuant to Section 12(b) of the Act: 
+Class B Common Stock 
+New York Stock Exchange 
+(Title of Each Class) 
+(Name of Each Exchange on Which Registered) 
+Securities registered pursuant to Section 12(g) of the Act: 
+None 
+Indicate by
+check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No
+¨ 
+Indicate by check mark if the registrant is not required to file reports
+pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ 
+Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
+of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
+days. Yes þ No ¨ 
+Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
+Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
+files). Yes þ No ¨ 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
+not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
+10-K. ¨ 
+Indicate by check mark whether the Registrant
+is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” “non-accelerated filer” and
+“smaller reporting company” in Rule 12b-2 of the Exchange Act. 
+Large accelerated filer þ 
+Accelerated filer ¨ 
+Non-accelerated filer ¨ 
+Smaller Reporting Company ¨ 
+Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
+Act). Yes ¨ No þ 
+As of November 30, 2009, the aggregate market value of the Registrant’s Class A Common Stock held by non-affiliates of the
+Registrant was $1,511,237,745 and the aggregate market value of the Registrant’s Class B Common Stock held by non-affiliates of the Registrant was $25,728,584,624. 
+As of July 16, 2010, the number of shares of the Registrant’s Class A Common Stock outstanding was 89,989,448 and the
+number of shares of the Registrant’s Class B Common Stock outstanding was 393,030,005. 
+DOCUMENTS INCORPORATED BY
+REFERENCE: 
+Parts of Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on
+September 20, 2010 are incorporated by reference into Part III of this Report. 
+Table of Contents 
+NIKE, INC. 
+ANNUAL REPORT ON FORM 10-K 
+TABLE OF CONTENTS 
+Page 
+PART I 
+Item 1. 
+Business 
+1 
+General 
+1 
+Products 
+1 
+Sales and Marketing 
+2 
+United States Market 
+2 
+International Markets 
+3 
+Significant Customer 
+4 
+Orders 
+4 
+Product Research and Development 
+4 
+Manufacturing 
+4 
+International Operations and Trade 
+5 
+Competition 
+7 
+Trademarks and Patents 
+7 
+Employees 
+7 
+Executive Officers of the Registrant 
+8 
+Item 1A. 
+Risk Factors 
+9 
+Item 1B. 
+Unresolved Staff Comments 
+18 
+Item 2. 
+Properties 
+18 
+Item 3. 
+Legal Proceedings 
+18 
+Item 4. 
+Reserved 
+18 
+PART II 
+Item 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+19 
+Item 6. 
+Selected Financial Data 
+21 
+Item 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+22 
+Item 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+51 
+Item 8. 
+Financial Statements and Supplemental Data 
+53 
+Item 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+93 
+Item 9A. 
+Controls and Procedures 
+93 
+Item 9B. 
+Other Information 
+93 
+PART III 
+(Except for the information set forth under “Executive Officers of the Registrant” in Item 1 above, Part III is incorporated by reference from the Proxy Statement for
+the NIKE, Inc. 2010 Annual Meeting of Shareholders.) 
+Item 10. 
+Directors, Executive Officers and Corporate Governance 
+94 
+Item 11. 
+Executive Compensation 
+94 
+Item 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+94 
+Item 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+94 
+Item 14. 
+Principal Accountant Fees and Services 
+94 
+PART IV 
+Item 15. 
+Exhibits and Financial Statement Schedules 
+95 
+Signatures 
+S-1 
+Table of Contents 
+PART I 
+Item 1. 
+Business 
+General 
+NIKE, 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 the context indicates otherwise. Our Internet address is www.nike.com. On our NIKE
+Corporate web site, located at www.nikebiz.com, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the 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 furnished 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 free of charge. Also available on the NIKE Corporate web site are the charters of the committees of our board of directors, as well as our corporate governance guidelines and code of ethics;
+copies of any of these documents 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 worldwide marketing of high quality footwear, 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 NIKE-owned retail including stores and internet sales, and 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. 
+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-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 aquatic activities, 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, including 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 directly to customers, 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 Yarmouth, Maine, designs and
+distributes dress and casual footwear, apparel and accessories for men and women under the Cole Haan ® trademark.
+1 
+Table of Contents 
+Our wholly-owned subsidiary, Converse Inc. (“Converse”),
+headquartered in North Andover, Massachusetts, designs, distributes and licenses athletic and casual footwear, apparel and accessories under the
+Converse ® , Chuck
+Taylor ® , All
+Star ® , One
+Star ® , Star Chevron and Jack
+Purcell ® trademarks. 
+Our wholly-owned subsidiary, Hurley International LLC (“Hurley”), headquartered in Costa Mesa, California,
+designs and distributes a line of action sports and youth lifestyle apparel and accessories under the Hurley ® 
+trademark. 
+Our wholly-owned subsidiary, Umbro Ltd. (“Umbro”), headquartered in Cheadle,
+England, designs, distributes and licenses athletic and casual footwear, apparel and equipment, primarily for the sport of football (soccer), under the
+Umbro ® trademark. 
+Sales and Marketing 
+Financial information about geographic and segment operations appears in Note 19 of the accompanying Notes to the Consolidated Financial
+Statements on page 88. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues
+in the first and fourth fiscal quarters have slightly 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 fitness
+activities and changing design trends affect the demand for our products. We must therefore respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories, and
+influencing sports and fitness preferences through aggressive marketing. Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability. This is a continuing risk. 
+We report our NIKE Brand operations based on our internal geographic organization. Each NIKE Brand geography operates predominantly
+in one industry: the design, production, marketing and selling of sports and fitness footwear, apparel, and equipment. In the third quarter of fiscal 2009, we initiated a reorganization of the NIKE Brand into a new model consisting of six
+geographies. Effective June 1, 2009, we began operating under our new organizational structure for the NIKE Brand, which consists of the following geographies: North America, Western Europe, Central and Eastern Europe, Greater China,
+Japan, and Emerging Markets. Previously, NIKE Brand operations were organized into the following four geographic regions: U.S.; Europe; Middle East and Africa (collectively, “EMEA”); Asia Pacific; and Americas. 
+United States Market 
+In fiscal 2010 and 2009, sales in the United States including U.S. sales of our Other Businesses accounted for approximately 42% of total
+revenues, compared to 43% in fiscal 2008. For fiscal 2010 and 2009, our Other Businesses were primarily comprised of Cole Haan, Converse, Hurley, NIKE Golf and Umbro (which was acquired on March 3, 2008). For fiscal 2008, our Other
+Businesses were primarily comprised of Cole Haan, Converse, Exeter (whose primary business was the Starter brand business which was sold on December 17, 2007), Hurley, NIKE Bauer Hockey (which was sold on April 17, 2008), NIKE Golf
+and Umbro. We estimate that we sell to more than 23,000 retail accounts in the United States. The NIKE Brand domestic retail 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 fiscal 2010, our three largest customers accounted for approximately 24% of sales in the United States. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in advance
+of delivery with the commitment that their orders will be delivered within a set time 
+2 
+Table of Contents 
+period at a fixed price. In fiscal 2010 and 2009, 89% of our U.S. wholesale footwear shipments (excluding our Other Businesses) were made under the futures program, compared to 90% in fiscal
+2008. In fiscal 2010, 62% of our U.S. wholesale apparel shipments (excluding our Other Businesses) were made under the futures program, compared to 60% in fiscal 2009 and 62% in fiscal 2008. 
+We utilize 19 NIKE sales offices to solicit sales in the United States. We also utilize 4 independent sales representatives to sell
+specialty products for golf and 5 for skateboarding and outdoor products. In addition, we sell NIKE Brand products through our internet website, www.nikestore.com , and we operate the following retail outlets in the United States: 
+U.S. Retail Stores 
+Number 
+NIKE factory stores (which carry primarily overstock and close-out merchandise) 
+145 
+NIKE stores (including one NIKE Women store) 
+12 
+NIKETOWNs (designed to showcase NIKE products) 
+11 
+NIKE employee-only stores 
+3 
+Cole Haan stores (including factory stores) 
+106 
+Converse factory stores 
+51 
+Hurley stores (including factory and employee stores) 
+18 
+Total 
+346 
+NIKE’s three United States distribution centers
+for NIKE Brand footwear are located in Memphis, Tennessee. NIKE Brand apparel and equipment products are shipped from our Memphis, Tennessee and Foothill Ranch, California distribution centers. Cole Haan products are distributed primarily from
+Greenland, New Hampshire, Converse products are shipped primarily from Ontario, California, and Hurley products are distributed from Irvine, California. 
+International Markets 
+In fiscal 2010 and 2009, non-U.S. sales (including non-U.S. sales of our Other Businesses) accounted for 58% of total revenues, compared
+to 57% in fiscal 2008. We sell our products to retail accounts, through NIKE-owned retail stores, and through a mix of independent distributors and licensees around the world. We estimate that we sell to more than 24,000 retail accounts outside the
+United States, excluding sales by independent distributors and licensees. We operate 14 distribution centers outside of the United States. In many countries and regions, including Canada, Asia, some Latin American countries, and Europe, we have a
+futures ordering program for retailers similar to the United States futures program described above. During fiscal 2010, NIKE’s three largest customers outside of the U.S. accounted for approximately 8% of total non-U.S. sales. 
+We operate the following retail outlets outside the United States: 
+Non-U.S. Retail Stores 
+Number 
+NIKE factory stores 
+205 
+NIKE stores 
+55 
+NIKETOWNs 
+2 
+NIKE employee-only stores 
+12 
+Cole Haan stores 
+68 
+Hurley stores 
+1 
+Total 
+343 
+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, 
+3 
+Table of Contents 
+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 2010. 
+Orders 
+Worldwide futures and advance orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from June through November 2010,
+were $8.8 billion compared to $7.8 billion for the same period last year. This futures and advance order amount is calculated based upon our forecast of the actual exchange 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 advance/futures and at-once orders and the
+fulfillment of certain of these advance/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 and advance orders and actual revenues. Moreover, a significant portion of our revenue is not derived from futures and advance orders, including at-once and close-out sales of NIKE footwear and apparel,
+wholesale sales of equipment, Cole Haan, Converse, Hurley, Umbro, NIKE Golf, and certain retail sales across all brands. 
+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 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, and
+concepts for product improvement. 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 2010, contract factories
+in Vietnam, China, Indonesia, Thailand, and India manufactured approximately 37%, 34%, 23%, 2% and 1% 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 2010 footwear production. 
+Almost all of NIKE Brand apparel is manufactured outside of the United States by independent contract manufacturers located in 33
+countries. Most of this apparel production occurred in China, Thailand, Indonesia, Malaysia, Vietnam, Sri Lanka, Turkey, Cambodia, El Salvador, Mexico, and Taiwan. The largest single apparel factory that we have contracted with accounted for
+approximately 7% of total fiscal 2010 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 
+4 
+Table of Contents 
+components. During fiscal 2010, NIKE IHM, Inc., a wholly-owned subsidiary of NIKE, and 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 contractors and suppliers buy raw materials in bulk. Most raw materials are available 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, has performed significant import-export financing services for us. During fiscal 2010, 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 17% 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 outside of the United States, Europe, Middle East, Africa and Japan. 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, 2011. 
+International Operations and Trade 
+Our international operations and sources of supply are subject to the usual risks 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 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 developments occurring. 
+The current global
+economic recession has resulted in a significant 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 profitability and the imported footwear and
+apparel industry as a whole. Accordingly, we are actively monitoring the developments described below. 
+Footwear Imports
+into the European Union 
+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 within the
+scope of the investigation, and (ii) does not meet the legal requirements of injury and price in an anti-dumping investigation. Our arguments were successful and the EU agreed in October 2006 on definitive duties of 16.5% for China and 10% for
+Vietnam for non-STAF leather footwear, but excluded STAF from the final measures. Prior to the scheduled expiration in October 2008 of the measures imposed on the non-STAF footwear, the domestic industry requested and the EC agreed to review a
+petition to extend these restrictions on non-STAF leather footwear. In December 2009, following a review of the ongoing restrictions, EU member states voted to extend the measures for an additional 15 months, until March 31, 2011. We expect
+that a decision by the EC on whether to initiate a review on these measures for a second time will take place before the end of calendar 2010. 
+5 
+Table of Contents 
+On February 3, 2010, the Chinese government announced it would be seeking to refer the
+EU decision (both on the original measures and subsequent review decision) to the World Trade Organization (“WTO”), and 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 current anti-dumping measures in force for leather footwear exports. 
+Footwear Imports into
+Brazil and Argentina 
+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 in broad coalition with 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 final
+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 with the same broad coalition of footwear companies to challenge this decision in domestic Brazilian courts as well as
+international forums such as the WTO. 
+Footwear Imports into Turkey 
+In 2006, Turkey introduced safeguard measures in the form of additional duties on all imported footwear into Turkey with the goal of
+protecting its local shoe manufacturing industry until August 2009. In June 2009, Turkish shoe-manufacturers submitted, and the Turkish Government agreed to review, a request for extension of the safeguard measures claiming that the rehabilitation
+process of the local Turkish industry was interrupted due to the continuing increase of footwear imports. Despite the importers opposition to the continuation of the safeguard measures, the Turkish authorities extended these safeguard measures until
+August 2012, but reduced the duty from $3 per pair of footwear to $1.60 per pair of footwear. As a result of this decision, Vietnam and Indonesia each initiated discussions with Turkey and each is seeking compensation from Turkey, which is possible
+under current WTO rules. These bilateral discussions are currently ongoing, and one potential outcome could involve Turkey awarding trade concessions on other products — or the exclusion from the safeguard measure of certain categories of
+footwear. A conclusion of the first round of talks between the exporting countries is expected in September 2010. 
+Trade
+Relations with China 
+China represents an important sourcing and marketing country for us. Many governments around the
+world are concerned about China’s growing and fast-paced economy, compliance with WTO rules, currency valuation, and high trade surpluses. As a result, a wide range of legislative proposals have been introduced to address these concerns. While
+some of these concerns may be justified, we are working with broad coalitions of global businesses and trade associations representing a wide variety of sectors (e.g., services, manufacturing, and agriculture) to help ensure 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. We believe other companies in our industry as well as most other multi-national companies are in a similar position regarding these trade measures. 
+In the event any of these 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. We believe our principal competitors are subject to
+similar risks. 
+6 
+Table of Contents 
+Competition 
+The athletic footwear, apparel, and equipment industry is keenly competitive in the United States and on a worldwide basis. We compete
+internationally with a significant number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel, and equipment,
+including Adidas, Puma, and 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 and athletic apparel in the world. Performance and reliability of
+shoes, apparel, and equipment, new product development, price, product identity through marketing and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel, and equipment industry. To help
+market our products, we contract with prominent and influential 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 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 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 over 150
+countries. In addition, we own many other trademarks that we utilize in marketing our products. We continue to vigorously protect our trademarks against infringement. 
+NIKE has an exclusive, worldwide license to make and sell footwear using patented “Air” technology. The
+process utilizes pressurized gas encapsulated in polyurethane. Some of the early NIKE AIR ® patents have expired,
+which may enable competitors to use certain types of similar technology. Subsequent NIKE AIR ® patents will not
+expire for several years. We also have hundreds of U.S. and foreign utility patents, and thousands of U.S. and foreign design patents covering components and features used in various athletic and leisure shoes, apparel, and equipment. These patents
+expire at various times, and patents issued for applications filed this year will last from now to 2024 for design patents, and from now to 2030 for utility patents. We believe our success 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 filing applications for United States and foreign patents on inventions, designs, and improvements that we deem valuable. 
+Employees 
+We had approximately 34,400 employees at May 31, 2010. Management considers its relationship with employees to be excellent. None of
+our employees is represented by a union, except for certain employees in the Emerging Markets geography, where local law requires those employees to be represented by a trade union, and in the United States, where certain employees of Cole Haan are
+represented by a union. Also, in some countries outside of the United States, local laws require representation for employees by works councils (such as in certain countries in the European Union, in which they are entitled to information and
+consultation on certain Company decisions) or other employee representation by 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 wide or national)
+collective bargaining agreements. There has never been a material interruption of operations due to labor disagreements. 
+7 
+Table of Contents 
+Executive Officers of the Registrant 
+The executive officers of NIKE as of July 16, 2010 are as follows: 
+Philip H. Knight, Chairman of the Board — Mr. Knight, 72, a director since 1968, is a co-founder of NIKE and, except for
+the period from June 1983 through September 1984, served as its President from 1968 to 1990 and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand
+and was an Assistant Professor of Business Administration at Portland State University. 
+Mark G. Parker, Chief
+Executive Officer and President — Mr. Parker, 54, was appointed CEO and President in January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand
+management. Mr. Parker was appointed divisional Vice President in charge of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001.
+David J. Ayre, Vice President, Global Human Resources — Mr. Ayre, 50, joined NIKE as Vice President, Global
+Human Resources in July 2007. Prior to joining NIKE, he held a number of senior human resource positions with PepsiCo, Inc. since 1990, most recently as head of Talent and Performance Rewards. 
+Donald W. Blair, Vice President and Chief Financial Officer — Mr. Blair, 52, joined NIKE in November 1999. Prior to
+joining NIKE, he held a number of financial management positions with PepsiCo, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice President, Planning of PepsiCo’s Pizza Hut Division, and Senior Vice President, Finance of The Pepsi
+Bottling Group, Inc. Prior to joining PepsiCo, Mr. Blair was a certified public accountant with Deloitte, Haskins, and Sells. 
+Charles D. Denson, President of the NIKE Brand — Mr. Denson, 54, has been employed by NIKE since 1979. Mr. Denson
+held several management positions within the Company, including his appointments as Director of USA Apparel Sales in 1994, divisional Vice President, U.S. Sales in 1994, divisional Vice President European Sales in 1997, divisional Vice President and
+General Manager, NIKE Europe in 1998, Vice President and General Manager of NIKE USA in 2000, and President of the NIKE Brand in 2001. 
+Gary M. DeStefano, President, Global Operations — Mr. DeStefano, 53, has been employed by NIKE since 1982, with primary
+responsibilities in sales and regional administration. Mr. DeStefano was appointed Director of Domestic Sales in 1990, divisional Vice President in charge of domestic sales in 1992, Vice President of Global Sales in 1996, Vice President and
+General Manager of Asia Pacific in 1997, President of USA Operations in 2001, and President of Global Operations in 2006. 
+Trevor Edwards, Vice President, Global Brand and Category Management — Mr. Edwards, 47, joined NIKE in 1992. He was
+appointed Marketing Manager, Strategic Accounts, Foot Locker in 1993, Director of Marketing, the Americas in 1995, Director of Marketing, Europe in 1997, Vice President, Marketing for Europe, Middle East and Africa in 1999, and Vice President, U.S.
+Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in 2002 and Vice President, Global Brand and Category Management in 2006. Prior to NIKE, Mr. Edwards was with the Colgate-Palmolive
+Company. 
+Jeanne P. Jackson, President, Direct to Consumer — Ms. Jackson, 58, served as a
+member of the NIKE, Inc. Board of Directors from 2001 through March 2009, when she resigned from our Board and was appointed President, Direct to Consumer. She is founder and CEO of MSP Capital, a private investment company. Ms. Jackson
+was CEO of Walmart.com from March 2000 to January 2002. She was with Gap, Inc., as President and CEO of Banana Republic from 1995 to 2000, also serving as CEO of Gap, Inc. Direct from 1998 to 2000. Since 1978, she has held various retail
+management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated Department Stores. Ms. Jackson is the past President of the United States Ski and Snowboard Foundation Board of Trustees, and is a
+director of McDonald’s Corporation. She is a former director of Nordstrom, Inc., and Harrah’s Entertainment, Inc. 
+8 
+Table of Contents 
+Hilary K. Krane, Vice President and General Counsel — Ms. Krane, 46, joined
+NIKE as Vice President and General Counsel in April 2010. Prior to joining NIKE, Ms. Krane was General Counsel and Senior Vice President for Corporate Affairs at Levi Strauss & Co. where she was responsible for legal affairs and
+overseeing the global brand protection department. From 1996 to 2006, she was a partner and assistant general counsel at PricewaterhouseCoopers LLP. 
+P. Eunan McLaughlin, President, Affiliates — Mr. McLaughlin, 52, joined NIKE as Director of Sales, NIKE Europe in 1999,
+and was appointed Vice President Commercial Sales and Retail in 2000, Vice President, Asia Pacific in 2001, Vice President, Europe, Middle East & Africa in May 2004, and President of Affiliates in April 2009. Prior to joining NIKE, he
+was Partner and Vice President of Consumer & Retail Practices Division, Korn/Ferry International from 1996 to 1999. From 1983 to 1996, Mr. McLaughlin held various positions with Mars, Inc. in finance, sales, marketing and general
+management. 
+Bernard F. Pliska, Vice President, Corporate Controller — Mr. Pliska, 48, joined NIKE as
+Corporate Controller in 1995. He was appointed Vice President, Corporate Controller in 2003. Prior to NIKE, Mr. Pliska was with Price Waterhouse from 1984 to 1995. Mr. Pliska is a certified public accountant. 
+John F. Slusher, Vice President, Global Sports Marketing — Mr. Slusher, 41, has been employed by NIKE since 1998 with
+primary responsibilities in global sports marketing. Mr. Slusher was appointed Director of Sports Marketing for the Asia Pacific and Americas Regions in 2006, divisional Vice President, Asia Pacific & Americas Sports Marketing in
+September 2007 and Vice President, Global Sports Marketing in November 2007. Prior to joining NIKE, Mr. Slusher was an attorney at the law firm of O’Melveny & Myers from 1995 to 1998. 
+Eric D. Sprunk, Vice President, Merchandising and Product — Mr. Sprunk, 46, joined NIKE in 1993. He was appointed
+Finance Director and General Manager of the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General Manager, NIKE Europe Footwear in 1998, and Vice President & General Manager of the Americas in 2000. Mr. Sprunk was
+appointed corporate Vice President, Global Footwear in 2001 and Vice President, Merchandising and Product in 2009. Prior to joining NIKE, Mr. Sprunk was a certified public accountant with Price Waterhouse from 1987 to 1993. 
+Hans van Alebeek, Vice President, Global Operations and Technology — Mr. van Alebeek, 44, joined NIKE as Director
+of Operations of Europe in 1999, and was appointed Vice President, Operations & Administration in EMEA in 2001, Vice President, Global Operations in 2003, Vice President, Global Operations & Technology in 2004, and Corporate Vice
+President in November 2005. Prior to joining NIKE, Mr. van Alebeek worked for McKinsey & Company as a management consultant and at N.V. Indivers in business development. 
+Item 1A. 
+Risk Factors 
+Special Note Regarding Forward-Looking Statements and Analyst Reports 
+Certain written and oral statements, other than purely historical information, including estimates, projections, statements relating to
+NIKE’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, made or incorporated by reference from time to time by NIKE or its representatives in this report, other reports,
+filings with the Securities and Exchange Commission, press releases, conferences, or otherwise, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the
+Securities Exchange Act of 1934, as amended. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words
+“believe”, “anticipate”, “expect”, “estimate”, “project”, “will be”, “will continue”, “will likely result”, or words or phrases of similar meaning. Forward-looking
+statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by NIKE with the Securities and Exchange
+Commission, including Forms 8-K, 10-Q, and 10-K, and include, among others, the following: international, national and local general economic and market conditions; the size and 
+9 
+Table of Contents 
+growth of the overall athletic footwear, apparel, and equipment markets; intense competition among designers, marketers, distributors and sellers of athletic footwear, apparel, and equipment for
+consumers and endorsers; demographic changes; changes in consumer preferences; popularity of particular designs, categories of products, and sports; seasonal and geographic demand for NIKE products; difficulties in anticipating or forecasting
+changes in consumer preferences, consumer demand for NIKE products, and the various market factors described above; difficulties in implementing, operating, and maintaining NIKE’s increasingly complex information systems and controls,
+including, without limitation, the systems related to demand and supply planning, and inventory control; interruptions in data and communications systems; fluctuations and difficulty in forecasting operating results, including, without limitation,
+the fact that advance “futures” orders may not be indicative of future revenues due to changes in shipment timing, and the changing mix of futures and at-once orders and order cancellations; the ability of NIKE to sustain, manage or
+forecast its growth and inventories; the size, timing and mix of purchases of NIKE’s products; increases in the cost of materials and energy used to manufacture products, new product development and introduction; the ability to secure and
+protect trademarks, patents, and other intellectual property; performance and reliability of products; customer service; adverse publicity; the loss of significant customers or suppliers; dependence on distributors and licensees; business
+disruptions; increased costs of freight and transportation to meet delivery deadlines; increases in borrowing costs due to any decline in our debt ratings; changes in business strategy or development plans; general risks associated with doing
+business outside the United States, including, without limitation, exchange rate fluctuations, import duties, tariffs, quotas, political and economic instability, and terrorism; changes in government regulations; the impact of, including business
+and legal developments relating to, climate change; liability and other claims asserted against NIKE; the ability to attract and retain qualified personnel; and other factors referenced or incorporated by reference in this report and other reports.
+The risks included here are not exhaustive. Other sections of this report may include additional factors which could
+adversely affect NIKE’s business and financial performance. Moreover, NIKE operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk
+factors, nor can it assess the impact of all such risk factors on NIKE’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
+statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. 
+Investors should also be aware that while NIKE does, from time to time, communicate with securities analysts, it is against NIKE’s
+policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that NIKE agrees with any statement or report issued by any analyst irrespective of the content
+of the statement or report. Furthermore, NIKE has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or
+opinions, such reports are not the responsibility of NIKE. 
+Our products face intense competition. 
+NIKE is a consumer products company and the relative popularity of various sports and fitness activities and changing design trends affect
+the demand for our products. The athletic footwear, apparel, and equipment industry is keenly competitive in the United States and on a worldwide basis. We compete internationally with a significant number of athletic and leisure shoe companies,
+athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel, and equipment. We also compete with other companies for the production capacity of independent
+manufacturers that produce our products and for import quota capacity. 
+Our competitors’ product offerings, technologies,
+marketing expenditures (including expenditures for advertising and endorsements), pricing, costs of production, and customer service are areas of intense competition. This, in addition to rapid changes in technology and consumer preferences in the
+markets for 
+10 
+Table of Contents 
+athletic and leisure footwear and apparel, and athletic equipment, constitute significant risk factors in our operations. If we do not adequately and timely anticipate and respond to our
+competitors, our costs may increase or the consumer demand for our products may decline significantly. 
+If we are unable to anticipate
+consumer preferences and develop new products, we may not be able to maintain or increase our net revenues and profits. 
+Our success depends on our ability to identify, originate and define product trends as well as to anticipate, gauge and react to changing
+consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to
+different types of performance or other sports apparel or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes. If we fail to anticipate accurately and respond
+to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, designs, styles and categories, and influencing sports and fitness preferences through aggressive marketing, we could
+experience lower sales, excess inventories and lower profit margins, any of which could have an adverse effect on our results of operations and financial condition. 
+We rely on technical innovation and high quality products to compete in the market for our products. 
+Although design and aesthetics of our products appear to be the most important factor for consumer acceptance of our products, technical
+innovation and quality control in the design of footwear, apparel, and athletic equipment is also essential to the commercial success of our products. Research and development plays a key role in technical innovation. We rely upon specialists in the
+fields of biomechanics, exercise physiology, engineering, industrial design and related fields, as well as research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists, and other
+experts to develop and test cutting edge performance products. While we strive to produce products that help to reduce injury, enhance athletic performance and maximize comfort, if we fail to introduce technical innovation in our products consumer
+demand for our products could decline, and if we experience problems with the quality of our products, we may incur substantial expense to remedy the problems. 
+Failure to continue to obtain high quality endorsers of our products could harm our business. 
+We establish relationships with professional athletes, sports teams and leagues to evaluate, promote, and establish product authenticity
+with consumers. If certain endorsers were to stop using our products contrary to their endorsement agreements, our business could be adversely affected. In addition, actions taken by athletes, teams or leagues associated with our products that harm
+the reputations of those athletes, teams or leagues could also harm our brand image with consumers and, as a result, could have an adverse effect on our sales and financial condition. In addition, poor performance by our endorsers, a failure to
+continue to correctly identify promising athletes to use and endorse our products, or a failure to enter into cost effective endorsement arrangements with prominent athletes and sports organizations could adversely affect our brand and result in
+decreased sales of our products. 
+Failure of our contractors or our licensees’ contractors to comply with our code of conduct,
+local laws, and other standards could harm our business. 
+We contract with hundreds of contractors outside of the
+United States to manufacture our products, and we also have license agreements that permit unaffiliated parties to manufacture or contract to manufacture products using our trademarks. We impose, and require our licensees to impose, on those
+contractors a code of conduct and other environmental, health, and safety standards for the benefit of workers. However, from time to time contractors may not comply with such standards or applicable local law or our licensees may not require their
+contractors to comply with such standards or applicable local law. Significant or continuing noncompliance with such standards and laws by one or more contractors could harm our reputation and, as a result, could have an adverse effect on our sales
+and financial condition. 
+11 
+Table of Contents 
+Global capital and credit market conditions, and resulting declines in consumer confidence and
+spending, could have a material adverse effect on our business, operating results, and financial condition. 
+Continuing
+volatility and disruption in the global capital and credit markets have led to a tightening of business credit and liquidity, a contraction of consumer credit, business failures, higher unemployment, and declines in consumer confidence and spending
+in the United States and internationally. If global economic and financial market conditions deteriorate or remain weak for an extended period of time, the following factors could have a material adverse effect on our business, operating
+results, and financial condition: 
+• 
+Slower consumer spending may result in reduced demand for our products, reduced orders from retailers for our products, order cancellations, lower
+revenues, increased inventories, and lower gross margins. 
+• 
+We may be unable to find suitable investments that are safe, liquid, and provide a reasonable return. This could result in lower interest
+income or longer investment horizons. Disruptions to capital markets or the banking system may also impair the value of investments or bank deposits we currently consider safe or liquid. 
+• 
+We may be unable to access financing in the credit and capital markets at reasonable rates in the event we find it desirable to do so.
+• 
+The failure of financial institution counterparties to honor their obligations to us under credit and derivative instruments could jeopardize our
+ability to rely on and benefit from those instruments. Our ability to replace those instruments on the same or similar terms may be limited under poor market conditions. 
+• 
+We conduct transactions in various currencies, which increase our exposure to fluctuations in foreign currency exchange rates relative to the U.S.
+dollar. Continued volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies could have a significant impact on our reported financial results and condition. 
+• 
+Continued volatility in the markets and prices for commodities and raw materials we use in our products and in our supply chain (such as petroleum)
+could have a material adverse effect on our costs, gross margins, and profitability. 
+• 
+If retailers of our products experience declining revenues, or retailers experience difficulty obtaining financing in the capital and credit markets to
+purchase our products, this could result in reduced orders for our products, order cancellations, inability of retailers to timely meet their payment obligations to us, extended payment terms, higher accounts receivable, reduced cash flows, greater
+expense associated with collection efforts, and increased bad debt expense. 
+• 
+If retailers of our products experience severe financial difficulty, some may become insolvent and cease business operations, which could reduce the
+availability of our products to consumers. 
+• 
+If contract manufacturers of our products or other participants in our supply chain experience difficulty obtaining financing in the capital and credit
+markets to purchase raw materials or to finance general working capital needs, it may result in delays or non-delivery of shipments of our products. 
+Our business is affected by seasonality, which could result in fluctuations in our operating results and stock price. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal
+quarters have slightly exceeded those in the second and third fiscal quarters. However, the mix of product sales may vary considerably from time to time as a result of changes in seasonal and geographic demand for particular types of footwear,
+apparel and equipment. In addition, our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice. As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our
+results of operations are likely to 
+12 
+Table of Contents 
+fluctuate significantly from period to period. This seasonality, along with other factors that are beyond our control, including general economic conditions, changes in consumer preferences,
+weather conditions, availability of import quotas and currency exchange rate fluctuations, could adversely affect our business and cause our results of operations to fluctuate. Our operating margins are also sensitive to a number of factors that are
+beyond our control, including shifts in product sales mix, geographic sales trends, and currency exchange rate fluctuations, all of which we expect to continue. Results of operations in any period should not be considered indicative of the results
+to be expected for any future period. 
+“Futures” orders may not be an accurate indication of our future revenues. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in
+advance of delivery with the commitment that their orders will be delivered within a set period of time at a fixed price. Our futures ordering program allows us to minimize the amount of products we hold in inventory, purchasing costs, the time
+necessary to fill customer orders, and the risk of non-delivery. We report changes in futures orders in our periodic financial reports. Although we believe futures orders are an important indicator of our future revenues, reported futures orders are
+not necessarily indicative of our expectation of changes in revenues for any future period. This is because the mix of orders can shift between advance/futures and at-once orders. In addition, foreign currency exchange rate fluctuations, order
+cancellations, returns, 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 close-out sales of NIKE
+footwear and apparel, wholesale sales of equipment, Cole Haan, Converse, Hurley, NIKE Golf and Umbro, and retail sales across all brands. 
+Our “futures” ordering program does not prevent excess inventories or inventory shortages, which could result in decreased operating
+margins and harm to our business. 
+We purchase products from manufacturers outside of our futures ordering program and
+in advance of customer orders, which we hold in inventory and resell to customers. There is a risk we may be unable to sell excess products ordered from manufacturers. Inventory levels in excess of customer demand may result in inventory
+write-downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and have an adverse effect on our operating results and financial condition. Conversely, if we underestimate consumer demand for our
+products or if our manufacturers fail to supply products we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer and distributor relationships,
+and diminish brand loyalty. 
+The difficulty in forecasting demand also makes it difficult to estimate our future results of
+operations and financial condition from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in
+advance. 
+We may be adversely affected by the financial health of our retailers. 
+We extend credit to our customers based on an assessment of a customer’s financial condition, generally without requiring collateral.
+To assist in the scheduling of production and the shipping of seasonal products, we offer customers the ability to place orders five to six months ahead of delivery under our “futures” ordering program. These advance orders may be
+cancelled, and the risk of cancellation may increase when dealing with financially ailing retailers or retailers struggling with economic uncertainty. In the past, some customers have experienced financial difficulties, which have had an adverse
+effect on our business. As a result, retailers may be more cautious than usual with orders as a result of weakness in the retail economy. A slowing economy in our key markets could have an adverse effect on the financial health of our customers,
+which in turn could have an adverse effect on our results of operations and financial condition. In addition, product sales are dependent in part on high quality merchandising and an appealing store environment to attract consumers, which requires
+continuing investments by retailers. Retailers who experience financial difficulties may fail to make such investments or delay them, resulting in lower sales and orders for our products. 
+13 
+Table of Contents 
+Consolidation of retailers or concentration of retail market share among a few retailers may increase
+and concentrate our credit risk, and impair our ability to sell our products. 
+The athletic footwear, apparel, and
+equipment retail markets in some countries are dominated by a few large athletic footwear, apparel, and equipment retailers with many stores. These retailers have in the past increased their market share and may continue to do so in the future by
+expanding through acquisitions and construction of additional stores. These situations concentrate our credit risk with a relatively small number of retailers, and, if any of these retailers were to experience a shortage of liquidity, it would
+increase the risk that their outstanding payables to us may not be paid. In addition, increasing market share concentration among one or a few retailers in a particular country or region increases the risk that if any one of them substantially
+reduces their purchases of our products, we may be unable to find a sufficient number of other retail outlets for our products to sustain the same level of sales and revenues. 
+Failure to adequately protect our intellectual property rights could adversely affect our business. 
+We utilize trademarks on nearly all of our products and believe that having distinctive marks that are readily
+identifiable is an important factor in creating a market for our goods, in identifying us, 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 over 150
+countries. In addition, we own many other trademarks that we utilize in marketing our products. We believe that our trademarks, patents, and other intellectual property rights are important to our brand, our success, and our competitive position. We
+periodically discover products that are counterfeit reproductions of our products or that otherwise infringe on our intellectual property rights. If we are unsuccessful in challenging a party’s products on the basis of trademark or design or
+utility patent infringement, continued sales of these products could adversely affect our sales and our brand and result in the shift of consumer preference away from our products. The actions we take to establish and protect trademarks, patents,
+and other intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as violations of proprietary rights. 
+In addition, the laws of certain foreign countries may not protect intellectual property rights to the same extent as the laws of the
+United States. We may face significant expenses and liability in connection with the protection of our intellectual property rights outside the United States, and if we are unable to successfully protect our rights or resolve intellectual property
+conflicts with others, our business or financial condition may be adversely affected. 
+We are subject to periodic litigation and other
+regulatory proceedings, which could result in unexpected expense of time and resources. 
+From time to time we are
+called upon to defend ourselves against lawsuits and regulatory actions relating to our business. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings.
+An unfavorable outcome could have an adverse impact on our business, financial condition and results of operations. In addition, any significant litigation in the future, regardless of its merits, could divert management’s attention from our
+operations and result in substantial legal fees. 
+Our international operations involve inherent risks which could result in harm to our
+business. 
+Virtually all of our athletic footwear and apparel is manufactured outside of the United States, and the
+majority of our products are sold outside of the United States. Accordingly, we are subject to the risks generally associated with global trade and doing business abroad, which include foreign laws and regulations, varying consumer preferences
+across geographic regions, political unrest, disruptions or delays in cross-border shipments, and changes in economic conditions in countries in which we manufacture or sell products. In 
+14 
+Table of Contents 
+addition, disease outbreaks, terrorist acts and military conflict have increased the risks of doing business abroad. These factors, among others, could affect our ability to manufacture products
+or procure materials, our ability to import products, our ability to sell products in international markets, and our cost of doing business. If any of these or other factors make the conduct of business in a particular country undesirable or
+impractical, our business could be adversely affected. In addition, many of our imported products are subject to duties, tariffs, or quotas that affect the cost and quantity of various types of goods imported into the United States and other
+countries. Any country in which our products are produced or sold may eliminate, adjust or impose new quotas, duties, tariffs, safeguard measures, anti-dumping duties, cargo restrictions to prevent terrorism, restrictions on the transfer of
+currency, climate change legislation or other charges or restrictions, any of which could have an adverse effect on our results of operations and financial condition. 
+Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability. 
+We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective income tax rate in the future could
+be adversely affected by a number of factors, including: changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, the outcome of income tax
+audits in various jurisdictions around the world, and any repatriation of non-US earnings for which we have not previously provided for U.S. taxes. We regularly assess all of these matters to determine the adequacy of our tax provision, which is
+subject to significant discretion. Recently proposed legislation in the United States would change how U.S. multinational corporations are taxed on their foreign income. If such legislation is enacted, it may have a material adverse impact to our
+tax rate and in turn, our profitability. 
+Currency exchange rate fluctuations could result in higher costs and decreased margins.
+A majority of our products are sold outside of the United States. As a result, we conduct transactions in various
+currencies, which increase our exposure to fluctuations in foreign currency exchange rates relative to the U.S. dollar. Our international revenues and expenses generally are derived from sales and operations in foreign currencies, and these revenues
+and expenses could be affected by currency fluctuations, including amounts recorded in foreign currencies and translated into U.S. dollars for consolidated financial reporting. Currency exchange rate fluctuations could also disrupt the business of
+the independent manufacturers that produce our products by making their purchases of raw materials more expensive and more difficult to finance. Foreign currency fluctuations could have an adverse effect on our results of operations and financial
+condition. 
+Our hedging activities (see Note 18 — Risk Management and Derivatives in the accompanying Notes to the
+Consolidated Financial Statements ), which are designed to minimize and delay, but not to completely eliminate, the effects of foreign currency fluctuations may not sufficiently mitigate the impact of foreign currencies on our financial
+results. Factors that could affect the effectiveness of our hedging activities include accuracy of sales forecasts, volatility of currency markets, and the availability of hedging instruments. Since the hedging activities are designed to minimize
+volatility, they not only reduce the negative impact of a stronger U.S. dollar, but they also reduce the positive impact of a weaker U.S. dollar. Our future financial results could be significantly affected by the value of the U.S. dollar in
+relation to the foreign currencies in which we conduct business. The degree to which our financial results are affected for any given time period will depend in part upon our hedging activities. 
+Our products are subject to risks associated with overseas sourcing, manufacturing, and financing. 
+The principal materials used in our apparel products — 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 — are available in countries where our manufacturing takes place. The principal materials used in our footwear products — natural
+and synthetic rubber, plastic compounds, foam cushioning materials, nylon, leather, canvas and polyurethane films — are also locally available to manufacturers. NIKE contractors and suppliers buy raw materials in bulk. 
+15 
+Table of Contents 
+There could be a significant disruption in the supply of fabrics or raw materials from
+current sources or, in the event of a disruption, we might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price, or at all. In addition, we cannot be certain that our unaffiliated manufacturers will
+be able to fill our orders in a timely manner. If we experience significant increases in demand, or need to replace an existing manufacturer, there can be no assurance that additional supplies of fabrics or raw materials or additional manufacturing
+capacity will be available when required on terms that are acceptable to us, or at all, or that any supplier or manufacturer would allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand
+existing or find new manufacturing or sources of materials, we may encounter delays in production and added costs as a result of the time it takes to train suppliers and manufacturers in our methods, products, quality control standards, and labor,
+health and safety standards. Any delays, interruption or increased costs in the supply of materials or manufacture of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in
+lower revenues and net income both in the short and long-term. 
+Because independent manufacturers manufacture a majority of
+our products outside of our principal sales markets, our products must be transported by third parties over large geographic distances. Delays in the shipment or delivery of our products due to the availability of transportation, work stoppages,
+port strikes, infrastructure congestion, or other factors, and costs and delays associated with consolidating or transitioning between manufacturers, could adversely impact our financial performance. In addition, manufacturing delays or unexpected
+demand for our products may require us to use faster, but more expensive, transportation methods such as aircraft, which could adversely affect our profit margins. The cost of fuel is a significant component in manufacturing and transportation
+costs, so increases in the price of petroleum products can adversely affect our profit margins. 
+In addition, Sojitz America
+performs significant import-export financing services for most of the NIKE Brand products sold outside of the United States, Europe, Middle East, Africa, and Japan, excluding products produced and sold in the same country. 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 outside of the United States, Europe, Middle East, Africa, and
+Japan. Such a disruption could result in cancelled orders that would adversely affect sales and profitability. 
+Our success depends on
+our global distribution facilities. 
+We distribute our products to customers directly from the factory and through
+distribution centers located throughout the world. Our ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies depends on the proper operation of our distribution facilities, the
+development or expansion of additional distribution capabilities, and the timely performance of services by third parties (including those involved in shipping product to and from our distribution facilities). Our distribution facilities could be
+interrupted by information technology problems and disasters such as earthquakes or fires. Any significant failure in our distribution facilities could result in an adverse affect on our business. We maintain business interruption insurance, but it
+may not adequately protect us from adverse effects that could be caused by significant disruptions in our distribution facilities. 
+We
+rely significantly on information technology in our supply chain, and any failure, inadequacy, interruption or security failure of that technology could harm our ability to effectively operate our business. 
+We are heavily dependent on information technology systems across our supply chain, including product design, production, forecasting,
+ordering, manufacturing, transportation, sales, and distribution. Our ability to effectively manage and maintain our inventory and to ship products to customers on a timely basis depends significantly on the reliability of these supply chain
+systems. Over the last several years, as part of the ongoing initiative to upgrade our worldwide supply chain, we have implemented new systems in all of our geographical regions in which we operate. Over the next few years, we will work to continue
+to enhance the systems and 
+16 
+Table of Contents 
+related processes in our global operations. The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, or a breach in security of these
+systems could cause delays in product fulfillment and reduced efficiency of our operations, could require significant capital investments to remediate the problem, and may have an adverse effect on our results of operations and financial condition.
+Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected
+returns. 
+From time to time, we may invest in business infrastructure, acquisitions of new businesses, and expansion of
+existing businesses, such as our retail operations, which require substantial cash investments and management attention. We believe cost effective investments are essential to business growth and profitability. However, significant investments are
+subject to typical risks and uncertainties inherent in acquiring or expanding a business. The failure of any significant investment to provide the returns or profitability we expect could have a material adverse effect on our financial results and
+divert management attention from more profitable business operations. 
+We depend on key personnel, the loss of whom would harm our
+business. 
+Our future success will depend in part on the continued service of key executive officers and personnel. The
+loss of the services of any key individual could harm us. Our future success also depends on our ability to identify, attract and retain additional qualified personnel. Competition for employees in our industry is intense and we may not be
+successful in attracting and retaining such personnel. 
+The sale of a large number of shares held by our Chairman could depress the
+market price of our common stock. 
+Philip H. Knight, Co-founder and Chairman of our Board of Directors, beneficially
+owns over 74% of our Class A Common Stock. If all of his Class A Common Stock were converted into Class B Common Stock, Mr. Knight would own over 14% of our Class B Common Stock. These shares are available for resale, subject to the
+requirements of the U.S. securities laws. The sale or prospect of the sale of a substantial number of these shares could have an adverse effect on the market price of our common stock. 
+Anti-takeover provisions may impair an acquisition of the Company or reduce the price of our common stock. 
+There are provisions of our articles of incorporation and Oregon law that are intended to protect shareholder interests by providing the
+Board of Directors a means to attempt to deny coercive takeover attempts or to negotiate with a potential acquirer in order to obtain more favorable terms. Such provisions include a control share acquisition statute, a freezeout statute, two classes
+of stock that vote separately on certain issues, and the fact that holders of Class A Common Stock elect three-fourths of the Board of Directors rounded down to the next whole number. However, such provisions could discourage, delay or prevent
+an unsolicited merger, acquisition or other change in control of our company that some shareholders might believe to be in their best interests or in which shareholders might receive a premium for their common stock over the prevailing market price.
+These provisions could also discourage proxy contests for control of the Company. 
+We may fail to meet analyst expectations, which could
+cause the price of our stock to decline. 
+Our Class B Common Stock is traded publicly, and at any given time various
+securities analysts follow our financial results and issue reports on us. These reports include information about our historical financial results as well as the analysts’ estimates of our future performance. The analysts’ estimates are
+based upon their own opinions and are often different from our estimates or expectations. If our operating results are below the estimates or expectations of public market analysts and investors, our stock price could decline. In the past,
+securities class action litigation has been brought against NIKE and other companies following a decline in the market price of their securities. If our stock price is volatile, we may become involved in this type of litigation in the future. Any
+litigation could result in substantial costs and a diversion of management’s attention and resources that are needed to successfully run our business. 
+17 
+Table of Contents 
+Item 1B. 
+Unresolved Staff Comments 
+Not applicable. 
+Item 2. 
+Properties 
+The following is a summary of principal properties owned or leased by NIKE. 
+The NIKE World Campus, owned by NIKE and located in Beaverton, Oregon, USA, is a 176 acre facility of 18 buildings which functions as our
+world headquarters and is occupied by almost 5,800 employees engaged in management, research, design, development, marketing, finance, and other administrative functions from nearly all of our divisions. We also lease various office facilities in
+the surrounding metropolitan area. We lease a similar, but smaller, administrative facility in Hilversum, the Netherlands, which serves as the headquarters for the Western Europe and Central and Eastern Europe geographies. 
+There are three significant distribution and customer service facilities for NIKE Brand footwear products in the United States. All three
+of them are located in Memphis, Tennessee, one of which is leased. In the United States, NIKE Brand apparel and equipment are shipped from our Memphis, Tennessee and Foothill Ranch, California distribution centers, which we lease. Cole Haan also
+operates a distribution facility in Greenland, New Hampshire, which we lease. Smaller leased distribution facilities for other brands and non-NIKE Brand businesses are located in various parts of the United States. We also own or lease distribution
+and customer service facilities in many parts of the world, the most significant of which are the distribution facilities located in Tomisatomachi, Japan, and in Laakdal, Belgium, both of which we own. 
+We manufacture Air-Sole cushioning materials and components at NIKE IHM, Inc. manufacturing facilities located in Beaverton, Oregon and
+St. Charles, Missouri, which we own. We also manufacture and sell small amounts of various plastic products to other manufacturers through NIKE IHM, Inc. 
+Aside from the principal properties described above, we lease three production offices outside the United States, over 100 sales offices
+and showrooms worldwide, and approximately 65 administrative offices worldwide. We lease more than 600 retail stores worldwide, which consist primarily of factory outlet stores. See “United States Market” and “International
+Markets” starting on page 2 of this Report. Our leases expire at various dates through the year 2035. 
+Item 3. 
+Legal Proceedings 
+There are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a
+party or of which any of our property is the subject. 
+Item 4. 
+Reserved 
+18 
+Table of Contents 
+PART II 
+Item 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+NIKE’s Class B Common Stock is listed on the New York Stock Exchange and trades under the symbol NKE. At July 16, 2010,
+there were 20,452 holders of record of our Class B Common Stock and 19 holders of record of our Class A Common Stock. These figures do not include beneficial owners who hold shares in nominee name. The Class A Common Stock is not
+publicly traded but each share is convertible upon request of the holder into one share of Class B Common Stock. The following tables set forth, for each of the quarterly periods indicated, the high and low sales prices for the Class B Common
+Stock as reported on the New York Stock Exchange Composite Tape and dividends declared on the Class A and Class B Common Stock. 
+Fiscal 2010 (June 1, 2009 — May 31, 2010) 
+High 
+Low 
+Dividends 
+Declared 
+First Quarter 
+$ 
+59.95 
+$ 
+50.16 
+$ 
+0.25 
+Second Quarter 
+66.35 
+53.22 
+0.27 
+Third Quarter 
+67.85 
+60.89 
+0.27 
+Fourth Quarter 
+78.55 
+66.99 
+0.27 
+Fiscal 2009 (June 1, 2008 — May 31, 2009) 
+High 
+Low 
+Dividends 
+Declared 
+First Quarter 
+$ 
+70.28 
+$ 
+54.64 
+$ 
+0.23 
+Second Quarter 
+68.00 
+42.68 
+0.25 
+Third Quarter 
+57.33 
+40.08 
+0.25 
+Fourth Quarter 
+57.14 
+38.24 
+0.25 
+During the third
+quarter of fiscal 2010, we concluded our previous four-year, $3 billion share repurchase program, approved by the Board of Directors in June 2006. During this program, we repurchased a total of 53.9 million shares. Having completed the previous
+program, during the third quarter of fiscal 2010, we began repurchases under the four-year, $5 billion program approved by our Board of Directors in September 2008. The following table presents a summary of share repurchases made by NIKE during
+the quarter ended May 31, 2010. 
+Period 
+Total Number of 
+Shares 
+Purchased 
+Average Price Paid 
+per
+Share 
+Total Number of Shares 
+Purchased as Part of 
+Publicly Announced Plans 
+or
+Programs 
+Maximum Dollar Value of 
+Shares that May Yet
+Be 
+Purchased Under the Plans 
+or Programs 
+(In thousands) 
+(In thousands) 
+(In millions) 
+March 1 — March 31, 2010 
+— 
+$ 
+— 
+— 
+$ 
+4,762.2 
+April 1 — April 30, 2010 
+1,575 
+$ 
+75.82 
+1,575 
+$ 
+4,642.8 
+May 1 — May 31, 2010 
+1,309 
+$ 
+74.01 
+1,309 
+$ 
+4,545.9 
+2,884 
+$ 
+75.00 
+2,884 
+19 
+Table of Contents 
+Performance Graph 
+The following graph demonstrates a five-year comparison of cumulative total returns for NIKE’s Class B Common Stock, the
+Standard & Poor’s 500 Stock Index, the Standard & Poor’s Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. The graph assumes an investment of $100 on May 31, 2005 in each of
+our Class B Common Stock, and the stocks comprising the Standard & Poor’s 500 Stock Index, the Standard & Poor’s Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. Each of the
+indices assumes that all dividends were reinvested. 
+COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG NIKE, INC., S&P
+500 
+INDEX, S&P APPAREL, ACCESSORIES & LUXURY GOODS INDEX, 
+AND THE DOW JONES U.S. FOOTWEAR INDEX 
+The Dow Jones U.S. Footwear Index consists of NIKE, Deckers Outdoor Corp., Timberland Co., Wolverine World
+Wide, Inc., and Iconix Brand Group Inc. Because NIKE is part of the Dow Jones U.S. Footwear Index, the price and returns of NIKE stock have a substantial effect on this index. The Standard & Poor’s Apparel, Accessories &
+Luxury Goods Index consists of VF Corp., Coach, Inc., and Polo Ralph Lauren Corporation. The Dow Jones U.S. Footwear Index and the Standard & Poor’s Apparel, Accessories, and Luxury Goods Index include companies in two major lines of
+business in which the Company competes. The indices do not encompass all of the Company’s competitors, nor all product categories and lines of business in which the Company is engaged. 
+The stock performance shown on the performance graph above is not necessarily indicative of future performance. The Company will not make
+nor endorse any predictions as to future stock performance. 
+The performance graph above is being furnished solely to
+accompany this Report pursuant to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the
+Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. 
+20 
+Table of Contents 
+Item 6. 
+Selected Financial Data 
+Financial History 
+2010 
+2009 
+2008 
+2007 
+2006 
+(In millions, except per share data and financial
+ratios) (1) 
+Year Ended May 31, 
+Revenues 
+$ 
+19,014 
+$ 
+19,176 
+$ 
+18,627 
+$ 
+16,326 
+$ 
+14,955 
+Gross margin 
+8,800 
+8,604 
+8,387 
+7,161 
+6,587 
+Gross margin % 
+46.3 
+% 
+44.9 
+% 
+45.0 
+% 
+43.9 
+% 
+44.0 
+% 
+Restructuring charges 
+— 
+195 
+— 
+— 
+— 
+Goodwill impairment 
+— 
+199 
+— 
+— 
+— 
+Intangible and other asset impairment 
+— 
+202 
+— 
+— 
+— 
+Net income 
+1,907 
+1,487 
+1,883 
+1,492 
+1,392 
+Basic earnings per common share 
+3.93 
+3.07 
+3.80 
+2.96 
+2.69 
+Diluted earnings per common share 
+3.86 
+3.03 
+3.74 
+2.93 
+2.64 
+Weighted average common shares outstanding 
+485.5 
+484.9 
+495.6 
+503.8 
+518.0 
+Diluted weighted average common shares outstanding 
+493.9 
+490.7 
+504.1 
+509.9 
+527.6 
+Cash dividends declared per common share 
+1.06 
+0.98 
+0.875 
+0.71 
+0.59 
+Cash flow from operations 
+3,164 
+1,736 
+1,936 
+1,879 
+1,668 
+Price range of common stock 
+High 
+78.55 
+70.28 
+70.60 
+57.12 
+45.77 
+Low 
+50.16 
+38.24 
+51.50 
+37.76 
+38.27 
+At May 31, 
+Cash and equivalents 
+$ 
+3,079 
+$ 
+2,291 
+$ 
+2,134 
+$ 
+1,857 
+$ 
+954 
+Short-term investments 
+2,067 
+1,164 
+642 
+990 
+1,349 
+Inventories 
+2,041 
+2,357 
+2,438 
+2,122 
+2,077 
+Working capital 
+7,595 
+6,457 
+5,518 
+5,493 
+4,734 
+Total assets 
+14,419 
+13,250 
+12,443 
+10,688 
+9,870 
+Long-term debt 
+446 
+437 
+441 
+410 
+411 
+Redeemable Preferred Stock 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+Shareholders’ equity 
+9,754 
+8,693 
+7,825 
+7,025 
+6,285 
+Year-end stock price 
+72.38 
+57.05 
+68.37 
+56.75 
+40.16 
+Market capitalization 
+35,032 
+27,698 
+33,577 
+28,472 
+20,565 
+Financial Ratios: 
+Return on equity 
+20.7 
+% 
+18.0 
+% 
+25.4 
+% 
+22.4 
+% 
+23.3 
+% 
+Return on assets 
+13.8 
+% 
+11.6 
+% 
+16.3 
+% 
+14.5 
+% 
+14.9 
+% 
+Inventory turns 
+4.6 
+4.4 
+4.5 
+4.4 
+4.3 
+Current ratio at May 31 
+3.3 
+3.0 
+2.7 
+3.1 
+2.8 
+Price/Earnings ratio at May 31 
+18.8 
+18.8 
+18.3 
+19.4 
+15.2 
+(1) 
+All share and per share information has been restated to reflect a two-for-one stock split affected in the form of a 100% common stock dividend
+distributed on April 2, 2007. 
+21 
+Table of Contents 
+Selected Quarterly Financial Data 
+1st Quarter 
+2nd Quarter 
+3rd Quarter 
+4th Quarter 
+2010 
+2009 
+2010 
+2009 
+2010 
+2009 
+2010 
+2009 
+(Unaudited) 
+(In millions, except per share data) 
+Revenues 
+$ 
+4,799 
+$ 
+5,432 
+$ 
+4,406 
+$ 
+4,590 
+$ 
+4,733 
+$ 
+4,441 
+$ 
+5,077 
+$ 
+4,713 
+Gross margin 
+2,216 
+2,562 
+1,961 
+2,050 
+2,218 
+1,949 
+2,406 
+2,044 
+Gross margin % 
+46.2 
+% 
+47.2 
+% 
+44.5 
+% 
+44.7 
+% 
+46.9 
+% 
+43.9 
+% 
+47.4 
+% 
+43.4 
+% 
+Restructuring charges 
+— 
+— 
+— 
+— 
+— 
+— 
+— 
+195 
+Goodwill impairment 
+— 
+— 
+— 
+— 
+— 
+199 
+— 
+— 
+Intangible and other asset impairment 
+— 
+— 
+— 
+— 
+— 
+202 
+— 
+— 
+Net income 
+513 
+511 
+375 
+391 
+496 
+244 
+522 
+341 
+Basic earnings per common share 
+1.06 
+1.05 
+0.77 
+0.81 
+1.02 
+0.50 
+1.08 
+0.70 
+Diluted earnings per common share 
+1.04 
+1.03 
+0.76 
+0.80 
+1.01 
+0.50 
+1.06 
+0.70 
+Weighted average common shares outstanding 
+485.8 
+487.2 
+487.2 
+483.7 
+484.4 
+484.0 
+484.4 
+484.8 
+Diluted weighted average common shares outstanding 
+491.6 
+494.9 
+494.5 
+489.8 
+492.3 
+488.1 
+493.9 
+489.4 
+Cash dividends declared per common share 
+0.25 
+0.23 
+0.27 
+0.25 
+0.27 
+0.25 
+0.27 
+0.25 
+Price range of common stock 
+High 
+59.95 
+70.28 
+66.35 
+68.00 
+67.85 
+57.33 
+78.55 
+57.14 
+Low 
+50.16 
+54.64 
+53.22 
+42.68 
+60.89 
+40.08 
+66.99 
+38.24 
+Item 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+Overview 
+NIKE designs,
+develops and markets high quality footwear, apparel, equipment and accessory products worldwide. We are the largest seller of athletic footwear and apparel in the world and sell our products primarily through a combination of retail accounts,
+NIKE-owned retail, including stores and e-commerce, independent distributors, franchisees and licensees worldwide. Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear, apparel, equipment and
+accessories businesses. Our strategy is to achieve long-term revenue growth by creating innovative, “must have” products, building deep personal consumer connections with our brands, and delivering compelling retail presentation and
+experiences. 
+Aside from achieving long-term revenue growth, we continue to strive to deliver shareholder value by driving
+operating excellence in several key areas: 
+• 
+Making our supply chain a competitive advantage, through operational discipline, 
+• 
+Reducing product costs through a continued focus on lean manufacturing and product design that strives to eliminate waste,
+• 
+Improving selling and administrative expense productivity by focusing on investments that drive economic returns in the form of incremental revenue and
+gross margin, and leveraging existing infrastructure across our portfolio of brands to eliminate duplicative costs, 
+• 
+Improving working capital efficiency, and 
+• 
+Deploying capital effectively to create value for our shareholders. 
+Through execution of this strategy, our long-term financial goals continue to be: 
+• 
+High single-digit revenue growth, 
+• 
+Mid-teens earnings per share growth, 
+• 
+Increased return on invested capital and accelerated cash flows, and 
+• 
+Consistent results through effective management of our diversified portfolio of businesses. 
+22 
+Table of Contents 
+Since the adoption of this long-term strategy in 2001, NIKE, Inc.’s revenues and
+earnings per share have grown 8% and 14%, respectively, on an annual compounded basis. During the same period, our return on invested capital has increased from 14% to 21%. While macroeconomic conditions in fiscal 2010 continued to remain
+challenging, putting significant pressure on consumer spending in most markets worldwide, we have continued to focus on achieving appropriate financial performance, while extending our market leadership and positioning ourselves for sustainable,
+profitable growth over the long term. 
+NIKE, Inc.’s fiscal 2010 revenues declined 1% to $19.0 billion, net income
+increased 28% to $1.9 billion, and we delivered diluted earnings per share of $3.86, a 27% increase versus fiscal 2009. Our fiscal 2009 reported results contain significant non-comparable transactions, including an after-tax charge of $145 million
+for restructuring activities, recorded in the fourth quarter of fiscal 2009, and an after-tax charge of $241 million for the impairment of goodwill, intangible and other assets of Umbro, which was recorded in the third quarter of fiscal 2009.
+Excluding these non-comparable items, our fiscal 2010 net income would have increased 2% and diluted earnings per share would have increased 1% compared to fiscal 2009 (see Reconciliation of Net Income and Diluted Earnings Per Share Excluding
+Non-Comparable items below). The increase in net income excluding non-comparable items was primarily driven by an improved gross margin percentage and a reduction in our effective tax rate, which more than offset the reduction in revenues and higher
+selling and administrative expenses. The increase in gross margin percentage was primarily the result of favorable product mix, cost reduction initiatives, lower input costs and sales growth in our NIKE-owned retail business. Our year-over-year
+effective tax rate improvement was driven by continued benefit from our international businesses, which are generally taxed at rates lower than the U.S. statutory rate. The increase in selling and administrative expense was primarily attributable to
+an increase in performance-based compensation as well as investments in our NIKE-owned retail business, which more than offset reductions in compensation expense resulting from restructuring activities that took place in the fourth quarter of fiscal
+2009. For fiscal 2010, diluted earnings per share grew at a slightly lower rate than net income given higher average outstanding shares. In fiscal 2010, we increased cash flow from operations as a result of working capital reductions, reflecting our
+efforts to aggressively manage inventory levels and accounts receivable collections. At May 31, 2010, our inventory and accounts receivable balances were down 13% and 8%, respectively, compared to May 31, 2009. During fiscal 2010, we also
+returned larger amounts of cash to our shareholders through higher dividends and increased share repurchases compared to fiscal 2009. 
+Although most of our businesses reported revenue declines in the first half of fiscal 2010, the majority returned to growth in the second
+half of fiscal 2010. Futures orders for NIKE Brand Footwear and Apparel scheduled for delivery during the first six months of fiscal 2011 increased 7% as compared to the same periods in the prior year. While we continue to believe that the Company
+is well positioned from a business and financial perspective, our future performance is subject to the inherent uncertainty presented by volatile macroeconomic conditions that may have an impact on our operations around the world. These conditions
+could continue to affect our business in a number of direct and indirect ways, including lower revenue from slowing consumer/customer demand for our products, reduced profit margins and/or increased costs, changes in interest and currency exchange
+rates, lack of credit availability and business disruptions due to difficulties experienced by suppliers and customers. Our future performance is subject to our continued ability to take appropriate actions to respond to these conditions. 
+23 
+Table of Contents 
+Results of Operations 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+(In millions, except per share data) 
+Revenues 
+$ 
+19,014 
+$ 
+19,176 
+-1 
+% 
+$ 
+18,627 
+3 
+% 
+Cost of sales 
+10,214 
+10,572 
+-3 
+% 
+10,240 
+3 
+% 
+Gross margin 
+8,800 
+8,604 
+2 
+% 
+8,387 
+3 
+% 
+Gross margin % 
+46.3 
+% 
+44.9 
+% 
+45.0 
+% 
+Selling and administrative expense 
+6,326 
+6,150 
+3 
+% 
+5,954 
+3 
+% 
+% of Revenues 
+33.3 
+% 
+32.1 
+% 
+32.0 
+% 
+Restructuring charges 
+— 
+195 
+— 
+— 
+— 
+Goodwill impairment 
+— 
+199 
+— 
+— 
+— 
+Intangible and other asset impairment 
+— 
+202 
+— 
+— 
+— 
+Income before income taxes 
+2,517 
+1,957 
+29 
+% 
+2,503 
+-22 
+% 
+Net income 
+1,907 
+1,487 
+28 
+% 
+1,883 
+-21 
+% 
+Diluted earnings per share 
+3.86 
+3.03 
+27 
+% 
+3.74 
+-19 
+% 
+Reconciliation of Net Income and Diluted Earnings Per Share Excluding Non-Comparable
+Items (1) 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+Change 
+(dollars in millions, except per share data) 
+Net income, as reported 
+$ 
+1,907 
+$ 
+1,487 
+28 
+% 
+Add: 
+Restructuring charges, net of
+tax (2) 
+— 
+145 
+Umbro impairment of goodwill, intangible and other assets, net of
+tax (3) 
+— 
+241 
+Net income, excluding non-comparable items 
+$ 
+1,907 
+$ 
+1,873 
+2 
+% 
+Diluted earnings per share, as reported 
+$ 
+3.86 
+$ 
+3.03 
+27 
+% 
+Add: 
+Restructuring charges, net of
+tax (2) 
+— 
+0.29 
+Umbro impairment of goodwill, intangible and other assets, net of
+tax (3) 
+— 
+0.49 
+Diluted earnings per share, excluding non-comparable items 
+$ 
+3.86 
+$ 
+3.81 
+1 
+% 
+Diluted weighted average common shares outstanding 
+493.9 
+490.7 
+(1) 
+This schedule is intended to satisfy the quantitative reconciliation for non-GAAP financial measures in accordance with Regulation G of the Securities
+and Exchange Commission. In addition, this schedule is provided to enhance the visibility of the underlying business trends excluding these non-comparable items for fiscal 2009. 
+(2) 
+During fiscal 2009, we announced a plan to restructure the organization of the Company. As part of this plan, we streamlined our management structure
+and eliminated redundancies to enhance consumer focus, drive innovation more quickly to market, and establish a more scalable cost structure. As a result of these actions, we recorded $195 million of pre-tax restructuring charges in fiscal 2009.
+(3) 
+During fiscal 2009, we recorded a non-cash impairment charge to reduce the carrying value of Umbro’s goodwill, indefinite-lived trademark and
+other assets. The tax benefit related to this impairment charge reduced our effective tax rate by 250 basis points for the fiscal year ended May 31, 2009. 
+24 
+Table of Contents 
+Consolidated Operating Results 
+Revenues 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10
+vs. 
+FY09 
+% 
+Change 
+Excluding 
+Currency 
+Changes (1) 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+FY09
+vs. 
+FY08 
+% Change 
+Excluding 
+Currency 
+Changes (1) 
+(In millions) 
+Revenues 
+$ 
+19,014 
+$ 
+19,176 
+-1 
+% 
+-2 
+% 
+$ 
+18,627 
+3 
+% 
+4 
+% 
+(1) 
+Results have been restated using exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the
+impact of foreign currency exchange rate fluctuations. 
+Fiscal 2010 Compared to Fiscal 2009
+Excluding the effects of changes in currency exchange rates, revenues for NIKE, Inc. declined 2%, driven primarily by a 2%
+decline in revenues for the NIKE Brand. All of our geographies delivered lower revenues with the exception of Emerging Markets, reflecting a challenging economic environment across most markets, most notably in our Western Europe and Central and
+Eastern Europe geographies. By product group, revenues for our worldwide NIKE Brand footwear business were down 1% compared to the prior year. Worldwide NIKE Brand apparel and equipment revenues declined 5% and 7%, respectively. While our wholesale
+business remains the largest component of our NIKE Brand revenues, our NIKE-owned retail business continues to grow, representing approximately 15% of our total NIKE Brand revenues in fiscal 2010 as compared to 13% in fiscal 2009. 
+Revenues from our Other Businesses were comprised of results from Cole Haan, Converse, Inc., Hurley International, LLC, NIKE Golf and
+Umbro, Ltd. Excluding the impact of currency changes, revenues for these businesses increased by 4% for fiscal 2010, driven by increased revenues at Converse, Umbro and Hurley, which more than offset revenue declines at NIKE Golf and Cole Haan.
+Futures Orders 
+Translated into US dollars at prior year exchange rates, worldwide futures and advance orders for NIKE Brand footwear and apparel
+scheduled for delivery from June through November 2010 were 10% higher than the orders reported for the comparable prior year period. This futures growth was driven by increases in unit sales volume for our footwear products and growth in
+average unit price for both of our apparel and footwear products. Futures orders increased 7% when translated at forecasted exchange rates for the next six months, which approximate current spot rates. 
+The reported futures and advance orders growth is not necessarily indicative of our expectation of revenue growth during this period.
+This is due to year-over-year changes in shipment timing, and because the mix of orders can shift between advance/futures and at-once orders and that the fulfillment of certain orders may fall outside of the schedule noted above. In addition,
+exchange rate fluctuations as well as differing levels of order cancellations and discounts can cause differences in the comparisons between advance/futures orders and actual revenues. Moreover, a significant portion of our revenue is not derived
+from futures and advance orders, including at-once and close-out sales of NIKE footwear and apparel, sales of NIKE equipment, sales from our Other Businesses and certain retail sales across all brands. 
+Fiscal 2009 Compared to Fiscal 2008 
+Excluding the effects of changes in currency exchange rates, revenues for NIKE, Inc. grew 4%, driven primarily by a 4% increase in
+revenues for the NIKE Brand. The North America geography contributed nearly 1 percentage point of the consolidated revenue growth for fiscal 2009, while the remaining geographies contributed 
+25 
+Table of Contents 
+over 2 percentage points. During fiscal 2009, most of our geographies posted higher revenues. By product group, our worldwide NIKE Brand footwear business reported revenue growth of 6% and
+contributed $575 million of incremental revenue. Worldwide NIKE Brand apparel revenues were in line with the prior year, while equipment revenues declined 2% or $20 million. 
+Our Other Businesses, comprised of results from Cole Haan, Converse Inc., Hurley International LLC, NIKE Golf, and Umbro in fiscal 2009,
+constituted the remaining revenue. In fiscal 2008, our Other Businesses also included Exeter Brands Group (whose primary business was the Starter brand business which was sold on December 17, 2007) and NIKE Bauer Hockey (which was sold on
+April 17, 2008). Umbro was acquired on March 3, 2008. Revenues for these businesses were flat compared to fiscal 2008. 
+Gross Margin 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+(In millions) 
+Gross Margin 
+$ 
+8,800 
+$ 
+8,604 
+2% 
+$ 
+8,387 
+3% 
+Gross Margin % 
+46.3 
+% 
+44.9 
+% 
+140 bps 
+45.0 
+% 
+(10 bps 
+) 
+Fiscal 2010
+Compared to Fiscal 2009 
+For fiscal 2010, our consolidated gross margin percentage was 140 basis points higher than the
+prior year. The primary factors contributing to this improvement were as follows: 
+• 
+Improved in-line product margins across most geographies, driven by reduced raw material and freight costs as well as favorable changes in product mix;
+• 
+Improved inventory positions, most notably in North America and Western Europe, which drove a shift in mix from discounted close-out to higher margin
+in-line sales; and 
+• 
+Growth of NIKE-owned retail as a percentage of total revenue, across most NIKE Brand geographies, driven by an increase in both new store openings and
+comparable store sales. 
+Together, these factors increased consolidated gross margins by approximately 160
+basis points for fiscal 2010. These increases were partially offset by the impact of unfavorable currency exchange rates, primarily affecting our Emerging Markets and Central and Eastern Europe geographies. 
+We anticipate our gross margins in fiscal 2011 may be negatively impacted by macroeconomic factors including changes in currency exchange
+rates and rising costs for product input costs. We also anticipate higher air freight costs as we work with our suppliers to meet increasing demand for certain running footwear products in the first half of the year. 
+Fiscal 2009 Compared to Fiscal 2008 
+During fiscal 2009, the primary factors contributing to the 10 basis point decline in consolidated gross margin percentage versus the
+prior year were lower gross pricing margins and increased discounts which, when combined, decreased consolidated gross margins by approximately 60 basis points. This decrease was partially offset by improved hedge rates relative to the prior year,
+primarily in the Western Europe and Central and Eastern Europe geographies. Gross pricing margins were lower, primarily driven by higher product input costs, most notably for footwear products. Higher levels of discounts were provided across all
+businesses in fiscal 2009 to manage inventory levels. 
+26 
+Table of Contents 
+Selling and Administrative Expense 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. FY09 
+% 
+Change 
+Fiscal 2008 
+FY09 vs. FY08 
+% Change 
+(In millions) 
+Operating overhead expense 
+$ 
+3,970 
+$ 
+3,798 
+5% 
+$ 
+3,645 
+4% 
+Demand creation
+expense (1) 
+2,356 
+2,352 
+0% 
+2,309 
+2% 
+Selling and administrative expense 
+$ 
+6,326 
+$ 
+6,150 
+3% 
+$ 
+5,954 
+3% 
+% of Revenues 
+33.3 
+% 
+32.1% 
+120 bps 
+32.0 
+% 
+10 bps 
+(1) 
+Demand creation consists of advertising and promotion expenses, including costs of endorsement contracts. 
+Fiscal 2010 Compared to Fiscal 2009 
+Changes in foreign currency exchange rates increased selling and administrative expense by 1 percentage point in fiscal 2010. 
+Excluding changes in exchange rates, operating overhead expense increased 4% compared to the prior year due primarily to increases in
+performance-based compensation and investments in NIKE-owned retail. These increases were partially offset by reductions in compensation spending in fiscal 2010 as a result of restructuring activities that took place in the fourth quarter of fiscal
+2009. 
+In fiscal 2010, changes in currency exchange rates had a minimal impact on demand creation expense. Demand creation
+expense remained flat compared to the prior year, as increases in sports marketing and digital marketing expenses were offset by reductions in advertising. 
+In fiscal 2011, we will continue to focus our resources on those investments that drive sustainable and profitable growth. We expect
+demand creation will increase at a slightly slower rate than revenues, with spending weighted toward the first quarter driven by key events including the 2010 World Cup. We anticipate operating overhead will grow at a mid single-digit rate, with
+faster growth in the first half of the fiscal year, driven by increased investments in our NIKE-owned retail business. 
+Fiscal 2009 Compared to Fiscal 2008 
+Changes in foreign currency exchange rates decreased selling and administrative expense by 2 percentage points in fiscal 2009. Excluding
+changes in exchange rates, operating overhead increased 6% during fiscal 2009. The increase in operating overhead was primarily attributable to investments in growth drivers such as NIKE-owned retail in the North America, Western Europe, Greater
+China, and Japan geographies, infrastructure for the Emerging Markets and Central and Eastern Europe geographies as well as for our non-NIKE Brand businesses, which more than offset steps taken to reduce operating overhead spending, including
+implementation of a hiring freeze and reductions in spending for travel and meetings. 
+On a constant-currency basis, demand
+creation expense increased 3% during fiscal 2009. Demand creation spending decreased in the second half of fiscal 2009 as a result of actions taken to reduce spending across nearly all demand creation related activities, most notably traditional
+media and print advertising. The increase in demand creation during the first half of fiscal 2009 was primarily attributable to strategic investments, including first quarter spending around the Beijing Summer Olympics and the European Football
+Championships, and increased investments in athlete and team endorsements across all geographies. 
+Restructuring Charges
+During fiscal 2009, we restructured the organization to streamline our management structure, enhance consumer focus,
+drive innovation more quickly to market and establish a more scalable cost structure. As a result 
+27 
+Table of Contents 
+of these actions, we reduced our global workforce by approximately 5% and incurred pre-tax restructuring charges of $195 million in fiscal 2009, primarily consisting of cash severance costs.
+These charges are included in “Corporate” for segment reporting purposes. 
+Goodwill, Intangible and Other
+Asset Impairment 
+In fiscal 2009, we recognized a $401 million pre-tax non-cash impairment charge to reduce the
+carrying value of Umbro’s goodwill, intangible and other assets. Although Umbro’s financial performance for fiscal 2009 was slightly better than we had originally expected, projected future cash flows had fallen below the levels we
+expected at the time of acquisition. This erosion was a result of both the unprecedented decline in global consumer markets, particularly in the United Kingdom, and our decision to adjust the level of investment in the business. 
+We measured the fair value of Umbro by using an equal weighting of the fair value implied by a discounted cash flow analysis and by
+comparisons with the market values of similar publicly traded companies. We believe the use of both models compensated for the inherent risk associated with either model if used on a stand-alone basis, and this combination was indicative of the
+factors a market participant would consider when performing a similar valuation. The fair value of Umbro’s indefinite-lived trademark was estimated using the relief from royalty method, which assumes that the trademark has value to the extent
+that Umbro is relieved of the obligation to pay royalties for the benefits received from the trademark. Our assessments resulted in the recognition of impairment charges of $199 million and $181 million related to Umbro’s goodwill and
+trademark, respectively, in fiscal 2009. In addition to the impairment analysis, we determined an equity investment held by Umbro was also impaired, and recognized a charge of $21 million related to the impairment of that investment. These charges
+are included in our “Other Businesses” category for segment reporting purposes. 
+For additional information about
+our impairment charges, see Note 4 — Acquisition, Identifiable Intangible Assets, Goodwill and Umbro Impairment in the accompanying Notes to the Consolidated Financial Statements. 
+Other (Income) Expense, net 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. FY09 
+% Change 
+Fiscal 2008 
+FY09 vs. FY08 
+% Change 
+(In millions) 
+Other (income) expense, net 
+$ 
+(49 
+) 
+$ 
+(89 
+) 
+-45 
+% 
+$ 
+8 
+— 
+Fiscal 2010
+Compared to Fiscal 2009 
+Other (income) expense, net is primarily comprised of foreign currency conversion gains and losses
+from the remeasurement of monetary assets and liabilities in non-functional currencies, the impact of certain foreign currency derivative instruments, and unusual or non-recurring transactions that are outside the normal course of business. For
+fiscal 2010, other (income) expense, net was primarily comprised of net foreign currency gains and the recognition of previously deferred licensing income related to our fiscal 2008 sale of NIKE Bauer Hockey. 
+For fiscal 2010, we estimate that the combination of translation of foreign currency-denominated profits from our international
+businesses and the year-over-year change in foreign currency related gains included in other (income) expense, net increased our income before income taxes by approximately $34 million. 
+Fiscal 2009 Compared to Fiscal 2008 
+For fiscal 2009, other (income) expense, net was primarily comprised of $43 million of foreign currency conversion gains and the
+recognition of $24 million of licensing income related to our fiscal 2008 sale of the 
+28 
+Table of Contents 
+NIKE Bauer Hockey business. For fiscal 2008, other (income) expense, net was primarily comprised of a $32 million gain on the sale of NIKE Bauer Hockey and a $29 million gain on the sale of the
+Starter brand business, as well as foreign currency conversion losses of $77 million. 
+For fiscal 2009, we estimate that the
+combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related gains and losses included in other (income) expense, net increased our income before
+income taxes by approximately $124 million. 
+Income Taxes 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. FY09 
+% Change 
+Fiscal 2008 
+FY09 vs. FY08 
+% Change 
+Effective tax rate 
+24.2 
+% 
+24.0 
+% 
+20 bps 
+24.8 
+% 
+(80 
+) bps 
+Fiscal 2010 Compared to Fiscal 2009 
+Our effective tax rate for fiscal 2010 was 20 basis points higher than the effective rate for fiscal 2009. Our effective tax rate for
+fiscal 2009 includes a tax benefit related to charges recorded for the impairment of Umbro’s goodwill, intangible and other assets. Excluding this tax benefit, our effective rate for fiscal 2009 would have been 26.5%, 230 basis points higher
+than our effective tax rate for fiscal 2010. The decrease in our effective tax rate for fiscal 2010 was primarily attributable to the continued benefit from our international operations, where tax rates for these operations are generally lower than
+the U.S. statutory rate. 
+We estimate that our effective tax rate for fiscal year 2011 will be in line with our fiscal 2010
+effective tax rate. 
+Fiscal 2009 Compared to Fiscal 2008 
+Our effective tax rate for fiscal 2009 was 80 basis points lower than the effective tax rate for fiscal 2008 due primarily to the tax
+benefit related to the impairment of goodwill, intangible and other assets of Umbro which had a favorable impact of 250 basis points. Profits earned outside of the U.S., the impact of the resolution of foreign audit items and the retroactive
+reinstatement of the research and development tax credit also favorably impacted our fiscal 2009 effective tax rate. Reflected in the effective tax rate for fiscal 2008 was a one-time tax benefit of $105 million, which had a favorable impact of 420
+basis points on our effective tax rate. 
+Operating Segments 
+As part of the restructuring initiative that took place in fiscal 2009, the Company changed the geographic structure of NIKE Brand to six
+geographies to streamline its management structure, enhance consumer focus, drive innovation more quickly to market and establish a more scalable cost structure. Effective June 1, 2009, the Company’s new reportable operating segments for
+the NIKE Brand became: North America, Western Europe, Central and Eastern Europe, Greater China, Japan, and Emerging Markets. Previously, NIKE Brand operations were organized into four regions: U.S., Europe, Middle East and Africa (collectively,
+“EMEA”), Asia Pacific, and Americas. 
+As part of our centrally managed foreign exchange risk management program,
+standard foreign currency rates are assigned to each NIKE Brand entity in our geographic operating segments and are used to record any non-functional currency revenues or product purchases into the entity’s functional currency. Geographic
+operating segment revenues and cost of sales reflect use of these standard rates. For all NIKE Brand operating segments, differences between assigned standard foreign currency rates and actual market rates are included in Corporate together with
+foreign currency hedge gains and losses generated from the centrally managed foreign 
+29 
+Table of Contents 
+exchange risk management program and other conversion gains and losses. In fiscal 2009 and 2008, foreign currency hedge results along with other conversion gains and losses generated by the
+Western Europe and Central and Eastern Europe geographies were recorded in their respective geographies. 
+The breakdown of
+revenues follows: 
+Fiscal 2010 
+Fiscal 2009 (1) 
+FY10 vs. FY09 
+% Change 
+FY10 vs. 
+FY09 
+% 
+Change 
+Excluding 
+Currency 
+Changes (2) 
+Fiscal 2008 (1) 
+FY09 vs. FY08 
+% Change 
+FY09
+vs. 
+FY08 
+% Change 
+Excluding 
+Currency 
+Changes (2) 
+(dollars in millions) 
+North America 
+$ 
+6,696 
+$ 
+6,778 
+-1 
+% 
+-1 
+% 
+$ 
+6,661 
+2 
+% 
+2 
+% 
+Western Europe 
+3,892 
+4,139 
+-6 
+% 
+-6 
+% 
+4,320 
+-4 
+% 
+-2 
+% 
+Central and Eastern Europe 
+1,150 
+1,373 
+-16 
+% 
+-17 
+% 
+1,309 
+5 
+% 
+9 
+% 
+Greater China 
+1,742 
+1,743 
+0 
+% 
+0 
+% 
+1,354 
+29 
+% 
+21 
+% 
+Japan 
+882 
+926 
+-5 
+% 
+-12 
+% 
+822 
+13 
+% 
+1 
+% 
+Emerging Markets 
+2,042 
+1,702 
+20 
+% 
+18 
+% 
+1,630 
+4 
+% 
+17 
+% 
+Global Brand Divisions 
+105 
+96 
+9 
+% 
+12 
+% 
+118 
+-19 
+% 
+-9 
+% 
+Total NIKE Brand Revenues 
+16,509 
+16,757 
+-1 
+% 
+-2 
+% 
+16,214 
+3 
+% 
+4 
+% 
+Other Businesses 
+2,529 
+2,419 
+5 
+% 
+4 
+% 
+2,413 
+0 
+% 
+2 
+% 
+Corporate (3) 
+(24 
+) 
+— 
+— 
+— 
+— 
+— 
+— 
+Total NIKE, Inc. Revenues 
+$ 
+19,014 
+$ 
+19,176 
+-1 
+% 
+-2 
+% 
+$ 
+18,627 
+3 
+% 
+4 
+% 
+(1) 
+Certain prior year amounts have been reclassified to conform to fiscal year 2010 presentation. These changes had no impact on previously reported
+results of operations or shareholders’ equity. 
+(2) 
+Results have been restated using exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the
+impact of foreign currency exchange rate fluctuations. 
+(3) 
+Corporate primarily consists of results from our centrally managed foreign exchange risk management program and foreign currency gains and losses
+resulting from the difference between actual foreign currency rates and standard rates assigned to our geographic operating segments. 
+Effective June 1, 2009, the primary financial measure we use to evaluate performance of individual operating segments is Earnings
+Before Interest and Taxes (commonly referred to as “EBIT”) which represents net income before interest expense (income), net and income taxes in the Consolidated Statements of Income. Previously, we evaluated the performance of individual
+operating segments based on income before income taxes. Financial information has been reclassified to conform to the new primary financial measure we use. As discussed in Note 19 — Operating Segments and Related Information in the accompanying
+Notes to the Consolidated Financial Statements, certain corporate costs are not included in EBIT of our operating segments. 
+30 
+Table of Contents 
+The breakdown of earnings before interest and taxes is as follows: 
+Fiscal 2010 
+Fiscal 2009 (1) 
+FY10 vs. 
+FY09 
+% Change 
+Fiscal 2008 (1) 
+FY09 vs. 
+FY08 
+% Change 
+(dollars in millions) 
+North America 
+$ 
+1,538 
+$ 
+1,429 
+8 
+% 
+$ 
+1,460 
+-2 
+% 
+Western Europe 
+856 
+939 
+-9 
+% 
+923 
+2 
+% 
+Central and Eastern Europe 
+281 
+415 
+-32 
+% 
+358 
+16 
+% 
+Greater China 
+637 
+575 
+11 
+% 
+431 
+33 
+% 
+Japan 
+180 
+205 
+-12 
+% 
+179 
+15 
+% 
+Emerging Markets 
+493 
+343 
+44 
+% 
+307 
+12 
+% 
+Global Brand Divisions 
+(867 
+) 
+(811 
+) 
+-7 
+% 
+(737 
+) 
+-10 
+% 
+Total NIKE Brand 
+3,118 
+3,095 
+1 
+% 
+2,921 
+6 
+% 
+Other Businesses 
+299 
+(193 
+) 
+— 
+359 
+-154 
+% 
+Corporate 
+(894 
+) 
+(955 
+) 
+6 
+% 
+(854 
+) 
+-12 
+% 
+Total NIKE Consolidated Earnings Before Interest and Taxes 
+$ 
+2,523 
+$ 
+1,947 
+30 
+% 
+$ 
+2,426 
+-20 
+% 
+Interest expense (income), net 
+6 
+(10 
+) 
+— 
+(77 
+) 
+-87 
+% 
+Total NIKE Consolidated Income Before Income Taxes 
+$ 
+2,517 
+$ 
+1,957 
+29 
+% 
+$ 
+2,503 
+-22 
+% 
+(1) 
+Certain prior year amounts have been reclassified to conform to fiscal year 2010 presentation. These changes had no impact on previously reported
+results of operations or shareholders’ equity. 
+North America 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10 vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+FY09 vs. 
+FY08 
+% Change 
+Excluding 
+Currency 
+Changes 
+(dollars in millions) 
+Revenues 
+Footwear 
+$ 
+4,610 
+$ 
+4,694 
+-2 
+% 
+-2 
+% 
+$ 
+4,477 
+5 
+% 
+5 
+% 
+Apparel 
+1,740 
+1,740 
+0 
+% 
+0 
+% 
+1,822 
+-5 
+% 
+-4 
+% 
+Equipment 
+346 
+344 
+1 
+% 
+0 
+% 
+362 
+-5 
+% 
+-5 
+% 
+Total Revenues 
+$ 
+6,696 
+$ 
+6,778 
+-1 
+% 
+-1 
+% 
+$ 
+6,661 
+2 
+% 
+2 
+% 
+Earnings Before Interest and Taxes 
+$ 
+1,538 
+$ 
+1,429 
+8 
+% 
+$ 
+1,460 
+-2 
+% 
+Fiscal 2010 Compared to Fiscal 2009 
+Excluding the changes in currency exchange rates, revenues for North America declined 1%, driven primarily by a decrease in revenue from
+our wholesale business. This decrease was partially offset by an increase in our NIKE-owned retail business, driven primarily by an increase in comparable store sales. On a currency neutral basis, futures orders scheduled to be delivered during the
+first six months of fiscal 2011 were 7% higher compared to the same period in the prior year. 
+During fiscal 2010, the
+decrease in North America footwear revenue was primarily attributable to a low single-digit percentage decrease in unit sales, while average selling price per pair remained flat. The decline in unit sales was primarily driven by lower sales for our
+kids’ and running products in the first half of fiscal 2010. 
+31 
+Table of Contents 
+North America apparel revenue during fiscal 2010 was flat when compared to fiscal 2009,
+which was reflective of a high single-digit percentage increase in average selling price per unit, offset by a low double-digit percentage decrease in unit sales. Both the increase in average selling price per unit and the decrease in unit sales
+were primarily a result of fewer close-out sales compared to the prior year. 
+For fiscal 2010, the increase in North
+America’s EBIT was primarily the result of improved gross margins combined with a slight decrease in selling and administrative expense, driven by a reduction in demand creation expense compared to prior year. The improvement in gross margin
+was mainly attributable to a shift in mix from close-out to in-line sales, growth of NIKE-owned retail as a percentage of total sales, improved in-line product margins and lower warehousing costs. The reduction in demand creation expense was
+primarily attributable to lower spending on advertising. 
+Fiscal 2009 Compared to Fiscal 2008 
+During fiscal 2009, the increase in North America footwear revenue was the result of low single-digit growth in both unit sales and
+average selling price per pair. The growth in unit sales was primarily driven by higher demand for our Jordan brand, action sports and kids’ products. The increase in average selling price per pair was attributable to selective price increases,
+primarily during the first half of fiscal 2009, and increased sales mix of higher priced Jordan brand products, partially offset by increased sales mix of kids’ products which are generally lower priced. 
+The year-over-year decrease in North America apparel revenues during fiscal 2009 reflected a mid single-digit decrease in unit sales,
+primarily driven by a reduction in products sold to value channel retailers and generally softer demand in the overall apparel market. Average selling prices increased slightly as a result of the reduction in products sold to value retailers, mostly
+offset by an increased mix of close-out sales and higher levels of discounts provided retailers to manage inventory levels. 
+EBIT for the North America geography declined in fiscal 2009 as a result of higher operating overhead expense and lower gross margins.
+The increase in operating overhead was attributable to investments in NIKE-owned retail. Gross margins decreased as a result of higher warehousing costs, higher retail inventory markdowns and increased customer discounts provided to manage inventory
+levels. 
+Western Europe 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10 vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+FY09
+vs. 
+FY08 
+% Change 
+Excluding 
+Currency 
+Changes 
+(dollars in millions) 
+Revenues 
+Footwear 
+$ 
+2,320 
+$ 
+2,385 
+-3 
+% 
+-3 
+% 
+$ 
+2,411 
+-1 
+% 
+1 
+% 
+Apparel 
+1,325 
+1,463 
+-9 
+% 
+-9 
+% 
+1,585 
+-8 
+% 
+-7 
+% 
+Equipment 
+247 
+291 
+-15 
+% 
+-15 
+% 
+324 
+-10 
+% 
+-9 
+% 
+Total Revenues 
+$ 
+3,892 
+$ 
+4,139 
+-6 
+% 
+-6 
+% 
+$ 
+4,320 
+-4 
+% 
+-2 
+% 
+Earnings Before Interest and Taxes 
+$ 
+856 
+$ 
+939 
+-9 
+% 
+$ 
+923 
+2 
+% 
+Fiscal 2010 Compared to Fiscal 2009 
+On a currency neutral basis, most markets in Western Europe experienced lower revenues during fiscal 2010, including our largest market,
+U.K. & Ireland declined by 4%, reflecting a difficult retail environment 
+32 
+Table of Contents 
+throughout the geography. Excluding changes in currency exchange rates, futures orders scheduled for delivery during the first six months of fiscal 2011 were 11% higher compared to the same
+period in the prior year, driven by strong growth across most markets and product categories. 
+Excluding changes in currency
+exchange rates, the decrease in footwear revenue during fiscal 2010 was primarily the result of low single-digit decreases in both average selling price and unit sales. The decrease in average selling price was attributable to higher customer
+discounts provided to manage inventory levels, while the reduction in unit sales was due to lower sales for most NIKE Brand product categories. 
+The year-over-year decrease in apparel revenue was primarily driven by a high single-digit decline in unit sales combined with a mid
+single-digit decrease in average selling price. The decrease in unit sales was due to lower sales for most NIKE Brand product categories, while the decrease in average selling price was a result of higher discounts provided to retailers to manage
+their inventory levels. 
+For fiscal 2010, EBIT for Western Europe declined at a faster rate than revenues, as the increase in
+selling and administrative expense as a percentage of revenues more than offset the improvements in gross margin percentage. The increase in selling administrative expense was primarily driven by a higher level of both demand creation spending
+around the 2010 World Cup and operating overhead expense as a result of investments in NIKE-owned retail and higher performance-based compensation. The gross margin improvement in fiscal 2010 was primarily attributable to higher in-line product
+margins, a smaller proportion of close-out sales and reduced inventory obsolescence expense as a result of our leaner inventory positions. 
+Fiscal 2009 Compared to Fiscal 2008 
+Excluding changes in currency exchange rates, a number of markets within the geography experienced lower revenues, reflecting a more
+difficult retail environment. Revenues for the Southern European markets, including Spain, Italy and France declined, while the U.K. & Ireland remained flat compared to the same period in the prior year. 
+The increase in footwear revenue was attributable to a low single-digit growth in unit sales. The growth in unit sales was driven
+primarily by higher demand for kids and NIKE Brand sportswear products. Average selling price per pair remained flat compared to the prior year. 
+The decrease in apparel revenue was primarily driven by lower average selling prices resulting from a higher mix of close-out sales and
+higher levels of discounts provided to retailers to manage inventory levels, which more than offset a low-single-digit increase in unit sales. 
+The year-over-year increase in EBIT for the Western Europe geography during fiscal 2009 was primarily driven by a higher gross margin
+percentage, partially offset by slightly higher selling and administrative expense as a percentage of revenues. The gross margin improvement in fiscal 2009 was primarily attributable to improved year-over-year standard currency rates which more than
+offset higher warehousing costs and discounts on in-line products. The increase in selling and administrative expense as a percentage of revenues was mainly driven by retail expansion across the geography. 
+33 
+Table of Contents 
+Central and Eastern Europe 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10 vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+FY09
+vs. 
+FY08 
+% Change 
+Excluding 
+Currency 
+Changes 
+(dollars in millions) 
+Revenues 
+Footwear 
+$ 
+660 
+$ 
+752 
+-12 
+% 
+-13 
+% 
+$ 
+702 
+7 
+% 
+13 
+% 
+Apparel 
+399 
+508 
+-21 
+% 
+-22 
+% 
+499 
+2 
+% 
+5 
+% 
+Equipment 
+91 
+113 
+-19 
+% 
+-19 
+% 
+108 
+5 
+% 
+8 
+% 
+Total Revenues 
+$ 
+1,150 
+$ 
+1,373 
+-16 
+% 
+-17 
+% 
+$ 
+1,309 
+5 
+% 
+9 
+% 
+Earnings Before Interest and Taxes 
+$ 
+281 
+$ 
+415 
+-32 
+% 
+$ 
+358 
+16 
+% 
+Fiscal 2010 Compared to Fiscal 2009 
+Economic conditions in Central and Eastern Europe remained difficult as most markets within the geography experienced lower revenues in
+fiscal 2010 as compared to fiscal 2009. We are beginning to see signs of stabilization in these markets as a result of improving macroeconomic conditions, increasing brand momentum, and tight management of inventory. On a currency-neutral basis,
+future orders scheduled to be delivered during the first six months of fiscal 2011 were 3% higher compared to the same period in the prior year. 
+The decrease in footwear revenue was due to a decline in average selling price, while unit sales remained flat compared to fiscal 2009.
+The decline in average selling price was primarily the result of higher discounts provided to retailers to manage their inventory levels. 
+The year-over-year decrease in apparel revenue was primarily driven by a double-digit decrease in average selling price and a mid
+single-digit decline in unit sales. The decline in average selling price was primarily the result of higher discounts provided to retailers to manage their inventory levels, while the decline in unit sales was due to lower sales in most key product
+categories. 
+The year-over-year decrease in Central and Eastern Europe’s EBIT during fiscal 2010 was the result of lower
+revenues, a decline in gross margin percentage and higher selling and administrative expense. The decline in gross margin percentage was primarily attributable to less favorable year-over-year standard currency rates, as well as higher discounts
+provided to customers. The increase in selling and administrative expense was primarily due to an increase in the reserve for bad debts along with increased investments in NIKE-owned retail. 
+Fiscal 2009 Compared to Fiscal 2008 
+On a currency neutral basis, revenue for the Central and Eastern Europe geography grew by approximately 9 percentage points in fiscal
+2009, driven by stronger results in Russia. 
+The increase in footwear revenue was primarily attributable to a double-digit
+growth in unit sales. The growth in unit sales was driven primarily by higher demand for NIKE Brand sportswear, kids, and running products. 
+The increase in apparel revenues was primarily driven by a double digit percentage increase in unit sales, partially offset by a
+mid-single digit decrease in average selling price, resulting from a higher mix of close-out sales. 
+34 
+Table of Contents 
+The year-over-year increase in EBIT for Central and Eastern Europe during fiscal 2009 was
+primarily driven by higher revenues and improved gross margin percentage. The gross margin improvement in fiscal 2009 was primarily attributable to improved in-line product margins which more than offset higher discounts on in-line products and
+warehousing costs. 
+Greater China 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10 vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+FY09
+vs. 
+FY08 
+% Change 
+Excluding 
+Currency 
+Changes 
+(dollars in millions) 
+Revenues 
+Footwear 
+$ 
+953 
+$ 
+940 
+1 
+% 
+1 
+% 
+$ 
+738 
+27 
+% 
+20 
+% 
+Apparel 
+684 
+700 
+-2 
+% 
+-3 
+% 
+541 
+29 
+% 
+21 
+% 
+Equipment 
+105 
+103 
+2 
+% 
+0 
+% 
+75 
+37 
+% 
+32 
+% 
+Total Revenues 
+$ 
+1,742 
+$ 
+1,743 
+0 
+% 
+0 
+% 
+$ 
+1,354 
+29 
+% 
+21 
+% 
+Earnings Before Interest and Taxes 
+$ 
+637 
+$ 
+575 
+11 
+% 
+$ 
+431 
+33 
+% 
+Fiscal 2010 Compared to Fiscal 2009 
+For fiscal 2010, revenues for Greater China were flat, primarily attributable to comparisons against strong revenue growth in the first
+half of fiscal 2009 driven by the Beijing Olympics. Greater China began to gain momentum in the second half of fiscal 2010, as revenues increased 11% as compared to the second half of fiscal 2009. On a currency-neutral basis, futures orders
+scheduled to be delivered during the first six months of fiscal 2011 were 16% higher compared to the same period in the prior year. 
+The increase in footwear revenue was primarily driven by a mid single-digit increase in average selling price, partially offset by a mid
+single-digit decrease in unit sales. The increase in average selling price was primarily due to strategic product pricing increases, while the decrease in unit sales was primarily driven by lower discounts on in-line products compared to the prior
+year. 
+The decrease in apparel revenue for fiscal 2010 was primarily due to a mid single-digit decrease in unit sales across
+most major categories, which more than offset a low single-digit increase in average selling price primarily driven by strategic product pricing increases. 
+EBIT for Greater China increased at a faster rate than revenue as a result of higher gross margins and reductions in demand creation
+spending attributable to comparisons against higher prior year spending around the Beijing Olympics. 
+Fiscal 2009 Compared
+to Fiscal 2008 
+Greater China continued to deliver strong results in fiscal 2009 as revenues increased 21% on a
+currency-neutral basis, driven by expansion in both the number of stores selling NIKE products and sales through existing stores. China’s rate of revenue growth slowed to 6% on a currency neutral basis in the fourth quarter of fiscal 2009 as we
+lapped very strong growth in the fourth quarter of fiscal 2008. 
+The increase in both footwear and apparel revenues was driven
+primarily by a double-digit increase in unit sales. The growth in unit sales was partially offset by a reduction in average selling price in fiscal 2009, resulting primarily from increased discounts on in-line products provided to retailers to
+manage inventory levels. 
+35 
+Table of Contents 
+The increase in EBIT for Greater China for fiscal 2009 was driven by higher revenues, which
+more than offset higher selling and administrative expense. Selling and administrative expense increased, but represented a lower percentage of revenues for fiscal 2009. The increase in selling and administrative expense during fiscal 2009 was
+primarily due to retail and infrastructure expansion and spending around brand events. 
+Japan 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10 vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+FY09
+vs. 
+FY08 
+% Change 
+Excluding 
+Currency 
+Changes 
+(dollars in millions) 
+Revenues 
+Footwear 
+$ 
+433 
+$ 
+430 
+1 
+% 
+-7 
+% 
+$ 
+374 
+15 
+% 
+3 
+% 
+Apparel 
+357 
+397 
+-10 
+% 
+-17 
+% 
+351 
+13 
+% 
+1 
+% 
+Equipment 
+92 
+99 
+-7 
+% 
+-13 
+% 
+97 
+2 
+% 
+-10 
+% 
+Total Revenues 
+$ 
+882 
+$ 
+926 
+-5 
+% 
+-12 
+% 
+$ 
+822 
+13 
+% 
+1 
+% 
+Earnings Before Interest and Taxes 
+$ 
+180 
+$ 
+205 
+-12 
+% 
+$ 
+179 
+15 
+% 
+Fiscal 2010 Compared to Fiscal 2009 
+Excluding changes in currency exchange rates, both footwear and apparel revenues in Japan declined during fiscal 2010 due to decreases in
+unit sales across most major categories. The decline in revenues was reflective of a difficult and highly promotional marketplace in Japan. As we enter fiscal 2011, we anticipate macroeconomic conditions in Japan to remain difficult. On a
+currency-neutral basis, futures orders scheduled to be delivered during the first six months of fiscal 2011 were 16% lower compared to the same period in the prior year. 
+For fiscal 2010, the decrease in Japan’s EBIT was primarily due to lower revenues and higher selling and administrative expense,
+driven by increased investments in NIKE-owned retail, which more than offset improved gross margins. 
+Fiscal 2009 Compared
+to Fiscal 2008 
+For fiscal 2009, the increase in Japan’s footwear revenue was driven primarily by a mid-single digit
+increase in unit sales, partially offset by a reduction in average selling price. The slight increase in apparel revenue was primarily driven by a low-single digit increase in average selling price, while unit sales remained flat compared to fiscal
+2008. 
+The increase in EBIT for fiscal 2009 was primarily driven by higher revenues and lower selling and administrative
+expense as a percentage of revenue compared to fiscal 2008. 
+36 
+Table of Contents 
+Emerging Markets 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10 vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+FY09
+vs. 
+FY08 
+% Change 
+Excluding 
+Currency 
+Changes 
+(dollars in millions) 
+Revenues 
+Footwear 
+$ 
+1,356 
+$ 
+1,106 
+23 
+% 
+21 
+% 
+$ 
+1,031 
+7 
+% 
+20 
+% 
+Apparel 
+532 
+438 
+21 
+% 
+19 
+% 
+436 
+0 
+% 
+14 
+% 
+Equipment 
+154 
+158 
+-3 
+% 
+-4 
+% 
+163 
+-3 
+% 
+8 
+% 
+Total Revenues 
+$ 
+2,042 
+$ 
+1,702 
+20 
+% 
+18 
+% 
+$ 
+1,630 
+4 
+% 
+17 
+% 
+Earnings Before Interest and Taxes 
+$ 
+493 
+$ 
+343 
+44 
+% 
+$ 
+307 
+12 
+% 
+Fiscal 2010 Compared to Fiscal 2009 
+Excluding changes in currency exchange rates, all markets in the Emerging Markets geography reported revenue growth for fiscal 2010, most
+notably Brazil, Mexico and Korea, driven by sales growth in all product categories. Futures orders scheduled to be delivered during the first six months of fiscal 2011 increased 30% on a currency neutral basis. 
+Footwear revenue growth was primarily driven by a double-digit growth in unit sales and a mid single-digit increase in average selling
+price per pair during fiscal 2010, reflective of strong demand for most NIKE Brand product categories in all markets within the geography. 
+For fiscal 2010, the increase in Emerging Markets’ EBIT was primarily the result of revenue growth combined with lower selling and
+administrative expense, which more than offset a decrease in gross margin percentage. The decrease in selling and administrative expense was primarily due to lower operating overhead expense resulting from fiscal 2009 restructuring activities. The
+decline in gross margin was primarily due to less favorable year-over-year standard currency rates assigned to the geography, which more than offset improved in-line product margins. 
+Fiscal 2009 Compared to Fiscal 2008 
+Excluding changes in foreign currency exchange rates, most markets in the Emerging Markets geography reported revenue growth in fiscal
+2009, led by Brazil, Argentina and Mexico. 
+The increase in footwear revenue was primarily driven by a double-digit increase
+in unit sales, partially offset by a low-single digit reduction in average selling price. 
+The increase in EBIT for fiscal
+2009 was primarily the result of revenue growth and lower selling and administrative expense. The decrease in selling and administrative expense was mainly driven by a reduction in spending around advertising and sports marketing. 
+37 
+Table of Contents 
+Global Brand Divisions 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10 vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+FY09 vs. 
+FY08 
+% Change 
+Excluding 
+Currency 
+Changes 
+(dollars in millions) 
+Revenues 
+$ 
+105 
+$ 
+96 
+9 
+% 
+12 
+% 
+$ 
+118 
+-19 
+% 
+-9 
+% 
+Loss Before Interest and Taxes 
+$ 
+(867 
+) 
+$ 
+(811 
+) 
+7 
+% 
+$ 
+(737 
+) 
+10 
+% 
+Global Brand Divisions primarily represent NIKE Brand licensing businesses that are not part of a
+geographic operating segment and selling, general and administrative expenses that are centrally managed for the NIKE Brand. 
+Fiscal 2010 Compared to Fiscal 2009 
+For fiscal 2010, the increase in Global Brand Division’s loss before interest and taxes was largely due to increases in centrally
+managed demand creation expense and performance-based compensation, which more than offset an increase in licensing revenues. The increase in demand creation expense was primarily driven by the centralization of certain marketing production costs.
+Fiscal 2009 Compared to Fiscal 2008 
+The increase in Global Brand Division’s loss before interest and taxes was mainly attributable to a decrease in licensing revenues
+and an increase in selling and administrative expense driven by higher operating overhead and increased demand creation spending. 
+Other Businesses 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10 vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+FY09 vs. 
+FY08 
+% Change 
+Excluding 
+Currency 
+Changes 
+(dollars in millions) 
+Revenues 
+Converse 
+$ 
+983 
+$ 
+915 
+7 
+% 
+7 
+% 
+$ 
+729 
+26 
+% 
+26 
+% 
+NIKE Golf 
+638 
+648 
+-2 
+% 
+-4 
+% 
+725 
+-11 
+% 
+-10 
+% 
+Cole Haan 
+463 
+472 
+-2 
+% 
+-2 
+% 
+496 
+-5 
+% 
+-5 
+% 
+Hurley 
+221 
+203 
+9 
+% 
+9 
+% 
+171 
+19 
+% 
+19 
+% 
+Umbro 
+224 
+174 
+29 
+% 
+30 
+% 
+54 
+222 
+% 
+280 
+% 
+Bauer 
+— 
+— 
+— 
+— 
+202 
+— 
+— 
+Exeter 
+— 
+— 
+— 
+— 
+35 
+— 
+— 
+Other 
+— 
+7 
+— 
+— 
+1 
+— 
+— 
+Revenues 
+$ 
+2,529 
+$ 
+2,419 
+5 
+% 
+4 
+% 
+$ 
+2,413 
+0 
+% 
+2 
+% 
+Earnings (Loss) Before Interest and Taxes 
+$ 
+299 
+$ 
+(193 
+) 
+— 
+$ 
+359 
+-154 
+% 
+38 
+Table of Contents 
+Fiscal 2010 Compared to Fiscal 2009 
+Our Other Businesses are comprised of Cole Haan, Converse, Hurley, NIKE Golf and Umbro. For fiscal 2010, the increase in Other
+Businesses’ revenue was primarily driven by revenue growth at Converse, Umbro and Hurley, which more than offset the declines at NIKE Golf and Cole Haan due to reductions in consumer discretionary spending in their respective markets.
+In fiscal 2009, EBIT for our Other Businesses included a $401 million pre-tax non-cash charge relating to the impairment of
+goodwill, intangible and other assets of Umbro. Excluding this impairment charge, EBIT for our Other Businesses would have increased 43%, as a result of higher revenues, improved gross margins across most businesses, and lower demand creation
+spending. 
+Fiscal 2009 Compared to Fiscal 2008 
+For fiscal 2009, our Other Businesses were comprised of Cole Haan, Converse, Hurley, NIKE Golf and Umbro. For fiscal 2008, our Other
+Businesses primarily included Cole Haan, Converse, Exeter (whose primary business was the Starter brand business which was sold on December 17, 2007), Hurley, NIKE Bauer Hockey (which was sold on April 17, 2008), NIKE Golf and Umbro
+(which was acquired on March 3, 2008). 
+Excluding the loss of revenue from NIKE Bauer Hockey and the Starter brand
+business and the addition of Umbro, Other Businesses revenues for fiscal 2009 would have increased 6%, driven by the strong performance from Converse and Hurley, offset by sales decreases at NIKE Golf and Cole Haan, due to reductions in consumer
+discretionary spending in their respective markets. 
+EBIT for Other Businesses declined for fiscal 2009 primarily as a result
+of a $401 million pre-tax non-cash impairment charge to reduce the carrying value of Umbro’s goodwill intangible and other assets. Excluding the impairment charge, the loss of income from NIKE Bauer Hockey and the Starter brand business along
+with the dilutive impact of Umbro, earnings before interest and taxes for Other Businesses would have decreased by 28%, driven by declines in operating results at NIKE Golf and Cole Haan. 
+For additional information about our impairment charges, see Note 4 — Acquisition, Identifiable Intangible Assets, Goodwill and
+Umbro Impairment in the Notes to the Consolidated Financial Statements. 
+Corporate 
+Fiscal 2010 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+Fiscal 2008 
+FY09 vs. 
+FY08 
+% Change 
+(dollars in millions) 
+Revenues 
+$ 
+(24 
+) 
+$ 
+— 
+— 
+$ 
+— 
+— 
+Loss Before Interest and Taxes 
+$ 
+(894 
+) 
+$ 
+(955 
+) 
+-6 
+% 
+$ 
+(854 
+) 
+12 
+% 
+Fiscal 2010
+Corporate revenues primarily consist of foreign currency revenue-related hedge gains and losses generated by entities within the NIKE Brand geographic operating segments through our centrally managed foreign exchange risk management program and
+foreign currency gains and losses resulting from the difference between actual foreign currency rates and standard rates assigned to these entities, which are used to record any non-functional currency revenues into the entity’s functional
+currency. 
+Corporate’s loss before interest and taxes consists of unallocated general and administrative expenses, which
+includes expenses associated with centrally managed departments, depreciation and amortization related to the Company’s corporate headquarters, unallocated insurance and benefit programs, certain foreign currency gains and losses, including
+certain hedge gains and losses, corporate eliminations and other items. In addition to the foreign currency gains and losses recognized in Corporate revenues, foreign currency results include all other foreign currency hedge results generated
+through our centrally managed foreign exchange risk management 
+39 
+Table of Contents 
+program, other conversion gains and losses arising from remeasurement of monetary assets and liabilities in non- functional currencies, and gains and losses resulting from the difference between
+actual foreign currency rates and standard rates assigned to each entity in NIKE Brand geographic operating segments, which are used to record any non-functional currency product purchases into the entity’s functional currency. Prior to fiscal
+2010, all foreign currency results, including hedge results and other conversion gains and losses, generated by the Western Europe and Central and Eastern Europe geographies were recorded in their respective geographic results. 
+Fiscal 2010 Compared to Fiscal 2009 
+In fiscal 2009, results for Corporate included a pre-tax restructuring charge of $195 million. Excluding this restructuring charge, loss
+before interest and taxes for Corporate would have increased by 18%, primarily driven by an increase in performance-based compensation. 
+Fiscal 2009 Compared to Fiscal 2008 
+The increase in Corporate’s loss before interest and taxes in fiscal 2009 was primarily attributable to pre-tax restructuring charges
+of $195 million, consisting primarily of cash charges related to severance costs. 
+In fiscal 2009, foreign currency conversion
+gains (losses) reported in Corporate expense totaled $46 million compared to ($76) million in fiscal 2008, which was primarily driven by a net gain from currency hedges in fiscal 2009 versus a net hedge loss in fiscal 2008. 
+Foreign Currency Exposures and Hedging Practices 
+Overview 
+As a global company with significant operations outside the U.S. we are exposed to risk arising from changes in currency exchange rates in
+the normal course of business. Foreign currency fluctuations affect the recording of transactions, such as sales, purchases and intercompany transactions denominated in non-functional currencies and the translation of foreign currency denominated
+results of operations, financial position and cash flows into U.S. dollars for consolidated reporting. Our primary foreign currency exposures are related to U.S. dollar transactions at wholly-owned foreign subsidiaries, as well as transactions and
+translation of results denominated in Euros, British Pounds, Chinese Renminbi and Japanese Yen. 
+Our foreign exchange risk
+management program is intended to minimize both the positive and negative effects of currency fluctuations on our reported consolidated results of operations, financial position and cash flows. This also has the effect of delaying the impact of
+current market rates on our consolidated financial statements, dependent upon hedge horizons. We manage global foreign exchange risk centrally, on a portfolio basis, to manage those risks that are material to NIKE, Inc. on a consolidated basis. We
+manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio and by hedging remaining material exposures, where practical, using derivative instruments such as forward contracts and options.
+The Company’s hedging policy is designed to partially or entirely offset changes in the underlying exposures being hedged. We do not hold or issue derivative financial instruments for speculative trading purposes. 
+Transactional exposures 
+We transact business in various currencies and have significant revenues and costs denominated in currencies other than the functional
+currency of the relevant subsidiary, which subjects us to foreign currency risk. Our most significant transactional foreign currency exposures are: 
+1. 
+Inventory Purchases — Most of our inventory purchases around the world are denominated in U.S. dollars. This generates foreign currency exposures for all
+subsidiaries with a functional currency other than the U.S. dollar. A weaker U.S. dollar reduces the inventory cost in the purchasing subsidiary’s functional currency whereas a stronger U.S. dollar increases the inventory cost.
+40 
+Table of Contents 
+2. 
+Non-Functional Currency Revenues — A portion of our Western Europe geography revenues are earned in currencies other than the Euro (e.g. British Pound), but are
+recognized at a subsidiary that uses the Euro as its functional currency, generating foreign currency exposure. 
+3. 
+Other Revenues and Costs — Non-functional currency revenues and costs, such as endorsement contracts, intercompany royalties and other payments, generate foreign
+currency risk to a lesser extent. 
+4. 
+Non-functional Currency Assets and Liabilities — Our global subsidiaries have various assets and liabilities, primarily receivables and payables, that are
+denominated in currencies other than their functional currency. These balance sheet items are subject to remeasurement which may create fluctuations in other (income) expense, net within our consolidated results of operations.
+Managing transactional exposures 
+Transactional exposures are managed on a portfolio basis within our foreign currency risk management program. As of May 31, 2010, we
+use currency forward contracts and options with maturities up to 18 months to hedge the effect of exchange rate fluctuations on probable forecasted future cash flows, including non-functional currency revenues and expenses. These are accounted for
+as cash flow hedges in accordance with the accounting standards for derivatives and hedging. The fair value of these instruments at May 31, 2010 and 2009 was $206 million and $248 million in assets and $25 million and $12 million in
+liabilities, respectively. The effective portion of the changes in fair value of these instruments is reported in other comprehensive income (“OCI”), a component of shareholders’ equity, and reclassified into earnings in the same
+financial statement line item and in the same period or periods during which the related hedged transactions affect earnings. The ineffective portion was a gain of $5 million for the year ended May 31, 2010. The ineffective portion was
+immediately recognized in earnings as a component of other (income) expense, net. Ineffectiveness was not material for the years ended May 31, 2010, 2009 and 2008. 
+Certain currency forward contracts used to manage foreign exchange exposure of non-functional currency assets and liabilities subject to
+remeasurement are not designated as hedges under the accounting standards for derivatives and hedging. In these cases, the change in value of the instruments is intended to offset the foreign currency impact of the remeasurement of the related
+non-functional currency asset or liability. The fair value of these instruments at May 31, 2010 and 2009 was $104 million and $13 million in assets and $140 million and $34 million in liabilities, respectively. The change in value of these
+instruments is immediately recognized in earnings. The impact of such instruments is included in other (income) expense, net and aims to offset foreign currency remeasurement gains and losses of the exposures being hedged. 
+Refer to Note 18 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional
+quantitative detail. 
+Translational exposures 
+Substantially all of our foreign subsidiaries operate in functional currencies other than the U.S. dollar. Fluctuations in currency
+exchange rates create volatility in our reported results as we are required to translate the balance sheets and operational results of these foreign currency denominated subsidiaries into U.S. dollars for consolidated reporting. The translation of
+foreign subsidiaries non-U.S. dollar balance sheets into U.S. dollars for consolidated reporting results in a cumulative translation adjustment to OCI within shareholders’ equity. In preparing our consolidated statements of income, foreign
+exchange rate fluctuations impact our operating results as the revenues and expenses of our foreign operations are translated into U.S. dollars. In translation, a weaker U.S. dollar in relation to foreign functional currencies benefits our
+consolidated earnings whereas a stronger U.S. dollar reduces our consolidated earnings. The impact of foreign exchange rate fluctuations on the translation of our consolidated revenues and income before income taxes was a net translation
+benefit (detriment) of approximately $147 million and $33 million, respectively, for the year ended May 31, 2010 and approximately ($199) million and $4 million, respectively, for the year ended May 31, 2009. 
+41 
+Table of Contents 
+Managing translational exposures 
+To minimize the impact of translating foreign currency denominated revenues and expenses into U.S. dollars for consolidated reporting,
+certain foreign subsidiaries use excess cash to purchase U.S. dollar denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of these U.S. dollar denominated securities at non-U.S.
+dollar functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting under the accounting standards for derivatives and hedging. We utilize forward contracts and options to partially, or entirely, hedge the
+variability of the forecasted future purchases and sales of these U.S. dollar investments. This has the effect of partially offsetting the year-over-year foreign currency translation impact on net earnings in the period the investments are sold.
+Hedges of available-for-sale investments are accounted for as cash flow hedges. The fair value of instruments used in this manner at May 31, 2010 and 2009 was $78 million and $104 million in assets, respectively. There were no instruments in a
+liability position at May 31, 2010 or 2009. The effective portion of the changes in fair value of these instruments is reported in OCI and reclassified into earnings in other (income) expense, net in the period during which the hedged
+available-for-sale investment is sold and affects earnings. Any ineffective portion, which was not material for any period presented, is immediately recognized in earnings as a component of other (income) expense, net. 
+We estimate that the combination of translation of foreign currency-denominated profits from our international businesses and the
+year-over-year change in foreign currency related gains included in other (income) expense, net had a favorable impact of approximately $34 million and $124 million on our income before income taxes for fiscal 2010 and 2009, respectively.
+Refer to Note 18 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements
+for additional quantitative detail. 
+Net investments in foreign subsidiaries 
+We are also exposed to the impact of foreign exchange fluctuations on our investments in wholly-owned foreign subsidiaries denominated in
+a currency other than the U.S. dollar, which could adversely impact the U.S. dollar value of these investments and therefore the value of future repatriated earnings. During fiscal 2008, we began to hedge certain net investment positions in
+Euro-functional currency foreign subsidiaries to mitigate the effects of foreign exchange fluctuations on net investments with the effect of preserving the value of future repatriated earnings. In accordance with the accounting standards for
+derivatives and hedging, the effective portion of the change in fair value of the forward contracts designated as net investment hedges is recorded in the cumulative translation adjustment component of accumulated other comprehensive income. Any
+ineffective portion, which was not material for any period presented, is immediately recognized in earnings as a component of other (income) expense, net. To minimize credit risk, we have structured these net investment hedges to be generally less
+than six months in duration. Upon maturity, the hedges are settled based on the current fair value of the forward contracts with the realized gain or loss remaining in OCI; concurrent with settlement, we enter into new forward contracts at the
+current market rate. The fair value of outstanding net investment hedges at May 31, 2010 and 2009 were $32 million in assets and $23 million in liabilities, respectively. Cash flows from net investment hedge settlements totaled $5 million and
+$191 million in the years ended May 31, 2010 and 2009, respectively. 
+Liquidity and Capital Resources 
+Cash Flow Activity 
+Cash provided by operations was $3.2 billion for fiscal 2010 compared to $1.7 billion for fiscal 2009. Our primary source of operating
+cash flow for fiscal 2010 was net income of $1.9 billion as well as positive cash flows from working capital. Our working capital provided a net positive cash flow of $0.7 billion for fiscal 2010 as compared to a net cash outflow of $0.4 billion for
+fiscal 2009. The increase in cash flows from working capital 
+42 
+Table of Contents 
+was primarily due to an increase in accounts payable and accrued liabilities, driven by timing of fourth quarter expenses, a decrease in accounts receivable as a result of a shorter collection
+cycle and slightly lower revenues, and a decrease in inventories, reflective of tighter inventory buys compared to fiscal 2009. 
+Cash used by investing activities was $1.3 billion during fiscal 2010, compared to $0.8 billion for fiscal 2009. The year-over-year
+increase was primarily due to net purchases of short-term investments of $0.9 billion (net of sales and maturities) in fiscal 2010 compared to $0.5 billion in net purchases of short-term investments during fiscal 2009. Also contributing to the
+year-over-year increase in cash used by investing activities in fiscal 2010 was a reduction in proceeds for the settlement of net investment hedges compared to the prior year period. These increases were partially offset by a reduction in cash used
+for purchases of property, plant and equipment. 
+Cash used by financing activities was $1.1 billion for fiscal 2010 compared
+to $0.7 billion used in fiscal 2009. The increase in cash used by financing activities was primarily due to an increase in payments of notes payable and long-term debt as well as an increase in share repurchases and dividends paid, partially
+offset by an increase in proceeds from exercise of stock options. 
+In fiscal 2010, we purchased 11.3 million shares of
+NIKE’s Class B common stock for $754 million. During fiscal 2010, we concluded our previous four-year, $3 billion share repurchase program that was approved by the Board of Directors in June 2006. During this program, we repurchased a total of
+53.9 million shares. Having completed the program, during the third quarter of fiscal 2010, we began repurchases under the four-year $5 billion program approved by our Board of Directors in September 2008. Of the total 11 million
+shares repurchased during fiscal 2010, 6.6 million shares were repurchased under this program for $454 million. We continue to expect funding of share repurchases will come from operating cash flow, excess cash, and/or debt. The timing and the
+amount of shares purchased will be dictated by our capital needs and stock market conditions. 
+Off-Balance Sheet
+Arrangements 
+In connection with various contracts and agreements, we provide routine indemnifications relating to the
+enforceability of intellectual property rights, coverage for legal issues that arise and other items where we are acting as the guarantor. Currently, we have several such agreements in place. However, based on our historical experience and the
+estimated probability of future loss, we have determined that the fair value of such indemnifications is not material to our financial position or results of operations. 
+Contractual Obligations 
+Our significant long-term contractual obligations as of May 31, 2010, and significant endorsement contracts entered into through the
+date of this report are as follows: 
+Cash Payments Due During the Year Ending May 31, 
+Description of Commitment 
+2011 
+2012 
+2013 
+2014 
+2015 
+Thereafter 
+Total 
+(In millions) 
+Operating Leases 
+$ 
+334 
+$ 
+264 
+$ 
+220 
+$ 
+177 
+$ 
+148 
+$ 
+466 
+$ 
+1,609 
+Long-term Debt 
+7 
+178 
+47 
+57 
+7 
+142 
+438 
+Endorsement
+Contracts (1) 
+675 
+638 
+568 
+508 
+411 
+990 
+3,790 
+Product Purchase
+Obligations (2) 
+2,676 
+— 
+— 
+— 
+— 
+— 
+2,676 
+Other (3) 
+267 
+108 
+114 
+8 
+3 
+1 
+501 
+Total 
+$ 
+3,959 
+$ 
+1,188 
+$ 
+949 
+$ 
+750 
+$ 
+569 
+$ 
+1,599 
+$ 
+9,014 
+(1) 
+The amounts listed for endorsement contracts represent approximate amounts of base compensation and minimum guaranteed royalty fees we are obligated to
+pay athlete and sport team endorsers of our products. Actual payments under some contracts may be higher than the amounts listed as these contracts provide for 
+43 
+Table of Contents 
+bonuses to be paid to the endorsers based upon athletic achievements and/or royalties on product sales in future periods. Actual payments under some contracts may also be lower as these contracts
+include provisions for reduced payments if athletic performance declines in future periods. 
+In addition to
+the cash payments, we are obligated to furnish our endorsers with NIKE product for their use. It is not possible to determine how much we will spend on this product on an annual basis as the contracts generally do not stipulate a specific amount of
+cash to be spent on the product. The amount of product provided to the endorsers will depend on many factors including general playing conditions, the number of sporting events in which they participate, and our own decisions regarding product and
+marketing initiatives. In addition, the costs to design, develop, source, and purchase the products furnished to the endorsers are incurred over a period of time and are not necessarily tracked separately from similar costs incurred for products
+sold to customers. 
+(2) 
+We generally order product at least 4 to 5 months in advance of sale based primarily on advanced futures orders received from customers. The amounts
+listed for product purchase obligations represent agreements (including open purchase orders) to purchase products in the ordinary course of business, that are enforceable and legally binding and that specify all significant terms. In some cases,
+prices are subject to change throughout the production process. The reported amounts exclude product purchase liabilities included in accounts payable on the consolidated balance sheet as of May 31, 2010. 
+(3) 
+Other amounts primarily include service and marketing commitments made in the ordinary course of business. The amounts represent the minimum payments
+required by legally binding contracts and agreements that specify all significant terms, including open purchase orders for non-product purchases. The reported amounts exclude those liabilities included in accounts payable or accrued liabilities on
+the consolidated balance sheet as of May 31, 2010. 
+The total liability for uncertain tax positions was
+$282 million, excluding related interest and penalties, at May 31, 2010. We are not able to reasonably estimate when or if cash payments of the long-term liability for uncertain tax positions will occur. 
+We also have the following outstanding short-term debt obligations as of May 31, 2010. Please refer to the accompanying Notes to the
+Consolidated Financial Statements (Note 7 — Short-Term Borrowings and Credit Lines) for further description and interest rates related to the short-term debt obligations listed below. 
+Outstanding as of 
+May 31, 2010 
+(In millions) 
+Notes payable, due at mutually agreed-upon dates within one year of issuance or on demand 
+$ 
+139 
+Payable to Sojitz America for the purchase of inventories, generally due 60 days after shipment of goods from a foreign
+port 
+$ 
+88 
+As of May 31, 2010,
+letters of credit of $101 million were outstanding, generally for the purchase of inventory. 
+Capital Resources 
+In December 2008, we filed a shelf registration statement with the Securities and Exchange Commission under which $760 million
+in debt securities may be issued. As of May 31, 2010, no debt securities had been issued under this shelf registration. We may issue debt securities under the shelf registration in fiscal 2011 depending on general corporate needs. 
+As of May 31, 2010, we had no amounts outstanding under our multi-year, $1 billion revolving credit facility in place with a group
+of banks. The facility matures in December 2012. Based on our current long-term 
+44 
+Table of Contents 
+senior unsecured debt ratings of A+ and A1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively, the interest rate charged on any outstanding borrowings
+would be the prevailing London Interbank Offer Rate (“LIBOR”) plus 0.15%. The facility fee is 0.05% of the total commitment. 
+If our long-term debt rating were to decline, the facility fee and interest rate under our committed credit facility would increase.
+Conversely, if our long-term debt rating were to improve, the facility fee and interest rate would decrease. Changes in our long-term debt rating would not trigger acceleration of maturity of any then outstanding borrowings or any future borrowings
+under the committed credit facility. Under this committed credit facility, we have agreed to various covenants. These covenants include limits on our disposal of fixed assets and the amount of debt secured by liens we may incur as well as a minimum
+capitalization ratio. In the event we were to have any borrowings outstanding under this facility, failed to meet any covenant, and were unable to obtain a waiver from a majority of the banks, any borrowings would become immediately due and payable.
+As of May 31, 2010, we were in full compliance with each of these covenants and believe it is unlikely we will fail to meet any of these covenants in the foreseeable future. 
+Liquidity is also provided by our $1 billion commercial paper program. As of May 31, 2010, no amounts were outstanding under this
+program. We may issue commercial paper from time to time during fiscal 2011 depending on general corporate needs. We currently have short-term debt ratings of A1 and P1 from Standard and Poor’s Corporation and Moody’s Investor Services,
+respectively. 
+Despite recent uncertainties in the financial markets, to date we have not experienced difficulty accessing the
+credit markets or incurred higher interest costs. Future volatility in the capital markets, however, may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets. We believe that
+current cash and short-term investment balances and cash generated by operations, together with access to external sources of funds as described above, will be sufficient to meet our operating and capital needs in the foreseeable future. 
+Recently Adopted Accounting Standards 
+In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance to amend the disclosure requirements related
+to recurring and nonrecurring fair value measurements. The guidance requires additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair
+value measurements, and the transfers between Levels 1, 2, and 3 of the fair value measurement hierarchy. This guidance became effective for us beginning March 1, 2010, except for disclosures relating to purchases, sales, issuances and
+settlements of Level 3 assets and liabilities, which will be effective for us beginning June 1, 2011. As this guidance only requires expanded disclosures, the adoption did not and will not impact our consolidated financial position or
+results of operations. See Note 6 — Fair Value Measurements in the accompanying Notes to the Consolidated Financial Statements for disclosures required under this guidance. 
+In February 2010, the FASB issued amended guidance on subsequent events. Under this amended guidance, SEC filers are no longer required
+to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and we adopted these new requirements since the third quarter of fiscal 2010.
+In June 2009, the FASB established the FASB Accounting Standards Codification (the “Codification”) as the single
+source of authoritative U.S. generally accepted accounting principles (“GAAP”) for all non-governmental entities. The Codification, which launched July 1, 2009, changes the referencing and organization of accounting guidance. The
+Codification became effective for us beginning September 1, 2009. The issuance of FASB Codification did not change GAAP and therefore the adoption has only affected how specific references to GAAP literature are disclosed in the Notes to our
+Consolidated Financial Statements. 
+45 
+Table of Contents 
+In April 2009, the FASB updated guidance related to fair value measurements to clarify the
+guidance related to measuring fair value in inactive markets, to modify the recognition and measurement of other-than-temporary impairments of debt securities, and to require public companies to disclose the fair values of financial instruments in
+interim periods. This updated guidance became effective for us beginning June 1, 2009. The adoption of this guidance did not have an impact on our consolidated financial position or results of operations. See Note 6 — Fair Value
+Measurements in the accompanying Notes to the Consolidated Financial Statements for disclosures required under the updated guidance. 
+In June 2008, the FASB issued new accounting guidance applicable when determining whether instruments granted in share-based payment
+transactions are participating securities. This guidance clarifies that share-based payment awards that entitle their holders to receive non-forfeitable dividends before vesting should be considered participating securities and included in the
+computation of earnings per share pursuant to the two-class method. This guidance became effective for us beginning June 1, 2009. The adoption of this guidance did not have a material impact on our consolidated financial position, results
+of operations or earnings per share. 
+In April 2008, the FASB issued amended guidance regarding the determination of the
+useful life of intangible assets. The guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The intent of the position is to improve
+the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. This guidance became effective for us beginning June 1, 2009. The adoption of this
+guidance did not have a material impact on our consolidated financial position or results of operations. 
+In December 2007,
+the FASB issued amended guidance regarding business combinations, establishing principles and requirements for how an acquirer recognizes and measures identifiable assets acquired, liabilities assumed, any resulting goodwill, and any non-controlling
+interest in an acquiree in its financial statements. This guidance also provides for disclosures to enable users of the financial statements to evaluate the nature and financial effects of a business combination. This amended guidance became
+effective for us beginning June 1, 2009. The adoption of this amended guidance did not have an impact on our consolidated financial statements, but could impact the accounting for future business combinations. 
+In December 2007, the FASB issued new guidance regarding the accounting and reporting for non-controlling interests in subsidiaries. This
+guidance clarifies that non-controlling interests in subsidiaries should be accounted for as a component of equity separate from the parent’s equity. This guidance became effective for us beginning June 1, 2009. The adoption of this
+guidance did not have an impact on our consolidated financial position or results of operations. 
+Recently Issued Accounting Standards 
+In October 2009, the FASB issued new standards that revised the guidance for revenue recognition with multiple
+deliverables. These new standards impact the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, these new standards modify the manner in which
+the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. These new standards are effective for us beginning June 1, 2011. We do
+not expect the adoption will have a material impact on our consolidated financial positions or results of operations. 
+In June
+2009, the FASB issued a new accounting standard that revised the guidance for the consolidation of variable interest entities (“VIE”). This new guidance requires a qualitative approach to identifying a controlling financial interest in a
+VIE and requires an ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. This guidance is effective for us beginning June 1, 2010. We are currently evaluating the
+impact of the provisions of this new standard. 
+46 
+Table of Contents 
+Critical Accounting Policies 
+Our previous discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
+statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported
+amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. 
+We
+believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the
+uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies
+for revenue recognition, the allowance for uncollectible accounts receivable, inventory reserves, and contingent payments under endorsement contracts. These policies require that we make estimates in the preparation of our financial statements as of
+a given date. However, since our business cycle is relatively short, actual results related to these estimates are generally known within the six-month period following the financial statement date. Thus, these policies generally affect only the
+timing of reported amounts across two to three fiscal quarters. 
+Within the context of these critical accounting policies, we
+are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. 
+Revenue Recognition 
+We record wholesale revenues when title passes and the risks and rewards of ownership have passed to the customer, based on the terms of
+sale. Title passes generally upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale. 
+In some instances, we ship product directly from our supplier to the customer and recognize revenue when the product is delivered to and
+accepted by the customer. Our revenues may fluctuate in cases when our customers delay accepting shipment of product for periods up to several weeks. 
+In certain countries outside of the U.S., precise information regarding the date of receipt by the customer is not readily available. In
+these cases, we estimate the date of receipt by the customer based upon historical delivery times by geographic location. On the basis of our tests of actual transactions, we have no indication that these estimates have been materially inaccurate
+historically. 
+As part of our revenue recognition policy, we record estimated sales returns, discounts and miscellaneous
+claims from customers as reductions to revenues at the time revenues are recorded. We base our estimates on historical rates of product returns, discounts and claims, and specific identification of outstanding claims and outstanding returns not yet
+received from customers. Actual returns, discounts and claims in any future period are inherently uncertain and thus may differ from our estimates. If actual or expected future returns, discounts and claims were significantly greater or lower than
+the reserves we had established, we would record a reduction or increase to net revenues in the period in which we made such determination. 
+Allowance for Uncollectible Accounts Receivable 
+We make ongoing estimates relating to the ability to collect our accounts receivable and maintain an allowance for estimated losses
+resulting from the inability of our customers to make required payments. In determining the amount of the allowance, we consider our historical level of credit losses and make judgments about the creditworthiness of significant customers based on
+ongoing credit evaluations. Since we cannot predict 
+47 
+Table of Contents 
+future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to
+deteriorate, resulting in their inability to make payments, a larger allowance might be required. In the event we determine that a smaller or larger allowance is appropriate, we would record a credit or a charge to selling and administrative expense
+in the period in which such a determination is made. 
+Inventory Reserves 
+We also make ongoing estimates relating to the net realizable value of inventories, based upon our assumptions about future demand and
+market conditions. If we estimate that the net realizable value of our inventory is less than the cost of the inventory recorded on our books, we record a reserve equal to the difference between the cost of the inventory and the estimated net
+realizable value. This reserve is recorded as a charge to cost of sales. If changes in market conditions result in reductions in the estimated net realizable value of our inventory below our previous estimate, we would increase our reserve in the
+period in which we made such a determination and record a charge to cost of sales. 
+Contingent Payments under
+Endorsement Contracts 
+A significant portion of our demand creation expense relates to payments under endorsement
+contracts. In general, endorsement payments are expensed uniformly over the term of the contract. However, certain contract elements may be accounted for differently, based upon the facts and circumstances of each individual contract. 
+Some of the contracts provide for contingent payments to endorsers based upon specific achievements in their sports (e.g., winning a
+championship). We record selling and administrative expense for these amounts when the endorser achieves the specific goal. 
+Some of the contracts provide for payments based upon endorsers maintaining a level of performance in their sport over an extended period
+of time (e.g., maintaining a top ranking in a sport for a year). These amounts are reported in selling and administrative expense when we determine that it is probable that the specified level of performance will be maintained throughout the period.
+In these instances, to the extent that actual payments to the endorser differ from our estimate due to changes in the endorser’s athletic performance, increased or decreased selling and administrative expense may be reported in a future period.
+Some of the contracts provide for royalty payments to endorsers based upon a predetermined percentage of sales of particular
+products. We expense these payments in cost of sales as the related sales occur. In certain contracts, we offer minimum guaranteed royalty payments. For contractual obligations for which we estimate we will not meet the minimum guaranteed amount of
+royalty fees through sales of product, we record the amount of the guaranteed payment in excess of that earned through sales of product in selling and administrative expense uniformly over the remaining guarantee period. 
+Property, Plant and Equipment and Definite-Lived Assets 
+Property, plant and equipment, including buildings, equipment, and computer hardware and software are recorded at cost (including, in some
+cases, the cost of internal labor) and are depreciated over the estimated useful life. Changes in circumstances (such as technological advances or changes to our business operations) can result in differences between the actual and estimated useful
+lives. In those cases where we determine that the useful life of a long-lived asset should be shortened, we increase depreciation expense over the remaining useful life to depreciate the asset’s net book value to its salvage value. 
+We review the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances
+indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in
+48 
+Table of Contents 
+which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of
+an asset, among others. If such facts indicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to
+result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we will estimate
+the fair value of the asset group using appropriate valuation methodologies which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset groups carrying amount and its
+estimated fair value. 
+Goodwill and Indefinite-Lived Intangible Assets 
+We perform annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal year, or
+when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite life below its carrying value. Events or changes in circumstances that may trigger
+interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, or an expectation that the carrying amount may not be recoverable, among other factors. The impairment test
+requires us to estimate the fair value of our reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and we proceed to step two of the impairment analysis. In
+step two of the analysis, we measure and record an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value should such a circumstance arise. 
+We generally base our measurement of the fair value of a reporting unit on a blended analysis of the present value of future discounted
+cash flows and the market valuation approach. The discounted cash flows model indicates the fair value of the reporting unit based on the present value of the cash flows we expect the reporting unit to generate in the future. Our significant
+estimates in the discounted cash flows model include: our weighted average cost of capital; long-term rate of growth and profitability of the reporting unit’s business; and working capital effects. The market valuation approach indicates the
+fair value of the business based on a comparison of the reporting unit to comparable publicly traded firms in similar lines of business. Significant estimates in the market valuation approach model include identifying similar companies with
+comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit. 
+We believe the weighted use of discounted cash flows and the market valuation approach is the best method for determining the fair value
+of our reporting units because these are the most common valuation methodologies used within our industry, and the blended use of both models compensates for the inherent risks associated with either model if used on a stand-alone basis. 
+Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks. In measuring the fair value for these
+intangible assets, we utilize the relief-from-royalty method. This method assumes that trade names and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This
+method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. 
+Hedge Accounting for Derivatives 
+We use forward and option contracts to hedge certain anticipated foreign currency exchange transactions as well as certain resulting
+receivable or payable balances. When specific criteria for hedge accounting have been met, changes in fair values of hedge contracts relating to anticipated transactions are recorded in other comprehensive income rather than net income until the
+underlying hedged transaction affects net income. In most cases, this results in gains and losses on hedge derivatives being released from other comprehensive income into 
+49 
+Table of Contents 
+net income some time after the maturity of the derivative. One of the criteria for this accounting treatment is that the forward and option contracts amount should not be in excess of
+specifically identified anticipated transactions. By their very nature, our estimates of anticipated transactions may fluctuate over time and may ultimately vary from actual transactions. When anticipated transaction estimates or actual transaction
+amounts decline below hedged levels, or when it is not probable that a forecasted transaction will occur by the end of the originally specified time period or within an additional two-month period of time thereafter, we are required to reclassify
+the ineffective portion of the cumulative changes in fair values of the related hedge contracts from other comprehensive income to other (income) expense, net during the quarter in which such changes occur. Once an anticipated transaction estimate
+or actual transaction amount decreases below hedged levels, we make adjustments to the related hedge contract in order to reduce the amount of the hedge contract to that of the revised anticipated transaction. 
+We use forward contracts to hedge our investment in the net assets of certain international subsidiaries to offset foreign currency
+translation related to our net investment in those subsidiaries. When appropriately designated as a hedge, the change in fair value of the forward contracts hedging our net investments is reported in the cumulative translation adjustment component
+of accumulated other comprehensive income within stockholders’ equity to offset the foreign currency translation adjustments on those investments. As the value of our underlying net investments in wholly-owned international subsidiaries is
+known at the time a hedge is placed, the designated hedge is matched to the portion of our net investment at risk. Accordingly, the variability involved in net investment hedges is substantially less than that of other types of hedge transactions
+and we do not expect any material ineffectiveness. We consider, on a quarterly basis, the need to redesignate existing hedge relationships based on changes in the underlying net investment. Should the level of our net investment decrease below
+hedged levels, any resulting ineffectiveness would be reported directly to earnings in the period incurred. 
+Stock-based
+Compensation 
+We account for stock-based compensation by estimating the fair value of stock-based compensation on the
+date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of highly subjective assumptions including volatility. Expected volatility is estimated based on implied volatility in market
+traded options on our common stock with a term greater than one year, along with other factors. Our decision to use implied volatility was based on the availability of actively traded options on our common stock and our assessment that implied
+volatility is more representative of future stock price trends than historical volatility. If factors change and we use different assumptions for estimating stock-based compensation expense in future periods, stock-based compensation expense may
+differ materially in the future from that recorded in the current period. 
+Taxes 
+We record valuation allowances against our deferred tax assets, when necessary. Realization of deferred tax assets (such as net operating
+loss carry-forwards) is dependent on future taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we believe that
+recovery is not likely, we establish a valuation allowance against our deferred tax asset, which increases our income tax expense in the period when such determination is made. 
+In addition, we have not recorded U.S. income tax expense for foreign earnings that we have determined to be indefinitely reinvested
+offshore, thus reducing our overall income tax expense. The amount of earnings designated as indefinitely reinvested offshore is based upon the actual deployment of such earnings in our offshore assets and our expectations of the future cash needs
+of our U.S. and foreign entities. Income tax considerations are also a factor in determining the amount of foreign earnings to be indefinitely reinvested offshore. 
+50 
+Table of Contents 
+We carefully review all factors that drive the ultimate disposition of foreign earnings
+determined to be reinvested offshore, and apply stringent standards to overcoming the presumption of repatriation. Despite this approach, because the determination involves our future plans and expectations of future events, the possibility exists
+that amounts declared as indefinitely reinvested offshore may ultimately be repatriated. For instance, the actual cash needs of our U.S. entities may exceed our current expectations, or the actual cash needs of our foreign entities may be less than
+our current expectations. This would result in additional income tax expense in the year we determined that amounts were no longer indefinitely reinvested offshore. Conversely, our approach may also result in a determination that accumulated foreign
+earnings (for which U.S. income taxes have been provided) will be indefinitely reinvested offshore. In this case, our income tax expense would be reduced in the year of such determination. 
+On an interim basis, we estimate what our effective tax rate will be for the full fiscal year. The estimated annual effective tax rate is
+then applied to the year-to-date pre-tax income excluding infrequently occurring or unusual items, to determine the year-to-date tax expense. The income tax effects of infrequent or unusual items are recognized in the interim period in which they
+occur. As the fiscal year progresses, we continually refine our estimate based upon actual events and earnings by jurisdiction during the year. This continual estimation process periodically results in a change to our expected effective tax rate for
+the fiscal year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision equals the expected annual rate. 
+On a quarterly basis, we reevaluate the probability that a tax position will be effectively sustained and the appropriateness of the
+amount recognized for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity. Changes in our assessment may result in the recognition of a tax benefit or
+an additional charge to the tax provision in the period our assessment changes. We recognize interest and penalties related to income tax matters in income tax expense. 
+Other Contingencies 
+In the ordinary course of business, we are involved in legal proceedings regarding contractual and employment relationships, product
+liability claims, trademark rights, and a variety of other matters. We record contingent liabilities resulting from claims against us, including related legal costs, when a loss is assessed to be probable and the amount of the loss is reasonably
+estimable. Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including in some cases judgments about the potential actions of third party claimants and courts. Recorded contingent liabilities are
+based on the best information available and actual losses in any future period are inherently uncertain. If future adjustments to estimated probable future losses or actual losses exceed our recorded liability for such claims, we would record
+additional charges as other (income) expense, net during the period in which the actual loss or change in estimate occurred. In addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a
+reasonable possibility that the ultimate loss will materially exceed the recorded liability. Currently, we do not believe that any of our pending legal proceedings or claims will have a material impact on our financial position or results of
+operations. 
+Item 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+In the normal course of business and consistent with established policies and procedures, we employ a variety of financial instruments to
+manage exposure to fluctuations in the value of foreign currencies and interest rates. It is our policy to utilize these financial instruments only where necessary to finance our business and manage such exposures; we do not enter into these
+transactions for speculative purposes. 
+We are exposed to foreign currency fluctuation as a result of our international sales,
+product sourcing and funding activities. Our foreign exchange risk management program is intended to minimize both the positive or negative effects of currency fluctuations on our consolidated results of operations, financial position and cash
+51 
+Table of Contents 
+flows. This also has the effect of delaying the impact of current market rates on our consolidated financial statements dependent upon hedge horizons. We use forward exchange contracts and
+options to hedge certain anticipated but not yet firmly committed transactions as well as certain firm commitments and the related receivables and payables, including third party and intercompany transactions. We also use forward contracts to hedge
+our investment in the net assets of certain international subsidiaries to offset foreign currency translation adjustments related to our net investment in those subsidiaries. 
+When we begin hedging exposures, the type and duration of each hedge depends on the nature of the exposure and market conditions.
+Generally, all anticipated and firmly committed transactions that are hedged are to be recognized within 12 to 18 months. The majority of the contracts expiring in more than 12 months relate to the anticipated purchase of inventory. When
+intercompany loans are hedged, it is typically for their expected duration. Hedged transactions are principally denominated in Euros, Japanese Yen and British Pounds. See Section “Foreign Currency Exposures and Hedging Practices” under
+Item 7 for additional detail. 
+Our earnings are also exposed to movements in short and long-term market interest rates.
+Our objective in managing this interest rate exposure is to limit the impact of interest rate changes on earnings and cash flows and to reduce overall borrowing costs. To achieve these objectives, we maintain a mix of commercial paper, bank loans
+and fixed rate debt of varying maturities and have entered into receive-fixed, pay-variable interest rate swaps. 
+Market Risk Measurement
+We monitor foreign exchange risk, interest rate risk and related derivatives using a variety of techniques including a
+review of market value, sensitivity analysis, and Value-at-Risk (“VaR”). Our market-sensitive derivative and other financial instruments are foreign currency forward contracts, foreign currency option contracts, interest rate swaps,
+intercompany loans denominated in non-functional currencies, fixed interest rate U.S. dollar denominated debt, and fixed interest rate Japanese Yen denominated debt. 
+We use VaR to monitor the foreign exchange risk of our foreign currency forward and foreign currency option derivative instruments only.
+The VaR determines the maximum potential one-day loss in the fair value of these foreign exchange rate-sensitive financial instruments. The VaR model estimates assume normal market conditions and a 95% confidence level. There are various modeling
+techniques that can be used in the VaR computation. Our computations are based on interrelationships between currencies and interest rates (a “variance/co-variance” technique). These interrelationships are a function of foreign
+exchange currency market changes and interest rate changes over the preceding one year period. The value of foreign currency options does not change on a one-to-one basis with changes in the underlying currency rate. We adjusted the potential loss
+in option value for the estimated sensitivity (the “delta” and “gamma”) to changes in the underlying currency rate. This calculation reflects the impact of foreign currency rate fluctuations on the derivative instruments only and
+does not include the impact of such rate fluctuations on non-functional currency transactions (such as anticipated transactions, firm commitments, cash balances, and accounts and loans receivable and payable), including those which are hedged by
+these instruments. 
+The VaR model is a risk analysis tool and does not purport to represent actual losses in fair value that
+we will incur, nor does it consider the potential effect of favorable changes in market rates. It also does not represent the full extent of the possible loss that may occur. Actual future gains and losses will differ from those estimated because of
+changes or differences in market rates and interrelationships, hedging instruments and hedge percentages, timing and other factors. 
+The estimated maximum one-day loss in fair value on our foreign currency sensitive derivative financial instruments, derived using the
+VaR model, was $17 million and $68 million at May 31, 2010 and 2009, respectively. The VaR decreased year-over-year as a result of reduced total notional value of our foreign 
+52 
+Table of Contents 
+currency derivative portfolio combined with decreased foreign currency volatilities at May 31, 2010. Such a hypothetical loss in fair value of our derivatives would be offset by increases in
+the value of the underlying transactions being hedged. The average monthly change in the fair values of foreign currency forward and foreign currency option derivative instruments was $52 million and $207 million during fiscal 2010 and fiscal 2009,
+respectively. 
+The instruments not included in the VaR are intercompany loans denominated in non-functional currencies, fixed
+interest rate Japanese Yen denominated debt, fixed interest rate U.S. dollar denominated debt and interest rate swaps. Intercompany loans and related interest amounts are eliminated in consolidation. Furthermore, our non-functional currency
+intercompany loans are substantially hedged against foreign exchange risk through the use of forward contracts, which are included in the VaR calculation above. We, therefore, consider the interest rate and foreign currency market risks associated
+with our non-functional currency intercompany loans to be immaterial to our consolidated financial position, results from operations and cash flows. 
+Details of third party debt and interest rate swaps are provided in the table below. The table presents principal cash flows and related
+weighted average interest rates by expected maturity dates. Weighted average interest rates for the fixed rate swapped to floating rate debt reflect the effective interest rates as of May 31, 2010. 
+Expected Maturity Date 
+Year Ending May 31, 
+2011 
+2012 
+2013 
+2014 
+2015 
+Thereafter 
+Total 
+Fair Value 
+(In millions, except interest rates) 
+Foreign Exchange Risk 
+Japanese Yen Functional Currency 
+Japanese Yen debt — Fixed rate 
+Principal payments 
+$ 
+7 
+$ 
+178 
+$ 
+7 
+$ 
+7 
+$ 
+7 
+$ 
+42 
+$ 
+248 
+$ 
+247 
+Average interest rate 
+2.4 
+% 
+3.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+3.1 
+% 
+Interest Rate Risk 
+Japanese Yen Functional Currency 
+Long-term Japanese Yen debt — Fixed rate 
+Principal payments 
+$ 
+7 
+$ 
+178 
+$ 
+7 
+$ 
+7 
+$ 
+7 
+$ 
+42 
+$ 
+248 
+$ 
+247 
+Average interest rate 
+2.4 
+% 
+3.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+3.1 
+% 
+U.S. Dollar Functional Currency 
+Long-term U.S. Dollar debt — Fixed rate swapped to Floating rate 
+Principal payments 
+$ 
+— 
+$ 
+— 
+$ 
+40 
+$ 
+— 
+$ 
+— 
+$ 
+100 
+$ 
+140 
+$ 
+152 
+Average interest rate 
+0.0 
+% 
+0.0 
+% 
+1.0 
+% 
+0.0 
+% 
+0.0 
+% 
+0.4 
+% 
+0.6 
+% 
+Long-term U.S. Dollar debt — Fixed rate 
+Principal payments 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+50 
+$ 
+— 
+$ 
+— 
+$ 
+50 
+$ 
+54 
+Average interest rate 
+0.0 
+% 
+0.0 
+% 
+0.0 
+% 
+4.7 
+% 
+0.0 
+% 
+0.0 
+% 
+4.7 
+% 
+The fixed interest rate Japanese Yen denominated debt instruments were issued by and are accounted
+for by one of our Japanese subsidiaries. Accordingly, the monthly translation of these instruments, which varies due to changes in foreign exchange rates, is recognized in accumulated other comprehensive income upon the consolidation of this
+subsidiary. 
+Item 8. 
+Financial Statements and Supplemental Data 
+Management of NIKE, Inc. is responsible for the information and representations contained in this report. The financial statements have
+been prepared in conformity with the generally accepted accounting principles we considered appropriate in the circumstances and include some amounts based on our best estimates and judgments. Other financial information in this report is consistent
+with these financial statements. 
+Our accounting systems include controls designed to reasonably assure assets are safeguarded
+from unauthorized use or disposition and provide for the preparation of financial statements in conformity with generally accepted accounting principles. These systems are supplemented by the selection and training of qualified financial personnel
+and an organizational structure providing for appropriate segregation of duties. 
+53 
+Table of Contents 
+An Internal Audit department reviews the results of its work with the Audit Committee of the
+Board of Directors, presently consisting of three outside directors. The Audit Committee is responsible for the appointment of the independent registered public accounting firm and reviews with the independent registered public accounting firm,
+management and the internal audit staff, the scope and the results of the annual examination, the effectiveness of the accounting control system and other matters relating to the financial affairs of NIKE as they deem appropriate. The independent
+registered public accounting firm and the internal auditors have full access to the Committee, with and without the presence of management, to discuss any appropriate matters. 
+Management’s Annual Report on Internal Control Over Financial Reporting 
+Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
+Rule 13a-15(f) and Rule 15d-15(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
+preparation of the financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that:
+(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary
+to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and
+(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets of the company that could have a material effect on the financial statements. 
+While “reasonable assurance” is a high level of assurance, it does not mean absolute assurance. Because of its inherent
+limitations, internal control over financial reporting may not prevent or detect every misstatement and instance of fraud. Controls are susceptible to manipulation, especially in instances of fraud caused by the collusion of two or more people,
+including our senior management. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
+or procedures may deteriorate. 
+Under the supervision and with the participation of our Chief Executive Officer and Chief
+Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring
+Organizations of the Treadway Commission (COSO). Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of May 31, 2010. 
+PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited (1) the consolidated financial statements
+and (2) the effectiveness of our internal control over financial reporting as of May 31, 2010, as stated in their report herein. 
+Mark G. Parker 
+Donald W. Blair 
+Chief Executive Officer and President 
+Chief Financial Officer 
+54 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
+To the Board of Directors and 
+Shareholders of NIKE, Inc.: 
+In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all
+material respects, the financial position of NIKE, Inc. and its subsidiaries at May 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2010 in conformity with
+accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the appendix appearing under Item 15(a)(2) presents fairly, in all material respects, the
+information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31,
+2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial
+statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on
+Internal Control Over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting
+based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
+about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test
+basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of
+internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
+internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 
+A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
+reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
+procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
+recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
+and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
+statements. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect
+misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
+deteriorate. 
+/s/ P RICEWATERHOUSE C OOPERS LLP 
+Portland, Oregon 
+July 20, 2010 
+55 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF INCOME 
+Year Ended May 31, 
+2010 
+2009 
+2008 
+(In millions, except per share data) 
+Revenues 
+$ 
+19,014.0 
+$ 
+19,176.1 
+$ 
+18,627.0 
+Cost of sales 
+10,213.6 
+10,571.7 
+10,239.6 
+Gross margin 
+8,800.4 
+8,604.4 
+8,387.4 
+Selling and administrative expense 
+6,326.4 
+6,149.6 
+5,953.7 
+Restructuring charges (Note 16) 
+— 
+195.0 
+— 
+Goodwill impairment (Note 4) 
+— 
+199.3 
+— 
+Intangible and other asset impairment (Note 4) 
+— 
+202.0 
+— 
+Interest expense (income), net (Notes 6, 7 and 8) 
+6.3 
+(9.5 
+) 
+(77.1 
+) 
+Other (income) expense, net (Notes 17 and 18) 
+(49.2 
+) 
+(88.5 
+) 
+7.9 
+Income before income taxes 
+2,516.9 
+1,956.5 
+2,502.9 
+Income taxes (Note 9) 
+610.2 
+469.8 
+619.5 
+Net income 
+$ 
+1,906.7 
+$ 
+1,486.7 
+$ 
+1,883.4 
+Basic earnings per common share (Notes 1 and 12) 
+$ 
+3.93 
+$ 
+3.07 
+$ 
+3.80 
+Diluted earnings per common share (Notes 1 and 12) 
+$ 
+3.86 
+$ 
+3.03 
+$ 
+3.74 
+Dividends declared per common share 
+$ 
+1.06 
+$ 
+0.98 
+$ 
+0.875 
+The accompanying notes to consolidated financial statements are an integral part of this statement.
+56 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED BALANCE SHEETS 
+May 31, 
+2010 
+2009 
+(In millions) 
+ASSETS 
+Current assets: 
+Cash and equivalents 
+$ 
+3,079.1 
+$ 
+2,291.1 
+Short-term investments (Note 6) 
+2,066.8 
+1,164.0 
+Accounts receivable, net (Note 1) 
+2,649.8 
+2,883.9 
+Inventories (Notes 1 and 2) 
+2,040.8 
+2,357.0 
+Deferred income taxes (Note 9) 
+248.8 
+272.4 
+Prepaid expenses and other current assets 
+873.9 
+765.6 
+Total current assets 
+10,959.2 
+9,734.0 
+Property, plant and equipment, net (Note 3) 
+1,931.9 
+1,957.7 
+Identifiable intangible assets, net (Note 4) 
+467.0 
+467.4 
+Goodwill (Note 4) 
+187.6 
+193.5 
+Deferred income taxes and other assets (Notes 9 and 18) 
+873.6 
+897.0 
+Total assets 
+$ 
+14,419.3 
+$ 
+13,249.6 
+LIABILITIES AND SHAREHOLDERS’ EQUITY 
+Current liabilities: 
+Current portion of long-term debt (Note 8) 
+$ 
+7.4 
+$ 
+32.0 
+Notes payable (Note 7) 
+138.6 
+342.9 
+Accounts payable (Note 7) 
+1,254.5 
+1,031.9 
+Accrued liabilities (Notes 5 and 18) 
+1,904.4 
+1,783.9 
+Income taxes payable (Note 9) 
+59.3 
+86.3 
+Total current liabilities 
+3,364.2 
+3,277.0 
+Long-term debt (Note 8) 
+445.8 
+437.2 
+Deferred income taxes and other liabilities (Notes 9 and 18) 
+855.3 
+842.0 
+Commitments and contingencies (Note 15) 
+— 
+— 
+Redeemable Preferred Stock (Note 10) 
+0.3 
+0.3 
+Shareholders’ equity: 
+Common stock at stated value (Note 11): 
+Class A convertible — 90.0 and 95.3 shares outstanding 
+0.1 
+0.1 
+Class B — 394.0 and 390.2 shares outstanding 
+2.7 
+2.7 
+Capital in excess of stated value 
+3,440.6 
+2,871.4 
+Accumulated other comprehensive income (Note 14) 
+214.8 
+367.5 
+Retained earnings 
+6,095.5 
+5,451.4 
+Total shareholders’ equity 
+9,753.7 
+8,693.1 
+Total liabilities and shareholders’ equity 
+$ 
+14,419.3 
+$ 
+13,249.6 
+The accompanying notes to consolidated financial
+statements are an integral part of this statement. 
+57 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+Year Ended May 31, 
+2010 
+2009 
+2008 
+(In millions) 
+Cash provided by operations: 
+Net income 
+$ 
+1,906.7 
+$ 
+1,486.7 
+$ 
+1,883.4 
+Income charges (credits) not affecting cash: 
+Depreciation 
+323.7 
+335.0 
+303.6 
+Deferred income taxes 
+8.3 
+(294.1 
+) 
+(300.6 
+) 
+Stock-based compensation (Note 11) 
+159.0 
+170.6 
+141.0 
+Impairment of goodwill, intangibles and other assets (Note 4) 
+— 
+401.3 
+— 
+Gain on divestitures (Note 17) 
+— 
+— 
+(60.6 
+) 
+Amortization and other 
+71.8 
+48.3 
+17.9 
+Changes in certain working capital components and other assets and liabilities excluding the impact of acquisition and
+divestitures: 
+Decrease (increase) in accounts receivable 
+181.7 
+(238.0 
+) 
+(118.3 
+) 
+Decrease (increase) in inventories 
+284.6 
+32.2 
+(249.8 
+) 
+(Increase) decrease in prepaid expenses and other current assets 
+(69.6 
+) 
+14.1 
+(11.2 
+) 
+Increase (decrease) in accounts payable, accrued liabilities and income taxes payable 
+298.0 
+(220.0 
+) 
+330.9 
+Cash provided by operations 
+3,164.2 
+1,736.1 
+1,936.3 
+Cash used by investing activities: 
+Purchases of short-term investments 
+(3,724.4 
+) 
+(2,908.7 
+) 
+(1,865.6 
+) 
+Maturities and sales of short-term investments 
+2,787.6 
+2,390.0 
+2,246.0 
+Additions to property, plant and equipment 
+(335.1 
+) 
+(455.7 
+) 
+(449.2 
+) 
+Disposals of property, plant and equipment 
+10.1 
+32.0 
+1.9 
+Increase in other assets, net of other liabilities 
+(11.2 
+) 
+(47.0 
+) 
+(21.8 
+) 
+Settlement of net investment hedges 
+5.5 
+191.3 
+(76.0 
+) 
+Acquisition of subsidiary, net of cash acquired (Note 4) 
+— 
+— 
+(571.1 
+) 
+Proceeds from divestitures (Note 17) 
+— 
+— 
+246.0 
+Cash used by investing activities 
+(1,267.5 
+) 
+(798.1 
+) 
+(489.8 
+) 
+Cash used by financing activities: 
+Reductions in long-term debt, including current portion 
+(32.2 
+) 
+(6.8 
+) 
+(35.2 
+) 
+(Decrease) increase in notes payable 
+(205.4 
+) 
+177.1 
+63.7 
+Proceeds from exercise of stock options and other stock issuances 
+364.5 
+186.6 
+343.3 
+Excess tax benefits from share-based payment arrangements 
+58.5 
+25.1 
+63.0 
+Repurchase of common stock 
+(741.2 
+) 
+(649.2 
+) 
+(1,248.0 
+) 
+Dividends — common and preferred 
+(505.4 
+) 
+(466.7 
+) 
+(412.9 
+) 
+Cash used by financing activities 
+(1,061.2 
+) 
+(733.9 
+) 
+(1,226.1 
+) 
+Effect of exchange rate changes 
+(47.5 
+) 
+(46.9 
+) 
+56.8 
+Net increase in cash and equivalents 
+788.0 
+157.2 
+277.2 
+Cash and equivalents, beginning of year 
+2,291.1 
+2,133.9 
+1,856.7 
+Cash and equivalents, end of year 
+$ 
+3,079.1 
+$ 
+2,291.1 
+$ 
+2,133.9 
+Supplemental disclosure of cash flow information: 
+Cash paid during the year for: 
+Interest, net of capitalized interest 
+$ 
+48.4 
+$ 
+46.7 
+$ 
+44.1 
+Income taxes 
+537.2 
+765.2 
+717.5 
+Dividends declared and not paid 
+130.7 
+121.4 
+112.9 
+The accompanying notes
+to consolidated financial statements are an integral part of this statement. 
+58 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY 
+Common Stock 
+Capital in 
+Excess of 
+Stated 
+Value 
+Accumulated 
+Other 
+Comprehensive 
+Income 
+Retained 
+Earnings 
+Total 
+Class A 
+Class B 
+Shares 
+Amount 
+Shares 
+Amount 
+(In millions, except per share data) 
+Balance at May 31, 2007 
+117.6 
+$ 
+0.1 
+384.1 
+$ 
+2.7 
+$ 
+1,960.0 
+$ 
+177.4 
+$ 
+4,885.2 
+$ 
+7,025.4 
+Stock options exercised 
+9.1 
+372.2 
+372.2 
+Conversion to Class B Common Stock 
+(20.8 
+) 
+20.8 
+— 
+Repurchase of Class B Common Stock 
+(20.6 
+) 
+(12.3 
+) 
+(1,235.7 
+) 
+(1,248.0 
+) 
+Dividends on Common stock ($0.875 per share) 
+(432.8 
+) 
+(432.8 
+) 
+Issuance of shares to employees 
+1.0 
+39.2 
+39.2 
+Stock-based compensation (Note 11): 
+141.0 
+141.0 
+Forfeiture of shares from employees 
+(0.1 
+) 
+(2.3 
+) 
+(1.1 
+) 
+(3.4 
+) 
+Comprehensive income (Note 14): 
+Net income 
+1,883.4 
+1,883.4 
+Other comprehensive income: 
+Foreign currency translation and other (net of tax expense of $101.6) 
+211.9 
+211.9 
+Realized foreign currency translation gain due to divestiture (Note 17) 
+(46.3 
+) 
+(46.3 
+) 
+Net loss on cash flow hedges (net of tax benefit of $67.7) 
+(175.8 
+) 
+(175.8 
+) 
+Net loss on net investment hedges (net of tax benefit of $25.1) 
+(43.5 
+) 
+(43.5 
+) 
+Reclassification to net income of previously deferred losses related to hedge derivatives (net of tax benefit of
+$49.6) 
+127.7 
+127.7 
+Total Comprehensive income 
+74.0 
+1,883.4 
+1,957.4 
+Adoption of FIN 48 (Note 1 and 9) 
+(15.6 
+) 
+(15.6 
+) 
+Adoption of EITF 06-2 Sabbaticals (net of tax benefit of $6.2) 
+(10.1 
+) 
+(10.1 
+) 
+Balance at May 31, 2008 
+96.8 
+$ 
+0.1 
+394.3 
+$ 
+2.7 
+$ 
+2,497.8 
+$ 
+251.4 
+$ 
+5,073.3 
+$ 
+7,825.3 
+Stock options exercised 
+4.0 
+167.2 
+167.2 
+Conversion to Class B Common Stock 
+(1.5 
+) 
+1.5 
+— 
+Repurchase of Class B Common Stock 
+(10.6 
+) 
+(6.3 
+) 
+(632.7 
+) 
+(639.0 
+) 
+Dividends on Common stock ($0.98 per share) 
+(475.2 
+) 
+(475.2 
+) 
+Issuance of shares to employees 
+1.1 
+45.4 
+45.4 
+Stock-based compensation (Note 11): 
+170.6 
+170.6 
+Forfeiture of shares from employees 
+(0.1 
+) 
+(3.3 
+) 
+(0.7 
+) 
+(4.0 
+) 
+Comprehensive income (Note 14): 
+Net income 
+1,486.7 
+1,486.7 
+Other comprehensive income: 
+Foreign currency translation and other (net of tax benefit of $177.5) 
+(335.3 
+) 
+(335.3 
+) 
+Net gain on cash flow hedges (net of tax expense of $167.5) 
+453.6 
+453.6 
+Net gain on net investment hedges (net of tax expense of $55.4) 
+106.0 
+106.0 
+Reclassification to net income of previously deferred net gains related to hedge derivatives (net of tax expense of
+$39.6) 
+(108.2 
+) 
+(108.2 
+) 
+Total Comprehensive income 
+116.1 
+1,486.7 
+1,602.8 
+Balance at May 31, 2009 
+95.3 
+$ 
+0.1 
+390.2 
+$ 
+2.7 
+$ 
+2,871.4 
+$ 
+367.5 
+$ 
+5,451.4 
+$ 
+8,693.1 
+Stock options exercised 
+8.6 
+379.6 
+379.6 
+Conversion to Class B Common Stock 
+(5.3 
+) 
+5.3 
+— 
+Repurchase of Class B Common Stock 
+(11.3 
+) 
+(6.8 
+) 
+(747.5 
+) 
+(754.3 
+) 
+Dividends on Common stock ($1.06 per share) 
+(514.8 
+) 
+(514.8 
+) 
+Issuance of shares to employees 
+1.3 
+40.0 
+40.0 
+Stock-based compensation (Note 11): 
+159.0 
+159.0 
+Forfeiture of shares from employees 
+(0.1 
+) 
+(2.6 
+) 
+(0.3 
+) 
+(2.9 
+) 
+Comprehensive income (Note 14): 
+Net income 
+1,906.7 
+1,906.7 
+Other comprehensive income: 
+Foreign currency translation and other (net of tax benefit of $71.8) 
+(159.2 
+) 
+(159.2 
+) 
+Net gain on cash flow hedges (net of tax expense of $27.8) 
+87.1 
+87.1 
+Net gain on net investment hedges (net of tax expense of $21.2) 
+44.8 
+44.8 
+Reclassification to net income of previously deferred net gains related to hedge derivatives (net of tax expense of
+$41.7) 
+(121.6 
+) 
+(121.6 
+) 
+Reclassification of ineffective hedge gains to net income (net of tax expense of $1.4) 
+(3.8 
+) 
+(3.8 
+) 
+Total Comprehensive income 
+(152.7 
+) 
+1,906.7 
+1,754.0 
+Balance at May 31, 2010 
+90.0 
+$ 
+0.1 
+394.0 
+$ 
+2.7 
+$ 
+3,440.6 
+$ 
+214.8 
+$ 
+6,095.5 
+$ 
+9,753.7 
+The accompanying notes to consolidated financial statements are an integral part of this statement.
+59 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+Note 1 — Summary of Significant Accounting Policies 
+Description of Business 
+NIKE, Inc. is a worldwide leader in the design, marketing and distribution of athletic and sports-inspired footwear, apparel, equipment
+and accessories. Wholly-owned NIKE subsidiaries include Cole Haan, which designs, markets and distributes dress and casual shoes, handbags, accessories and coats; Converse Inc., which designs, markets and distributes athletic and causal footwear,
+apparel and accessories; Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories; and Umbro Ltd., which designs, distributes and licenses athletic and casual footwear,
+apparel and equipment, primarily for the sport of soccer. 
+Basis of Consolidation 
+The consolidated financial statements include the accounts of NIKE, Inc. and its subsidiaries (the “Company”). All
+significant intercompany transactions and balances have been eliminated. 
+Recognition of Revenues 
+Wholesale revenues are recognized when title passes and the risks and rewards of ownership have passed to the customer, based on the terms
+of sale. This occurs upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale. Provisions for sales discounts, returns and
+miscellaneous claims from customers are made at the time of sale. As of May 31, 2010 and 2009, the Company’s reserve balances for sales discounts, returns and miscellaneous claims were $370.6 million and $363.6 million,
+respectively. 
+Shipping and Handling Costs 
+Shipping and handling costs are expensed as incurred and included in cost of sales. 
+Advertising and Promotion 
+Advertising production costs are expensed the first time the advertisement is run. Media (TV and print) placement costs are expensed in
+the month the advertising appears. 
+A significant amount of the Company’s promotional expenses result from payments under
+endorsement contracts. Accounting for endorsement payments is based upon specific contract provisions. Generally, endorsement payments are expensed on a straight-line basis over the term of the contract after giving recognition to periodic
+performance compliance provisions of the contracts. Prepayments made under contracts are included in prepaid expenses or other assets depending on the period to which the prepayment applies. 
+Through cooperative advertising programs, the Company reimburses retail customers for certain costs of advertising the Company’s
+products. The Company records these costs in selling and administrative expense at the point in time when it is obligated to its customers for the costs, which is when the related revenues are recognized. This obligation may arise prior to the
+related advertisement being run. 
+Total advertising and promotion expenses were $2,356.4 million, $2,351.3 million, and
+$2,308.3 million for the years ended May 31, 2010, 2009 and 2008, respectively. Prepaid advertising and promotion expenses recorded in prepaid expenses and other assets totaled $260.7 million and $280.0 million at May 31, 2010 and 2009,
+respectively. 
+60 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Cash and Equivalents 
+Cash and equivalents represent cash and short-term, highly liquid investments with maturities of three months or less at date of purchase.
+The carrying amounts reflected in the consolidated balance sheet for cash and equivalents approximate fair value. 
+Short-term Investments 
+Short-term investments consist of highly liquid investments, primarily commercial paper, U.S. treasury, U.S. agency, and corporate debt
+securities, with maturities over three months from the date of purchase. Debt securities that the Company has the ability and positive intent to hold to maturity are carried at amortized cost. At May 31, 2010 and 2009, the Company did not hold
+any short-term investments that were classified as held-to-maturity. 
+At May 31, 2010 and 2009, short-term investments
+consisted of available-for-sale securities. Available-for-sale securities are recorded at fair value with unrealized gains and losses reported, net of tax, in other comprehensive income, unless unrealized losses are determined to be other than
+temporary. The Company considers all available-for-sale securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs and therefore classifies all securities with maturity dates beyond
+three months as current assets within short-term investments on the consolidated balance sheet. 
+See Note 6 — Fair Value
+Measurements for more information on the Company’s short term investments. 
+Allowance for Uncollectible Accounts
+Receivable 
+Accounts receivable consists primarily of amounts receivable from customers. We make ongoing estimates
+relating to the collectability of our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the allowance, we consider our historical
+level of credit losses and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Accounts receivable with anticipated collection dates greater than 12 months from the balance sheet date and related
+allowances are considered non-current and recorded in other assets. The allowance for uncollectible accounts receivable was $116.7 million and $110.8 million at May 31, 2010 and 2009, respectively, of which $43.1 million and $36.9 million was
+classified as long-term and recorded in other assets. 
+Inventory Valuation 
+Inventories are stated at lower of cost or market and valued on a first-in, first-out (“FIFO”) or moving average cost basis.
+Property, Plant and Equipment and Depreciation 
+Property, plant and equipment are recorded at cost. Depreciation for financial reporting purposes is determined on a straight-line basis
+for buildings and leasehold improvements over 2 to 40 years and for machinery and equipment over 2 to 15 years. Computer software (including, in some cases, the cost of internal labor) is depreciated on a straight-line basis over 3 to 10 years.
+Impairment of Long-Lived Assets 
+The Company reviews the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in
+circumstances indicate that the carrying amount of the assets might not be 
+61 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal
+factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, the Company would assess the recoverability
+of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary
+asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group using appropriate valuation methodologies which would typically
+include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset groups carrying amount and its estimated fair value. 
+Identifiable Intangible Assets and Goodwill 
+The Company performs annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal
+year, or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite life below its carrying value. Events or changes in circumstances that may
+trigger interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, or an expectation that the carrying amount may not be recoverable, among other factors. The impairment
+test requires the Company to estimate the fair value of its reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and the Company proceeds to step two of the
+impairment analysis. In step two of the analysis, the Company measures and records an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value should such a circumstance arise.
+The Company generally bases its measurement of fair value of a reporting unit on a blended analysis of the present value of
+future discounted cash flows and the market valuation approach. The discounted cash flows model indicates the fair value of the reporting unit based on the present value of the cash flows that the Company expects the reporting unit to generate in
+the future. The Company’s significant estimates in the discounted cash flows model include: its weighted average cost of capital; long-term rate of growth and profitability of the reporting unit’s business; and working capital effects. The
+market valuation approach indicates the fair value of the business based on a comparison of the reporting unit to comparable publicly traded companies in similar lines of business. Significant estimates in the market valuation approach model include
+identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit.
+The Company believes the weighted use of discounted cash flows and the market valuation approach is the best method for
+determining the fair value of its reporting units because these are the most common valuation methodologies used within its industry; and the blended use of both models compensates for the inherent risks associated with either model if used on a
+stand-alone basis. 
+Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks. In measuring
+the fair value for these intangible assets, the Company utilizes the relief-from-royalty method. This method assumes that trade names and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the
+benefits received from them. This method requires the Company to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. 
+62 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Foreign Currency Translation and Foreign Currency Transactions 
+Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are included in the foreign
+currency translation adjustment, a component of accumulated other comprehensive income in shareholders’ equity. 
+The
+Company’s global subsidiaries have various assets and liabilities, primarily receivables and payables, that are denominated in currencies other than their functional currency. These balance sheet items are subject to remeasurement, the impact
+of which is recorded in other (income) expense, net, within our consolidated statement of income. 
+Accounting for
+Derivatives and Hedging Activities 
+The Company uses derivative financial instruments to limit exposure to changes in
+foreign currency exchange rates and interest rates. All derivatives are recorded at fair value on the balance sheet and changes in the fair value of derivative financial instruments are either recognized in other comprehensive income (a component of
+shareholders’ equity), debt or net income depending on the nature of the underlying exposure, whether the derivative is formally designated as a hedge, and, if designated, the extent to which the hedge is effective. The Company classifies the
+cash flows at settlement from derivatives in the same category as the cash flows from the related hedged items. For undesignated hedges and designated cash flow hedges, this is within the cash provided by operations component of the consolidated
+statement of cash flows. For designated net investment hedges, this is generally within the cash used by investing activities component of the cash flow statement. As our fair value hedges are receive-fixed, pay-variable interest rate swaps, the
+cash flows associated with these derivative instruments are periodic interest payments while the swaps are outstanding, which are reflected in net income within the cash provided by operations component of the cash flow statement. 
+See Note 18 — Risk Management and Derivatives for more information on the Company’s risk management program and derivatives.
+Stock-Based Compensation 
+The Company estimates the fair value of options granted under the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”) and
+employees’ purchase rights under the Employee Stock Purchase Plans (“ESPPs”) using the Black-Scholes option pricing model. The Company recognizes this fair value, net of estimated forfeitures, as selling and administrative expense in
+the consolidated statements of income over the vesting period using the straight-line method. 
+See Note 11 — Common Stock
+and Stock-Based Compensation for more information on the Company’s stock programs. 
+Income Taxes
+The Company accounts for income taxes using the asset and liability method. This approach requires the recognition of
+deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. United States income taxes are provided currently on financial statement
+earnings of non-U.S. subsidiaries that are expected to be repatriated. The Company determines annually the amount of undistributed non-U.S. earnings to invest indefinitely in its non-U.S. operations. The Company recognizes interest and penalties
+related to income tax matters in income tax expense. 
+63 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+See Note 9 — Income Taxes for further discussion. 
+Earnings Per Share 
+Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during
+the year. Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive stock options and awards. 
+See Note 12 — Earnings Per Share for further discussion. 
+Management Estimates 
+The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates,
+including estimates relating to assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during
+the reporting period. Actual results could differ from these estimates. 
+Reclassifications 
+Certain prior year amounts have been reclassified to conform to fiscal year 2010 presentation, including a reclassification to investing
+activities for the settlement of net investment hedges in the consolidated statement of cash flows for the year ended May 31, 2008. These reclassifications had no impact on previously reported results of operations or shareholders’ equity
+and do not affect previously reported cash flows from operations, financing activities or net change in cash and equivalents. 
+Recently Adopted Accounting Standards: 
+In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance to amend the disclosure requirements related
+to recurring and nonrecurring fair value measurements. The guidance requires additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair
+value measurements, and the transfers between Levels 1, 2, and 3 of the fair value measurement hierarchy. This guidance became effective for the Company beginning March 1, 2010, except for disclosures relating to purchases, sales, issuances and
+settlements of Level 3 assets and liabilities, which will be effective for the Company beginning June 1, 2011. As this guidance only requires expanded disclosures, the adoption did not and will not impact the Company’s consolidated
+financial position or results of operations. See Note 6 — Fair Value Measurements for disclosure required under this guidance. 
+In February 2010, the FASB issued amended guidance on subsequent events. Under this amended guidance, SEC filers are no longer required
+to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and the Company adopted these new requirements since the third quarter of fiscal
+2010. 
+In June 2009, the FASB established the FASB Accounting Standards Codification (the “Codification”) as the
+single source of authoritative U.S. GAAP for all non-governmental entities. The Codification, which launched July 1, 2009, changes the referencing and organization of accounting guidance. The Codification became effective for the Company
+beginning September 1, 2009. The issuance of the FASB Codification did not change GAAP and therefore the adoption has only affected how specific references to GAAP literature are disclosed in the notes to the Company’s consolidated
+financial statements. 
+64 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+In April 2009, the FASB updated guidance related to fair value measurements to clarify
+the guidance related to measuring fair value in inactive markets, to modify the recognition and measurement of other-than-temporary impairments of debt securities, and to require public companies to disclose the fair values of financial instruments
+in interim periods. This updated guidance became effective for the Company beginning June 1, 2009. The adoption of this guidance did not have an impact on the Company’s consolidated financial position or results of operations. See Note 6
+— Fair Value Measurements for disclosure required under the updated guidance. 
+In June 2008, the FASB issued new
+accounting guidance applicable when determining whether instruments granted in share-based payment transactions are participating securities. This guidance clarifies that share-based payment awards that entitle their holders to receive
+non-forfeitable dividends before vesting should be considered participating securities and included in the computation of earnings per share pursuant to the two-class method. This guidance became effective for the Company beginning June 1,
+2009. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position or results of operations. 
+In April 2008, the FASB issued amended guidance regarding the determination of the useful life of intangible assets. This guidance
+amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The intent of the position is to improve the consistency between the useful life of a
+recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. This guidance became effective for the Company beginning June 1, 2009. The adoption of this guidance did not have a material impact
+on the Company’s consolidated financial position or results of operations. 
+In December 2007, the FASB issued amended
+guidance regarding business combinations, establishing principles and requirements for how an acquirer recognizes and measures identifiable assets acquired, liabilities assumed, any resulting goodwill, and any non-controlling interest in an acquiree
+in its financial statements. This guidance also provides for disclosures to enable users of the financial statements to evaluate the nature and financial effects of a business combination. This amended guidance became effective for the Company
+beginning June 1, 2009. The adoption of this amended guidance did not have an impact on the Company’s consolidated financial statements, but could impact the accounting for future business combinations. 
+In December 2007, the FASB issued new guidance regarding the accounting and reporting for non-controlling interests in subsidiaries. This
+guidance clarifies that non-controlling interests in subsidiaries should be accounted for as a component of equity separate from the parent’s equity. This guidance became effective for the Company beginning June 1, 2009. The adoption of
+this guidance did not have an impact on the Company’s consolidated financial position or results of operations. 
+Recently Issued Accounting Standards: 
+In October 2009, the FASB issued new standards that revised the guidance for revenue recognition with multiple deliverables. These
+new standards impact the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, these new standards modify the manner in which the transaction
+consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. These new standards are effective for the Company beginning June 1, 2011. The Company
+does not expect the adoption will have a material impact on its consolidated financial positions or results of operations. 
+In
+June 2009, the FASB issued a new accounting standard that revised the guidance for the consolidation of variable interest entities (“VIE”). This new guidance requires a qualitative approach to identifying a controlling financial interest
+in a VIE, and requires an ongoing assessment of whether an entity is a VIE and whether an 
+65 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+interest in a VIE makes the holder the primary beneficiary of the VIE. This guidance is effective for the Company beginning June 1, 2010. The Company is currently evaluating the impact of
+the provisions of this new standard. 
+Note 2 — Inventories 
+Inventory balances of $2,040.8 million and $2,357.0 million at May 31, 2010 and 2009, respectively, were substantially all finished
+goods. 
+Note 3 — Property, Plant and Equipment 
+Property, plant and equipment included the following: 
+As of May 31, 
+2010 
+2009 
+(In millions) 
+Land 
+$ 
+222.8 
+$ 
+221.6 
+Buildings 
+951.9 
+974.0 
+Machinery and equipment 
+2,217.5 
+2,094.3 
+Leasehold improvements 
+820.6 
+802.0 
+Construction in process 
+177.0 
+163.8 
+4,389.8 
+4,255.7 
+Less accumulated depreciation 
+2,457.9 
+2,298.0 
+$ 
+1,931.9 
+$ 
+1,957.7 
+Capitalized interest was not material for the years
+ended May 31, 2010, 2009 and 2008. 
+Note 4 — Acquisition, Identifiable Intangible Assets, Goodwill and Umbro Impairment
+Acquisition 
+On March 3, 2008, the Company completed its acquisition of 100% of the outstanding shares of Umbro, a leading United Kingdom-based
+global soccer brand, for a purchase price of 290.5 million British Pounds Sterling in cash (approximately $576.4 million), inclusive of direct transaction costs. This acquisition is intended to strengthen the Company’s market position in
+the United Kingdom and expand NIKE’s global leadership in soccer, a key area of growth for the Company. This acquisition also provides positions in emerging soccer markets such as China, Russia and Brazil. The results of Umbro’s operations
+have been included in the Company’s consolidated financial statements since the date of acquisition as part of the Company’s “Other” operating segment. 
+The acquisition of Umbro was accounted for as a purchase business combination. The purchase price was allocated to tangible and
+identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the date of acquisition, with the remaining purchase price recorded as goodwill. 
+Based on our preliminary purchase price allocation at May 31, 2008, identifiable intangible assets and goodwill relating to the
+purchase approximated $419.5 million and $319.2 million, respectively. Goodwill recognized in this transaction is deductible for tax purposes. Identifiable intangible assets include $378.4 million for trademarks that have an indefinite life, and
+$41.1 million for other intangible assets consisting of Umbro’s 
+66 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+sourcing network, established customer relationships, and the United Soccer League Franchise. These intangible assets are amortized on a straight-line basis over estimated lives of 12 to 20
+years. 
+During fiscal 2009, the Company finalized the purchase-price accounting for Umbro and made revisions to preliminary
+estimates, including valuations of tangible and intangible assets and certain contingencies, as further evaluations were completed and information was received from third parties subsequent to the acquisition date. These revisions to preliminary
+estimates resulted in a $12.4 million decrease in the value of identified intangible assets, primarily Umbro’s sourcing network, and an $11.2 million increase in non-current liabilities, primarily related to liabilities assumed for certain
+contingencies and adjustments made to deferred taxes related to the fair value of assets acquired. These changes in assets acquired and liabilities assumed affected the amount of goodwill recorded. 
+The following table summarizes the allocation of the purchase price, including transaction costs of the acquisition, to the assets
+acquired and liabilities assumed at the date of acquisition based on their estimated fair values, including final purchase accounting adjustments (in millions): 
+May 31, 2008 
+Preliminary 
+Adjustments 
+May 31, 2009 
+Final 
+Current assets 
+$ 
+87.2 
+$ 
+— 
+$ 
+87.2 
+Non-current assets 
+90.2 
+— 
+90.2 
+Identified intangible assets 
+419.5 
+(12.4 
+) 
+407.1 
+Goodwill 
+319.2 
+23.6 
+342.8 
+Current liabilities 
+(60.3 
+) 
+— 
+(60.3 
+) 
+Non-current liabilities 
+(279.4 
+) 
+(11.2 
+) 
+(290.6 
+) 
+Net assets acquired 
+$ 
+576.4 
+$ 
+— 
+$ 
+576.4 
+The pro forma effect of the acquisition on the combined results of operations for fiscal 2008 was not
+material. 
+Umbro Impairment in Fiscal 2009 
+The Company performs annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal
+year, or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or intangible assets with an indefinite life below its carrying value. As a result of a significant decline in global
+consumer demand and continued weakness in the macroeconomic environment, as well as decisions by Company management to adjust planned investment in the Umbro brand, the Company concluded sufficient indicators of impairment existed to require the
+performance of an interim assessment of Umbro’s goodwill and indefinite lived intangible assets as of February 1, 2009. Accordingly, the Company performed the first step of the goodwill impairment assessment for Umbro by comparing the
+estimated fair value of Umbro to its carrying amount, and determined there was a potential impairment of goodwill as the carrying amount exceeded the estimated fair value. Therefore, the Company performed the second step of the assessment which
+compared the implied fair value of Umbro’s goodwill to the book value of goodwill. The implied fair value of goodwill is determined by allocating the estimated fair value of Umbro to all of its assets and liabilities, including both recognized
+and unrecognized intangibles, in the same manner as goodwill was determined in the original business combination. 
+The Company
+measured the fair value of Umbro by using an equal weighting of the fair value implied by a discounted cash flow analysis and by comparisons with the market values of similar publicly traded companies. The Company believes the blended use of both
+models compensates for the inherent risk associated with either 
+67 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+model if used on a stand-alone basis, and this combination is indicative of the factors a market participant would consider when performing a similar valuation. The fair value of Umbro’s
+indefinite-lived trademark was estimated using the relief from royalty method, which assumes that the trademark has value to the extent that Umbro is relieved of the obligation to pay royalties for the benefits received from the trademark. The
+assessments of the Company resulted in the recognition of impairment charges of $199.3 million and $181.3 million related to Umbro’s goodwill and trademark, respectively, for the year ended May 31, 2009. A tax benefit of $54.5 million was
+recognized as a result of the trademark impairment charge. In addition to the above impairment analysis, the Company determined an equity investment held by Umbro was impaired, and recognized a charge of $20.7 million related to the impairment of
+this investment. These charges are included in the Company’s “Other” category for segment reporting purposes. 
+The discounted cash flow analysis calculated the fair value of Umbro using management’s business plans and projections as the basis
+for expected cash flows for the next 12 years and a 3% residual growth rate thereafter. The Company used a weighted average discount rate of 14% in its analysis, which was derived primarily from published sources as well as our adjustment for
+increased market risk given current market conditions. Other significant estimates used in the discounted cash flow analysis include the rates of projected growth and profitability of Umbro’s business and working capital effects. The market
+valuation approach indicates the fair value of Umbro based on a comparison of Umbro to publicly traded companies in similar lines of business. Significant estimates in the market valuation approach include identifying similar companies with
+comparable business factors such as size, growth, profitability, mix of revenue generated from licensed and direct distribution, and risk of return on investment. 
+Holding all other assumptions constant at the test date, a 100 basis point increase in the discount rate would reduce the adjusted
+carrying value of Umbro’s net assets by an additional 12%. 
+Identified Intangible Assets and Goodwill 
+All goodwill balances are included in the Company’s “Other” category for segment reporting purposes. The following table
+summarizes the Company’s goodwill balance as of May 31, 2010 and 2009 (in millions): 
+Goodwill 
+Accumulated 
+Impairment 
+Goodwill, net 
+May 31, 2008 
+$ 
+448.8 
+$ 
+— 
+$ 
+448.8 
+Purchase price adjustments 
+23.6 
+— 
+23.6 
+Impairment charge 
+— 
+(199.3 
+) 
+(199.3 
+) 
+Other (1) 
+(79.6 
+) 
+— 
+(79.6 
+) 
+May 31, 2009 
+392.8 
+(199.3 
+) 
+193.5 
+Other (1) 
+(5.9 
+) 
+— 
+(5.9 
+) 
+May 31, 2010 
+$ 
+386.9 
+$ 
+(199.3 
+) 
+$ 
+187.6 
+(1) 
+Other consists of
+foreign currency translation adjustments on Umbro goodwill. 
+68 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The following table summarizes the Company’s identifiable intangible asset balances
+as of May 31, 2010 and 2009. 
+May 31, 2010 
+May 31, 2009 
+Gross 
+Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net 
+Carrying 
+Amount 
+Gross 
+Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net 
+Carrying 
+Amount 
+(In millions) 
+Amortized intangible assets: 
+Patents 
+$ 
+68.5 
+$ 
+(20.8 
+) 
+$ 
+47.7 
+$ 
+56.6 
+$ 
+(17.2 
+) 
+$ 
+39.4 
+Trademarks 
+40.2 
+(17.8 
+) 
+22.4 
+37.5 
+(10.9 
+) 
+26.6 
+Other 
+32.7 
+(18.8 
+) 
+13.9 
+40.0 
+(19.6 
+) 
+20.4 
+Total 
+$ 
+141.4 
+$ 
+(57.4 
+) 
+$ 
+84.0 
+$ 
+134.1 
+$ 
+(47.7 
+) 
+$ 
+86.4 
+Unamortized intangible assets — Trademarks 
+$ 
+383.0 
+$ 
+381.0 
+Identifiable intangible assets, net 
+$ 
+467.0 
+$ 
+467.4 
+The effect of foreign exchange fluctuations for the
+year ended May 31, 2010 increased unamortized intangible assets by approximately $2 million. 
+Amortization
+expense, which is included in selling and administrative expense, was $13.5 million, $11.9 million and $9.2 million for the years ended May 31, 2010, 2009 and 2008, respectively. The estimated amortization expense for intangible assets
+subject to amortization for each of the years ending May 31, 2011 through May 31, 2015 are as follows: 2011: $13.4 million; 2012: $12.7 million; 2013: $10.8 million; 2014: $8.7 million; 2015: $5.1 million. 
+Note 5 — Accrued Liabilities 
+Accrued liabilities included the following: 
+May 31, 
+2010 
+2009 
+(In millions) 
+Compensation and benefits, excluding taxes 
+$ 
+598.8 
+$ 
+491.9 
+Endorser compensation 
+266.9 
+237.1 
+Fair value of derivatives 
+163.6 
+68.9 
+Taxes other than income taxes 
+157.9 
+161.9 
+Dividends payable 
+130.7 
+121.4 
+Advertising and marketing 
+124.9 
+97.6 
+Import and logistics costs 
+80.0 
+59.4 
+Restructuring
+charges (1) 
+8.2 
+149.6 
+Other (2) 
+373.4 
+396.1 
+$ 
+1,904.4 
+$ 
+1,783.9 
+(1) 
+Accrued restructuring charges primarily consist of severance costs relating to the Company’s restructuring activities that took place during the
+year ended May 31, 2009. See Note 16 — Restructuring Charges for more information. 
+(2) 
+Other consists of various accrued expenses and no individual item accounted for more than 5% of the balance at May 31, 2010 and 2009.
+69 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 6 — Fair Value Measurements 
+The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives and
+available-for-sale securities. Fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the
+Company uses a three-level hierarchy established by the FASB which prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). 
+The levels of hierarchy are described below: 
+• 
+Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. 
+• 
+Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted
+prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. 
+• 
+Level 3: Unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own
+assumptions. 
+The Company’s assessment of the significance of a particular input to the fair value
+measurement in its entirety requires judgment and considers factors specific to the asset or liability. Financial assets and liabilities are classified in their entirety based on the most stringent level of input that is significant to the fair
+value measurement. 
+70 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The following table presents information about the Company’s financial assets and
+liabilities measured at fair value on a recurring basis as of May 31, 2010 and 2009 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. 
+May 31, 2010 
+Fair Value Measurements Using 
+Assets / Liabilities 
+at Fair Value 
+Balance Sheet Classification 
+Level 1 
+Level 2 
+Level 3 
+(In millions) 
+Assets 
+Derivatives: 
+Foreign exchange forwards and options 
+$ 
+— 
+$ 
+420.2 
+$ 
+— 
+$ 
+420.2 
+Other current assets and other long-term assets 
+Interest rate swap contracts 
+— 
+14.6 
+14.6 
+Other current assets and other long-term assets 
+Total derivatives 
+— 
+434.8 
+— 
+434.8 
+Available-for-sale securities: 
+U.S. Treasury securities 
+1,231.7 
+— 
+— 
+1,231.7 
+Cash and equivalents 
+Commercial paper and bonds 
+— 
+461.9 
+— 
+461.9 
+Cash and equivalents 
+Money market funds 
+— 
+684.5 
+— 
+684.5 
+Cash and equivalents 
+U.S. Treasury securities 
+1,084.0 
+— 
+— 
+1,084.0 
+Short-term investments 
+U.S. Agency securities 
+— 
+298.5 
+— 
+298.5 
+Short-term investments 
+Commercial paper and bonds 
+— 
+684.3 
+— 
+684.3 
+Short-term investments 
+Total available-for-sale securities 
+2,315.7 
+2,129.2 
+— 
+4,444.9 
+Total Assets 
+$ 
+2,315.7 
+$ 
+2,564.0 
+$ 
+— 
+$ 
+4,879.7 
+Liabilities 
+Derivatives: 
+Foreign exchange forwards and options 
+$ 
+— 
+$ 
+165.1 
+$ 
+— 
+$ 
+165.1 
+Accrued liabilities and other long-term liabilities 
+Total Liabilities 
+$ 
+— 
+$ 
+165.1 
+$ 
+— 
+$ 
+165.1 
+71 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+May 31, 2009 
+Fair Value Measurements Using 
+Assets / Liabilities 
+at Fair Value 
+Balance Sheet Classification 
+Level 1 
+Level 2 
+Level 3 
+(In millions) 
+Assets 
+Derivatives: 
+Foreign exchange forwards and options 
+$ 
+— 
+$ 
+364.9 
+$ 
+— 
+$ 
+364.9 
+Other current assets and other long-term assets 
+Interest rate swap contracts 
+— 
+13.8 
+— 
+13.8 
+Other current assets and other long-term assets 
+Total derivatives 
+— 
+378.7 
+— 
+378.7 
+Available-for-sale securities: 
+U.S. Treasury securities 
+240.0 
+— 
+— 
+240.0 
+Cash and equivalents 
+Commercial paper and bonds 
+— 
+235.3 
+— 
+235.3 
+Cash and equivalents 
+Money market funds 
+— 
+1,079.5 
+— 
+1,079.5 
+Cash and equivalents 
+U.S. Treasury securities 
+467.9 
+— 
+— 
+467.9 
+Short-term investments 
+U.S. Agency securities 
+— 
+304.9 
+— 
+304.9 
+Short-term investments 
+Commercial paper and bonds 
+— 
+391.2 
+— 
+391.2 
+Short-term investments 
+Total available-for-sale securities 
+707.9 
+2,010.9 
+— 
+2,718.8 
+Total Assets 
+$ 
+707.9 
+$ 
+2,389.6 
+$ 
+— 
+$ 
+3,097.5 
+Liabilities 
+Derivatives: 
+Foreign exchange forwards and options 
+$ 
+— 
+$ 
+68.9 
+$ 
+— 
+$ 
+68.9 
+Accrued liabilities and other long-term liabilities 
+Total Liabilities 
+$ 
+— 
+$ 
+68.9 
+$ 
+— 
+$ 
+68.9 
+Derivative financial instruments include foreign currency forwards, option contracts and interest
+rate swaps. The fair value of these derivatives contracts is determined using observable market inputs such as the forward pricing curve, currency volatilities, currency correlations and interest rates, and considers nonperformance risk of the
+Company and that of its counterparties. Adjustments relating to these risks were not material for the years ended May 31, 2010 and 2009. 
+Available-for-sale securities are primarily comprised of investments in U.S. Treasury and agency securities, commercial paper, bonds and
+money market funds. These securities are valued using market prices on both active markets (level 1) and less active markets (level 2). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange
+markets involving identical assets. Level 2 instrument valuations are obtained from readily-available pricing sources for comparable instruments. 
+As of May 31, 2010 and 2009, the Company had no material Level 3 measurements and no assets or liabilities measured at fair value on a
+non-recurring basis. 
+72 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Short-term Investments 
+As of May 31, 2010 and 2009, short-term investments consisted of available-for-sale securities. As of May 31, 2010, the Company
+held $1,900.4 million of available-for-sale securities with maturity dates within one year and $166.4 million with maturity dates over one year and less than five years within short-term investments. As of May 31, 2009, the Company held
+$1,005.0 million of available-for-sale securities with maturity dates within one year and $159.0 million with maturity dates over one year and less than five years within short-term investments. 
+Short-term investments classified as available-for-sale consist of the following at fair value: 
+As of May 31, 
+2010 
+2009 
+(In millions) 
+Available-for-sale investments: 
+U.S. treasury and agencies 
+$ 
+1,382.5 
+$ 
+772.8 
+Commercial paper and bonds 
+684.3 
+391.2 
+Total available-for-sale investments 
+$ 
+2,066.8 
+$ 
+1,164.0 
+Included in interest expense (income), net for the
+years ended May 31, 2010, 2009 and 2008 was interest income of $30.1 million, $49.7 million, and $115.8 million, respectively, related to cash and equivalents and short-term investments. 
+For fair value information regarding notes payable and long-term debt, refer to Note 7 — Short-Term Borrowings and Credit Lines and
+Note 8 — Long-Term Debt. 
+Note 7 — Short-Term Borrowings and Credit Lines 
+Notes payable to banks and interest-bearing accounts payable to Sojitz Corporation of America (“Sojitz America”) as of
+May 31, 2010 and 2009, are summarized below: 
+May 31, 
+2010 
+2009 
+Borrowings 
+Interest 
+Rate 
+Borrowings 
+Interest 
+Rate 
+(In millions) 
+Notes payable: 
+Commercial paper 
+$ 
+— 
+— 
+$ 
+100.0 
+0.40 
+% 
+U.S. operations 
+18.0 
+— 
+(1) 
+31.2 
+1.81 
+% (1) 
+Non-U.S. operations 
+120.6 
+6.35 
+% (1) 
+211.7 
+4.15 
+% (1) 
+$ 
+138.6 
+$ 
+342.9 
+Sojitz America 
+$ 
+88.2 
+1.07 
+% 
+$ 
+78.5 
+1.57 
+% 
+(1) 
+Weighted average interest rate includes non-interest bearing overdrafts. 
+The carrying amounts reflected in the consolidated balance sheet for notes payable approximate fair value. 
+The Company purchases through Sojitz America certain athletic footwear, apparel and equipment it acquires from non-U.S. suppliers. These
+purchases are for the Company’s operations outside of the United States, Europe and Japan. Accounts payable to Sojitz America are generally due up to 60 days after shipment of goods from the foreign port. The interest rate on such accounts
+payable is the 60-day London Interbank Offered Rate (“LIBOR”) as of the beginning of the month of the invoice date, plus 0.75%. 
+73 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+As of May 31, 2010, the Company had no amounts outstanding under its commercial
+paper program. As of May 31, 2009, the Company had $100.0 million outstanding at a weighted average interest rate of 0.40%. 
+In December 2006, the Company entered into a $1 billion revolving credit facility with a group of banks. The facility matures in December
+2012. Based on the Company’s current long-term senior unsecured debt ratings of A+ and A1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively, the interest rate charged on any outstanding borrowings would
+be the prevailing LIBOR plus 0.15%. The facility fee is 0.05% of the total commitment. Under this agreement, the Company must maintain, among other things, certain minimum specified financial ratios with which the Company was in compliance at
+May 31, 2010. No amounts were outstanding under this facility as of May 31, 2010 and 2009. 
+Note 8 — Long-Term Debt 
+Long-term debt, net of unamortized premiums and discounts and swap fair value adjustments, is comprised of the following:
+May 31, 
+2010 
+2009 
+(In millions) 
+5.375% Corporate bond, payable July 8, 2009 
+$ 
+— 
+$ 
+25.1 
+5.66% Corporate bond, payable July 23, 2012 
+27.0 
+27.4 
+5.4% Corporate bond, payable August 7, 2012 
+16.1 
+16.2 
+4.7% Corporate bond, payable October 1, 2013 
+50.0 
+50.0 
+5.15% Corporate bond, payable October 15, 2015 
+112.4 
+111.1 
+4.3% Japanese Yen note, payable June 26, 2011 
+115.7 
+108.5 
+1.52125% Japanese Yen note, payable February 14, 2012 
+55.1 
+51.7 
+2.6% Japanese Yen note, maturing August 20, 2001 through November 20, 2020
+53.1 
+54.7 
+2.0% Japanese Yen note, maturing August 20, 2001 through November 20, 2020
+23.8 
+24.5 
+Total 
+453.2 
+469.2 
+Less current maturities 
+7.4 
+32.0 
+$ 
+445.8 
+$ 
+437.2 
+The scheduled maturity of long-term debt in each of
+the years ending May 31, 2011 through 2015 are $7.4 million, $178.1 million, $47.4 million, $57.4 million and $7.4 million, at face value, respectively. 
+The Company’s long-term debt is recorded at adjusted cost, net of amortized premiums and discounts and interest rate swap fair value
+adjustments. The fair value of long-term debt is estimated based upon quoted prices for similar instruments. The fair value of the Company’s long-term debt, including the current portion, was approximately $453 million at May 31, 2010 and
+$456 million at May 31, 2009. 
+In fiscal years 2003 and 2004, the Company issued a total of $240 million in medium-term
+notes of which $190 million, at face value, were outstanding at May 31, 2010. The outstanding notes have coupon rates that range from 4.70% to 5.66% and maturity dates ranging from July 2012 to October 2015. For each of these notes,
+except the $50 million note maturing in October 2013, the Company has entered into interest rate swap agreements whereby the Company receives fixed interest payments at the same rate as the notes and pays variable interest payments based on the
+six-month LIBOR plus a spread. Each swap has the same notional amount and maturity date as the corresponding note. At May 31, 2010, the interest rates payable on these swap agreements ranged from approximately 0.3% to 1.1%. 
+74 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+In June 1996, one of the Company’s Japanese subsidiaries, NIKE Logistics YK,
+borrowed ¥10.5 billion (approximately $115.7 million as of May 31, 2010) in a private placement with a maturity of June 26, 2011. Interest is paid semi-annually. The agreement provides for early retirement of the borrowing. 
+In July 1999, NIKE Logistics YK assumed a total of ¥13.0 billion in loans as part of its agreement to purchase a distribution center
+in Japan, which serves as collateral for the loans. These loans mature in equal quarterly installments during the period August 20, 2001 through November 20, 2020. Interest is also paid quarterly. As of May 31, 2010, ¥7.0 billion
+(approximately $76.9 million) in loans remain outstanding. 
+In February 2007, NIKE Logistics YK entered into a ¥5.0
+billion (approximately $55.1 million as of May 31, 2010) term loan that replaced certain intercompany borrowings and matures on February 14, 2012. The interest rate on the loan is approximately 1.5% and interest is paid semi-annually.
+Note 9 — Income Taxes 
+Income before income taxes is as follows: 
+Year Ended May 31, 
+2010 
+2009 
+2008 
+(In millions) 
+Income before income taxes: 
+United States 
+$ 
+698.6 
+$ 
+845.7 
+$ 
+713.0 
+Foreign 
+1,818.3 
+1,110.8 
+1,789.9 
+$ 
+2,516.9 
+$ 
+1,956.5 
+$ 
+2,502.9 
+The provision for income taxes is as follows:
+Year Ended May 31, 
+2010 
+2009 
+2008 
+(In millions) 
+Current: 
+United States 
+Federal 
+$ 
+200.2 
+$ 
+410.1 
+$ 
+469.9 
+State 
+50.0 
+46.1 
+58.4 
+Foreign 
+348.5 
+307.7 
+391.8 
+598.7 
+763.9 
+920.1 
+Deferred: 
+United States 
+Federal 
+17.7 
+(251.4 
+) 
+(273.0 
+) 
+State 
+(1.1 
+) 
+(7.9 
+) 
+(5.0 
+) 
+Foreign 
+(5.1 
+) 
+(34.8 
+) 
+(22.6 
+) 
+11.5 
+(294.1 
+) 
+(300.6 
+) 
+$ 
+610.2 
+$ 
+469.8 
+$ 
+619.5 
+75 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+A reconciliation from the U.S. statutory federal income tax rate to the effective income
+tax rate follows: 
+Year Ended May 31, 
+2010 
+2009 
+2008 
+Federal income tax rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State taxes, net of federal benefit 
+1.3 
+% 
+1.2 
+% 
+1.4 
+% 
+Foreign earnings 
+-13.6 
+% 
+-14.9 
+% 
+-12.9 
+% 
+Other, net 
+1.5 
+% 
+2.7 
+% 
+1.3 
+% 
+Effective income tax rate 
+24.2 
+% 
+24.0 
+% 
+24.8 
+% 
+The effective tax rate for the year ended May 31, 2010 of 24.2% increased from the fiscal 2009
+effective rate of 24.0%. The effective tax rate for the year ended May 31, 2009 was favorably impacted by a tax benefit associated with the impairment of goodwill, intangible, and other assets of Umbro (See Note 4 — Acquisition,
+Identifiable Intangible Assets, Goodwill and Umbro Impairment), and the retroactive reinstatement of the research and development tax credit. The Tax Extenders and Alternative Minimum Tax Relief Act of 2008, which was signed into law during the
+second quarter of fiscal 2009, reinstated the U.S. federal research and development tax credit retroactive to January 1, 2008. Also reflected in the effective tax rate for the years ended May 31, 2010, 2009 and 2008 is a reduction in
+our on-going effective tax rate resulting from our operations outside of the United States, as our tax rates on those operations are generally lower than the U.S. statutory rate. 
+Deferred tax assets and (liabilities) are comprised of the following: 
+May 31, 
+2010 
+2009 
+(In millions) 
+Deferred tax assets: 
+Allowance for doubtful accounts 
+$ 
+16.7 
+$ 
+17.9 
+Inventories 
+47.3 
+52.8 
+Sales return reserves 
+52.0 
+52.8 
+Deferred compensation 
+143.7 
+127.3 
+Stock-based compensation 
+145.0 
+127.3 
+Reserves and accrued liabilities 
+85.8 
+66.7 
+Foreign loss carry-forwards 
+26.2 
+31.9 
+Foreign tax credit carry-forwards 
+148.3 
+32.7 
+Hedges 
+0.4 
+1.1 
+Undistributed earnings of foreign subsidiaries 
+128.4 
+272.9 
+Other 
+37.0 
+46.2 
+Total deferred tax assets 
+830.8 
+829.6 
+Valuation allowance 
+(36.2 
+) 
+(26.0 
+) 
+Total deferred tax assets after valuation allowance 
+794.6 
+803.6 
+Deferred tax liabilities: 
+Property, plant and equipment 
+(99.3 
+) 
+(92.2 
+) 
+Intangibles 
+(98.6 
+) 
+(100.7 
+) 
+Hedges 
+(71.5 
+) 
+(86.6 
+) 
+Other 
+(8.1 
+) 
+(4.2 
+) 
+Total deferred tax liability 
+(277.5 
+) 
+(283.7 
+) 
+Net deferred tax asset 
+$ 
+517.1 
+$ 
+519.9 
+76 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The following is a reconciliation of the changes in the gross balance of unrecognized
+tax benefits: 
+May 31, 
+2010 
+2009 
+2008 
+(In millions) 
+Unrecognized tax benefits, as of the beginning of the period 
+$ 
+273.9 
+$ 
+251.1 
+$ 
+122.5 
+Gross increases related to prior period tax positions 
+86.7 
+53.2 
+71.6 
+Gross decreases related to prior period tax positions 
+(121.6 
+) 
+(61.7 
+) 
+(23.1 
+) 
+Gross increases related to current period tax positions 
+52.5 
+71.5 
+87.7 
+Settlements 
+(3.3 
+) 
+(29.3 
+) 
+(13.4 
+) 
+Lapse of statute of limitations 
+(9.3 
+) 
+(4.1 
+) 
+(0.7 
+) 
+Changes due to currency translation 
+3.2 
+(6.8 
+) 
+6.5 
+Unrecognized tax benefits, as of the end of the period 
+$ 
+282.1 
+$ 
+273.9 
+$ 
+251.1 
+As of May 31, 2010, the total gross unrecognized tax benefits, excluding related interest and
+penalties, were $282.1 million, $158.4 million of which would affect the Company’s effective tax rate if recognized in future periods. Total gross unrecognized tax benefits, excluding interest and penalties, as of May 31, 2009 was $273.9
+million, $110.6 million of which would affect the Company’s effective tax rate if recognized in future periods. 
+The
+Company recognizes interest and penalties related to income tax matters in income tax expense. The liability for payment of interest and penalties increased $6.0 million, $2.2 million and $41.2 million during the years ended May 31, 2010, 2009
+and 2008, respectively. As of May 31, 2010 and 2009, accrued interest and penalties related to uncertain tax positions was $81.4 million and $75.4 million, respectively (excluding federal benefit). 
+The Company is subject to taxation primarily in the U.S., China and the Netherlands as well as various state and other foreign
+jurisdictions. The Company has concluded substantially all U.S. federal income tax matters through fiscal year 2006. The Company is currently under audit by the Internal Revenue Service for the 2007, 2008, 2009 and 2010 tax years. The Company’s
+major foreign jurisdictions, China and the Netherlands, have concluded substantially all income tax matters through calendar 1999 and fiscal 2003, respectively. It is reasonably possible that the Internal Revenue Service audits for the 2007, 2008
+and 2009 tax years will be completed during the next 12 months, which could result in a decrease in our balance of unrecognized tax benefits. An estimate of the range cannot be made at this time; however, we do not anticipate that total gross
+unrecognized tax benefits will change significantly as a result of full or partial settlement of audits within the next 12 months. 
+The Company has indefinitely reinvested approximately $3.6 billion of the cumulative undistributed earnings of certain foreign
+subsidiaries. Such earnings would be subject to U.S. taxation if repatriated to the U.S. Determination of the amount of unrecognized deferred tax liability associated with the permanently reinvested cumulative undistributed earnings is not
+practicable. 
+During the year ended May 31, 2009, a portion of the Company’s foreign operations was granted a tax
+holiday that will phase out in 2019. The decrease in income tax expense for the year ended May 31, 2010 as a result of this arrangement was approximately $30.1 million ($0.06 per diluted share). The effect on income tax expense for the year
+ended May 31, 2009 was not material. 
+Deferred tax assets at May 31, 2010 and 2009 were reduced by a valuation allowance
+relating to tax benefits of certain subsidiaries with operating losses where it is more likely than not that the deferred tax assets will not be realized. The net change in the valuation allowance was an increase of $10.2 million for the year
+ended May 31, 2010 and a decrease of $14.7 million and $1.6 million for the years ended May 31, 2009 and 2008, respectively. 
+77 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The Company does not anticipate that any foreign tax credit carry-forwards will expire.
+The Company has available domestic and foreign loss carry-forwards of $89.8 million at May 31, 2010. Such losses will expire as follows: 
+Year Ending May 31, 
+2011 
+2012 
+2013 
+2014 
+2015 
+2016- 
+2028 
+Indefinite 
+Total 
+(In millions) 
+Net Operating Losses 
+$ 
+2.0 
+$ 
+1.9 
+$ 
+3.6 
+$ 
+8.9 
+$ 
+11.1 
+$ 
+25.7 
+$ 
+36.6 
+$ 
+89.8 
+During the years ended
+May 31, 2010, 2009, and 2008, income tax benefits attributable to employee stock-based compensation transactions of $56.8 million, $25.4 million, and $68.9 million, respectively, were allocated to shareholders’ equity. 
+Note 10 — Redeemable Preferred Stock 
+Sojitz America is the sole owner of the Company’s authorized Redeemable Preferred Stock, $1 par value, which is redeemable at the
+option of Sojitz America or the Company at par value aggregating $0.3 million. A cumulative dividend of $0.10 per share is payable annually on May 31 and no dividends may be declared or paid on the common stock of the Company unless dividends
+on the Redeemable Preferred Stock have been declared and paid in full. There have been no changes in the Redeemable Preferred Stock in the three years ended May 31, 2010, 2009 and 2008. As the holder of the Redeemable Preferred Stock, Sojitz
+America does not have general voting rights but does have the right to vote as a separate class on the sale of all or substantially all of the assets of the Company and its subsidiaries, on merger, consolidation, liquidation or dissolution of the
+Company or on the sale or assignment of the NIKE trademark for athletic footwear sold in the United States. 
+Note 11 — Common Stock
+and Stock-Based Compensation 
+The authorized number of shares of Class A Common Stock, no par value, and Class B
+Common Stock, no par value, are 175 million and 750 million, respectively. Each share of Class A Common Stock is convertible into one share of Class B Common Stock. Voting rights of Class B Common Stock are limited in certain
+circumstances with respect to the election of directors. 
+In 1990, the Board of Directors adopted, and the shareholders
+approved, the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”). The 1990 Plan provides for the issuance of up to 132 million previously unissued shares of Class B Common Stock in connection with stock options and other awards
+granted under the plan. The 1990 Plan authorizes the grant of non-statutory stock options, incentive stock options, stock appreciation rights, stock bonuses, and the issuance and sale of restricted stock. The exercise price for non-statutory stock
+options, stock appreciation rights and the grant price of restricted stock may not be less than 75% of the fair market value of the underlying shares on the date of grant. The exercise price for incentive stock options may not be less than the fair
+market value of the underlying shares on the date of grant. A committee of the Board of Directors administers the 1990 Plan. The committee has the authority to determine the employees to whom awards will be made, the amount of the awards, and the
+other terms and conditions of the awards. The committee has granted substantially all stock options at 100% of the market price on the date of grant. Substantially all stock option grants outstanding under the 1990 Plan were granted in the first
+quarter of each fiscal year, vest ratably over four years, and expire 10 years from the date of grant. In June 2010, the Board of Directors amended the 1990 Plan to require, among other things, that the exercise price for non-statutory stock options
+and stock appreciation rights may not be less than 100% of the fair market value of the underlying shares on the date of grant. 
+78 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The following table summarizes the Company’s total stock-based compensation expense
+recognized in selling and administrative expense: 
+Year Ended May 31, 
+2010 
+2009 
+2008 
+(In millions) 
+Stock
+options (1) 
+$ 
+134.6 
+$ 
+128.8 
+$ 
+127.0 
+ESPPs 
+13.7 
+14.4 
+7.2 
+Restricted stock 
+10.7 
+7.9 
+6.8 
+Subtotal 
+159.0 
+151.1 
+141.0 
+Stock options and restricted stock expense —
+restructuring (2) 
+— 
+19.5 
+— 
+Total stock-based compensation expense 
+$ 
+159.0 
+$ 
+170.6 
+$ 
+141.0 
+(1) 
+Accelerated stock option expense is recorded for employees eligible for accelerated stock option vesting upon retirement. Accelerated stock option
+expense reported during the years ended May 31, 2010, 2009 and 2008 was $74.4 million, $58.7 million and $40.7 million, respectively. 
+(2) 
+In connection with the restructuring activities that took place during fiscal 2009, the Company recognized stock-based compensation expense relating to
+the modification of stock option agreements, allowing for an extended post-termination exercise period, and accelerated vesting of restricted stock as part of severance packages. See Note 16 — Restructuring Charges for further
+details. 
+As of May 31, 2010, the Company had $86.8 million of unrecognized compensation costs from
+stock options, net of estimated forfeitures, to be recognized as selling and administrative expense over a weighted average period of 2.2 years. 
+The weighted average fair value per share of the options granted during the years ended May 31, 2010, 2009 and 2008, as computed
+using the Black-Scholes pricing model, was $23.43, $17.13 and $13.87, respectively. The weighted average assumptions used to estimate these fair values are as follows: 
+Year Ended May 31, 
+2010 
+2009 
+2008 
+Dividend yield 
+1.9 
+% 
+1.5 
+% 
+1.4 
+% 
+Expected volatility 
+57.6 
+% 
+32.5 
+% 
+20.0 
+% 
+Weighted average expected life (in years) 
+5.0 
+5.0 
+5.0 
+Risk-free interest rate 
+2.5 
+% 
+3.4 
+% 
+4.8 
+% 
+The Company
+estimates the expected volatility based on the implied volatility in market traded options on the Company’s common stock with a term greater than one year, along with other factors. The weighted average expected life of options is based on an
+analysis of historical and expected future exercise patterns. The interest rate is based on the U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options.
+79 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The following summarizes the stock option transactions under the plan discussed above:
+Shares 
+Weighted 
+Average 
+Option 
+Price 
+(In millions) 
+Options outstanding May 31, 2007 
+39.7 
+$ 
+35.50 
+Exercised 
+(9.1 
+) 
+33.45 
+Forfeited 
+(0.9 
+) 
+44.44 
+Granted 
+6.9 
+58.50 
+Options outstanding May 31, 2008 
+36.6 
+$ 
+40.14 
+Exercised 
+(4.0 
+) 
+35.70 
+Forfeited 
+(1.3 
+) 
+51.19 
+Granted 
+7.5 
+58.17 
+Options outstanding May 31, 2009 
+38.8 
+$ 
+43.69 
+Exercised 
+(8.6 
+) 
+37.64 
+Forfeited 
+(0.6 
+) 
+51.92 
+Granted 
+6.4 
+52.79 
+Options outstanding May 31, 2010 
+36.0 
+$ 
+46.60 
+Options exercisable at May 31, 
+2008 
+16.2 
+$ 
+32.35 
+2009 
+21.4 
+36.91 
+2010 
+20.4 
+41.16 
+The weighted average
+contractual life remaining for options outstanding and options exercisable at May 31, 2010 was 6.2 years and 4.8 years, respectively. The aggregate intrinsic value for options outstanding and exercisable at May 31, 2010 was $926.8 million
+and $636.0 million, respectively. The aggregate intrinsic value was the amount by which the market value of the underlying stock exceeded the exercise price of the options. The total intrinsic value of the options exercised during the years ended
+May 31, 2010, 2009 and 2008 was $239.3 million, $108.4 million and $259.4 million, respectively. 
+In addition to the 1990
+Plan, the Company gives employees the right to purchase shares at a discount to the market price under employee stock purchase plans (“ESPPs”). Employees are eligible to participate through payroll deductions up to 10% of their
+compensation. At the end of each six-month offering period, shares are purchased by the participants at 85% of the lower of the fair market value at the beginning or the end of the offering period. Employees purchased 0.8 million shares,
+1.0 million shares and 0.8 million shares during the years ended May 31, 2010, 2009 and 2008, respectively. 
+From time to time, the Company grants restricted stock and unrestricted stock to key employees under the 1990 Plan. The number of shares
+granted to employees during the years ended May 31, 2010, 2009 and 2008 were 499,000, 75,000 and 110,000 with weighted average values per share of $53.16, $56.97 and $59.50, respectively. Recipients of restricted shares are entitled to cash
+dividends and to vote their respective shares throughout the period of restriction. The value of all of the granted shares was established by the market price on the date of grant. During the years ended May 31, 2010, 2009 and 2008, the fair
+value of restricted shares vested was $8.0 million, $9.9 million and $9.0 million, respectively, determined as of the date of vesting. 
+80 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 12 — Earnings Per Share 
+The following is a reconciliation from basic earnings per share to diluted earnings per share. Options to purchase an additional
+0.2 million, 13.2 million and 6.6 million shares of common stock were outstanding at May 31, 2010, 2009 and 2008, respectively, but were not included in the computation of diluted earnings per share because the options were
+anti-dilutive. 
+Year Ended May 31, 
+2010 
+2009 
+2008 
+(In millions, except per share data) 
+Determination of shares: 
+Weighted average common shares outstanding 
+485.5 
+484.9 
+495.6 
+Assumed conversion of dilutive stock options and awards 
+8.4 
+5.8 
+8.5 
+Diluted weighted average common shares outstanding 
+493.9 
+490.7 
+504.1 
+Basic earnings per common share 
+$ 
+3.93 
+$ 
+3.07 
+$ 
+3.80 
+Diluted earnings per common share 
+$ 
+3.86 
+$ 
+3.03 
+$ 
+3.74 
+Note 13 — Benefit Plans 
+The Company has a profit sharing plan available to most U.S.-based employees. The terms of the plan call for annual contributions by the
+Company as determined by the Board of Directors. A subsidiary of the Company also has a profit sharing plan available to its U.S.-based employees. The terms of the plan call for annual contributions as determined by the subsidiary’s executive
+management. Contributions of $34.9 million, $27.6 million and $37.3 million were made to the plans and are included in selling and administrative expense for the years ended May 31, 2010, 2009 and 2008, respectively. The Company has
+various 401(k) employee savings plans available to U.S.-based employees. The Company matches a portion of employee contributions with common stock or cash. Company contributions to the savings plans were $34.2 million, $37.6 million and $33.9
+million for the years ended May 31, 2010, 2009 and 2008, respectively, and are included in selling and administrative expense. 
+The Company also has a Long-Term Incentive Plan (“LTIP”) that was adopted by the Board of Directors and approved by
+shareholders in September 1997 and later amended in fiscal 2007. The Company recognized $24.1 million, $17.6 million and $35.9 million of selling and administrative expense related to cash awards under the LTIP during the years ended
+May 31, 2010, 2009 and 2008, respectively. 
+The Company has pension plans in various countries worldwide. The pension
+plans are only available to local employees and are generally government mandated. The liability related to the unfunded pension liabilities of the plans was $113.0 million and $82.8 million at May 31, 2010 and 2009, respectively. 
+81 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 14 — Accumulated Other Comprehensive Income 
+The components of accumulated other comprehensive income, net of tax, are as follows: 
+May 31, 
+2010 
+2009 
+(In millions) 
+Cumulative translation adjustment and other 
+$ 
+(94.6 
+) 
+$ 
+64.6 
+Net deferred gain on net investment hedge derivatives 
+107.3 
+62.5 
+Net deferred gain on cash flow hedge derivatives 
+202.1 
+240.4 
+$ 
+214.8 
+$ 
+367.5 
+Note 15 — Commitments and Contingencies 
+The Company leases space for certain of its offices, warehouses and retail stores under leases expiring from 1 to 25 years after
+May 31, 2010. Rent expense was $416.1 million, $397.0 million and $344.2 million for the years ended May 31, 2010, 2009 and 2008, respectively. Amounts of minimum future annual rental commitments under non-cancelable operating leases in
+each of the five years ending May 31, 2011 through 2015 are $334.4 million, $264.0 million, $219.9 million, $177.2 million, $148.0 million, respectively, and $465.8 million in later years. 
+As of May 31, 2010 and 2009, the Company had letters of credit outstanding totaling $101.1 million and $154.8 million, respectively.
+These letters of credit were generally issued for the purchase of inventory. 
+In connection with various contracts and
+agreements, the Company provides routine indemnifications relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items where the Company is acting as the guarantor. Currently, the Company has
+several such agreements in place. However, based on the Company’s historical experience and the estimated probability of future loss, the Company has determined that the fair value of such indemnifications is not material to the Company’s
+financial position or results of operations. 
+In the ordinary course of its business, the Company is involved in various legal
+proceedings involving contractual and employment relationships, product liability claims, trademark rights, and a variety of other matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the
+Company’s financial position or results of operations. 
+Note 16 — Restructuring Charges 
+During fiscal 2009, the Company took necessary steps to streamline its management structure, enhance consumer focus, drive innovation more
+quickly to market and establish a more scalable, long-term cost structure. As a result, the Company reduced its global workforce by approximately 5% and incurred pre-tax restructuring charges of $195 million, primarily consisting of severance costs
+related to the workforce reduction. As nearly all of the restructuring activities were completed in fiscal 2009, the Company does not expect to recognize additional costs in future periods relating to these actions. The restructuring charge is
+reflected in the corporate expense line in the segment presentation of earnings before interest and taxes in Note 19 — Operating Segments and Related Information. 
+82 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The activity in the restructuring accrual for the years ended May 31, 2010 and 2009
+is as follows (in millions): 
+Restructuring accrual — June 1, 2008 
+$ 
+— 
+Severance and related costs 
+195.0 
+Cash payments 
+(29.4 
+) 
+Non-cash stock option and restricted stock expense 
+(19.5 
+) 
+Foreign currency translation and other 
+3.5 
+Restructuring accrual — May 31, 2009 
+149.6 
+Cash payments 
+(142.6 
+) 
+Foreign currency translation and other 
+1.2 
+Restructuring accrual — May 31, 2010 
+$ 
+8.2 
+The accrual balance as of May 31, 2010 will be relieved throughout the first half of fiscal year 2011,
+as final severance payments are completed. The restructuring accrual is included in Accrued liabilities in the Consolidated Balance Sheet. 
+Note 17 — Divestitures 
+On December 17, 2007, the Company completed the sale of the Starter brand business to Iconix Brand Group, Inc. for $60.0 million in
+cash. This transaction resulted in a gain of $28.6 million during the year ended May 31, 2008. 
+On April 17, 2008,
+the Company completed the sale of NIKE Bauer Hockey for $189.2 million in cash to a group of private investors (“the Buyer”). The sale resulted in a net gain of $32.0 million recorded in the fourth quarter of the year ended May 31,
+2008. This gain included the recognition of a $46.3 million cumulative foreign currency translation adjustment previously included in accumulated other comprehensive income. As part of the terms of the sale agreement, the Company granted the Buyer a
+royalty free limited license for the use of certain NIKE trademarks for a transitional period of approximately two years. The Company deferred $41.0 million of the sale proceeds related to this license agreement, to be recognized over the license
+period. 
+The gains resulting from these divestitures are reflected in other (income) expense, net and in the corporate expense
+line in the segment presentation of earnings before interest and taxes in Note 19 — Operating Segments and Related Information. 
+Note
+18 — Risk Management and Derivatives 
+The Company is exposed to global market risks, including the effect of changes
+in foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for speculative trading purposes. 
+The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective
+and strategy for undertaking hedge transactions. This process includes linking all derivatives to either specific firm commitments or forecasted transactions. The Company also enters into foreign exchange forwards to mitigate the change in fair
+value of specific assets and liabilities on the balance sheet, which are not designated as hedging instruments under the accounting standards for derivatives and hedging. Accordingly, changes in the fair value of hedges of recorded balance sheet
+positions are recognized 
+83 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+immediately in other (income) expense, net, on the income statement together with the transaction gain or loss from the hedged balance sheet position. The Company classifies the cash flows at
+settlement from these undesignated hedges in the same category as the cash flows from the related hedged items, generally within the cash provided by operations component of the cash flow statement. 
+The majority of derivatives outstanding as of May 31, 2010 are designated as either cash flow, fair value or net investment hedges
+under the accounting standards for derivatives and hedging. All derivatives are recognized on the balance sheet at their fair value and classified based on the instrument’s maturity date. The total notional amount of outstanding derivatives as
+of May 31, 2010 was $6.2 billion, which was primarily comprised of cash flow hedges denominated in Euros, Japanese Yen and British Pounds. 
+The following table presents the fair values of derivative instruments included within the consolidated balance sheet as of May 31,
+2010 and 2009: 
+Asset Derivatives 
+Liability Derivatives 
+Balance Sheet 
+Classification 
+May 31, 
+2010 
+May 31, 
+2009 
+Balance Sheet 
+Classification 
+May 31, 
+2010 
+May 31, 
+2009 
+(In millions) 
+Derivatives formally designated as hedging instruments: 
+Foreign exchange forwards and options 
+Prepaid expenses and 
+other current assets 
+$ 
+315.9 
+$ 
+270.4 
+Accrued liabilities 
+$ 
+24.7 
+$ 
+34.6 
+Interest rate swap contracts 
+Prepaid expenses and 
+other current assets 
+— 
+0.1 
+Accrued liabilities 
+— 
+— 
+Foreign exchange forwards and options 
+Deferred income 
+taxes and other 
+assets 
+0.4 
+81.3 
+Deferred income 
+taxes and other 
+liabilities 
+0.1 
+— 
+Interest rate swap contracts 
+Deferred income 
+taxes and other 
+assets 
+14.6 
+13.7 
+Deferred income 
+taxes and other 
+liabilities 
+— 
+— 
+Total derivatives formally designated as hedging instruments 
+330.9 
+365.5 
+24.8 
+34.6 
+Derivatives not designated as hedging instruments: 
+Foreign exchange forwards and options 
+Prepaid expenses and 
+other current assets 
+$ 
+103.9 
+$ 
+12.8 
+Accrued liabilities 
+$ 
+138.9 
+$ 
+34.3 
+Foreign exchange forwards and options 
+Deferred income 
+taxes and other 
+assets 
+— 
+0.4 
+Deferred income 
+taxes and other 
+liabilities 
+1.4 
+— 
+Total derivatives not designated as hedging instruments 
+103.9 
+13.2 
+140.3 
+34.3 
+Total derivatives 
+$ 
+434.8 
+$ 
+378.7 
+$ 
+165.1 
+$ 
+68.9 
+84 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The following tables present the amounts affecting the consolidated statements of income
+for years ended May 31, 2010 and 2009: 
+Amount of Gain 
+(Loss) 
+Recognized in 
+Other Comprehensive 
+Income on
+Derivatives (1) 
+Amount of Gain (Loss) Reclassified From Accumulated Other 
+Comprehensive Income into
+Income (1) 
+Derivatives formally designated 
+Year Ended 
+May 31, 2010 
+Year Ended 
+May 31, 2009 
+Location of Gain (Loss) Reclassified 
+From Accumulated Other 
+Comprehensive Income 
+Into
+Income (1) 
+Year Ended 
+May 31, 2010 
+Year Ended 
+May 31, 2009 
+(In millions) 
+Derivatives designated as cash flow hedges: 
+Foreign exchange forwards and options 
+$ 
+(29.9 
+) 
+$ 
+106.3 
+Revenue 
+$ 
+51.4 
+$ 
+92.7 
+Foreign exchange forwards and options 
+89.0 
+350.1 
+Cost of sales 
+60.0 
+(13.5 
+) 
+Foreign exchange forwards and options 
+4.7 
+(0.4 
+) 
+Selling and 
+administrative expense 
+1.0 
+0.8 
+Foreign exchange forwards and options 
+51.1 
+165.1 
+Other (income) 
+expense, net 
+56.1 
+67.8 
+Total designated cash flow hedges 
+$ 
+114.9 
+$ 
+621.1 
+$ 
+168.5 
+$ 
+147.8 
+Derivatives designated as net investment hedges: 
+Foreign exchange forwards and options 
+$ 
+66.0 
+$ 
+161.4 
+Other (income) 
+expense, net 
+$ 
+— 
+$ 
+— 
+(1) 
+For the year ended May 31, 2010, $5.2 million of income was recorded to other (income) expense, net as a result of cash flow hedge
+ineffectiveness. For the year ended May 31, 2009, an immaterial amount of ineffectiveness from cash flow hedges was recorded in other (income) expense, net. 
+Amount of Gain 
+(Loss) recognized in 
+Income on Derivatives 
+Year Ended 
+May 31, 2010 
+Year Ended 
+May 31, 2009 
+Location of Gain (Loss) Recognized 
+in
+Income on Derivatives 
+(In millions) 
+Derivatives designated as fair value hedges: 
+Interest rate
+swaps (1) 
+$ 
+7.4 
+$ 
+1.5 
+Interest expense (income), net 
+Derivatives not designated as hedging instruments: 
+Foreign exchange forwards and options 
+$ 
+(91.1 
+) 
+$ 
+(83.0 
+) 
+Other (income) expense, net 
+(1) 
+All interest rate swap agreements meet the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly,
+changes in the fair values of the interest rate swap agreements are exactly offset by changes in the fair value of the underlying long-term debt. Refer to section “Fair Value Hedges” for additional detail. 
+Refer to Note 5 — Accrued Liabilities for derivative instruments recorded in accrued liabilities, Note 6 —Fair Value
+Measurements for a description of how the above financial instruments are valued, Note 14 — Accumulated Other Comprehensive Income and the Consolidated Statement of Shareholders’ Equity for additional information on changes in other
+comprehensive income for the years ended May 31, 2010 and 2009. 
+85 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Cash Flow Hedges 
+The purpose of the Company’s foreign currency hedging activities is to protect the Company from the risk that the eventual cash flows
+resulting from transactions in foreign currencies, including revenues, product costs, selling and administrative expenses, investments in U.S. dollar-denominated available-for-sale debt securities and intercompany transactions, including
+intercompany borrowings, will be adversely affected by changes in exchange rates. It is the Company’s policy to utilize derivatives to reduce foreign exchange risks where internal netting strategies cannot be effectively employed. Hedged
+transactions are denominated primarily in Euros, British Pounds and Japanese Yen. The Company hedges up to 100% of anticipated exposures typically 12 months in advance, but has hedged as much as 34 months in advance. 
+All changes in fair values of outstanding cash flow hedge derivatives, except the ineffective portion, are recorded in other
+comprehensive income until net income is affected by the variability of cash flows of the hedged transaction. In most cases, amounts recorded in other comprehensive income will be released to net income some time after the maturity of the related
+derivative. The consolidated statement of income classification of effective hedge results is the same as that of the underlying exposure. Results of hedges of revenue and product costs are recorded in revenue and cost of sales, respectively, when
+the underlying hedged transaction affects net income. Results of hedges of selling and administrative expense are recorded together with those costs when the related expense is recorded. Results of hedges of anticipated purchases and sales of U.S.
+dollar-denominated available-for-sale securities are recorded in other (income) expense, net when the securities are sold. Results of hedges of anticipated intercompany transactions are recorded in other (income) expense, net when the transaction
+occurs. The Company classifies the cash flows at settlement from these designated cash flow hedge derivatives in the same category as the cash flows from the related hedged items, generally within the cash provided by operations component of the
+cash flow statement. 
+Premiums paid on options are initially recorded as deferred charges. The Company assesses the
+effectiveness of options based on the total cash flows method and records total changes in the options’ fair value to other comprehensive income to the degree they are effective. 
+As of May 31, 2010, $187.2 million of deferred net gains (net of tax) on both outstanding and matured derivatives accumulated in
+other comprehensive income are expected to be reclassified to net income during the next 12 months as a result of underlying hedged transactions also being recorded in net income. Actual amounts ultimately reclassified to net income are dependent on
+the exchange rates in effect when derivative contracts that are currently outstanding mature. As of May 31, 2010, the maximum term over which the Company is hedging exposures to the variability of cash flows for its forecasted and recorded
+transactions is 18 months. 
+The Company formally assesses both at a hedge’s inception and on an ongoing basis, whether
+the derivatives that are used in the hedging transaction have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. Effectiveness for
+cash flow hedges is assessed based on forward rates. When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, the Company discontinues hedge accounting prospectively. 
+The Company discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer highly effective in
+offsetting changes in the cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the
+forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate. 
+86 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+When the Company discontinues hedge accounting because it is no longer probable that the
+forecasted transaction will occur in the originally expected period, or within an additional two-month period of time thereafter, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified to net income
+when the forecasted transaction affects net income. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and
+losses that were accumulated in other comprehensive income will be recognized immediately in net income. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its
+fair value on the balance sheet, recognizing future changes in the fair value in other (income) expense, net. For the year ended May 31, 2010, $5.2 million of income was recorded to other (income) expense, net as a result of cash flow hedge
+ineffectiveness. For the years ended 2009 and 2008, the Company recorded in other (income) expense an immaterial amount of ineffectiveness from cash flow hedges. 
+Fair Value Hedges 
+The Company is also exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in interest rates.
+Derivatives currently used by the Company to hedge this risk are receive-fixed, pay-variable interest rate swaps. As of May 31, 2010, all interest rate swap agreements are designated as fair value hedges of the related long-term debt and meet
+the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly, changes in the fair values of the interest rate swap agreements are exactly offset by changes in the fair value of the underlying long-term
+debt. The cash flows associated with the Company’s fair value hedges are periodic interest payments while the swaps are outstanding, which are reflected in net income within the cash provided by operations component of the cash flow statement.
+No ineffectiveness has been recorded to net income related to interest rate swaps designated as fair value hedges for the years ended May 31, 2010, 2009 and 2008. 
+In fiscal 2003, the Company entered into a receive-floating, pay-fixed interest rate swap agreement related to a Japanese Yen denominated
+intercompany loan with one of the Company’s Japanese subsidiaries. This interest rate swap was not designated as a hedge under the accounting standards for derivatives and hedging. Accordingly, changes in the fair value of the swap were
+recorded to net income each period through maturity as a component of interest expense (income), net. Both the intercompany loan and the related interest rate swap matured during the year ended May 31, 2009. 
+Net Investment Hedges 
+The Company also hedges the risk of variability in foreign-currency-denominated net investments in wholly-owned international operations.
+All changes in fair value of the derivatives designated as net investment hedges, except ineffective portions, are reported in the cumulative translation adjustment component of other comprehensive income along with the foreign currency translation
+adjustments on those investments. The Company classifies the cash flows at settlement of its net investment hedges within the cash used by investing component of the cash flow statement. The Company assesses hedge effectiveness based on changes in
+forward rates. The Company recorded no ineffectiveness from its net investment hedges for the years ended May 31, 2010, 2009, and 2008. 
+Credit Risk 
+The Company is exposed to credit-related losses in the event of non-performance by counterparties to hedging instruments. The
+counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate the Company’s exposure to credit risk with
+87 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+these institutions. This credit risk is limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted. To manage this risk, the Company has
+established strict counterparty credit guidelines that are continually monitored and reported to senior management according to prescribed guidelines. The Company utilizes a portfolio of financial institutions either headquartered or operating in
+the same countries the Company conducts its business. As a result of the above considerations, the Company considers the impact of the risk of counterparty default to be immaterial. 
+Certain of the Company’s derivative instruments contain credit risk related contingent features. As of May 31, 2010, the
+Company was in compliance with all such credit risk related contingent features. The aggregate fair value of derivative instruments with credit risk related contingent features that are in a net liability position at May 31, 2010 was $18.3
+million. The Company was not required to post any collateral as a result of these contingent features. 
+Note 19 — Operating Segments
+and Related Information 
+Operating Segments. The Company’s operating segments are
+evidence of the structure of the Company’s internal organization. The major segments are defined by geographic regions for operations participating in NIKE Brand sales activity excluding NIKE Golf. Each NIKE Brand geographic segment operates
+predominantly in one industry: the design, production, marketing and selling of sports and fitness footwear, apparel, and equipment. In fiscal 2009, the Company initiated a reorganization of the NIKE Brand into a new model consisting of six
+geographies. Effective June 1, 2009, the Company’s new reportable operating segments for the NIKE Brand are: North America, Western Europe, Central and Eastern Europe, Greater China, Japan, and Emerging Markets. Previously, NIKE Brand
+operations were organized into the following four geographic regions: U.S., Europe, Middle East and Africa (collectively, “EMEA”), Asia Pacific, and Americas. 
+The Company’s “Other” category is broken into two components for presentation purposes to align with the way management
+views the Company. The “Global Brand Divisions” category primarily represents NIKE Brand licensing businesses that are not part of a geographic operating segment, selling, general and administrative expenses that are centrally managed for
+the NIKE Brand and costs associated with product development and supply chain operations. The “Other Businesses” category primarily consists of the activities of Cole Haan, Converse Inc., Hurley International LLC, NIKE Golf and Umbro
+Ltd. Activities represented in the “Other” category are considered immaterial for individual disclosure. Prior period amounts have been reclassified to conform to the Company’s new operating structure described above. 
+Revenues as shown below represent sales to external customers for each segment. Intercompany revenues have been eliminated and are
+immaterial for separate disclosure. 
+Corporate consists of unallocated general and administrative expenses, which includes
+expenses associated with centrally managed departments, depreciation and amortization related to the Company’s headquarters, unallocated insurance and benefit programs, including stock-based compensation, certain foreign currency gains and
+losses, including hedge gains and losses, certain corporate eliminations and other items. 
+Effective June 1, 2009, the
+primary financial measure used by the Company to evaluate performance of individual operating segments is Earnings Before Interest and Taxes (commonly referred to as “EBIT”) which represents net income before interest expense (income), net
+and income taxes in the Consolidated Statements of Income. Reconciling items for EBIT represent corporate expense items that are not allocated to the operating segments for management reporting. Previously, the Company evaluated performance of
+individual operating segments based on pre-tax income or income before income taxes. 
+88 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+As part of the Company’s centrally managed foreign exchange risk management
+program, standard foreign currency rates are assigned to each NIKE Brand entity in our geographic operating segments and are used to record any non-functional currency revenues or product purchases into the entity’s functional currency.
+Geographic operating segment revenues and cost of sales reflect use of these standard rates. For all NIKE Brand operating segments, differences between assigned standard foreign currency rates and actual market rates are included in Corporate
+together with foreign currency hedge gains and losses generated from the centrally managed foreign exchange risk management program and other conversion gains and losses. For the years ended May 31, 2009 and 2008, foreign currency hedge results
+along with other conversion gains and losses generated by the Western Europe and Central and Eastern Europe geographies were recorded in their respective results. 
+Additions to long-lived assets as presented in the following table represent capital expenditures. 
+Accounts receivable, inventories and property, plant and equipment for operating segments are regularly reviewed by management and are
+therefore provided below. 
+Certain prior year amounts have been reclassified to conform to fiscal 2010 presentation.
+89 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Year Ended May 31, 
+2010 
+2009 
+2008 
+(In millions) 
+Revenue 
+North America 
+$ 
+6,696.0 
+$ 
+6,778.3 
+$ 
+6,660.5 
+Western Europe 
+3,892.0 
+4,139.1 
+4,320.0 
+Central and Eastern Europe 
+1,149.9 
+1,373.2 
+1,309.2 
+Greater China 
+1,741.8 
+1,743.3 
+1,353.6 
+Japan 
+882.0 
+925.9 
+822.4 
+Emerging Markets 
+2,041.6 
+1,702.0 
+1,630.3 
+Global Brand Divisions 
+105.3 
+95.3 
+117.9 
+Total NIKE Brand 
+16,508.6 
+16,757.1 
+16,213.9 
+Other Businesses 
+2,529.5 
+2,419.0 
+2,413.1 
+Corporate 
+(24.1 
+) 
+— 
+— 
+Total NIKE Consolidated Revenues 
+$ 
+19,014.0 
+$ 
+19,176.1 
+$ 
+18,627.0 
+Earnings Before Interest and Taxes 
+North America 
+$ 
+1,538.1 
+$ 
+1,429.3 
+$ 
+1,460.4 
+Western Europe 
+855.7 
+939.1 
+922.5 
+Central and Eastern Europe 
+281.2 
+415.1 
+358.4 
+Greater China 
+637.1 
+575.2 
+430.7 
+Japan 
+180.3 
+205.4 
+178.9 
+Emerging Markets 
+492.6 
+342.6 
+306.6 
+Global Brand Divisions 
+(866.8 
+) 
+(811.5 
+) 
+(736.8 
+) 
+Total NIKE Brand 
+3,118.2 
+3,095.2 
+2,920.7 
+Other
+Businesses (1) 
+299.4 
+(192.6 
+) 
+358.6 
+Corporate (2) 
+(894.4 
+) 
+(955.6 
+) 
+(853.5 
+) 
+Total NIKE Consolidated Earnings Before Interest and Taxes 
+2,523.2 
+1,947.0 
+2,425.8 
+Interest expense (income), net 
+6.3 
+(9.5 
+) 
+(77.1 
+) 
+Total NIKE Consolidated Earnings Before Taxes 
+$ 
+2,516.9 
+$ 
+1,956.5 
+$ 
+2,502.9 
+Additions to Long-lived Assets 
+North America 
+$ 
+45.3 
+$ 
+99.2 
+$ 
+141.9 
+Western Europe 
+58.9 
+69.6 
+63.5 
+Central and Eastern Europe 
+4.3 
+8.1 
+5.5 
+Greater China 
+80.4 
+58.5 
+13.1 
+Japan 
+11.6 
+10.0 
+21.9 
+Emerging Markets 
+10.5 
+10.9 
+12.4 
+Global Brand Divisions 
+29.9 
+37.8 
+22.6 
+Total NIKE Brand 
+240.9 
+294.1 
+280.9 
+Other Businesses 
+52.1 
+89.6 
+61.5 
+Corporate 
+42.1 
+72.0 
+106.8 
+Total Additions to Long-lived Assets 
+$ 
+335.1 
+$ 
+455.7 
+$ 
+449.2 
+Depreciation 
+North America 
+$ 
+64.7 
+$ 
+64.3 
+$ 
+52.4 
+Western Europe 
+57.1 
+51.4 
+61.1 
+Central and Eastern Europe 
+4.6 
+4.0 
+3.7 
+Greater China 
+11.0 
+7.2 
+3.8 
+Japan 
+26.2 
+29.9 
+20.4 
+Emerging Markets 
+11.0 
+10.2 
+10.8 
+Global Brand Divisions 
+33.8 
+42.3 
+34.3 
+Total NIKE Brand 
+208.4 
+209.3 
+186.5 
+Other Businesses 
+45.7 
+37.5 
+28.1 
+Corporate 
+69.6 
+88.2 
+89.0 
+Total Depreciation 
+$ 
+323.7 
+$ 
+335.0 
+$ 
+303.6 
+90 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+(1) 
+During the year ended May 31, 2009, the Other category included a pre-tax charge of $401.3 million for the impairment of goodwill, intangible and
+other assets of Umbro, which was recorded in the third quarter of fiscal 2009. See Note 4 — Acquisition, Identifiable Intangible Assets, Goodwill and Umbro Impairment for more information. 
+(2) 
+During the year ended May 31, 2009, Corporate expense included pre-tax charges of $195.0 million for the Company’s restructuring activities,
+which were completed in the fourth quarter of fiscal 2009. See Note 16 — Restructuring Charges for more information. 
+Year Ended May 31, 
+2010 
+2009 
+(In millions) 
+Accounts Receivable, net 
+North America 
+$ 
+848.0 
+$ 
+897.7 
+Western Europe 
+401.8 
+508.8 
+Central and Eastern Europe 
+293.6 
+368.3 
+Greater China 
+128.9 
+122.3 
+Japan 
+166.8 
+207.2 
+Emerging Markets 
+327.2 
+268.2 
+Global Brand Divisions 
+22.8 
+53.3 
+Total NIKE Brand 
+2,189.1 
+2,425.8 
+Other Businesses 
+442.1 
+439.7 
+Corporate 
+18.6 
+18.4 
+Total Accounts Receivable, net 
+$ 
+2,649.8 
+$ 
+2,883.9 
+Inventories 
+North America 
+$ 
+767.5 
+$ 
+868.8 
+Western Europe 
+347.2 
+341.6 
+Central and Eastern Europe 
+124.8 
+278.1 
+Greater China 
+103.5 
+110.4 
+Japan 
+68.3 
+95.7 
+Emerging Markets 
+262.2 
+258.2 
+Global Brand Divisions 
+20.6 
+32.4 
+Total NIKE Brand 
+1,694.1 
+1,985.2 
+Other Businesses 
+346.7 
+371.8 
+Corporate 
+— 
+— 
+Total Inventories 
+$ 
+2,040.8 
+$ 
+2,357.0 
+Property, Plant and Equipment, net 
+North America 
+$ 
+324.7 
+$ 
+354.3 
+Western Europe 
+282.1 
+326.5 
+Central and Eastern Europe 
+12.3 
+15.0 
+Greater China 
+145.5 
+78.2 
+Japan 
+332.6 
+318.5 
+Emerging Markets 
+47.0 
+47.3 
+Global Brand Divisions 
+99.6 
+103.1 
+Total NIKE Brand 
+1,243.8 
+1,242.9 
+Other Businesses 
+167.4 
+163.7 
+Corporate 
+520.7 
+551.1 
+Total Property, Plant and Equipment, net 
+$ 
+1,931.9 
+$ 
+1,957.7 
+91 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Revenues by Major Product Lines. Revenues to external
+customers for NIKE Brand products are attributable to sales of footwear, apparel and equipment. Other revenues to external customers primarily include external sales by Cole Haan, Converse, Exeter (whose primary business was the Starter brand
+business which was sold December 17, 2007), Hurley, NIKE Bauer Hockey (through April 16, 2008), NIKE Golf, and Umbro (beginning March 3, 2008). 
+Year Ended May 31, 
+2010 
+2009 
+2008 
+(In millions) 
+Footwear 
+$ 
+10,333.1 
+$ 
+10,306.7 
+$ 
+9,731.6 
+Apparel 
+5,036.6 
+5,244.7 
+5,234.0 
+Equipment 
+1,033.6 
+1,110.4 
+1,130.4 
+Other 
+2,610.7 
+2,514.3 
+2,531.0 
+$ 
+19,014.0 
+$ 
+19,176.1 
+$ 
+18,627.0 
+Revenues and Long-Lived Assets by Geographic
+Area. Geographical area information is similar to what was shown previously under operating segments with the exception of the Other activity, which has been allocated to the geographical areas based on the location where
+the sales originated. Revenues derived in the United States were $7,913.9 million, $8,019.8 million and $7,938.5 million, for the years ended May 31, 2010, 2009 and 2008, respectively. The Company’s largest concentrations of long-lived
+assets primarily consist of the Company’s world headquarters and distribution facilities in the United States and distribution facilities in Japan and Belgium. Long-lived assets attributable to operations in the United States, which are
+comprised of net property, plant & equipment, were $1,070.1 million, $1,142.6 million and $1,109.9 million at May 31, 2010, 2009 and 2008, respectively. Long-lived assets attributable to operations in Japan were $335.6 million, $322.3
+million and $303.8 million at May 31, 2010, 2009 and 2008, respectively. Long-lived assets attributable to operations in Belgium were $163.7 million, $191.0 million and $219.1 million at May 31, 2010, 2009 and 2008, respectively.
+Major Customers. Revenues derived from Foot Locker, Inc. represented 8% of the Company’s
+consolidated revenues for the year ended May 31, 2010 and 9% for the years ended May 31, 2009 and 2008. Sales to this customer are included in all segments of the Company. 
+92 
+Table of Contents 
+Item 9. 
+Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
+There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or practices or
+financial statement disclosure required to be reported under this Item. 
+Item 9A. 
+Controls and Procedures 
+We maintain disclosure controls and procedures that are designed to ensure information required to be disclosed in our Exchange Act
+reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our
+Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and
+procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible
+controls and procedures. 
+We carry out a variety of on-going procedures, under the supervision and with the participation of
+our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief
+Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of May 31, 2010. 
+“Management’s Annual Report on Internal Control Over Financial Reporting” is included in Item 8 on page 54 of this
+Report. 
+There has been no change in our internal control over financial reporting during our most recent fiscal quarter that
+has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting. 
+Item 9B. 
+Other Information 
+No disclosure is required under this Item. 
+93 
+Table of Contents 
+PART III 
+Item 10. 
+Directors, Executive Officers and Corporate Governance 
+The information required by Item 401 of Regulation S-K regarding directors is included under “Election of Directors” in the
+definitive Proxy Statement for our 2010 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 401 of Regulation S-K regarding executive officers is included under “Executive Officers of
+the Registrant” in Item 1 of this Report. The information required by Item 405 of Regulation S-K is included under “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for our 2010
+Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 406 of Regulation S-K is included under “Code of Business Conduct and Ethics” in the definitive Proxy Statement for our 2010
+Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Items 407(d)(4) and (d)(5) of Regulation S-K regarding the Audit Committee of the Board of Directors is included under “Board
+Committees” in the definitive Proxy Statement for our 2010 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 11. 
+Executive Compensation 
+The information required by Items 402, 407(e)(4) and 407(e)(5) of Regulation S-K regarding executive compensation is included under
+“Director Compensation for Fiscal 2010,” “Executive Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee
+Report” in the definitive Proxy Statement for our 2010 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+The information required by Item 201(d) of Regulation S-K is included under “Equity Compensation Plans” in the definitive
+Proxy Statement for our 2010 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 403 of Regulation S-K is included under “Stock Holdings of Certain Owners and Management” in the
+definitive Proxy Statement for our 2010 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+The information required by Items 404 and 407(a) of Regulation S-K is included under “Transactions with Related Persons” and
+“Director Independence” in the definitive Proxy Statement for our 2010 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 14. 
+Principal Accountant Fees and Services 
+The information required by Item 9(e) of Schedule 14A is included under “Ratification Of Independent Registered Public
+Accounting Firm” in the definitive Proxy Statement for our 2010 Annual Meeting of Shareholders and is incorporated herein by reference. 
+94 
+Table of Contents 
+PART IV 
+Item 15. 
+Exhibits and Financial Statement Schedules 
+(a) 
+The following documents are filed as part of this report: 
+Form 10-K 
+Page No. 
+1. 
+FINANCIAL STATEMENTS: 
+Report of Independent Registered Public Accounting Firm 
+55 
+Consolidated Statements of Income for each of the three years ended May 31, 2010, May 31, 2009 and May 31, 2008 
+56 
+Consolidated Balance Sheets at May 31, 2010 and May 31, 2009 
+57 
+Consolidated Statements of Cash Flows for each of the three years ended May 31, 2010, May 31, 2009 and May 31, 2008 
+58 
+Consolidated Statements of Shareholders’ Equity for each of the three years ended May 31, 2010, May 31, 2009 and May 31, 2008 
+59 
+Notes to Consolidated Financial Statements 
+60 
+2. 
+FINANCIAL STATEMENT SCHEDULE: 
+II — Valuation and Qualifying Accounts 
+F-1 
+All other schedules are
+omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 
+3. EXHIBITS: 
+2.1 
+Implementation Agreement, dated October 23, 2007, between Umbro Plc, NIKE Vapor Ltd., and NIKE, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s
+Current Report on Form 8-K filed October 25, 2007).* 
+3.1 
+Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
+August 31, 2005). 
+3.2 
+Third Restated Bylaws, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed February 20, 2007). 
+4.1 
+Restated Articles of Incorporation, as amended (see Exhibit 3.1). 
+4.2 
+Third Restated Bylaws, as amended (see Exhibit 3.2). 
+4.3 
+Indenture dated as of December 13, 1996 between the Company and Bank One Trust Company, National Association (successor in interest to The First National Bank of Chicago), as
+Trustee (incorporated by reference to Exhibit 4.01 to Amendment No. 1 to Registration Statement No. 333-15953 filed by the Company on November 26, 1996). 
+4.4 
+Form of Officers’ Certificate relating to the Company’s Fixed Rate Medium-Term Notes and the Company’s Floating Rate Medium-Term Notes, form of Fixed Rate Note and
+form of Floating Rate Note (incorporated by reference to Exhibits 4.2, 4.3 and 4.4 of the Company’s Current Report on Form 8-K filed May 29, 2002). 
+95 
+Table of Contents 
+4.5 
+Credit Agreement dated as of December 1, 2006 among NIKE, Inc., Bank of America, N.A., individually and as Agent, and the other banks party thereto (incorporated by reference to
+Exhibit 4.01 to the Company’s Current Report on Form 8-K filed December 6, 2006). 
+4.6 
+First Amendment to the Credit Agreement, dated August 24, 2007, among NIKE, Inc., Bank of America, N.A., as Administrative Agent, Citicorp USA, Inc., as Syndication Agent, and
+HSBC Bank USA, N.A., The Bank of Tokyo Mitsubishi UFG, Ltd. and Deutsche Bank Securities Inc., as Co-Documentation Agents, and the other Banks named therein (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
+Form 10-Q for the fiscal quarter ended February 29, 2008). 
+4.7 
+Extension and Second Amendment to the Credit Agreement, dated November 1, 2007, among NIKE, Inc., Bank of America, N.A., as Administrative Agent, Citicorp USA, Inc., as
+Syndication Agent, and HSBC Bank USA, N.A., The Bank of Tokyo Mitsubishi UFG, Ltd. and Deutsche Bank Securities Inc., as Co-Documentation Agents, and the other Banks named therein. (incorporated by reference to Exhibit 10.2 to the Company’s
+Quarterly Report on Form 10-Q for the fiscal quarter ended February 29, 2008). 
+10.1 
+Form of Non-Statutory Stock Option Agreement for options granted to non-employee directors prior to May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by
+reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed June 21, 2005).* 
+10.2 
+Form of Non-Statutory Stock Option Agreement for options granted to non-employee directors after May 31, 2010 under the 1990 Stock Incentive Plan.* 
+10.3 
+Form of Non-Statutory Stock Option Agreement for options granted to executives prior to May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to
+Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009).* 
+10.4 
+Form of Non-Statutory Stock Option Agreement for options granted to executives after May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit
+10.1 to the Company’s Current Report on Form 8-K filed July 20, 2010).* 
+10.5 
+Form of Indemnity Agreement entered into between the Company and each of its officers and directors (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report
+on Form 10-K for the fiscal year ended May 31, 2008).* 
+10.6 
+NIKE, Inc. 1990 Stock Incentive Plan.* 
+10.7 
+NIKE, Inc. Executive Performance Sharing Plan (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31,
+2007).* 
+10.8 
+NIKE, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008).*
+10.9 
+NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective January 1, 2009) (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form
+10-K for the fiscal year ended May 31, 2009).* 
+10.10 
+NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective June 1, 2004) (applicable to amounts deferred before January 1, 2005) (incorporated by reference
+to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004).* 
+10.11 
+Amendment No. 1 effective January 1, 2008 to the NIKE, Inc. Deferred Compensation Plan (June 1, 2004 Restatement) (incorporated by reference to Exhibit 10.9 to the
+Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009).* 
+10.12 
+NIKE, Inc. Foreign Subsidiary Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal
+quarter ended November 30, 2008).* 
+96 
+Table of Contents 
+10.13 
+Amended and Restated Covenant Not To Compete and Non-Disclosure Agreement between NIKE, Inc. and Mark G. Parker dated July 24, 2008 (incorporated by reference to Exhibit
+10.1 to the Company’s Current Report on Form 8-K filed July 24, 2008).* 
+10.14 
+Amended and Restated Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Charles D. Denson dated July 24, 2008 (incorporated by reference to Exhibit 10.2
+to the Company’s Current Report on Form 8-K filed July 24, 2008).* 
+10.15 
+Form of Long-Term Incentive Award Agreement under the Long-Term Incentive Plan.* 
+10.16 
+Form of Restricted Stock Bonus Agreement under the 1990 Stock Incentive Plan for awards prior to May 31, 2010 (incorporated by reference to Exhibit 10.2 to the
+Company’s Current Report on Form 8-K filed June 21, 2005).* 
+10.17 
+Form of Restricted Stock Agreement under the 1990 Stock Incentive Plan for awards after May 31, 2010 (incorporated by reference to Exhibit 10.2 to the Company’s Current
+Report on Form 8-K filed July 20, 2010).* 
+10.18 
+Commercial Paper Agreement between NIKE, Inc., as Issuer, and Goldman, Sachs & Co., as Dealer (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly
+Report on Form 10-Q for the fiscal quarter ended February 28, 2007). 
+10.19 
+Commercial Paper Agreement between NIKE, Inc., as Issuer, and Merrill Lynch Money Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Dealer (incorporated
+by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2007). 
+10.20 
+Commercial Paper Agreement between NIKE, Inc., as Issuer, and Wells Fargo Brokerage Services, LLC, as Dealer (incorporated by reference to Exhibit 10.5 to the Company’s
+Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2007). 
+10.21 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Donald W. Blair dated November 10, 1999 (incorporated by reference to Exhibit 10.15 to the
+Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2006).* 
+10.22 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Gary DeStefano (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
+Form 8-K filed August 11, 2006).* 
+10.23 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Eric D. Sprunk dated April 18, 2001.* 
+10.24 
+Policy for Recoupment of Incentive Compensation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed July 20,
+2010).* 
+12.1 
+Computation of Ratio of Earnings to Fixed Charges. 
+21 
+Subsidiaries of the Registrant. 
+23 
+Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm (set forth on page F-2 of this Annual Report on Form 10-K). 
+31.1 
+Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. 
+31.2 
+Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. 
+32 
+Section 1350 Certifications. 
+101.INS 
+XBRL Instance Document 
+101.SCH 
+XBRL Taxonomy Extension Schema 
+97 
+Table of Contents 
+101.CAL 
+XBRL Taxonomy Extension Calculation Linkbase 
+101.DEF 
+XBRL Taxonomy Extension Definition Document 
+101.LAB 
+XBRL Taxonomy Extension Label Linkbase 
+101.PRE 
+XBRL Taxonomy Extension Presentation Linkbase 
+* 
+Management contract or compensatory plan or arrangement. 
+The exhibits filed herewith do not include certain instruments with respect to long-term debt of NIKE and its subsidiaries, inasmuch as
+the total amount of debt authorized under any such instrument does not exceed 10 percent of the total assets of NIKE and its subsidiaries on a consolidated basis. NIKE agrees, pursuant to Item 601(b)(4)(iii) of Regulation S-K, that it will
+furnish a copy of any such instrument to the SEC upon request. 
+Upon written request to Investor Relations, NIKE, Inc., One
+Bowerman Drive, Beaverton, Oregon 97005-6453, NIKE will furnish shareholders with a copy of any Exhibit upon payment of $.10 per page, which represents our reasonable expenses in furnishing Exhibits. 
+98 
+Table of Contents 
+SCHEDULE II 
+VALUATION AND QUALIFYING ACCOUNTS 
+Balance at 
+Beginning 
+of Period 
+Charged to 
+Costs and 
+Expenses 
+Charged to 
+Other 
+Accounts 
+Write-Offs 
+Net of 
+Recoveries 
+Balance at 
+End of 
+Period 
+(In millions) 
+Allowance for doubtful accounts (current and
+non-current) (1) 
+For the year ended May 31, 2008 
+$ 
+71.7 
+$ 
+25.7 
+$ 
+4.0 
+$ 
+(23.0 
+) 
+$ 
+78.4 
+For the year ended May 31, 2009 
+78.4 
+62.4 
+(11.7 
+) 
+(18.3 
+) 
+110.8 
+For the year ended May 31, 2010 
+110.8 
+45.7 
+(9.9 
+) 
+(29.9 
+) 
+116.7 
+(1) 
+The non-current portion of the allowance for doubtful accounts is classified in deferred income taxes and other assets on the consolidated balance
+sheet. 
+F-1 
+Table of Contents 
+CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-156406) and Form S-8 (Nos.
+033-63995, 333-63581, 333-63583, 333-68864, 333-68886, 333-71660, 333-104822, 333-117059, 333-133360 and 333-164248) of NIKE, Inc. of our report dated July 20, 2010 relating to the financial statements, financial statement schedule and the
+effectiveness of internal control over financial reporting, which appears in this Form 10-K. 
+/s/ P RICEWATERHOUSE C OOPERS LLP 
+Portland, Oregon 
+July 20, 2010 
+F-2 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
+report to be signed on its behalf by the undersigned, thereunto duly authorized. 
+NIKE, INC. 
+By: 
+/s/ M ARK G.
+P ARKER 
+Mark G. Parker 
+Chief Executive Officer and President 
+Date: July 20, 2010 
+Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following
+persons on behalf of the registrant and in the capacities and on the dates indicated. 
+Signature 
+Title 
+Date 
+Principal Executive Officer and Director: 
+/s/ M ARK G.
+P ARKER 
+Mark G. Parker 
+Director, Chief Executive Officer and President 
+July 20, 2010 
+Principal Financial Officer: 
+/s/ D ONALD W.
+B LAIR 
+Donald W. Blair 
+Chief Financial Officer 
+July 20, 2010 
+Principal Accounting Officer: 
+/s/ B ERNARD F.
+P LISKA 
+Bernard F. Pliska 
+Corporate Controller 
+July 20, 2010 
+Directors: 
+/s/ P HILIP H.
+K NIGHT 
+Philip H. Knight 
+Director, Chairman of the Board 
+July 20, 2010 
+/s/ J OHN G.
+C ONNORS 
+John G. Connors 
+Director 
+July 20, 2010 
+/s/ J ILL K.
+C ONWAY 
+Jill K. Conway 
+Director 
+July 20, 2010 
+/s/ T IMOTHY D.
+C OOK 
+Timothy D. Cook 
+Director 
+July 20, 2010 
+/s/ R ALPH D.
+D E N UNZIO 
+Ralph D. DeNunzio 
+Director 
+July 20, 2010 
+S-1 
+Table of Contents 
+Signature 
+Title 
+Date 
+/s/ A LAN B. G RAF ,
+J R . 
+Alan B. Graf, Jr. 
+Director 
+July 20, 2010 
+/s/ D OUGLAS G.
+H OUSER 
+Douglas G. Houser 
+Director 
+July 20, 2010 
+/s/ J OHN C.
+L ECHLEITER 
+John C. Lechleiter 
+Director 
+July 20, 2010 
+/s/ J OHNATHAN A.
+R ODGERS 
+Johnathan A. Rodgers 
+Director 
+July 20, 2010 
+/s/ O RIN C.
+S MITH 
+Orin C. Smith 
+Director 
+July 20, 2010 
+/s/ J OHN R. T HOMPSON ,
+J R . 
+John R. Thompson, Jr. 
+Director 
+July 20, 2010 
+/s/ P HYLLIS M.
+W ISE 
+Phyllis M. Wise 
+Director 
+July 20, 2010 
+S-2
\ No newline at end of file
diff --git a/raw/filings/0000320187/2009/0001193125-10-161874/filing_metadata.csv b/raw/filings/0000320187/2009/0001193125-10-161874/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..35b0db321b8ff99418f51a9aa81d8fc5dc47f57f
--- /dev/null
+++ b/raw/filings/0000320187/2009/0001193125-10-161874/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000320187,NKE,"NIKE, Inc.",10-K,2010-07-20,2010-05-31,2010-07-21T01:18:30.000Z,0001193125-10-161874,d10k.htm,FORM 10-K,6047070,1,0,https://www.sec.gov/Archives/edgar/data/320187/000119312510161874/d10k.htm,https://www.sec.gov/Archives/edgar/data/320187/000119312510161874/,2009,2009,1
diff --git a/raw/filings/0000320187/2009/0001193125-10-161874/item1.txt b/raw/filings/0000320187/2009/0001193125-10-161874/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a4709a28972fe797189d2636145f371bc4a43d21
--- /dev/null
+++ b/raw/filings/0000320187/2009/0001193125-10-161874/item1.txt
@@ -0,0 +1,280 @@
+Item 1. 
+Business 
+General 
+NIKE, 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 the context indicates otherwise. Our Internet address is www.nike.com. On our NIKE
+Corporate web site, located at www.nikebiz.com, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the 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 furnished 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 free of charge. Also available on the NIKE Corporate web site are the charters of the committees of our board of directors, as well as our corporate governance guidelines and code of ethics;
+copies of any of these documents 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 worldwide marketing of high quality footwear, 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 NIKE-owned retail including stores and internet sales, and 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. 
+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-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 aquatic activities, 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, including 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 directly to customers, 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 Yarmouth, Maine, designs and
+distributes dress and casual footwear, apparel and accessories for men and women under the Cole Haan ® trademark.
+1 
+Table of Contents 
+Our wholly-owned subsidiary, Converse Inc. (“Converse”),
+headquartered in North Andover, Massachusetts, designs, distributes and licenses athletic and casual footwear, apparel and accessories under the
+Converse ® , Chuck
+Taylor ® , All
+Star ® , One
+Star ® , Star Chevron and Jack
+Purcell ® trademarks. 
+Our wholly-owned subsidiary, Hurley International LLC (“Hurley”), headquartered in Costa Mesa, California,
+designs and distributes a line of action sports and youth lifestyle apparel and accessories under the Hurley ® 
+trademark. 
+Our wholly-owned subsidiary, Umbro Ltd. (“Umbro”), headquartered in Cheadle,
+England, designs, distributes and licenses athletic and casual footwear, apparel and equipment, primarily for the sport of football (soccer), under the
+Umbro ® trademark. 
+Sales and Marketing 
+Financial information about geographic and segment operations appears in Note 19 of the accompanying Notes to the Consolidated Financial
+Statements on page 88. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues
+in the first and fourth fiscal quarters have slightly 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 fitness
+activities and changing design trends affect the demand for our products. We must therefore respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories, and
+influencing sports and fitness preferences through aggressive marketing. Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability. This is a continuing risk. 
+We report our NIKE Brand operations based on our internal geographic organization. Each NIKE Brand geography operates predominantly
+in one industry: the design, production, marketing and selling of sports and fitness footwear, apparel, and equipment. In the third quarter of fiscal 2009, we initiated a reorganization of the NIKE Brand into a new model consisting of six
+geographies. Effective June 1, 2009, we began operating under our new organizational structure for the NIKE Brand, which consists of the following geographies: North America, Western Europe, Central and Eastern Europe, Greater China,
+Japan, and Emerging Markets. Previously, NIKE Brand operations were organized into the following four geographic regions: U.S.; Europe; Middle East and Africa (collectively, “EMEA”); Asia Pacific; and Americas. 
+United States Market 
+In fiscal 2010 and 2009, sales in the United States including U.S. sales of our Other Businesses accounted for approximately 42% of total
+revenues, compared to 43% in fiscal 2008. For fiscal 2010 and 2009, our Other Businesses were primarily comprised of Cole Haan, Converse, Hurley, NIKE Golf and Umbro (which was acquired on March 3, 2008). For fiscal 2008, our Other
+Businesses were primarily comprised of Cole Haan, Converse, Exeter (whose primary business was the Starter brand business which was sold on December 17, 2007), Hurley, NIKE Bauer Hockey (which was sold on April 17, 2008), NIKE Golf
+and Umbro. We estimate that we sell to more than 23,000 retail accounts in the United States. The NIKE Brand domestic retail 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 fiscal 2010, our three largest customers accounted for approximately 24% of sales in the United States. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in advance
+of delivery with the commitment that their orders will be delivered within a set time 
+2 
+Table of Contents 
+period at a fixed price. In fiscal 2010 and 2009, 89% of our U.S. wholesale footwear shipments (excluding our Other Businesses) were made under the futures program, compared to 90% in fiscal
+2008. In fiscal 2010, 62% of our U.S. wholesale apparel shipments (excluding our Other Businesses) were made under the futures program, compared to 60% in fiscal 2009 and 62% in fiscal 2008. 
+We utilize 19 NIKE sales offices to solicit sales in the United States. We also utilize 4 independent sales representatives to sell
+specialty products for golf and 5 for skateboarding and outdoor products. In addition, we sell NIKE Brand products through our internet website, www.nikestore.com , and we operate the following retail outlets in the United States: 
+U.S. Retail Stores 
+Number 
+NIKE factory stores (which carry primarily overstock and close-out merchandise) 
+145 
+NIKE stores (including one NIKE Women store) 
+12 
+NIKETOWNs (designed to showcase NIKE products) 
+11 
+NIKE employee-only stores 
+3 
+Cole Haan stores (including factory stores) 
+106 
+Converse factory stores 
+51 
+Hurley stores (including factory and employee stores) 
+18 
+Total 
+346 
+NIKE’s three United States distribution centers
+for NIKE Brand footwear are located in Memphis, Tennessee. NIKE Brand apparel and equipment products are shipped from our Memphis, Tennessee and Foothill Ranch, California distribution centers. Cole Haan products are distributed primarily from
+Greenland, New Hampshire, Converse products are shipped primarily from Ontario, California, and Hurley products are distributed from Irvine, California. 
+International Markets 
+In fiscal 2010 and 2009, non-U.S. sales (including non-U.S. sales of our Other Businesses) accounted for 58% of total revenues, compared
+to 57% in fiscal 2008. We sell our products to retail accounts, through NIKE-owned retail stores, and through a mix of independent distributors and licensees around the world. We estimate that we sell to more than 24,000 retail accounts outside the
+United States, excluding sales by independent distributors and licensees. We operate 14 distribution centers outside of the United States. In many countries and regions, including Canada, Asia, some Latin American countries, and Europe, we have a
+futures ordering program for retailers similar to the United States futures program described above. During fiscal 2010, NIKE’s three largest customers outside of the U.S. accounted for approximately 8% of total non-U.S. sales. 
+We operate the following retail outlets outside the United States: 
+Non-U.S. Retail Stores 
+Number 
+NIKE factory stores 
+205 
+NIKE stores 
+55 
+NIKETOWNs 
+2 
+NIKE employee-only stores 
+12 
+Cole Haan stores 
+68 
+Hurley stores 
+1 
+Total 
+343 
+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, 
+3 
+Table of Contents 
+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 2010. 
+Orders 
+Worldwide futures and advance orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from June through November 2010,
+were $8.8 billion compared to $7.8 billion for the same period last year. This futures and advance order amount is calculated based upon our forecast of the actual exchange 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 advance/futures and at-once orders and the
+fulfillment of certain of these advance/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 and advance orders and actual revenues. Moreover, a significant portion of our revenue is not derived from futures and advance orders, including at-once and close-out sales of NIKE footwear and apparel,
+wholesale sales of equipment, Cole Haan, Converse, Hurley, Umbro, NIKE Golf, and certain retail sales across all brands. 
+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 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, and
+concepts for product improvement. 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 2010, contract factories
+in Vietnam, China, Indonesia, Thailand, and India manufactured approximately 37%, 34%, 23%, 2% and 1% 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 2010 footwear production. 
+Almost all of NIKE Brand apparel is manufactured outside of the United States by independent contract manufacturers located in 33
+countries. Most of this apparel production occurred in China, Thailand, Indonesia, Malaysia, Vietnam, Sri Lanka, Turkey, Cambodia, El Salvador, Mexico, and Taiwan. The largest single apparel factory that we have contracted with accounted for
+approximately 7% of total fiscal 2010 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 
+4 
+Table of Contents 
+components. During fiscal 2010, NIKE IHM, Inc., a wholly-owned subsidiary of NIKE, and 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 contractors and suppliers buy raw materials in bulk. Most raw materials are available 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, has performed significant import-export financing services for us. During fiscal 2010, 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 17% 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 outside of the United States, Europe, Middle East, Africa and Japan. 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, 2011. 
+International Operations and Trade 
+Our international operations and sources of supply are subject to the usual risks 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 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 developments occurring. 
+The current global
+economic recession has resulted in a significant 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 profitability and the imported footwear and
+apparel industry as a whole. Accordingly, we are actively monitoring the developments described below. 
+Footwear Imports
+into the European Union 
+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 within the
+scope of the investigation, and (ii) does not meet the legal requirements of injury and price in an anti-dumping investigation. Our arguments were successful and the EU agreed in October 2006 on definitive duties of 16.5% for China and 10% for
+Vietnam for non-STAF leather footwear, but excluded STAF from the final measures. Prior to the scheduled expiration in October 2008 of the measures imposed on the non-STAF footwear, the domestic industry requested and the EC agreed to review a
+petition to extend these restrictions on non-STAF leather footwear. In December 2009, following a review of the ongoing restrictions, EU member states voted to extend the measures for an additional 15 months, until March 31, 2011. We expect
+that a decision by the EC on whether to initiate a review on these measures for a second time will take place before the end of calendar 2010. 
+5 
+Table of Contents 
+On February 3, 2010, the Chinese government announced it would be seeking to refer the
+EU decision (both on the original measures and subsequent review decision) to the World Trade Organization (“WTO”), and 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 current anti-dumping measures in force for leather footwear exports. 
+Footwear Imports into
+Brazil and Argentina 
+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 in broad coalition with 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 final
+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 with the same broad coalition of footwear companies to challenge this decision in domestic Brazilian courts as well as
+international forums such as the WTO. 
+Footwear Imports into Turkey 
+In 2006, Turkey introduced safeguard measures in the form of additional duties on all imported footwear into Turkey with the goal of
+protecting its local shoe manufacturing industry until August 2009. In June 2009, Turkish shoe-manufacturers submitted, and the Turkish Government agreed to review, a request for extension of the safeguard measures claiming that the rehabilitation
+process of the local Turkish industry was interrupted due to the continuing increase of footwear imports. Despite the importers opposition to the continuation of the safeguard measures, the Turkish authorities extended these safeguard measures until
+August 2012, but reduced the duty from $3 per pair of footwear to $1.60 per pair of footwear. As a result of this decision, Vietnam and Indonesia each initiated discussions with Turkey and each is seeking compensation from Turkey, which is possible
+under current WTO rules. These bilateral discussions are currently ongoing, and one potential outcome could involve Turkey awarding trade concessions on other products — or the exclusion from the safeguard measure of certain categories of
+footwear. A conclusion of the first round of talks between the exporting countries is expected in September 2010. 
+Trade
+Relations with China 
+China represents an important sourcing and marketing country for us. Many governments around the
+world are concerned about China’s growing and fast-paced economy, compliance with WTO rules, currency valuation, and high trade surpluses. As a result, a wide range of legislative proposals have been introduced to address these concerns. While
+some of these concerns may be justified, we are working with broad coalitions of global businesses and trade associations representing a wide variety of sectors (e.g., services, manufacturing, and agriculture) to help ensure 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. We believe other companies in our industry as well as most other multi-national companies are in a similar position regarding these trade measures. 
+In the event any of these 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. We believe our principal competitors are subject to
+similar risks. 
+6 
+Table of Contents 
+Competition 
+The athletic footwear, apparel, and equipment industry is keenly competitive in the United States and on a worldwide basis. We compete
+internationally with a significant number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel, and equipment,
+including Adidas, Puma, and 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 and athletic apparel in the world. Performance and reliability of
+shoes, apparel, and equipment, new product development, price, product identity through marketing and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel, and equipment industry. To help
+market our products, we contract with prominent and influential 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 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 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 over 150
+countries. In addition, we own many other trademarks that we utilize in marketing our products. We continue to vigorously protect our trademarks against infringement. 
+NIKE has an exclusive, worldwide license to make and sell footwear using patented “Air” technology. The
+process utilizes pressurized gas encapsulated in polyurethane. Some of the early NIKE AIR ® patents have expired,
+which may enable competitors to use certain types of similar technology. Subsequent NIKE AIR ® patents will not
+expire for several years. We also have hundreds of U.S. and foreign utility patents, and thousands of U.S. and foreign design patents covering components and features used in various athletic and leisure shoes, apparel, and equipment. These patents
+expire at various times, and patents issued for applications filed this year will last from now to 2024 for design patents, and from now to 2030 for utility patents. We believe our success 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 filing applications for United States and foreign patents on inventions, designs, and improvements that we deem valuable. 
+Employees 
+We had approximately 34,400 employees at May 31, 2010. Management considers its relationship with employees to be excellent. None of
+our employees is represented by a union, except for certain employees in the Emerging Markets geography, where local law requires those employees to be represented by a trade union, and in the United States, where certain employees of Cole Haan are
+represented by a union. Also, in some countries outside of the United States, local laws require representation for employees by works councils (such as in certain countries in the European Union, in which they are entitled to information and
+consultation on certain Company decisions) or other employee representation by 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 wide or national)
+collective bargaining agreements. There has never been a material interruption of operations due to labor disagreements. 
+7 
+Table of Contents 
+Executive Officers of the Registrant 
+The executive officers of NIKE as of July 16, 2010 are as follows: 
+Philip H. Knight, Chairman of the Board — Mr. Knight, 72, a director since 1968, is a co-founder of NIKE and, except for
+the period from June 1983 through September 1984, served as its President from 1968 to 1990 and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand
+and was an Assistant Professor of Business Administration at Portland State University. 
+Mark G. Parker, Chief
+Executive Officer and President — Mr. Parker, 54, was appointed CEO and President in January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand
+management. Mr. Parker was appointed divisional Vice President in charge of development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001.
+David J. Ayre, Vice President, Global Human Resources — Mr. Ayre, 50, joined NIKE as Vice President, Global
+Human Resources in July 2007. Prior to joining NIKE, he held a number of senior human resource positions with PepsiCo, Inc. since 1990, most recently as head of Talent and Performance Rewards. 
+Donald W. Blair, Vice President and Chief Financial Officer — Mr. Blair, 52, joined NIKE in November 1999. Prior to
+joining NIKE, he held a number of financial management positions with PepsiCo, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice President, Planning of PepsiCo’s Pizza Hut Division, and Senior Vice President, Finance of The Pepsi
+Bottling Group, Inc. Prior to joining PepsiCo, Mr. Blair was a certified public accountant with Deloitte, Haskins, and Sells. 
+Charles D. Denson, President of the NIKE Brand — Mr. Denson, 54, has been employed by NIKE since 1979. Mr. Denson
+held several management positions within the Company, including his appointments as Director of USA Apparel Sales in 1994, divisional Vice President, U.S. Sales in 1994, divisional Vice President European Sales in 1997, divisional Vice President and
+General Manager, NIKE Europe in 1998, Vice President and General Manager of NIKE USA in 2000, and President of the NIKE Brand in 2001. 
+Gary M. DeStefano, President, Global Operations — Mr. DeStefano, 53, has been employed by NIKE since 1982, with primary
+responsibilities in sales and regional administration. Mr. DeStefano was appointed Director of Domestic Sales in 1990, divisional Vice President in charge of domestic sales in 1992, Vice President of Global Sales in 1996, Vice President and
+General Manager of Asia Pacific in 1997, President of USA Operations in 2001, and President of Global Operations in 2006. 
+Trevor Edwards, Vice President, Global Brand and Category Management — Mr. Edwards, 47, joined NIKE in 1992. He was
+appointed Marketing Manager, Strategic Accounts, Foot Locker in 1993, Director of Marketing, the Americas in 1995, Director of Marketing, Europe in 1997, Vice President, Marketing for Europe, Middle East and Africa in 1999, and Vice President, U.S.
+Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in 2002 and Vice President, Global Brand and Category Management in 2006. Prior to NIKE, Mr. Edwards was with the Colgate-Palmolive
+Company. 
+Jeanne P. Jackson, President, Direct to Consumer — Ms. Jackson, 58, served as a
+member of the NIKE, Inc. Board of Directors from 2001 through March 2009, when she resigned from our Board and was appointed President, Direct to Consumer. She is founder and CEO of MSP Capital, a private investment company. Ms. Jackson
+was CEO of Walmart.com from March 2000 to January 2002. She was with Gap, Inc., as President and CEO of Banana Republic from 1995 to 2000, also serving as CEO of Gap, Inc. Direct from 1998 to 2000. Since 1978, she has held various retail
+management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated Department Stores. Ms. Jackson is the past President of the United States Ski and Snowboard Foundation Board of Trustees, and is a
+director of McDonald’s Corporation. She is a former director of Nordstrom, Inc., and Harrah’s Entertainment, Inc. 
+8 
+Table of Contents 
+Hilary K. Krane, Vice President and General Counsel — Ms. Krane, 46, joined
+NIKE as Vice President and General Counsel in April 2010. Prior to joining NIKE, Ms. Krane was General Counsel and Senior Vice President for Corporate Affairs at Levi Strauss & Co. where she was responsible for legal affairs and
+overseeing the global brand protection department. From 1996 to 2006, she was a partner and assistant general counsel at PricewaterhouseCoopers LLP. 
+P. Eunan McLaughlin, President, Affiliates — Mr. McLaughlin, 52, joined NIKE as Director of Sales, NIKE Europe in 1999,
+and was appointed Vice President Commercial Sales and Retail in 2000, Vice President, Asia Pacific in 2001, Vice President, Europe, Middle East & Africa in May 2004, and President of Affiliates in April 2009. Prior to joining NIKE, he
+was Partner and Vice President of Consumer & Retail Practices Division, Korn/Ferry International from 1996 to 1999. From 1983 to 1996, Mr. McLaughlin held various positions with Mars, Inc. in finance, sales, marketing and general
+management. 
+Bernard F. Pliska, Vice President, Corporate Controller — Mr. Pliska, 48, joined NIKE as
+Corporate Controller in 1995. He was appointed Vice President, Corporate Controller in 2003. Prior to NIKE, Mr. Pliska was with Price Waterhouse from 1984 to 1995. Mr. Pliska is a certified public accountant. 
+John F. Slusher, Vice President, Global Sports Marketing — Mr. Slusher, 41, has been employed by NIKE since 1998 with
+primary responsibilities in global sports marketing. Mr. Slusher was appointed Director of Sports Marketing for the Asia Pacific and Americas Regions in 2006, divisional Vice President, Asia Pacific & Americas Sports Marketing in
+September 2007 and Vice President, Global Sports Marketing in November 2007. Prior to joining NIKE, Mr. Slusher was an attorney at the law firm of O’Melveny & Myers from 1995 to 1998. 
+Eric D. Sprunk, Vice President, Merchandising and Product — Mr. Sprunk, 46, joined NIKE in 1993. He was appointed
+Finance Director and General Manager of the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General Manager, NIKE Europe Footwear in 1998, and Vice President & General Manager of the Americas in 2000. Mr. Sprunk was
+appointed corporate Vice President, Global Footwear in 2001 and Vice President, Merchandising and Product in 2009. Prior to joining NIKE, Mr. Sprunk was a certified public accountant with Price Waterhouse from 1987 to 1993. 
+Hans van Alebeek, Vice President, Global Operations and Technology — Mr. van Alebeek, 44, joined NIKE as Director
+of Operations of Europe in 1999, and was appointed Vice President, Operations & Administration in EMEA in 2001, Vice President, Global Operations in 2003, Vice President, Global Operations & Technology in 2004, and Corporate Vice
+President in November 2005. Prior to joining NIKE, Mr. van Alebeek worked for McKinsey & Company as a management consultant and at N.V. Indivers in business development.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2009/0001193125-10-161874/item13.txt b/raw/filings/0000320187/2009/0001193125-10-161874/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c930d4f5d935171c40b7e0476a00713cb5bf97d0
--- /dev/null
+++ b/raw/filings/0000320187/2009/0001193125-10-161874/item13.txt
@@ -0,0 +1,4 @@
+Item 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+The information required by Items 404 and 407(a) of Regulation S-K is included under “Transactions with Related Persons” and
+“Director Independence” in the definitive Proxy Statement for our 2010 Annual Meeting of Shareholders and is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2009/0001193125-10-161874/item9a.txt b/raw/filings/0000320187/2009/0001193125-10-161874/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8fca8fb964c4b08878404ddc9d3643443a323e9d
--- /dev/null
+++ b/raw/filings/0000320187/2009/0001193125-10-161874/item9a.txt
@@ -0,0 +1,14 @@
+Item 9A. 
+Controls and Procedures 
+We maintain disclosure controls and procedures that are designed to ensure information required to be disclosed in our Exchange Act
+reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our
+Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and
+procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible
+controls and procedures. 
+We carry out a variety of on-going procedures, under the supervision and with the participation of
+our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief
+Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of May 31, 2010. 
+“Management’s Annual Report on Internal Control Over Financial Reporting” is included in Item 8 on page 54 of this
+Report. 
+There has been no change in our internal control over financial reporting during our most recent fiscal quarter that
+has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2009/0001193125-10-161874/rp_note.txt b/raw/filings/0000320187/2009/0001193125-10-161874/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2009/0001193125-10-161874/rpt_disclosure.txt b/raw/filings/0000320187/2009/0001193125-10-161874/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2cfd315182c53e75e637372f0efb31a030264ed4
--- /dev/null
+++ b/raw/filings/0000320187/2009/0001193125-10-161874/rpt_disclosure.txt
@@ -0,0 +1,21 @@
+Transactions with Related Persons 
+Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft.
+Mr. Knight has reimbursed the Company $729,433 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2011, determined based on the cost of fuel and other variable costs associated with the flights under FAR
+91-501(d). 
+Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health
+insurance and for life insurance policies for Howard Slusher, the father of John Slusher, Vice President of Sports Marketing, following expiration of the agreement. During fiscal 2011, the Company paid Howard Slusher $129,870 for health and life
+insurance premiums. 
+Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker
+is a Strategic Sales Director, and has been employed by the Company for over 27 years; Stephen Parker is the General Manager, China-Converse, and has been employed by the Company for over 23 years; and Ann Parker is a Talent Development and
+Community Relations Director at Hurley LLC, and has been employed by the Company for over 21 years. During fiscal year 2011, the Company paid aggregate compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $409,833, $476,330,
+$206,201, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary, performance bonus, the grant date fair value of stock options granted during the fiscal year
+estimated using the Black-Scholes pricing model, and profit sharing and matching contributions to Company-sponsored retirement plans. 
+Mr. Thompson’s son, John Thompson III, is the head basketball coach at Georgetown University, and the Company has a contract with him to provide endorsement and consulting services to the
+Company through August 2014, with base compensation over the 5-year term of the contract of $500,000, and up to $80,000 per year of product and other performance incentives. 
+Compensation Committee Interlocks and Insider Participation 
+The members
+of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2011 were Ralph D. DeNunzio, Timothy D. Cook, John C. Lechleiter, and Johnathan A. Rodgers. The Committee is composed solely of independent,
+non-employee directors. No member of the Compensation Committee has been an executive officer of the Company, and no member of the Compensation Committee had any relationships requiring disclosure by the Company under the SEC’s rules requiring
+disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or member of a compensation committee (or other committee serving an equivalent function) of any other entity, the
+executive officers of which served as a director or member of the Compensation Committee of the Company during the fiscal year ended May 31, 2011. 
+11
\ No newline at end of file
diff --git a/raw/filings/0000320187/2010/0001193125-11-194791/filing.txt b/raw/filings/0000320187/2010/0001193125-11-194791/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b2f113b1844c08a8fb64877235803bf3438d4f56
--- /dev/null
+++ b/raw/filings/0000320187/2010/0001193125-11-194791/filing.txt
@@ -0,0 +1,6856 @@
+10-K
+1
+d10k.htm
+FORM 10-K
+Form 10-K 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+Form 10-K
+(Mark One) 
+þ 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended May 31, 2011 
+or 
+¨ 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the transition period from
+to .
+Commission File No. 1-10635 
+NIKE, Inc. 
+(Exact name of Registrant as specified in its charter) 
+Oregon 
+93-0584541 
+(State or other jurisdiction 
+of incorporation) 
+(IRS Employer 
+Identification No.) 
+One Bowerman Drive 
+(503) 671-6453 
+Beaverton, Oregon 97005-6453 
+(Registrant’s Telephone Number, Including Area Code) 
+(Address of principal executive offices) (Zip Code) 
+Securities registered pursuant to Section 12(b) of the Act: 
+Class B Common Stock 
+New York Stock Exchange 
+(Title of Each Class) 
+(Name of Each Exchange on Which Registered) 
+Securities registered pursuant to Section 12(g) of the Act: 
+None 
+Indicate by
+check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨ 
+Indicate by check mark if the registrant is not required to file reports pursuant
+to Section 13 or Section 15(d) of the Act. Yes ¨ No þ 
+Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
+Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
+days. Yes þ No ¨ 
+Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
+Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
+files). Yes þ No ¨ 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
+not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
+10-K. ¨ 
+Indicate by check mark whether the Registrant
+is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
+12b-2 of the Exchange Act. 
+Large accelerated filer þ 
+Accelerated filer ¨ 
+Non-accelerated filer ¨ 
+Smaller Reporting Company ¨ 
+Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
+Act). Yes ¨ No þ 
+As of November 30, 2010, the aggregate market value of the Registrant’s Class A Common Stock held by non-affiliates of the
+Registrant was $2,005,831,959 and the aggregate market value of the Registrant’s Class B Common Stock held by non-affiliates of the Registrant was $33,459,424,185. 
+As of July 18, 2011, the number of shares of the Registrant’s Class A Common Stock outstanding was 89,989,447 and the number of shares of the Registrant’s Class B Common Stock
+outstanding was 384,840,843. 
+DOCUMENTS INCORPORATED BY REFERENCE: 
+Parts of Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on September 19, 2011 are incorporated
+by reference into Part III of this Report. 
+Table of Contents 
+NIKE, INC. 
+ANNUAL REPORT ON FORM 10-K 
+TABLE OF CONTENTS
+Page 
+PART I 
+Item 1. 
+Business 
+1 
+General 
+1 
+Products 
+1 
+Sales and Marketing 
+2 
+United States Market 
+2 
+International Markets 
+3 
+Significant Customer 
+4 
+Orders 
+4 
+Product Research and Development 
+4 
+Manufacturing 
+4 
+International Operations and Trade 
+5 
+Competition 
+7 
+Trademarks and Patents 
+7 
+Employees 
+7 
+Executive Officers of the Registrant 
+8 
+Item 1A. 
+Risk Factors 
+9 
+Item 1B. 
+Unresolved Staff Comments 
+18 
+Item 2. 
+Properties 
+18 
+Item 3. 
+Legal Proceedings 
+19 
+Item 4. 
+Reserved 
+19 
+PART II 
+Item 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+20 
+Item 6. 
+Selected Financial Data 
+22 
+Item 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+23 
+Item 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+51 
+Item 8. 
+Financial Statements and Supplemental Data 
+53 
+Item 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+88 
+Item 9A. 
+Controls and Procedures 
+88 
+Item 9B. 
+Other Information 
+88 
+PART III 
+(Except for the information set forth under “Executive Officers of the Registrant” in Item 1 above, Part III is incorporated by reference from the Proxy Statement for
+the NIKE, Inc. 2011 Annual Meeting of Shareholders.) 
+Item 10. 
+Directors, Executive Officers and Corporate Governance 
+89 
+Item 11. 
+Executive Compensation 
+89 
+Item 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+89 
+Item 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+89 
+Item 14. 
+Principal Accountant Fees and Services 
+89 
+PART IV 
+Item 15. 
+Exhibits and Financial Statement Schedules 
+90 
+Signatures 
+S-1 
+Table of Contents 
+PART I 
+Item 1. 
+Business 
+General 
+NIKE, 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 the context indicates otherwise. Our Internet address is www.nike.com. On our NIKE
+Corporate web site, located at www.nikebiz.com, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the 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 furnished 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 free of charge. Also available on the NIKE Corporate web site are the charters of the committees of our board of directors, as well as our corporate governance guidelines and code of ethics;
+copies of any of these documents 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 worldwide marketing and selling of high quality footwear, 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 NIKE-owned retail stores and internet sales, which we refer to as our “Direct
+to Consumer” operations, and 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. 
+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-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, including 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 directly 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. 
+1 
+Table of Contents 
+Our wholly-owned subsidiary, Converse Inc. (“Converse”),
+headquartered in North Andover, Massachusetts, designs, distributes and licenses athletic and casual footwear, apparel and accessories under the Converse ® , Chuck Taylor ® , All Star ® , One Star ® , Star Chevron and Jack
+Purcell ® trademarks. 
+Our wholly-owned subsidiary, Hurley International LLC (“Hurley”), headquartered in Costa Mesa, California,
+designs and distributes a line of action sports and youth lifestyle apparel and accessories under the Hurley ® 
+trademark. 
+Our wholly-owned subsidiary, Umbro International Limited (“Umbro”), headquartered in
+Cheadle, United Kingdom, designs, distributes and licenses athletic and casual footwear, apparel and equipment, primarily for the sport of football (soccer), under the Umbro ® trademark. 
+Sales and
+Marketing 
+Financial information about geographic and segment operations appears in Note 18 of the accompanying Notes to
+the Consolidated Financial Statements on page 83. 
+We experience moderate fluctuations in aggregate sales volume during the
+year. Historically, revenues in the first and fourth fiscal quarters have slightly 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 fitness activities and changing design trends affect the demand for our products. We must therefore respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products,
+styles and categories, and influencing sports and fitness preferences through aggressive marketing. Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability. This is a continuing risk.
+We report our NIKE Brand operations based on our internal geographic organization. Each NIKE Brand geography operates
+predominantly 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, NIKE Brand operations were organized into the following four geographic regions: U.S.,
+Europe, Middle East and Africa (collectively, “EMEA”), Asia Pacific, and Americas. Our NIKE Brand Direct to Consumer operations are managed within each geographic segment. 
+United States Market 
+In fiscal 2011, sales in
+the United States including U.S. sales of our Other Businesses accounted for approximately 43% of total revenues, compared to 42% in fiscal 2010 and 2009. Our Other Businesses were primarily comprised of our affiliate brands; Cole Haan,
+Converse, Hurley and Umbro (which was acquired on March 3, 2008); and NIKE Golf. We estimate that we sell to more than 20,000 retail accounts in the United States. The NIKE Brand domestic retail 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 fiscal 2011, our three largest customers accounted for approximately 23% of sales in the United States. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in advance
+of delivery with the commitment that their orders will be delivered within a set time period at a fixed price. In fiscal 2011, 87% of our U.S. wholesale footwear shipments (excluding our Other Businesses) were made under the futures program,
+compared to 89% in fiscal 2010 and 2009. In fiscal 2011, 60% of our U.S. wholesale apparel shipments (excluding our Other Businesses) were made under the futures program, compared to 62% in fiscal 2010 and 60% in fiscal 2009. 
+2 
+Table of Contents 
+We utilize 18 NIKE sales offices to solicit sales in the United States. We also utilize 4
+independent sales representatives to sell specialty products for golf and 5 for skateboarding and snowboarding products. In addition, our Direct to Consumer operations sell NIKE Brand products through our internet website, www.nikestore.com ,
+and the following retail outlets in the United States: 
+U.S. Retail Stores 
+Number 
+NIKE factory stores 
+150 
+NIKE stores 
+16 
+NIKETOWNs 
+9 
+NIKE employee-only stores 
+3 
+Cole Haan stores (including factory stores) 
+107 
+Converse stores (including factory stores) 
+58 
+Hurley stores (including factory and employee stores) 
+20 
+Total 
+363 
+NIKE’s three significant distribution centers in the United States for NIKE Brand products,
+including NIKE Golf, are located in Memphis, Tennessee. NIKE also operates and leases one facility in Memphis, Tennessee for NIKE Brand product returns. NIKE Brand apparel and equipment products are also shipped from our Foothill Ranch, California
+distribution center. Cole Haan products are distributed primarily from Greenland, New Hampshire, and Converse and Hurley products are shipped primarily from Ontario, California. 
+International Markets 
+In fiscal 2011, non-U.S.
+sales (including non-U.S. sales of our Other Businesses) accounted for 57% of total revenues, compared to 58% in fiscal 2010 and 2009. We sell our products to retail accounts, through our own Direct to Consumer operations, and through a mix of
+independent distributors and licensees around the world. We estimate that we sell to more than 20,000 retail accounts outside the United States, excluding sales by independent distributors and licensees. We operate 16 distribution centers outside of
+the United States. In many countries and regions, including Canada, Asia, some Latin American countries, and Europe, we have a futures ordering program for retailers similar to the United States futures program described above. During fiscal 2011,
+NIKE’s three largest customers outside of the U.S. accounted for approximately 9% of total non-U.S. sales. 
+Our
+Direct to Consumer business operates the following retail outlets outside the United States: 
+Non-U.S. Retail Stores 
+Number 
+NIKE factory stores 
+243 
+NIKE stores 
+50 
+NIKETOWNs 
+3 
+NIKE employee-only stores 
+13 
+Cole Haan stores 
+83 
+Hurley stores 
+1 
+Total 
+393 
+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. 
+3 
+Table of Contents 
+Significant Customer 
+No customer accounted for 10% or more of our net sales during fiscal 2011. 
+Orders 
+Worldwide futures and advance orders for
+NIKE Brand athletic footwear and apparel, scheduled for delivery from June through November 2011, were $10.3 billion compared to $8.8 billion for the same period last year. This futures and advance order amount is calculated based upon our forecast
+of the actual exchange 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 fulfillment of certain of these futures/advance 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 and advance orders and actual revenues. Moreover, a significant portion 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. 
+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 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 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 2011, contract factories in Vietnam, China, Indonesia, and India manufactured approximately
+39%, 33%, 24% and 2% 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 6% of total fiscal 2011 NIKE Brand footwear production. Almost all of NIKE Brand apparel is manufactured outside of the United States by independent contract
+manufacturers located in 33 countries. Most of this apparel production occurred in China, Thailand, Vietnam, Malaysia, Sri Lanka, Indonesia, Turkey, Cambodia, El Salvador, and Mexico. The largest single apparel factory that we have contracted with
+accounted for approximately 7% of total fiscal 2011 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 2011, 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 
+4 
+Table of Contents 
+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 2011, 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. 
+International Operations and Trade 
+Our international operations and sources of supply are subject to the usual risks 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 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 developments occurring. 
+The global economic
+recession resulted in a significant 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 profitability and the imported footwear and apparel industry as
+a whole. Accordingly, we are actively monitoring the developments described below. 
+Footwear Imports into the European
+Union 
+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 within the scope of the
+investigation, and (ii) does not meet the legal requirements of injury and price in an anti-dumping investigation. Our arguments were successful and the EU agreed in October 2006 on definitive duties of 16.5% for China and 10% for Vietnam for
+non-STAF leather footwear, but excluded STAF from the final measures. Prior to the scheduled expiration in October 2008 of the measures imposed on the non-STAF footwear, the domestic industry requested and the EC agreed to review a petition to
+extend these restrictions on non-STAF leather footwear. In December 2009, following a review of the ongoing restrictions, EU member states voted to extend the measures for an additional 15 months, until March 31, 2011. In early 2011, the EC
+declined to further extend the measures and since April 1, 2011 these restrictions have been terminated. The EC noted that it will be monitoring leather footwear imports from Vietnam and China over the next 12 months and it is hoped that any
+increases will not result in renewed trade defense actions by the EC. 
+On February 3, 2010, the Chinese government
+announced it would seek to refer 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. 
+5 
+Table of Contents 
+Footwear, Apparel and Equipment Imports into Brazil and Argentina 
+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 final 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 with the same broad coalition of footwear companies to challenge this decision in domestic Brazilian courts as well as international forums such as the
+WTO. 
+Many products, including footwear, apparel and equipment products, that we and others in our industry import into
+Argentina and Brazil are subject to the WTO non-automatic licensing requirements, which means that it may take up to 60 days for those products to clear customs and enter into those jurisdictions. From time to time, in addition to these WTO
+licensing requirements, these jurisdictions 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. 
+Footwear, Apparel and Equipment Imports into Turkey 
+In 2006, Turkey
+introduced safeguard measures in the form of additional duties on all imported footwear into Turkey with the goal of protecting its local shoe manufacturing industry until August 2009. In June 2009, Turkish shoe-manufacturers submitted, and the
+Turkish Government agreed to review, a request for extension of the safeguard measures claiming that the rehabilitation process of the local Turkish industry was interrupted due to the continuing increase of footwear imports. Despite the importers
+opposition to the continuation of the safeguard measures, the Turkish authorities extended these safeguard measures until August 2012, but reduced the duty from $3 per pair of footwear to $1.60 per pair of footwear. 
+In 2011, two new safeguard measures and reviews were initiated by the Turkish Undersecretariat of Foreign Trade (“UFT”) on
+apparel and equipment imports. In January 2011, the UFT began an investigation on apparel imports that could result in a 20-30% increase in import duties applied to imported apparel products, regardless of country of origin and with only a few
+exceptions for countries that currently have a Free Trade Agreement with Turkey. A decision is expected in late July 2011 and if approved, these higher import duties will be in place through July 2014. Together with other companies in our industry,
+we are advocating for exclusion of certain apparel products used for sporting activities that cannot be manufactured in Turkey and therefore should not be subject to a higher import duty. In February 2011, the UFT began a review of existing
+safeguard measure on travel goods, handbags and similar accessories and containers listed under applicable regulations. One Turkish bag manufacturers association has requested the continuation of the safeguard measures through April 2014, with the
+application of an additional import duty of 2.70 USD/kg (max. 4.25 USD/unit), regardless of country of origin. Together with other companies in our industry, we are advocating for the exclusion of non-leather bags from the scope of the continued
+safeguards. 
+Trade Relations with China 
+China represents an important sourcing country and consumer marketing country for us. Many governments around the world are concerned about China’s growing and fast-paced economy, compliance with WTO
+rules, currency valuation, and high trade surpluses. As a result, a wide range of legislative proposals have been introduced to address these concerns. While some of these concerns may be justified, we are working with broad
+6 
+Table of Contents 
+coalitions of global businesses and trade associations representing a wide variety of sectors (e.g., services, manufacturing, and agriculture) to help ensure 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.
+We believe other companies in our industry as well as most other multi-national companies are in a similar position regarding these trade measures. 
+In the event any of these 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. We believe our principal competitors are subject to similar risks. 
+Competition 
+The athletic footwear, apparel, and
+equipment industry is keenly competitive in the United States and on a worldwide basis. We compete internationally with a significant number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies,
+and large companies having diversified lines of athletic and leisure shoes, apparel, and equipment, including Adidas, Puma, and 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 and athletic apparel in the world. Performance and reliability of shoes, apparel, and equipment, new product development, price, product identity through marketing and promotion, and customer support and service
+are important aspects of competition in the athletic footwear, apparel, and equipment industry. To help market our products, we contract with prominent and influential 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 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 over 150 countries. In addition, we own many other trademarks that we
+utilize in marketing our products. We continue to vigorously protect our trademarks against infringement. 
+NIKE has an exclusive, worldwide license to make and sell footwear using patented “Air” technology. The
+process utilizes pressurized gas encapsulated in polyurethane. Some of the early NIKE AIR ® patents have expired,
+which may enable competitors to use certain types of similar technology. Subsequent NIKE AIR ® patents will not
+expire for several years. We also have hundreds of U.S. and foreign utility patents, and thousands of U.S. and foreign design patents covering components and features used in various athletic and leisure shoes, apparel, and equipment. These patents
+expire at various times, and patents issued for applications filed this year will last from now to 2025 for design patents, and from now to 2031 for utility patents. We believe our success 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 filing applications for United States and foreign patents on inventions, designs, and improvements that we deem valuable. 
+Employees 
+As of May 31, 2011, we had approximately 38,000 employees worldwide, which includes retail and part-time employees. Management considers its relationship with employees to be excellent. None of our
+employees 
+7 
+Table of Contents 
+is represented by a union, except for certain employees in the Emerging Markets geography, where local law requires those employees to be represented by a trade union, and in the United States,
+where certain employees of Cole Haan are represented by a union. Also, in some countries outside of the United States, local laws require representation for employees by works councils (such as in certain countries in the European Union, in which
+they are entitled to information and consultation on certain Company decisions) or other employee representation by 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 wide or national) collective bargaining agreements. There has never been a material interruption of operations due to labor disagreements. 
+Executive Officers of the Registrant 
+The
+executive officers of NIKE as of July 14, 2011 are as follows: 
+Philip H. Knight, Chairman of the Board —
+Mr. Knight, 73, a director since 1968, is a co-founder of NIKE and, except for the period from June 1983 through September 1984, served as its President from 1968 to 1990 and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a
+certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State University. 
+Mark G. Parker, Chief Executive Officer and President — Mr. Parker, 55, was appointed CEO and President in January 2006. He has been employed by NIKE since 1979 with primary
+responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge of development in 1987, corporate Vice President in 1989, General Manager in 1993,
+Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. 
+David J. Ayre, Vice President,
+Global Human Resources — Mr. Ayre, 51, joined NIKE as Vice President, Global Human Resources in 2007. Prior to joining NIKE, he held a number of senior human resource positions with PepsiCo, Inc. since 1990, most recently as head of Talent
+and Performance Rewards. 
+Donald W. Blair, Vice President and Chief Financial Officer — Mr. Blair, 53, joined
+NIKE in November 1999. Prior to joining NIKE, he held a number of financial management positions with PepsiCo, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice President, Planning of PepsiCo’s Pizza Hut Division, and Senior Vice
+President, Finance of The Pepsi Bottling Group, Inc. Prior to joining PepsiCo, Mr. Blair was a certified public accountant with Deloitte, Haskins, and Sells. 
+Charles D. Denson, President of the NIKE Brand — Mr. Denson, 55, has been employed by NIKE since 1979. Mr. Denson held several management positions within the Company, including his
+appointments as Director of USA Apparel Sales in 1994, divisional Vice President, U.S. Sales in 1994, divisional Vice President European Sales in 1997, divisional Vice President and General Manager, NIKE Europe in 1998, Vice President and General
+Manager of NIKE USA in 2000, and President of the NIKE Brand in 2001. 
+Gary M. DeStefano, President, Global Operations
+— Mr. DeStefano, 54, has been employed by NIKE since 1982, with primary responsibilities in sales and regional administration. Mr. DeStefano was appointed Director of Domestic Sales in 1990, divisional Vice President in charge of
+domestic sales in 1992, Vice President of Global Sales in 1996, Vice President and General Manager of Asia Pacific in 1997, President of USA Operations in 2001, and President of Global Operations in 2006. 
+Trevor Edwards, Vice President, Global Brand and Category Management — Mr. Edwards, 48, joined NIKE in 1992. He was
+appointed Marketing Manager, Strategic Accounts, Foot Locker in 1993, Director of Marketing, the Americas in 1995, Director of Marketing, Europe in 1997, Vice President, Marketing for Europe, Middle East and Africa in 1999, and Vice President, U.S.
+Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in 2002 and Vice President, Global Brand and Category Management in 2006. Prior to NIKE, Mr. Edwards was with the Colgate-Palmolive
+Company. 
+8 
+Table of Contents 
+Jeanne P. Jackson, President, Direct to Consumer — Ms. Jackson,
+59, served as a member of the NIKE, Inc. Board of Directors from 2001 through 2009, when she resigned from our Board and was appointed President, Direct to Consumer. She is founder and CEO of MSP Capital, a private investment company.
+Ms. Jackson was CEO of Walmart.com from March 2000 to January 2002. She was with Gap, Inc., as President and CEO of Banana Republic from 1995 to 2000, also serving as CEO of Gap, Inc. Direct from 1998 to 2000. Since 1978, she has held
+various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated Department Stores. Ms. Jackson is the past President of the United States Ski and Snowboard Foundation Board of Trustees,
+and is a director of McDonald’s Corporation. She is a former director of Nordstrom, Inc., and Harrah’s Entertainment, Inc. 
+Hilary K. Krane, Vice President and General Counsel — Ms. Krane, 47, joined NIKE as Vice President and General Counsel in April 2010. Prior to joining NIKE, Ms. Krane was
+General Counsel and Senior Vice President for Corporate Affairs at Levi Strauss & Co. where she was responsible for legal affairs and overseeing the global brand protection department from 2006 to 2010. From 1996 to 2006, she was a
+partner and assistant general counsel at PricewaterhouseCoopers LLP. 
+Bernard F. Pliska, Vice President, Corporate
+Controller — Mr. Pliska, 49, joined NIKE as Corporate Controller in 1995. He was appointed Vice President, Corporate Controller in 2003. Prior to NIKE, Mr. Pliska was with Price Waterhouse from 1984 to 1995. Mr. Pliska is a
+certified public accountant. 
+John F. Slusher, Vice President, Global Sports Marketing — Mr. Slusher, 42, has
+been employed by NIKE since 1998 with primary responsibilities in global sports marketing. Mr. Slusher was appointed Director of Sports Marketing for the Asia Pacific and Americas Regions in 2006, divisional Vice President, Asia
+Pacific & Americas Sports Marketing in September 2007 and Vice President, Global Sports Marketing in November 2007. Prior to joining NIKE, Mr. Slusher was an attorney at the law firm of O’Melveny & Myers from 1995 to
+1998. 
+Eric D. Sprunk, Vice President, Merchandising and Product — Mr. Sprunk, 47, joined NIKE in 1993. He
+was appointed Finance Director and General Manager of the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General Manager, NIKE Europe Footwear in 1998, and Vice President & General Manager of the Americas in 2000.
+Mr. Sprunk was appointed corporate Vice President, Global Footwear in 2001 and Vice President, Merchandising and Product in 2009. Prior to joining NIKE, Mr. Sprunk was a certified public accountant with Price Waterhouse from 1987 to 1993.
+Hans van Alebeek, Vice President, Global Operations and Technology — Mr. van Alebeek, 45, joined NIKE
+as Director of Operations of Europe in 1999, and was appointed Vice President, Operations & Administration in EMEA in 2001, Vice President, Global Operations in 2003, Vice President, Global Operations & Technology in 2004, and
+Corporate Vice President in November 2005. Prior to joining NIKE, Mr. van Alebeek worked for McKinsey & Company as a management consultant and at N.V. Indivers in business development. 
+Roger S. Wyett, President, Affiliates — Mr. Wyett, 54, joined NIKE in April 2005 as President and Chief Operating
+Officer of the Company’s Hurley brand and was appointed Vice President, Global Apparel in 2006. In October 2007, Mr. Wyett returned to the Company’s Hurley brand as President and Chief Executive Officer, and then in February 2011 was
+appointed President of Affiliates. Mr. Wyett first joined NIKE in 1994, holding a number of management positions in soccer and NIKE Team Sports. From 2000 to 2005, Mr. Wyett was employed by The Walt Disney Company where he was Senior Vice
+President for Global Apparel, Accessories and Footwear, and later promoted to Executive Vice President for Global Sales and Marketing for Consumer Products. 
+Item 1A. 
+Risk Factors 
+Special Note Regarding Forward-Looking Statements and Analyst Reports 
+Certain written and oral statements, other than purely historical information, including estimates, projections, statements relating to
+NIKE’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, made or incorporated by reference from time to time by 
+9 
+Table of Contents 
+NIKE or its representatives in this report, other reports, filings with the Securities and Exchange Commission, press releases, conferences, or otherwise, are “forward-looking
+statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, without limitation, any statement that may
+predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words “believe”, “anticipate”, “expect”, “estimate”, “project”, “will be”, “will
+continue”, “will likely result”, or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and
+uncertainties are detailed from time to time in reports filed by NIKE with the Securities and Exchange Commission, including Forms 8-K, 10-Q, and 10-K, and include, among others, the following: international, national and local general economic and
+market conditions; the size and growth of the overall athletic footwear, apparel, and equipment markets; intense competition among designers, marketers, distributors and sellers of athletic footwear, apparel, and equipment for consumers and
+endorsers; demographic changes; changes in consumer preferences; popularity of particular designs, categories of products, and sports; seasonal and geographic demand for NIKE products; difficulties in anticipating or forecasting changes in consumer
+preferences, consumer demand for NIKE products, and the various market factors described above; difficulties in implementing, operating, and maintaining NIKE’s increasingly complex information systems and controls, including, without
+limitation, the systems related to demand and supply planning, and inventory control; interruptions in data and communications systems; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that
+advance “futures” orders may not be indicative of future revenues due to changes in shipment timing, and the changing mix of futures and at-once orders and order cancellations; the ability of NIKE to sustain, manage or forecast its growth
+and inventories; the size, timing and mix of purchases of NIKE’s products; increases in the cost of materials and energy used to manufacture products, new product development and introduction; the ability to secure and protect trademarks,
+patents, and other intellectual property; performance and reliability of products; customer service; adverse publicity; the loss of significant customers or suppliers; dependence on distributors and licensees; business disruptions; increased costs
+of freight and transportation to meet delivery deadlines; increases in borrowing costs due to any decline in our debt ratings; changes in business strategy or development plans; general risks associated with doing business outside the United States,
+including, without limitation, exchange rate fluctuations, import duties, tariffs, quotas, political and economic instability, and terrorism; changes in government regulations; the impact of, including business and legal developments relating to,
+climate change; liability and other claims asserted against NIKE; the ability to attract and retain qualified personnel; and other factors referenced or incorporated by reference in this report and other reports. 
+The risks included here are not exhaustive. Other sections of this report may include additional factors which could adversely affect
+NIKE’s business and financial performance. Moreover, NIKE operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can
+it assess the impact of all such risk factors on NIKE’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these
+risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. 
+Investors should also be aware that while NIKE does, from time to time, communicate with securities analysts, it is against NIKE’s policy to disclose to them any material non-public information or
+other confidential commercial information. Accordingly, shareholders should not assume that NIKE agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, NIKE has a policy against
+issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of NIKE. 
+Our products face intense competition. 
+NIKE is a consumer products company and the relative popularity of various sports and fitness activities and changing design trends affect the demand for our products. The athletic footwear, apparel, and
+equipment 
+10 
+Table of Contents 
+industry is keenly competitive in the United States and on a worldwide basis. We compete internationally with a significant number of athletic and leisure shoe companies, athletic and leisure
+apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel, and equipment. We also compete with other companies for the production capacity of independent manufacturers that
+produce our products and for import quota capacity. 
+Our competitors’ product offerings, technologies, marketing
+expenditures (including expenditures for advertising and endorsements), pricing, costs of production, and customer service are areas of intense competition. This, in addition to 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. If we do not adequately and timely anticipate and respond to our competitors, our costs may increase or the consumer demand for
+our products may decline significantly. 
+If we are unable to anticipate consumer preferences and develop new products, we may not be
+able to maintain or increase our net revenues and profits. 
+Our success depends on our ability to identify, originate
+and define product trends as well as to anticipate, gauge and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. Our new products may not
+receive consumer acceptance as consumer preferences could shift rapidly to different types of performance or other sports apparel or away from these types of products altogether, and our future success depends in part on our ability to anticipate
+and respond to these changes. If we fail to anticipate accurately and respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, designs, styles and categories, and influencing
+sports and fitness preferences through aggressive marketing, we could experience lower sales, excess inventories and lower profit margins, any of which could have an adverse effect on our results of operations and financial condition. 
+We rely on technical innovation and high quality products to compete in the market for our products. 
+Although design and aesthetics of our products appear to be the most important factor for consumer acceptance of our products, technical
+innovation and quality control in the design of footwear, apparel, and athletic equipment is also essential to the commercial success of our products. Research and development plays a key role in technical innovation. We rely upon specialists in the
+fields of biomechanics, exercise physiology, engineering, industrial design and related fields, as well as research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists, and other
+experts to develop and test cutting edge performance products. While we strive to produce products that help to reduce injury, enhance athletic performance and maximize comfort, if we fail to introduce technical innovation in our products consumer
+demand for our products could decline, and if we experience problems with the quality of our products, we may incur substantial expense to remedy the problems. 
+Failure to continue to obtain high quality endorsers of our products could harm our business. 
+We establish relationships with professional athletes, sports teams and leagues to evaluate, promote, and establish product authenticity with consumers. If certain endorsers were to stop using our
+products contrary to their endorsement agreements, our business could be adversely affected. In addition, actions taken by athletes, teams or leagues associated with our products that harm the reputations of those athletes, teams or leagues could
+also harm our brand image with consumers and, as a result, could have an adverse effect on our sales and financial condition. In addition, poor performance by our endorsers, a failure to continue to correctly identify promising athletes to use and
+endorse our products, or a failure to enter into cost effective endorsement arrangements with prominent athletes and sports organizations could adversely affect our brand and result in decreased sales of our products. 
+11 
+Table of Contents 
+Failure of our contractors or our licensees’ contractors to comply with our code of conduct,
+local laws, and other standards could harm our business. 
+We contract with hundreds of contractors outside of the
+United States to manufacture our products, and we also have license agreements that permit unaffiliated parties to manufacture or contract to manufacture products using our trademarks. We impose, and require our licensees to impose, on those
+contractors a code of conduct and other environmental, health, and safety standards for the benefit of workers. We also require these contractors to comply with applicable standards for product safety. However, from time to time contractors may not
+comply with such standards or applicable local law or our licensees may not require their contractors to comply with such standards or applicable local law. Significant or continuing noncompliance with such standards and laws by one or more
+contractors could harm our reputation or result in a product recall and, as a result, could have an adverse effect on our sales and financial condition. 
+Global capital and credit market conditions, and resulting declines in consumer confidence and spending, could have a material adverse effect on our business, operating results, and financial
+condition. 
+Continuing volatility and disruption in the global capital and credit markets have led to a tightening of
+business credit and liquidity, a contraction of consumer credit, business failures, higher unemployment, and declines in consumer confidence and spending in the United States and internationally. If global economic and financial market
+conditions deteriorate or remain weak for an extended period of time, the following factors could have a material adverse effect on our business, operating results, and financial condition: 
+• 
+Slower consumer spending may result in reduced demand for our products, reduced orders from retailers for our products, order cancellations, lower
+revenues, increased inventories, and lower gross margins. 
+• 
+We may be unable to find suitable investments that are safe, liquid, and provide a reasonable return. This could result in lower interest
+income or longer investment horizons. Disruptions to capital markets or the banking system may also impair the value of investments or bank deposits we currently consider safe or liquid. 
+• 
+We may be unable to access financing in the credit and capital markets at reasonable rates in the event we find it desirable to do so.
+• 
+The failure of financial institution counterparties to honor their obligations to us under credit and derivative instruments could jeopardize our
+ability to rely on and benefit from those instruments. Our ability to replace those instruments on the same or similar terms may be limited under poor market conditions. 
+• 
+We conduct transactions in various currencies, which increase our exposure to fluctuations in foreign currency exchange rates relative to the U.S.
+dollar. Continued volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies could have a significant impact on our reported financial results and condition. 
+• 
+Continued volatility in the markets and prices for commodities and raw materials we use in our products and in our supply chain (such as petroleum)
+could have a material adverse effect on our costs, gross margins, and profitability. 
+• 
+If retailers of our products experience declining revenues, or retailers experience difficulty obtaining financing in the capital and credit markets to
+purchase our products, this could result in reduced orders for our products, order cancellations, inability of retailers to timely meet their payment obligations to us, extended payment terms, higher accounts receivable, reduced cash flows, greater
+expense associated with collection efforts, and increased bad debt expense. 
+• 
+If retailers of our products experience severe financial difficulty, some may become insolvent and cease business operations, which could reduce the
+availability of our products to consumers. 
+12 
+Table of Contents 
+• 
+If contract manufacturers of our products or other participants in our supply chain experience difficulty obtaining financing in the capital and credit
+markets to purchase raw materials or to finance general working capital needs, it may result in delays or non-delivery of shipments of our products. 
+Our business is affected by seasonality, which could result in fluctuations in our operating results and stock price. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly exceeded those in the second and third fiscal
+quarters. However, the mix of product sales may vary considerably from time to time as a result of changes in seasonal and geographic demand for particular types of footwear, apparel and equipment. In addition, our customers may cancel orders,
+change delivery schedules or change the mix of products ordered with minimal notice. As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our results of operations are likely to fluctuate significantly from period
+to period. This seasonality, along with other factors that are beyond our control, including general economic conditions, changes in consumer preferences, weather conditions, availability of import quotas and currency exchange rate fluctuations,
+could adversely affect our business and cause our results of operations to fluctuate. Our operating margins are also sensitive to a number of factors that are beyond our control, including manufacturing and transportation costs, shifts in product
+sales mix, geographic sales trends, and currency exchange rate fluctuations, all of which we expect to continue. Results of operations in any period should not be considered indicative of the results to be expected for any future period. 
+“Futures” orders may not be an accurate indication of our future revenues. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in advance of
+delivery with the commitment that their orders will be delivered within a set period of time at a fixed price. Our futures ordering program allows us to minimize the amount of products we hold in inventory, purchasing costs, the time necessary to
+fill customer orders, and the risk of non-delivery. We report changes in futures orders in our periodic financial reports. Although we believe futures orders are an important indicator of our future revenues, reported futures orders are not
+necessarily indicative of our expectation of changes in revenues for any future period. This is because the mix of orders can shift between advance/futures and at-once orders. In addition, foreign currency exchange rate fluctuations, order
+cancellations, returns, 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 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. 
+Our “futures” ordering program does not prevent excess inventories or inventory shortages, which could result in decreased operating margins and harm to our business. 
+We purchase products from manufacturers outside of our futures ordering program and in advance of customer orders, which we hold in
+inventory and resell to customers. There is a risk we may be unable to sell excess products ordered from manufacturers. Inventory levels in excess of customer demand may result in inventory write-downs, and the sale of excess inventory at discounted
+prices could significantly impair our brand image and have an adverse effect on our operating results and financial condition. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply products we
+require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer and distributor relationships, and diminish brand loyalty. 
+The difficulty in forecasting demand also makes it difficult to estimate our future results of operations and financial condition from
+period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in advance. 
+13 
+Table of Contents 
+We may be adversely affected by the financial health of our retailers. 
+We extend credit to our customers based on an assessment of a customer’s financial condition, generally without requiring collateral.
+To assist in the scheduling of production and the shipping of seasonal products, we offer customers the ability to place orders five to six months ahead of delivery under our “futures” ordering program. These advance orders may be
+cancelled, and the risk of cancellation may increase when dealing with financially ailing retailers or retailers struggling with economic uncertainty. In the past, some customers have experienced financial difficulties, which have had an adverse
+effect on our business. As a result, retailers may be more cautious than usual with orders as a result of weakness in the retail economy. A slowing economy in our key markets could have an adverse effect on the financial health of our customers,
+which in turn could have an adverse effect on our results of operations and financial condition. In addition, product sales are dependent in part on high quality merchandising and an appealing store environment to attract consumers, which requires
+continuing investments by retailers. Retailers who experience financial difficulties may fail to make such investments or delay them, resulting in lower sales and orders for our products. 
+Consolidation of retailers or concentration of retail market share among a few retailers may increase and concentrate our credit risk, and impair our ability to sell our products.
+The athletic footwear, apparel, and equipment retail markets in some countries are dominated by a few large athletic
+footwear, apparel, and equipment retailers with many stores. These retailers have in the past increased their market share and may continue to do so in the future by expanding through acquisitions and construction of additional stores. These
+situations concentrate our credit risk with a relatively small number of retailers, and, if any of these retailers were to experience a shortage of liquidity, it would increase the risk that their outstanding payables to us may not be paid. In
+addition, increasing market share concentration among one or a few retailers in a particular country or region increases the risk that if any one of them substantially reduces their purchases of our products, we may be unable to find a sufficient
+number of other retail outlets for our products to sustain the same level of sales and revenues. 
+Failure to adequately protect our
+intellectual property rights could adversely affect our business. 
+We utilize trademarks on nearly
+all of our products and believe that having distinctive marks that are readily identifiable is an important factor in creating a market for our goods, in identifying us, 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 over 150 countries. In addition, we own many other trademarks that we
+utilize in marketing our products. We believe that our trademarks, patents, and other intellectual property rights are important to our brand, our success, and our competitive position. We periodically discover products that are counterfeit
+reproductions of our products or that otherwise infringe on our intellectual property rights. If we are unsuccessful in challenging a party’s products on the basis of trademark or design or utility patent infringement, continued sales of these
+products could adversely affect our sales and our brand and result in the shift of consumer preference away from our products. The actions we take to establish and protect trademarks, patents, and other intellectual property rights may not be
+adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as violations of proprietary rights. 
+In addition, the laws of certain foreign countries may not protect intellectual property rights to the same extent as the laws of the United States. We may face significant expenses and liability in
+connection with the protection of our intellectual property rights outside the United States, and if we are unable to successfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition may be
+adversely affected. 
+We are subject to periodic litigation and other regulatory proceedings, which could result in unexpected expense of
+time and resources. 
+From time to time we are called upon to defend ourselves against lawsuits and regulatory actions
+relating to our business. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately 
+14 
+Table of Contents 
+predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on our business, financial condition and results of operations. In addition, any
+significant litigation in the future, regardless of its merits, could divert management’s attention from our operations and result in substantial legal fees. 
+Our international operations involve inherent risks which could result in harm to our business. 
+Virtually all of our athletic footwear and apparel is manufactured outside of the United States, and the majority of our products are sold outside of the United States. Accordingly, we are subject to the
+risks generally associated with global trade and doing business abroad, which include foreign laws and regulations, varying consumer preferences across geographic regions, political unrest, disruptions or delays in cross-border shipments, and
+changes in economic conditions in countries in which we manufacture or sell products. In addition, disease outbreaks, terrorist acts and military conflict have increased the risks of doing business abroad. These factors, among others, could affect
+our ability to manufacture products or procure materials, our ability to import products, our ability to sell products in international markets, and our cost of doing business. If any of these or other factors make the conduct of business in a
+particular country undesirable or impractical, our business could be adversely affected. In addition, many of our imported products are subject to duties, tariffs, or quotas that affect the cost and quantity of various types of goods imported into
+the United States and other countries. Any country in which our products are produced or sold may eliminate, adjust or impose new quotas, duties, tariffs, safeguard measures, anti-dumping duties, cargo restrictions to prevent terrorism, restrictions
+on the transfer of currency, climate change legislation, product safety regulations or other charges or restrictions, any of which could have an adverse effect on our results of operations and financial condition. 
+Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability. 
+We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective income tax rate in the future could
+be adversely affected by a number of factors, including: changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, the outcome of income tax
+audits in various jurisdictions around the world, and any repatriation of non-US earnings for which we have not previously provided for U.S. taxes. We regularly assess all of these matters to determine the adequacy of our tax provision, which is
+subject to significant discretion. 
+Currency exchange rate fluctuations could result in higher costs and decreased margins and earnings.
+A majority of our products are sold outside of the United States. As a result, we conduct transactions in various
+currencies, which increase our exposure to fluctuations in foreign currency exchange rates relative to the U.S. dollar. Our international revenues and expenses generally are derived from sales and operations in foreign currencies, and these revenues
+and expenses could be affected by currency fluctuations, including amounts recorded in foreign currencies and translated into U.S. dollars for consolidated financial reporting. Currency exchange rate fluctuations could also disrupt the business of
+the independent manufacturers that produce our products by making their purchases of raw materials more expensive and more difficult to finance. Foreign currency fluctuations could have an adverse effect on our results of operations and financial
+condition. 
+Our hedging activities (see Note 17 — Risk Management and Derivatives in the accompanying Notes to the
+Consolidated Financial Statements ), which are designed to minimize and delay, but not to completely eliminate, the effects of foreign currency fluctuations may not sufficiently mitigate the impact of foreign currencies on our financial
+results. Factors that could affect the effectiveness of our hedging activities include accuracy of sales forecasts, volatility of currency markets, and the availability of hedging instruments. Since the hedging activities are designed to minimize
+volatility, they not only reduce the negative impact of a stronger U.S. dollar, but they 
+15 
+Table of Contents 
+also reduce the positive impact of a weaker U.S. dollar. Our future financial results could be significantly affected by the value of the U.S. dollar in relation to the foreign currencies in
+which we conduct business. The degree to which our financial results are affected for any given time period will depend in part upon our hedging activities. 
+Our products are subject to risks associated with overseas sourcing, manufacturing, and financing. 
+The principal materials used in our apparel products — 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 — are available in countries where our manufacturing takes place. The principal materials used in our footwear products — natural and synthetic rubber, plastic compounds, foam cushioning materials,
+nylon, leather, canvas and polyurethane films — are also locally available to manufacturers. NIKE contractors and suppliers buy raw materials in bulk. 
+There could be a significant disruption in the supply of fabrics or raw materials from current sources or, in the event of a disruption, we might not be able to locate alternative suppliers of materials
+of comparable quality at an acceptable price, or at all. In addition, we cannot be certain that our unaffiliated manufacturers will be able to fill our orders in a timely manner. If we experience significant increases in demand, or need to replace
+an existing manufacturer, there can be no assurance that additional supplies of fabrics or raw materials or additional manufacturing capacity will be available when required on terms that are acceptable to us, or at all, or that any supplier or
+manufacturer would allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand existing or find new manufacturing or sources of materials, we may encounter delays in production and added costs as
+a result of the time it takes to train suppliers and manufacturers in our methods, products, quality control standards, and labor, health and safety standards. Any delays, interruption or increased costs in the supply of materials or manufacture of
+our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower revenues and net income both in the short and long-term. 
+Because independent manufacturers manufacture a majority of our products outside of our principal sales markets, our products must be
+transported by third parties over large geographic distances. Delays in the shipment or delivery of our products due to the availability of transportation, work stoppages, port strikes, infrastructure congestion, or other factors, and costs and
+delays associated with consolidating or transitioning between manufacturers, could adversely impact our financial performance. In addition, manufacturing delays or unexpected demand for our products may require us to use faster, but more expensive,
+transportation methods such as aircraft, which could adversely affect our profit margins. The cost of fuel is a significant component in manufacturing and transportation costs, so increases in the price of petroleum products can adversely affect our
+profit margins. 
+In addition, Sojitz America performs significant import-export financing services for most of the NIKE Brand
+products sold outside of the United States, Europe, Middle East, Africa, and Japan, excluding products produced and sold in the same country. 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 outside of the United States, Europe, Middle East, Africa, and Japan. Such a disruption could result in cancelled orders that would adversely affect
+sales and profitability. 
+Natural disasters could negatively impact our operating results and financial condition. The
+March 11, 2011 Japanese earthquake and resulting tsunami negatively affected our Japanese revenue and profits for the fourth quarter ended May 31, 2011, and we expect those events to continue to adversely affect us during fiscal year 2012.
+Natural disasters such as earthquakes, hurricanes, tsunamis or other adverse weather and climate conditions, whether
+occurring in the U.S. or abroad, and the consequences and effects thereof, including energy shortages and public health issues, could disrupt our operations, or the operations of our vendors and other suppliers, or result in economic instability
+that may negatively impact our operating results and financial condition. 
+16 
+Table of Contents 
+On March 11, 2011, Japan experienced a significant earthquake and resulting
+tsunami. The implications from ongoing events and widespread damage to the nation’s infrastructure, consumer confidence and overall economy remain unclear. Our revenues and profits for our Japan businesses were negatively impacted
+during the fourth quarter of fiscal year 2011, and although we cannot fully assess the future financial impact of these ongoing events, we do expect our Japanese businesses to continue to be adversely impacted throughout fiscal 2012. 
+Our success depends on our global distribution facilities. 
+We distribute our products to customers directly from the factory and through distribution centers located throughout the world. Our ability to meet customer expectations, manage inventory, complete sales
+and achieve objectives for operating efficiencies depends on the proper operation of our distribution facilities, the development or expansion of additional distribution capabilities, and the timely performance of services by third parties
+(including those involved in shipping product to and from our distribution facilities). Our distribution facilities could be interrupted by information technology problems and disasters such as earthquakes or fires. Any significant failure in our
+distribution facilities could result in an adverse affect on our business. We maintain business interruption insurance, but it may not adequately protect us from adverse effects that could be caused by significant disruptions in our distribution
+facilities. 
+We rely significantly on information technology to operate our business, including our supply chain and retail operations,
+and any failure, inadequacy, interruption or security failure of that technology could harm our reputation or our ability to effectively operate our business. 
+We are heavily dependent on information technology systems across our supply chain, including product design, production, forecasting, ordering, manufacturing, transportation, sales, and distribution. Our
+ability to effectively manage and maintain our inventory and to ship products to customers on a timely basis depends significantly on the reliability of these supply chain systems. Over the last several years, as part of the ongoing initiative to
+upgrade our worldwide supply chain, we have implemented new systems in all of our geographical regions in which we operate. Over the next few years, we will work to continue to enhance the systems and related processes in our global operations. The
+failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, or a breach in security of these systems could cause delays in product fulfillment and reduced efficiency of our operations, could
+require significant capital investments to remediate the problem, and may have an adverse effect on our results of operations and financial condition. 
+Hackers and data thieves are increasingly sophisticated and operate large scale and complex automated attacks. Any breach of our network may result in the loss of valuable business data, our
+customers’ or employees’ personal information or a disruption of our business, which could give rise to unwanted media attention, damage our customer relationships and reputation and result in lost sales, fines or lawsuits. In addition, we
+must comply with increasingly complex regulatory standards enacted to protect this business and personal data. An inability to maintain compliance with these regulatory standards could subject us to legal risks. 
+Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns.
+From time to time, we may invest in business infrastructure, acquisitions of new businesses, and expansion of existing
+businesses, such as our retail operations, which require substantial cash investments and management attention. We believe cost effective investments are essential to business growth and profitability. However, significant investments are subject to
+typical risks and uncertainties inherent in acquiring or expanding a business. The failure of any significant investment to provide the returns or profitability we expect could have a material adverse effect on our financial results and divert
+management attention from more profitable business operations. 
+17 
+Table of Contents 
+We depend on key personnel, the loss of whom would harm our business. 
+Our future success will depend in part on the continued service of key executive officers and personnel. The loss of the services of any
+key individual could harm us. Our future success also depends on our ability to identify, attract and retain additional qualified personnel. Competition for employees in our industry is intense and we may not be successful in attracting and
+retaining such personnel. 
+The sale of a large number of shares held by our Chairman could depress the market price of our common stock.
+Philip H. Knight, Co-founder and Chairman of our Board of Directors, beneficially owns over 74.6% of our Class A
+Common Stock. If all of his Class A Common Stock were converted into Class B Common Stock, Mr. Knight would own over 17.8% of our Class B Common Stock. These shares are available for resale, subject to the requirements of the U.S.
+securities laws. The sale or prospect of the sale of a substantial number of these shares could have an adverse effect on the market price of our common stock. 
+Anti-takeover provisions may impair an acquisition of the Company or reduce the price of our common stock. 
+There are provisions of our articles of incorporation and Oregon law that are intended to protect shareholder interests by providing the Board of Directors a means to attempt to deny coercive takeover
+attempts or to negotiate with a potential acquirer in order to obtain more favorable terms. Such provisions include a control share acquisition statute, a freezeout statute, two classes of stock that vote separately on certain issues, and the fact
+that holders of Class A Common Stock elect three-fourths of the Board of Directors rounded down to the next whole number. However, such provisions could discourage, delay or prevent an unsolicited merger, acquisition or other change in control
+of our company that some shareholders might believe to be in their best interests or in which shareholders might receive a premium for their common stock over the prevailing market price. These provisions could also discourage proxy contests for
+control of the Company. 
+We may fail to meet analyst expectations, which could cause the price of our stock to decline.
+Our Class B Common Stock is traded publicly, and at any given time various securities analysts follow our financial
+results and issue reports on us. These reports include information about our historical financial results as well as the analysts’ estimates of our future performance. The analysts’ estimates are based upon their own opinions and are often
+different from our estimates or expectations. If our operating results are below the estimates or expectations of public market analysts and investors, our stock price could decline. In the past, securities class action litigation has been brought
+against NIKE and other companies following a decline in the market price of their securities. If our stock price is volatile, we may become involved in this type of litigation in the future. Any litigation could result in substantial costs and a
+diversion of management’s attention and resources that are needed to successfully run our business. 
+Item 1B. 
+Unresolved Staff Comments 
+Not applicable. 
+Item 2. 
+Properties 
+The following is a summary of principal properties owned or leased by NIKE. 
+The
+NIKE World Campus, owned by NIKE and located in Beaverton, Oregon, USA, is a 176 acre facility of 18 buildings which functions as our world headquarters and is occupied by approximately 6,000 employees engaged in management, research, design,
+development, marketing, finance, and other administrative functions from nearly all of our divisions. We also lease various office facilities in the surrounding metropolitan area. We 
+18 
+Table of Contents 
+lease a similar, but smaller, administrative facility in Hilversum, the Netherlands, which serves as the headquarters for the Western Europe and Central & Eastern Europe geographies. There
+are three significant distribution and customer service facilities for NIKE Brand products, including NIKE Golf, in the United States. All three of them are located in Memphis, Tennessee, two of which are owned and one of which is leased. NIKE also
+operates and leases one facility in Memphis, Tennessee for NIKE Brand product returns. NIKE Brand apparel and equipment are also shipped from our Foothill Ranch, California distribution center, which we lease. Cole Haan also operates a
+distribution facility in Greenland, New Hampshire, which we lease. Smaller leased distribution facilities for other brands and non-NIKE Brand businesses are located in various parts of the United States. We also own or lease distribution and
+customer service facilities in many parts of the world, the most significant of which are the distribution facilities located in Tomisatomachi, Japan, Laakdal, Belgium, and Taicang, China, all of which we own. 
+We manufacture Air-Sole cushioning materials and components at NIKE IHM, Inc. manufacturing facilities located in Beaverton, Oregon and
+St. Charles, Missouri, which we own. We also manufacture and sell small amounts of various plastic products to other manufacturers through NIKE IHM, Inc. 
+Aside from the principal properties described above, we lease three production offices outside the United States, over 100 sales offices and showrooms worldwide, and approximately 65 administrative
+offices worldwide. We lease more than 700 retail stores worldwide, which consist primarily of factory outlet stores. See “United States Market” and “International Markets” starting on pages 2 and 3 of this Report, respectively.
+Our leases expire at various dates through the year 2035. 
+Item 3. 
+Legal Proceedings 
+There are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or of which any of our property is the subject. 
+Item 4. 
+Reserved 
+19 
+Table of Contents 
+PART II 
+Item 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+NIKE’s Class B Common Stock is listed on the New York Stock Exchange and trades under the symbol NKE. At July 18, 2011,
+there were 16,400 holders of record of our Class B Common Stock and 19 holders of record of our Class A Common Stock. These figures do not include beneficial owners who hold shares in nominee name. The Class A Common Stock is not
+publicly traded but each share is convertible upon request of the holder into one share of Class B Common Stock. The following tables set forth, for each of the quarterly periods indicated, the high and low sales prices for the Class B Common
+Stock as reported on the New York Stock Exchange Composite Tape and dividends declared on the Class A and Class B Common Stock. 
+Fiscal 2011 (June 1, 2010 — May 31, 2011) 
+High 
+Low 
+Dividends 
+Declared 
+First Quarter 
+$ 
+74.94 
+$ 
+67.21 
+$ 
+0.27 
+Second Quarter 
+86.53 
+72.13 
+0.31 
+Third Quarter 
+92.30 
+81.46 
+0.31 
+Fourth Quarter 
+89.88 
+75.45 
+0.31 
+Fiscal 2010 (June 1, 2009 — May 31, 2010) 
+High 
+Low 
+Dividends 
+Declared 
+First Quarter 
+$ 
+59.95 
+$ 
+50.16 
+$ 
+0.25 
+Second Quarter 
+66.35 
+53.22 
+0.27 
+Third Quarter 
+67.85 
+60.89 
+0.27 
+Fourth Quarter 
+78.55 
+66.99 
+0.27 
+The following table presents a summary of share repurchases made by NIKE during the quarter ended
+May 31, 2011 under the four-year, $5 billion share repurchase program approved by our Board of Directors in September 2008. 
+Period 
+Total Number of 
+Shares Purchased 
+Average Price Paid 
+per Share 
+Total Number of Shares 
+Purchased as Part of 
+Publicly Announced 
+Plans or Programs 
+Maximum Dollar Value 
+of Shares that May
+Yet 
+Be Purchased Under the 
+Plans or Programs 
+(In millions) 
+March 1 — March 31, 2011 
+2,800,000 
+$ 
+81.76 
+2,800,000 
+$ 
+3,052 
+April 1 — April 30, 2011 
+2,650,000 
+$ 
+78.92 
+2,650,000 
+$ 
+2,843 
+May 1 — May 31, 2011 
+2,011,100 
+$ 
+83.77 
+2,011,100 
+$ 
+2,675 
+7,461,100 
+$ 
+81.29 
+7,461,100 
+20 
+Table of Contents 
+Performance Graph 
+The following graph demonstrates a five-year comparison of cumulative total returns for NIKE’s Class B Common Stock, the Standard & Poor’s 500 Stock Index, the Standard &
+Poor’s Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. The graph assumes an investment of $100 on May 31, 2006 in each of our Class B Common Stock, and the stocks comprising the
+Standard & Poor’s 500 Stock Index, the Standard & Poor’s Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. Each of the indices assumes that all dividends were reinvested.
+COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG NIKE, INC.; S&P 500 
+INDEX; S&P APPAREL, ACCESSORIES & LUXURY GOODS INDEX; 
+AND THE DOW JONES U.S. FOOTWEAR INDEX 
+The Dow Jones U.S. Footwear Index consists of NIKE, Deckers Outdoor Corp., Timberland Co., Wolverine
+World Wide, Inc., Iconix Brand Group Inc., and Skechers US, Inc. Because NIKE is part of the Dow Jones U.S. Footwear Index, the price and returns of NIKE stock have a substantial effect on this index. The Standard & Poor’s Apparel,
+Accessories & Luxury Goods Index consists of VF Corp., Coach, Inc., and Polo Ralph Lauren Corporation. The Dow Jones U.S. Footwear Index and the Standard & Poor’s Apparel, Accessories, and Luxury Goods Index include companies
+in two major lines of business in which the Company competes. The indices do not encompass all of the Company’s competitors, nor all product categories and lines of business in which the Company is engaged. 
+The stock performance shown on the performance graph above is not necessarily indicative of future performance. The Company will not make
+nor endorse any predictions as to future stock performance. 
+The performance graph above is being furnished solely to
+accompany this Report pursuant to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the
+Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. 
+21 
+Table of Contents 
+Item 6. 
+Selected Financial Data 
+Financial History 
+2011 
+2010 
+2009 
+2008 
+2007 
+(In millions, except per share data and financial ratios) 
+Year Ended May 31, 
+Revenues 
+$ 
+20,862 
+$ 
+19,014 
+$ 
+19,176 
+$ 
+18,627 
+$ 
+16,326 
+Gross margin 
+9,508 
+8,800 
+8,604 
+8,387 
+7,161 
+Gross margin % 
+45.6 
+% 
+46.3 
+% 
+44.9 
+% 
+45.0 
+% 
+43.9 
+% 
+Restructuring charges 
+— 
+— 
+195 
+— 
+— 
+Goodwill impairment 
+— 
+— 
+199 
+— 
+— 
+Intangible and other asset impairment 
+— 
+— 
+202 
+— 
+— 
+Net income 
+2,133 
+1,907 
+1,487 
+1,883 
+1,492 
+Basic earnings per common share 
+4.48 
+3.93 
+3.07 
+3.80 
+2.96 
+Diluted earnings per common share 
+4.39 
+3.86 
+3.03 
+3.74 
+2.93 
+Weighted average common shares outstanding 
+475.5 
+485.5 
+484.9 
+495.6 
+503.8 
+Diluted weighted average common shares outstanding 
+485.7 
+493.9 
+490.7 
+504.1 
+509.9 
+Cash dividends declared per common share 
+1.20 
+1.06 
+0.98 
+0.875 
+0.71 
+Cash flow from operations 
+1,812 
+3,164 
+1,736 
+1,936 
+1,879 
+Price range of common stock 
+High 
+92.30 
+78.55 
+70.28 
+70.60 
+57.12 
+Low 
+67.21 
+50.16 
+38.24 
+51.50 
+37.76 
+At May 31, 
+Cash and equivalents 
+$ 
+1,955 
+$ 
+3,079 
+$ 
+2,291 
+$ 
+2,134 
+$ 
+1,857 
+Short-term investments 
+2,583 
+2,067 
+1,164 
+642 
+990 
+Inventories 
+2,715 
+2,041 
+2,357 
+2,438 
+2,122 
+Working capital 
+7,339 
+7,595 
+6,457 
+5,518 
+5,493 
+Total assets 
+14,998 
+14,419 
+13,250 
+12,443 
+10,688 
+Long-term debt 
+276 
+446 
+437 
+441 
+410 
+Redeemable Preferred Stock 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+Shareholders’ equity 
+9,843 
+9,754 
+8,693 
+7,825 
+7,025 
+Year-end stock price 
+84.45 
+72.38 
+57.05 
+68.37 
+56.75 
+Market capitalization 
+39,523 
+35,032 
+27,698 
+33,577 
+28,472 
+Financial Ratios: 
+Return on equity 
+21.8 
+% 
+20.7 
+% 
+18.0 
+% 
+25.4 
+% 
+22.4 
+% 
+Return on assets 
+14.5 
+% 
+13.8 
+% 
+11.6 
+% 
+16.3 
+% 
+14.5 
+% 
+Inventory turns 
+4.8 
+4.6 
+4.4 
+4.5 
+4.4 
+Current ratio at May 31 
+2.9 
+3.3 
+3.0 
+2.7 
+3.1 
+Price/Earnings ratio at May 31 
+19.2 
+18.8 
+18.8 
+18.3 
+19.4 
+22 
+Table of Contents 
+Selected Quarterly Financial Data 
+1st Quarter 
+2nd Quarter 
+3rd Quarter 
+4th Quarter 
+2011 
+2010 
+2011 
+2010 
+2011 
+2010 
+2011 
+2010 
+(Unaudited) 
+(In millions, except per share data) 
+Revenues 
+$ 
+5,175 
+$ 
+4,799 
+$ 
+4,842 
+$ 
+4,405 
+$ 
+5,079 
+$ 
+4,733 
+$ 
+5,766 
+$ 
+5,077 
+Gross margin 
+2,434 
+2,216 
+2,193 
+1,960 
+2,327 
+2,218 
+2,554 
+2,406 
+Gross margin % 
+47.0 
+% 
+46.2 
+% 
+45.3 
+% 
+44.5 
+% 
+45.8 
+% 
+46.9 
+% 
+44.3 
+% 
+47.4 
+% 
+Net income 
+559 
+513 
+457 
+375 
+523 
+496 
+594 
+522 
+Basic earnings per common share 
+1.17 
+1.06 
+0.96 
+0.77 
+1.10 
+1.02 
+1.27 
+1.08 
+Diluted earnings per common share 
+1.14 
+1.04 
+0.94 
+0.76 
+1.08 
+1.01 
+1.24 
+1.06 
+Weighted average common shares outstanding 
+479.6 
+485.8 
+477.9 
+487.2 
+475.3 
+484.4 
+469.3 
+484.4 
+Diluted weighted average common shares outstanding 
+488.6 
+491.6 
+487.6 
+494.5 
+485.5 
+492.3 
+478.7 
+493.9 
+Cash dividends declared per common share 
+0.27 
+0.25 
+0.31 
+0.27 
+0.31 
+0.27 
+0.31 
+0.27 
+Price range of common stock 
+High 
+74.94 
+59.95 
+86.53 
+66.35 
+92.30 
+67.85 
+89.88 
+78.55 
+Low 
+67.21 
+50.16 
+72.13 
+53.22 
+81.46 
+60.89 
+75.45 
+66.99 
+Item 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+NIKE designs, develops, markets and sells high quality footwear, apparel, equipment and accessory products worldwide. We are the largest
+seller of athletic footwear and apparel in the world. We sell our products to retail accounts, through NIKE-owned retail stores and internet sales, which we refer to as our “Direct to Consumer” operations, and through a mix of independent
+distributors and licensees, worldwide. Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear, apparel, equipment and accessories businesses. Our strategy is to achieve long-term revenue growth
+by creating innovative, “must have” products, building deep personal consumer connections with our brands, and delivering compelling retail presentation and experiences. 
+In addition to achieving long-term revenue growth, we continue to strive to deliver shareholder value by driving operational excellence
+in several key areas: 
+• 
+Making our supply chain a competitive advantage through operational discipline, 
+• 
+Reducing product costs through a continued focus on lean manufacturing and product design that strives to eliminate waste,
+• 
+Improving selling and administrative expense productivity by focusing on investments that drive economic returns in the form of incremental revenue and
+gross margin, and leveraging existing infrastructure across our portfolio of brands to eliminate duplicative costs, 
+• 
+Improving working capital efficiency, and 
+• 
+Deploying capital effectively to create value for our shareholders. 
+Through execution of this strategy, our long-term financial goals continue to be: 
+• 
+High single-digit revenue growth, 
+• 
+Mid-teens earnings per share growth, 
+• 
+Increased return on invested capital and accelerated cash flows, and 
+• 
+Consistent results through effective management of our diversified portfolio of businesses. 
+23 
+Table of Contents 
+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. 
+Our fiscal 2011 results demonstrated our continued focus toward meeting our financial goals, while positioning
+ourselves for sustainable, profitable long-term growth. Despite the uncertain macroeconomic environment in fiscal 2011, we delivered record high revenues and diluted earnings per share. Our revenues grew 10% to $20.9 billion, net income increased
+12% to $2.1 billion, and we delivered diluted earnings per share of $4.39, a 14% increase from fiscal 2010. 
+Income before
+income taxes increased 13% for fiscal 2011 primarily as a result of the increase in revenues and leverage on selling and administrative expense, which more than offset a decrease in gross margin percentage. The increase in revenues is reflective of
+increased demand for NIKE Brand footwear and apparel products across most businesses, particularly in the North America, Emerging Markets and Greater China geographies. Demand for our NIKE Brand footwear and apparel was fueled by our innovative
+products as well as strong category focused retail presentations. The decrease in gross margin percentage was primarily driven by higher product input costs, increased transportation expenses and a lower mix of licensee revenue as certain markets
+within our Other Businesses transitioned to NIKE, Inc. owned markets. These factors more than offset the positive impact from the growth and expanding profitability of our NIKE Brand Direct to Consumer business and our ongoing product cost reduction
+initiatives. 
+Net income for fiscal 2011 was negatively impacted by a year-over-year increase of 80 basis points in our
+effective tax rate, driven primarily by an increase in the percentage of total pre-tax income earned from operations in the United States. The United States statutory tax rate is generally higher than the tax rate on operations outside the United
+States. 
+For the year, diluted earnings per share grew at a higher rate than net income due to a 2% decrease in the weighted
+average number of diluted common shares outstanding driven by our share repurchases during fiscal 2011. While we increased the use of working capital in fiscal 2011 to support the growth of our businesses, we returned larger amounts of cash to our
+shareholders through higher dividends and increased share repurchases compared to fiscal 2010. 
+While we continue to believe
+that the Company is well positioned from a business and financial perspective, our future performance is subject to the inherent uncertainty presented by volatile macroeconomic conditions that may have an impact on our operations around the world.
+Our future performance is subject to our continued ability to take appropriate actions to respond to these conditions. 
+24 
+Table of Contents 
+Results of Operations 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% 
+Change 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% 
+Change 
+(In millions, except per share data) 
+Revenues 
+$ 
+20,862 
+$ 
+19,014 
+10 
+% 
+$ 
+19,176 
+-1 
+% 
+Cost of sales 
+11,354 
+10,214 
+11 
+% 
+10,572 
+-3 
+% 
+Gross margin 
+9,508 
+8,800 
+8 
+% 
+8,604 
+2 
+% 
+Gross margin % 
+45.6 
+% 
+46.3 
+% 
+44.9 
+% 
+Demand creation expense 
+2,448 
+2,356 
+4 
+% 
+2,352 
+0 
+% 
+Operating overhead expense 
+4,245 
+3,970 
+7 
+% 
+3,798 
+5 
+% 
+Total selling and administrative expense 
+6,693 
+6,326 
+6 
+% 
+6,150 
+3 
+% 
+% of Revenues 
+32.1 
+% 
+33.3 
+% 
+32.1 
+% 
+Restructuring charges 
+— 
+— 
+— 
+195 
+— 
+Goodwill impairment 
+— 
+— 
+— 
+199 
+— 
+Intangible and other asset impairment 
+— 
+— 
+— 
+202 
+— 
+Income before income taxes 
+2,844 
+2,517 
+13 
+% 
+1,957 
+29 
+% 
+Net income 
+2,133 
+1,907 
+12 
+% 
+1,487 
+28 
+% 
+Diluted earnings per share 
+4.39 
+3.86 
+14 
+% 
+3.03 
+27 
+% 
+Consolidated Operating Results 
+Revenues 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% 
+Change 
+FY11
+vs. 
+FY10 
+% Change 
+Excluding 
+Currency 
+Changes (1) 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% 
+Change 
+FY10
+vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes (1) 
+(In millions) 
+Revenues 
+$ 
+20,862 
+$ 
+19,014 
+10 
+% 
+10 
+% 
+$ 
+19,176 
+-1 
+% 
+-2 
+% 
+(1) 
+Results have been restated using constant exchange rates for the comparative period to enhance the visibility of the underlying business trends
+excluding the impact of foreign currency exchange rate fluctuations. 
+Fiscal 2011 Compared to Fiscal 2010
+On both a reported and currency neutral basis, revenues for NIKE, Inc. grew 10% for fiscal 2011, driven by increases in
+revenues for both the NIKE Brand and our Other Businesses. On a currency neutral basis, revenues for the NIKE Brand increased 10% for fiscal 2011, while revenues for our Other Businesses increased 8%. Excluding the effects of changes in currency
+exchange rates, every NIKE Brand geography except Japan delivered higher revenues for fiscal 2011, led by North America, which contributed approximately 5 percentage points to the NIKE Brand revenue increase. The Emerging Markets and Greater China
+contributed approximately 3 and 2 percentage points to the NIKE Brand revenue growth, respectively. 
+By product group, NIKE
+Brand footwear and apparel revenue increased 11% and 9%, respectively, while NIKE Brand equipment revenues declined 2% during fiscal 2011. Fueling the growth of our NIKE Brand footwear business was the increased demand in our performance products,
+including the NIKE Lunar and Free technologies which are used across multiple categories. The increase in NIKE Brand footwear revenue for fiscal 2011 was attributable to a high single-digit percentage increase in unit sales along with a low
+single-digit percentage increase in the average selling price per pair. The increase in unit sales was primarily driven by double-digit percentage growth in Running, Men’s Training, Action Sports and Women’s Training products, while the
+increase in average selling price per pair was primarily driven by price increases on selected products 
+25 
+Table of Contents 
+and fewer close-outs as a percentage of total sales. For NIKE Brand apparel, the increase in revenue for fiscal 2011 was primarily driven by a low double-digit percentage increase in unit sales
+attributable to strong category presentations and improved product lines, while the average selling price per unit was relatively flat. The increase in unit sales was driven by increased demand in all key categories. 
+While wholesale revenues remain the largest component of overall NIKE Brand revenues, we continue to see growth in revenue through our
+Direct to Consumer channels. Our NIKE Brand Direct to Consumer operations include NIKE owned in-line and factory stores, as well as online sales through NIKE owned websites. For fiscal 2011, Direct to Consumer channels represented approximately 16%
+of our total NIKE Brand revenues compared to 15% in fiscal 2010. On a currency neutral basis, Direct to Consumer revenues grew 16% for fiscal 2011 as we continue to expand our store network, increase comparable store sales and build our e-commerce
+business. Comparable store sales grew 11% for fiscal 2011. Comparable store sales include revenues from NIKE owned in-line and factory stores for which all three of the following requirements have been met: the store has been open at least one year,
+square footage has not changed by more than 15% within the past year, and the store has not been permanently repositioned within the past year. 
+Revenues for our Other Businesses consist of results from our affiliate brands; Cole Haan, Converse, Hurley and Umbro; and NIKE Golf. Excluding the impact of currency changes, revenues for these
+businesses increased by 8% in fiscal 2011, reflecting double-digit percentage revenue growth at Converse, Cole Haan and Hurley, and a low single-digit growth at Umbro, which more than offset a mid single-digit revenue decline at NIKE Golf.
+Fiscal 2010 Compared to Fiscal 2009 
+Excluding the effects of changes in currency exchange rates, revenues for NIKE, Inc. declined 2%, driven primarily by a 2% decline in revenues for the NIKE Brand. All of our geographies delivered lower
+revenues with the exception of Emerging Markets, reflecting a challenging economic environment across most markets, most notably in our Western Europe and Central & Eastern Europe geographies. By product group, revenues for our worldwide NIKE
+Brand footwear business were down 1% compared to the prior year. Worldwide NIKE Brand apparel and equipment revenues declined 5% and 7%, respectively. Our Direct to Consumer operations represented approximately 15% of our total NIKE Brand revenues
+in fiscal 2010 as compared to 13% in fiscal 2009. 
+Excluding the impact of currency changes, revenues for our Other Businesses
+increased by 4% for fiscal 2010, driven by increased revenues at Converse, Umbro and Hurley, which more than offset revenue declines at NIKE Golf and Cole Haan. 
+Futures Orders 
+Futures and advance orders for NIKE Brand footwear and
+apparel scheduled for delivery from June through November 2011 were 15% higher than the orders reported for the comparable prior year period. This futures and advance order amount is calculated based upon our forecast of the actual exchange rates
+under which our revenues will be translated during this period, which approximate current spot rates. Excluding the impact of currency changes, futures orders increased 12%, primarily driven by a high single-digit percentage increase in unit
+sales volume and a low single-digit percentage increase in average price per unit for both footwear and apparel products. 
+By
+geography, futures orders growth was as follows: 
+Reported Futures Orders 
+Growth 
+Futures Orders 
+Excluding Currency Changes (1) 
+North America 
++14 
+% 
++14 
+% 
+Western Europe 
++11 
+% 
++1 
+% 
+Central & Eastern Europe 
++13 
+% 
++10 
+% 
+Greater China 
++24 
+% 
++17 
+% 
+Japan 
+-13 
+% 
+-6 
+% 
+Emerging Markets 
++25 
+% 
++23 
+% 
+Total NIKE Brand Futures Orders 
++15 
+% 
++12 
+% 
+26 
+Table of Contents 
+(1) 
+Growth rates have been restated using constant exchange rates for the comparative period to enhance the visibility of the underlying business trends
+excluding the impact of foreign currency exchange rate fluctuations. 
+The reported futures and advance
+orders growth is not necessarily indicative of our expectation of revenue growth during this period. This is due to year-over-year changes in shipment timing and because the mix of orders can shift between advance/futures and at-once orders and the
+fulfillment of certain orders may fall outside of the schedule noted above. In addition, exchange rate fluctuations as well as differing levels of order cancellations and discounts can cause differences in the comparisons between advance/futures
+orders and actual revenues. Moreover, a significant portion 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. 
+Gross Margin 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% 
+Change 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% 
+Change 
+(In millions) 
+Gross Margin 
+$ 
+9,508 
+$ 
+8,800 
+8 
+% 
+$ 
+8,604 
+2 
+% 
+Gross Margin % 
+45.6 
+% 
+46.3 
+% 
+(70 
+) bps 
+44.9 
+% 
+140 bps 
+Fiscal 2011 Compared to Fiscal 2010 
+For fiscal 2011, our consolidated gross margin percentage was 70 basis points lower than the prior year. The primary factors contributing
+to this decrease were as follows: 
+• 
+Higher input costs across most businesses, 
+• 
+Increased transportation costs, including additional air freight incurred to meet strong demand for NIKE Brand products across most businesses, most
+notably in North America, Western Europe, and Central & Eastern Europe geographies, and 
+• 
+A lower mix of licensee revenue as distribution for certain markets within our Other Businesses transitioned from licensees to operating units of NIKE,
+Inc. 
+Together, these factors decreased consolidated gross margins by approximately 130 basis points for
+fiscal 2011, with the most significant erosion in the second half of the fiscal year. These decreases were partially offset by the positive impact from the growth and expanding profitability of our NIKE Brand Direct to Consumer business, a higher
+mix of full-price sales and favorable impacts from our ongoing product cost efficiency initiatives. 
+As we head into fiscal
+2012, we anticipate that our gross margins will continue to face pressure from macroeconomic factors, most notably rising product input costs as well as higher transportation costs, which may more than offset the favorable impact from our planned
+price increases and ongoing production cost efficiency initiatives. 
+Fiscal 2010 Compared to Fiscal 2009 
+For fiscal 2010, our consolidated gross margin percentage was 140 basis points higher than the prior year. The primary factors
+contributing to this improvement were as follows: 
+• 
+Improved in-line product margins across most geographies, driven by reduced raw material and freight costs as well as favorable changes in product mix,
+27 
+Table of Contents 
+• 
+Improved inventory positions, most notably in North America and Western Europe, which drove a shift in mix from discounted close-out to higher margin
+in-line sales, and 
+• 
+Growth of NIKE-owned retail as a percentage of total revenue, across most NIKE Brand geographies, driven by an increase in both new store openings and
+comparable store sales. 
+Together, these factors increased consolidated gross margins by approximately 160
+basis points for fiscal 2010. These increases were partially offset by the impact of unfavorable currency exchange rates, primarily affecting our Emerging Markets and Central & Eastern Europe geographies. 
+Selling and Administrative Expense 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% 
+Change 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% 
+Change 
+(In millions) 
+Demand creation expense (1) 
+$ 
+2,448 
+$ 
+2,356 
+4 
+% 
+$ 
+2,352 
+0 
+% 
+Operating overhead expense 
+4,245 
+3,970 
+7 
+% 
+3,798 
+5 
+% 
+Selling and administrative expense 
+$ 
+6,693 
+$ 
+6,326 
+6 
+% 
+$ 
+6,150 
+3 
+% 
+% of Revenues 
+32.1 
+% 
+33.3 
+% 
+(120 
+) bps 
+32.1 
+% 
+120 bps 
+(1) 
+Demand creation consists of advertising and promotion expenses, including costs of endorsement contracts. 
+Fiscal 2011 Compared to Fiscal 2010 
+In fiscal 2011, the effect of changes in foreign currency exchange rates did not have a significant impact on selling and administrative expense. 
+Demand creation expense increased 4% compared to the prior year, primarily driven by a higher level of brand event spending around the
+World Cup and World Basketball Festival in the first half of fiscal 2011, as well as increased spending around key product initiatives and investments in retail product presentation with wholesale customers. 
+Operating overhead expense increased 7% compared to the prior year. This increase was primarily attributable to increased investments in
+our Direct to Consumer operations as well as growth in our wholesale operations, where we incurred higher personnel costs and travel expenses as compared to the prior year. 
+Fiscal 2010 Compared to Fiscal 2009 
+In fiscal 2010, changes in currency
+exchange rates had a minimal impact on demand creation expense. Demand creation expense remained flat compared to the prior year, as increases in sports marketing and digital marketing expenses were offset by reductions in advertising. 
+Excluding changes in exchange rates, operating overhead expense increased 4% compared to the prior year due primarily to increases in
+performance-based compensation and investments in our Direct to Consumer operations. These increases were partially offset by reductions in compensation spending in fiscal 2010 as a result of restructuring activities that took place in the fourth
+quarter of fiscal 2009. 
+Restructuring Charges 
+During fiscal 2009, we restructured the organization to streamline our management structure, enhance consumer focus, drive innovation more
+quickly to market and establish a more scalable cost structure. As a result of these actions, we reduced our global workforce by approximately 5% and incurred pre-tax restructuring charges of $195 million in fiscal 2009, primarily consisting of cash
+severance costs. These charges are included in “Corporate” for segment reporting purposes. 
+28 
+Table of Contents 
+Goodwill, Intangibles and Other Assets Impairment 
+In fiscal 2009, we recognized non-cash impairment charges of $199 million and $202 million relating to Umbro’s goodwill, intangibles
+and other assets, respectively. Although Umbro’s financial performance for fiscal 2009 was slightly better than we had originally expected, projected future cash flows had fallen below the levels we expected at the time of acquisition. This
+erosion was a result of both the unprecedented decline in global consumer markets, particularly in the United Kingdom, and our decision to adjust the level of investment in the business. 
+For additional information about our impairment charges, see Note 4 – Acquisition, Identifiable Intangible Assets, Goodwill and
+Umbro Impairment in the accompanying Notes to the Consolidated Financial Statements. 
+Other (Income), net
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% 
+Change 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% 
+Change 
+(In millions) 
+Other (income), net 
+$ 
+(33 
+) 
+$ 
+(49 
+) 
+-33 
+% 
+$ 
+(89 
+) 
+-45 
+% 
+Fiscal 2011 Compared to Fiscal 2010 
+Other (income), net is comprised of foreign currency conversion gains and losses from the re-measurement of monetary assets and
+liabilities in non-functional currencies and the impact of certain foreign currency derivative instruments, as well as unusual or non-recurring transactions that are outside the normal course of business. For fiscal 2011, other (income), net was
+primarily comprised of net foreign currency gains. 
+For fiscal 2011, we estimate that the combination of translation of
+foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related net gains included in other (income), net had an unfavorable impact of approximately $33 million on our income before
+income taxes. 
+Fiscal 2010 Compared to Fiscal 2009 
+For fiscal 2010 and 2009, other (income), net was primarily comprised of net foreign currency gains and the recognition of previously
+deferred licensing income related to our fiscal 2008 sale of NIKE Bauer Hockey. 
+For fiscal 2010, we estimate that the
+combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related net gains included in other (income), net increased our income before income taxes by
+approximately $34 million. 
+Income Taxes 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% 
+Change 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% 
+Change 
+Effective tax rate 
+25.0 
+% 
+24.2 
+% 
+80 bps 
+24.0 
+% 
+20 bps 
+Fiscal 2011 Compared to Fiscal 2010 
+Our effective tax rate for fiscal 2011 was 80 basis points higher than the effective rate for fiscal 2010 due primarily to the change in
+geographic mix of earnings. A larger percentage of our earnings in fiscal 2011 were attributable to operations in the U.S., where the statutory tax rate is generally higher than the tax rate on operations outside of the U.S. This impact was
+partially offset by changes to uncertain tax positions. 
+Fiscal 2010 Compared to Fiscal 2009 
+Our effective tax rate for fiscal 2010 was 20 basis points higher than the effective rate for fiscal 2009. Our effective tax rate for
+fiscal 2009 includes a tax benefit related to charges recorded for the impairment of Umbro’s 
+29 
+Table of Contents 
+goodwill, intangible and other assets. Excluding this tax benefit, our effective rate for fiscal 2009 would have been 26.5%, 230 basis points higher than our effective tax rate for fiscal 2010.
+The decrease in our effective tax rate for fiscal 2010 was primarily attributable to our international operations, as tax rates for these operations are generally lower than the U.S. statutory rate. 
+Operating Segments 
+The
+Company’s reportable operating segments are based on our internal geographic organization. Each NIKE Brand geography operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel, and
+equipment. Our reportable operating segments for the NIKE Brand are: North America, Western Europe, Central & Eastern Europe, Greater China, Japan, and Emerging Markets. Our NIKE Brand Direct to Consumer operations are managed within each
+geographic segment. 
+As part of our centrally managed foreign exchange risk management program, standard foreign currency
+rates are assigned to each NIKE Brand entity in our geographic operating segments and are used to record any non-functional currency revenues or product purchases into the entity’s functional currency. Geographic operating segment revenues and
+cost of sales reflect use of these standard rates. For all NIKE Brand operating segments, differences between assigned standard foreign currency rates and actual market rates are included in Corporate together with foreign currency hedge gains and
+losses generated from our centrally managed foreign exchange risk management program. Prior to fiscal 2010, all foreign currency results, including hedge results and other conversion gains and losses generated by the Western Europe and Central &
+Eastern Europe geographies were recorded in their respective geographic results. 
+Certain prior year amounts have been
+reclassified to conform to fiscal 2011 presentation, as South Africa became part of the Emerging Markets operating segment beginning June 1, 2010. Previously, South Africa was part of the Central & Eastern Europe operating segment.
+The breakdown of revenues follows: 
+Fiscal 2011 
+Fiscal 
+2010 (1) 
+FY11 vs. 
+FY10 
+% 
+Change 
+FY11
+vs. 
+FY10 
+% Change 
+Excluding 
+Currency 
+Changes (2) 
+Fiscal 
+2009 (1) 
+FY10 vs. 
+FY09 
+% 
+Change 
+FY10
+vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes (2) 
+(In millions) 
+North America 
+$ 
+7,578 
+$ 
+6,696 
+13 
+% 
+13 
+% 
+$ 
+6,778 
+-1 
+% 
+-1 
+% 
+Western Europe 
+3,810 
+3,892 
+-2 
+% 
+4 
+% 
+4,139 
+-6 
+% 
+-6 
+% 
+Central & Eastern Europe 
+1,031 
+993 
+4 
+% 
+7 
+% 
+1,247 
+-20 
+% 
+-19 
+% 
+Greater China 
+2,060 
+1,742 
+18 
+% 
+16 
+% 
+1,743 
+0 
+% 
+0 
+% 
+Japan 
+766 
+882 
+-13 
+% 
+-21 
+% 
+926 
+-5 
+% 
+-12 
+% 
+Emerging Markets 
+2,736 
+2,199 
+24 
+% 
+19 
+% 
+1,828 
+20 
+% 
+17 
+% 
+Global Brand Divisions 
+123 
+105 
+17 
+% 
+21 
+% 
+96 
+9 
+% 
+12 
+% 
+Total NIKE Brand Revenues 
+18,104 
+16,509 
+10 
+% 
+10 
+% 
+16,757 
+-1 
+% 
+-2 
+% 
+Other Businesses 
+2,747 
+2,530 
+9 
+% 
+8 
+% 
+2,419 
+5 
+% 
+4 
+% 
+Corporate (3) 
+11 
+(25 
+) 
+— 
+— 
+— 
+— 
+— 
+Total NIKE, Inc. Revenues 
+$ 
+20,862 
+$ 
+19,014 
+10 
+% 
+10 
+% 
+$ 
+19,176 
+-1 
+% 
+-2 
+% 
+(1) 
+Certain prior year amounts have been reclassified to conform to fiscal year 2011 presentation. These changes had no impact on previously reported
+results of operations or shareholders’ equity. 
+(2) 
+Results have been restated using constant exchange rates for the comparative period to enhance the visibility of the underlying business trends
+excluding the impact of foreign currency exchange rate fluctuations. 
+(3) 
+Corporate revenues primarily consist of foreign currency hedge gains and losses generated by entities within the NIKE Brand geographic operating
+segments but managed through our central foreign exchange risk 
+30 
+Table of Contents 
+management program, and foreign currency gains and losses resulting from the difference between actual foreign currency rates and standard rates assigned to these entities, which are used to
+record any non-functional currency revenues into the entity’s functional currency. 
+The primary
+financial measure used by the Company to evaluate performance of individual operating segments is earnings before interest and taxes (commonly referred to as “EBIT”) which represents net income before interest expense (income), net and
+income taxes in the consolidated statements of income. As discussed in Note 18 — Operating Segments and Related Information in the accompanying Notes to the Consolidated Financial Statements, certain corporate costs are not included in EBIT of
+our operating segments. 
+The breakdown of earnings before interest and taxes is as follows: 
+Fiscal 2011 
+Fiscal 
+2010 (1) 
+FY11 vs. 
+FY10 
+% 
+Change 
+Fiscal 
+2009 (1) 
+FY10 vs. 
+FY09 
+% 
+Change 
+(In millions) 
+North America 
+$ 
+1,750 
+$ 
+1,538 
+14 
+% 
+$ 
+1,429 
+8 
+% 
+Western Europe 
+721 
+856 
+-16 
+% 
+939 
+-9 
+% 
+Central & Eastern Europe 
+233 
+253 
+-8 
+% 
+394 
+-36 
+% 
+Greater China 
+777 
+637 
+22 
+% 
+575 
+11 
+% 
+Japan 
+114 
+180 
+-37 
+% 
+205 
+-12 
+% 
+Emerging Markets 
+688 
+521 
+32 
+% 
+364 
+43 
+% 
+Global Brand Divisions 
+(998 
+) 
+(867 
+) 
+-15 
+% 
+(811 
+) 
+-7 
+% 
+Total NIKE Brand 
+3,285 
+3,118 
+5 
+% 
+3,095 
+1 
+% 
+Other Businesses 
+334 
+299 
+12 
+% 
+(193 
+) 
+— 
+Corporate 
+(771 
+) 
+(894 
+) 
+14 
+% 
+(955 
+) 
+6 
+% 
+Total Consolidated Earnings Before Interest and Taxes 
+$ 
+2,848 
+$ 
+2,523 
+13 
+% 
+$ 
+1,947 
+30 
+% 
+Interest expense (income), net 
+4 
+6 
+-33 
+% 
+(10 
+) 
+— 
+Total Consolidated Income Before Income Taxes 
+$ 
+2,844 
+$ 
+2,517 
+13 
+% 
+$ 
+1,957 
+29 
+% 
+(1) 
+Certain prior year
+amounts have been reclassified to conform to fiscal year 2011 presentation. These changes had no impact on previously reported results of operations or shareholders’ equity. 
+North America 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% 
+Change 
+FY11
+vs. 
+FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% 
+Change 
+FY10
+vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+5,109 
+$ 
+4,610 
+11 
+% 
+11 
+% 
+$ 
+4,694 
+-2 
+% 
+-2 
+% 
+Apparel 
+2,105 
+1,740 
+21 
+% 
+21 
+% 
+1,740 
+0 
+% 
+0 
+% 
+Equipment 
+364 
+346 
+5 
+% 
+5 
+% 
+344 
+1 
+% 
+0 
+% 
+Total Revenues 
+$ 
+7,578 
+$ 
+6,696 
+13 
+% 
+13 
+% 
+$ 
+6,778 
+-1 
+% 
+-1 
+% 
+Earnings Before Interest and Taxes 
+$ 
+1,750 
+$ 
+1,538 
+14 
+% 
+$ 
+1,429 
+8 
+% 
+Fiscal 2011 Compared to Fiscal 2010 
+Revenues for North America increased 13%, driven by double-digit percentage growth in both wholesale and Direct to Consumer revenues.
+Contributing to the wholesale revenue growth was strong product category presentations at our wholesale customers, improved product lines and earlier shipments of summer season 
+31 
+Table of Contents 
+products. North America’s Direct to Consumer revenues grew 19%, which contributed approximately 4 percentage points to North America’s revenue increase. The growth in the Direct to
+Consumer business was fueled by 14% growth in comparable store sales. 
+For fiscal 2011, the increase in North America footwear
+revenue was primarily driven by double-digit percentage growth in Running, Men’s and Women’s Training and Football (Soccer) categories and a single-digit percentage growth in Basketball, partially offset by a low single-digit percentage
+decline in sales of our NIKE Brand Sportswear products. 
+The year-over-year increase in North America apparel revenues was
+primarily driven by double-digit percentage growth in most key categories, most notably Men’s Training, Running, Basketball and Women’s Training. 
+For fiscal 2011, the increase in North America’s EBIT was primarily the result of revenue growth and leverage on selling and administrative expense, which more than offset a lower gross margin
+percentage. The decline in gross margin percentage was due primarily to increased air freight and product input costs, which more than offset the favorable impact from the growth of our Direct to Consumer business and fewer close-out sales.
+Fiscal 2010 Compared to Fiscal 2009 
+Excluding the changes in currency exchange rates, revenues for North America declined 1%, driven primarily by a decrease in revenue from our wholesale business. This decrease was partially offset by an
+increase in our NIKE-owned retail business, driven primarily by an increase in comparable store sales. 
+During fiscal 2010,
+the decrease in North America footwear revenue was primarily attributable to a low single-digit percentage decrease in unit sales, while average selling price per pair remained flat. The decline in unit sales was primarily driven by lower sales for
+our Kids’ and Running categories in the first half of fiscal 2010. 
+North America apparel revenue during fiscal 2010 was
+flat when compared to fiscal 2009, which was reflective of a high single-digit percentage increase in average selling price per unit, offset by a low double-digit percentage decrease in unit sales. Both the increase in average selling price per unit
+and the decrease in unit sales were primarily a result of fewer close-out sales compared to the prior year. 
+For fiscal 2010,
+the increase in North America’s EBIT was primarily the result of improved gross margins combined with a slight decrease in selling and administrative expense, driven by a reduction in demand creation expense compared to prior year. The
+improvement in gross margin was mainly attributable to a shift in mix from close-out to in-line sales, growth of our Direct to Consumer business as a percentage of total sales, improved in-line product margins and lower warehousing costs.
+Western Europe 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% 
+Change 
+FY11
+vs. 
+FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% 
+Change 
+FY10
+vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+2,327 
+$ 
+2,320 
+0 
+% 
+7 
+% 
+$ 
+2,385 
+-3 
+% 
+-3 
+% 
+Apparel 
+1,266 
+1,325 
+-4 
+% 
+2 
+% 
+1,463 
+-9 
+% 
+-9 
+% 
+Equipment 
+217 
+247 
+-12 
+% 
+-6 
+% 
+291 
+-15 
+% 
+-15 
+% 
+Total Revenues 
+$ 
+3,810 
+$ 
+3,892 
+-2 
+% 
+4 
+% 
+$ 
+4,139 
+-6 
+% 
+-6 
+% 
+Earnings Before Interest and Taxes 
+$ 
+721 
+$ 
+856 
+-16 
+% 
+$ 
+939 
+-9 
+% 
+32 
+Table of Contents 
+Fiscal 2011 Compared to Fiscal 2010 
+On a currency neutral basis, revenues for Western Europe increased 4% for fiscal 2011, attributable to growth in most territories.
+Revenues for the U.K. & Ireland, the largest market in Western Europe, grew 5% for fiscal 2011. Western Europe’s Direct to Consumer revenues grew 10%, which contributed approximately 1 percentage point to Western Europe’s revenue
+increase. The growth in the Direct to Consumer business was fueled by 6% growth in comparable store sales. 
+Excluding changes
+in currency exchange rates, footwear revenue in Western Europe increased 7%, driven by double-digit percentage growth in our Running, Football (Soccer) and Action Sports categories, which more than offset a slight revenue decline in our NIKE Brand
+Sportswear category. 
+On a currency neutral basis, apparel revenue in Western Europe increased 2%, primarily driven by
+double-digit percentage growth in our Football (Soccer) and Running categories, which more than offset a mid single-digit revenue decline in our NIKE Brand Sportswear category. 
+For fiscal 2011, the decrease in Western Europe’s EBIT was driven by unfavorable foreign currency translation and a lower gross
+margin percentage, all of which more than offset the increase in revenues and improved leverage on selling and administrative expense. The decline in the gross margin percentage was significantly impacted by the unfavorable year-over-year standard
+currency rates. Also contributing to the decrease in the gross margin percentage was higher product input and air freight costs, higher royalty expenses related to sales of endorsed team products and higher full price discounts. These factors more
+than offset the favorable impact of fewer close-out sales. 
+Fiscal 2010 Compared to Fiscal 2009 
+On a currency neutral basis, most markets in Western Europe experienced lower revenues during fiscal 2010, reflecting a difficult retail
+environment throughout the geography. Our largest market, the U.K. & Ireland, declined 4%. 
+Excluding changes in currency
+exchange rates, the decrease in footwear revenue during fiscal 2010 was primarily the result of low single-digit decreases in both average selling price and unit sales. The decrease in average selling price was attributable to higher customer
+discounts provided to manage inventory levels, while the reduction in unit sales was due to lower sales for most NIKE Brand product categories. 
+The year-over-year decrease in apparel revenue was primarily driven by a high single-digit decline in unit sales combined with a mid single-digit decrease in average selling price. The decrease in unit
+sales was due to lower sales for most NIKE Brand product categories, while the decrease in average selling price was a result of higher discounts provided to retailers to manage their inventory levels. 
+For fiscal 2010, EBIT for Western Europe declined at a faster rate than revenues, as the increase in selling and administrative expense
+as a percentage of revenues more than offset the improvements in gross margin percentage. The increase in selling administrative expense was primarily driven by a higher level of both demand creation spending around the 2010 World Cup and operating
+overhead expense as a result of investments in our Direct to Consumer operations and higher performance-based compensation. The gross margin improvement in fiscal 2010 was primarily attributable to higher in-line product margins, a smaller
+proportion of close-out sales and reduced inventory obsolescence expense as a result of our leaner inventory positions. 
+33 
+Table of Contents 
+Central & Eastern Europe 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 % 
+Change 
+FY11 vs. 
+FY10 % 
+Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2009 
+FY10 vs. 
+FY09 % 
+Change 
+FY10 vs. 
+FY09 % 
+Change 
+Excluding 
+Currency 
+Changes 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+600 
+$ 
+558 
+8 
+% 
+11 
+% 
+$ 
+673 
+-17 
+% 
+-16 
+% 
+Apparel 
+356 
+354 
+1 
+% 
+4 
+% 
+468 
+-24 
+% 
+-24 
+% 
+Equipment 
+75 
+81 
+-7 
+% 
+-5 
+% 
+106 
+-24 
+% 
+-21 
+% 
+Total Revenues 
+$ 
+1,031 
+$ 
+993 
+4 
+% 
+7 
+% 
+$ 
+1,247 
+-20 
+% 
+-19 
+% 
+Earnings Before Interest and Taxes 
+$ 
+233 
+$ 
+253 
+-8 
+% 
+$ 
+394 
+-36 
+% 
+Fiscal 2011 Compared to Fiscal 2010 
+Led by Russia and Turkey, most territories within Central & Eastern Europe reported revenue growth during fiscal 2011 as economic
+conditions in the geography continued to show signs of recovery. 
+The growth in Central & Eastern Europe’s footwear
+revenues was mainly driven by double-digit percentage growth in our Football (Soccer), Running and Action Sports categories, while the growth in apparel revenues was primarily driven by double-digit percentage growth in our Running category.
+For fiscal 2011, the decrease in Central & Eastern Europe’s EBIT was primarily driven by unfavorable foreign
+currency translation and a lower gross margin percentage, which more than offset the increase in revenues and improved leverage on selling and administrative expense. The decline in the gross margin percentage was primarily due to unfavorable
+year-over-year standard currency rates, higher air freight costs and an increase in product input costs. 
+Fiscal 2010
+Compared to Fiscal 2009 
+Economic conditions in Central & Eastern Europe remained difficult as most markets within the
+geography experienced lower revenues in fiscal 2010 as compared to fiscal 2009. 
+The decrease in footwear revenue was due to a
+decline in average selling price, while unit sales remained flat compared to fiscal 2009. The decline in average selling price was primarily the result of higher discounts provided to retailers to manage their inventory levels. 
+The year-over-year decrease in apparel revenue was primarily driven by a double-digit decrease in average selling price and a mid
+single-digit decline in unit sales. The decline in average selling price was primarily the result of higher discounts provided to retailers to manage their inventory levels, while the decline in unit sales was due to lower sales in most key product
+categories. 
+The year-over-year decrease in Central & Eastern Europe’s EBIT during fiscal 2010 was the result of
+lower revenues, a decline in gross margin percentage and higher selling and administrative expense. The decline in gross margin percentage was primarily attributable to less favorable year-over-year standard currency rates, as well as higher
+discounts provided to customers. The increase in selling and administrative expense was primarily due to an increase in the reserve for bad debts along with increased investments in our Direct to Consumer operations. 
+34 
+Table of Contents 
+Greater China 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% Change 
+FY11 vs. 
+FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10 vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+1,164 
+$ 
+953 
+22 
+% 
+19 
+% 
+$ 
+940 
+1 
+% 
+1 
+% 
+Apparel 
+789 
+684 
+15 
+% 
+13 
+% 
+700 
+-2 
+% 
+-3 
+% 
+Equipment 
+107 
+105 
+2 
+% 
+0 
+% 
+103 
+2 
+% 
+0 
+% 
+Total Revenues 
+$ 
+2,060 
+$ 
+1,742 
+18 
+% 
+16 
+% 
+$ 
+1,743 
+0 
+% 
+0 
+% 
+Earnings Before Interest and Taxes 
+$ 
+777 
+$ 
+637 
+22 
+% 
+$ 
+575 
+11 
+% 
+Fiscal 2011 Compared to Fiscal 2010 
+Excluding changes in currency exchange rates, Greater China revenues increased 16% for fiscal 2011, driven by expansion in the number of
+partner-owned stores selling NIKE products, as well as improvement in comparable store sales for partner-owned stores. 
+For
+fiscal 2011, the increase in Greater China’s footwear revenue was primarily driven by double-digit percentage growth in our Running and NIKE Brand Sportswear categories, while the growth in apparel revenue was mainly driven by double-digit
+percentage increases in our NIKE Brand Sportswear, Basketball and Men’s Training categories. 
+For fiscal 2011, EBIT for
+Greater China grew at a faster rate than revenue as a result of a higher gross margin percentage, improved leverage on selling and administrative expense and favorable foreign currency translation. The improvement in the gross margin percentage was
+primarily attributable to higher product prices, favorable product mix and lower inventory obsolescence expense, which more than offset higher product input costs and warehousing costs from our new China distribution center. 
+Fiscal 2010 Compared to Fiscal 2009 
+For fiscal 2010, revenues for Greater China were flat, primarily attributable to comparisons against strong revenue growth in the first half of fiscal 2009 driven by the Beijing Olympics. Greater China
+began to gain momentum in the second half of fiscal 2010, as revenues increased 11% as compared to the second half of fiscal 2009. 
+The increase in footwear revenue was primarily driven by a mid single-digit increase in average selling price, partially offset by a mid single-digit decrease in unit sales. The increase in average
+selling price was primarily due to strategic price increases, while the decrease in unit sales was primarily driven by lower discounts on in-line products compared to the prior year. 
+The decrease in apparel revenue for fiscal 2010 was primarily due to a mid single-digit decrease in unit sales across most major
+categories, which more than offset a low single-digit increase in average selling price primarily driven by strategic price increases. 
+EBIT for Greater China increased at a faster rate than revenue as a result of higher gross margins and reductions in demand creation spending attributable to comparisons against higher prior year spending
+around the Beijing Olympics. 
+35 
+Table of Contents 
+Japan 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% Change 
+FY11 vs. 
+FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10 vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+396 
+$ 
+433 
+-9 
+% 
+-16 
+% 
+$ 
+430 
+1 
+% 
+-7 
+% 
+Apparel 
+302 
+357 
+-15 
+% 
+-23 
+% 
+397 
+-10 
+% 
+-17 
+% 
+Equipment 
+68 
+92 
+-26 
+% 
+-32 
+% 
+99 
+-7 
+% 
+-13 
+% 
+Total Revenues 
+$ 
+766 
+$ 
+882 
+-13 
+% 
+-21 
+% 
+$ 
+926 
+-5 
+% 
+-12 
+% 
+Earnings Before Interest and Taxes 
+$ 
+114 
+$ 
+180 
+-37 
+% 
+$ 
+205 
+-12 
+% 
+Fiscal 2011 Compared to Fiscal 2010 
+Macroeconomic conditions in Japan remain difficult. On March 11, 2011, Japan experienced a major earthquake and resulting tsunami.
+While the Company’s organization and assets in Japan were not materially damaged, business results for the month of March 2011 were significantly eroded by the natural disaster. As we enter fiscal 2012, we anticipate macroeconomic conditions in
+Japan to remain difficult as consumer confidence continues to recover. 
+Excluding changes in currency exchange rates, both
+footwear and apparel revenues in Japan declined, driven by decreases across most key categories. Partially offsetting the decreases was a double-digit percentage growth in revenues from Running apparel. 
+The decrease in Japan’s EBIT for fiscal 2011 was primarily due to lower revenues and higher selling and administrative expense as a
+percentage of revenue, partially offset by an improvement in the gross margin percentage. The improvement in the gross margin percentage was primarily driven by favorable year-over-year standard currency rates and positive impacts from fewer
+discounts on close-out sales, which more than offset higher product input costs and inventory obsolescence expense. 
+Fiscal
+2010 Compared to Fiscal 2009 
+Excluding changes in currency exchange rates, both footwear and apparel revenues in Japan
+declined during fiscal 2010 due to decreases in unit sales across most major categories. The decline in revenues was reflective of a difficult and highly promotional marketplace in Japan. 
+For fiscal 2010, the decrease in Japan’s EBIT was primarily due to lower revenues and higher selling and administrative expense,
+driven by increased investments in our Direct to Consumer operations, which more than offset improved gross margins. 
+36 
+Table of Contents 
+Emerging Markets 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% Change 
+FY11 vs. 
+FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10 vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+(In millions) 
+Revenues 
+Footwear 
+$ 
+1,897 
+$ 
+1,458 
+30 
+% 
+24 
+% 
+$ 
+1,185 
+23 
+% 
+20 
+% 
+Apparel 
+657 
+577 
+14 
+% 
+9 
+% 
+477 
+21 
+% 
+17 
+% 
+Equipment 
+182 
+164 
+11 
+% 
+6 
+% 
+166 
+-1 
+% 
+-3 
+% 
+Total Revenues 
+$ 
+2,736 
+$ 
+2,199 
+24 
+% 
+19 
+% 
+$ 
+1,828 
+20 
+% 
+17 
+% 
+Earnings Before Interest and Taxes 
+$ 
+688 
+$ 
+521 
+32 
+% 
+$ 
+364 
+43 
+% 
+Fiscal 2011 Compared to Fiscal 2010 
+Excluding the changes in currency exchange rates, revenues for Emerging Markets increased 19% for fiscal 2011. Most territories in the
+geography reported double-digit revenue growth for the fiscal year, led by Brazil, Argentina, Mexico, and Korea. 
+For fiscal
+2011, both footwear and apparel revenue growth in the Emerging Markets was primarily driven by strong demand in nearly all key categories, most notably NIKE Brand Sportswear and Running. 
+For fiscal 2011, EBIT for Emerging Markets grew at a faster rate than revenue as a result of higher gross margin percentage, improved
+leverage on selling and administrative expense and favorable foreign currency translation. The increase in the gross margin percentage was primarily due to a higher mix of in-line product sales, lower warehousing costs and favorable year-over-year
+standard currency rates, which more than offset the increase in product input costs and higher full-price discounts. 
+Fiscal 2010 Compared to Fiscal 2009 
+Excluding changes in currency exchange rates, fiscal 2010 revenue growth for the Emerging Markets geography was driven by growth in all product categories and all territories, most notably Brazil, Mexico
+and Korea. 
+Footwear revenue growth was primarily driven by a double-digit growth in unit sales and a mid single-digit
+increase in average selling price per pair during fiscal 2010, reflective of strong demand for most NIKE Brand product categories in all markets within the geography. 
+For fiscal 2010, the increase in Emerging Markets’ EBIT was primarily the result of revenue growth combined with lower selling and administrative expense, which more than offset a decrease in gross
+margin percentage. The decrease in selling and administrative expense was primarily due to lower operating overhead expense resulting from fiscal 2009 restructuring activities. The decline in gross margin was primarily due to less favorable
+year-over-year standard currency rates compared to the prior year, which more than offset improved in-line product margins. 
+37 
+Table of Contents 
+Global Brand Divisions 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% Change 
+FY11 vs. 
+FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10 vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+(In millions) 
+Revenues 
+$ 
+123 
+$ 
+105 
+17 
+% 
+21 
+% 
+$ 
+96 
+9 
+% 
+12 
+% 
+(Loss) Before Interest and Taxes 
+(998 
+) 
+(867 
+) 
+-15 
+% 
+(811 
+) 
+-7 
+% 
+Global Brand Divisions primarily represent demand creation and operating overhead expenses that are
+centrally managed for the NIKE Brand. Revenues for the Global Brand Divisions are attributable to NIKE Brand licensing businesses that are not part of a geographic operating segment. 
+Fiscal 2011 Compared to Fiscal 2010 
+For fiscal 2011, the increase in Global Brand Division expense was primarily due to an increase in both operating overhead and centrally managed demand creation expense. The increase in operating overhead
+expense was mainly driven by increased investments in our Direct to Consumer infrastructure along with higher wages and travel expense. The increase in demand creation expense was primarily driven by a higher level of brand event spending around the
+World Cup and World Basketball Festival in the first half of fiscal 2011, as well as increased investments in sports marketing. 
+Fiscal 2010 Compared to Fiscal 2009 
+For fiscal 2010, the increase in Global Brand Division expense was largely due to increases in centrally managed demand creation expense and performance-based compensation, which more than offset an
+increase in licensing revenues. The increase in demand creation expense was primarily driven by the centralization of certain marketing production costs. 
+Other Businesses 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% Change 
+FY11 vs. 
+FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+FY10 vs. 
+FY09 
+% Change 
+Excluding 
+Currency 
+Changes 
+(In millions) 
+Revenues 
+Converse 
+$ 
+1,130 
+$ 
+983 
+15 
+% 
+15 
+% 
+$ 
+915 
+7 
+% 
+7 
+% 
+NIKE Golf 
+623 
+638 
+-2 
+% 
+-4 
+% 
+648 
+-2 
+% 
+-4 
+% 
+Cole Haan 
+518 
+463 
+12 
+% 
+12 
+% 
+472 
+-2 
+% 
+-2 
+% 
+Hurley 
+252 
+221 
+14 
+% 
+14 
+% 
+203 
+9 
+% 
+9 
+% 
+Umbro 
+224 
+225 
+0 
+% 
+2 
+% 
+174 
+29 
+% 
+30 
+% 
+Other 
+— 
+— 
+— 
+— 
+7 
+— 
+— 
+Total Revenues 
+$ 
+2,747 
+$ 
+2,530 
+9 
+% 
+8 
+% 
+$ 
+2,419 
+5 
+% 
+4 
+% 
+Earnings Before Interest and Taxes 
+$ 
+334 
+$ 
+299 
+12 
+% 
+$ 
+(193 
+) 
+— 
+Fiscal 2011 Compared to Fiscal 2010 
+Our Other Businesses are comprised of our affiliate brands; Cole Haan, Converse, Hurley and Umbro; and NIKE Golf. The revenue growth at
+Converse was primarily driven by increased licensing revenue in China, as 
+38 
+Table of Contents 
+well as increased sales in the U.K. as we transitioned that market to a Converse owned distribution model. Revenues for Cole Haan increased 12%, driven by double-digit percentage growth in our
+wholesale operations as well as high single-digit percentage growth in our Direct to Consumer operations. Revenues declined at NIKE Golf, where we experienced significant erosion in our Japan business following the earthquake and tsunami in March
+2011. 
+For fiscal 2011, EBIT for our Other Businesses grew at a faster rate than revenues, primarily as a result of more
+favorable foreign currency exchange impacts. The gross margin percentage remained relatively flat for fiscal 2011, as the favorable impact from improved product mix was offset by a lower mix of licensee revenues. Selling and administrative expense
+as a percentage of revenues remained relatively flat for fiscal 2011. 
+Fiscal 2010 Compared to Fiscal 2009 
+For fiscal 2010, the increase in Other Businesses’ revenue was primarily driven by revenue growth at Converse, Umbro and Hurley,
+which more than offset the declines at NIKE Golf and Cole Haan due to reductions in consumer discretionary spending in their respective markets. 
+In fiscal 2009, EBIT for our Other Businesses included a $401 million pre-tax non-cash charge relating to the impairment of goodwill, intangible and other assets of Umbro. Excluding this impairment
+charge, EBIT for our Other Businesses would have increased 43%, as a result of higher revenues, improved gross margins across most businesses, and lower demand creation spending. 
+For additional information about our impairment charges, see Note 4 — Identifiable Intangible Assets, Goodwill and Umbro Impairment
+in the Notes to the Consolidated Financial Statements. 
+Corporate 
+Fiscal 2011 
+Fiscal 2010 
+FY11 vs. 
+FY10 
+% Change 
+Fiscal 2009 
+FY10 vs. 
+FY09 
+% Change 
+(In millions) 
+Revenues 
+$ 
+11 
+$ 
+(25 
+) 
+— 
+$ 
+— 
+— 
+(Loss) Before Interest and Taxes 
+(771 
+) 
+(894 
+) 
+14 
+% 
+(955 
+) 
+6 
+% 
+Corporate consists largely of unallocated general and administrative expenses, which includes expenses
+associated with centrally managed departments, depreciation and amortization related to our corporate headquarters, unallocated insurance, benefit and compensation programs, including stock-based compensation, certain foreign currency gains and
+losses, including certain hedge gains and losses, corporate eliminations and other items. 
+Corporate revenues primarily
+consist of (1) foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments but managed through our central foreign exchange risk management program and (2) foreign
+currency gains and losses resulting from the difference between actual foreign currency rates and standard rates assigned to these entities, which are used to record any non-functional currency revenues into the entity’s functional currency.
+In addition to the foreign currency gains and losses recognized in Corporate revenues, foreign currency results include all
+other foreign currency hedge results generated through our centrally managed foreign exchange risk management program, other conversion gains and losses arising from re-measurement of monetary assets and liabilities in non-functional currencies, and
+gains and losses resulting from the difference between actual foreign currency rates and standard rates assigned to each entity in NIKE Brand geographic operating segments, which are used to record any non-functional currency product purchases into
+the entity’s functional currency. Prior to fiscal 2010, all foreign currency results, including hedge results and other conversion gains and losses, generated by the Western Europe and Central & Eastern Europe geographies were recorded in
+their respective geographic results. 
+39 
+Table of Contents 
+Fiscal 2011 Compared to Fiscal 2010 
+For fiscal 2011, the decrease in Corporate expense was primarily driven by year-over-year net foreign currency gains generated by our
+centrally managed foreign exchange risk management program. Also contributing to the decrease in Corporate expense for fiscal 2011 was a $54 million year-over-year reduction in stock options expense primarily due to a change in accelerated vesting
+provisions that took effect in the first quarter of fiscal 2011 and a lower estimated fair value for stock options granted in the current year. These benefits more than offset an increase in corporate operating overhead expenses, primarily driven by
+higher wage-related expense. 
+Fiscal 2010 Compared to Fiscal 2009 
+In fiscal 2009, results for Corporate included a pre-tax restructuring charge of $195 million. Excluding this restructuring charge, loss
+before interest and taxes for Corporate would have increased by 18% for fiscal 2010, primarily driven by an increase in performance-based compensation. 
+Foreign Currency Exposures and Hedging Practices 
+Overview
+As a global company with significant operations outside the U.S., in the normal course of business we are exposed to
+risk arising from changes in currency exchange rates. Foreign currency fluctuations affect the recording of transactions, such as sales, purchases and intercompany transactions denominated in non-functional currencies, and the translation into U.S.
+dollars of foreign currency denominated results of operations, financial position and cash flows. Our foreign currency exposures are due primarily to U.S. dollar transactions at wholly-owned foreign subsidiaries, as well as transactions and
+translation of results denominated in Euros, British Pounds, Chinese Renminbi and Japanese Yen. 
+Our foreign exchange risk
+management program is intended to minimize both the positive and negative effects of currency fluctuations on our reported consolidated results of operations, financial position and cash flows. This also has the effect of delaying the majority of
+the impact of current market rates on our consolidated financial statements, the length of the delay is dependent upon hedge horizons. We manage global foreign exchange risk centrally on a portfolio basis, to address those risks that are material to
+NIKE, Inc. on a consolidated basis. We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio and where practical, by hedging a portion of certain remaining material exposures, using
+derivative instruments such as forward contracts and options. Our hedging policy is designed to partially or entirely offset changes in the underlying exposures being hedged. We do not hold or issue derivative instruments for trading purposes.
+Transactional exposures 
+We transact business in various currencies and have significant revenues and costs denominated in currencies other than the functional currency of the relevant subsidiary, both of which subject us to
+foreign currency risk. Our most significant transactional foreign currency exposures are: 
+1. 
+Inventory Purchases — Most of our inventory purchases around the world are denominated in U.S. dollars. This generates foreign currency exposures for all
+subsidiaries with a functional currency other than the U.S. dollar. A weaker U.S. dollar reduces the inventory cost in the purchasing subsidiary’s functional currency whereas a stronger U.S. dollar increases the inventory cost.
+2. 
+Non-Functional Currency Revenues — A portion of our Western Europe geography revenues are earned in currencies other than the Euro (e.g. British Pound), but are
+recognized at a subsidiary that uses the Euro as its functional currency, generating foreign currency exposure. 
+3. 
+Other Revenues and Costs — Non-functional currency revenues and costs, such as endorsement contracts, intercompany royalties and other payments, generate foreign
+currency risk to a lesser extent. 
+40 
+Table of Contents 
+4. 
+Non-Functional Currency Monetary Assets and Liabilities — Our global subsidiaries have various assets and liabilities, primarily receivables and payables
+denominated in currencies other than their functional currency. These balance sheet items are subject to re-measurement, which may create fluctuations in other (income), net within our consolidated results of operations. 
+Managing transactional exposures 
+Transactional exposures are managed on a portfolio basis within our foreign currency risk management program. As of May 31, 2011, we use currency forward contracts and options with maturities up to
+15 months to hedge the effect of exchange rate fluctuations on probable forecasted future cash flows, including non-functional currency revenues and expenses. These are accounted for as cash flow hedges in accordance with the accounting standards
+for derivatives and hedging. The fair value of these instruments at May 31, 2011 and 2010 was $28 million and $206 million in assets and $136 million and $25 million in liabilities, respectively. The effective portion of the changes in fair
+value of these instruments is reported in other comprehensive income (“OCI”), a component of shareholders’ equity, and reclassified into earnings in the same financial statement line item and in the same period or periods during which
+the related hedged transactions affect earnings. The ineffective portion is immediately recognized in earnings as a component of other (income), net. Ineffectiveness was not material for the years ended May 31, 2011, 2010, and 2009. 
+Certain currency forward contracts used to manage foreign exchange exposure of non-functional currency monetary assets and liabilities
+subject to re-measurement are not designated as hedges under the accounting standards for derivatives and hedging. In these cases, the change in value of the instruments is immediately recognized in other (income), net and is intended to offset the
+foreign currency impact of the re-measurement of the related non-functional currency asset or liability being hedged. The fair value of these instruments at May 31, 2011 and 2010 was $9 million and $104 million in assets and $17 million and
+$140 million in liabilities, respectively. 
+Refer to Note 17 — Risk Management and Derivatives in the accompanying Notes
+to the Consolidated Financial Statements for additional quantitative detail. 
+Translational exposures
+Substantially all of our foreign subsidiaries operate in functional currencies other than the U.S. dollar.
+Fluctuations in currency exchange rates create volatility in our reported results as we are required to translate the balance sheets and operational results of these foreign currency denominated subsidiaries into U.S. dollars for consolidated
+reporting. The translation of foreign subsidiaries non-U.S. dollar balance sheets into U.S. dollars for consolidated reporting results in a cumulative translation adjustment to OCI within shareholders’ equity. In preparing our consolidated
+statements of income, foreign exchange rate fluctuations impact our operating results as the revenues and expenses of our foreign operations are translated into U.S. dollars. In translation, a weaker U.S. dollar in relation to foreign
+functional currencies benefits our consolidated earnings whereas a stronger U.S. dollar reduces our consolidated earnings. The impact of foreign exchange rate fluctuations on the translation of our consolidated revenues and income before income
+taxes was a net translation benefit (detriment) of approximately ($28) million and ($16) million, respectively, for the year ended May 31, 2011 and approximately $147 million and $33 million, respectively, for the year ended May 31, 2010.
+Managing translational exposures 
+To minimize the impact of translating foreign currency denominated revenues and expenses into U.S. dollars for consolidated reporting, certain foreign subsidiaries use excess cash to purchase U.S. dollar
+denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of these U.S. dollar denominated securities at non-U.S. dollar functional currency subsidiaries creates a foreign currency
+exposure that qualifies for hedge accounting under the accounting standards for derivatives and hedging. We utilize forward contracts and options to partially, or entirely, hedge the variability of
+41 
+Table of Contents 
+the forecasted future purchases and sales of these U.S. dollar investments. This has the effect of partially offsetting the year-over-year foreign currency translation impact on net earnings in
+the period the investments are sold. Hedges of available-for-sale investments are accounted for as cash flow hedges. The fair value of instruments used in this manner at May 31, 2011 was $1 million in assets and $21 million in liabilities. At
+May 31, 2010, the fair value was $78 million in assets. The effective portion of the changes in fair value of these instruments is reported in OCI and reclassified into earnings in other (income), net in the period during which the hedged
+available-for-sale investment is sold and affects earnings. Any ineffective portion, which was not material for any period presented, is immediately recognized in earnings as a component of other (income), net. 
+We estimate that the combination of translation of foreign currency-denominated profits from our international businesses and the
+year-over-year change in foreign currency related net gains included in other (income), net had net (detriment) benefit on our income before income taxes of approximately $(33) million and $34 million for the years ended May 31, 2011 and 2010.
+Refer to Note 17 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements
+for additional quantitative detail. 
+Net investments in foreign subsidiaries 
+We are also exposed to the impact of foreign exchange fluctuations on our investments in wholly-owned foreign subsidiaries denominated in
+a currency other than the U.S. dollar, which could adversely impact the U.S. dollar value of these investments and therefore the value of future repatriated earnings. We hedge certain net investment positions in Euro-functional currency foreign
+subsidiaries to mitigate the effects of foreign exchange fluctuations on net investments with the effect of preserving the value of future repatriated earnings. In accordance with the accounting standards for derivatives and hedging, the effective
+portion of the change in fair value of the forward contracts designated as net investment hedges is recorded in the cumulative translation adjustment component of accumulated other comprehensive income. Any ineffective portion, which was not
+material for any period presented, is immediately recognized in earnings as a component of other (income), net. To minimize credit risk, we have structured these net investment hedges to be generally less than six months in duration. Upon maturity,
+the hedges are settled based on the current fair value of the forward contracts with the realized gain or loss remaining in OCI; concurrent with settlement, we enter into new forward contracts at the current market rate. The fair value of
+outstanding net investment hedges at May 31, 2011 was $23 million in liabilities. At May 31, 2010, the fair value was $32 million in assets. Cash flows from net investment hedge settlements totaled ($23) million and $5 million in the years
+ended May 31, 2011 and 2010, respectively. 
+Liquidity and Capital Resources 
+Cash Flow Activity 
+Cash provided by operations was $1.8 billion for fiscal 2011 compared to $3.2 billion for fiscal 2010. Our primary source of operating cash flow for fiscal 2011 was net income of $2.1 billion. Our working
+capital was a net cash outflow of $708 million for fiscal 2011 as compared to a positive net cash inflow of $694 million for fiscal 2010. Our investments in working capital increased primarily due to an increase in inventory and higher accounts
+receivable. Inventory at the end of fiscal 2011 increased 33% compared to fiscal 2010, primarily driven by a 15% increase in futures orders, growth in replenishment programs for high-turnover styles, early purchases of key seasonal items with longer
+production lead times as well as the growth of Direct to Consumer operations. Changes in currency exchange rates and higher product costs also contributed to the increase in dollar inventory. The increase in accounts receivable was mainly
+attributable to the increase in revenues during fiscal 2011. 
+Cash used by investing activities was $1.0 billion during fiscal
+2011, compared to $1.3 billion for fiscal 2010. The year-over-year decrease was primarily due to lower net purchases of short-term investments. Net purchases of short-term investments were $537 million (net of sales and maturities) in fiscal
+2011 compared to $937 million during fiscal 2010. 
+42 
+Table of Contents 
+Cash used by financing activities was $2.0 billion for fiscal 2011 compared to $1.1 billion
+used in fiscal 2010. The increase in cash used by financing activities was primarily due to an increase in share repurchases and dividends paid, partially offset by an increase in notes payable. 
+In fiscal 2011, we purchased 23.8 million shares of NIKE’s class B common stock for $1.9 billion. These repurchases were made
+under the four-year, $5 billion program approved by our Board of Directors which commenced in December 2009 and as of the end of fiscal 2011, we have repurchased 30.4 million shares for $2.3 billion under this program. We continue to expect
+funding of share repurchases will come from operating cash flow, excess cash, and/or debt. The timing and the amount of shares purchased will be dictated by our capital needs and stock market conditions. 
+Off-Balance Sheet Arrangements 
+In connection with various contracts and agreements, we provide routine indemnifications relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other
+items where we are acting as the guarantor. Currently, we have several such agreements in place. However, based on our historical experience and the estimated probability of future loss, we have determined that the fair value of such
+indemnifications is not material to our financial position or results of operations. 
+Contractual Obligations
+Our significant long-term contractual obligations as of May 31, 2011, and significant endorsement contracts
+entered into through the date of this report are as follows: 
+Description of Commitment 
+Cash Payments Due During the Year Ending May 31, 
+2012 
+2013 
+2014 
+2015 
+2016 
+Thereafter 
+Total 
+(In millions) 
+Operating Leases 
+$ 
+374 
+$ 
+310 
+$ 
+253 
+$ 
+198 
+$ 
+174 
+$ 
+535 
+$ 
+1,844 
+Long-term Debt 
+200 
+48 
+58 
+8 
+109 
+37 
+460 
+Endorsement Contracts (1) 
+800 
+806 
+742 
+615 
+463 
+1,018 
+4,444 
+Product Purchase Obligations (2) 
+3,175 
+— 
+— 
+— 
+— 
+— 
+3,175 
+Other (3) 
+277 
+137 
+22 
+4 
+1 
+— 
+441 
+Total 
+$ 
+4,826 
+$ 
+1,301 
+$ 
+1,075 
+$ 
+825 
+$ 
+747 
+$ 
+1,590 
+$ 
+10,364 
+(1) 
+The amounts listed for endorsement contracts represent approximate amounts of base compensation and minimum guaranteed royalty fees we are obligated to
+pay athlete and sport team endorsers of our products. Actual payments under some contracts may be higher than the amounts listed as these contracts provide for bonuses to be paid to the endorsers based upon athletic achievements and/or royalties on
+product sales in future periods. Actual payments under some contracts may also be lower as these contracts include provisions for reduced payments if athletic performance declines in future periods. 
+In addition to the cash payments, we are obligated to furnish our endorsers with NIKE product for their use. It is not possible to
+determine how much we will spend on this product on an annual basis as the contracts generally do not stipulate a specific amount of cash to be spent on the product. The amount of product provided to the endorsers will depend on many factors
+including general playing conditions, the number of sporting events in which they participate, and our own decisions regarding product and marketing initiatives. In addition, the costs to design, develop, source, and purchase the products furnished
+to the endorsers are incurred over a period of time and are not necessarily tracked separately from similar costs incurred for products sold to customers. 
+(2) 
+We generally order product at least 4 to 5 months in advance of sale based primarily on advanced futures orders received from customers. The amounts
+listed for product purchase obligations represent agreements (including open purchase orders) to purchase products in the ordinary course of business, that are 
+43 
+Table of Contents 
+enforceable and legally binding and that specify all significant terms. In some cases, prices are subject to change throughout the production process. The reported amounts exclude product
+purchase liabilities included in accounts payable on the consolidated balance sheet as of May 31, 2011. 
+(3) 
+Other amounts primarily include service and marketing commitments made in the ordinary course of business. The amounts represent the minimum payments
+required by legally binding contracts and agreements that specify all significant terms, including open purchase orders for non-product purchases. The reported amounts exclude those liabilities included in accounts payable or accrued liabilities on
+the consolidated balance sheet as of May 31, 2011. 
+The total liability for uncertain tax positions was
+$212 million, excluding related interest and penalties, at May 31, 2011. We are not able to reasonably estimate when or if cash payments of the long-term liability for uncertain tax positions will occur. 
+We also have the following outstanding short-term debt obligations as of May 31, 2011. Please refer to the accompanying Notes to the
+Consolidated Financial Statements (Note 7 — Short-Term Borrowings and Credit Lines) for further description and interest rates related to the short-term debt obligations listed below. 
+Outstanding as of 
+May 31, 2011 
+(In millions) 
+Notes payable, due at mutually agreed-upon dates within one year of issuance or on demand 
+$ 
+187 
+Payable to Sojitz America for the purchase of inventories, generally due 60 days after shipment of goods from a foreign
+port 
+$ 
+111 
+As of May 31, 2011, letters of credit of $99 million were outstanding, generally for the purchase of
+inventory. 
+Capital Resources 
+In December 2008, we filed a shelf registration statement with the Securities and Exchange Commission under which $760 million in debt securities may be issued. As of May 31, 2011, no debt securities
+had been issued under this shelf registration. 
+As of and for the year ended May 31, 2011, we had no amounts outstanding
+under our multi-year, $1 billion revolving credit facility in place with a group of banks. The facility matures in December 2012. Based on our current long-term senior unsecured debt ratings of A+ and A1 from Standard and Poor’s Corporation and
+Moody’s Investor Services, respectively, the interest rate charged on any outstanding borrowings would be the prevailing London Interbank Offer Rate (“LIBOR”) plus 0.15%. The facility fee is 0.05% of the total commitment. 
+If our long-term debt rating were to decline, the facility fee and interest rate under our committed credit facility would increase.
+Conversely, if our long-term debt rating were to improve, the facility fee and interest rate would decrease. Changes in our long-term debt rating would not trigger acceleration of maturity of any then outstanding borrowings or any future borrowings
+under the committed credit facility. Under this committed credit facility, we have agreed to various covenants. These covenants include limits on our disposal of fixed assets and the amount of debt secured by liens we may incur as well as a minimum
+capitalization ratio. In the event we were to have any borrowings outstanding under this facility, failed to meet any covenant, and were unable to obtain a waiver from a majority of the banks, any borrowings would become immediately due and payable.
+As of May 31, 2011, we were in full compliance with each of these covenants and believe it is unlikely we will fail to meet any of these covenants in the foreseeable future. 
+44 
+Table of Contents 
+Liquidity is also provided by our $1 billion commercial paper program. As of and for the
+year ended May 31, 2011, no amounts were outstanding under this program. We currently have short-term debt ratings of A1 and P1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively. 
+As of May 31, 2011, we had cash, cash equivalents and short term investments totaling $4.5 billion, including amounts held in the
+U.S. and foreign jurisdictions. Cash equivalents and short term investments consist primarily of deposits held at major banks, money market funds, Tier-1 commercial paper, corporate notes, U.S. Treasury obligations, U.S. government agency
+obligations and government sponsored enterprise obligations, and other investment grade fixed income securities. Our fixed income investments are exposed to both credit and interest rate risk. All of our investments are investment grade to
+minimize our credit risk. While individual securities have varying durations, the average duration of our entire cash equivalents and short term investment portfolio is less than 120 days as of May 31, 2011. 
+Despite recent uncertainties in the financial markets, to date we have not experienced difficulty accessing the credit markets or
+incurred higher interest costs. Future volatility in the capital markets, however, may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets. We utilize a variety of tax
+planning and financing strategies in an effort to manage our worldwide cash and deploy funds to locations where it is needed. We believe that existing cash, cash equivalents, short-term investments and cash generated by operations, together
+with access to external sources of funds as described above, will be sufficient to meet our domestic and foreign capital needs in the foreseeable future. 
+Recently Adopted Accounting Standards 
+In January 2010, the Financial
+Accounting Standards Board (“FASB”) issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires additional disclosures about the different classes of assets and
+liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3 of the fair value measurement hierarchy. This guidance became effective for
+us beginning March 1, 2010, except for disclosures relating to purchases, sales, issuances and settlements of Level 3 assets and liabilities, which will be effective for us beginning June 1, 2011. As this guidance only requires expanded
+disclosures, the adoption did not and will not impact our consolidated financial position or results of operations. 
+In June
+2009, the FASB issued a new accounting standard that revised the guidance for the consolidation of variable interest entities (“VIE”). This new guidance requires a qualitative approach to identifying a controlling financial interest in a
+VIE, and requires an ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. This guidance became effective for us beginning June 1, 2010. The adoption of this
+guidance did not have an impact on our consolidated financial position or results of operations. 
+45 
+Table of Contents 
+Recently Issued Accounting Standards 
+In June 2011, the FASB issued new guidance on the presentation of comprehensive income. This new guidance requires the components of net
+income and other comprehensive income to be either presented in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. This new guidance eliminates the current option to report
+other comprehensive income and its components in the statement of shareholders’ equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other
+comprehensive income under current accounting guidance. This new guidance is effective for us beginning June 1, 2012. As this guidance only amends the presentation of the components of comprehensive income, the adoption will not have an impact
+on our consolidated financial positions or results of operations. 
+In April 2011, the FASB issued new guidance to achieve
+common fair value measurement and disclosure requirements between U.S. GAAP and International Financial Reporting Standards. This new guidance, which is effective for us beginning June 1, 2012, amends current U.S. GAAP fair value measurement
+and disclosure guidance to include increased transparency around valuation inputs and investment categorization. We do not expect the adoption will have a material impact on our consolidated financial position or results of operations. 
+In October 2009, the FASB issued new standards that revised the guidance for revenue recognition with multiple deliverables. These
+new standards impact the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, these new standards modify the manner in which the transaction
+consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. These new standards are effective for us beginning June 1, 2011. We do not expect the
+adoption will have a material impact on our consolidated financial position or results of operations. 
+Critical Accounting Policies
+Our previous discussion and analysis of our financial condition and results of operations are based upon our consolidated
+financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the
+reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. 
+We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential
+impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting
+policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, the allowance for uncollectible accounts receivable, inventory reserves, and contingent payments under
+endorsement contracts. These policies require that we make estimates in the preparation of our financial statements as of a given date. However, since our business cycle is relatively short, actual results related to these estimates are generally
+known within the six-month period following the financial statement date. Thus, these policies generally affect only the timing of reported amounts across two to three fiscal quarters. 
+Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances
+that would result in materially different amounts being reported. 
+Revenue Recognition 
+We record wholesale revenues when title passes and the risks and rewards of ownership have passed to the customer, based on the terms of
+sale. Title passes generally upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale. 
+46 
+Table of Contents 
+In some instances, we ship product directly from our supplier to the customer and recognize
+revenue when the product is delivered to and accepted by the customer. Our revenues may fluctuate in cases when our customers delay accepting shipment of product for periods up to several weeks. 
+In certain countries outside of the U.S., precise information regarding the date of receipt by the customer is not readily available. In
+these cases, we estimate the date of receipt by the customer based upon historical delivery times by geographic location. On the basis of our tests of actual transactions, we have no indication that these estimates have been materially inaccurate
+historically. 
+As part of our revenue recognition policy, we record estimated sales returns, discounts and miscellaneous
+claims from customers as reductions to revenues at the time revenues are recorded. We base our estimates on historical rates of product returns, discounts and claims, and specific identification of outstanding claims and outstanding returns not yet
+received from customers. Actual returns, discounts and claims in any future period are inherently uncertain and thus may differ from our estimates. If actual or expected future returns, discounts and claims were significantly greater or lower than
+the reserves we had established, we would record a reduction or increase to net revenues in the period in which we made such determination. 
+Allowance for Uncollectible Accounts Receivable 
+We make ongoing
+estimates relating to the ability to collect our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the allowance, we consider our
+historical level of credit losses and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Since we cannot predict future changes in the financial stability of our customers, actual future losses
+from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger allowance might be required. In the event we determine that a smaller
+or larger allowance is appropriate, we would record a credit or a charge to selling and administrative expense in the period in which such a determination is made. 
+Inventory Reserves 
+We also make ongoing estimates relating to the
+net realizable value of inventories, based upon our assumptions about future demand and market conditions. If we estimate that the net realizable value of our inventory is less than the cost of the inventory recorded on our books, we record a
+reserve equal to the difference between the cost of the inventory and the estimated net realizable value. This reserve is recorded as a charge to cost of sales. If changes in market conditions result in reductions in the estimated net realizable
+value of our inventory below our previous estimate, we would increase our reserve in the period in which we made such a determination and record a charge to cost of sales. 
+Contingent Payments under Endorsement Contracts 
+A significant
+portion of our demand creation expense relates to payments under endorsement contracts. In general, endorsement payments are expensed uniformly over the term of the contract. However, certain contract elements may be accounted for differently, based
+upon the facts and circumstances of each individual contract. 
+Some of the contracts provide for contingent payments to
+endorsers based upon specific achievements in their sports (e.g., winning a championship). We record selling and administrative expense for these amounts when the endorser achieves the specific goal. 
+Some of the contracts provide for payments based upon endorsers maintaining a level of performance in their sport over an extended period
+of time (e.g., maintaining a top ranking in a sport for a year). These amounts are reported in selling and administrative expense when we determine that it is probable that the specified level
+47 
+Table of Contents 
+of performance will be maintained throughout the period. In these instances, to the extent that actual payments to the endorser differ from our estimate due to changes in the endorser’s
+athletic performance, increased or decreased selling and administrative expense may be reported in a future period. 
+Some of
+the contracts provide for royalty payments to endorsers based upon a predetermined percentage of sales of particular products. We expense these payments in cost of sales as the related sales occur. In certain contracts, we offer minimum guaranteed
+royalty payments. For contractual obligations for which we estimate we will not meet the minimum guaranteed amount of royalty fees through sales of product, we record the amount of the guaranteed payment in excess of that earned through sales of
+product in selling and administrative expense uniformly over the remaining guarantee period. 
+Property, Plant and
+Equipment and Definite-Lived Assets 
+Property, plant and equipment, including buildings, equipment, and computer
+hardware and software are recorded at cost (including, in some cases, the cost of internal labor) and are depreciated over the estimated useful life. Changes in circumstances (such as technological advances or changes to our business operations) can
+result in differences between the actual and estimated useful lives. In those cases where we determine that the useful life of a long-lived asset should be shortened, we increase depreciation expense over the remaining useful life to depreciate the
+asset’s net book value to its salvage value. 
+We review the carrying value of long-lived assets or asset groups to be
+used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or
+manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others. If such facts
+indicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual
+disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we will estimate the fair value of the asset
+group using appropriate valuation methodologies which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset groups carrying amount and its estimated fair value. 
+Goodwill and Indefinite-Lived Intangible Assets 
+We perform annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal year, or when events occur or circumstances change that would, more likely
+than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite life below its carrying value. Events or changes in circumstances that may trigger interim impairment reviews include significant changes in business
+climate, operating results, planned investments in the reporting unit, or an expectation that the carrying amount may not be recoverable, among other factors. The impairment test requires us to estimate the fair value of our reporting units. If the
+carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and we proceed to step two of the impairment analysis. In step two of the analysis, we measure and record an impairment loss equal
+to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value should such a circumstance arise. 
+We generally base our measurement of the fair value of a reporting unit on a blended analysis of the present value of future discounted cash flows and the market valuation approach. The discounted cash
+flows model indicates the fair value of the reporting unit based on the present value of the cash flows we expect the reporting unit to generate in the future. Our significant estimates in the discounted cash flows model include: our weighted
+average cost of capital; long-term rate of growth and profitability of the reporting unit’s business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of
+48 
+Table of Contents 
+the reporting unit to comparable publicly traded firms in similar lines of business. Significant estimates in the market valuation approach model include identifying similar companies with
+comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit. 
+We believe the weighted use of discounted cash flows and the market valuation approach is the best method for determining the fair value
+of our reporting units because these are the most common valuation methodologies used within our industry, and the blended use of both models compensates for the inherent risks associated with either model if used on a stand-alone basis. 
+Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks. In measuring the fair value for these
+intangible assets, we utilize the relief-from-royalty method. This method assumes that trade names and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This
+method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. 
+Hedge Accounting for Derivatives 
+We use forward and option
+contracts to hedge certain anticipated foreign currency exchange transactions as well as certain non-functional monetary assets and liabilities. When the specific criteria to qualify for hedge accounting has been met, changes in the fair value of
+contracts hedge probable forecasted future cash flows are recorded in other comprehensive income, rather than net income, until the underlying hedged transaction affects net income. In most cases, this results in gains and losses on hedge
+derivatives being released from other comprehensive income into net income some time after the maturity of the derivative. One of the criteria for this accounting treatment is that the forward and option contracts amount should not be in excess of
+specifically identified anticipated transactions. By their very nature, our estimates of anticipated transactions may fluctuate over time and may ultimately vary from actual transactions. When anticipated transaction estimates or actual transaction
+amounts decline below hedged levels, or if it is no longer probable that a forecasted transaction will occur by the end of the originally specified time period or within an additional two-month period of time thereafter, we are required to
+reclassify the ineffective portion of the cumulative changes in fair values of the related hedge contracts from other comprehensive income to other (income), net during the quarter in which such changes occur. 
+We use forward contracts to hedge our investment in the net assets of certain international subsidiaries to offset foreign currency
+translation related to our net investment in those subsidiaries. The change in fair value of the forward contracts hedging our net investments is reported in the cumulative translation adjustment component of accumulated other comprehensive income
+within stockholders’ equity, to the extent effective, to offset the foreign currency translation adjustments on those investments. As the value of our underlying net investments in wholly-owned international subsidiaries is known at the time a
+hedge is placed, the designated hedge is matched to the portion of our net investment at risk. Accordingly, the variability involved in net investment hedges is substantially less than that of other types of hedge transactions and we do not expect
+any material ineffectiveness. We consider, on a quarterly basis, the need to redesignate existing hedge relationships based on changes in the underlying net investment. Should the level of our net investment decrease below hedged levels, any
+resulting ineffectiveness would be reported directly to earnings in the period incurred. 
+Stock-based Compensation
+We account for stock-based compensation by estimating the fair value of stock-based compensation on the date of grant
+using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of highly subjective assumptions including volatility. Expected volatility is estimated based on implied volatility in market traded options on
+our common stock with a term greater than one year, along with other factors. Our decision to use implied volatility was based on the availability of actively traded options on our 
+49 
+Table of Contents 
+common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility. If factors change and we use different assumptions for
+estimating stock-based compensation expense in future periods, stock-based compensation expense may differ materially in the future from that recorded in the current period. 
+Taxes 
+We record valuation allowances against our deferred tax
+assets, when necessary. Realization of deferred tax assets (such as net operating loss carry-forwards) is dependent on future taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset
+balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance against our deferred tax asset, which increases our income tax expense in the period when such
+determination is made. 
+In addition, we have not recorded U.S. income tax expense for foreign earnings that we have determined
+to be indefinitely reinvested offshore, thus reducing our overall income tax expense. The amount of earnings designated as indefinitely reinvested offshore is based upon the actual deployment of such earnings in our offshore assets and our
+expectations of the future cash needs of our U.S. and foreign entities. Income tax considerations are also a factor in determining the amount of foreign earnings to be indefinitely reinvested offshore. 
+We carefully review all factors that drive the ultimate disposition of foreign earnings determined to be reinvested offshore, and apply
+stringent standards to overcoming the presumption of repatriation. Despite this approach, because the determination involves our future plans and expectations of future events, the possibility exists that amounts declared as indefinitely reinvested
+offshore may ultimately be repatriated. For instance, the actual cash needs of our U.S. entities may exceed our current expectations, or the actual cash needs of our foreign entities may be less than our current expectations. This would result in
+additional income tax expense in the year we determined that amounts were no longer indefinitely reinvested offshore. Conversely, our approach may also result in a determination that accumulated foreign earnings (for which U.S. income taxes have
+been provided) will be indefinitely reinvested offshore. In this case, our income tax expense would be reduced in the year of such determination. 
+On an interim basis, we estimate what our effective tax rate will be for the full fiscal year. The estimated annual effective tax rate is then applied to the year-to-date pre-tax income excluding
+infrequently occurring or unusual items, to determine the year-to-date tax expense. The income tax effects of infrequent or unusual items are recognized in the interim period in which they occur. As the fiscal year progresses, we continually refine
+our estimate based upon actual events and earnings by jurisdiction during the year. This continual estimation process periodically results in a change to our expected effective tax rate for the fiscal year. When this occurs, we adjust the income tax
+provision during the quarter in which the change in estimate occurs. 
+On a quarterly basis, we reevaluate the probability that
+a tax position will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity.
+Changes in our assessment may result in the recognition of a tax benefit or an additional charge to the tax provision in the period our assessment changes. We recognize interest and penalties related to income tax matters in income tax expense.
+Other Contingencies 
+In the ordinary course of business, we are involved in legal proceedings regarding contractual and employment relationships, product liability claims, trademark rights, and a variety of other matters. We
+record contingent liabilities resulting from claims against us, including related legal costs, when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Assessing probability of loss and estimating probable losses
+requires analysis of multiple factors, including in some cases judgments about the potential 
+50 
+Table of Contents 
+actions of third party claimants and courts. Recorded contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain. If future
+adjustments to estimated probable future losses or actual losses exceed our recorded liability for such claims, we would record additional charges as other (income), net during the period in which the actual loss or change in estimate occurred. In
+addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will materially exceed the recorded liability. Currently, we do not believe that any of
+our pending legal proceedings or claims will have a material impact on our financial position or results of operations. 
+Item 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+In the normal course of business and consistent with established policies and procedures, we employ a variety of financial instruments to manage exposure to fluctuations in the value of foreign currencies
+and interest rates. It is our policy to utilize these financial instruments only where necessary to finance our business and manage such exposures; we do not enter into these transactions for speculative purposes. 
+We are exposed to foreign currency fluctuations, primarily as a result of our international sales, product sourcing and funding
+activities. Our foreign exchange risk management program is intended to minimize both the positive or negative effects of currency fluctuations on our consolidated results of operations, financial position and cash flows. This also has the effect of
+delaying the impact of current market rates on our consolidated financial statements dependent upon hedge horizons. We use forward exchange contracts and options to hedge certain anticipated but not yet firmly committed transactions as well as
+certain firm commitments and the related receivables and payables, including third party and intercompany transactions. We also use forward contracts to hedge our investment in the net assets of certain international subsidiaries to offset foreign
+currency translation adjustments related to our net investment in those subsidiaries. 
+When we begin hedging exposures, the
+type and duration of each hedge depends on the nature of the exposure and market conditions. Generally, all anticipated and firmly committed transactions that are hedged are to be recognized within 12 to 18 months. The majority of the contracts
+expiring in more than 12 months relate to the anticipated purchase of inventory. When intercompany loans are hedged, it is typically for their expected duration. Hedged transactions are principally denominated in Euros, Japanese Yen and British
+Pounds. See Section “Foreign Currency Exposures and Hedging Practices” under Item 7 for additional detail. 
+Our
+earnings are also exposed to movements in short and long-term market interest rates. Our objective in managing this interest rate exposure is to limit the impact of interest rate changes on earnings and cash flows and to reduce overall borrowing
+costs. To achieve these objectives, we maintain a mix of commercial paper, bank loans and fixed rate debt of varying maturities and have entered into receive-fixed, pay-variable interest rate swaps. 
+Market Risk Measurement 
+We monitor foreign exchange risk, interest rate risk and related derivatives using a variety of techniques including a review of market
+value, sensitivity analysis, and Value-at-Risk (“VaR”). Our market-sensitive derivative and other financial instruments are foreign currency forward contracts, foreign currency option contracts, interest rate swaps, intercompany loans
+denominated in non-functional currencies, fixed interest rate U.S. dollar denominated debt, and fixed interest rate Japanese Yen denominated debt. 
+We use VaR to monitor the foreign exchange risk of our foreign currency forward and foreign currency option derivative instruments only. The VaR determines the maximum potential one-day loss in the fair
+value of these foreign exchange rate-sensitive financial instruments. The VaR model estimates assume normal market conditions and a 95% confidence level. There are various modeling techniques that can be used in the VaR computation. Our computations
+are based on interrelationships between currencies and interest rates (a “variance/co-variance” technique). These interrelationships are a function of foreign exchange currency market changes
+51 
+Table of Contents 
+and interest rate changes over the preceding one year period. The value of foreign currency options does not change on a one-to-one basis with changes in the underlying currency rate. We adjusted
+the potential loss in option value for the estimated sensitivity (the “delta” and “gamma”) to changes in the underlying currency rate. This calculation reflects the impact of foreign currency rate fluctuations on the derivative
+instruments only and does not include the impact of such rate fluctuations on non-functional currency transactions (such as anticipated transactions, firm commitments, cash balances, and accounts and loans receivable and payable), including those
+which are hedged by these instruments. 
+The VaR model is a risk analysis tool and does not purport to represent actual losses
+in fair value that we will incur, nor does it consider the potential effect of favorable changes in market rates. It also does not represent the full extent of the possible loss that may occur. Actual future gains and losses will differ from those
+estimated because of changes or differences in market rates and interrelationships, hedging instruments and hedge percentages, timing and other factors. 
+The estimated maximum one-day loss in fair value on our foreign currency sensitive derivative financial instruments, derived using the VaR model, was $33 million and $17 million at May 31, 2011 and
+2010, respectively. The VaR increased year-over-year primarily as a result of increased foreign currency volatilities at May 31, 2011. Such a hypothetical loss in fair value of our derivatives would be offset by increases in the value of the
+underlying transactions being hedged. The average monthly change in the fair values of foreign currency forward and foreign currency option derivative instruments was $79 million and $52 million during fiscal 2011 and fiscal 2010, respectively.
+The instruments not included in the VaR are intercompany loans denominated in non-functional currencies, fixed interest rate
+Japanese Yen denominated debt, fixed interest rate U.S. dollar denominated debt and interest rate swaps. Intercompany loans and related interest amounts are eliminated in consolidation. Furthermore, our non-functional currency intercompany loans are
+substantially hedged against foreign exchange risk through the use of forward contracts, which are included in the VaR calculation above. We, therefore, consider the interest rate and foreign currency market risks associated with our non-functional
+currency intercompany loans to be immaterial to our consolidated financial position, results from operations and cash flows. 
+52 
+Table of Contents 
+Details of third party debt and interest rate swaps are provided in the table below. The
+table presents principal cash flows and related weighted average interest rates by expected maturity dates. Weighted average interest rates for the fixed rate swapped to floating rate debt reflect the effective interest rates as of May 31,
+2011. 
+Expected Maturity Date 
+Year Ending May 31, 
+2012 
+2013 
+2014 
+2015 
+2016 
+Thereafter 
+Total 
+Fair Value 
+(In millions, except interest rates) 
+Foreign Exchange Risk 
+Japanese Yen Functional Currency 
+Japanese Yen debt — Fixed rate 
+Principal payments 
+$ 
+200 
+$ 
+8 
+$ 
+8 
+$ 
+8 
+$ 
+8 
+$ 
+37 
+$ 
+269 
+$ 
+275 
+Average interest rate 
+3.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+3.0 
+% 
+Interest Rate Risk 
+Japanese Yen Functional Currency 
+Long-term Japanese Yen debt — Fixed rate 
+Principal payments 
+$ 
+200 
+$ 
+8 
+$ 
+8 
+$ 
+8 
+$ 
+8 
+$ 
+37 
+$ 
+269 
+$ 
+275 
+Average interest rate 
+3.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.0 
+% 
+U.S. Dollar Functional Currency 
+Long-term U.S. Dollar debt — Fixed rate swapped to Floating rate 
+Principal payments 
+$ 
+— 
+$ 
+40 
+$ 
+— 
+$ 
+— 
+$ 
+101 
+$ 
+— 
+$ 
+141 
+$ 
+153 
+Average interest rate 
+0.0 
+% 
+0.9 
+% 
+0.0 
+% 
+0.0 
+% 
+0.4 
+% 
+0.0 
+% 
+0.5 
+% 
+Long-term U.S. Dollar debt — Fixed rate 
+Principal payments 
+$ 
+— 
+$ 
+— 
+$ 
+50 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+50 
+$ 
+54 
+Average interest rate 
+0.0 
+% 
+0.0 
+% 
+4.7 
+% 
+0.0 
+% 
+0.0 
+% 
+0.0 
+% 
+4.7 
+% 
+The fixed interest rate Japanese Yen denominated debt instruments were issued by and are accounted for by
+one of our Japanese subsidiaries. Accordingly, the monthly translation of these instruments, which varies due to changes in foreign exchange rates, is recognized in accumulated other comprehensive income upon the consolidation of this subsidiary.
+Item 8. 
+Financial Statements and Supplemental Data 
+Management of NIKE, Inc. is responsible for the information and representations contained in this report. The financial statements have been prepared in conformity with the generally accepted accounting
+principles we considered appropriate in the circumstances and include some amounts based on our best estimates and judgments. Other financial information in this report is consistent with these financial statements. 
+Our accounting systems include controls designed to reasonably assure assets are safeguarded from unauthorized use or disposition and
+provide for the preparation of financial statements in conformity with generally accepted accounting principles. These systems are supplemented by the selection and training of qualified financial personnel and an organizational structure providing
+for appropriate segregation of duties. 
+An Internal Audit department reviews the results of its work with the Audit Committee
+of the Board of Directors, presently consisting of three outside directors. The Audit Committee is responsible for the appointment of the independent registered public accounting firm and reviews with the independent registered public accounting
+firm, management and the internal audit staff, the scope and the results of the annual examination, the effectiveness of the accounting control system and other matters relating to the financial affairs of NIKE as they deem appropriate. The
+independent registered public accounting firm and the internal auditors have full access to the Committee, with and without the presence of management, to discuss any appropriate matters. 
+53 
+Table of Contents 
+Management’s Annual Report on Internal Control Over Financial Reporting 
+Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
+Rule 13a-15(f) and Rule 15d-15(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
+preparation of the financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that:
+(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary
+to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and
+(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets of the company that could have a material effect on the financial statements. 
+While “reasonable assurance” is a high level of assurance, it does not mean absolute assurance. Because of its inherent
+limitations, internal control over financial reporting may not prevent or detect every misstatement and instance of fraud. Controls are susceptible to manipulation, especially in instances of fraud caused by the collusion of two or more people,
+including our senior management. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
+or procedures may deteriorate. 
+Under the supervision and with the participation of our Chief Executive Officer and Chief
+Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring
+Organizations of the Treadway Commission (COSO). Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of May 31, 2011. 
+PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited (1) the consolidated financial statements
+and (2) the effectiveness of our internal control over financial reporting as of May 31, 2011, as stated in their report herein. 
+Mark G. Parker 
+Donald W. Blair 
+Chief Executive Officer and President 
+Chief Financial Officer 
+54 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
+To the Board of Directors and 
+Shareholders of NIKE, Inc.: 
+In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of NIKE, Inc. and its
+subsidiaries at May 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2011 in conformity with accounting principles generally accepted in the United States
+of America. In addition, in our opinion, the financial statement schedule listed in the appendix appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the
+related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2011, based on criteria established in Internal Control
+— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining
+effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under
+Item 8. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in
+accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
+misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the
+financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
+understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
+included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 
+A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
+statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that,
+in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
+accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance
+regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
+of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+/s/ P RICEWATERHOUSE C OOPERS LLP 
+Portland, Oregon 
+July 22, 2011 
+55 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF INCOME 
+Year Ended May 31, 
+2011 
+2010 
+2009 
+(In millions, except per share data) 
+Revenues 
+$ 
+20,862 
+$ 
+19,014 
+$ 
+19,176 
+Cost of sales 
+11,354 
+10,214 
+10,572 
+Gross margin 
+9,508 
+8,800 
+8,604 
+Demand creation expense 
+2,448 
+2,356 
+2,352 
+Operating overhead expense 
+4,245 
+3,970 
+3,798 
+Total selling and administrative expense 
+6,693 
+6,326 
+6,150 
+Restructuring charges (Note 16) 
+— 
+— 
+195 
+Goodwill impairment (Note 4) 
+— 
+— 
+199 
+Intangible and other asset impairment (Note 4) 
+— 
+— 
+202 
+Interest expense (income), net (Notes 6, 7 and 8) 
+4 
+6 
+(10 
+) 
+Other (income), net (Note 17) 
+(33 
+) 
+(49 
+) 
+(89 
+) 
+Income before income taxes 
+2,844 
+2,517 
+1,957 
+Income taxes (Note 9) 
+711 
+610 
+470 
+Net income 
+$ 
+2,133 
+$ 
+1,907 
+$ 
+1,487 
+Basic earnings per common share (Notes 1 and 12) 
+$ 
+4.48 
+$ 
+3.93 
+$ 
+3.07 
+Diluted earnings per common share (Notes 1 and 12) 
+$ 
+4.39 
+$ 
+3.86 
+$ 
+3.03 
+Dividends declared per common share 
+$ 
+1.20 
+$ 
+1.06 
+$ 
+0.98 
+The accompanying notes to consolidated financial statements are an integral part of this statement. 
+56 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED BALANCE SHEETS 
+May 31, 
+2011 
+2010 
+(In millions) 
+ASSETS 
+Current assets: 
+Cash and equivalents 
+$ 
+1,955 
+$ 
+3,079 
+Short-term investments (Note 6) 
+2,583 
+2,067 
+Accounts receivable, net (Note 1) 
+3,138 
+2,650 
+Inventories (Notes 1 and 2) 
+2,715 
+2,041 
+Deferred income taxes (Note 9) 
+312 
+249 
+Prepaid expenses and other current assets 
+594 
+873 
+Total current assets 
+11,297 
+10,959 
+Property, plant and equipment, net (Note 3) 
+2,115 
+1,932 
+Identifiable intangible assets, net (Note 4) 
+487 
+467 
+Goodwill (Note 4) 
+205 
+188 
+Deferred income taxes and other assets (Notes 9 and 17) 
+894 
+873 
+Total assets 
+$ 
+14,998 
+$ 
+14,419 
+LIABILITIES AND SHAREHOLDERS’ EQUITY 
+Current liabilities: 
+Current portion of long-term debt (Note 8) 
+$ 
+200 
+$ 
+7 
+Notes payable (Note 7) 
+187 
+139 
+Accounts payable (Note 7) 
+1,469 
+1,255 
+Accrued liabilities (Notes 5 and 17) 
+1,985 
+1,904 
+Income taxes payable (Note 9) 
+117 
+59 
+Total current liabilities 
+3,958 
+3,364 
+Long-term debt (Note 8) 
+276 
+446 
+Deferred income taxes and other liabilities (Notes 9 and 17) 
+921 
+855 
+Commitments and contingencies (Note 15) 
+— 
+— 
+Redeemable Preferred Stock (Note 10) 
+— 
+— 
+Shareholders’ equity: 
+Common stock at stated value (Note 11): 
+Class A convertible — 90 and 90 shares outstanding 
+— 
+— 
+Class B — 378 and 394 shares outstanding 
+3 
+3 
+Capital in excess of stated value 
+3,944 
+3,441 
+Accumulated other comprehensive income (Note 14) 
+95 
+215 
+Retained earnings 
+5,801 
+6,095 
+Total shareholders’ equity 
+9,843 
+9,754 
+Total liabilities and shareholders’ equity 
+$ 
+14,998 
+$ 
+14,419 
+The accompanying notes to consolidated financial statements are an integral part of this statement. 
+57 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+Year Ended May 31, 
+2011 
+2010 
+2009 
+(In millions) 
+Cash provided by operations: 
+Net income 
+$ 
+2,133 
+$ 
+1,907 
+$ 
+1,487 
+Income charges (credits) not affecting cash: 
+Depreciation 
+335 
+324 
+335 
+Deferred income taxes 
+(76 
+) 
+8 
+(294 
+) 
+Stock-based compensation (Note 11) 
+105 
+159 
+171 
+Impairment of goodwill, intangibles and other assets (Note 4) 
+— 
+— 
+401 
+Amortization and other 
+23 
+72 
+48 
+Changes in certain working capital components and other assets and liabilities excluding the impact of acquisition and
+divestitures: 
+(Increase) decrease in accounts receivable 
+(273 
+) 
+182 
+(238 
+) 
+(Increase) decrease in inventories 
+(551 
+) 
+285 
+32 
+(Increase) decrease in prepaid expenses and other current assets 
+(35 
+) 
+(70 
+) 
+14 
+Increase (decrease) in accounts payable, accrued liabilities and income taxes payable 
+151 
+297 
+(220 
+) 
+Cash provided by operations 
+1,812 
+3,164 
+1,736 
+Cash used by investing activities: 
+Purchases of short-term investments 
+(7,616 
+) 
+(3,724 
+) 
+(2,909 
+) 
+Maturities of short-term investments 
+4,313 
+2,334 
+1,280 
+Sales of short-term investments 
+2,766 
+453 
+1,110 
+Additions to property, plant and equipment 
+(432 
+) 
+(335 
+) 
+(456 
+) 
+Disposals of property, plant and equipment 
+1 
+10 
+33 
+Increase in other assets, net of other liabilities 
+(30 
+) 
+(11 
+) 
+(47 
+) 
+Settlement of net investment hedges 
+(23 
+) 
+5 
+191 
+Cash used by investing activities 
+(1,021 
+) 
+(1,268 
+) 
+(798 
+) 
+Cash used by financing activities: 
+Reductions in long-term debt, including current portion 
+(8 
+) 
+(32 
+) 
+(7 
+) 
+Increase (decrease) in notes payable 
+41 
+(205 
+) 
+177 
+Proceeds from exercise of stock options and other stock issuances 
+345 
+364 
+187 
+Excess tax benefits from share-based payment arrangements 
+64 
+58 
+25 
+Repurchase of common stock 
+(1,859 
+) 
+(741 
+) 
+(649 
+) 
+Dividends — common and preferred 
+(555 
+) 
+(505 
+) 
+(467 
+) 
+Cash used by financing activities 
+(1,972 
+) 
+(1,061 
+) 
+(734 
+) 
+Effect of exchange rate changes 
+57 
+(47 
+) 
+(47 
+) 
+Net (decrease) increase in cash and equivalents 
+(1,124 
+) 
+788 
+157 
+Cash and equivalents, beginning of year 
+3,079 
+2,291 
+2,134 
+Cash and equivalents, end of year 
+$ 
+1,955 
+$ 
+3,079 
+$ 
+2,291 
+Supplemental disclosure of cash flow information: 
+Cash paid during the year for: 
+Interest, net of capitalized interest 
+$ 
+32 
+$ 
+48 
+$ 
+47 
+Income taxes 
+736 
+537 
+765 
+Dividends declared and not paid 
+145 
+131 
+121 
+The accompanying notes to consolidated financial statements are an integral part of this statement. 
+58 
+Table of Contents 
+NIKE, INC. 
+CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY 
+Common Stock 
+Capital in 
+Excess of 
+Stated 
+Value 
+Accumulated 
+Other 
+Comprehensive 
+Income 
+Retained 
+Earnings 
+Total 
+Class A 
+Class B 
+Shares 
+Amount 
+Shares 
+Amount 
+(In millions, except per share data) 
+Balance at May 31, 2008 
+97 
+$ 
+— 
+394 
+$ 
+3 
+$ 
+2,498 
+$ 
+251 
+$ 
+5,073 
+$ 
+7,825 
+Stock options exercised 
+4 
+167 
+167 
+Conversion to Class B Common Stock 
+(2 
+) 
+2 
+— 
+Repurchase of Class B Common Stock 
+(11 
+) 
+(6 
+) 
+(633 
+) 
+(639 
+) 
+Dividends on Common stock ($0.98 per share) 
+(475 
+) 
+(475 
+) 
+Issuance of shares to employees 
+1 
+45 
+45 
+Stock-based compensation (Note 11): 
+171 
+171 
+Forfeiture of shares from employees 
+— 
+(4 
+) 
+(1 
+) 
+(5 
+) 
+Comprehensive income: 
+Net income 
+1,487 
+1,487 
+Other comprehensive income: 
+Foreign currency translation and other (net of tax benefit 
+of $178) 
+(335 
+) 
+(335 
+) 
+Net gain on cash flow hedges (net of tax expense of $168) 
+454 
+454 
+Net gain on net investment hedges (net of tax expense 
+of $55) 
+106 
+106 
+Reclassification to net income of previously deferred net gains related to hedge derivatives (net of tax expense of
+$40) 
+(108 
+) 
+(108 
+) 
+Total comprehensive income 
+117 
+1,487 
+1,604 
+Balance at May 31, 2009 
+95 
+$ 
+— 
+390 
+$ 
+3 
+$ 
+2,871 
+$ 
+368 
+$ 
+5,451 
+$ 
+8,693 
+Stock options exercised 
+9 
+380 
+380 
+Conversion to Class B Common Stock 
+(5 
+) 
+5 
+— 
+Repurchase of Class B Common Stock 
+(11 
+) 
+(7 
+) 
+(747 
+) 
+(754 
+) 
+Dividends on Common stock ($1.06 per share) 
+(515 
+) 
+(515 
+) 
+Issuance of shares to employees 
+1 
+40 
+40 
+Stock-based compensation (Note 11): 
+159 
+159 
+Forfeiture of shares from employees 
+— 
+(2 
+) 
+(1 
+) 
+(3 
+) 
+Comprehensive income: 
+Net income 
+1,907 
+1,907 
+Other comprehensive income (Notes 14 and 17): 
+Foreign currency translation and other (net of tax benefit of $72) 
+(159 
+) 
+(159 
+) 
+Net gain on cash flow hedges (net of tax expense of $28) 
+87 
+87 
+Net gain on net investment hedges (net of tax expense of $21) 
+45 
+45 
+Reclassification to net income of previously deferred net gains related to hedge derivatives (net of tax expense of
+$42) 
+(122 
+) 
+(122 
+) 
+Reclassification of ineffective hedge gains to net income (net of tax expense of $1) 
+(4 
+) 
+(4 
+) 
+Total comprehensive income 
+(153 
+) 
+1,907 
+1,754 
+Balance at May 31, 2010 
+90 
+$ 
+— 
+394 
+$ 
+3 
+$ 
+3,441 
+$ 
+215 
+$ 
+6,095 
+$ 
+9,754 
+Stock options exercised 
+7 
+368 
+368 
+Repurchase of Class B Common Stock 
+(24 
+) 
+(14 
+) 
+(1,857 
+) 
+(1,871 
+) 
+Dividends on Common stock ($1.20 per share) 
+(569 
+) 
+(569 
+) 
+Issuance of shares to employees 
+1 
+49 
+49 
+Stock-based compensation (Note 11): 
+105 
+105 
+Forfeiture of shares from employees 
+— 
+(5 
+) 
+(1 
+) 
+(6 
+) 
+Comprehensive income: 
+Net income 
+2,133 
+2,133 
+Other comprehensive income (Notes 14 and 17): 
+Foreign currency translation and other (net of tax expense of $121) 
+263 
+263 
+Net loss on cash flow hedges (net of tax benefit of $66) 
+(242 
+) 
+(242 
+) 
+Net loss on net investment hedges (net of tax benefit of $28) 
+(57 
+) 
+(57 
+) 
+Reclassification to net income of previously deferred net gains related to hedge derivatives (net of tax expense of
+$24) 
+(84 
+) 
+(84 
+) 
+Total comprehensive income 
+(120 
+) 
+2,133 
+2,013 
+Balance at May 31, 2011 
+90 
+$ 
+— 
+378 
+$ 
+3 
+$ 
+3,944 
+$ 
+95 
+$ 
+5,801 
+$ 
+9,843 
+The accompanying notes to consolidated financial statements are an integral part of this statement. 
+59 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+Note 1 — Summary of Significant Accounting Policies 
+Description of Business 
+NIKE, Inc. is a worldwide leader in the design, marketing and distribution of athletic and sports-inspired footwear, apparel, equipment and accessories. Wholly-owned NIKE subsidiaries include Cole Haan,
+which designs, markets and distributes dress and casual shoes, handbags, accessories and coats; Converse Inc., which designs, markets and distributes athletic and casual footwear, apparel and accessories; Hurley International LLC, which designs,
+markets and distributes action sports and youth lifestyle footwear, apparel and accessories; and Umbro International Limited, which designs, distributes and licenses athletic and casual footwear, apparel and equipment, primarily for the sport of
+soccer. 
+Basis of Consolidation 
+The consolidated financial statements include the accounts of NIKE, Inc. and its subsidiaries (the “Company”). All significant intercompany transactions and balances have been eliminated.
+Recognition of Revenues 
+Wholesale revenues are recognized when title passes and the risks and rewards of ownership have passed to the customer, based on the terms of sale. This occurs upon shipment or upon receipt by the
+customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale. Provisions for sales discounts, returns and miscellaneous claims from customers are made at the time of sale.
+As of May 31, 2011 and 2010, the Company’s reserve balances for sales discounts, returns and miscellaneous claims were $423 million and $371 million, respectively. 
+Shipping and Handling Costs 
+Shipping and handling costs are
+expensed as incurred and included in cost of sales. 
+Demand Creation Expense 
+Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, television, digital and
+print advertising, brand events, and retail brand presentation. Advertising production costs are expensed the first time an advertisement is run. Advertising placement costs are expensed in the month the advertising appears, while costs related to
+brand events are expensed when the event occurs. Costs related to retail brand presentation are expensed when the presentation is completed and delivered. A significant amount of the Company’s promotional expenses result from payments under
+endorsement contracts. Accounting for endorsement payments is based upon specific contract provisions. Generally, endorsement payments are expensed on a straight-line basis over the term of the contract after giving recognition to periodic
+performance compliance provisions of the contracts. Prepayments made under contracts are included in prepaid expenses or other assets depending on the period to which the prepayment applies. 
+Through cooperative advertising programs, the Company reimburses retail customers for certain costs of advertising the Company’s
+products. The Company records these costs in selling and administrative expense at the point in time when it is obligated to its customers for the costs, which is when the related revenues are recognized. This obligation may arise prior to the
+related advertisement being run. 
+Total advertising and promotion expenses were $2,448 million, $2,356 million, and $2,352
+million for the years ended May 31, 2011, 2010 and 2009, respectively. Prepaid advertising and promotion expenses recorded in prepaid expenses and other assets totaled $291 million and $261 million at May 31, 2011 and 2010, respectively.
+60 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Cash and Equivalents 
+Cash and equivalents represent cash and short-term, highly liquid investments with maturities of three months or less at date of purchase.
+The carrying amounts reflected in the consolidated balance sheet for cash and equivalents approximate fair value. 
+Short-Term Investments 
+Short-term investments consist of highly liquid investments, including commercial paper, U.S. treasury, U.S. agency, and corporate debt securities, with maturities over three months from the date of
+purchase. Debt securities that the Company has the ability and positive intent to hold to maturity are carried at amortized cost. At May 31, 2011 and 2010, the Company did not hold any short-term investments that were classified as trading or
+held-to-maturity. 
+At May 31, 2011 and 2010, short-term investments consisted of available-for-sale securities.
+Available-for-sale securities are recorded at fair value with unrealized gains and losses reported, net of tax, in other comprehensive income, unless unrealized losses are determined to be other than temporary. The Company considers all
+available-for-sale securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs and therefore classifies all securities with maturity dates beyond three months at the date of purchase
+as current assets within short-term investments on the consolidated balance sheet. 
+See Note 6 — Fair Value Measurements
+for more information on the Company’s short term investments. 
+Allowance for Uncollectible Accounts Receivable
+Accounts receivable consists primarily of amounts receivable from customers. We make ongoing estimates relating to the
+collectability of our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the allowance, we consider our historical level of credit
+losses and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Accounts receivable with anticipated collection dates greater than 12 months from the balance sheet date and related allowances are
+considered non-current and recorded in other assets. The allowance for uncollectible accounts receivable was $124 million and $117 million at May 31, 2011 and 2010, respectively, of which $50 million and $43 million was classified as long-term
+and recorded in other assets. 
+Inventory Valuation 
+Inventories are stated at lower of cost or market and valued on a first-in, first-out (“FIFO”) or moving average cost basis.
+Property, Plant and Equipment and Depreciation 
+Property, plant and equipment are recorded at cost. Depreciation for financial reporting purposes is determined on a straight-line basis
+for buildings and leasehold improvements over 2 to 40 years and for machinery and equipment over 2 to 15 years. Computer software (including, in some cases, the cost of internal labor) is depreciated on a straight-line basis over 3 to 10 years.
+Impairment of Long-Lived Assets 
+The Company reviews the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not
+be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the 
+61 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the
+observable market value of an asset, among others. If such facts indicate a potential impairment, the Company would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected
+undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group
+is not recoverable, the Company will estimate the fair value of the asset group using appropriate valuation methodologies which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between
+the asset groups carrying amount and its estimated fair value. 
+Identifiable Intangible Assets and Goodwill
+The Company performs annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth
+quarter of each fiscal year, or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite life below its carrying value. Events or changes in
+circumstances that may trigger interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, or an expectation that the carrying amount may not be recoverable, among other
+factors. The impairment test requires the Company to estimate the fair value of its reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and the Company
+proceeds to step two of the impairment analysis. In step two of the analysis, the Company measures and records an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value should such
+a circumstance arise. 
+The Company generally bases its measurement of fair value of a reporting unit on a blended analysis of
+the present value of future discounted cash flows and the market valuation approach. The discounted cash flows model indicates the fair value of the reporting unit based on the present value of the cash flows that the Company expects the reporting
+unit to generate in the future. The Company’s significant estimates in the discounted cash flows model include: its weighted average cost of capital; long-term rate of growth and profitability of the reporting unit’s business; and working
+capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the reporting unit to comparable publicly traded companies in similar lines of business. Significant estimates in the market valuation
+approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, and assessing comparable revenue and operating income multiples in estimating the fair value of
+the reporting unit. 
+The Company believes the weighted use of discounted cash flows and the market valuation approach is the
+best method for determining the fair value of its reporting units because these are the most common valuation methodologies used within its industry; and the blended use of both models compensates for the inherent risks associated with either model
+if used on a stand-alone basis. 
+Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks.
+In measuring the fair value for these intangible assets, the Company utilizes the relief-from-royalty method. This method assumes that trade names and trademarks have value to the extent that their owner is relieved of the obligation to pay
+royalties for the benefits received from them. This method requires the Company to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. 
+Foreign Currency Translation and Foreign Currency Transactions 
+Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are included in the foreign
+currency translation adjustment, a component of accumulated other comprehensive income in shareholders’ equity. 
+62 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The Company’s global subsidiaries have various assets and liabilities, primarily
+receivables and payables, that are denominated in currencies other than their functional currency. These balance sheet items are subject to remeasurement, the impact of which is recorded in other (income), net, within our consolidated statement of
+income. 
+Accounting for Derivatives and Hedging Activities 
+The Company uses derivative financial instruments to limit exposure to changes in foreign currency exchange rates and interest rates. All
+derivatives are recorded at fair value on the balance sheet and changes in the fair value of derivative financial instruments are either recognized in other comprehensive income (a component of shareholders’ equity), debt or net income
+depending on the nature of the underlying exposure, whether the derivative is formally designated as a hedge, and, if designated, the extent to which the hedge is effective. The Company classifies the cash flows at settlement from derivatives in the
+same category as the cash flows from the related hedged items. For undesignated hedges and designated cash flow hedges, this is within the cash provided by operations component of the consolidated statements of cash flows. For designated net
+investment hedges, this is generally within the cash used by investing activities component of the cash flow statement. As our fair value hedges are receive-fixed, pay-variable interest rate swaps, the cash flows associated with these derivative
+instruments are periodic interest payments while the swaps are outstanding, which are reflected in net income within the cash provided by operations component of the cash flow statement. 
+See Note 17 — Risk Management and Derivatives for more information on the Company’s risk management program and derivatives.
+Stock-Based Compensation 
+The Company estimates the fair value of options and stock appreciation rights granted under the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”) and employees’ purchase rights under
+the Employee Stock Purchase Plans (“ESPPs”) using the Black-Scholes option pricing model. The Company recognizes this fair value, net of estimated forfeitures, as selling and administrative expense in the consolidated statements of income
+over the vesting period using the straight-line method. 
+See Note 11 — Common Stock and Stock-Based Compensation for more
+information on the Company’s stock programs. 
+Income Taxes 
+The Company accounts for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets
+and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. United States income taxes are provided currently on financial statement earnings of non-U.S.
+subsidiaries that are expected to be repatriated. The Company determines annually the amount of undistributed non-U.S. earnings to invest indefinitely in its non-U.S. operations. The Company recognizes interest and penalties related to income tax
+matters in income tax expense. 
+See Note 9 — Income Taxes for further discussion. 
+Earnings Per Share 
+Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per common share is calculated by
+adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive stock options and awards. 
+63 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+See Note 12 — Earnings Per Share for further discussion. 
+Management Estimates 
+The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, including estimates relating to assumptions that affect the
+reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these
+estimates. 
+Recently Adopted Accounting Standards 
+In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance to amend the disclosure requirements related
+to recurring and nonrecurring fair value measurements. The guidance requires additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair
+value measurements, and the transfers between Levels 1, 2, and 3 of the fair value measurement hierarchy. This guidance became effective for the Company beginning March 1, 2010, except for disclosures relating to purchases, sales, issuances and
+settlements of Level 3 assets and liabilities, which will be effective for the Company beginning June 1, 2011. As this guidance only requires expanded disclosures, the adoption did not and will not impact the Company’s consolidated
+financial position or results of operations. 
+In June 2009, the FASB issued a new accounting standard that revised the
+guidance for the consolidation of variable interest entities (“VIE”). This new guidance requires a qualitative approach to identifying a controlling financial interest in a VIE, and requires an ongoing assessment of whether an entity is a
+VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. This guidance became effective for the Company beginning June 1, 2010. The adoption of this guidance did not have an impact on the Company’s
+consolidated financial position or results of operations. 
+Recently Issued Accounting Standards 
+In June 2011, the FASB issued new guidance on the presentation of comprehensive income. This new guidance requires the components of net
+income and other comprehensive income to be either presented in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. This new guidance eliminates the current option to report
+other comprehensive income and its components in the statement of shareholders’ equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other
+comprehensive income under current accounting guidance. This new guidance is effective for the Company beginning June 1, 2012. As this guidance only amends the presentation of the components of comprehensive income, the adoption will not have
+an impact on the Company’s consolidated financial position or results of operations. 
+In April 2011, the FASB issued new
+guidance to achieve common fair value measurement and disclosure requirements between U.S. GAAP and International Financial Reporting Standards. This new guidance, which is effective for the Company beginning June 1, 2012, amends current U.S.
+GAAP fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. The Company does not expect the adoption will have a material impact on its consolidated financial position
+or results of operations. 
+64 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+In October 2009, the FASB issued new standards that revised the guidance for
+revenue recognition with multiple deliverables. These new standards impact the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, these new
+standards modify the manner in which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. These new standards are effective for
+the Company beginning June 1, 2011. The Company does not expect the adoption will have a material impact on its consolidated financial position or results of operations. 
+Note 2 — Inventories 
+Inventory balances of $2,715 million and $2,041 million at May 31, 2011 and 2010, respectively, were substantially
+all finished goods. 
+Note 3 — Property, Plant and Equipment 
+Property, plant and equipment included the following: 
+As of May 31, 
+2011 
+2010 
+(In millions) 
+Land 
+$ 
+237 
+$ 
+223 
+Buildings 
+1,124 
+952 
+Machinery and equipment 
+2,487 
+2,217 
+Leasehold improvements 
+931 
+821 
+Construction in process 
+127 
+177 
+4,906 
+4,390 
+Less accumulated depreciation 
+2,791 
+2,458 
+$ 
+2,115 
+$ 
+1,932 
+Capitalized interest was not material for the years ended May 31, 2011, 2010, and 2009. 
+Note 4 — Identifiable Intangible Assets, Goodwill and Umbro Impairment 
+Identified Intangible Assets and Goodwill 
+The following table summarizes the Company’s identifiable intangible asset balances as of May 31, 2011 and 2010: 
+May 31, 2011 
+May 31, 2010 
+Gross 
+Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net 
+Carrying 
+Amount 
+Gross 
+Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net 
+Carrying 
+Amount 
+(In millions) 
+Amortized intangible assets: 
+Patents 
+$ 
+80 
+$ 
+(24 
+) 
+$ 
+56 
+$ 
+69 
+$ 
+(21 
+) 
+$ 
+48 
+Trademarks 
+44 
+(25 
+) 
+19 
+40 
+(18 
+) 
+22 
+Other 
+47 
+(22 
+) 
+25 
+32 
+(18 
+) 
+14 
+Total 
+$ 
+171 
+$ 
+(71 
+) 
+$ 
+100 
+$ 
+141 
+$ 
+(57 
+) 
+$ 
+84 
+Unamortized intangible assets — Trademarks 
+387 
+383 
+Identifiable intangible assets, net 
+$ 
+487 
+$ 
+467 
+65 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The effect of foreign exchange fluctuations for the year ended May 31, 2011
+increased unamortized intangible assets by approximately $4 million. 
+Amortization expense, which is included in
+selling and administrative expense, was $16 million, $14 million, and $12 million for the years ended May 31, 2011, 2010, and 2009, respectively. The estimated amortization expense for intangible assets subject to amortization for each of
+the years ending May 31, 2012 through May 31, 2016 are as follows: 2012: $16 million; 2013: $14 million; 2014: $12 million; 2015: $8 million; 2016: $7 million. 
+All goodwill balances are included in the Company’s “Other” category for segment reporting purposes. The following table summarizes the Company’s goodwill balance as of May 31,
+2011 and 2010: 
+Goodwill 
+Accumulated 
+Impairment 
+Goodwill, net 
+(In millions) 
+May 31, 2009 
+$ 
+393 
+$ 
+(199 
+) 
+$ 
+194 
+Other (1) 
+(6 
+) 
+— 
+(6 
+) 
+May 31, 2010 
+387 
+(199 
+) 
+188 
+Umbro France (2) 
+10 
+— 
+10 
+Other (1) 
+7 
+— 
+7 
+May 31, 2011 
+$ 
+404 
+$ 
+(199 
+) 
+$ 
+205 
+( 1 ) 
+Other consists of foreign currency translation adjustments on Umbro goodwill. 
+(2) 
+In March 2011, Umbro acquired the remaining 51% of the exclusive licensee and distributor of the Umbro brand in France for approximately $15 million.
+Umbro Impairment in Fiscal 2009 
+The Company performs annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal
+year, or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or intangible assets with an indefinite life below its carrying value. As a result of a significant decline in global
+consumer demand and continued weakness in the macroeconomic environment, as well as decisions by Company management to adjust planned investment in the Umbro brand, the Company concluded sufficient indicators of impairment existed to require the
+performance of an interim assessment of Umbro’s goodwill and indefinite lived intangible assets as of February 1, 2009. Accordingly, the Company performed the first step of the goodwill impairment assessment for Umbro by comparing the
+estimated fair value of Umbro to its carrying amount, and determined there was a potential impairment of goodwill as the carrying amount exceeded the estimated fair value. Therefore, the Company performed the second step of the assessment which
+compared the implied fair value of Umbro’s goodwill to the book value of goodwill. The implied fair value of goodwill is determined by allocating the estimated fair value of Umbro to all of its assets and liabilities, including both recognized
+and unrecognized intangibles, in the same manner as goodwill was determined in the original business combination. 
+The Company
+measured the fair value of Umbro by using an equal weighting of the fair value implied by a discounted cash flow analysis and by comparisons with the market values of similar publicly traded companies. The Company believes the blended use of both
+models compensates for the inherent risk associated with either model if used on a stand-alone basis, and this combination is indicative of the factors a market participant would consider when performing a similar valuation. The fair value of
+Umbro’s indefinite-lived trademark was 
+66 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+estimated using the relief from royalty method, which assumes that the trademark has value to the extent that Umbro is relieved of the obligation to pay royalties for the benefits received from
+the trademark. The assessments of the Company resulted in the recognition of impairment charges of $199 million and $181 million related to Umbro’s goodwill and trademark, respectively, for the year ended May 31, 2009. A tax benefit of $55
+million was recognized as a result of the trademark impairment charge. In addition to the above impairment analysis, the Company determined an equity investment held by Umbro was impaired, and recognized a charge of $21 million related to the
+impairment of this investment. These charges are included in the Company’s “Other” category for segment reporting purposes. 
+The discounted cash flow analysis calculated the fair value of Umbro using management’s business plans and projections as the basis for expected cash flows for the next 12 years and a 3% residual
+growth rate thereafter. The Company used a weighted average discount rate of 14% in its analysis, which was derived primarily from published sources as well as our adjustment for increased market risk given current market conditions. Other
+significant estimates used in the discounted cash flow analysis include the rates of projected growth and profitability of Umbro’s business and working capital effects. The market valuation approach indicates the fair value of Umbro based on a
+comparison of Umbro to publicly traded companies in similar lines of business. Significant estimates in the market valuation approach include identifying similar companies with comparable business factors such as size, growth, profitability, mix of
+revenue generated from licensed and direct distribution, and risk of return on investment. 
+Holding all other assumptions
+constant at the test date, a 100 basis point increase in the discount rate would reduce the adjusted carrying value of Umbro’s net assets by an additional 12%. 
+Note 5 — Accrued Liabilities 
+Accrued liabilities included the following: 
+May 31, 
+2011 
+2010 
+(In millions) 
+Compensation and benefits, excluding taxes 
+$ 
+628 
+$ 
+599 
+Endorser compensation 
+284 
+267 
+Taxes other than income taxes 
+214 
+158 
+Fair value of derivatives 
+186 
+164 
+Dividends payable 
+145 
+131 
+Advertising and marketing 
+139 
+125 
+Import and logistics costs 
+98 
+80 
+Other (1) 
+291 
+380 
+$ 
+1,985 
+$ 
+1,904 
+(1) 
+Other consists of various accrued expenses and no individual item accounted for more than 5% of the balance at May 31, 2011 and 2010.
+Note 6 — Fair Value Measurements 
+The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives
+and available-for-sale securities. Fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for
+67 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+considering such assumptions, the Company uses a three-level hierarchy established by the FASB that prioritizes fair value measurements based on the types of inputs used for the various valuation
+techniques (market approach, income approach, and cost approach). 
+The levels of hierarchy are described below: 
+• 
+Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. 
+• 
+Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted
+prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. 
+• 
+Level 3: Unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own
+assumptions. 
+The Company’s assessment of the significance of a particular input to the fair value
+measurement in its entirety requires judgment and considers factors specific to the asset or liability. Financial assets and liabilities are classified in their entirety based on the most stringent level of input that is significant to the fair
+value measurement. 
+The following table presents information about the Company’s financial assets and liabilities
+measured at fair value on a recurring basis as of May 31, 2011 and 2010 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. 
+May 31, 2011 
+Fair Value Measurements Using 
+Assets /Liabilities 
+at Fair Value 
+Balance Sheet Classification 
+Level 1 
+Level 2 
+Level 3 
+(In millions) 
+Assets 
+Derivatives: 
+Foreign exchange forwards and options 
+$ 
+— 
+$ 
+38 
+$ 
+— 
+$ 
+38 
+Other current assets and other 
+long-term assets 
+Interest rate swap 
+contracts 
+— 
+15 
+— 
+15 
+Other current assets and other 
+long-term assets 
+Total derivatives 
+— 
+53 
+— 
+53 
+Available-for-sale securities: 
+U.S. Treasury securities 
+125 
+— 
+— 
+125 
+Cash equivalents 
+Commercial paper and bonds 
+— 
+157 
+— 
+157 
+Cash equivalents 
+Money market funds 
+— 
+780 
+— 
+780 
+Cash equivalents 
+U.S. Treasury securities 
+1,473 
+— 
+— 
+1,473 
+Short-term investments 
+U.S. Agency securities 
+— 
+308 
+— 
+308 
+Short-term investments 
+Commercial paper and bonds 
+— 
+802 
+— 
+802 
+Short-term investments 
+Total available-for-sale securities 
+1,598 
+2,047 
+— 
+3,645 
+Total Assets 
+$ 
+1,598 
+$ 
+2,100 
+$ 
+— 
+$ 
+3,698 
+Liabilities 
+Derivatives: 
+Foreign exchange forwards and options 
+$ 
+— 
+$ 
+197 
+$ 
+— 
+$ 
+197 
+Accrued liabilities and other long-term liabilities 
+Total Liabilities 
+$ 
+— 
+$ 
+197 
+$ 
+— 
+$ 
+197 
+68 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+May 31, 2010 
+Fair Value Measurements Using 
+Assets /Liabilities 
+at Fair Value 
+Balance Sheet Classification 
+Level 1 
+Level 2 
+Level 3 
+(In millions) 
+Assets 
+Derivatives: 
+Foreign exchange forwards and options 
+$ 
+— 
+$ 
+420 
+$ 
+— 
+$ 
+420 
+Other current assets and 
+other long -term assets 
+Interest rate swap contracts 
+— 
+15 
+— 
+15 
+Other current assets and 
+other long-term assets 
+Total derivatives 
+— 
+435 
+— 
+435 
+Available-for-sale securities: 
+U.S. Treasury securities 
+1,232 
+— 
+— 
+1,232 
+Cash equivalents 
+Commercial paper and bonds 
+— 
+462 
+— 
+462 
+Cash equivalents 
+Money market funds 
+— 
+685 
+— 
+685 
+Cash equivalents 
+U.S. Treasury securities 
+1,085 
+— 
+— 
+1,085 
+Short-term investments 
+U.S. Agency securities 
+— 
+298 
+— 
+298 
+Short-term investments 
+Commercial paper and bonds 
+— 
+684 
+— 
+684 
+Short-term investments 
+Total available-for-sale securities 
+2,317 
+2,129 
+— 
+4,446 
+Total Assets 
+$ 
+2,317 
+$ 
+2,564 
+$ 
+— 
+$ 
+4,881 
+Liabilities 
+Derivatives: 
+Foreign exchange forwards and options 
+$ 
+— 
+$ 
+165 
+$ 
+— 
+$ 
+165 
+Accrued liabilities and 
+other long-term liabilities 
+Total Liabilities 
+$ 
+— 
+$ 
+165 
+$ 
+— 
+$ 
+165 
+Derivative financial instruments include foreign currency forwards, option contracts and interest rate
+swaps. The fair value of these derivatives contracts is determined using observable market inputs such as the forward pricing curve, currency volatilities, currency correlations and interest rates, and considers nonperformance risk of the
+Company and that of its counterparties. Adjustments relating to these risks were not material for the years ended May 31, 2011 and 2010. 
+Available-for-sale securities are primarily comprised of investments in U.S. Treasury and agency securities, commercial paper, bonds and money market funds. These securities are valued using market
+prices on both active markets (level 1) and less active markets (level 2). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument
+valuations are obtained from readily-available pricing sources for comparable instruments. 
+As of May 31, 2011 and 2010,
+the Company had no material Level 3 measurements and no assets or liabilities measured at fair value on a non-recurring basis. 
+Short-Term Investments 
+As of May 31, 2011 and 2010, short-term investments consisted of available-for-sale securities. As of May 31, 2011, the Company held $2,253 million of available-for-sale securities with maturity
+dates within one year and $330 million with maturity dates over one year and less than five years within short-term investments. As of May 31, 2010, the Company held $1,900 million of available-for-sale securities with maturity dates within one
+year and $167 million with maturity dates over one year and less than five years within short-term investments. 
+69 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Short-term investments classified as available-for-sale consist of the following at
+fair value: 
+As of May 31, 
+2011 
+2010 
+(In millions) 
+Available-for-sale investments: 
+U.S. treasury and agencies 
+$ 
+1,781 
+$ 
+1,383 
+Commercial paper and bonds 
+802 
+684 
+Total available-for-sale investments 
+$ 
+2,583 
+$ 
+2,067 
+Included in interest expense (income), net for the years ended May 31, 2011, 2010, and 2009 was
+interest income of $30 million, $30 million, and $50 million, respectively, related to cash and equivalents and short-term investments. 
+For fair value information regarding notes payable and long-term debt, refer to Note 7 — Short-Term Borrowings and Credit Lines and Note 8 — Long-Term Debt. 
+Note 7 — Short-Term Borrowings and Credit Lines 
+Notes payable to banks and interest-bearing accounts payable to Sojitz Corporation of America (“Sojitz
+America”) as of May 31, 2011 and 2010, are summarized below: 
+May 31, 
+2011 
+2010 
+Borrowings 
+Interest 
+Rate 
+Borrowings 
+Interest 
+Rate 
+(In millions) 
+Notes payable: 
+U.S. operations 
+35 
+— 
+(1) 
+18 
+— 
+(1) 
+Non-U.S. operations 
+152 
+7.05 
+% (1) 
+121 
+6.35 
+% (1) 
+$ 
+187 
+$ 
+139 
+Sojitz America 
+$ 
+111 
+0.99 
+% 
+$ 
+88 
+1.07 
+% 
+(1) 
+Weighted average interest rate includes non-interest bearing overdrafts. 
+The carrying amounts reflected in the consolidated balance sheet for notes payable approximate fair value. 
+The Company purchases through Sojitz America certain athletic footwear, apparel and equipment it acquires from non-U.S. suppliers. These
+purchases are for the Company’s operations outside of the United States, Europe and Japan. Accounts payable to Sojitz America are generally due up to 60 days after shipment of goods from the foreign port. The interest rate on such accounts
+payable is the 60-day London Interbank Offered Rate (“LIBOR”) as of the beginning of the month of the invoice date, plus 0.75%. 
+As of May 31, 2011 and 2010, the Company had no amounts outstanding under its commercial paper program. 
+In December 2006, the Company entered into a $1 billion revolving credit facility with a group of banks. The facility matures in December 2012. Based on the Company’s current long-term senior
+unsecured debt ratings of A+ and A1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively, the interest 
+70 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+rate charged on any outstanding borrowings would be the prevailing LIBOR plus 0.15%. The facility fee is 0.05% of the total commitment. Under this agreement, the Company must maintain, among
+other things, certain minimum specified financial ratios with which the Company was in compliance at May 31, 2011. No amounts were outstanding under this facility as of May 31, 2011 and 2010. 
+Note 8 — Long-Term Debt 
+Long-term debt, net of unamortized premiums and discounts and swap fair value adjustments, is comprised of the
+following: 
+May 31, 
+2011 
+2010 
+(In millions) 
+5.66% Corporate bond, payable July 23, 2012 
+$ 
+26 
+$ 
+27 
+5.40% Corporate bond, payable August 7, 2012 
+16 
+16 
+4.70% Corporate bond, payable October 1, 2013 
+50 
+50 
+5.15% Corporate bond, payable October 15, 2015 
+114 
+112 
+4.30% Japanese Yen note, payable June 26, 2011 
+130 
+116 
+1.52% Japanese Yen note, payable February 14, 2012 
+62 
+55 
+2.60% Japanese Yen note, maturing August 20, 2001 through November 20, 2020 
+54 
+53 
+2.00% Japanese Yen note, maturing August 20, 2001 through November 20, 2020 
+24 
+24 
+Total 
+476 
+453 
+Less current maturities 
+200 
+7 
+$ 
+276 
+$ 
+446 
+The scheduled maturity of long-term debt in each of the years ending May 31, 2012 through 2016 are
+$200 million, $48 million, $58 million, $8 million and $109 million, at face value, respectively. 
+The Company’s long-term debt is recorded at adjusted cost, net of amortized premiums and discounts and interest rate swap fair value
+adjustments. The fair value of long-term debt is estimated based upon quoted prices for similar instruments. The fair value of the Company’s long-term debt, including the current portion, was approximately $482 million at May 31, 2011 and
+$453 million at May 31, 2010. 
+In fiscal years 2003 and 2004, the Company issued a total of $240 million in medium-term
+notes of which $190 million, at face value, were outstanding at May 31, 2011. The outstanding notes have coupon rates that range from 4.70% to 5.66% and maturity dates ranging from July 2012 to October 2015. For each of these notes,
+except the $50 million note maturing in October 2013, the Company has entered into interest rate swap agreements whereby the Company receives fixed interest payments at the same rate as the notes and pays variable interest payments based on the
+six-month LIBOR plus a spread. Each swap has the same notional amount and maturity date as the corresponding note. At May 31, 2011, the interest rates payable on these swap agreements ranged from approximately 0.3% to 1.0%. 
+In June 1996, one of the Company’s wholly owned Japanese subsidiaries, NIKE Logistics YK, borrowed ¥10.5 billion (approximately
+$130 million as of May 31, 2011) in a private placement with a maturity of June 26, 2011. Interest is paid semi-annually. The agreement provides for early retirement of the borrowing. 
+In July 1999, NIKE Logistics YK assumed a total of ¥13.0 billion in loans as part of its agreement to purchase a distribution center
+in Japan, which serves as collateral for the loans. These loans mature in equal quarterly installments during the period August 20, 2001 through November 20, 2020. Interest is also paid quarterly. As of May 31, 2011, ¥6.3 billion
+(approximately $78 million) in loans remain outstanding. 
+71 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+In February 2007, NIKE Logistics YK entered into a ¥5.0 billion (approximately $62
+million as of May 31, 2011) term loan that replaced certain intercompany borrowings and matures on February 14, 2012. The interest rate on the loan is approximately 1.5% and interest is paid semi-annually. 
+Note 9 — Income Taxes 
+Income before income taxes is as follows: 
+Year Ended May 31, 
+2011 
+2010 
+2009 
+(In millions) 
+Income before income taxes: 
+United States 
+$ 
+1,084 
+$ 
+699 
+$ 
+846 
+Foreign 
+1,760 
+1,818 
+1,111 
+$ 
+2,844 
+$ 
+2,517 
+$ 
+1,957 
+The provision for income taxes is as follows: 
+Year Ended May 31, 
+2011 
+2010 
+2009 
+(In millions) 
+Current: 
+United States 
+Federal 
+$ 
+289 
+$ 
+200 
+$ 
+410 
+State 
+57 
+50 
+46 
+Foreign 
+441 
+349 
+308 
+787 
+599 
+764 
+Deferred: 
+United States 
+Federal 
+(61 
+) 
+18 
+(251 
+) 
+State 
+— 
+(1 
+) 
+(8 
+) 
+Foreign 
+(15 
+) 
+(6 
+) 
+(35 
+) 
+(76 
+) 
+11 
+(294 
+) 
+$ 
+711 
+$ 
+610 
+$ 
+470 
+A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate
+follows: 
+Year Ended May 31, 
+2011 
+2010 
+2009 
+Federal income tax rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State taxes, net of federal benefit 
+1.3 
+% 
+1.3 
+% 
+1.2 
+% 
+Foreign earnings 
+-10.2 
+% 
+-13.6 
+% 
+-14.9 
+% 
+Other, net 
+-1.1 
+% 
+1.5 
+% 
+2.7 
+% 
+Effective income tax rate 
+25.0 
+% 
+24.2 
+% 
+24.0 
+% 
+The effective tax rate for the year ended May 31, 2011 of 25.0% increased from the fiscal 2010
+effective tax rate of 24.2% due primarily to the change in geographic mix of earnings. A larger percentage of our earnings before income taxes in the current year are attributable to operations in the United States where the statutory tax rate is
+generally higher than the tax rate on operations outside of the U.S. This impact was partially offset by 
+72 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+changes to uncertain tax positions. Our effective tax rate for the year ended May 31, 2010 of 24.2% increased from the fiscal 2009 effective rate of 24.0%. The effective tax rate for fiscal
+2009 includes a tax benefit related to charges recorded for the impairment of Umbro’s goodwill, intangible and other assets. 
+Deferred tax assets and (liabilities) are comprised of the following: 
+May 31, 
+2011 
+2010 
+(In millions) 
+Deferred tax assets: 
+Allowance for doubtful accounts 
+$ 
+19 
+$ 
+17 
+Inventories 
+63 
+47 
+Sales return reserves 
+72 
+52 
+Deferred compensation 
+152 
+144 
+Stock-based compensation 
+148 
+145 
+Reserves and accrued liabilities 
+66 
+86 
+Foreign loss carry-forwards 
+60 
+26 
+Foreign tax credit carry-forwards 
+236 
+148 
+Hedges 
+21 
+1 
+Undistributed earnings of foreign subsidiaries 
+— 
+128 
+Other 
+86 
+37 
+Total deferred tax assets 
+923 
+831 
+Valuation allowance 
+(51 
+) 
+(36 
+) 
+Total deferred tax assets after valuation allowance 
+872 
+795 
+Deferred tax liabilities: 
+Undistributed earnings of foreign subsidiaries 
+(40 
+) 
+— 
+Property, plant and equipment 
+(151 
+) 
+(99 
+) 
+Intangibles 
+(97 
+) 
+(99 
+) 
+Hedges 
+(1 
+) 
+(72 
+) 
+Other 
+(20 
+) 
+(8 
+) 
+Total deferred tax liability 
+(309 
+) 
+(278 
+) 
+Net deferred tax asset 
+$ 
+563 
+$ 
+517 
+The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits:
+May 31, 
+2011 
+2010 
+2009 
+(In millions) 
+Unrecognized tax benefits, as of the beginning of the period 
+$ 
+282 
+$ 
+274 
+$ 
+251 
+Gross increases related to prior period tax positions 
+13 
+87 
+53 
+Gross decreases related to prior period tax positions 
+(98 
+) 
+(122 
+) 
+(62 
+) 
+Gross increases related to current period tax positions 
+59 
+52 
+72 
+Gross decreases related to current period tax positions 
+(6 
+) 
+— 
+— 
+Settlements 
+(43 
+) 
+(3 
+) 
+(29 
+) 
+Lapse of statute of limitations 
+(8 
+) 
+(9 
+) 
+(4 
+) 
+Changes due to currency translation 
+13 
+3 
+(7 
+) 
+Unrecognized tax benefits, as of the end of the period 
+$ 
+212 
+$ 
+282 
+$ 
+274 
+73 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+As of May 31, 2011, the total gross unrecognized tax benefits, excluding related
+interest and penalties, were $212 million, $93 million of which would affect the Company’s effective tax rate if recognized in future periods. Total gross unrecognized tax benefits, excluding interest and penalties, as of May 31, 2010 and
+2009 was $282 million and $274 million, respectively. 
+The Company recognizes interest and penalties related to income tax
+matters in income tax expense. The liability for payment of interest and penalties increased $10 million, $6 million, and $2 million during the years ended May 31, 2011, 2010, and 2009, respectively. As of May 31, 2011 and 2010, accrued
+interest and penalties related to uncertain tax positions was $91 million and $81 million, respectively (excluding federal benefit). 
+The Company is subject to taxation primarily in the U.S., China and the Netherlands as well as various state and other foreign jurisdictions. The Company has concluded substantially all U.S. federal
+income tax matters through fiscal year 2009. The Company is currently under audit by the Internal Revenue Service for the 2010 tax year. The Company’s major foreign jurisdictions, China and the Netherlands, have concluded substantially all
+income tax matters through calendar 2000 and fiscal 2005, respectively. The Company estimates that it is reasonably possible that the total gross unrecognized tax benefits could decrease by up to $69 million within the next 12 months as a result of
+resolutions of global tax examinations and the expiration of applicable statutes of limitations. 
+The Company has indefinitely
+reinvested approximately $4.4 billion of the cumulative undistributed earnings of certain foreign subsidiaries. Such earnings would be subject to U.S. taxation if repatriated to the U.S. Determination of the amount of unrecognized deferred tax
+liability associated with the indefinitely reinvested cumulative undistributed earnings is not practicable. 
+A portion of the
+Company’s foreign operations are benefitting from a tax holiday that will phase out in 2019. The decrease in income tax expense for the year ended May 31, 2011 as a result of this arrangement was approximately $36 million ($0.07 per
+diluted share) and $30 million ($0.06 per diluted share) for the year ended May 31, 2010. 
+Deferred tax assets at
+May 31, 2011 and 2010 were reduced by a valuation allowance relating to tax benefits of certain subsidiaries with operating losses where it is more likely than not that the deferred tax assets will not be realized. The net change in the
+valuation allowance was an increase of $15 million and $10 million for the years ended May 31, 2011 and 2010, respectively and a decrease of $15 million for the year ended May 31, 2009. 
+The Company does not anticipate that any foreign tax credit carry-forwards will expire. The Company has available domestic and foreign
+loss carry-forwards of $183 million at May 31, 2011. Such losses will expire as follows: 
+Year Ending May 31, 
+2013 
+2014 
+2015 
+2016 
+2017- 
+2028 
+Indefinite 
+Total 
+(In millions) 
+Net Operating Losses 
+$ 
+7 
+$ 
+10 
+$ 
+4 
+$ 
+10 
+$ 
+91 
+$ 
+61 
+$ 
+183 
+During the years ended May 31, 2011, 2010, and 2009, income tax benefits attributable to employee
+stock-based compensation transactions of $68 million, $57 million, and $25 million, respectively, were allocated to shareholders’ equity. 
+74 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 10 — Redeemable Preferred Stock 
+Sojitz America is the sole owner of the Company’s authorized Redeemable Preferred Stock, $1 par value, which is
+redeemable at the option of Sojitz America or the Company at par value aggregating $0.3 million. A cumulative dividend of $0.10 per share is payable annually on May 31 and no dividends may be declared or paid on the common stock of the Company
+unless dividends on the Redeemable Preferred Stock have been declared and paid in full. There have been no changes in the Redeemable Preferred Stock in the three years ended May 31, 2011, 2010, and 2009. As the holder of the Redeemable
+Preferred Stock, Sojitz America does not have general voting rights but does have the right to vote as a separate class on the sale of all or substantially all of the assets of the Company and its subsidiaries, on merger, consolidation, liquidation
+or dissolution of the Company or on the sale or assignment of the NIKE trademark for athletic footwear sold in the United States. 
+Note 11 — Common Stock and Stock-Based Compensation 
+The authorized number of shares of Class A Common Stock, no par value, and Class B Common Stock, no par value, are
+175 million and 750 million, respectively. Each share of Class A Common Stock is convertible into one share of Class B Common Stock. Voting rights of Class B Common Stock are limited in certain circumstances with respect to the
+election of directors. 
+In 1990, the Board of Directors adopted, and the shareholders approved, the NIKE, Inc. 1990 Stock
+Incentive Plan (the “1990 Plan”). The 1990 Plan provides for the issuance of up to 163 million previously unissued shares of Class B Common Stock in connection with stock options and other awards granted under the plan. The 1990 Plan
+authorizes the grant of non-statutory stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, and performance-based awards. The exercise price for stock options and stock appreciation rights may
+not be less than the fair market value of the underlying shares on the date of grant. A committee of the Board of Directors administers the 1990 Plan. The committee has the authority to determine the employees to whom awards will be made, the amount
+of the awards, and the other terms and conditions of the awards. Substantially all stock option grants outstanding under the 1990 Plan were granted in the first quarter of each fiscal year, vest ratably over four years, and expire 10 years from the
+date of grant. 
+The following table summarizes the Company’s total stock-based compensation expense recognized in selling
+and administrative expense: 
+Year Ended May 31, 
+2011 
+2010 
+2009 
+(in millions) 
+Stock options (1) 
+$ 
+77 
+$ 
+135 
+$ 
+129 
+ESPPs 
+14 
+14 
+14 
+Restricted stock 
+14 
+10 
+8 
+Subtotal 
+105 
+159 
+151 
+Stock options and restricted stock expense — restructuring (2) 
+— 
+— 
+20 
+Total stock-based compensation expense 
+$ 
+105 
+$ 
+159 
+$ 
+171 
+(1) 
+Expense for stock options includes the expense associated with stock appreciation rights. Accelerated stock option expense is recorded for employees
+eligible for accelerated stock option vesting upon retirement. In the first quarter of fiscal 2011, the Company changed the accelerated vesting provisions of its stock option plan. Under the new provisions, accelerated stock option expense for year
+ended May 31, 2011 was $12 million. The accelerated stock option expense for the years ended May 31, 2010 and 2009 was $74 million and $59 million, respectively. 
+75 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+(2) 
+In connection with the restructuring activities that took place during fiscal 2009, the Company recognized stock-based compensation expense relating to
+the modification of stock option agreements, allowing for an extended post-termination exercise period, and accelerated vesting of restricted stock as part of severance packages. See Note 16 — Restructuring Charges for further
+details. 
+As of May 31, 2011, the Company had $111 million of unrecognized compensation costs from
+stock options, net of estimated forfeitures, to be recognized as selling and administrative expense over a weighted average period of 2.2 years. 
+The weighted average fair value per share of the options granted during the years ended May 31, 2011, 2010, and 2009, as computed using the Black-Scholes pricing model, was $17.68, $23.43, and
+$17.13, respectively. The weighted average assumptions used to estimate these fair values are as follows: 
+Year Ended May 31, 
+2011 
+2010 
+2009 
+Dividend yield 
+1.6 
+% 
+1.9 
+% 
+1.5 
+% 
+Expected volatility 
+31.5 
+% 
+57.6 
+% 
+32.5 
+% 
+Weighted average expected life (in years) 
+5.0 
+5.0 
+5.0 
+Risk-free interest rate 
+1.7 
+% 
+2.5 
+% 
+3.4 
+% 
+The Company estimates the expected volatility based on the implied volatility in market traded options on
+the Company’s common stock with a term greater than one year, along with other factors. The weighted average expected life of options is based on an analysis of historical and expected future exercise patterns. The interest rate is based on the
+U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options. 
+The following summarizes the stock option transactions under the plan discussed above: 
+Shares (1) 
+Weighted 
+Average 
+Option 
+Price 
+(In millions) 
+Options outstanding May 31, 2008 
+36.6 
+$ 
+40.14 
+Exercised 
+(4.0 
+) 
+35.70 
+Forfeited 
+(1.3 
+) 
+51.19 
+Granted 
+7.5 
+58.17 
+Options outstanding May 31, 2009 
+38.8 
+$ 
+43.69 
+Exercised 
+(8.6 
+) 
+37.64 
+Forfeited 
+(0.6 
+) 
+51.92 
+Granted 
+6.4 
+52.79 
+Options outstanding May 31, 2010 
+36.0 
+$ 
+46.60 
+Exercised 
+(7.0 
+) 
+42.70 
+Forfeited 
+(0.5 
+) 
+58.08 
+Granted 
+6.3 
+69.20 
+Options outstanding May 31, 2011 
+34.8 
+$ 
+51.29 
+Options exercisable at May 31, 
+2009 
+21.4 
+$ 
+36.91 
+2010 
+20.4 
+41.16 
+2011 
+20.1 
+$ 
+44.05 
+(1) 
+Includes stock appreciation rights transactions. 
+76 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The weighted average contractual life remaining for options outstanding and options
+exercisable at May 31, 2011 was 6.0 years and 4.5 years, respectively. The aggregate intrinsic value for options outstanding and exercisable at May 31, 2011 was $1,154 million and $811 million, respectively. The aggregate intrinsic value
+was the amount by which the market value of the underlying stock exceeded the exercise price of the options. The total intrinsic value of the options exercised during the years ended May 31, 2011, 2010, and 2009 was $267 million, $239 million,
+and $108 million, respectively. 
+In addition to the 1990 Plan, the Company gives employees the right to purchase shares at a
+discount to the market price under employee stock purchase plans (“ESPPs”). Employees are eligible to participate through payroll deductions up to 10% of their compensation. At the end of each six-month offering period, shares are
+purchased by the participants at 85% of the lower of the fair market value at the beginning or the end of the offering period. Employees purchased 0.8 million shares during the years ended May 31, 2011 and 2010, and 1.0 million shares
+during the year ended May 31, 2009. 
+From time to time, the Company grants restricted stock and unrestricted stock to key
+employees under the 1990 Plan. The number of shares granted to employees during the years ended May 31, 2011, 2010, and 2009 were 0.2 million, 0.5 million, and 0.1 million with weighted average values per share of $70.23, $53.16,
+and $56.97, respectively. Recipients of restricted shares are entitled to cash dividends and to vote their respective shares throughout the period of restriction. The value of all of the granted shares was established by the market price on the date
+of grant. During the years ended May 31, 2011, 2010, and 2009, the fair value of restricted shares vested was $15 million, $8 million, and $10 million, respectively, determined as of the date of vesting. 
+Note 12 — Earnings Per Share 
+The following is a reconciliation from basic earnings per share to diluted earnings per share. Options to purchase an
+additional 0.2 million, 0.2 million, and 13.2 million shares of common stock were outstanding at May 31, 2011, 2010, and 2009, respectively, but were not included in the computation of diluted earnings per share because the
+options were anti-dilutive. 
+Year Ended May 31, 
+2011 
+2010 
+2009 
+(In millions, except per share data) 
+Determination of shares: 
+Weighted average common shares outstanding 
+475.5 
+485.5 
+484.9 
+Assumed conversion of dilutive stock options and awards 
+10.2 
+8.4 
+5.8 
+Diluted weighted average common shares outstanding 
+485.7 
+493.9 
+490.7 
+Basic earnings per common share 
+$ 
+4.48 
+$ 
+3.93 
+$ 
+3.07 
+Diluted earnings per common share 
+$ 
+4.39 
+$ 
+3.86 
+$ 
+3.03 
+Note 13 — Benefit Plans 
+The Company has a profit sharing plan available to most U.S.-based employees. The terms of the plan call for annual
+contributions by the Company as determined by the Board of Directors. A subsidiary of the Company also has a profit sharing plan available to its U.S.-based employees. The terms of the plan call for annual contributions as determined by the
+subsidiary’s executive management. Contributions of $39 million, $35 million, and $28 million were made to the plans and are included in selling and administrative expense for the years ended May 31, 2011, 2010, and 2009, respectively. The
+Company has various 401(k) employee savings 
+77 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+plans available to U.S.-based employees. The Company matches a portion of employee contributions. Company contributions to the savings plans were $39 million, $34 million, and $38 million for the
+years ended May 31, 2011, 2010, and 2009, respectively, and are included in selling and administrative expense. 
+The
+Company also has a Long-Term Incentive Plan (“LTIP”) that was adopted by the Board of Directors and approved by shareholders in September 1997 and later amended in fiscal 2007. The Company recognized $31 million, $24 million, and $18
+million of selling and administrative expense related to cash awards under the LTIP during the years ended May 31, 2011, 2010, and 2009, respectively. 
+The Company has pension plans in various countries worldwide. The pension plans are only available to local employees and are generally government mandated. The liability related to the unfunded pension
+liabilities of the plans was $93 million and $113 million at May 31, 2011 and 2010, respectively, which was primarily classified as long-term in other liabilities. 
+Note 14 — Accumulated Other Comprehensive Income 
+The components of accumulated other comprehensive income, net of tax, are as follows: 
+May 31, 
+2011 
+2010 
+(In millions) 
+Cumulative translation adjustment and other 
+$ 
+168 
+$ 
+(95 
+) 
+Net deferred gain on net investment hedge derivatives 
+50 
+107 
+Net deferred (loss) gain on cash flow hedge derivatives 
+(123 
+) 
+203 
+$ 
+95 
+$ 
+215 
+Note 15 — Commitments and Contingencies 
+The Company leases space for certain of its offices, warehouses and retail stores under leases expiring from 1 to 24
+years after May 31, 2011. Rent expense was $446 million, $416 million, and $397 million for the years ended May 31, 2011, 2010 and 2009, respectively. Amounts of minimum future annual rental commitments under non-cancelable operating
+leases in each of the five years ending May 31, 2012 through 2016 are $374 million, $310 million, $253 million, $198 million, $174 million, respectively, and $535 million in later years. 
+As of May 31, 2011 and 2010, the Company had letters of credit outstanding totaling $99 million and $101 million, respectively.
+These letters of credit were generally issued for the purchase of inventory. 
+In connection with various contracts and
+agreements, the Company provides routine indemnifications relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items where the Company is acting as the guarantor. Currently, the Company has
+several such agreements in place. However, based on the Company’s historical experience and the estimated probability of future loss, the Company has determined that the fair value of such indemnifications is not material to the Company’s
+financial position or results of operations. 
+In the ordinary course of its business, the Company is involved in various legal
+proceedings involving contractual and employment relationships, product liability claims, trademark rights, and a variety of other matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the
+Company’s financial position or results of operations. 
+78 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Note 16 — Restructuring Charges 
+During fiscal 2009, the Company took necessary steps to streamline its management structure, enhance consumer focus,
+drive innovation more quickly to market and establish a more scalable, long-term cost structure. As a result, the Company reduced its global workforce by approximately 5% and incurred pre-tax restructuring charges of $195 million, primarily
+consisting of severance costs related to the workforce reduction. As nearly all of the restructuring activities were completed in fiscal 2009, the Company did not recognize additional costs relating to these actions. The restructuring charge is
+reflected in the corporate expense line in the segment presentation of earnings before interest and taxes in Note 18 — Operating Segments and Related Information. The restructuring accrual included in accrued liabilities in the
+consolidated balance sheet was $3 million and $8 million as of May 31, 2011 and 2010, respectively. 
+Note 17 — Risk Management and Derivatives 
+The Company is exposed to global market risks, including the effect of changes in foreign currency exchange rates and
+interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading purposes. 
+The Company formally documents all relationships between formally designated hedging instruments and hedged items, as well as its risk
+management objective and strategy for undertaking hedge transactions. This process includes linking all derivatives to either specific firm commitments or forecasted transactions. The Company also enters into foreign exchange forwards to mitigate
+the change in fair value of specific assets and liabilities on the balance sheet, which are not designated as hedging instruments under the accounting standards for derivatives and hedging. Accordingly, changes in the fair value of these
+non-designated instruments of recorded balance sheet positions are recognized immediately in other (income), net, on the income statement together with the transaction gain or loss from the hedged balance sheet position. The Company classifies the
+cash flows at settlement from these undesignated instruments in the same category as the cash flows from the related hedged items, generally within the cash provided by operations component of the cash flow statement. 
+The majority of derivatives outstanding as of May 31, 2011 are designated as cash flow, fair value or net investment hedges. All
+derivatives are recognized on the balance sheet at their fair value and classified based on the instrument’s maturity date. The total notional amount of outstanding derivatives as of May 31, 2011 was $7 billion, which is primarily
+comprised of cash flow hedges for Euro/U.S. Dollar, British Pound/Euro, and Japanese Yen/U.S. Dollar currency pairs. 
+79 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The following table presents the fair values of derivative instruments included within
+the consolidated balance sheet as of May 31, 2011 and 2010: 
+Asset Derivatives 
+Liability Derivatives 
+Balance Sheet 
+Location 
+May 31, 
+2011 
+May 31, 
+2010 
+Balance Sheet 
+Location 
+May 31, 
+2011 
+May 31, 
+2010 
+(in millions) 
+Derivatives formally designated as hedging instruments: 
+Foreign exchange forwards and options 
+Prepaid expenses and 
+other current assets 
+$ 
+22 
+$ 
+316 
+Accrued liabilities 
+$ 
+170 
+$ 
+25 
+Foreign exchange forwards and options 
+Deferred income 
+taxes and other long- 
+term assets 
+7 
+— 
+Deferred income taxes 
+and other long-term 
+liabilities 
+10 
+— 
+Interest rate swap contracts 
+Deferred income 
+taxes and other long- 
+term assets 
+15 
+15 
+Deferred income taxes 
+and other long-term 
+liabilities 
+— 
+— 
+Total derivatives formally designated as hedging instruments 
+44 
+331 
+180 
+25 
+Derivatives not designated as hedging instruments: 
+Foreign exchange forwards and options 
+Prepaid expenses and 
+other current assets 
+$ 
+9 
+$ 
+104 
+Accrued liabilities 
+$ 
+16 
+$ 
+139 
+Foreign exchange forwards and options 
+Deferred income 
+taxes and other long- 
+term assets 
+— 
+— 
+Deferred income taxes 
+and other long-term 
+liabilities 
+1 
+1 
+Total derivatives not designated as hedging instruments 
+9 
+104 
+17 
+140 
+Total derivatives 
+$ 
+53 
+$ 
+435 
+$ 
+197 
+$ 
+165 
+The following tables present the amounts affecting the consolidated statements of income for years ended
+May 31, 2011, 2010 and 2009: 
+Derivatives formally designated 
+Amount of Gain (Loss) 
+Recognized in 
+Other Comprehensive 
+Income on Derivatives (1) 
+Amount of Gain (Loss) Reclassified From Accumulated 
+Other 
+Comprehensive Income into Income (1) 
+Year Ended May 31, 
+Location of Gain (Loss) 
+Reclassified From 
+Accumulated Other 
+Comprehensive
+Income 
+Into Income (1) 
+Year Ended May 31, 
+2011 
+2010 
+2009 
+2011 
+2010 
+2009 
+(in millions) 
+Derivatives designated as cash flow hedges: 
+Foreign exchange forwards and options 
+$ 
+(87 
+) 
+$ 
+(30 
+) 
+$ 
+106 
+Revenue 
+$ 
+(30 
+) 
+$ 
+51 
+$ 
+93 
+Foreign exchange forwards and options 
+(152 
+) 
+89 
+350 
+Cost of sales 
+103 
+60 
+(14 
+) 
+Foreign exchange forwards and options 
+(4 
+) 
+5 
+— 
+Selling and 
+administrative expense 
+1 
+1 
+1 
+Foreign exchange forwards and options 
+(65 
+) 
+51 
+165 
+Other (income), net 
+34 
+56 
+68 
+Total designated cash flow hedges 
+$ 
+(308 
+) 
+$ 
+115 
+$ 
+621 
+$ 
+108 
+$ 
+168 
+$ 
+148 
+Derivatives designated as net investment hedges: 
+Foreign exchange forwards and options 
+$ 
+(85 
+) 
+$ 
+66 
+$ 
+161 
+Other (income), net 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+(1) 
+For the year ended May 31, 2011 and 2009, the Company recorded an immaterial amount of ineffectiveness from cash flow hedges in other (income),
+net. For the year ended May 31, 2010, $5 million of ineffectiveness from cash flow hedges was recorded in other (income), net. 
+80 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Amount of Gain 
+(Loss)
+recognized in 
+Income on Derivatives 
+Location of Gain (Loss) Recognized 
+in Income on Derivatives 
+Year Ended May 31, 
+2011 
+2010 
+2009 
+(in millions) 
+Derivatives designated as fair value hedges: 
+Interest rate swaps (1) 
+$ 
+6 
+$ 
+7 
+$ 
+2 
+Interest expense (income), net 
+Derivatives not designated as hedging instruments: 
+Foreign exchange forwards and options 
+$ 
+(30 
+) 
+$ 
+(91 
+) 
+$ 
+(83 
+) 
+Other (income), net 
+(1) 
+All interest rate swap agreements meet the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly,
+changes in the fair values of the interest rate swap agreements are exactly offset by changes in the fair value of the underlying long-term debt. Refer to section “Fair Value Hedges” for additional detail. 
+Refer to Note 5 — Accrued Liabilities for derivative instruments recorded in accrued liabilities, Note 6 —Fair Value
+Measurements for a description of how the above financial instruments are valued, Note 14 — Accumulated Other Comprehensive Income and the consolidated statements of shareholders’ equity for additional information on changes in other
+comprehensive income for the years ended May 31, 2011, 2010 and 2009. 
+Cash Flow Hedges 
+The purpose of the Company’s foreign currency hedging activities is to protect the Company from the risk that the eventual cash flows
+resulting from transactions in foreign currencies, including revenues, product costs, selling and administrative expense, investments in U.S. dollar-denominated available-for-sale debt securities and intercompany transactions, including intercompany
+borrowings, will be adversely affected by changes in exchange rates. It is the Company’s policy to utilize derivatives to reduce foreign exchange risks where internal netting strategies cannot be effectively employed. Hedged transactions are
+denominated primarily in Euros, British Pounds and Japanese Yen. The Company hedges up to 100% of anticipated exposures typically 12 months in advance, but has hedged as much as 34 months in advance. 
+All changes in fair values of outstanding cash flow hedge derivatives, except the ineffective portion, are recorded in other
+comprehensive income until net income is affected by the variability of cash flows of the hedged transaction. In most cases, amounts recorded in other comprehensive income will be released to net income some time after the maturity of the related
+derivative. The consolidated statement of income classification of effective hedge results is the same as that of the underlying exposure. Results of hedges of revenue and product costs are recorded in revenue and cost of sales, respectively, when
+the underlying hedged transaction affects net income. Results of hedges of selling and administrative expense are recorded together with those costs when the related expense is recorded. Results of hedges of forecasted purchases of U.S.
+dollar-denominated available-for-sale securities are recorded in other (income), net when the securities are sold. Results of hedges of forecasted intercompany transactions are recorded in other (income), net when the transaction occurs. The Company
+classifies the cash flows at settlement from these designated cash flow hedge derivatives in the same category as the cash flows from the related hedged items, generally within the cash provided by operations component of the cash flow statement.
+Premiums paid on options are initially recorded as deferred charges. The Company assesses the effectiveness of options based
+on the total cash flows method and records total changes in the options’ fair value to other comprehensive income to the degree they are effective. 
+81 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+As of May 31, 2011, $120 million of deferred net losses (net of tax) on both
+outstanding and matured derivatives accumulated in other comprehensive income are expected to be reclassified to net income during the next 12 months as a result of underlying hedged transactions also being recorded in net income. Actual amounts
+ultimately reclassified to net income are dependent on the exchange rates in effect when derivative contracts that are currently outstanding mature. As of May 31, 2011, the maximum term over which the Company is hedging exposures to the
+variability of cash flows for its forecasted and recorded transactions is 15 months. 
+The Company formally assesses both at a
+hedge’s inception and on an ongoing basis, whether the derivatives that are used in the hedging transaction have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to
+remain highly effective in future periods. Effectiveness for cash flow hedges is assessed based on forward rates. When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, the Company discontinues hedge
+accounting. 
+The Company discontinues hedge accounting prospectively when (1) it determines that the derivative is no
+longer highly effective in offsetting changes in the cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no
+longer probable that the forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate. 
+When the Company discontinues hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period, but is expected to occur within an additional
+two-month period of time thereafter, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified to net income when the forecasted transaction affects net income. However, if it is probable that a
+forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be recognized
+immediately in net income. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing future changes in the fair value
+in other (income), net. For the year ended May 31, 2011 an immaterial amount of ineffectiveness was recorded to other (income), net. For the years ended May 31, 2010 and 2009, the Company recorded in other (income), net $5 million gain and
+an immaterial amount of ineffectiveness from cash flow hedges, respectively. 
+Fair Value Hedges 
+The Company is also exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in interest rates.
+Derivatives currently used by the Company to hedge this risk are receive-fixed, pay-variable interest rate swaps. As of May 31, 2011, all interest rate swap agreements are designated as fair value hedges of the related long-term debt and meet
+the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly, changes in the fair values of the interest rate swap agreements are exactly offset by changes in the fair value of the underlying long-term
+debt. The cash flows associated with the Company’s fair value hedges are periodic interest payments while the swaps are outstanding, which are reflected in net income within the cash provided by operations component of the cash flow statement.
+No ineffectiveness has been recorded to net income related to interest rate swaps designated as fair value hedges for the years ended May 31, 2011, 2010, and 2009. 
+In fiscal 2003, the Company entered into a receive-floating, pay-fixed interest rate swap agreement related to a Japanese Yen denominated intercompany loan with one of the Company’s Japanese
+subsidiaries. This interest rate swap was not designated as a hedge under the accounting standards for derivatives and hedging. 
+82 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Accordingly, changes in the fair value of the swap were recorded to net income each period through maturity as a component of interest expense (income), net. Both the intercompany loan and the
+related interest rate swap matured during the year ended May 31, 2009. 
+Net Investment Hedges 
+The Company also hedges the risk of variability in foreign-currency-denominated net investments in wholly-owned international operations.
+All changes in fair value of the derivatives designated as net investment hedges, except ineffective portions, are reported in the cumulative translation adjustment component of other comprehensive income along with the foreign currency translation
+adjustments on those investments. The Company classifies the cash flows at settlement of its net investment hedges within the cash used by investing component of the cash flow statement. The Company assesses hedge effectiveness based on changes in
+forward rates. The Company recorded no ineffectiveness from its net investment hedges for the years ended May 31, 2011, 2010, and 2009. 
+Credit Risk 
+The Company is exposed to credit-related losses in the
+event of non-performance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate the Company’s exposure
+to credit risk with these institutions. This credit risk is limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted. To manage this risk, the Company has established strict counterparty
+credit guidelines that are continually monitored and reported to senior management according to prescribed guidelines. The Company also utilizes a portfolio of financial institutions either headquartered or operating in the same countries the
+Company conducts its business. 
+The Company’s derivative contracts contain credit risk related contingent features aiming
+to protect against significant deterioration in counterparties’ creditworthiness and their ultimate ability to settle outstanding derivative contracts in the normal course of business. The Company’s bilateral credit related contingent
+features require the owing entity, either the Company or the derivative counterparty, to post collateral should the fair value of outstanding derivatives per counterparty be greater than $50 million. Additionally, a certain level of decline in
+credit rating of either the Company or the counterparty could trigger collateral requirements. As of May 31, 2011, the Company was in compliance with all such credit risk related contingent features. The aggregate fair value of derivative
+instruments with credit risk related contingent features that are in a net liability position at May 31, 2011 was $160 million. The Company, or any counterparty, were not required to post any collateral as a result of these contingent features.
+As a result of the above considerations, the Company considers the impact of the risk of counterparty default to be immaterial. 
+Note 18 — Operating Segments and Related Information 
+Operating Segments. The Company’s operating segments are evidence of the structure
+of the Company’s internal organization. The major segments are defined by geographic regions for operations participating in NIKE Brand sales activity excluding NIKE Golf. Each NIKE Brand geographic segment operates predominantly in one
+industry: the design, development, marketing and selling of athletic footwear, apparel, and equipment. In fiscal 2009, the Company initiated a reorganization of the NIKE Brand into a new model consisting of six geographies. Effective
+June 1, 2009, the Company’s new reportable operating segments for the NIKE Brand are: North America, Western Europe, Central and Eastern Europe, Greater China, Japan, and Emerging Markets. Previously, NIKE Brand operations were organized
+into the following four geographic regions: U.S., Europe, Middle East and Africa (collectively, “EMEA”), Asia Pacific, and Americas. The Company’s NIKE Brand Direct to Consumer operations are managed within each geographic segment.
+83 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+The Company’s “Other” category is broken into two components for
+presentation purposes to align with the way management views the Company. The “Global Brand Divisions” category primarily represents NIKE Brand licensing businesses that are not part of a geographic operating segment, selling, general and
+administrative expenses that are centrally managed for the NIKE Brand and costs associated with product development and supply chain operations. The “Other Businesses” category primarily consists of the activities of our affiliate
+brands; Cole Haan, Converse Inc., Hurley International LLC and Umbro International Limited; and NIKE Golf. Activities represented in the “Other” category are immaterial for individual disclosure. 
+Revenues as shown below represent sales to external customers for each segment. Intercompany revenues have been eliminated and are
+immaterial for separate disclosure. 
+Corporate consists of unallocated general and administrative expenses, which includes
+expenses associated with centrally managed departments, depreciation and amortization related to the Company’s headquarters, unallocated insurance and benefit programs, including stock-based compensation, certain foreign currency gains and
+losses, including hedge gains and losses, certain corporate eliminations and other items. 
+Effective June 1, 2009, the
+primary financial measure used by the Company to evaluate performance of individual operating segments is Earnings Before Interest and Taxes (commonly referred to as “EBIT”) which represents net income before interest expense (income), net
+and income taxes in the consolidated statements of income. Reconciling items for EBIT represent corporate expense items that are not allocated to the operating segments for management reporting. Previously, the Company evaluated performance of
+individual operating segments based on pre-tax income or income before income taxes. 
+As part of the Company’s centrally
+managed foreign exchange risk management program, standard foreign currency rates are assigned to each NIKE Brand entity in our geographic operating segments and are used to record any non-functional currency revenues or product purchases into the
+entity’s functional currency. Geographic operating segment revenues and cost of sales reflect use of these standard rates. For all NIKE Brand operating segments, differences between assigned standard foreign currency rates and actual market
+rates are included in Corporate together with foreign currency hedge gains and losses generated from the centrally managed foreign exchange risk management program and other conversion gains and losses. Prior to June 1, 2010, foreign currency
+results, including hedge results and other conversion gains and losses generated by the Western Europe and Central & Eastern Europe geographies were recorded in their respective geographic results. 
+Additions to long-lived assets as presented in the following table represent capital expenditures. 
+Accounts receivable, inventories and property, plant and equipment for operating segments are regularly reviewed by management and are
+therefore provided below. 
+Certain prior year amounts have been reclassified to conform to fiscal 2011 presentation, as South
+Africa became part of the Emerging Markets operating segment beginning June 1, 2010. Previously, South Africa was part of the Central & Eastern Europe operating segment. 
+84 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Year Ended May 31, 
+2011 
+2010 
+2009 
+(In millions) 
+Revenue 
+North America 
+$ 
+7,578 
+$ 
+6,696 
+$ 
+6,778 
+Western Europe 
+3,810 
+3,892 
+4,139 
+Central & Eastern Europe 
+1,031 
+993 
+1,247 
+Greater China 
+2,060 
+1,742 
+1,743 
+Japan 
+766 
+882 
+926 
+Emerging Markets 
+2,736 
+2,199 
+1,828 
+Global Brand Divisions 
+123 
+105 
+96 
+Total NIKE Brand 
+18,104 
+16,509 
+16,757 
+Other Businesses 
+2,747 
+2,530 
+2,419 
+Corporate 
+11 
+(25 
+) 
+— 
+Total NIKE Consolidated Revenues 
+$ 
+20,862 
+$ 
+19,014 
+$ 
+19,176 
+Earnings Before Interest and Taxes 
+North America 
+$ 
+1,750 
+$ 
+1,538 
+$ 
+1,429 
+Western Europe 
+721 
+856 
+939 
+Central & Eastern Europe 
+233 
+253 
+394 
+Greater China 
+777 
+637 
+575 
+Japan 
+114 
+180 
+205 
+Emerging Markets 
+688 
+521 
+364 
+Global Brand Divisions 
+(998 
+) 
+(867 
+) 
+(811 
+) 
+Total NIKE Brand 
+3,285 
+3,118 
+3,095 
+Other Businesses (1) 
+334 
+299 
+(193 
+) 
+Corporate (2) 
+(771 
+) 
+(894 
+) 
+(955 
+) 
+Total NIKE Consolidated Earnings Before Interest and Taxes 
+2,848 
+2,523 
+1,947 
+Interest expense (income), net 
+4 
+6 
+(10 
+) 
+Total NIKE Consolidated Earnings Before Taxes 
+$ 
+2,844 
+$ 
+2,517 
+$ 
+1,957 
+Additions to Long-lived Assets 
+North America 
+$ 
+79 
+$ 
+45 
+$ 
+99 
+Western Europe 
+75 
+59 
+70 
+Central & Eastern Europe 
+5 
+4 
+7 
+Greater China 
+43 
+80 
+59 
+Japan 
+9 
+12 
+10 
+Emerging Markets 
+21 
+11 
+12 
+Global Brand Divisions 
+44 
+30 
+37 
+Total NIKE Brand 
+276 
+241 
+294 
+Other Businesses 
+38 
+52 
+90 
+Corporate 
+118 
+42 
+72 
+Total Additions to Long-lived Assets 
+$ 
+432 
+$ 
+335 
+$ 
+456 
+Depreciation 
+North America 
+$ 
+70 
+$ 
+65 
+$ 
+64 
+Western Europe 
+52 
+57 
+51 
+Central & Eastern Europe 
+4 
+4 
+4 
+Greater China 
+19 
+11 
+7 
+Japan 
+22 
+26 
+30 
+Emerging Markets 
+14 
+12 
+10 
+Global Brand Divisions 
+39 
+33 
+43 
+Total NIKE Brand 
+220 
+208 
+209 
+Other Businesses 
+44 
+46 
+38 
+Corporate 
+71 
+70 
+88 
+Total Depreciation 
+$ 
+335 
+$ 
+324 
+$ 
+335 
+85 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+(1) 
+During the year ended May 31, 2009, the Other category included a pre-tax charge of $401 million for the impairment of goodwill, intangible and
+other assets of Umbro, which was recorded in the third quarter of fiscal 2009. See Note 4 — Identifiable Intangible Assets, Goodwill and Umbro Impairment for more information. 
+(2) 
+During the year ended May 31, 2009, Corporate expense included pre-tax charges of $195 million for the Company’s restructuring activities,
+which were completed in the fourth quarter of fiscal 2009. See Note 16 — Restructuring Charges for more information. 
+Year Ended May 31, 
+2011 
+2010 
+(In millions) 
+Accounts Receivable, net 
+North America 
+$ 
+1,069 
+$ 
+848 
+Western Europe 
+500 
+402 
+Central & Eastern Europe 
+290 
+271 
+Greater China 
+140 
+129 
+Japan 
+153 
+167 
+Emerging Markets 
+466 
+350 
+Global Brand Divisions 
+23 
+22 
+Total NIKE Brand 
+2,641 
+2,189 
+Other Businesses 
+471 
+442 
+Corporate 
+26 
+19 
+Total Accounts Receivable, net 
+$ 
+3,138 
+$ 
+2,650 
+Inventories 
+North America 
+$ 
+1,034 
+$ 
+768 
+Western Europe 
+434 
+347 
+Central & Eastern Europe 
+145 
+102 
+Greater China 
+152 
+104 
+Japan 
+82 
+68 
+Emerging Markets 
+429 
+285 
+Global Brand Divisions 
+25 
+20 
+Total NIKE Brand 
+2,301 
+1,694 
+Other Businesses 
+414 
+347 
+Corporate 
+— 
+— 
+Total Inventories 
+$ 
+2,715 
+$ 
+2,041 
+Property, Plant and Equipment, net 
+North America 
+$ 
+330 
+$ 
+325 
+Western Europe 
+338 
+282 
+Central & Eastern Europe 
+13 
+11 
+Greater China 
+179 
+146 
+Japan 
+360 
+333 
+Emerging Markets 
+58 
+48 
+Global Brand Divisions 
+116 
+99 
+Total NIKE Brand 
+1,394 
+1,244 
+Other Businesses 
+164 
+167 
+Corporate 
+557 
+521 
+Total Property, Plant and Equipment, net 
+$ 
+2,115 
+$ 
+1,932 
+86 
+Table of Contents 
+NIKE, INC. 
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 
+Revenues by Major Product Lines. Revenues to external
+customers for NIKE Brand products are attributable to sales of footwear, apparel and equipment. Other revenues to external customers primarily include external sales by Cole Haan, Converse, Hurley, NIKE Golf, and Umbro. 
+Year Ended May 31, 
+2011 
+2010 
+2009 
+(In millions) 
+Footwear 
+$ 
+11,493 
+$ 
+10,332 
+$ 
+10,307 
+Apparel 
+5,475 
+5,037 
+5,245 
+Equipment 
+1,013 
+1,035 
+1,110 
+Other 
+2,881 
+2,610 
+2,514 
+$ 
+20,862 
+$ 
+19,014 
+$ 
+19,176 
+Revenues and Long-Lived Assets by Geographic Area. Geographical area
+information is similar to what was shown previously under operating segments with the exception of the Other activity, which has been allocated to the geographical areas based on the location where the sales originated. Revenues derived in the
+United States were $8,956 million, $7,914 million, and $8,020 million for the years ended May 31, 2011, 2010, and 2009, respectively. The Company’s largest concentrations of long-lived assets primarily consist of the Company’s world
+headquarters and distribution facilities in the United States and distribution facilities in Japan, Belgium and China. Long-lived assets attributable to operations in the United States, which are comprised of net property, plant &
+equipment, were $1,115 million, $1,070 million, and $1,143 million at May 31, 2011, 2010, and 2009, respectively. Long-lived assets attributable to operations in Japan were $363 million, $336 million, and $322 million at May 31, 2011, 2010
+and 2009, respectively. Long-lived assets attributable to operations in Belgium were $182 million, $164 million, and $191 million at May 31, 2011, 2010, and 2009, respectively. Long-lived assets attributable to operations in China were $175
+million, $144 million, and $76 million at May 31, 2011, 2010, and 2009, respectively. 
+Major
+Customers. No customer accounted for 10% or more of the Company’s net sales during the years ended May 31, 2011, 2010, and 2009. 
+87 
+Table of Contents 
+Item 9. 
+Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
+There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or practices or
+financial statement disclosure required to be reported under this Item. 
+Item 9A. 
+Controls and Procedures 
+We maintain disclosure controls and procedures that are designed to ensure information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time
+periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
+allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only
+reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 
+We carry out a variety of on-going procedures, under the supervision and with the participation of our management, including our Chief
+Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our
+disclosure controls and procedures were effective at the reasonable assurance level as of May 31, 2011. 
+“Management’s Annual Report on Internal Control Over Financial Reporting” is included in Item 8 on page 54 of this
+Report. 
+There has been no change in our internal control over financial reporting during our most recent fiscal quarter that
+has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting. 
+Item 9B. 
+Other Information 
+No disclosure is required under this Item. 
+88 
+Table of Contents 
+PART III 
+Item 10. 
+Directors, Executive Officers and Corporate Governance 
+The information required by Item 401 of Regulation S-K regarding directors is included under “Election of Directors” in the definitive Proxy Statement for our 2011 Annual Meeting of
+Shareholders and is incorporated herein by reference. The information required by Item 401 of Regulation S-K regarding executive officers is included under “Executive Officers of the Registrant” in Item 1 of this Report. The
+information required by Item 405 of Regulation S-K is included under “Election of Directors — Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for our 2011 Annual Meeting of Shareholders
+and is incorporated herein by reference. The information required by Item 406 of Regulation S-K is included under “Corporate Governance — Code of Business Conduct and Ethics” in the definitive Proxy Statement for our 2011 Annual
+Meeting of Shareholders and is incorporated herein by reference. The information required by Items 407(d)(4) and (d)(5) of Regulation S-K regarding the Audit Committee of the Board of Directors is included under “Corporate Governance
+— Board Committees” in the definitive Proxy Statement for our 2011 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 11. 
+Executive Compensation 
+The information required by Items 402, 407(e)(4) and 407(e)(5) of Regulation S-K regarding executive compensation is included under “Election of Directors — Director Compensation for Fiscal
+2011,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Election of Directors — Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in
+the definitive Proxy Statement for our 2011 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+The information required by Item 201(d) of Regulation S-K is included under “Executive Compensation — Equity Compensation
+Plans” in the definitive Proxy Statement for our 2011 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 403 of Regulation S-K is included under “Election of Directors — Stock
+Holdings of Certain Owners and Management” in the definitive Proxy Statement for our 2011 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+The information required by Items 404 and 407(a) of Regulation S-K is included under “Election of Directors — Transactions with
+Related Persons” and “Corporate Governance — Director Independence” in the definitive Proxy Statement for our 2011 Annual Meeting of Shareholders and is incorporated herein by reference. 
+Item 14. 
+Principal Accountant Fees and Services 
+The information required by Item 9(e) of Schedule 14A is included under “Ratification Of Independent Registered Public Accounting Firm” in the definitive Proxy Statement for our 2011 Annual
+Meeting of Shareholders and is incorporated herein by reference. 
+89 
+Table of Contents 
+PART IV 
+Item 15. 
+Exhibits and Financial Statement Schedules 
+(a) 
+The following documents are filed as part of this report: 
+Form 10-K 
+Page No. 
+1. 
+FINANCIAL STATEMENTS: 
+Report of Independent Registered Public Accounting Firm 
+55 
+Consolidated Statements of Income for each of the three years ended May 31, 2011, May 31, 2010 and May 31, 2009 
+56 
+Consolidated Balance Sheets at May 31, 2011 and May 31, 2010 
+57 
+Consolidated Statements of Cash Flows for each of the three years ended May 31, 2011, May 31, 2010 and May 31, 2009 
+58 
+Consolidated Statements of Shareholders’ Equity for each of the three years ended May 31, 2011, May 31, 2010 and May 31, 2009 
+59 
+Notes to Consolidated Financial Statements 
+60 
+2. 
+FINANCIAL STATEMENT SCHEDULE: 
+II — Valuation and Qualifying Accounts 
+F-1 
+All other schedules are omitted because they are not applicable or the required information is shown in
+the financial statements or notes thereto. 
+3. EXHIBITS: 
+3.1 
+Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
+August 31, 2005). 
+3.2 
+Third Restated Bylaws, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed February 20, 2007). 
+4.1 
+Restated Articles of Incorporation, as amended (see Exhibit 3.1). 
+4.2 
+Third Restated Bylaws, as amended (see Exhibit 3.2). 
+4.3 
+Indenture dated as of December 13, 1996 between the Company and Bank One Trust Company, National Association (successor in interest to The First National Bank of Chicago), as
+Trustee (incorporated by reference to Exhibit 4.01 to Amendment No. 1 to Registration Statement No. 333-15953 filed by the Company on November 26, 1996). 
+4.4 
+Form of Officers’ Certificate relating to the Company’s Fixed Rate Medium-Term Notes and the Company’s Floating Rate Medium-Term Notes, form of Fixed Rate Note and
+form of Floating Rate Note (incorporated by reference to Exhibits 4.2, 4.3 and 4.4 of the Company’s Current Report on Form 8-K filed May 29, 2002). 
+4.5 
+Credit Agreement dated as of December 1, 2006 among NIKE, Inc., Bank of America, N.A., individually and as Agent, and the other banks party thereto (incorporated by reference to
+Exhibit 4.01 to the Company’s Current Report on Form 8-K filed December 6, 2006). 
+90 
+Table of Contents 
+4.6 
+First Amendment to the Credit Agreement, dated August 24, 2007, among NIKE, Inc., Bank of America, N.A., as Administrative Agent, Citicorp USA, Inc., as Syndication Agent, and
+HSBC Bank USA, N.A., The Bank of Tokyo Mitsubishi UFG, Ltd. and Deutsche Bank Securities Inc., as Co-Documentation Agents, and the other Banks named therein (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
+Form 10-Q for the fiscal quarter ended February 29, 2008). 
+4.7 
+Extension and Second Amendment to the Credit Agreement, dated November 1, 2007, among NIKE, Inc., Bank of America, N.A., as Administrative Agent, Citicorp USA, Inc., as
+Syndication Agent, and HSBC Bank USA, N.A., The Bank of Tokyo Mitsubishi UFG, Ltd. and Deutsche Bank Securities Inc., as Co-Documentation Agents, and the other Banks named therein. (incorporated by reference to Exhibit 10.2 to the Company’s
+Quarterly Report on Form 10-Q for the fiscal quarter ended February 29, 2008). 
+10.1 
+Form of Non-Statutory Stock Option Agreement for options granted to non-employee directors prior to May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by
+reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed June 21, 2005).* 
+10.2 
+Form of Non-Statutory Stock Option Agreement for options granted to non-employee directors after May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference
+to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010).* 
+10.3 
+Form of Non-Statutory Stock Option Agreement for options granted to executives prior to May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to
+Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009).* 
+10.4 
+Form of Non-Statutory Stock Option Agreement for options granted to executives after May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit
+10.1 to the Company’s Current Report on Form 8-K filed July 20, 2010).* 
+10.5 
+Form of Indemnity Agreement entered into between the Company and each of its officers and directors (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report
+on Form 10-K for the fiscal year ended May 31, 2008).* 
+10.6 
+NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 24, 2010).* 
+10.7 
+NIKE, Inc. Executive Performance Sharing Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 24,
+2010).* 
+10.8 
+NIKE, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31,
+2008).* 
+10.9 
+NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective January 1, 2009) (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form
+10-K for the fiscal year ended May 31, 2009).* 
+10.10 
+NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective June 1, 2004) (applicable to amounts deferred before January 1, 2005) (incorporated by reference
+to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004).* 
+10.11 
+Amendment No. 1 effective January 1, 2008 to the NIKE, Inc. Deferred Compensation Plan (June 1, 2004 Restatement) (incorporated by reference to Exhibit 10.9 to the
+Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009).* 
+10.12 
+NIKE, Inc. Foreign Subsidiary Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal
+quarter ended November 30, 2008).* 
+91 
+Table of Contents 
+10.13 
+Amended and Restated Covenant Not To Compete and Non-Disclosure Agreement between NIKE, Inc. and Mark G. Parker dated July 24, 2008 (incorporated by reference to Exhibit
+10.1 to the Company’s Current Report on Form 8-K filed July 24, 2008).* 
+10.14 
+Amended and Restated Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Charles D. Denson dated July 24, 2008 (incorporated by reference to Exhibit 10.2
+to the Company’s Current Report on Form 8-K filed July 24, 2008).* 
+10.15 
+Form of Long-Term Incentive Award Agreement under the Long-Term Incentive Plan (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for
+the fiscal year ended May 31, 2010).* 
+10.16 
+Form of Restricted Stock Bonus Agreement under the 1990 Stock Incentive Plan for awards prior to May 31, 2010 (incorporated by reference to Exhibit 10.2 to the
+Company’s Current Report on Form 8-K filed June 21, 2005).* 
+10.17 
+Form of Restricted Stock Agreement under the 1990 Stock Incentive Plan for awards after May 31, 2010 (incorporated by reference to Exhibit 10.2 to the Company’s Current
+Report on Form 8-K filed July 20, 2010).* 
+10.18 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Donald W. Blair dated November 10, 1999 (incorporated by reference to Exhibit 10.15 to the
+Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2006).* 
+10.19 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Gary DeStefano (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
+Form 8-K filed August 11, 2006).* 
+10.20 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Trevor A. Edwards dated November 14, 2002 (incorporated by reference to Exhibit 10.19 to the
+Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008).* 
+10.21 
+Policy for Recoupment of Incentive Compensation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed July 20,
+2010).* 
+12.1 
+Computation of Ratio of Earnings to Fixed Charges. 
+21 
+Subsidiaries of the Registrant. 
+23 
+Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm (set forth on page F-2 of this Annual Report on Form 10-K). 
+31.1 
+Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. 
+31.2 
+Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. 
+32 
+Section 1350 Certifications. 
+101.INS 
+XBRL Instance Document 
+101.SCH 
+XBRL Taxonomy Extension Schema 
+101.CAL 
+XBRL Taxonomy Extension Calculation Linkbase 
+101.DEF 
+XBRL Taxonomy Extension Definition Document 
+101.LAB 
+XBRL Taxonomy Extension Label Linkbase 
+101.PRE 
+XBRL Taxonomy Extension Presentation Linkbase 
+* 
+Management contract or compensatory plan or arrangement. 
+92 
+Table of Contents 
+The exhibits filed herewith do not include certain instruments with respect to long-term
+debt of NIKE and its subsidiaries, inasmuch as the total amount of debt authorized under any such instrument does not exceed 10 percent of the total assets of NIKE and its subsidiaries on a consolidated basis. NIKE agrees, pursuant to
+Item 601(b)(4)(iii) of Regulation S-K, that it will furnish a copy of any such instrument to the SEC upon request. 
+Upon
+written request to Investor Relations, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453, NIKE will furnish shareholders with a copy of any Exhibit upon payment of $.10 per page, which represents our reasonable expenses in furnishing
+Exhibits. 
+93 
+Table of Contents 
+SCHEDULE II 
+VALUATION AND QUALIFYING ACCOUNTS 
+Balance at 
+Beginning 
+of Period 
+Charged to 
+Costs and 
+Expenses 
+Charged to 
+Other 
+Accounts 
+Write-Offs 
+Net of 
+Recoveries 
+Balance at 
+End of 
+Period 
+(In millions) 
+Allowance for doubtful accounts (current and non-current) (1) 
+For the year ended May 31, 2009 
+$ 
+78 
+$ 
+63 
+$ 
+(12 
+) 
+$ 
+(18 
+) 
+$ 
+111 
+For the year ended May 31, 2010 
+111 
+46 
+(10 
+) 
+(30 
+) 
+117 
+For the year ended May 31, 2011 
+117 
+25 
+15 
+(33 
+) 
+124 
+(1) 
+The non-current portion of the allowance for doubtful accounts is classified in deferred income taxes and other assets on the consolidated balance
+sheet. 
+F-1
+Table of Contents 
+CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-156406) and Form S-8 (Nos.
+033-63995, 333-63581, 333-63583, 333-68864, 333-68886, 333-71660, 333-104822, 333-117059, 333-133360, 333-164248, 333-171647, and 333-173727) of NIKE, Inc. of our report dated July 22, 2011 relating to the financial statements, financial
+statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. 
+/s/ P RICEWATERHOUSE C OOPERS LLP 
+Portland, Oregon 
+July 22, 2011 
+F-2
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
+report to be signed on its behalf by the undersigned, thereunto duly authorized. 
+NIKE, INC. 
+By: 
+/s/ M ARK G.
+P ARKER 
+Mark G. Parker 
+Chief Executive Officer and President 
+Date: July 22, 2011 
+Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the
+dates indicated. 
+Signature 
+Title 
+Date 
+Principal Executive Officer and Director: 
+/s/ M ARK G.
+P ARKER 
+Mark G. Parker 
+Director, Chief Executive Officer and President 
+July 22, 2011 
+Principal Financial Officer: 
+/s/ D ONALD W.
+B LAIR 
+Donald W. Blair 
+Chief Financial Officer 
+July 22, 2011 
+Principal Accounting Officer: 
+/s/ B ERNARD F.
+P LISKA 
+Bernard F. Pliska 
+Corporate Controller 
+July 22, 2011 
+Directors: 
+/s/ P HILIP H.
+K NIGHT 
+Philip H. Knight 
+Director, Chairman of the Board 
+July 22, 2011 
+/s/ E LIZABETH J.
+C OMSTOCK 
+Elizabeth J. Comstock 
+Director 
+July 22, 2011 
+/s/ J OHN G.
+C ONNORS 
+John G. Connors 
+Director 
+July 22, 2011 
+/s/ J ILL K.
+C ONWAY 
+Jill K. Conway 
+Director 
+July 22, 2011 
+/s/ T IMOTHY D.
+C OOK 
+Timothy D. Cook 
+Director 
+July 22, 2011 
+S-1
+Table of Contents 
+Signature 
+Title 
+Date 
+/s/ R ALPH D.
+D E N UNZIO 
+Ralph D. DeNunzio 
+Director 
+July 22, 2011 
+/s/ A LAN B. G RAF ,
+J R . 
+Alan B. Graf, Jr. 
+Director 
+July 22, 2011 
+/s/ D OUGLAS G.
+H OUSER 
+Douglas G. Houser 
+Director 
+July 22, 2011 
+/s/ J OHN C.
+L ECHLEITER 
+John C. Lechleiter 
+Director 
+July 22, 2011 
+/s/ J OHNATHAN A.
+R ODGERS 
+Johnathan A. Rodgers 
+Director 
+July 22, 2011 
+/s/ O RIN C.
+S MITH 
+Orin C. Smith 
+Director 
+July 22, 2011 
+/s/ J OHN R. T HOMPSON ,
+J R . 
+John R. Thompson, Jr. 
+Director 
+July 22, 2011 
+/s/ P HYLLIS M.
+W ISE 
+Phyllis M. Wise 
+Director 
+July 22, 2011 
+S-2
\ No newline at end of file
diff --git a/raw/filings/0000320187/2010/0001193125-11-194791/filing_metadata.csv b/raw/filings/0000320187/2010/0001193125-11-194791/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..0ae8b78902c53dec59a9e9cfb829a9a61d48a5f4
--- /dev/null
+++ b/raw/filings/0000320187/2010/0001193125-11-194791/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000320187,NKE,"NIKE, Inc.",10-K,2011-07-22,2011-05-31,2011-07-23T00:16:31.000Z,0001193125-11-194791,d10k.htm,FORM 10-K,11138884,1,0,https://www.sec.gov/Archives/edgar/data/320187/000119312511194791/d10k.htm,https://www.sec.gov/Archives/edgar/data/320187/000119312511194791/,2010,2010,1
diff --git a/raw/filings/0000320187/2010/0001193125-11-194791/item1.txt b/raw/filings/0000320187/2010/0001193125-11-194791/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3244ac5c32742ffb912d0d012294cb73e5d5ee56
--- /dev/null
+++ b/raw/filings/0000320187/2010/0001193125-11-194791/item1.txt
@@ -0,0 +1,290 @@
+Item 1. 
+Business 
+General 
+NIKE, 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 the context indicates otherwise. Our Internet address is www.nike.com. On our NIKE
+Corporate web site, located at www.nikebiz.com, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the 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 furnished 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 free of charge. Also available on the NIKE Corporate web site are the charters of the committees of our board of directors, as well as our corporate governance guidelines and code of ethics;
+copies of any of these documents 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 worldwide marketing and selling of high quality footwear, 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 NIKE-owned retail stores and internet sales, which we refer to as our “Direct
+to Consumer” operations, and 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. 
+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-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, including 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 directly 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. 
+1 
+Table of Contents 
+Our wholly-owned subsidiary, Converse Inc. (“Converse”),
+headquartered in North Andover, Massachusetts, designs, distributes and licenses athletic and casual footwear, apparel and accessories under the Converse ® , Chuck Taylor ® , All Star ® , One Star ® , Star Chevron and Jack
+Purcell ® trademarks. 
+Our wholly-owned subsidiary, Hurley International LLC (“Hurley”), headquartered in Costa Mesa, California,
+designs and distributes a line of action sports and youth lifestyle apparel and accessories under the Hurley ® 
+trademark. 
+Our wholly-owned subsidiary, Umbro International Limited (“Umbro”), headquartered in
+Cheadle, United Kingdom, designs, distributes and licenses athletic and casual footwear, apparel and equipment, primarily for the sport of football (soccer), under the Umbro ® trademark. 
+Sales and
+Marketing 
+Financial information about geographic and segment operations appears in Note 18 of the accompanying Notes to
+the Consolidated Financial Statements on page 83. 
+We experience moderate fluctuations in aggregate sales volume during the
+year. Historically, revenues in the first and fourth fiscal quarters have slightly 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 fitness activities and changing design trends affect the demand for our products. We must therefore respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products,
+styles and categories, and influencing sports and fitness preferences through aggressive marketing. Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability. This is a continuing risk.
+We report our NIKE Brand operations based on our internal geographic organization. Each NIKE Brand geography operates
+predominantly 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, NIKE Brand operations were organized into the following four geographic regions: U.S.,
+Europe, Middle East and Africa (collectively, “EMEA”), Asia Pacific, and Americas. Our NIKE Brand Direct to Consumer operations are managed within each geographic segment. 
+United States Market 
+In fiscal 2011, sales in
+the United States including U.S. sales of our Other Businesses accounted for approximately 43% of total revenues, compared to 42% in fiscal 2010 and 2009. Our Other Businesses were primarily comprised of our affiliate brands; Cole Haan,
+Converse, Hurley and Umbro (which was acquired on March 3, 2008); and NIKE Golf. We estimate that we sell to more than 20,000 retail accounts in the United States. The NIKE Brand domestic retail 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 fiscal 2011, our three largest customers accounted for approximately 23% of sales in the United States. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in advance
+of delivery with the commitment that their orders will be delivered within a set time period at a fixed price. In fiscal 2011, 87% of our U.S. wholesale footwear shipments (excluding our Other Businesses) were made under the futures program,
+compared to 89% in fiscal 2010 and 2009. In fiscal 2011, 60% of our U.S. wholesale apparel shipments (excluding our Other Businesses) were made under the futures program, compared to 62% in fiscal 2010 and 60% in fiscal 2009. 
+2 
+Table of Contents 
+We utilize 18 NIKE sales offices to solicit sales in the United States. We also utilize 4
+independent sales representatives to sell specialty products for golf and 5 for skateboarding and snowboarding products. In addition, our Direct to Consumer operations sell NIKE Brand products through our internet website, www.nikestore.com ,
+and the following retail outlets in the United States: 
+U.S. Retail Stores 
+Number 
+NIKE factory stores 
+150 
+NIKE stores 
+16 
+NIKETOWNs 
+9 
+NIKE employee-only stores 
+3 
+Cole Haan stores (including factory stores) 
+107 
+Converse stores (including factory stores) 
+58 
+Hurley stores (including factory and employee stores) 
+20 
+Total 
+363 
+NIKE’s three significant distribution centers in the United States for NIKE Brand products,
+including NIKE Golf, are located in Memphis, Tennessee. NIKE also operates and leases one facility in Memphis, Tennessee for NIKE Brand product returns. NIKE Brand apparel and equipment products are also shipped from our Foothill Ranch, California
+distribution center. Cole Haan products are distributed primarily from Greenland, New Hampshire, and Converse and Hurley products are shipped primarily from Ontario, California. 
+International Markets 
+In fiscal 2011, non-U.S.
+sales (including non-U.S. sales of our Other Businesses) accounted for 57% of total revenues, compared to 58% in fiscal 2010 and 2009. We sell our products to retail accounts, through our own Direct to Consumer operations, and through a mix of
+independent distributors and licensees around the world. We estimate that we sell to more than 20,000 retail accounts outside the United States, excluding sales by independent distributors and licensees. We operate 16 distribution centers outside of
+the United States. In many countries and regions, including Canada, Asia, some Latin American countries, and Europe, we have a futures ordering program for retailers similar to the United States futures program described above. During fiscal 2011,
+NIKE’s three largest customers outside of the U.S. accounted for approximately 9% of total non-U.S. sales. 
+Our
+Direct to Consumer business operates the following retail outlets outside the United States: 
+Non-U.S. Retail Stores 
+Number 
+NIKE factory stores 
+243 
+NIKE stores 
+50 
+NIKETOWNs 
+3 
+NIKE employee-only stores 
+13 
+Cole Haan stores 
+83 
+Hurley stores 
+1 
+Total 
+393 
+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. 
+3 
+Table of Contents 
+Significant Customer 
+No customer accounted for 10% or more of our net sales during fiscal 2011. 
+Orders 
+Worldwide futures and advance orders for
+NIKE Brand athletic footwear and apparel, scheduled for delivery from June through November 2011, were $10.3 billion compared to $8.8 billion for the same period last year. This futures and advance order amount is calculated based upon our forecast
+of the actual exchange 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 fulfillment of certain of these futures/advance 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 and advance orders and actual revenues. Moreover, a significant portion 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. 
+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 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 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 2011, contract factories in Vietnam, China, Indonesia, and India manufactured approximately
+39%, 33%, 24% and 2% 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 6% of total fiscal 2011 NIKE Brand footwear production. Almost all of NIKE Brand apparel is manufactured outside of the United States by independent contract
+manufacturers located in 33 countries. Most of this apparel production occurred in China, Thailand, Vietnam, Malaysia, Sri Lanka, Indonesia, Turkey, Cambodia, El Salvador, and Mexico. The largest single apparel factory that we have contracted with
+accounted for approximately 7% of total fiscal 2011 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 2011, 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 
+4 
+Table of Contents 
+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 2011, 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. 
+International Operations and Trade 
+Our international operations and sources of supply are subject to the usual risks 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 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 developments occurring. 
+The global economic
+recession resulted in a significant 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 profitability and the imported footwear and apparel industry as
+a whole. Accordingly, we are actively monitoring the developments described below. 
+Footwear Imports into the European
+Union 
+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 within the scope of the
+investigation, and (ii) does not meet the legal requirements of injury and price in an anti-dumping investigation. Our arguments were successful and the EU agreed in October 2006 on definitive duties of 16.5% for China and 10% for Vietnam for
+non-STAF leather footwear, but excluded STAF from the final measures. Prior to the scheduled expiration in October 2008 of the measures imposed on the non-STAF footwear, the domestic industry requested and the EC agreed to review a petition to
+extend these restrictions on non-STAF leather footwear. In December 2009, following a review of the ongoing restrictions, EU member states voted to extend the measures for an additional 15 months, until March 31, 2011. In early 2011, the EC
+declined to further extend the measures and since April 1, 2011 these restrictions have been terminated. The EC noted that it will be monitoring leather footwear imports from Vietnam and China over the next 12 months and it is hoped that any
+increases will not result in renewed trade defense actions by the EC. 
+On February 3, 2010, the Chinese government
+announced it would seek to refer 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. 
+5 
+Table of Contents 
+Footwear, Apparel and Equipment Imports into Brazil and Argentina 
+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 final 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 with the same broad coalition of footwear companies to challenge this decision in domestic Brazilian courts as well as international forums such as the
+WTO. 
+Many products, including footwear, apparel and equipment products, that we and others in our industry import into
+Argentina and Brazil are subject to the WTO non-automatic licensing requirements, which means that it may take up to 60 days for those products to clear customs and enter into those jurisdictions. From time to time, in addition to these WTO
+licensing requirements, these jurisdictions 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. 
+Footwear, Apparel and Equipment Imports into Turkey 
+In 2006, Turkey
+introduced safeguard measures in the form of additional duties on all imported footwear into Turkey with the goal of protecting its local shoe manufacturing industry until August 2009. In June 2009, Turkish shoe-manufacturers submitted, and the
+Turkish Government agreed to review, a request for extension of the safeguard measures claiming that the rehabilitation process of the local Turkish industry was interrupted due to the continuing increase of footwear imports. Despite the importers
+opposition to the continuation of the safeguard measures, the Turkish authorities extended these safeguard measures until August 2012, but reduced the duty from $3 per pair of footwear to $1.60 per pair of footwear. 
+In 2011, two new safeguard measures and reviews were initiated by the Turkish Undersecretariat of Foreign Trade (“UFT”) on
+apparel and equipment imports. In January 2011, the UFT began an investigation on apparel imports that could result in a 20-30% increase in import duties applied to imported apparel products, regardless of country of origin and with only a few
+exceptions for countries that currently have a Free Trade Agreement with Turkey. A decision is expected in late July 2011 and if approved, these higher import duties will be in place through July 2014. Together with other companies in our industry,
+we are advocating for exclusion of certain apparel products used for sporting activities that cannot be manufactured in Turkey and therefore should not be subject to a higher import duty. In February 2011, the UFT began a review of existing
+safeguard measure on travel goods, handbags and similar accessories and containers listed under applicable regulations. One Turkish bag manufacturers association has requested the continuation of the safeguard measures through April 2014, with the
+application of an additional import duty of 2.70 USD/kg (max. 4.25 USD/unit), regardless of country of origin. Together with other companies in our industry, we are advocating for the exclusion of non-leather bags from the scope of the continued
+safeguards. 
+Trade Relations with China 
+China represents an important sourcing country and consumer marketing country for us. Many governments around the world are concerned about China’s growing and fast-paced economy, compliance with WTO
+rules, currency valuation, and high trade surpluses. As a result, a wide range of legislative proposals have been introduced to address these concerns. While some of these concerns may be justified, we are working with broad
+6 
+Table of Contents 
+coalitions of global businesses and trade associations representing a wide variety of sectors (e.g., services, manufacturing, and agriculture) to help ensure 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.
+We believe other companies in our industry as well as most other multi-national companies are in a similar position regarding these trade measures. 
+In the event any of these 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. We believe our principal competitors are subject to similar risks. 
+Competition 
+The athletic footwear, apparel, and
+equipment industry is keenly competitive in the United States and on a worldwide basis. We compete internationally with a significant number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies,
+and large companies having diversified lines of athletic and leisure shoes, apparel, and equipment, including Adidas, Puma, and 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 and athletic apparel in the world. Performance and reliability of shoes, apparel, and equipment, new product development, price, product identity through marketing and promotion, and customer support and service
+are important aspects of competition in the athletic footwear, apparel, and equipment industry. To help market our products, we contract with prominent and influential 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 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 over 150 countries. In addition, we own many other trademarks that we
+utilize in marketing our products. We continue to vigorously protect our trademarks against infringement. 
+NIKE has an exclusive, worldwide license to make and sell footwear using patented “Air” technology. The
+process utilizes pressurized gas encapsulated in polyurethane. Some of the early NIKE AIR ® patents have expired,
+which may enable competitors to use certain types of similar technology. Subsequent NIKE AIR ® patents will not
+expire for several years. We also have hundreds of U.S. and foreign utility patents, and thousands of U.S. and foreign design patents covering components and features used in various athletic and leisure shoes, apparel, and equipment. These patents
+expire at various times, and patents issued for applications filed this year will last from now to 2025 for design patents, and from now to 2031 for utility patents. We believe our success 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 filing applications for United States and foreign patents on inventions, designs, and improvements that we deem valuable. 
+Employees 
+As of May 31, 2011, we had approximately 38,000 employees worldwide, which includes retail and part-time employees. Management considers its relationship with employees to be excellent. None of our
+employees 
+7 
+Table of Contents 
+is represented by a union, except for certain employees in the Emerging Markets geography, where local law requires those employees to be represented by a trade union, and in the United States,
+where certain employees of Cole Haan are represented by a union. Also, in some countries outside of the United States, local laws require representation for employees by works councils (such as in certain countries in the European Union, in which
+they are entitled to information and consultation on certain Company decisions) or other employee representation by 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 wide or national) collective bargaining agreements. There has never been a material interruption of operations due to labor disagreements. 
+Executive Officers of the Registrant 
+The
+executive officers of NIKE as of July 14, 2011 are as follows: 
+Philip H. Knight, Chairman of the Board —
+Mr. Knight, 73, a director since 1968, is a co-founder of NIKE and, except for the period from June 1983 through September 1984, served as its President from 1968 to 1990 and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a
+certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State University. 
+Mark G. Parker, Chief Executive Officer and President — Mr. Parker, 55, was appointed CEO and President in January 2006. He has been employed by NIKE since 1979 with primary
+responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge of development in 1987, corporate Vice President in 1989, General Manager in 1993,
+Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. 
+David J. Ayre, Vice President,
+Global Human Resources — Mr. Ayre, 51, joined NIKE as Vice President, Global Human Resources in 2007. Prior to joining NIKE, he held a number of senior human resource positions with PepsiCo, Inc. since 1990, most recently as head of Talent
+and Performance Rewards. 
+Donald W. Blair, Vice President and Chief Financial Officer — Mr. Blair, 53, joined
+NIKE in November 1999. Prior to joining NIKE, he held a number of financial management positions with PepsiCo, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice President, Planning of PepsiCo’s Pizza Hut Division, and Senior Vice
+President, Finance of The Pepsi Bottling Group, Inc. Prior to joining PepsiCo, Mr. Blair was a certified public accountant with Deloitte, Haskins, and Sells. 
+Charles D. Denson, President of the NIKE Brand — Mr. Denson, 55, has been employed by NIKE since 1979. Mr. Denson held several management positions within the Company, including his
+appointments as Director of USA Apparel Sales in 1994, divisional Vice President, U.S. Sales in 1994, divisional Vice President European Sales in 1997, divisional Vice President and General Manager, NIKE Europe in 1998, Vice President and General
+Manager of NIKE USA in 2000, and President of the NIKE Brand in 2001. 
+Gary M. DeStefano, President, Global Operations
+— Mr. DeStefano, 54, has been employed by NIKE since 1982, with primary responsibilities in sales and regional administration. Mr. DeStefano was appointed Director of Domestic Sales in 1990, divisional Vice President in charge of
+domestic sales in 1992, Vice President of Global Sales in 1996, Vice President and General Manager of Asia Pacific in 1997, President of USA Operations in 2001, and President of Global Operations in 2006. 
+Trevor Edwards, Vice President, Global Brand and Category Management — Mr. Edwards, 48, joined NIKE in 1992. He was
+appointed Marketing Manager, Strategic Accounts, Foot Locker in 1993, Director of Marketing, the Americas in 1995, Director of Marketing, Europe in 1997, Vice President, Marketing for Europe, Middle East and Africa in 1999, and Vice President, U.S.
+Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in 2002 and Vice President, Global Brand and Category Management in 2006. Prior to NIKE, Mr. Edwards was with the Colgate-Palmolive
+Company. 
+8 
+Table of Contents 
+Jeanne P. Jackson, President, Direct to Consumer — Ms. Jackson,
+59, served as a member of the NIKE, Inc. Board of Directors from 2001 through 2009, when she resigned from our Board and was appointed President, Direct to Consumer. She is founder and CEO of MSP Capital, a private investment company.
+Ms. Jackson was CEO of Walmart.com from March 2000 to January 2002. She was with Gap, Inc., as President and CEO of Banana Republic from 1995 to 2000, also serving as CEO of Gap, Inc. Direct from 1998 to 2000. Since 1978, she has held
+various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated Department Stores. Ms. Jackson is the past President of the United States Ski and Snowboard Foundation Board of Trustees,
+and is a director of McDonald’s Corporation. She is a former director of Nordstrom, Inc., and Harrah’s Entertainment, Inc. 
+Hilary K. Krane, Vice President and General Counsel — Ms. Krane, 47, joined NIKE as Vice President and General Counsel in April 2010. Prior to joining NIKE, Ms. Krane was
+General Counsel and Senior Vice President for Corporate Affairs at Levi Strauss & Co. where she was responsible for legal affairs and overseeing the global brand protection department from 2006 to 2010. From 1996 to 2006, she was a
+partner and assistant general counsel at PricewaterhouseCoopers LLP. 
+Bernard F. Pliska, Vice President, Corporate
+Controller — Mr. Pliska, 49, joined NIKE as Corporate Controller in 1995. He was appointed Vice President, Corporate Controller in 2003. Prior to NIKE, Mr. Pliska was with Price Waterhouse from 1984 to 1995. Mr. Pliska is a
+certified public accountant. 
+John F. Slusher, Vice President, Global Sports Marketing — Mr. Slusher, 42, has
+been employed by NIKE since 1998 with primary responsibilities in global sports marketing. Mr. Slusher was appointed Director of Sports Marketing for the Asia Pacific and Americas Regions in 2006, divisional Vice President, Asia
+Pacific & Americas Sports Marketing in September 2007 and Vice President, Global Sports Marketing in November 2007. Prior to joining NIKE, Mr. Slusher was an attorney at the law firm of O’Melveny & Myers from 1995 to
+1998. 
+Eric D. Sprunk, Vice President, Merchandising and Product — Mr. Sprunk, 47, joined NIKE in 1993. He
+was appointed Finance Director and General Manager of the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General Manager, NIKE Europe Footwear in 1998, and Vice President & General Manager of the Americas in 2000.
+Mr. Sprunk was appointed corporate Vice President, Global Footwear in 2001 and Vice President, Merchandising and Product in 2009. Prior to joining NIKE, Mr. Sprunk was a certified public accountant with Price Waterhouse from 1987 to 1993.
+Hans van Alebeek, Vice President, Global Operations and Technology — Mr. van Alebeek, 45, joined NIKE
+as Director of Operations of Europe in 1999, and was appointed Vice President, Operations & Administration in EMEA in 2001, Vice President, Global Operations in 2003, Vice President, Global Operations & Technology in 2004, and
+Corporate Vice President in November 2005. Prior to joining NIKE, Mr. van Alebeek worked for McKinsey & Company as a management consultant and at N.V. Indivers in business development. 
+Roger S. Wyett, President, Affiliates — Mr. Wyett, 54, joined NIKE in April 2005 as President and Chief Operating
+Officer of the Company’s Hurley brand and was appointed Vice President, Global Apparel in 2006. In October 2007, Mr. Wyett returned to the Company’s Hurley brand as President and Chief Executive Officer, and then in February 2011 was
+appointed President of Affiliates. Mr. Wyett first joined NIKE in 1994, holding a number of management positions in soccer and NIKE Team Sports. From 2000 to 2005, Mr. Wyett was employed by The Walt Disney Company where he was Senior Vice
+President for Global Apparel, Accessories and Footwear, and later promoted to Executive Vice President for Global Sales and Marketing for Consumer Products.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2010/0001193125-11-194791/item13.txt b/raw/filings/0000320187/2010/0001193125-11-194791/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..cdf68f95fcce8292123782c6c26b7d169f43eed9
--- /dev/null
+++ b/raw/filings/0000320187/2010/0001193125-11-194791/item13.txt
@@ -0,0 +1,4 @@
+Item 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+The information required by Items 404 and 407(a) of Regulation S-K is included under “Election of Directors — Transactions with
+Related Persons” and “Corporate Governance — Director Independence” in the definitive Proxy Statement for our 2011 Annual Meeting of Shareholders and is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2010/0001193125-11-194791/item9a.txt b/raw/filings/0000320187/2010/0001193125-11-194791/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..51dc384e2038d852f385a41fd9b5ec9ebe8838dc
--- /dev/null
+++ b/raw/filings/0000320187/2010/0001193125-11-194791/item9a.txt
@@ -0,0 +1,13 @@
+Item 9A. 
+Controls and Procedures 
+We maintain disclosure controls and procedures that are designed to ensure information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time
+periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
+allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only
+reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 
+We carry out a variety of on-going procedures, under the supervision and with the participation of our management, including our Chief
+Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our
+disclosure controls and procedures were effective at the reasonable assurance level as of May 31, 2011. 
+“Management’s Annual Report on Internal Control Over Financial Reporting” is included in Item 8 on page 54 of this
+Report. 
+There has been no change in our internal control over financial reporting during our most recent fiscal quarter that
+has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2010/0001193125-11-194791/rp_note.txt b/raw/filings/0000320187/2010/0001193125-11-194791/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2010/0001193125-11-194791/rpt_disclosure.txt b/raw/filings/0000320187/2010/0001193125-11-194791/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2cfd315182c53e75e637372f0efb31a030264ed4
--- /dev/null
+++ b/raw/filings/0000320187/2010/0001193125-11-194791/rpt_disclosure.txt
@@ -0,0 +1,21 @@
+Transactions with Related Persons 
+Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft.
+Mr. Knight has reimbursed the Company $729,433 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2011, determined based on the cost of fuel and other variable costs associated with the flights under FAR
+91-501(d). 
+Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health
+insurance and for life insurance policies for Howard Slusher, the father of John Slusher, Vice President of Sports Marketing, following expiration of the agreement. During fiscal 2011, the Company paid Howard Slusher $129,870 for health and life
+insurance premiums. 
+Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker
+is a Strategic Sales Director, and has been employed by the Company for over 27 years; Stephen Parker is the General Manager, China-Converse, and has been employed by the Company for over 23 years; and Ann Parker is a Talent Development and
+Community Relations Director at Hurley LLC, and has been employed by the Company for over 21 years. During fiscal year 2011, the Company paid aggregate compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $409,833, $476,330,
+$206,201, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary, performance bonus, the grant date fair value of stock options granted during the fiscal year
+estimated using the Black-Scholes pricing model, and profit sharing and matching contributions to Company-sponsored retirement plans. 
+Mr. Thompson’s son, John Thompson III, is the head basketball coach at Georgetown University, and the Company has a contract with him to provide endorsement and consulting services to the
+Company through August 2014, with base compensation over the 5-year term of the contract of $500,000, and up to $80,000 per year of product and other performance incentives. 
+Compensation Committee Interlocks and Insider Participation 
+The members
+of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2011 were Ralph D. DeNunzio, Timothy D. Cook, John C. Lechleiter, and Johnathan A. Rodgers. The Committee is composed solely of independent,
+non-employee directors. No member of the Compensation Committee has been an executive officer of the Company, and no member of the Compensation Committee had any relationships requiring disclosure by the Company under the SEC’s rules requiring
+disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or member of a compensation committee (or other committee serving an equivalent function) of any other entity, the
+executive officers of which served as a director or member of the Compensation Committee of the Company during the fiscal year ended May 31, 2011. 
+11
\ No newline at end of file
diff --git a/raw/filings/0000320187/2011/0001193125-12-312306/filing.txt b/raw/filings/0000320187/2011/0001193125-12-312306/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..16d32d1214792b43969886ddf571011e1d5c9143
--- /dev/null
+++ b/raw/filings/0000320187/2011/0001193125-12-312306/filing.txt
@@ -0,0 +1,7151 @@
+10-K
+1
+d341264d10k.htm
+FORM 10-K
+Form 10-K 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+FORM 10-K 
+(Mark One) 
+þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
+F OR THE FISCAL YEAR 
+ENDED M AY 31, 2012 
+OR 
+¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15( D ) OF THE SECURITIES EXCHANGE ACT OF
+1934 
+F OR THE TRANSITION PERIOD 
+FROM TO 
+. 
+Commission File No. 1-10635 
+(Exact name of Registrant as specified in its charter) 
+OREGON 
+93-0584541 
+(State or other jurisdiction of incorporation) 
+(IRS Employer Identification No.) 
+One Bowerman Drive Beaverton, Oregon 
+97005-6453 
+(Address of principal executive offices) 
+(Zip Code) 
+(503) 671-6453 
+(Registrant’s Telephone Number, Including Area Code) 
+SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: 
+Class B Common Stock 
+New York Stock Exchange 
+(Title of Each Class) 
+(Name of Each Exchange on Which Registered) 
+SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: 
+NONE 
+Indicate by check mark 
+YES 
+NO 
+• 
+if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 
+þ 
+¨ 
+• 
+if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 
+¨ 
+þ 
+• 
+whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
+1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
+þ 
+¨ 
+• 
+whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be
+submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
+þ 
+¨
+• 
+if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and
+will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 
+¨ 
+• 
+whether the Registrant is a large accelerated filer, an accelerated filer, a
+non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
+Large accelerated filer þ 
+Accelerated filer ¨ 
+Non-accelerated file ¨ 
+Smaller Reporting Company ¨ 
+• 
+whether the registrant is a shell company (as defined in Rule 12b-2 of the
+Act). 
+¨ 
+þ 
+As of November 30, 2011, the aggregate market values of the Registrant’s
+Common Stock held by non-affiliates were: 
+Class A 
+$ 
+2,187,325,079 
+Class B 
+$ 
+35,827,172,822 
+$ 
+38,014,497,901 
+As of July 19, 2012, the number of shares of the Registrant’s Common Stock
+outstanding were: 
+Class A 
+89,892,248 
+Class B 
+365,977,972 
+455,870,220 
+DOCUMENTS INCORPORATED BY REFERENCE: 
+Parts of Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on September 20, 2012 are incorporated by reference into Part III of this Report. 
+Table of Contents 
+NIKE, INC. 
+ANNUAL REPORT ON FORM 10-K 
+Table of
+Contents 
+Page 
+PART I 
+1 
+ITEM 1. 
+Business 
+1 
+General 
+1 
+Products 
+1 
+Sales and Marketing 
+2 
+United States Market 
+2 
+International Markets 
+2 
+Significant Customer 
+3 
+Orders 
+3 
+Product Research and Development 
+3 
+Manufacturing 
+3 
+International Operations and Trade 
+4 
+Competition 
+5 
+Trademarks and Patents 
+5 
+Employees 
+5 
+Executive Officers of the Registrant 
+6 
+ITEM 1A. 
+Risk Factors 
+7 
+ITEM 1B. 
+Unresolved Staff Comments 
+12 
+ITEM 2. 
+Properties 
+12 
+ITEM 3. 
+Legal Proceedings 
+12 
+ITEM 4. 
+Mine Safety Disclosures 
+12 
+PART II 
+13 
+ITEM 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+13 
+ITEM 6. 
+Selected Financial Data 
+15 
+ITEM 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+16 
+ITEM 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+35 
+ITEM 8. 
+Financial Statements and Supplemental Data 
+36 
+ITEM 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+64 
+ITEM 9A. 
+Controls and Procedures 
+64 
+ITEM 9B. 
+Other Information 
+64 
+PART III 
+65 
+(Except for the information set forth under “Executive Officers of the Registrant” in Item 1 above, Part III is incorporated by reference from the Proxy Statement for the NIKE,
+Inc. 2012 Annual Meeting of Shareholders.) 
+ITEM 10. 
+Directors, Executive Officers and Corporate Governance 
+65 
+ITEM 11. 
+Executive Compensation 
+65 
+ITEM 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+65 
+ITEM 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+65 
+ITEM 14. 
+Principal Accountant Fees and Services 
+65 
+PART IV 
+66 
+ITEM 15. 
+Exhibits and Financial Statement Schedules 
+66 
+Signatures 
+70 
+Table of Contents 
+PART I 
+ITEM 1. 
+Business 
+General
+NIKE, 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 the context indicates otherwise. Our internet address is www.nike.com. On our NIKE Corporate web site, located at www.nikeinc.com, we post the following filings as soon as reasonably
+practicable after they are electronically filed with or furnished to the 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 furnished 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 free of charge. Also available on the NIKE Corporate web site are the
+charters of the committees of our board of directors, as well as our corporate governance guidelines and code of ethics; copies of any of these documents 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 worldwide marketing and
+selling of high quality footwear, apparel, equipment, accessories and services. NIKE is the largest seller of athletic footwear and athletic apparel in the world. We sell our products to retail accounts, through NIKE-owned retail stores and internet
+sales, which we refer to as our “Direct to Consumer” operations, and through a mix of independent distributors and licensees, in approximately 190 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. 
+Products 
+We focus our product offerings in seven key categories: Running, Basketball, Football (Soccer), Men’s Training, Women’s Training, NIKE Sportswear (our sports-inspired products), and Action Sports. We also
+market products designed for kids, as well as for other athletic and recreational uses such as baseball, cricket, golf, lacrosse, outdoor activities, football (American), tennis, volleyball, walking and wrestling. 
+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. NIKE Sportswear, Running, Basketball, Football (Soccer) 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 sell sports apparel and accessories covering most of
+the above categories, 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 use or by category. 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, including bags, socks, sport balls, eyewear, timepieces, digital 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
+directly to customers through our Direct to Consumer operations, we have entered into license agreements that permit unaffiliated parties to manufacture and sell certain apparel, digital devices and applications 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”), headquartered in North Andover, Massachusetts, designs, distributes and
+licenses athletic and casual footwear, apparel and accessories under the Converse ® , Chuck
+Taylor ® , All Star ® , One Star ® , Star Chevron ® and Jack Purcell ® trademarks. 
+Our wholly-owned subsidiary, Hurley
+International LLC (“Hurley”), headquartered in Costa Mesa, California, designs and distributes a line of action sports and youth lifestyle apparel and accessories under the Hurley ® trademark. 
+Our wholly-owned subsidiary, Umbro
+International Limited (“Umbro”), headquartered in Cheadle, United Kingdom, designs, distributes and licenses athletic and casual footwear, apparel and equipment, primarily for the sport of football (soccer), under the Umbro ® trademark. 
+As part of our long-term growth strategy, we continually evaluate
+our existing portfolio of businesses to ensure we are investing in those businesses that are accretive to the NIKE Brand, and with the largest growth potential and highest returns. On May 31, 2012, we announced our intention to divest of the
+Cole Haan and Umbro businesses, which will allow us to focus our resources on driving growth in the NIKE, Jordan, Converse and Hurley brands. Refer to the “Other Businesses” section under Item 7— Management Discussion and
+Analysis of Financial Condition and Results of Operations for additional information. 
+1 
+Table of Contents 
+Sales and Marketing 
+Financial information about geographic and segment operations
+appears in Note 17 — Operating Segments and Related Information of the accompanying Notes to the Consolidated Financial Statements on page 60. 
+We
+experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly 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 fitness activities and changing design trends affect the demand for our products. We must therefore respond to trends and shifts in consumer preferences by adjusting the mix of
+existing product offerings, developing new products, styles and categories, and influencing sports and fitness preferences through aggressive marketing. Failure to respond in a timely and adequate manner could have a material adverse effect on our
+sales and profitability. This is a continuing risk. 
+We report our NIKE Brand operations based on our internal geographic organization. Each NIKE
+Brand geography operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel, and equipment. Our reportable operating segments for the NIKE Brand are: North America, Western Europe,
+Central & Eastern Europe, Greater China, Japan, and Emerging Markets. Our NIKE Brand Direct to Consumer operations are managed within each geographic segment. 
+United States Market 
+In fiscal 2012, sales in the United States including U.S. sales of our Other Businesses accounted for approximately 42% of total revenues, compared to 43% in fiscal 2011 and 42% in fiscal 2010. Our Other
+Businesses were primarily comprised of our affiliate brands; Cole Haan, Converse, Hurley and Umbro; and NIKE Golf. We sell to thousands of retail accounts in the United States, including a mix of footwear stores, sporting goods stores, athletic
+specialty stores, department stores, skate, tennis and golf shops, and other retail accounts. During fiscal 2012, our three largest customers accounted for approximately 24% of sales in the United States. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in advance of delivery with the
+commitment that their orders will be delivered within a set time period at a fixed price. In fiscal 2012, 86% of our U.S. wholesale footwear shipments (excluding our Other Businesses) were made under the futures program, compared to 87% in fiscal
+2011 and 89% in fiscal 2010. In fiscal 2012, 64% of our U.S. wholesale apparel shipments (excluding our Other Businesses) were made under the futures program, compared to 60% in fiscal 2011 and 62% in fiscal 2010. 
+We utilize NIKE sales offices to solicit sales in the United States as well as independent sales representatives to sell specialty products for golf, skateboarding
+and snowboarding products. In addition, our Direct to Consumer operations sell NIKE Brand products through our internet website, www.nikestore.com , and the following in-line and factory retail outlets in the United States: 
+U.S. Retail Stores 
+Number 
+NIKE factory stores 
+156 
+NIKE in-line stores, including NIKETOWNs and employee-only stores 
+28 
+Cole Haan stores (including factory stores) 
+109 
+Converse stores (including factory stores) 
+62 
+Hurley stores (including factory and employee stores) 
+29 
+TOTAL 
+384 
+NIKE’s three significant distribution centers in the
+United States for NIKE Brand products, including NIKE Golf, are located in Memphis, Tennessee. NIKE also operates and leases one facility in Memphis, Tennessee for NIKE Brand product returns. NIKE Brand apparel and equipment products are also
+shipped from our Foothill Ranch, California distribution center. Cole Haan products are distributed primarily from Greenland, New Hampshire, and Converse and Hurley products are shipped primarily from Ontario, California. 
+International Markets 
+In fiscal 2012, non-U.S. sales (including non-U.S. sales of our Other Businesses) accounted for 58% of total revenues, compared to 57% in fiscal 2011 and 58% in fiscal 2010. We sell our products to retail accounts,
+through our own Direct to Consumer operations, and through a mix of independent distributors, licensees and sales representatives around the world. We sell to thousands of retail accounts and operate 16 distribution centers outside of the United
+States. In many countries and regions, including Canada, Asia, some Latin American countries, and Europe, we have a futures ordering program for retailers similar to the United States futures program described above. During fiscal 2012, NIKE’s
+three largest customers outside of the U.S. accounted for approximately 11% of total non-U.S. sales. 
+Our Direct to Consumer business operates the following in-line and factory retail outlets outside the United States: 
+Non-U.S. Retail Stores 
+Number 
+NIKE factory stores 
+308 
+NIKE in-line stores, including NIKETOWNs and employee-only stores 
+65 
+Cole Haan stores (including factory stores) 
+69 
+TOTAL 
+442 
+2 
+Table of Contents 
+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. 
+3 
+Table of Contents 
+International Operations and Trade 
+Our international operations and sources of supply are subject to the usual risks 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 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 developments occurring. 
+The global economic recession resulted in a significant 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 may in turn adversely affect our sales or profitability and the imported footwear and apparel industry as a whole. Accordingly, we are actively monitoring the developments
+described below. 
+Footwear Imports into the European Union 
+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 within the scope of the investigation, and (ii) does not meet the legal requirements of injury and price in an anti-dumping
+investigation. Our arguments were successful and the EU agreed in October 2006 on definitive duties of 16.5% for China and 10% for Vietnam for non-STAF leather footwear, but excluded STAF from the final measures. Prior to the scheduled expiration in
+October 2008 of the measures imposed on the non-STAF footwear, the domestic industry requested and the EC agreed to review a petition to extend these restrictions on non-STAF leather footwear. In December 2009, following a review of the ongoing
+restrictions, EU member states voted to extend the measures for an additional 15 months, until March 31, 2011. In early 2011, the EC declined to further extend the measures and since April 1, 2011 these restrictions have been terminated.
+The EC noted at the time that it would monitor leather footwear imports from Vietnam and China over the next 12 months. No new trade defense actions have been taken by the EC. 
+On February 3, 2010, the Chinese government announced it would seek to refer 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. On October 28, 2011, the
+WTO issued a ruling in which it supported China’s positions on a number of issues. Neither party has filed an appeal. 
+Footwear, Apparel and Equipment Imports into Brazil and Argentina 
+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 final
+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. This decision does not materially affect us. In October 2011, the Brazilian government initiated an anti-circumvention investigation to determine whether Chinese-made products or components were subject to minimal assembly or
+finishing in Vietnam or Indonesia to evade anti-dumping duties on Chinese-made products. In July 2012, the Brazilian government found no circumvention was taking place and this matter is closed. 
+Many products, including footwear, apparel and equipment, that we and others in our industry import into Argentina and Brazil are subject to the WTO non-automatic
+licensing requirements, which means that it may take up to 60 days for those products to clear customs and enter into those jurisdictions. From time to time, in addition to these WTO licensing requirements, these jurisdictions 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. 
+Footwear, Apparel and Equipment Imports into Turkey 
+In 2006, Turkey introduced safeguard measures in the form of additional duties on all imported
+footwear into Turkey with the goal of protecting its local shoe manufacturing industry until August 2009. In June 2009, Turkish shoe-manufacturers submitted, and the Turkish government agreed to review, a request for extension of the safeguard
+measures claiming that the rehabilitation process of the local Turkish industry was interrupted due to the continuing increase of footwear imports. Despite the importers opposition to the continuation of the safeguard measures, the Turkish
+authorities extended these safeguard measures until August 2012, but reduced the duty from $3 per pair of footwear to $1.60 per pair of footwear. In June 2012, the government of Turkey launched an expiry review on the footwear safeguards to assess
+if they should be extended for three additional years (until August 2015). Together with other companies in our industry, we are advocating for exclusion of certain footwear products (STAF shoes) that cannot be manufactured in Turkey and
+therefore should not be subject to a higher import duty. 
+In 2011, two new safeguard measures and reviews were initiated by the Turkish Undersecretariat
+of Foreign Trade (“UFT”) on apparel and equipment imports. In January 2011, the UFT began an investigation on apparel imports that could result in a 20-30% increase in import duties applied to imported apparel products, regardless of
+country of origin and with exceptions for EU 
+4 
+Table of Contents 
+and countries that are included in a cross-cumulation of origin system in the framework of the Free Trade Agreements to which Turkey is a party, subject to evidence of preferential origin. In
+July 2011, these higher import duties were approved and will be in place through July 2014. 
+Together with other companies in our industry, we advocated
+for exclusion of certain apparel products used for sporting activities that cannot be manufactured in Turkey and therefore should not be subject to a higher import duty but no exclusion has been granted. 
+In February 2011, the UFT began a review of existing safeguard measure on travel goods, handbags and similar accessories and containers listed under applicable
+regulations. One Turkish bag manufacturers association has requested the continuation of the safeguard measures through April 2014, with the application of an additional import duty of $2.50/kg (max. $3.75/unit) to $2.70/kg (max. $4.25/unit),
+regardless of country of origin. In October 2011, these higher import duties were approved and will be in place through April 2014. 
+Together with other
+companies in our industry, we advocated for the exclusion of non-leather bags from the scope of the continued safeguards but no exclusion has been granted. 
+Trade Relations with China 
+China represents an important sourcing country and consumer marketing country for us. Many
+governments around the world are concerned about China’s growing and fast-paced economy, compliance with WTO rules, currency valuation, and high trade surpluses. As a result, a wide range of legislative proposals have been introduced to address
+these concerns. We are working with broad coalitions of global businesses and trade associations representing a wide variety of sectors (e.g., services, manufacturing, and agriculture) to help ensure 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. We believe
+other companies in our industry as well as most other multi-national companies are in a similar position regarding these trade measures. 
+In the event
+any of these 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. We believe our principal competitors are subject to similar risks. 
+Competition 
+The athletic footwear, apparel, and equipment industry is keenly competitive in the United
+States and on a worldwide basis. We compete internationally with a significant number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of
+athletic and leisure shoes, apparel, and equipment, including Adidas, Puma, and 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 and athletic apparel in the world. Performance and reliability of shoes, apparel, and equipment, new product development, price, product identity through marketing
+and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel, and equipment industry. To help market our products, we contract with prominent and influential 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 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 150 jurisdictions. In addition, we own many other trademarks that we
+utilize in marketing our products. We continue to vigorously protect our trademarks against infringement. 
+NIKE has an exclusive,
+worldwide license to make and sell footwear using patented “Air” technology. The process utilizes pressurized gas encapsulated in polyurethane. Some of the early NIKE
+AIR ® patents have expired, which may enable competitors to use certain types of similar technology. Subsequent NIKE AIR ® patents will not expire for several years. We also have over a thousand U.S. and foreign utility patents, and thousands of U.S. and foreign design patents covering
+components, manufacturing techniques and features used in various athletic and leisure shoes, apparel, athletic equipment, digital devices and golf products. These patents expire at various times, and patents issued for applications filed this year
+will last from now to 2026 for design patents, and from now to 2032 for utility patents. We believe our success 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 filing applications for United States and foreign patents on inventions, designs, and improvements that we deem valuable. 
+Employees 
+As of May 31, 2012, we had approximately 44,000 employees worldwide, including retail and
+part-time employees. Management considers its relationship with employees to be excellent. None of our employees are represented by a union, except for certain employees in the Emerging Markets geography, where local law requires those employees to
+be represented by a trade union, and in the United States, where certain employees of Cole Haan are represented by a union. Also, in some countries outside of the United States, local laws require representation for employees by works councils (such
+as in certain countries in the European Union, in which they are entitled to information and consultation on certain Company decisions) or other employee representation by 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 wide or national) collective bargaining agreements. There has never been a material interruption of operations due to labor disagreements. 
+5 
+Table of Contents 
+Executive Officers of the Registrant 
+The executive officers of NIKE as of July 19, 2012 are as follows: 
+Philip H. Knight, Chairman of the Board —
+Mr. Knight, 74, a director since 1968, is a co-founder of NIKE and, except for the period from June 1983 through September 1984, served as its President from 1968 to 1990 and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a
+certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State University. 
+Mark G. Parker, President and Chief Executive Officer — Mr. Parker, 56, was appointed CEO and
+President in January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge of
+development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. 
+David J. Ayre, Vice President, Global Human Resources — Mr. Ayre, 52, joined NIKE as Vice
+President, Global Human Resources in 2007. Prior to joining NIKE, he held a number of senior human resource positions with PepsiCo, Inc. since 1990, most recently as head of Talent and Performance Rewards. 
+Donald W. Blair, Vice President and Chief Financial
+Officer — Mr. Blair, 54, joined NIKE in November 1999. Prior to joining NIKE, he held a number of financial management positions with PepsiCo, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice President, Planning of
+PepsiCo’s Pizza Hut Division, and Senior Vice President, Finance of The Pepsi Bottling Group, Inc. Prior to joining PepsiCo, Mr. Blair was a certified public accountant with Deloitte, Haskins, and Sells. 
+Charles D. Denson, President of the NIKE Brand —
+Mr. Denson, 56, has been employed by NIKE since 1979. Mr. Denson held several management positions within the Company, including his appointments as Director of USA Apparel Sales in 1994, divisional Vice President, U.S. Sales in 1994,
+divisional Vice President European Sales in 1997, divisional Vice President and General Manager, NIKE Europe in 1998, Vice President and General Manager of NIKE USA in 2000, and President of the NIKE Brand in 2001. 
+Gary M. DeStefano, President, Global Operations —
+Mr. DeStefano, 55, has been employed by NIKE since 1982, with primary responsibilities in sales and regional administration. Mr. DeStefano was appointed Director of Domestic Sales in 1990, divisional Vice President in charge of domestic
+sales in 1992, Vice President of Global Sales in 1996, Vice President and General Manager of Asia Pacific in 1997, President of USA Operations in 2001, and President of Global Operations in 2006. 
+Trevor A. Edwards, Vice President, Global Brand and
+Category Management — Mr. Edwards, 49, joined NIKE in 1992. He was appointed Marketing Manager, Strategic Accounts, Foot Locker in 1993, Director of Marketing, the Americas in 1995, Director of Marketing, Europe in 1997, Vice President,
+Marketing for Europe, Middle East and Africa in 1999, and Vice President, U.S. Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in 2002 and Vice President, Global Brand and Category Management
+in 2006. Prior to NIKE, Mr. Edwards was with the Colgate-Palmolive Company. 
+Jeanne P.
+Jackson, President, Direct to Consumer — Ms. Jackson, 60, served as a member of the NIKE, Inc. Board of Directors from 2001 through 2009, when she resigned from our Board
+and was appointed President, Direct to Consumer. She is founder and CEO of MSP Capital, a private investment company. Ms. Jackson was CEO of Walmart.com from March 2000 to January 2002. She was with Gap, Inc., as President and
+CEO of Banana Republic from 1995 to 2000, also serving as CEO of Gap, Inc. Direct from 1998 to 2000. Since 1978, she has held various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated
+Department Stores. Ms. Jackson is the past President of the United States Ski and Snowboard Foundation Board of Trustees, and is a director of McDonald’s Corporation. She is a former director of Nordstrom, Inc., and Harrah’s
+Entertainment, Inc. 
+Hilary K. Krane, Vice
+President, General Counsel and Corporate Affairs — Ms. Krane, 48, joined NIKE as Vice President and General Counsel in April 2010. In 2011, her responsibilities expanded and she became Vice President, General Counsel and Corporate
+Affairs. Prior to joining NIKE, Ms. Krane was General Counsel and Senior Vice President for Corporate Affairs at Levi Strauss & Co. where she was responsible for legal affairs and overseeing the global brand protection department from
+2006 to 2010. From 1996 to 2006, she was a partner and assistant general counsel at PricewaterhouseCoopers LLP. 
+Bernard F. Pliska, Vice President, Corporate Controller — Mr. Pliska, 50, joined NIKE as Corporate Controller in 1995. He was appointed Vice
+President, Corporate Controller in 2003. Prior to NIKE, Mr. Pliska was with Price Waterhouse from 1984 to 1995. Mr. Pliska is a certified public accountant. 
+John F. Slusher, Vice President, Global Sports Marketing — Mr. Slusher, 43, has been employed
+by NIKE since 1998 with primary responsibilities in global sports marketing. Mr. Slusher was appointed Director of Sports Marketing for the Asia Pacific and Americas Regions in 2006, divisional Vice President, Asia Pacific & Americas
+Sports Marketing in September 2007 and Vice President, Global Sports Marketing in November 2007. Prior to joining NIKE, Mr. Slusher was an attorney at the law firm of O’Melveny & Myers from 1995 to 1998. 
+Eric D. Sprunk, Vice President, Merchandising and
+Product — Mr. Sprunk, 48, joined NIKE in 1993. He was appointed Finance Director and General Manager of the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General Manager, NIKE Europe Footwear in 1998, and Vice
+President & General Manager of the Americas in 2000. Mr. Sprunk was appointed corporate Vice President, Global Footwear in 2001 and Vice President, Merchandising and Product in 2009. Prior to joining NIKE, Mr. Sprunk was a
+certified public accountant with Price Waterhouse from 1987 to 1993. 
+Hans van Alebeek,
+Vice President, Global Operations and Technology — Mr. van Alebeek, 46, joined NIKE as Director of Operations of Europe in 1999, and was appointed Vice President,
+Operations & Administration in EMEA in 2001, Vice President, Global Operations in 2003, Vice President, Global Operations & Technology in 2004, and Corporate Vice President in November 2005. Prior to joining NIKE, Mr. van
+Alebeek worked for McKinsey & Company as a management consultant and at N.V. Indivers in business development. 
+Roger S. Wyett, President, Affiliates — Mr. Wyett, 55, joined NIKE in April 2005 as President and Chief Operating Officer of the
+Company’s Hurley brand and was appointed Vice President, Global Apparel in 2006. In October 2007, Mr. Wyett returned to the Company’s Hurley brand as President and Chief Executive Officer, and then in February 2011 was appointed
+President of Affiliates. Mr. Wyett first joined NIKE in 1994, holding a number of management positions in soccer and NIKE Team Sports. From 2000 to 2005, Mr. Wyett was employed by The Walt Disney Company where he was Senior Vice President
+for Global Apparel, Accessories and Footwear, and later promoted to Executive Vice President for Global Sales and Marketing for Consumer Products. 
+6 
+Table of Contents 
+ITEM 1A. 
+Risk Factors 
+Special Note Regarding Forward-Looking Statements and Analyst Reports 
+Certain written and oral
+statements, other than purely historical information, including estimates, projections, statements relating to NIKE’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, made or
+incorporated by reference from time to time by NIKE or its representatives in this report, other reports, filings with the Securities and Exchange Commission, press releases, conferences, or otherwise, are “forward-looking statements”
+within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, without limitation, any statement that may predict, forecast,
+indicate, or imply future results, performance, or achievements, and may contain the words “believe”, “anticipate”, “expect”, “estimate”, “project”, “will be”, “will continue”,
+“will likely result”, or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties
+are detailed from time to time in reports filed by NIKE with the Securities and Exchange Commission, including Forms 8-K, 10-Q, and 10-K, and include, among others, the following: international, national and local general economic and market
+conditions; the size and growth of the overall athletic footwear, apparel, and equipment markets; intense competition among designers, marketers, distributors and sellers of athletic footwear, apparel, and equipment for consumers and endorsers;
+demographic changes; changes in consumer preferences; popularity of particular designs, categories of products, and sports; seasonal and geographic demand for NIKE products; difficulties in anticipating or forecasting changes in consumer
+preferences, consumer demand for NIKE products, and the various market factors described above; difficulties in implementing, operating, and maintaining NIKE’s increasingly complex information systems and controls, including, without
+limitation, the systems related to demand and supply planning, and inventory control; interruptions in data and information technology systems; data security; fluctuations and difficulty in forecasting operating results, including, without
+limitation, the fact that advance “futures” orders may not be indicative of future revenues due to changes in shipment timing, and the changing mix of futures and at-once orders and order cancellations; the ability of NIKE to sustain,
+manage or forecast its growth and inventories; the size, timing and mix of purchases of NIKE’s products; increases in the cost of materials and energy used to manufacture products, new product development and introduction; the ability to secure
+and protect trademarks, patents, and other intellectual property; performance and reliability of products; customer service; adverse publicity; the loss of significant customers or suppliers; dependence on distributors and licensees; business
+disruptions; increased costs of freight and transportation to meet delivery deadlines; increases in borrowing costs due to any decline in our debt ratings; changes in business strategy or development plans; general risks associated with doing
+business outside the United States, including, without limitation, exchange rate fluctuations, import duties, tariffs, quotas, political and economic instability, and terrorism; changes in government regulations; the impact of, including business
+and legal developments relating to, climate change; liability and other claims asserted against NIKE; the ability to attract and retain qualified personnel; the effects of our decision to divest of the Cole Haan and Umbro businesses; and other
+factors referenced or incorporated by reference in this report and other reports. 
+The risks included here are not exhaustive. Other sections of this
+report may include additional factors which could adversely affect NIKE’s business and financial performance. Moreover, NIKE operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is
+not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on NIKE’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially
+from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. 
+Investors should also be aware that while NIKE does, from time to time, communicate with securities analysts, it is against NIKE’s policy to disclose to them
+any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that NIKE agrees with any statement or report issued by any analyst irrespective of the content of the statement or report.
+Furthermore, NIKE has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the
+responsibility of NIKE. 
+Our products face intense competition. 
+NIKE is a consumer products company and the relative popularity of various sports and fitness activities and changing design trends affect the demand for our products. The athletic footwear, apparel, and equipment
+industry is keenly competitive in the United States and on a worldwide basis. We compete internationally with a significant number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and large
+companies having diversified lines of athletic and leisure shoes, apparel, and equipment. We also compete with other companies for the production capacity of independent manufacturers that produce our products and for import quota capacity.
+Our competitors’ product offerings, technologies, marketing expenditures (including expenditures for advertising and endorsements), pricing, costs
+of production, and customer service are areas of intense competition. This, in addition to 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. If we do not adequately and timely anticipate and respond to our competitors, our costs may increase or the consumer demand for our products may decline significantly. 
+Failure to maintain our reputation and brand image could negatively impact our business. 
+Our iconic brands have worldwide recognition, and our success depends on our ability to maintain and enhance our brand image and reputation. Maintaining, promoting
+and growing our brands will depend on our design and marketing efforts, including advertising and consumer campaigns, as well as product innovation. We could be adversely impacted if we fail to achieve any of these objectives or if the reputation or
+image of any of our brands is tarnished or receives negative publicity. In addition, adverse publicity about regulatory or legal action against us could damage our reputation and brand image, undermine our customers’ confidence in us and reduce
+long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our operations. 
+In addition, our success in
+maintaining, extending and expanding our brand image depends on our ability to adapt to a rapidly changing media environment, including our increasing reliance on social media and online dissemination of advertising campaigns. Negative posts or
+comments about us on social networking web sites could seriously damage our reputation and brand image. If we do not maintain, extend and expand our brand image, then our product sales, financial condition and results of operations could be
+materially and adversely affected. 
+If we are unable to anticipate consumer preferences and develop new products, we may not be able to
+maintain or increase our net revenues and profits. 
+Our success depends on our ability to identify, originate and define product trends as well
+as to anticipate, gauge and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. Our new products may not receive consumer acceptance as
+consumer preferences could shift rapidly to different types of performance or other sports apparel or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes. If
+7 
+Table of Contents 
+we fail to anticipate accurately and respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, designs, styles and
+categories, and influencing sports and fitness preferences through aggressive marketing, we could experience lower sales, excess inventories and lower profit margins, any of which could have an adverse effect on our results of operations and
+financial condition. In addition, we market our products globally through a diverse spectrum of advertising and promotional programs and campaigns, including social media and online advertising. If we do not successfully market our products or if
+advertising and promotional costs increase, these factors could have an adverse effect on our business, financial condition and results of operation. 
+We rely on technical innovation and high quality products to compete in the market for our products. 
+Technical innovation and quality control in the design and manufacturing process of footwear, apparel, and athletic equipment is essential to the commercial success
+of our products. Research and development plays a key role in technical innovation. We rely upon specialists in the fields of biomechanics, exercise physiology, engineering, industrial design and related fields, as well as research committees and
+advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists, and other experts to develop and test cutting edge performance products. While we strive to produce products that help to reduce injury, enhance
+athletic performance and maximize comfort, if we fail to introduce technical innovation in our products, consumer demand for our products could decline, and if we experience problems with the quality of our products, we may incur substantial expense
+to remedy the problems. 
+Failure to continue to obtain high quality endorsers of our products could harm our business. 
+We establish relationships with professional athletes, sports teams and leagues to evaluate, promote, and establish product authenticity with consumers. If certain
+endorsers were to stop using our products contrary to their endorsement agreements, our business could be adversely affected. In addition, actions taken by athletes, teams or leagues associated with our products that harm the reputations of those
+athletes, teams or leagues could also harm our brand image with consumers and, as a result, could have an adverse effect on our sales and financial condition. In addition, poor performance by our endorsers, a failure to continue to correctly
+identify promising athletes to use and endorse our products, or a failure to enter into cost effective endorsement arrangements with prominent athletes and sports organizations could adversely affect our brand and result in decreased sales of our
+products. 
+Failure of our contractors or our licensees’ contractors to comply with our code of conduct, local laws, and other standards
+could harm our business. 
+We work with hundreds of contractors outside of the United States to manufacture our products, and we also have license
+agreements that permit unaffiliated parties to manufacture or contract to manufacture products using our trademarks. We impose, and require our licensees to impose, on those contractors a code of conduct and other environmental, health, and safety
+standards for the benefit of workers. We also require these contractors to comply with applicable standards for product safety. However, from time to time contractors may not comply with such standards or applicable local law or our licensees may
+not require their contractors to comply with such standards or applicable local law. Significant or continuing noncompliance with such standards and laws by one or more contractors could harm our reputation or result in a product recall and, as a
+result, could have an adverse effect on our sales and financial condition. 
+Global capital and credit market conditions, and resulting
+declines in consumer confidence and spending, could have a material adverse effect on our business, operating results, and financial condition. 
+The uncertain state of the global economy continues to impact businesses around the world. The current political and economic global environment has resulted in
+continued economic unpredictability, particularly in Europe where there are concerns regarding the increased debt levels of certain countries and their ability to meet future financial obligations, as well as the overall stability of the Euro
+currency. Continuing volatility and disruption in the global capital and credit markets have led to a tightening of business credit and liquidity, a contraction of consumer credit, business failures, higher unemployment, and declines in consumer
+confidence and spending in many parts of the world. If global economic and financial market conditions deteriorate or remain weak for an extended period of time, the following factors could have a material adverse effect on our business,
+operating results, and financial condition: 
+• 
+Slower consumer spending may result in reduced demand for our products, reduced orders from retailers for our products, order cancellations, lower revenues,
+increased inventories, and lower gross margins. 
+• 
+We may be unable to find suitable investments that are safe, liquid, and provide a reasonable return. This could result in lower interest income or
+longer investment horizons. Disruptions to capital markets or the banking system may also impair the value of investments or bank deposits we currently consider safe or liquid. 
+• 
+We may be unable to access financing in the credit and capital markets at reasonable rates in the event we find it desirable to do so.
+• 
+The failure of financial institution counterparties to honor their obligations to us under credit and derivative instruments could jeopardize our ability to rely
+on and benefit from those instruments. Our ability to replace those instruments on the same or similar terms may be limited under poor market conditions. 
+• 
+We conduct transactions in various currencies, which increase our exposure to fluctuations in foreign currency exchange rates relative to the U.S.
+Dollar. Continued volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies could have a significant impact on our reported financial results and condition. 
+• 
+Continued volatility and availability in the markets and prices for commodities and raw materials we use in our products and in our supply chain (such as
+petroleum) could have a material adverse effect on our costs, gross margins, and profitability. 
+• 
+If retailers of our products experience declining revenues, or retailers experience difficulty obtaining financing in the capital and credit markets to purchase
+our products, this could result in reduced orders for our products, order cancellations, inability of retailers to timely meet their payment obligations to us, extended payment terms, higher accounts receivable, reduced cash flows, greater expense
+associated with collection efforts, and increased bad debt expense. 
+• 
+If retailers of our products experience severe financial difficulty, some may become insolvent and cease business operations, which could reduce the availability
+of our products to consumers. 
+• 
+If contract manufacturers of our products or other participants in our supply chain experience difficulty obtaining financing in the capital and credit markets
+to purchase raw materials or to finance general working capital needs, it may result in delays or non-delivery of shipments of our products. 
+Our business is affected by seasonality, which could result in fluctuations in our operating results and stock price. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly exceeded those in the second and third fiscal quarters.
+However, the mix of product sales may vary considerably from time to time as a result of changes in seasonal and geographic demand for particular types of footwear, apparel and equipment. In addition, our customers may cancel orders, change delivery
+schedules or change the mix of products ordered with minimal notice. As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our results of operations are likely to fluctuate significantly from period to period. This
+seasonality, along with other factors that are beyond our control, including general economic conditions, changes in consumer 
+8 
+Table of Contents 
+preferences, weather conditions, availability of import quotas and currency exchange rate fluctuations, could adversely affect our business and cause our results of operations to fluctuate. Our
+operating margins are also sensitive to a number of factors that are beyond our control, including manufacturing and transportation costs, shifts in product sales mix, geographic sales trends, and currency exchange rate fluctuations, all of which we
+expect to continue. Results of operations in any period should not be considered indicative of the results to be expected for any future period. 
+“Futures” orders may not be an accurate indication of our future revenues. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in advance of delivery with the commitment that their orders will be delivered within a set
+period of time at a fixed price. Our futures ordering program allows us to minimize the amount of products we hold in inventory, purchasing costs, the time necessary to fill customer orders, and the risk of non-delivery. We report changes in futures
+orders in our periodic financial reports. Although we believe futures orders are an important indicator of our future revenues, reported futures orders are not necessarily indicative of our expectation of changes in revenues for any future period.
+This is because the mix of orders can shift between futures and at-once orders. In addition, foreign currency exchange rate fluctuations, order cancellations, shipping timing, returns, 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. 
+Our “futures” ordering program does not prevent excess inventories or
+inventory shortages, which could result in decreased operating margins and harm to our business. 
+We purchase products from manufacturers outside
+of our futures ordering program and in advance of customer orders, which we hold in inventory and resell to customers. There is a risk we may be unable to sell excess products ordered from manufacturers. Inventory levels in excess of customer demand
+may result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and have an adverse effect on our operating results and financial condition. Conversely, if we underestimate
+consumer demand for our products or if our manufacturers fail to supply products we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer and
+distributor relationships, and diminish brand loyalty. 
+The difficulty in forecasting demand also makes it difficult to estimate our future results of
+operations and financial condition from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in
+advance. 
+We may be adversely affected by the financial health of our retailers. 
+We extend credit to our customers based on an assessment of a customer’s financial condition, generally without requiring collateral. To assist in the
+scheduling of production and the shipping of seasonal products, we offer customers the ability to place orders five to six months ahead of delivery under our “futures” ordering program. These advance orders may be cancelled, and the risk
+of cancellation may increase when dealing with financially ailing retailers or retailers struggling with economic uncertainty. In the past, some customers have experienced financial difficulties, which have had an adverse effect on our business. As
+a result, retailers may be more cautious than usual with orders as a result of weakness in the retail economy. A slowing economy in our key markets could have an adverse effect on the financial health of our customers, which in turn could have an
+adverse effect on our results of operations and financial condition. In addition, product sales are dependent in part on high quality merchandising and an appealing store environment to attract consumers, which requires continuing investments by
+retailers. Retailers who experience financial difficulties may fail to make such investments or delay them, resulting in lower sales and orders for our products. 
+Consolidation of retailers or concentration of retail market share among a few retailers may increase and concentrate our credit risk, and impair our ability to sell our products. 
+The athletic footwear, apparel, and equipment retail markets in some countries are dominated by a few large athletic footwear, apparel, and equipment retailers with
+many stores. These retailers have in the past increased their market share and may continue to do so in the future by expanding through acquisitions and construction of additional stores. These situations concentrate our credit risk with a
+relatively small number of retailers, and, if any of these retailers were to experience a shortage of liquidity, it would increase the risk that their outstanding payables to us may not be paid. In addition, increasing market share concentration
+among one or a few retailers in a particular country or region increases the risk that if any one of them substantially reduces their purchases of our products, we may be unable to find a sufficient number of other retail outlets for our products to
+sustain the same level of sales and revenues. 
+Failure to adequately protect our intellectual property rights could adversely affect our
+business. 
+We utilize trademarks on nearly all of our products and believe that having distinctive marks that are readily
+identifiable is an important factor in creating a market for our goods, in identifying us, 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 150 jurisdictions. In addition, we own many other
+trademarks that we utilize in marketing our products. We believe that our trademarks, patents, and other intellectual property rights are important to our brand, our success, and our competitive position. We periodically discover products that are
+counterfeit reproductions of our products or that otherwise infringe on our intellectual property rights. If we are unsuccessful in challenging a party’s products on the basis of trademark or design or utility patent infringement, continued
+sales of these products could adversely affect our sales and our brand and result in the shift of consumer preference away from our products. 
+The
+actions we take to establish and protect trademarks, patents, and other intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as violations of
+proprietary rights. We may be subject to liability if third parties successfully claim that we infringe their trademarks, patents, or other intellectual property rights. Defending infringement claims could be expensive and time-consuming and might
+result in our entering into costly license agreements. We also may be subject to significant damages or injunctions against development and sale of certain products. 
+In addition, the laws of certain foreign countries may not protect intellectual property rights to the same extent as the laws of the United States. We may face significant expenses and liability in connection with
+the protection of our intellectual property rights outside the United States, and if we are unable to successfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition may be adversely
+affected. 
+We are subject to periodic litigation and other regulatory proceedings, which could result in unexpected expense of time and
+resources. 
+From time to time we are called upon to defend ourselves against lawsuits and regulatory actions relating to our business. Due to the
+inherent uncertainties of litigation and regulatory proceedings, we cannot accurately 
+9 
+Table of Contents 
+predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on our business, financial condition and results of operations. In addition, any
+significant litigation in the future, regardless of its merits, could divert management’s attention from our operations and result in substantial legal fees. 
+Our international operations involve inherent risks which could result in harm to our business. 
+Virtually all of our athletic footwear and apparel is manufactured outside of the United States, and the majority of our products are sold outside of the United
+States. Accordingly, we are subject to the risks generally associated with global trade and doing business abroad, which include foreign laws and regulations, varying consumer preferences across geographic regions, political unrest, disruptions or
+delays in cross-border shipments, and changes in economic conditions in countries in which we manufacture or sell products. In addition, disease outbreaks, terrorist acts and military conflict have increased the risks of doing business abroad. These
+factors, among others, could affect our ability to manufacture products or procure materials, our ability to import products, our ability to sell products in international markets, and our cost of doing business. If any of these or other factors
+make the conduct of business in a particular country undesirable or impractical, our business could be adversely affected. In addition, many of our imported products are subject to duties, tariffs, or quotas that affect the cost and quantity of
+various types of goods imported into the United States and other countries. Any country in which our products are produced or sold may eliminate, adjust or impose new quotas, duties, tariffs, safeguard measures, anti-dumping duties, cargo
+restrictions to prevent terrorism, restrictions on the transfer of currency, climate change legislation, product safety regulations or other charges or restrictions, any of which could have an adverse effect on our results of operations and
+financial condition. 
+Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and
+profitability. 
+We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective income tax rate in the
+future could be adversely affected by a number of factors, including: changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, the outcome
+of income tax audits in various jurisdictions around the world, and any repatriation of non-US earnings for which we have not previously provided for U.S. taxes. We regularly assess all of these matters to determine the adequacy of our tax
+provision, which is subject to significant discretion. 
+Currency exchange rate fluctuations could result in lower revenues, higher costs and
+decreased margins and earnings. 
+A majority of our products are sold outside of the United States. As a result, we conduct transactions in
+various currencies, which increase our exposure to fluctuations in foreign currency exchange rates relative to the U.S. Dollar. Our international revenues and expenses generally are derived from sales and operations in foreign currencies, and these
+revenues and expenses could be affected by currency fluctuations, including amounts recorded in foreign currencies and translated into U.S. Dollars for consolidated financial reporting. Currency exchange rate fluctuations could also disrupt the
+business of the independent manufacturers that produce our products by making their purchases of raw materials more expensive and more difficult to finance. Foreign currency fluctuations could have an adverse effect on our results of operations and
+financial condition. 
+Our hedging activities (see Note 16 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial
+Statements ), which are designed to minimize and delay, but not to completely eliminate, the effects of foreign currency fluctuations may not sufficiently mitigate the impact of foreign currencies on our financial results. Factors that could
+affect the effectiveness of our hedging activities include accuracy of sales forecasts, volatility of currency markets, and the availability of hedging instruments. Since the hedging activities are designed to minimize volatility, they not only
+reduce the negative impact of a stronger U.S. Dollar, but they also reduce the positive impact of a weaker U.S. Dollar. Our future financial results could be significantly affected by the value of the U.S. Dollar in relation to the foreign
+currencies in which we conduct business. The degree to which our financial results are affected for any given time period will depend in part upon our hedging activities. 
+Our products are subject to risks associated with overseas sourcing, manufacturing, and financing. 
+The principal materials used in our apparel products — 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 — are available in countries where our manufacturing takes place. The principal materials used in our footwear products — natural and synthetic rubber,
+plastic compounds, foam cushioning materials, nylon, leather, canvas and polyurethane films — are also locally available to manufacturers. NIKE contractors and suppliers buy raw materials in bulk. 
+There could be a significant disruption in the supply of fabrics or raw materials from current sources or, in the event of a disruption, we might not be able to
+locate alternative suppliers of materials of comparable quality at an acceptable price, or at all. In addition, we cannot be certain that our unaffiliated manufacturers will be able to fill our orders in a timely manner. If we experience significant
+increases in demand, or reductions in the availability of materials, or need to replace an existing manufacturer, there can be no assurance that additional supplies of fabrics or raw materials or additional manufacturing capacity will be available
+when required on terms that are acceptable to us, or at all, or that any supplier or manufacturer would allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand existing or find new
+manufacturing or sources of materials, we may encounter delays in production and added costs as a result of the time it takes to train suppliers and manufacturers in our methods, products, quality control standards, and labor, health and safety
+standards. Any delays, interruption or increased costs in the supply of materials or manufacture of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower revenues
+and net income both in the short and long-term. 
+Because independent manufacturers manufacture a majority of our products outside of our principal sales
+markets, our products must be transported by third parties over large geographic distances. Delays in the shipment or delivery of our products due to the availability of transportation, work stoppages, port strikes, infrastructure congestion, or
+other factors, and costs and delays associated with consolidating or transitioning between manufacturers, could adversely impact our financial performance. In addition, manufacturing delays or unexpected demand for our products may require us to use
+faster, but more expensive, transportation methods such as aircraft, which could adversely affect our profit margins. The cost of fuel is a significant component in manufacturing and transportation costs, so increases in the price of petroleum
+products can adversely affect our profit margins. 
+In addition, Sojitz America performs significant import-export financing services for most of the NIKE
+Brand products sold outside of the United States, Europe, Middle East, Africa, and Japan, excluding products produced and sold in the same country. 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 outside of the United States, Europe, Middle East, Africa, and Japan. Such a disruption could result in cancelled orders that would adversely
+affect sales and profitability. 
+Natural disasters could negatively impact our operating results and financial condition. 
+Natural disasters such as earthquakes, hurricanes, tsunamis or other adverse weather and climate conditions, whether occurring in the U.S. or abroad, and the
+consequences and effects thereof, including energy shortages and public health issues, could disrupt our operations, or the operations of our vendors and other suppliers, or result in economic instability that may negatively impact our operating
+results and financial condition. 
+10 
+Table of Contents 
+Our success depends on our global distribution facilities. 
+We distribute our products to customers directly from the factory and through distribution centers located throughout the world. Our ability to meet customer
+expectations, manage inventory, complete sales and achieve objectives for operating efficiencies depends on the proper operation of our distribution facilities, the development or expansion of additional distribution capabilities, and the timely
+performance of services by third parties (including those involved in shipping product to and from our distribution facilities). Our distribution facilities could be interrupted by information technology problems and disasters such as earthquakes or
+fires. Any significant failure in our distribution facilities could result in an adverse affect on our business. We maintain business interruption insurance, but it may not adequately protect us from adverse effects that could be caused by
+significant disruptions in our distribution facilities. 
+We rely significantly on information technology to operate our business, including
+our supply chain and retail operations, and any failure, inadequacy, breach, interruption or security failure of that technology or any misappropriation of any data could harm our reputation or our ability to effectively operate our business.
+We are heavily dependent on information technology systems and networks, including the Internet and third-party hosted services
+(“information technology systems”), across our supply chain, including product design, production, forecasting, ordering, manufacturing, transportation, sales, and distribution, as well as for processing financial information for external
+and internal reporting purposes and other business activities. Our ability to effectively manage and maintain our inventory and to ship products to customers on a timely basis depends significantly on the reliability of these information technology
+systems. Over the last several years, as part of the ongoing initiative to upgrade our worldwide supply chain, we have implemented new information technology systems in all of the geographical regions in which we operate. Over the next few years, we
+will work to continue to enhance these systems and related processes in our global operations. The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, or a breach in security of these
+systems could cause delays in product fulfillment and reduced efficiency of our operations, could require significant capital investments to remediate the problem, and may have an adverse effect on our results of operations and financial condition.
+We also use information technology systems to process financial information and results of operations for internal reporting purposes and to comply with
+regulatory financial reporting, legal and tax requirements. If our information technology systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, we could
+experience delays in reporting our financial results, which could result in lost revenues and profits, as well as reputational damage. 
+In addition,
+hackers and data thieves are increasingly sophisticated and operate large scale and complex automated attacks. Any breach of our network may result in the loss of valuable business data, our customers’ or employees’ personal information or
+a disruption of our business, which could give rise to unwanted media attention, damage our customer relationships and reputation and result in lost sales, fines or lawsuits. In addition, we must comply with increasingly complex regulatory standards
+enacted to protect this business and personal data. An inability to maintain compliance with these regulatory standards could subject us to legal risks. 
+Furthermore, we depend on information technology systems for digital marketing campaigns and activities and electronic communications throughout the world between
+and among our employees as well as with other third parties, such as other customers, suppliers and consumers. Our information technology systems are critical to many of our operating activities and our business processes may be negatively impacted
+by any service interruption or shutdown. Misuse, leakage or falsification of information could result in a violation of data privacy laws and regulations and damage our reputation and credibility and have a negative impact on revenues and profits.
+Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns.
+From time to time, we may invest in business infrastructure, acquisitions of new businesses, product offering and manufacturing innovation, and
+expansion of existing businesses, such as our retail operations, which require substantial cash investments and management attention. We believe cost effective investments are essential to business growth and profitability. However, significant
+investments are subject to typical risks and uncertainties inherent in acquiring or expanding a business. The failure of any significant investment to provide the returns or profitability we expect could have a material adverse effect on our
+financial results and divert management attention from more profitable business operations. 
+We depend on key personnel, the loss of whom
+would harm our business. 
+Our future success will depend in part on the continued service of key executive officers and personnel. The loss of
+the services of any key individual could harm us. Our future success also depends on our ability to identify, attract and retain additional qualified personnel. Competition for employees in our industry is intense and we may not be successful in
+attracting and retaining such personnel. 
+The sale of a large number of shares held by our Chairman could depress the market price of our
+common stock. 
+Philip H. Knight, Co-founder and Chairman of our Board of Directors, beneficially owns over 74.8% of our Class A Common
+Stock. If all of his Class A Common Stock were converted into Class B Common Stock, Mr. Knight would own over 15.5% of our Class B Common Stock. These shares are available for resale, subject to the requirements of the U.S. securities
+laws. The sale or prospect of the sale of a substantial number of these shares could have an adverse effect on the market price of our common stock. 
+Anti-takeover provisions may impair an acquisition of the Company or reduce the price of our common stock. 
+There are provisions of our articles of incorporation and Oregon law that are intended to protect shareholder interests by providing the Board of Directors a means
+to attempt to deny coercive takeover attempts or to negotiate with a potential acquirer in order to obtain more favorable terms. Such provisions include a control share acquisition statute, a freeze-out statute, two classes of stock that vote
+separately on certain issues, and the fact that holders of Class A Common Stock elect three-fourths of the Board of Directors rounded down to the next whole number. However, such provisions could discourage, delay or prevent an unsolicited
+merger, acquisition or other change in control of our company that some shareholders might believe to be in their best interests or in which shareholders might receive a premium for their common stock over the prevailing market price. These
+provisions could also discourage proxy contests for control of the Company. 
+We may fail to meet analyst expectations, which could cause the
+price of our stock to decline. 
+Our Class B Common Stock is traded publicly, and at any given time various securities analysts follow our
+financial results and issue reports on us. These reports include information about our historical financial results as well as the analysts’ estimates of our future performance. The analysts’ estimates are based upon their own opinions and
+are often different from our estimates or expectations. If our operating results are below the estimates or expectations of public market analysts and investors, our stock price could decline. In the past, securities class action litigation has been
+brought against NIKE and other companies following a decline in the market price of their securities. If our stock price is volatile, we may become involved in this type of litigation in the future. Any litigation could result in substantial costs
+and a diversion of management’s attention and resources that are needed to successfully run our business. 
+11 
+Table of Contents 
+ITEM 1B. 
+Unresolved Staff Comments 
+Not applicable. 
+ITEM 2. 
+Properties 
+The following is a summary of principal properties owned or leased by NIKE. 
+The NIKE World Campus, owned by NIKE and
+located in Beaverton, Oregon, USA, is a 213 acre facility of 22 buildings which functions as our world headquarters and is occupied by almost 7,000 employees engaged in management, research, design, development, marketing, finance, and other
+administrative functions from nearly all of our divisions. We also lease various office facilities in the surrounding metropolitan area. We lease a similar, but smaller, administrative facility in Hilversum, the Netherlands, which serves as the
+headquarters for the Western Europe and Central & Eastern Europe geographies. There are three significant distribution and customer service facilities for NIKE Brand products, including NIKE Golf, in the United States. All three of them are
+located in Memphis, Tennessee, two of which are owned and one of which is leased. NIKE also operates and leases one facility in Memphis, Tennessee for NIKE Brand product returns. NIKE Brand apparel and equipment are also shipped from our
+Foothill Ranch, California distribution center, which we lease. Cole Haan also operates a distribution facility in Greenland, New Hampshire, which we lease. Smaller leased distribution facilities for other brands and non-NIKE Brand businesses are
+located in various parts of the United States. We also own or lease distribution and customer service facilities in many parts of the world, the most significant of which are the distribution facilities located in Tomisato, Japan, Laakdal, Belgium,
+and Taicang, China, all of which we own. 
+We manufacture Air-Sole cushioning materials and components at NIKE IHM, Inc. manufacturing facilities located
+in Beaverton, Oregon and St. Charles, Missouri, which we own. We also manufacture and sell small amounts of various plastic products to other manufacturers through NIKE IHM, Inc. 
+Aside from the principal properties described above, we lease three production offices outside the United States, over 120 sales offices and showrooms worldwide, and approximately 85 administrative offices
+worldwide. We lease more than 800 retail stores worldwide, which consist primarily of factory outlet stores. See “United States Market” and “International Markets” starting on page 2 of this Report, respectively. Our leases
+expire at various dates through the year 2035. 
+ITEM 3. 
+Legal Proceedings 
+There are no material pending legal
+proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or of which any of our property is the subject. 
+ITEM 4. 
+Mine Safety Disclosures 
+Not applicable. 
+12 
+Table of Contents 
+PART II 
+ITEM 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+NIKE’s Class B Common Stock is listed on the New York Stock Exchange and trades
+under the symbol NKE. At July 19, 2012, there were 19,740 holders of record of our Class B Common Stock and 18 holders of record of our Class A Common Stock. These figures do not include beneficial owners who hold shares in nominee
+name. The Class A Common Stock is not publicly traded but each share is convertible upon request of the holder into one share of Class B Common Stock. The following tables set forth, for each of the quarterly periods indicated, the high
+and low sales prices for the Class B Common Stock as reported on the New York Stock Exchange Composite Tape and dividends declared on the Class A and Class B Common Stock. 
+Fiscal 2012 (June 1, 2011 — May 31, 2012) 
+High 
+Low 
+Dividends 
+Declared 
+First Quarter 
+$ 
+93.66 
+$ 
+78.58 
+$ 
+0.31 
+Second Quarter 
+96.75 
+82.50 
+0.36 
+Third Quarter 
+107.92 
+93.38 
+0.36 
+Fourth Quarter 
+114.40 
+104.34 
+0.36 
+Fiscal 2011 (June 1, 2010 — May 31, 2011) 
+High 
+Low 
+Dividends 
+Declared 
+First Quarter 
+$ 
+74.94 
+$ 
+67.21 
+$ 
+0.27 
+Second Quarter 
+86.53 
+72.13 
+0.31 
+Third Quarter 
+92.30 
+81.46 
+0.31 
+Fourth Quarter 
+89.88 
+75.45 
+0.31 
+The following table presents a summary of share repurchases made by NIKE during the quarter ended May 31, 2012 under the
+four-year, $5 billion share repurchase program approved by our Board of Directors in September 2008. 
+Period 
+Total Number of 
+Shares Purchased 
+Average Price 
+Paid per Share 
+Total Number of Shares 
+Purchased as Part of Publicly 
+Announced Plans or Programs 
+Maximum Dollar Value of Shares 
+that May Yet Be Purchased 
+Under the Plans 
+or Programs 
+(In millions) 
+March 1 — March 31, 2012 
+100,000 
+$ 
+107.87 
+100,000 
+$ 
+1,104 
+April 1 — April 30, 2012 
+930,000 
+$ 
+109.36 
+930,000 
+$ 
+1,002 
+May 1 — May 31, 2012 
+1,221,100 
+$ 
+108.52 
+1,221,100 
+$ 
+870 
+2,251,100 
+$ 
+108.84 
+2,251,100 
+13 
+Table of Contents 
+Performance Graph 
+The following graph demonstrates a five-year comparison of cumulative total returns for NIKE’s Class B Common Stock, the Standard & Poor’s 500 Stock Index, the Standard & Poor’s
+Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. The graph assumes an investment of $100 on May 31, 2007 in each of our Class B Common Stock, and the stocks comprising the Standard &
+Poor’s 500 Stock Index, the Standard & Poor’s Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. Each of the indices assumes that all dividends were reinvested. 
+COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG NIKE, INC.; S&P 500 INDEX; S&P
+APPAREL, ACCESSORIES & LUXURY GOODS INDEX; AND THE DOW JONES U.S. FOOTWEAR INDEX 
+The Dow Jones U.S. Footwear Index consists of NIKE, Deckers
+Outdoor Corp., Wolverine World Wide, Inc., Iconix Brand Group Inc., Crocs, Inc., and Steven Madden, Ltd. Because NIKE is part of the Dow Jones U.S. Footwear Index, the price and returns of NIKE stock have a substantial effect on this index. The
+Standard & Poor’s Apparel, Accessories & Luxury Goods Index consists of VF Corp., Coach, Inc., Polo Ralph Lauren Corporation, and Fossil, Inc. The Dow Jones U.S. Footwear Index and the Standard & Poor’s Apparel,
+Accessories, and Luxury Goods Index include companies in two major lines of business in which the Company competes. The indices do not encompass all of the Company’s competitors, nor all product categories and lines of business in which the
+Company is engaged. 
+The stock performance shown on the performance graph above is not necessarily indicative of future performance. The Company will not
+make nor endorse any predictions as to future stock performance. 
+The performance graph above is being furnished solely to accompany this Report pursuant
+to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after
+the date hereof, regardless of any general incorporation language in such filing. 
+14 
+Table of Contents 
+ITEM 6. 
+Selected Financial Data 
+(Dollars in millions, except per share data and financial ratios) 
+Financial History 
+2012 
+2011 
+2010 
+2009 
+2008 
+Year Ended May 31, 
+Revenues 
+$ 
+24,128 
+$ 
+20,862 
+$ 
+19,014 
+$ 
+19,176 
+$ 
+18,627 
+Gross profit 
+10,471 
+9,508 
+8,800 
+8,604 
+8,387 
+Gross margin % 
+43.4 
+% 
+45.6 
+% 
+46.3 
+% 
+44.9 
+% 
+45.0 
+% 
+Restructuring charges 
+— 
+— 
+— 
+195 
+— 
+Goodwill impairment 
+— 
+— 
+— 
+199 
+— 
+Intangible and other asset impairment 
+— 
+— 
+— 
+202 
+— 
+Net income 
+2,223 
+2,133 
+1,907 
+1,487 
+1,883 
+Basic earnings per common share 
+4.83 
+4.48 
+3.93 
+3.07 
+3.80 
+Diluted earnings per common share 
+4.73 
+4.39 
+3.86 
+3.03 
+3.74 
+Weighted average common shares outstanding 
+460.0 
+475.5 
+485.5 
+484.9 
+495.6 
+Diluted weighted average common shares outstanding 
+469.8 
+485.7 
+493.9 
+490.7 
+504.1 
+Cash dividends declared per common share 
+1.39 
+1.20 
+1.06 
+0.98 
+0.875 
+Cash flow from operations 
+1,899 
+1,812 
+3,164 
+1,736 
+1,936 
+Price range of common stock 
+High 
+114.40 
+92.30 
+78.55 
+70.28 
+70.60 
+Low 
+78.58 
+67.21 
+50.16 
+38.24 
+51.50 
+At May 31, 
+Cash and equivalents 
+$ 
+2,317 
+$ 
+1,955 
+$ 
+3,079 
+$ 
+2,291 
+$ 
+2,134 
+Short-term investments 
+1,440 
+2,583 
+2,067 
+1,164 
+642 
+Inventories 
+3,350 
+2,715 
+2,041 
+2,357 
+2,438 
+Working capital 
+7,666 
+7,339 
+7,595 
+6,457 
+5,518 
+Total assets 
+15,465 
+14,998 
+14,419 
+13,250 
+12,443 
+Long-term debt 
+228 
+276 
+446 
+437 
+441 
+Redeemable Preferred Stock 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+Shareholders’ equity 
+10,381 
+9,843 
+9,754 
+8,693 
+7,825 
+Year-end stock price 
+108.18 
+84.45 
+72.38 
+57.05 
+68.37 
+Market capitalization 
+49,546 
+39,523 
+35,032 
+27,698 
+33,577 
+Financial Ratios: 
+Return on equity 
+22.0 
+% 
+21.8 
+% 
+20.7 
+% 
+18.0 
+% 
+25.4 
+% 
+Return on assets 
+14.6 
+% 
+14.5 
+% 
+13.8 
+% 
+11.6 
+% 
+16.3 
+% 
+Inventory turns 
+4.5 
+4.8 
+4.6 
+4.4 
+4.5 
+Current ratio at May 31 
+3.0 
+2.9 
+3.3 
+3.0 
+2.7 
+Price/Earnings ratio at May 31 
+22.9 
+19.2 
+18.8 
+18.8 
+18.3 
+Selected Quarterly Financial Data 
+(Unaudited) 
+(Dollars in millions, except per share data) 
+1st Quarter 
+2nd Quarter 
+3rd Quarter 
+4th Quarter 
+2012 
+2011 
+2012 
+2011 
+2012 
+2011 
+2012 
+2011 
+Revenues 
+$ 
+6,081 
+$ 
+5,175 
+$ 
+5,731 
+$ 
+4,842 
+$ 
+5,846 
+$ 
+5,079 
+$ 
+6,470 
+$ 
+5,766 
+Gross profit 
+2,693 
+2,434 
+2,450 
+2,193 
+2,561 
+2,327 
+2,767 
+2,554 
+Gross margin % 
+44.3 
+% 
+47.0 
+% 
+42.7 
+% 
+45.3 
+% 
+43.8 
+% 
+45.8 
+% 
+42.8 
+% 
+44.3 
+% 
+Net income 
+645 
+559 
+469 
+457 
+560 
+523 
+549 
+594 
+Basic earnings per common share 
+1.39 
+1.17 
+1.02 
+0.96 
+1.22 
+1.10 
+1.20 
+1.27 
+Diluted earnings per common share 
+1.36 
+1.14 
+1.00 
+0.94 
+1.20 
+1.08 
+1.17 
+1.24 
+Weighted average common shares outstanding 
+465.0 
+479.6 
+459.2 
+477.9 
+457.5 
+475.3 
+458.1 
+469.3 
+Diluted weighted average common shares outstanding 
+474.3 
+488.6 
+468.5 
+487.6 
+467.3 
+485.5 
+468.1 
+478.7 
+Cash dividends declared per common share 
+0.31 
+0.27 
+0.36 
+0.31 
+0.36 
+0.31 
+0.36 
+0.31 
+Price range of common stock 
+High 
+93.66 
+74.94 
+96.75 
+86.53 
+107.92 
+92.30 
+114.40 
+89.88 
+Low 
+78.58 
+67.21 
+82.50 
+72.13 
+93.38 
+81.46 
+104.34 
+75.45 
+15 
+Table of Contents 
+ITEM 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+NIKE designs, develops, markets and sells high quality footwear, apparel, equipment,
+accessories and services worldwide. We are the largest seller of athletic footwear and apparel in the world. We sell our products to retail accounts, through NIKE-owned retail stores and internet sales, which we refer to as our “Direct to
+Consumer” operations, and through a mix of independent distributors, licensees and sales representatives, worldwide. Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear, apparel,
+equipment, accessories and service businesses. Our strategy is to achieve long-term revenue growth by creating innovative, “must have” products, building deep personal consumer connections with our brands, and delivering compelling
+consumer experiences at retail and online. 
+In addition to achieving long-term revenue growth, we continue to strive to deliver shareholder value by
+driving operational excellence in several key areas: 
+• 
+Expanding gross margin by: 
+– 
+Making our supply chain a competitive advantage, 
+– 
+Reducing product costs through a continued focus on manufacturing efficiency, product design and innovation, 
+– 
+Utilizing price increases to effectively manage the price-to-value equation for our customers. 
+• 
+Improving selling and administrative expense productivity by focusing on investments that drive economic returns in the form of incremental revenue and gross
+profit, and leveraging existing infrastructure across our portfolio of businesses to eliminate duplicative costs, 
+• 
+Improving working capital efficiency, and 
+• 
+Deploying capital effectively. 
+Through
+execution of this strategy, our long-term financial goals continue to be: 
+• 
+High-single-digit revenue growth, 
+• 
+Mid-teens earnings per share growth, 
+• 
+Increased return on invested capital and accelerated cash flows, and 
+• 
+Consistent results through effective management of our diversified portfolio of 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
+9% and 15%, respectively, on an annual compounded basis. Our return on invested capital has increased from 15% to 22% and we expanded gross margins by 4 percentage points. 
+Our fiscal 2012 results demonstrated our continued focus toward delivering appropriate returns to our shareholders, while positioning
+ourselves for sustainable, profitable long-term growth. Despite the ongoing challenges in the global economy, we delivered record revenues and earnings per share in fiscal 2012. Our revenues grew 16% to $24.1 billion, net income increased 4% to $2.2
+billion, and we delivered diluted earnings per share of $4.73, an 8% increase from fiscal 2011. 
+Income before income taxes increased 5% for fiscal 2012,
+driven by revenue growth and improved leverage on selling and administrative expense, which more than offset a decrease in gross margin and an increase in other expense. The increase in revenues was driven by growth across all NIKE Brand
+geographies, key categories and product types. Brand strength, innovative products and strong category retail presentation continues to fuel the demand for our NIKE Brand products. During fiscal 2012, we introduced a number of innovations, including
+the NIKE Fuelband and the Flyknit technology. The NIKE Fuelband is a digital device that tracks one’s daily activities through a sport-tested accelerometer, while Flyknit is a new footwear technology that uses advanced materials and proprietary
+manufacturing technology to produce a form-fitting, lightweight and seamless upper. During this time, we also expanded our NIKE + platform into our Basketball and Training categories, and launched new high performance uniforms for all 32 NFL teams.
+Revenue for our Other Businesses also grew, reflective of growth across most businesses, led by Converse. Our gross margin continued to be impacted by higher product input costs, including materials and labor, which more than offset the positive
+impacts of higher product selling prices, the growth of our Direct to Consumer business and benefits from ongoing product cost reduction initiatives. 
+For fiscal 2012, the growth of our net income was negatively affected by a year-over-year increase in our effective tax rate. However, diluted earnings per share
+grew at a higher rate than net income due to a 3% decrease in the weighted average number of diluted common shares outstanding, driven by share repurchases during fiscal 2012 and 2011. 
+As part of our long-term growth strategy, we continually evaluate our existing portfolio of businesses to ensure the Company is investing in those businesses that are accretive to the NIKE Brand, and with the
+largest growth potential and highest returns. On May 31, 2012, we announced our intention to divest of the Cole Haan and Umbro businesses, which will allow us to focus our resources on driving growth in the NIKE, Jordan, Converse and Hurley
+brands. For additional details, refer to our “Other Businesses” section below. 
+While we will continue to face headwinds from higher input
+costs and foreign exchange volatility in fiscal 2013, we continue to see opportunities to drive future growth and remain committed to effectively managing our business to achieve our financial goals over the long-term, by executing against the
+operational strategies outlined above. 
+Results of Operations 
+(Dollars in millions, except per share data) 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+Fiscal 2010 
+FY11 vs. FY10 
+% Change 
+Revenues 
+$ 
+24,128 
+$ 
+20,862 
+16 
+% 
+$ 
+19,014 
+10 
+% 
+Cost of sales 
+13,657 
+11,354 
+20 
+% 
+10,214 
+11 
+% 
+Gross profit 
+10,471 
+9,508 
+10 
+% 
+8,800 
+8 
+% 
+Gross margin % 
+43.4 
+% 
+45.6 
+% 
+46.3 
+% 
+Demand creation expense 
+2,711 
+2,448 
+11 
+% 
+2,356 
+4 
+% 
+Operating overhead expense 
+4,720 
+4,245 
+11 
+% 
+3,970 
+7 
+% 
+Total selling and administrative expense 
+7,431 
+6,693 
+11 
+% 
+6,326 
+6 
+% 
+% of Revenues 
+30.8 
+% 
+32.1 
+% 
+33.3 
+% 
+Income before income taxes 
+2,983 
+2,844 
+5 
+% 
+2,517 
+13 
+% 
+Net income 
+2,223 
+2,133 
+4 
+% 
+1,907 
+12 
+% 
+Diluted earnings per share 
+4.73 
+4.39 
+8 
+% 
+3.86 
+14 
+% 
+16 
+Table of Contents 
+Consolidated Operating Results 
+Revenues 
+(Dollar in millions) 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+FY12 vs. FY11 
+% Change 
+Excluding 
+Currency 
+Changes (1) 
+Fiscal 2010 
+FY11 vs. FY10 
+% Change 
+FY11 vs. FY10 
+% Change 
+Excluding 
+Currency 
+Changes (1) 
+NIKE, Inc. Revenues: 
+NIKE Brand Revenues by: 
+Footwear 
+$ 
+13,426 
+$ 
+11,518 
+17% 
+15% 
+$ 
+10,301 
+12% 
+12% 
+Apparel 
+6,333 
+5,513 
+15% 
+13% 
+5,026 
+10% 
+10% 
+Equipment 
+1,202 
+1,018 
+18% 
+16% 
+1,030 
+-1% 
+-2% 
+Global Brand Divisions 
+111 
+96 
+16% 
+13% 
+86 
+12% 
+16% 
+Total NIKE Brand 
+21,072 
+18,145 
+16% 
+15% 
+16,443 
+10% 
+10% 
+Other Businesses 
+3,095 
+2,786 
+11% 
+11% 
+2,564 
+9% 
+8% 
+Corporate (2) 
+(39 
+) 
+(69 
+) 
+— 
+— 
+7 
+— 
+— 
+TOTAL NIKE, INC. REVENUES 
+$ 
+24,128 
+$ 
+20,862 
+16% 
+14% 
+$ 
+19,014 
+10% 
+10% 
+Supplemental NIKE Brand Revenues Details: 
+NIKE Brand Revenues by: 
+Sales to Wholesale Customers 
+$ 
+17,431 
+$ 
+15,173 
+15% 
+14% 
+13,876 
+9% 
+9% 
+Sales Direct to Consumer 
+3,530 
+2,876 
+23% 
+21% 
+2,481 
+16% 
+16% 
+Global Brand Divisions 
+111 
+96 
+16% 
+13% 
+86 
+12% 
+15% 
+TOTAL NIKE BRAND REVENUES 
+$ 
+21,072 
+$ 
+18,145 
+16% 
+15% 
+$ 
+16,443 
+10% 
+10% 
+NIKE Brand Revenues on a Wholesale Equivalent Basis: (3) 
+Sales to Wholesale Customers 
+$ 
+17,431 
+$ 
+15,173 
+15% 
+14% 
+$ 
+13,876 
+9% 
+9% 
+Sales from our Wholesale Operations to Direct to Consumer Operations 
+1,978 
+1,598 
+24% 
+22% 
+1,347 
+19% 
+18% 
+NIKE BRAND WHOLESALE EQUIVALENT REVENUES 
+$ 
+19,409 
+$ 
+16,771 
+16% 
+14% 
+$ 
+15,223 
+10% 
+10% 
+NIKE Brand Wholesale Equivalent Revenues by Category: (3) 
+Running 
+$ 
+3,702 
+$ 
+2,795 
+32% 
+31% 
+$ 
+2,134 
+31% 
+30% 
+Basketball 
+2,230 
+1,908 
+17% 
+16% 
+1,711 
+12% 
+11% 
+Football (Soccer) 
+2,006 
+1,765 
+14% 
+12% 
+1,650 
+7% 
+8% 
+Men’s Training 
+2,007 
+1,698 
+18% 
+17% 
+1,459 
+16% 
+15% 
+Women’s Training 
+1,015 
+842 
+21% 
+19% 
+739 
+14% 
+13% 
+Action Sports 
+499 
+470 
+6% 
+5% 
+403 
+17% 
+17% 
+Sportswear 
+5,560 
+5,150 
+8% 
+6% 
+5,018 
+3% 
+3% 
+Others (4) 
+2,390 
+2,143 
+12% 
+10% 
+2,109 
+2% 
+2% 
+TOTAL NIKE BRAND WHOLESALE EQUIVALENT REVENUES 
+$ 
+19,409 
+$ 
+16,771 
+16% 
+14% 
+$ 
+15,223 
+10% 
+10% 
+(1) 
+Results have been restated using actual exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact
+of translation arising from foreign currency exchange rate fluctuations. 
+(2) 
+Corporate revenues primarily consist of intercompany revenue eliminations and foreign currency revenue-related hedge gains and losses generated by entities within the NIKE
+Brand geographic operating segments and certain Other Businesses through our centrally managed foreign exchange risk management program. 
+(3) 
+References to NIKE Brand wholesale equivalent revenues are intended to provide context as to the overall current NIKE Brand market footprint on a wholesale revenue basis. NIKE
+Brand wholesale equivalent revenues consist of 1) sales to external wholesale customers and 2) internal sales from our wholesale operations to our Direct to Consumer operations at prices that are comparable to prices charged to external wholesale
+customers. NIKE Brand wholesale equivalent revenues do not include the estimation of sales made by NIKE Brand licensees as the amounts are not material. 
+(4) 
+Others include all other categories and certain adjustments that are not allocated at the category level. 
+17 
+Table of Contents 
+Fiscal 2012 Compared to Fiscal 2011 
+On a currency neutral basis, revenues for NIKE, Inc. grew 14% for fiscal 2012, driven by increases in revenues for both the NIKE Brand and our Other Businesses. Excluding the effects of changes in currency exchange
+rates, revenues for the NIKE Brand increased 15%, as every NIKE Brand geography delivered higher revenues for fiscal 2012. North America contributed approximately 7 percentage points to the NIKE Brand revenue increase, while the Emerging Markets and
+Greater China geographies contributed approximately 4 and 2 percentage points to the NIKE Brand revenue growth, respectively. Revenues for our Other Businesses grew 11% during fiscal 2012, contributing 1 percentage point of our consolidated revenue
+growth. 
+Excluding the effects of changes in currency exchange rates, NIKE Brand footwear and apparel revenue increased 15% and 13%, respectively, while
+NIKE Brand equipment revenues increased 16% during fiscal 2012. Continuing to fuel the growth of our NIKE Brand footwear business was the increased demand for performance products, including the NIKE Lunar and FREE technologies. The increase in NIKE
+Brand footwear revenue for fiscal 2012 was attributable to double-digit percentage growth in unit sales along with a low-single-digit percentage increase in average selling price per pair, primarily reflecting the favorable impact from product price
+increases, partially offset by higher discounts on close-out sales. The overall increase in footwear sales was driven by growth across all key categories, notably Running, Sportswear and Basketball. For NIKE Brand apparel, the increase in revenue
+for fiscal 2012 was driven by mid-single-digit percentage increases in both unit sales and average selling prices. The increase in average selling prices was primarily driven by product price increases, partially offset by a higher mix of close-out
+sales. The overall increase in apparel sales was reflective of increased demand across most key categories. 
+While wholesale revenues remain the largest
+component of overall NIKE Brand revenues, we continue to see growth in revenue through our Direct to Consumer channels. Our NIKE Brand Direct to Consumer operations include NIKE owned in-line and factory stores, as well as online sales through NIKE
+owned websites. For fiscal 2012, Direct to Consumer channels represented approximately 17% of our total NIKE Brand revenues compared to 16% in fiscal 2011. On a currency neutral basis, Direct to Consumer revenues grew 21% for fiscal 2012, as
+comparable store sales grew 13% and we continue to expand our store network and e-commerce business. Comparable store sales include revenues from NIKE owned in-line and factory stores for which all three of the following requirements have been met:
+the store has been open at least one year, square footage has not changed by more than 15% within the past year, and the store has not been permanently repositioned within the past year. 
+Revenues for our Other Businesses consist of results from our affiliate brands; Cole Haan, Converse, Hurley and Umbro; and NIKE Golf. Excluding the impact of currency changes, revenues for these businesses
+increased by 11% in fiscal 2012, reflecting growth across all businesses except Hurley, which was slightly down for the fiscal year. 
+Fiscal 2011
+Compared to Fiscal 2010 
+On both a reported and currency neutral basis, revenues for NIKE, Inc. grew 10% for fiscal 2011, driven by increases in
+revenues for both the NIKE Brand and our Other Businesses. On a currency neutral basis, revenues for the NIKE Brand increased 10% for fiscal 2011, while revenues for our Other Businesses increased 8%. Excluding the effects of changes in currency
+exchange rates, every NIKE Brand geography except Japan delivered higher revenues for fiscal 2011, led by North America, which contributed approximately 5 percentage points to the NIKE Brand revenue increase. The Emerging Markets and Greater China
+contributed approximately 3 and 2 percentage points to the NIKE Brand revenue growth, respectively. 
+By product group, NIKE Brand footwear and apparel
+revenue increased 12% and 10%, respectively, while NIKE Brand equipment revenues declined 2% during fiscal 2011. Fueling the growth of our NIKE Brand footwear business was the increased demand in our performance products, including the NIKE Lunar
+and Free technologies. The increase in NIKE Brand footwear revenue for fiscal 2011 was attributable to a high-single-digit percentage increase in unit sales along with a low single-digit percentage increase in the average selling price per pair. The
+increase in unit sales was primarily driven by double-digit percentage growth in Running, Men’s Training, Action Sports and Women’s Training products, while the increase in average selling price per pair was primarily driven by price
+increases on selected products and fewer close-outs as a percentage of total sales. For NIKE Brand apparel, the increase in revenue for fiscal 2011 was primarily driven by a low-double-digit percentage increase in unit sales attributable to strong
+category presentations and improved product lines, while the average selling price per unit was relatively flat. The increase in unit sales was driven by increased demand in all key categories. 
+For fiscal 2011, Direct to Consumer channels represented approximately 16% of our total NIKE Brand revenues compared to 15% in fiscal 2010. On a currency neutral
+basis, Direct to Consumer revenues grew 16% for fiscal 2011 as we continue to expand our store network, increase comparable store sales and build our e-commerce business. Comparable store sales grew 11% for fiscal 2011. 
+Excluding the impact of currency changes, revenues for Other Businesses increased by 8% in fiscal 2011, reflecting double-digit percentage revenue growth at
+Converse, Cole Haan and Hurley, and a low-single-digit growth at Umbro, which more than offset a mid-single-digit revenue decline at NIKE Golf. 
+Futures Orders 
+Futures orders for NIKE Brand footwear and
+apparel scheduled for delivery from June through November 2012 were 7% higher than the orders reported for the comparable prior year period. The U.S. Dollar futures order amount is calculated based upon our internal forecast of the currency
+exchange rates under which our revenues will be translated during this period. Excluding the impact of currency changes, futures orders increased 12%, as unit orders and average selling price per unit each contributed approximately 6 percentage
+points of growth. 
+By geography, futures orders growth was as follows: 
+Reported Futures 
+Orders Growth 
+Futures Orders Excluding 
+Currency Changes (1) 
+North America 
+15 
+% 
+15 
+% 
+Western Europe 
+-2 
+% 
+8 
+% 
+Central & Eastern Europe 
+5 
+% 
+11 
+% 
+Greater China 
+5 
+% 
+2 
+% 
+Japan 
+-6 
+% 
+1 
+% 
+Emerging Markets 
+10 
+% 
+20 
+% 
+Total NIKE Brand Futures Orders 
+7 
+% 
+12 
+% 
+(1) 
+Growth rates have been restated using constant exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of
+foreign currency exchange rate fluctuations. 
+18 
+Table of Contents 
+The reported futures orders growth is not necessarily indicative of our expectation of revenue growth during this
+period. This is due to year-over-year changes in shipment timing and because the mix of orders can shift between futures and at-once orders, and the fulfillment of certain orders may fall outside of the schedule noted above. In addition, 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. 
+Gross Margin 
+(Dollars in millions) 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+Fiscal 2010 
+FY11 vs. FY10 
+% Change 
+Gross Profit 
+$ 
+10,471 
+$ 
+9,508 
+10 
+% 
+$ 
+8,800 
+8 
+% 
+Gross Margin % 
+43.4 
+% 
+45.6 
+% 
+(220 
+) bps 
+46.3 
+% 
+(70 
+) bps 
+Fiscal 2012 Compared to Fiscal 2011 
+For fiscal 2012, our consolidated gross margin was 220 basis points lower than the prior year period, primarily driven by higher product input costs, including
+materials and labor, across most businesses. Also contributing to the decrease in gross margin were higher customs duty charges, discounts on close-out sales and an increase in investments in our digital business and infrastructure. Together, these
+factors decreased consolidated gross margin by approximately 390 basis points. Partially offsetting this decrease were positive impacts from product price increases, lower air freight costs, the growth of our NIKE Brand Direct to Consumer business,
+and benefits from our ongoing product cost reduction initiatives. 
+Fiscal 2011 Compared to Fiscal 2010 
+For fiscal 2011, our consolidated gross margin percentage was 70 basis points lower than the prior year, primarily driven by higher input costs, transportation
+costs, including additional air freight incurred to meet strong demand for NIKE Brand products across most businesses, and a lower mix of licensee revenue as distribution for certain markets within our Other Businesses transitioned from licensees to
+operating units of NIKE, Inc. Together, these factors decreased consolidated gross margins by approximately 130 basis points for fiscal 2011, with the most significant erosion in the second half of the fiscal year. These decreases were partially
+offset by the positive impact from the growth and expanding profitability of our NIKE Brand Direct to Consumer business, a higher mix of full-price sales and favorable impacts from our ongoing product cost efficiency initiatives. 
+Selling and Administrative Expense 
+(Dollars in millions) 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+Fiscal 2010 
+FY11 vs. FY10 
+% Change 
+Demand creation
+expense (1) 
+$ 
+2,711 
+$ 
+2,448 
+11 
+% 
+$ 
+2,356 
+4 
+% 
+Operating overhead expense 
+4,720 
+4,245 
+11 
+% 
+3,970 
+7 
+% 
+Selling and administrative expense 
+$ 
+7,431 
+$ 
+6,693 
+11 
+% 
+$ 
+6,326 
+6 
+% 
+% of Revenues 
+30.8 
+% 
+32.1 
+% 
+(130 
+) bps 
+33.3 
+% 
+(120 
+) bps 
+(1) 
+Demand creation consists of advertising and promotion expenses, including costs of endorsement contracts. 
+Fiscal 2012 Compared to Fiscal 2011 
+Overall, selling and administrative expense grew at a slower rate than revenues for fiscal 2012. 
+Demand creation expense increased 11% compared to the prior year, mainly driven by an increase in sports marketing expense, marketing support for key product initiatives, including the NIKE Fuelband and NFL
+uniforms, as well as an increased level of brand event spending around the European Football Championships and London Summer Olympics. For fiscal 2012, changes in currency exchange rates increased the growth of demand creation expense by 1
+percentage point. 
+Compared to the prior year, operating overhead expense increased 11%, primarily attributable to increased investments in our Direct to
+Consumer operations, higher personnel costs as well as travel expenses to support the growth of our overall business. For fiscal 2012, changes in currency exchange rates increased the growth of operating overhead expense by 1 percentage point.
+Fiscal 2011 Compared to Fiscal 2010 
+In fiscal
+2011, the effect of changes in foreign currency exchange rates did not have a significant impact on selling and administrative expense. 
+Demand creation
+expense increased 4% compared to the prior year, primarily driven by a higher level of brand event spending around the World Cup and World Basketball Festival in the first half of fiscal 2011, as well as increased spending around key product
+initiatives and investments in retail product presentation with wholesale customers. 
+Operating overhead expense increased 7% compared to the prior year.
+This increase was primarily attributable to increased investments in our Direct to Consumer operations as well as growth in our wholesale operations, where we incurred higher personnel costs and travel expenses as compared to the prior year.
+Other Expense (Income), net 
+(In millions) 
+Fiscal 2012 
+Fiscal 2011 
+Fiscal 2010 
+Other expense (income), net 
+$ 
+54 
+$ 
+(33 
+) 
+$ 
+(49 
+) 
+19 
+Table of Contents 
+Other expense (income), net is comprised of foreign currency conversion gains and losses from the re-measurement of
+monetary assets and liabilities denominated in non-functional currencies, the impact of certain foreign currency derivative instruments, as well as unusual or non-operating transactions that are outside the normal course of business. 
+Fiscal 2012 Compared to Fiscal 2011 
+For fiscal 2012, other
+expense, net increased $87 million compared to the prior year. This change was primarily driven by a $76 million change in foreign currency net gains in the prior year to net losses in the current year. These impacts, together with a $24 million
+charge recognized during the fourth quarter of fiscal 2012 for the restructuring of NIKE Brand’s Western Europe operations, were partially offset by certain net gains related to non-operating items. 
+The combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related
+gains and losses included in other expense (income), net did not have a significant impact on our income before income taxes for fiscal 2012. 
+Fiscal
+2011 Compared to Fiscal 2010 
+For fiscal 2011, other expense (income), net was primarily comprised of net foreign currency gains. 
+For fiscal 2011, we estimated that the combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year
+change in foreign currency related net gains included in other expense (income), net had an unfavorable impact of approximately $33 million on our income before income taxes. 
+Income Taxes 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+Fiscal 2010 
+FY11 vs. FY10 
+% Change 
+Effective tax rate 
+25.5 
+% 
+25.0 
+% 
+50 bps 
+24.2 
+% 
+80 bps 
+Fiscal 2012 Compared to Fiscal 2011 
+Our effective tax rate for fiscal 2012 was 50 basis points higher than the effective tax rate for fiscal 2011 primarily due to changes in estimates of uncertain tax
+position. This impact was partially offset by a reduction in the effective tax rate on operations outside of the United States as a result of changes in geographical mix of foreign earnings. 
+Fiscal 2011 Compared to Fiscal 2010 
+Our effective tax rate for fiscal 2011 was 80 basis points higher than the
+effective tax rate for fiscal 2010 primarily due to the change in geographic mix of earnings. A larger percentage of our earnings in fiscal 2011 were attributable to operations in the U.S., where the statutory tax rate is generally higher than the
+tax rate on operations outside of the U.S. This impact was partially offset by changes in estimates of uncertain tax positions. 
+Operating Segments 
+The Company’s reportable operating segments are based on our internal geographic
+organization. Each NIKE Brand geography operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel, and equipment. Our reportable operating segments for the NIKE Brand are: North America,
+Western Europe, Central & Eastern Europe, Greater China, Japan, and Emerging Markets. Our NIKE Brand Direct to Consumer operations are managed within each geographic segment. 
+As part of our centrally managed foreign exchange risk management program, standard foreign currency rates are assigned twice per year to each NIKE Brand entity in our geographic operating segments and certain
+Other Businesses. These rates are set approximately nine months in advance of the future selling season based on average market spot rates in the calendar month preceding the date they are established. Inventories and cost of sales for geographic
+operating segments and certain Other Businesses reflect use of these standard rates to record non-functional currency product purchases into the entity’s functional currency. Differences between assigned standard foreign currency rates and
+actual market rates are included in Corporate together with foreign currency hedge gains and losses generated from our centrally managed foreign exchange risk management program. 
+Certain prior year amounts have been reclassified to conform to fiscal 2012 presentation. 
+20 
+Table of Contents 
+The breakdown of revenues follows:
+(Dollars in millions) 
+Fiscal 2012 
+Fiscal 2011 (1) 
+FY12 vs. FY11 
+% Change 
+FY12 vs. FY11 
+% Change 
+Excluding 
+Currency 
+Changes (2) 
+Fiscal 2010 (1) 
+FY11 vs. FY10 
+% Change 
+FY11 vs. FY10 
+% Change 
+Excluding 
+Currency 
+Changes (2) 
+North America 
+$ 
+8,839 
+$ 
+7,579 
+17 
+% 
+17 
+% 
+$ 
+6,697 
+13 
+% 
+13 
+% 
+Western Europe 
+4,144 
+3,868 
+7 
+% 
+4 
+% 
+3,839 
+1 
+% 
+6 
+% 
+Central & Eastern Europe 
+1,200 
+1,040 
+15 
+% 
+17 
+% 
+999 
+4 
+% 
+6 
+% 
+Greater China 
+2,539 
+2,060 
+23 
+% 
+18 
+% 
+1,742 
+18 
+% 
+16 
+% 
+Japan 
+829 
+766 
+8 
+% 
+1 
+% 
+882 
+-13 
+% 
+-21 
+% 
+Emerging Markets 
+3,410 
+2,736 
+25 
+% 
+26 
+% 
+2,198 
+24 
+% 
+19 
+% 
+Global Brand Divisions 
+111 
+96 
+16 
+% 
+13 
+% 
+86 
+12 
+% 
+16 
+% 
+Total NIKE Brand Revenues 
+21,072 
+18,145 
+16 
+% 
+15 
+% 
+16,443 
+10 
+% 
+10 
+% 
+Other Businesses 
+3,095 
+2,786 
+11 
+% 
+11 
+% 
+2,564 
+9 
+% 
+8 
+% 
+Corporate (3) 
+(39 
+) 
+(69 
+) 
+— 
+— 
+7 
+— 
+— 
+TOTAL NIKE, INC. REVENUES 
+$ 
+24,128 
+$ 
+20,862 
+16 
+% 
+14 
+% 
+$ 
+19,014 
+10 
+% 
+10 
+% 
+(1) 
+Certain prior year amounts have been reclassified to conform to fiscal 2012 presentation. These changes had no impact on previously reported results of operations or
+shareholders’ equity. 
+(2) 
+Results have been restated using actual exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact
+of translation arising from foreign currency exchange rate fluctuations. 
+(3) 
+Corporate revenues primarily consist of certain intercompany revenue eliminations and foreign currency hedge gains and losses related to revenues generated by entities within
+the NIKE Brand geographic operating segments and certain Other Businesses but managed through our central foreign exchange risk management program. 
+The primary financial measure used by the Company to evaluate performance of individual operating segments is earnings before interest and taxes (commonly referred
+to as “EBIT”) which represents net income before interest expense (income), net and income taxes in the consolidated statements of income. As discussed in Note 17 — Operating Segments and Related Information in the accompanying Notes
+to the Consolidated Financial Statements, certain corporate costs are not included in EBIT of our operating segments. 
+The breakdown of earnings before interest and taxes is as follows: 
+(Dollars in millions) 
+Fiscal 2012 
+Fiscal 2011 (1) 
+FY12 vs. FY11 
+% Change 
+Fiscal 2010 (1) 
+FY11 vs. FY10 
+% Change 
+North America 
+$ 
+2,007 
+$ 
+1,736 
+16 
+% 
+$ 
+1,538 
+13 
+% 
+Western Europe 
+597 
+730 
+-18 
+% 
+807 
+-10 
+% 
+Central & Eastern Europe 
+234 
+244 
+-4 
+% 
+249 
+-2 
+% 
+Greater China 
+911 
+777 
+17 
+% 
+637 
+22 
+% 
+Japan 
+136 
+114 
+19 
+% 
+180 
+-37 
+% 
+Emerging Markets 
+853 
+688 
+24 
+% 
+521 
+32 
+% 
+Global Brand Divisions 
+(1,177 
+) 
+(971 
+) 
+-21 
+% 
+(866 
+) 
+-12 
+% 
+Total NIKE Brand 
+3,561 
+3,318 
+7 
+% 
+3,066 
+8 
+% 
+Other Businesses 
+341 
+335 
+2 
+% 
+298 
+12 
+% 
+Corporate 
+(916 
+) 
+(805 
+) 
+-14 
+% 
+(841 
+) 
+4 
+% 
+TOTAL CONSOLIDATED EARNINGS 
+BEFORE INTEREST AND TAXES 
+$ 
+2,986 
+$ 
+2,848 
+5 
+% 
+$ 
+2,523 
+13 
+% 
+Interest expense, net 
+3 
+4 
+— 
+6 
+— 
+TOTAL CONSOLIDATED INCOME 
+BEFORE INCOME TAXES 
+$ 
+2,983 
+$ 
+2,844 
+5 
+% 
+$ 
+2,517 
+13 
+% 
+(1) 
+Certain prior year amounts have been reclassified to conform to fiscal 2012 presentation. These changes had no impact on previously reported results of operations or
+shareholders’ equity. 
+North America 
+(Dollars in millions) 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+FY12 vs. FY11 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2010 
+FY11 vs. FY10 
+% Change 
+FY11 vs. FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Revenues by: 
+Footwear 
+$ 
+5,887 
+$ 
+5,111 
+15 
+% 
+15 
+% 
+$ 
+4,611 
+11 
+% 
+11 
+% 
+Apparel 
+2,482 
+2,103 
+18 
+% 
+18 
+% 
+1,740 
+21 
+% 
+21 
+% 
+Equipment 
+470 
+365 
+29 
+% 
+29 
+% 
+346 
+5 
+% 
+5 
+% 
+TOTAL REVENUES 
+$ 
+8,839 
+$ 
+7,579 
+17 
+% 
+17 
+% 
+$ 
+6,697 
+13 
+% 
+13 
+% 
+Revenues by: 
+Sales to Wholesale Customers 
+$ 
+6,720 
+$ 
+5,801 
+16 
+% 
+16 
+% 
+$ 
+5,202 
+12 
+% 
+11 
+% 
+Sales Direct to Consumer 
+2,119 
+1,778 
+19 
+% 
+19 
+% 
+1,495 
+19 
+% 
+19 
+% 
+TOTAL REVENUES 
+$ 
+8,839 
+$ 
+7,579 
+17 
+% 
+17 
+% 
+$ 
+6,697 
+13 
+% 
+13 
+% 
+EARNINGS BEFORE INTEREST AND TAXES 
+$ 
+2,007 
+$ 
+1,736 
+16 
+% 
+$ 
+1,538 
+13 
+% 
+21 
+Table of Contents 
+Fiscal 2012 Compared to Fiscal 2011 
+Revenues for North America increased 17% for fiscal 2012, driven by growth in both wholesale and Direct to Consumer revenues. Our category offense continued to deliver innovative products, deep brand connections
+and compelling retail experiences to consumers, driving demand for NIKE Brand products across all seven key categories. North America’s Direct to Consumer revenues grew 19% for fiscal 2012, fueled by 15% growth in comparable store sales.
+For fiscal 2012, footwear revenue in North America increased 15%, driven by an increase in both unit sales and average selling prices. Unit sales rose
+at a double-digit rate while average selling price per pair grew at a mid-single-digit rate, reflective of product price increases, partially offset by higher discounts on close-out sales. The overall increase in footwear sales was driven by growth
+in all key categories, most notably Running, Basketball, Women’s Training and Sportswear. 
+Compared to the prior year, apparel revenue for North
+America increased 18%, primarily driven by a low-double-digit percentage growth in average selling price per unit and a mid-single-digit percentage growth in unit sales. The increase in average selling price per unit was reflective of product price
+increases and a greater mix of higher price point products. The overall increase in apparel sales was driven by double-digit percentage growth across most key categories, including Men’s Training, Running and Basketball. 
+For fiscal 2012, EBIT for North America increased 16% as revenue growth and improved selling and administrative expense leverage more than offset a decline in gross
+margin. Gross margin decreased 90 basis points during fiscal 2012, primarily due to higher product input costs and lower gross margins on close-out sales, which more than offset the favorable impact of selling price increases, lower air freight
+costs and the growth of our Direct to Consumer business. Selling and administrative expense as a percentage of revenue decreased by 70 basis points for fiscal 2012, as both demand creation and operating overhead expense grew at a slower rate than
+revenues. 
+Fiscal 2011 Compared to Fiscal 2010 
+Revenues for North America increased 13%, driven by double-digit percentage growth in both wholesale and Direct to Consumer revenues. Contributing to the wholesale
+revenue growth was strong product category presentations at our wholesale customers, improved product lines and earlier shipments of summer season products. North America’s Direct to Consumer revenues grew 19%, which contributed approximately 4
+percentage points to North America’s revenue increase. The growth in the Direct to Consumer business was fueled by 14% growth in comparable store sales. 
+For fiscal 2011, the increase in North America footwear revenue was primarily driven by double-digit percentage growth in Running, Men’s and Women’s Training and Football (Soccer) and a single-digit
+percentage growth in Basketball, partially offset by a low-single-digit percentage decline in sales of our NIKE Brand Sportswear products. 
+The
+year-over-year increase in North America apparel revenues was primarily driven by double-digit percentage growth in most key categories, most notably Men’s Training, Running, Basketball and Women’s Training. 
+For fiscal 2011, the increase in North America’s EBIT was primarily the result of revenue growth and leverage on selling and administrative expense, which more
+than offset a lower gross margin percentage. The decline in gross margin percentage was due primarily to increased air freight and product input costs, which more than offset the favorable impact from the growth of our Direct to Consumer business
+and fewer close-out sales. 
+Western Europe 
+(Dollars in millions) 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+FY12 vs. FY11 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2010 
+FY11 vs. FY10 
+% Change 
+FY11 vs. FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Revenues by: 
+Footwear 
+$ 
+2,526 
+$ 
+2,345 
+8 
+% 
+5 
+% 
+$ 
+2,284 
+3 
+% 
+8 
+% 
+Apparel 
+1,377 
+1,303 
+6 
+% 
+2 
+% 
+1,311 
+-1 
+% 
+4 
+% 
+Equipment 
+241 
+220 
+10 
+% 
+5 
+% 
+244 
+-10 
+% 
+-5 
+% 
+TOTAL REVENUES 
+$ 
+4,144 
+$ 
+3,868 
+7 
+% 
+4 
+% 
+$ 
+3,839 
+1 
+% 
+6 
+% 
+Revenues by: 
+Sales to Wholesale Customers 
+$ 
+3,556 
+$ 
+3,385 
+5 
+% 
+2 
+% 
+$ 
+3,380 
+0 
+% 
+5 
+% 
+Sales Direct to Consumer 
+588 
+483 
+22 
+% 
+18 
+% 
+459 
+5 
+% 
+10 
+% 
+TOTAL REVENUES 
+$ 
+4,144 
+$ 
+3,868 
+7 
+% 
+4 
+% 
+$ 
+3,839 
+1 
+% 
+6 
+% 
+EARNINGS BEFORE INTEREST AND TAXES 
+$ 
+597 
+$ 
+730 
+-18 
+% 
+$ 
+807 
+-10 
+% 
+Fiscal 2012 Compared to Fiscal 2011 
+On a currency neutral basis, revenues for Western Europe increased 4% for fiscal 2012, as most territories reported revenue growth, which more than offset revenue
+declines in the U.K. & Ireland and Italy. Revenues for the U.K. & Ireland, the largest market in Western Europe, declined 3% for the fiscal 2012 period. Western Europe’s Direct to Consumer revenues grew 18% for fiscal 2012,
+including 8% growth in comparable store sales. 
+Excluding changes in currency exchange rates, footwear revenue in Western Europe increased 5% for fiscal
+2012, primarily driven by a low-single-digit percentage growth in both unit sales and average selling price per pair, primarily reflective of product price increases, partially offset by higher discounts on in-line and close-out sales. The overall
+increase in footwear sales was driven by growth in Running, Basketball and Football (Soccer), which more than offset a decline in Action Sports. 
+Excluding changes in currency exchange rates, apparel revenue in Western Europe increased 2% for fiscal 2012. The year-over-year change was primarily driven by a
+mid-single-digit percentage increase in average selling price per unit, reflective of higher product prices. Partially offsetting the increase in average selling price per unit was a mid-single-digit percentage decline in unit sales. The overall
+increase in apparel sales was driven by growth in Football (Soccer) and Running, which more than offset a decline in Sportswear. 
+On a reported basis,
+revenues for Western Europe increased 7% for fiscal 2012. However, EBIT fell 18%, primarily driven by a 350 basis point decline in gross margin and higher selling and administrative expense as a percentage of revenues. The decline in gross margin
+was driven by higher product input costs and the negative impact from changes in standard currency rates, which more than offset the favorable impact of product price increases and the growth of our Direct to Consumer business. The increase in
+selling and administrative expense as a percentage of revenues was mainly driven by an increased level of demand creation spending around the European Football Championships and London Summer Olympics. Also reflected in Western Europe’s fiscal
+2012 results was a $24 million charge relating to the restructuring of its operations. 
+22 
+Table of Contents 
+Fiscal 2011 Compared to Fiscal 2010 
+On a currency neutral basis, revenues for Western Europe increased 6% for fiscal 2011, attributable to growth in most territories. Revenues for the U.K. & Ireland, the largest market in Western Europe,
+grew 5% for fiscal 2011. Western Europe’s Direct to Consumer revenues grew 10%, which contributed approximately 1 percentage point to Western Europe’s revenue increase. The growth in the Direct to Consumer business was fueled by 6% growth
+in comparable store sales. 
+Excluding changes in currency exchange rates, footwear revenue in Western Europe increased 8%, driven by double-digit
+percentage growth in Running, Football (Soccer) and Action Sports, which more than offset a slight revenue decline in Sportswear. 
+On a currency neutral
+basis, apparel revenue in Western Europe increased 4%, primarily driven by double-digit percentage growth in Football (Soccer) and Running, which more than offset a mid-single-digit revenue decline in Sportswear. 
+For fiscal 2011, the decrease in Western Europe’s EBIT was driven by unfavorable foreign currency translation and a lower gross margin percentage, all of which
+more than offset the increase in revenues and improved leverage on selling and administrative expense. The decline in the gross margin percentage was significantly impacted by the unfavorable year-over-year standard currency rates. Also contributing
+to the decrease in the gross margin percentage was higher product input and air freight costs, higher royalty expenses related to sales of endorsed team products and higher full price discounts. These factors more than offset the favorable impact of
+fewer close-out sales. 
+Central & Eastern Europe
+(Dollars in millions) 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+FY12 vs. FY11 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2010 
+FY11 vs. FY10 
+% Change 
+FY11 vs. FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Revenues by: 
+Footwear 
+$ 
+671 
+$ 
+605 
+11 
+% 
+13 
+% 
+$ 
+562 
+8 
+% 
+10 
+% 
+Apparel 
+441 
+359 
+23 
+% 
+24 
+% 
+357 
+1 
+% 
+3 
+% 
+Equipment 
+88 
+76 
+16 
+% 
+17 
+% 
+80 
+-5 
+% 
+-4 
+% 
+TOTAL REVENUES 
+$ 
+1,200 
+$ 
+1,040 
+15 
+% 
+17 
+% 
+$ 
+999 
+4 
+% 
+6 
+% 
+EARNINGS BEFORE INTEREST AND TAXES 
+$ 
+234 
+$ 
+244 
+-4 
+% 
+$ 
+249 
+-2 
+% 
+Fiscal 2012 Compared to Fiscal 2011 
+Excluding the changes in currency exchange rates, revenues for Central & Eastern Europe increased 17% for fiscal 2012, driven by growth across most
+territories, including double-digit growth in Russia and Turkey, which more than offset lower revenues in Greece. 
+Excluding changes in currency exchange
+rates, Central & Eastern Europe’s footwear revenue grew 13%, primarily driven by double-digit percentage growth in unit sales and a low-single-digit percentage increase in average selling price per pair. The increase in average selling
+price per pair was reflective of product price increases which more than offset the negative impact of higher discounts on in-line and close-out sales. The overall increase in footwear sales was driven by growth across all key categories, most
+notably Running, Sportswear and Football (Soccer). 
+Excluding changes in currency exchange rates, Central & Eastern Europe’s apparel
+revenues grew 24%, mainly driven by double-digit percentage growth in unit sales, offset by a slight decrease in average price per unit, mainly due to less favorable product mix and higher discounts on in-line sales, which more than offset the
+impact from product price increases. The overall increase in apparel sales was primarily driven by growth in Football (Soccer), Sportswear and Running. 
+On a reported basis, revenues for Central & Eastern Europe increased 15% for fiscal 2012. However, EBIT fell 4%, primarily driven by a 420 basis point
+decline in gross margin. The decline in gross margin was primarily due to higher product input costs as well as higher discounts on in-line and close-out products, which more than offset the favorable impact from product price increases. Selling and
+administrative expense as a percentage of revenues remained relatively flat compared to the prior period. 
+Fiscal 2011 Compared to Fiscal 2010
+Led by Russia and Turkey, most territories within Central & Eastern Europe reported revenue growth during fiscal 2011 as economic
+conditions in the geography continued to show signs of recovery. 
+The growth in Central & Eastern Europe’s footwear revenues was mainly
+driven by double-digit percentage growth in Football (Soccer), Running and Action Sports, while the growth in apparel revenues was primarily driven by double-digit percentage growth in Running. 
+For fiscal 2011, the decrease in Central & Eastern Europe’s EBIT was primarily driven by unfavorable foreign currency translation and a lower gross
+margin percentage, which more than offset the increase in revenues and improved leverage on selling and administrative expense. The decline in the gross margin percentage was primarily due to unfavorable year-over-year standard currency rates,
+higher air freight costs and an increase in product input costs. 
+Greater China 
+(Dollars in millions) 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+FY12 vs. FY11 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2010 
+FY11 vs. FY10 
+% Change 
+FY11 vs. FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Revenues by: 
+Footwear 
+$ 
+1,518 
+$ 
+1,164 
+30 
+% 
+25 
+% 
+$ 
+953 
+22 
+% 
+19 
+% 
+Apparel 
+896 
+789 
+14 
+% 
+9 
+% 
+684 
+15 
+% 
+13 
+% 
+Equipment 
+125 
+107 
+17 
+% 
+12 
+% 
+105 
+2 
+% 
+1 
+% 
+TOTAL REVENUES 
+$ 
+2,539 
+$ 
+2,060 
+23 
+% 
+18 
+% 
+$ 
+1,742 
+18 
+% 
+16 
+% 
+EARNINGS BEFORE INTEREST AND TAXES 
+$ 
+911 
+$ 
+777 
+17 
+% 
+$ 
+637 
+22 
+% 
+23 
+Table of Contents 
+Fiscal 2012 Compared to Fiscal 2011 
+Excluding changes in currency exchange rates, Greater China revenues increased 18% for fiscal 2012, driven by continued expansion in the number of both NIKE mono-branded stores owned by our wholesale customers and
+NIKE owned stores, as well as higher comparable store sales. 
+Excluding changes in currency exchange rates, the growth in Greater China’s footwear
+revenue for fiscal 2012 was primarily driven by double-digit percentage growth in unit sales and a mid-single-digit growth in average unit price per pair, reflective of product price increases. The overall increase in footwear sales was driven by
+double-digit percentage growth across most key categories, led by Running and Sportswear. 
+Excluding changes in currency exchange rates, the growth in
+Greater China’s apparel revenues for fiscal 2012 was mainly driven by a high-single-digit growth in the average selling price per unit and a low-single-digit percentage increase in unit sales. The increase in average selling price was
+reflective of product price increases, partially offset by higher discounts on in-line and close-out products to accelerate the sales of slower moving apparel inventories. 
+On a reported basis, revenues for Greater China increased 23% for fiscal 2012, while EBIT grew 17%, as revenue growth was partially offset by a decline in gross margin and an increase in selling and administrative
+expense as a percentage of revenues. Gross margin decreased 150 basis points for fiscal 2012, primarily attributable to higher product input costs and discounts on close-out products, which more than offset the favorable impact of product price
+increases. Selling and administrative expense as a percentage of revenues increased 50 basis points, driven by an increase in operating overhead expense. 
+Fiscal 2011 Compared to Fiscal 2010 
+Excluding changes in
+currency exchange rates, Greater China revenues increased 16% for fiscal 2011, driven by expansion in the number of partner-owned stores selling NIKE products, as well as improvement in comparable store sales for partner-owned stores. 
+For fiscal 2011, the increase in Greater China’s footwear revenue was primarily driven by double-digit percentage growth in Running and Sportswear, while the
+growth in apparel revenue was mainly driven by double-digit percentage increases in Sportswear, Basketball and Men’s Training. 
+For fiscal 2011,
+EBIT for Greater China grew at a faster rate than revenue as a result of a higher gross margin, improved leverage on selling and administrative expense and favorable foreign currency translation. The improvement in gross margin was primarily
+attributable to higher product prices, favorable product mix and lower inventory obsolescence expense, which more than offset higher product input costs and warehousing costs from our new China distribution center. 
+Japan 
+(Dollars in millions) 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+FY12 vs. FY11 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2010 
+FY11 vs. FY10 
+% Change 
+FY11 vs. FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Revenues by: 
+Footwear 
+$ 
+438 
+$ 
+396 
+11 
+% 
+3 
+% 
+$ 
+433 
+-9 
+% 
+-16 
+% 
+Apparel 
+322 
+302 
+7 
+% 
+-1 
+% 
+357 
+-15 
+% 
+-22 
+% 
+Equipment 
+69 
+68 
+1 
+% 
+-4 
+% 
+92 
+-26 
+% 
+-33 
+% 
+TOTAL REVENUES 
+$ 
+829 
+$ 
+766 
+8 
+% 
+1 
+% 
+$ 
+882 
+-13 
+% 
+-21 
+% 
+EARNINGS BEFORE INTEREST AND TAXES 
+$ 
+136 
+$ 
+114 
+19 
+% 
+$ 
+180 
+-37 
+% 
+Fiscal 2012 Compared to Fiscal 2011 
+During fiscal 2012, the macroeconomic environment in Japan remained uncertain as the market continued to recover from the effects of the earthquake and tsunami in
+March 2011. On a currency neutral basis, footwear revenue in Japan increased 3% for fiscal 2012, as growth in Running and Football (Soccer) more than offset a decline in Sportswear. 
+Excluding changes in currency exchange rates, apparel revenue decreased 1% for fiscal 2012, as the decline in Sportswear more than offset the growth in Running and Football (Soccer). 
+On a reported basis, EBIT for Japan grew at a faster rate than revenue as a result of improved gross margin and leverage of selling and administrative expenses. The
+increase in Japan’s gross margin was mainly driven by the favorable impact from the year-over-year change in standard currency rates, a decrease in inventory obsolescence expense as well as a lower mix of close-out sales. These favorable
+impacts were partially offset by higher product input costs. 
+Fiscal 2011 Compared to Fiscal 2010 
+On March 11, 2011, Japan experienced a major earthquake and resulting tsunami. While the Company’s organization and assets in Japan were not materially
+damaged, business results for the month of March 2011 were significantly eroded by the natural disaster. 
+Excluding changes in currency exchange rates,
+both footwear and apparel revenues in Japan declined, driven by decreases across most key categories. Partially offsetting the decreases was double-digit percentage growth in revenues from Running apparel. 
+The decrease in Japan’s EBIT for fiscal 2011 was primarily due to lower revenues and higher selling and administrative expense as a percentage of revenue,
+partially offset by an improvement in the gross margin percentage. The improvement in the gross margin percentage was primarily driven by favorable year-over-year standard currency rates and positive impacts from fewer discounts on close-out sales,
+which more than offset higher product input costs and inventory obsolescence expense. 
+24 
+Table of Contents 
+Emerging Markets 
+(Dollars in millions) 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+FY12 vs. FY11 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2010 
+FY11 vs. FY10 
+% Change 
+FY11 vs. FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Revenues by: 
+Footwear 
+$ 
+2,386 
+$ 
+1,897 
+26 
+% 
+27 
+% 
+$ 
+1,458 
+30 
+% 
+24 
+% 
+Apparel 
+815 
+657 
+24 
+% 
+25 
+% 
+577 
+14 
+% 
+9 
+% 
+Equipment 
+209 
+182 
+15 
+% 
+15 
+% 
+163 
+12 
+% 
+7 
+% 
+TOTAL REVENUES 
+$ 
+3,410 
+$ 
+2,736 
+25 
+% 
+26 
+% 
+$ 
+2,198 
+24 
+% 
+19 
+% 
+EARNINGS BEFORE INTEREST 
+AND TAXES 
+$ 
+853 
+$ 
+688 
+24 
+% 
+$ 
+521 
+32 
+% 
+Fiscal 2012 Compared to Fiscal 2011 
+Excluding the changes in currency exchange rates, revenues for the Emerging Markets increased 26% for fiscal 2012 as all territories in the geography reported
+double-digit revenue growth, led by Argentina, Brazil, Mexico and Korea. 
+For fiscal 2012, revenue growth for both footwear and apparel in the Emerging
+Markets was driven by double-digit percentage growth in unit sales and mid-single-digit percentage growth in average selling price per unit, primarily reflective of product price increases. The overall increase in Emerging Markets’ footwear and
+apparel sales was driven by strong demand in nearly all key categories, led by Running and Sportswear. 
+The increase in Emerging Markets’ EBIT for
+fiscal 2012 was primarily the result of revenue growth and selling and administrative expense leverage, which more than offset a lower gross margin. Gross margin declined 150 basis points for the fiscal year, primarily due to higher product input
+costs, customs duty charges and inventory obsolescence expense. These factors were partially offset by the favorable impact of changes in standard currency exchange rates and product price increases. Selling and administrative expense as a
+percentage of revenues decreased 140 basis points, as both demand creation expense and operating overhead grew at a slower rate than revenues. 
+Fiscal 2011 Compared to Fiscal 2010 
+Excluding the changes
+in currency exchange rates, revenues for Emerging Markets increased 19% for fiscal 2011. Most territories in the geography reported double-digit revenue growth for the fiscal year, led by Brazil, Argentina, Mexico, and Korea. 
+For fiscal 2011, both footwear and apparel revenue growth in the Emerging Markets was driven by strong demand in nearly all key categories, most notably Sportswear
+and Running. 
+For fiscal 2011, EBIT for Emerging Markets grew at a faster rate than revenue as a result of higher gross margin percentage, improved
+leverage on selling and administrative expense and favorable foreign currency translation. The increase in the gross margin percentage was primarily due to a higher mix of in-line product sales, lower warehousing costs and favorable year-over-year
+standard currency rates, which more than offset the increase in product input costs and higher full-price discounts. 
+Global Brand Divisions 
+(Dollars in millions) 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+FY12 vs. FY11 
+% Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2010 
+FY11 
+vs. FY10 
+% Change 
+FY11 vs. FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Revenues 
+$ 
+111 
+$ 
+96 
+16 
+% 
+13 
+% 
+$ 
+86 
+12 
+% 
+16 
+% 
+(Loss) Before Interest and Taxes 
+(1,177 
+) 
+(971 
+) 
+-21 
+% 
+(866 
+) 
+-12 
+% 
+Global Brand Divisions primarily represent demand creation and
+operating overhead expenses that are centrally managed for the NIKE Brand. Revenues for the Global Brand Divisions are attributable to NIKE Brand licensing businesses that are not part of a geographic operating segment. 
+Fiscal 2012 Compared to Fiscal 2011 
+For fiscal 2012, Global
+Brand Divisions’ loss before interest and taxes increased $206 million, primarily driven by increased investments in our digital business and infrastructure for our Direct to Consumer operations, higher sports marketing expense as well as
+higher personnel costs to support our global brand functions. 
+Fiscal 2011 Compared to Fiscal 2010 
+For fiscal 2011, the
+increase in Global Brand Divisions’ loss before interest and taxes was primarily due to an increase in both operating overhead and centrally managed demand creation expense. The increase in operating overhead expense was mainly driven by
+increased investments in our Direct to Consumer infrastructure along with higher wages and travel expense. The increase in demand creation expense was primarily driven by a higher level of brand event spending around the World Cup and World
+Basketball Festival in the first half of fiscal 2011, as well as increased investments in sports marketing. 
+25 
+Table of Contents 
+Other Businesses 
+(Dollars in millions) 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+FY12 vs. FY11 % 
+Change 
+Excluding 
+Currency 
+Changes 
+Fiscal 2010 
+FY11 vs. FY10 
+% Change 
+FY11 vs. FY10 
+% Change 
+Excluding 
+Currency 
+Changes 
+Revenues 
+Converse 
+$ 
+1,324 
+$ 
+1,131 
+17 
+% 
+17 
+% 
+$ 
+983 
+15 
+% 
+15 
+% 
+NIKE Golf 
+726 
+658 
+10 
+% 
+9 
+% 
+670 
+-2 
+% 
+-3 
+% 
+Cole Haan 
+535 
+521 
+3 
+% 
+3 
+% 
+466 
+12 
+% 
+12 
+% 
+Hurley 
+248 
+252 
+-2 
+% 
+-1 
+% 
+222 
+14 
+% 
+13 
+% 
+Umbro 
+262 
+224 
+17 
+% 
+14 
+% 
+223 
+0 
+% 
+2 
+% 
+TOTAL REVENUES 
+$ 
+3,095 
+$ 
+2,786 
+11 
+% 
+11 
+% 
+$ 
+2,564 
+9 
+% 
+8 
+% 
+EARNINGS BEFORE 
+INTEREST AND TAXES 
+$ 
+341 
+$ 
+335 
+2 
+% 
+$ 
+298 
+12 
+% 
+Fiscal 2012 Compared to Fiscal 2011 
+Our Other Businesses are comprised of our affiliate brands; Cole Haan, Converse, Hurley and Umbro; and NIKE Golf. 
+For fiscal 2012, revenues for our Other Businesses increased 11%, reflecting growth across most businesses, led by Converse. The revenue growth at Converse was
+primarily driven by increased sales in North America and China, as well as increased revenues in the U.K. as we transitioned that market to direct distribution in the second half of fiscal 2011. Excluding changes in currency exchange rates, revenues
+for NIKE Golf increased 9% for fiscal 2012, driven by double-digit percentage growth in our apparel business, partially offset by a single-digit percentage decline in our club business. On a currency neutral basis, revenues for Umbro grew 14%
+primarily driven by sales growth in France due to our acquisition of the exclusive licensee and distributor in March 2011. For fiscal 2012, revenues for Cole Haan grew 3%, mostly driven by growth in our Direct to Consumer operations. 
+On a reported basis, revenues for our Other Businesses increased 11% for fiscal 2012, while EBIT grew 2%, as earnings growth at Converse was mostly offset by losses
+at Umbro and Hurley. Higher selling and administrative expense as a percentage of revenues negatively affected profitability at both companies, while lower gross margins also contributed to the decline in Hurley’s earnings. 
+As part of our long-term growth strategy, we continually evaluate our existing portfolio of businesses to ensure the Company is investing in those businesses that
+are accretive to the NIKE Brand, and with the largest growth potential and highest returns. On May 31, 2012, we announced our intention to divest of the Cole Haan and Umbro businesses, which will allow us to focus our resources on driving
+growth in the NIKE, Jordan, Converse and Hurley brands. For fiscal 2012 and 2011, Cole Haan and Umbro combined contributed $797 million and $745 million, respectively, in revenues to the Other Businesses portfolio, and losses before interest and
+taxes of $43 million and $18 million, respectively. 
+We are currently in the process of preparing these businesses for sale and identifying suitable
+buyers. Although we are unable to estimate the ultimate gains or losses on the sales of these businesses at this time, we anticipate we will in the future incur certain non-cash charges related to the divestiture of Umbro. Upon the sale of the
+business, or when the ultimate selling price becomes estimable, we expect to incur non-cash charges to liquidate certain balance sheet accounts, most significantly the cumulative translation adjustment and deferred tax assets related to Umbro. At
+May 31, 2012, the cumulative translation adjustment was $110 million, net of tax, and the deferred tax asset was $32 million. We may also incur other cash and non-cash charges related to the divestiture of the Cole Haan and Umbro businesses.
+Fiscal 2011 Compared to Fiscal 2010 
+For fiscal
+2011, the revenue growth at Converse was primarily driven by increased licensing revenue in China, as well as increased sales in the U.K. as we transitioned that market to direct distribution. Revenues for Cole Haan increased 12%, driven by
+double-digit percentage growth in our wholesale operations as well as high-single-digit percentage growth in our Direct to Consumer operations. Revenues declined at NIKE Golf, where we experienced significant erosion in our Japan business following
+the earthquake and tsunami in March 2011. 
+For fiscal 2011, EBIT for our Other Businesses grew at a faster rate than revenues, primarily as a result of
+more favorable foreign currency exchange impacts. Gross margin remained relatively flat for fiscal 2011, as the favorable impact from improved product mix was offset by a lower mix of licensee revenues. Selling and administrative expense as a
+percentage of revenues remained relatively flat for fiscal 2011. 
+Corporate 
+(Dollars in millions) 
+Fiscal 2012 
+Fiscal 2011 
+FY12 vs. FY11 
+% Change 
+Fiscal 2010 
+FY11 vs. FY10 
+% Change 
+Revenues 
+$ 
+(39 
+) 
+$ 
+(69 
+) 
+— 
+$ 
+7 
+— 
+(Loss) Before Interest and Taxes 
+(916 
+) 
+(805 
+) 
+-14 
+% 
+(841 
+) 
+4 
+% 
+Corporate consists largely of unallocated general and
+administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to our corporate headquarters; unallocated insurance, benefit and compensation programs, including stock-based
+compensation; certain foreign currency gains and losses, including certain hedge gains and losses; corporate eliminations and other items. 
+Corporate
+revenues primarily consist of certain intercompany revenue eliminations and foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Other Businesses but managed
+through our central foreign exchange risk management program. 
+In addition to the foreign currency gains and losses recognized in Corporate revenues,
+foreign currency results include all other foreign currency hedge results generated through our centrally managed foreign exchange risk management program, other conversion gains and losses arising from re-measurement of monetary assets and
+liabilities in non-functional currencies, and gains and losses resulting from the difference between actual foreign currency rates and standard rates used to record non-functional currency denominated product purchases within the NIKE Brand
+geographic operating segments and Other Businesses. 
+26 
+Table of Contents 
+Fiscal 2012 Compared to Fiscal 2011 
+For fiscal 2012, Corporate expense grew $111 million, mainly due to an increase of $49 million in performance-based compensation and a year-over-year net increase of $73 million from foreign currency impacts. These
+foreign currency impacts were driven by a year-over-year increase in foreign currency net losses, arising from certain Euro/U.S. Dollar foreign currency hedges and the re-measurement of monetary assets and liabilities in various non-functional
+currencies, net of related undesignated forward instruments, as a variety of foreign currencies weakened against the U.S. Dollar year-over-year. The above impacts were partially offset by a slight decrease in centrally managed operating
+overhead expenses. 
+Fiscal 2011 Compared to Fiscal 2010
+For fiscal 2011, the decrease in Corporate expense was primarily driven by year-over-year net foreign currency gains generated by our centrally
+managed foreign exchange risk management program. Also contributing to the decrease in Corporate expense for fiscal 2011 was a $54 million year-over-year reduction in stock options expense primarily due to a change in accelerated vesting provisions
+that took effect in the first quarter of fiscal 2011 and a lower estimated fair value for stock options granted in the current year. These benefits more than offset an increase in corporate operating overhead expenses, primarily driven by higher
+wage-related expense. 
+Foreign Currency Exposures and Hedging Practices
+Overview 
+As a global company with significant operations outside the United States, in the normal course
+of business we are exposed to risk arising from changes in currency exchange rates. Our primary foreign currency exposures arise from the recording of transactions denominated in non-functional currencies and the translation of foreign currency
+denominated results of operations, financial position and cash flows, such as the Euro and Chinese Renminbi, into U.S. Dollars. 
+Our foreign
+exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our reported consolidated results of operations, financial position and cash flows. We manage global foreign exchange risk
+centrally on a portfolio basis to address those risks that are material to NIKE, Inc. We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio, and where practical, by hedging a
+portion of the remaining material exposures using derivative instruments such as forward contracts and options. As described below, the implementation of our foreign currency adjustment program enhanced our ability to manage our foreign exchange
+risk on a portfolio basis by increasing the natural offsets and currency correlation benefits that exist within our portfolio of aggregate foreign exchange exposure. Our hedging policy is designed to partially or entirely offset the impact of
+exchange rate changes on the underlying net exposures being hedged. Where hedged, our program has the effect of delaying the impact of current market rates on our consolidated financial statements; the length of the delay is dependent upon hedge
+horizons. We do not hold or issue derivative instruments for trading purposes. 
+Transactional exposures 
+We conduct business in various currencies and have transactions which subject us to foreign currency risk. Our most significant transactional foreign currency
+exposures are: 
+• 
+Product Costs — NIKE’s product costs are exposed to fluctuations in foreign currencies in the following ways: 
+1. 
+Non-functional currency denominated product purchases: 
+a. 
+Certain NIKE entities purchase product from the NIKE Trading Company (“NTC”), a wholly-owned centralized sourcing hub that buys NIKE branded products from external
+factories, predominantly in U.S. Dollars. The NTC, whose functional currency is the U.S. Dollar, then sells the products to NIKE entities in their respective functional currencies. When the NTC sells to a NIKE entity with a different functional
+currency, the result is a foreign currency exposure for the NTC. 
+b. 
+Other NIKE entities purchase product directly from external factories in U.S. Dollars. These purchases generate a foreign currency exposure for those NIKE entities with a
+functional currency other than the U.S. Dollar. 
+In both purchasing scenarios, a weaker U.S. Dollar reduces the inventory cost incurred by NIKE whereas a stronger U.S. Dollar increases its cost.
+2. 
+Factory input costs: In January 2012, NIKE implemented a foreign currency adjustment program with certain factories. The program is designed to more effectively manage foreign
+currency risk by assuming certain of the factories’ foreign currency exposures, some of which are natural offsets to our existing foreign currency exposures. Under this program, our payments to these factories are adjusted for rate fluctuations
+in the basket of currencies (“factory currency exposure index”) in which the labor, materials and overhead costs incurred by the factories in the production of NIKE branded products (“factory input costs”) are denominated.
+For the currency within the factory currency exposure indices that is the local or functional currency of the factory, the currency rate fluctuation affecting the product cost is
+recorded within inventories and is recognized in cost of sales when the related product is sold to a third-party. All currencies within the indices, excluding the U.S. Dollar and the local or functional currency of the factory, are recognized
+as embedded derivatives and are recorded at fair value through other expense (income), net. Refer to Note 16 — Risk Management and Derivatives for additional detail. 
+As an offset to the impacts of the fluctuating U.S. Dollar on our non-functional currency denominated product purchases described above, a strengthening U.S. Dollar
+against the foreign currencies within the factory currency exposure indices decreases NIKE’s U.S. Dollar inventory cost. Conversely, a weakening U.S. Dollar against the indexed foreign currencies increases our inventory cost.
+• 
+Non-Functional Currency Denominated External Sales — A portion of our Western Europe and Central & Eastern Europe geography revenues are earned in
+currencies other than the Euro (e.g. British Pound, Polish Zloty) but are recognized at a subsidiary that uses the Euro as its functional currency. These sales generate a foreign currency exposure. 
+• 
+Other Costs — Non-functional currency denominated costs, such as endorsement contracts, intercompany royalties and other intercompany charges, generate
+foreign currency risk to a lesser extent. 
+• 
+Non-Functional Currency Denominated Monetary Assets and Liabilities — Our global subsidiaries have various assets and liabilities, primarily receivables and
+payables, denominated in currencies other than their functional currencies. These balance sheet items are subject to re-measurement, which may create fluctuations in other expense (income), net within our consolidated results of operations.
+27 
+Table of Contents 
+Managing transactional exposures 
+Transactional exposures are managed on a portfolio basis within our foreign currency risk management program. We manage these exposures by taking advantage of natural offsets and currency correlations that exist
+within the portfolio and may also elect to use currency forward and option contracts to hedge the remaining effect of exchange rate fluctuations on probable forecasted future cash flows, including certain product cost exposures, non-functional
+currency denominated external sales and other costs described above. These are accounted for as cash flow hedges in accordance with the accounting standards for derivatives and hedging, except for hedges of the embedded derivatives component of the
+product costs exposure as discussed below. As of May 31, 2012, there were outstanding currency forward contracts with maturities up to 24 months. The fair value of outstanding currency forward contracts at May 31, 2012 and 2011 was $183
+million and $28 million in assets and $32 million and $136 million in liabilities, respectively. The effective portion of the changes in fair value of these instruments is reported in other comprehensive income (“OCI”), a component of
+shareholders’ equity, and reclassified into earnings in the same financial statement line item and in the same period or periods during which the related hedged transactions affect consolidated earnings. The ineffective portion is immediately
+recognized in earnings as a component of other expense (income), net. Ineffectiveness was not material for the years ended May 31, 2012, 2011 and 2010. 
+Certain currency forward contracts used to manage the foreign exchange exposure of non-functional currency denominated monetary assets and liabilities subject to re-measurement and the embedded derivative contracts
+discussed above are not formally designated as hedging instruments under the accounting standards for derivatives and hedging. Accordingly, changes in fair value of these instruments are immediately recognized in other expense (income), net and are
+intended to offset the foreign currency impact of the re-measurement of the related non-functional currency denominated asset or liability or the embedded derivative contract being hedged. The fair value of undesignated instruments was $55 million
+and $9 million in assets and $20 million and $17 million in liabilities at May 31, 2012 and 2011, respectively. 
+Refer to Note 6 — Fair
+Value Measurements and Note 16 – Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional description of how the above financial instruments are valued and recorded. 
+Translational exposures 
+Many of our foreign
+subsidiaries operate in functional currencies other than the U.S. Dollar. Fluctuations in currency exchange rates create volatility in our reported results as we are required to translate the balance sheets, operational results and cash flows of
+these subsidiaries into U.S. Dollars for consolidated reporting. The translation of foreign subsidiaries’ non-U.S. Dollar denominated balance sheets into U.S. Dollars for consolidated reporting results in a cumulative translation
+adjustment to OCI within shareholders’ equity. In the translation of our consolidated statements of income, a weaker U.S. Dollar in relation to foreign functional currencies benefits our consolidated earnings whereas a stronger
+U.S. Dollar reduces our consolidated earnings. The impact of foreign exchange rate fluctuations on the translation of our consolidated revenues was a benefit (detriment) of approximately $268 million and $(28) million for the years ended
+May 31, 2012 and 2011, respectively. The impact of foreign exchange rate fluctuations on the translation of our income before income taxes was a benefit (detriment) of approximately $74 million and $(16) million for the years ended May 31,
+2012 and 2011, respectively. 
+Managing translational exposures 
+To minimize the impact of translating foreign currency denominated revenues and expenses into U.S. Dollars for consolidated reporting, certain foreign subsidiaries use excess cash to purchase U.S. Dollar
+denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of these U.S. Dollar denominated securities at non-U.S. Dollar functional currency subsidiaries creates a foreign
+currency exposure that qualifies for hedge accounting under the accounting standards for derivatives and hedging. We utilize forward contracts and/or options to mitigate the variability of the forecasted future purchases and sales of these
+U.S. Dollar investments. The combination of the purchase and sale of the U.S. Dollar investment and the hedging instrument has the effect of partially offsetting the year-over-year foreign currency translation impact on net earnings in the
+period the investments are sold. Hedges of available-for-sale investments are accounted for as cash flow hedges. The fair value of instruments used in this manner at May 31, 2012 and 2011 was $27 million and $1 million in assets and $3 million
+and $21 million in liabilities, respectively. The effective portion of the changes in fair value of these instruments is reported in OCI and reclassified into earnings in other expense (income), net in the period during which the hedged
+available-for-sale investment is sold and affects earnings. Any ineffective portion is immediately recognized in earnings as a component of other expense (income), net. The impact of ineffective hedges was not material for any period presented.
+The combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign
+currency related gains and losses included in other expense (income), net had an insignificant impact on our income before income taxes for the year ended May 31, 2012 and had a unfavorable impact of approximately $33 million for the year ended
+May 31, 2011. 
+Refer to Note 6 — Fair Value Measurements and Note 16 — Risk Management and Derivatives in the accompanying Notes to
+the Consolidated Financial Statements for additional description of how the above financial instruments are valued and recorded. 
+Net
+investments in foreign subsidiaries 
+We are also exposed to the impact of foreign exchange fluctuations on our investments in wholly-owned foreign
+subsidiaries denominated in a currency other than the U.S. Dollar, which could adversely impact the U.S. Dollar value of these investments and therefore the value of future repatriated earnings. We hedge certain net investment positions in
+Euro-functional currency foreign subsidiaries to mitigate the effects of foreign exchange fluctuations on these net investments. In accordance with the accounting standards for derivatives and hedging, the effective portion of the change in fair
+value of the forward contracts designated as net investment hedges is recorded in the cumulative translation adjustment component of accumulated other comprehensive income. Any ineffective portion is immediately recognized in earnings as a component
+of other expense (income), net. The impact of ineffective hedges was not material for any period presented. To minimize credit risk, we have structured these net investment hedges to be generally less than six months in duration. Upon maturity, the
+hedges are settled based on the current fair value of the forward contracts with the realized gain or loss remaining in OCI. There were no outstanding net investment hedges as of May 31, 2012. At May 31, 2011, the fair value was $23
+million in liabilities. Cash flows from net investment hedge settlements totaled $22 million and $(23) million for the years ended May 31, 2012 and 2011, respectively. 
+28 
+Table of Contents 
+Liquidity and Capital Resources 
+Cash Flow Activity 
+Cash provided by operations was $1.9 billion for fiscal 2012 compared to
+$1.8 billion for fiscal 2011. Our primary source of operating cash flow for fiscal 2012 was net income of $2.2 billion. Our working capital was a net cash outflow of $799 million for fiscal 2012 as compared to a net cash outflow of $708 million for
+fiscal 2011. Our investments in working capital increased primarily due to an increase in inventory and prepaid expenses. Inventory at the end of fiscal 2012 increased 23% compared to fiscal 2011, primarily due to higher product input costs as well
+as changes in product mix, which more than offset the favorable impact of changes in currency exchange rates. Inventory units for the NIKE Brand grew 10% compared to the prior year, driven by growth in futures orders and improved factory deliveries.
+The increase in prepaid expenses was primarily driven by higher prepaid demand creation expenses around the European Football Championships and London Summer Olympics. 
+Cash provided by investing activities was $514 million during fiscal 2012, compared to a use of cash of $1,021 million for fiscal 2011. The year-over-year increase was primarily due to higher net sales and
+maturities of short-term investments of $1,124 million (net of purchases) in fiscal 2012, compared to net purchases of $537 million (net of sales and maturities) during fiscal 2011. 
+Cash used by financing activities was $2.1 billion for fiscal 2012 compared to $2.0 billion for fiscal 2011. The increase in cash used by financing activities was primarily due to higher payments of long-term
+debt, notes payable, and dividends, which was partially offset by an increase in the proceeds from the exercise of stock options. 
+In fiscal 2012, we
+purchased 20.0 million shares of NIKE’s class B common stock for $1.8 billion. These repurchases were made under the four-year, $5 billion program approved by our Board of Directors in September 2008, under which stock repurchase
+activities commenced in December 2009. As of the end of fiscal 2012, we have repurchased 50.3 million shares for $4.1 billion under this program. We continue to expect funding of share repurchases will come from operating cash flow, excess
+cash, and/or debt. The timing and the amount of shares purchased will be dictated by our capital needs and stock market conditions. 
+Capital Resources 
+On November 1, 2011,
+we entered into a committed credit facility agreement with a syndicate of banks which provides for up to $1 billion of borrowings pursuant to a revolving credit facility with the option to increase borrowings to $1.5 billon with lender approval. The
+facility matures in November 2016, with a one-year extension option prior to both the second and third anniversary of the closing date, provided that extensions shall not extend beyond November 1, 2018. This facility replaces the prior $1
+billion committed credit facility agreement that would have expired in December 2012. As of and for the year ended May 31, 2012, we had no amounts outstanding under our new committed revolving credit facility. 
+We currently have long-term debt ratings of A+ and A1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively. If our long-term
+debt rating were to decline, the facility fee and interest rate under our committed revolving credit facility would increase. Conversely, if our long-term debt rating were to improve, the facility fee and interest rate would decrease. Changes in our
+long-term debt rating would not trigger acceleration of maturity of any then-outstanding borrowings or any future borrowings under the committed credit facility. Under this committed revolving credit facility, we have agreed to various covenants.
+These covenants include limits on our disposal of fixed assets, the amount of debt secured by liens we may incur, as well as a minimum capitalization ratio. In the event we were to have any borrowings outstanding under this facility and failed to
+meet any covenant, and were unable to obtain a waiver from a majority of the banks in the syndicate, any borrowings would become immediately due and payable. As of May 31, 2012, we were in full compliance with each of these covenants and
+believe it is unlikely we will fail to meet any of these covenants in the foreseeable future. 
+Liquidity is also provided by our $1 billion commercial
+paper program. As of and for the year ended May 31, 2012, no amounts were outstanding under this program. We may issue commercial paper from time to time during fiscal 2013 depending on general corporate needs. We currently have short-term debt
+ratings of A1 and P1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively. 
+Our previous $760 million shelf
+registration statement with the Securities and Exchange Commission expired during fiscal 2012. No debt securities were issued under that shelf registration prior to its expiry. We may issue debt securities under a new shelf registration in fiscal
+2013 depending on general corporate needs. 
+As of May 31, 2012, we had cash, cash equivalents and short-term investments totaling $3.8 billion, of
+which $2.5 billion was held by our foreign subsidiaries. Cash equivalents and short-term investments consist primarily of deposits held at major banks, money market funds, Tier-1 commercial paper, corporate notes, U.S. Treasury obligations, U.S.
+government sponsored enterprise obligations, and other investment grade fixed income securities. Our fixed income investments are exposed to both credit and interest rate risk. All of our investments are investment grade to minimize our
+credit risk. While individual securities have varying durations, the average duration of our entire cash equivalents and short-term investment portfolio is less than 120 days as of May 31, 2012. 
+Despite recent uncertainties in the financial markets, to date we have not experienced difficulty accessing the credit markets or incurred higher interest costs.
+Future volatility in the capital markets, however, may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets. We believe that existing cash, cash equivalents, short-term
+investments and cash generated by operations, together with access to external sources of funds as described above, will be sufficient to meet our domestic and foreign capital needs in the foreseeable future. 
+We utilize a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where they are needed. We routinely
+repatriate a portion of our foreign earnings for which U.S. taxes have previously been provided. We also indefinitely reinvest a significant portion of our foreign earnings, and our current plans do not demonstrate a need to repatriate these
+earnings. Should we require additional capital in the U.S., we may elect to repatriate indefinitely reinvested foreign funds or raise capital in the U.S. through debt. If we were to repatriate indefinitely reinvested foreign funds, we would be
+required to accrue and pay additional U.S. taxes less applicable foreign tax credits. If we elect to raise capital in the U.S. through debt, we would incur additional interest expense. 
+Off-Balance Sheet Arrangements 
+In connection with various contracts and agreements, we provide
+routine indemnifications relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items where we are acting as the guarantor. Currently, we have several such agreements in place. However, based
+on our historical experience and the estimated probability of future loss, we have determined that the fair value of such indemnifications is not material to our financial position or results of operations. 
+29 
+Table of Contents 
+Contractual Obligations 
+Our significant long-term contractual obligations as of May 31, 2012 and significant endorsement contracts entered into through the date of this report are as follows: 
+Description of Commitment 
+Cash Payments Due During the Year Ending May 31, 
+(In millions) 
+2013 
+2014 
+2015 
+2016 
+2017 
+Thereafter 
+Total 
+Operating Leases 
+$ 
+408 
+$ 
+387 
+$ 
+271 
+$ 
+224 
+$ 
+186 
+$ 
+662 
+$ 
+2,138 
+Long-term Debt 
+49 
+59 
+9 
+109 
+9 
+27 
+262 
+Endorsement Contracts (1) 
+856 
+804 
+686 
+491 
+363 
+628 
+3,828 
+Product Purchase Obligations (2) 
+2,861 
+— 
+— 
+— 
+— 
+— 
+2,861 
+Other (3) 
+320 
+101 
+38 
+31 
+91 
+1 
+582 
+TOTAL 
+$ 
+4,494 
+$ 
+1,351 
+$ 
+1,004 
+$ 
+855 
+$ 
+649 
+$ 
+1,318 
+$ 
+9,671 
+(1) 
+The amounts listed for endorsement contracts represent approximate amounts of base compensation and minimum guaranteed royalty fees we are obligated to pay athlete and sport
+team endorsers of our products. Actual payments under some contracts may be higher than the amounts listed as these contracts provide for bonuses to be paid to the endorsers based upon athletic achievements and/or royalties on product sales in
+future periods. Actual payments under some contracts may also be lower as these contracts include provisions for reduced payments if athletic performance declines in future periods. 
+In addition to the cash payments, we are obligated to furnish our endorsers with NIKE product for their use. It is not possible to determine how much we will spend on this
+product on an annual basis as the contracts generally do not stipulate a specific amount of cash to be spent on the product. The amount of product provided to the endorsers will depend on many factors, including general playing conditions, the
+number of sporting events in which they participate, and our own decisions regarding product and marketing initiatives. In addition, the costs to design, develop, source, and purchase the products furnished to the endorsers are incurred over a
+period of time and are not necessarily tracked separately from similar costs incurred for products sold to customers. 
+(2) 
+We generally order product at least 4 to 5 months in advance of sale based primarily on futures orders received from customers. The amounts listed for product purchase
+obligations represent agreements (including open purchase orders) to purchase products in the ordinary course of business that are enforceable and legally binding and that specify all significant terms. In some cases, prices are subject to change
+throughout the production process. The reported amounts exclude product purchase liabilities included in accounts payable on the consolidated balance sheet as of May 31, 2012. 
+(3) 
+Other amounts primarily include service and marketing commitments made in the ordinary course of business. The amounts represent the minimum payments required by legally
+binding contracts and agreements that specify all significant terms, including open purchase orders for non-product purchases. The reported amounts exclude those liabilities included in accounts payable or accrued liabilities on the consolidated
+balance sheet as of May 31, 2012. 
+The total liability for uncertain tax positions was $285 million, excluding related interest
+and penalties, at May 31, 2012. We are not able to reasonably estimate when or if cash payments of the long-term liability for uncertain tax positions will occur. 
+We also have the following outstanding short-term debt obligations as of May 31, 2012. Please refer to the accompanying Notes to the Consolidated Financial Statements (Note 7 — Short-Term Borrowings and
+Credit Lines) for further description and interest rates related to the short-term debt obligations listed below. 
+(In millions) 
+Outstanding as 
+of May 31, 2012 
+Notes payable, due at mutually agreed-upon dates within one year of issuance or on demand 
+$ 
+108 
+Payable to Sojitz America for the purchase of inventories, generally due 60 days after shipment of
+goods from a foreign port 
+$ 
+75 
+As of May 31, 2012, letters of credit of $138 million were outstanding, which were generally issued for the purchase of
+inventory and as guarantees of the Company’s performance under certain self-insurance and other programs. 
+Recently Adopted Accounting Standards
+In April 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance to achieve common fair value measurement and disclosure requirements between U.S. GAAP and International Financial
+Reporting Standards. This new guidance, which became effective for us beginning March 1, 2012, amends current U.S. GAAP fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment
+categorization. The adoption did not have a material impact on our consolidated financial position or results of operations. 
+In January 2010, the FASB
+issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires additional disclosures about the different classes of assets and liabilities measured at fair value, the
+valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3 of the fair value measurement hierarchy. This guidance became effective for us beginning March 1, 2010, except
+for disclosures relating to purchases, sales, issuances and settlements of Level 3 assets and liabilities, which became effective for us beginning June 1, 2011. As this guidance only requires expanded disclosures, the adoption did not have an
+impact on our consolidated financial position or results of operations. 
+In October 2009, the FASB issued new standards that revised the guidance for
+revenue recognition with multiple deliverables. These new standards impact the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, these new
+standards modify the manner in which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. These new standards became effective
+for us beginning June 1, 2011. The adoption did not have a material impact on our consolidated financial position or results of operations. 
+30 
+Table of Contents 
+Recently Issued Accounting Standards 
+In December 2011, the FASB issued guidance enhancing disclosure requirements surrounding the nature of an entity’s right to offset and related arrangements associated with its financial instruments and
+derivative instruments. This new guidance requires companies to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to master
+netting arrangements. This new guidance is effective for us beginning June 1, 2013. As this guidance only requires expanded disclosures, we do not anticipate the adoption will have an impact on our consolidated financial position or results of
+operations. 
+In September 2011, the FASB issued updated guidance on the periodic testing of goodwill for impairment. This guidance will allow companies
+to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This new guidance is
+effective for us beginning June 1, 2012. We do not expect the adoption will have a material effect on our consolidated financial position or results of operations. 
+In June 2011, the FASB issued guidance on the presentation of comprehensive income. This new guidance eliminates the current option to
+report other comprehensive income and its components in the statement of shareholders’ equity. Companies will now be required to present the components of net income and other comprehensive income in either one continuous statement, referred to
+as the statement of comprehensive income, or in two separate, but consecutive statements. This guidance also required companies to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement
+in which net income is presented and the statement in which other comprehensive income is presented. However, in December 2011, the FASB issued guidance which indefinitely defers the requirement related to the presentation of reclassification
+adjustments. Both issuances on the presentation of comprehensive income are effective for us beginning June 1, 2012. As this guidance only amends the presentation of the components of comprehensive income, we do not anticipate the adoption will
+have an impact on our consolidated financial position or results of operations. 
+Critical Accounting Policies 
+Our previous discussion and analysis of our financial condition and results of operations are
+based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and
+judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. 
+We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial
+statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these
+critical accounting policies affect working capital account balances, including the policies for revenue recognition, the allowance for uncollectible accounts receivable, inventory reserves, and contingent payments under endorsement contracts. These
+policies require that we make estimates in the preparation of our financial statements as of a given date. However, since our business cycle is relatively short, actual results related to these estimates are generally known within the six-month
+period following the financial statement date. Thus, these policies generally affect only the timing of reported amounts across two to three fiscal quarters. 
+Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. 
+Revenue Recognition 
+We record wholesale
+revenues when title passes and the risks and rewards of ownership have passed to the customer, based on the terms of sale. Title passes generally upon shipment or upon receipt by the customer depending on the country of the sale and the agreement
+with the customer. Retail store revenues are recorded at the time of sale. 
+In some instances, we ship product directly from our supplier to the customer
+and recognize revenue when the product is delivered to and accepted by the customer. Our revenues may fluctuate in cases when our customers delay accepting shipment of product for periods of up to several weeks. 
+In certain countries outside of the U.S., precise information regarding the date of receipt by the customer is not readily available. In these cases, we estimate
+the date of receipt by the customer based upon historical delivery times by geographic location. On the basis of our tests of actual transactions, we have no indication that these estimates have been materially inaccurate historically. 
+As part of our revenue recognition policy, we record estimated sales returns, discounts and miscellaneous claims from customers as reductions to revenues at the
+time revenues are recorded. We base our estimates on historical rates of product returns, discounts and claims, specific identification of outstanding claims and outstanding returns not yet received from customers, and estimated returns, discounts
+and claims expected but not yet finalized with our customers. Actual returns, discounts and claims in any future period are inherently uncertain and thus may differ from our estimates. If actual or expected future returns, discounts and claims were
+significantly greater or lower than the reserves we had established, we would record a reduction or increase to net revenues in the period in which we made such determination. 
+Allowance for Uncollectible Accounts Receivable 
+We make ongoing estimates relating to the
+ability to collect our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the allowance, we consider our historical level of credit
+losses and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Since we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts
+may differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger allowance might be required. In the event we determine that a smaller or larger allowance is
+appropriate, we would record a credit or a charge to selling and administrative expense in the period in which such a determination is made. 
+Inventory Reserves 
+We also make ongoing estimates relating to the net realizable value of
+inventories based upon our assumptions about future demand and market conditions. If we estimate that the net realizable value of our inventory is less than the cost of the inventory recorded on our books, we record a reserve equal to the difference
+between the cost of the inventory and the estimated net realizable value. This reserve is recorded as a charge to cost of sales. If changes in market conditions result in reductions in the estimated net realizable value of our inventory below our
+previous estimate, we would increase our reserve in the period in which we made such a determination and record a charge to cost of sales. 
+31 
+Table of Contents 
+Contingent Payments under Endorsement Contracts 
+A significant portion of our demand creation expense relates to payments under endorsement contracts. In general, endorsement payments are expensed uniformly over
+the term of the contract. However, certain contract elements may be accounted for differently, based upon the facts and circumstances of each individual contract. 
+Some of the contracts provide for contingent payments to endorsers based upon specific achievements in their sports (e.g., winning a championship). We record selling and administrative expense for these amounts
+when the endorser achieves the specific goal. 
+Some of the contracts provide for payments based upon endorsers maintaining a level of performance in
+their sport over an extended period of time (e.g., maintaining a top ranking in a sport for a year). These amounts are reported in selling and administrative expense when we determine that it is probable that the specified level of performance will
+be maintained throughout the period. In these instances, to the extent that actual payments to the endorser differ from our estimate due to changes in the endorser’s athletic performance, increased or decreased selling and administrative
+expense may be reported in a future period. 
+Some of the contracts provide for royalty payments to endorsers based upon a predetermined percentage of
+sales of particular products. We expense these payments in cost of sales as the related sales occur. In certain contracts, we offer minimum guaranteed royalty payments. For contractual obligations for which we estimate we will not meet the minimum
+guaranteed amount of royalty fees through sales of product, we record the amount of the guaranteed payment in excess of that earned through sales of product in selling and administrative expense uniformly over the remaining guarantee period.
+Property, Plant and Equipment and Definite-Lived Assets 
+Property, plant and equipment, including buildings, equipment, and computer hardware and software are recorded at cost (including, in some cases, the cost of internal labor) and are depreciated over the estimated
+useful life. Changes in circumstances (such as technological advances or changes to our business operations) can result in differences between the actual and estimated useful lives. In those cases where we determine that the useful life of a
+long-lived asset should be shortened, we increase depreciation expense over the remaining useful life to depreciate the asset’s net book value to its salvage value. 
+We review the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable.
+Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the
+asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group
+exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the
+carrying value of the asset group is not recoverable, we will estimate the fair value of the asset group using appropriate valuation methodologies that would typically include an estimate of discounted cash flows. Any impairment would be measured as
+the difference between the asset group’s carrying amount and its estimated fair value. 
+Goodwill and Indefinite-Lived Intangible
+Assets 
+We perform annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal year, or when
+events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite life below its carrying value. Events or changes in circumstances that may trigger interim
+impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, planned divestitures or an expectation that the carrying amount may not be recoverable, among other factors. The
+impairment test requires us to estimate the fair value of our reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and we proceed to step two of the impairment
+analysis. In step two of the analysis, we measure and record an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value if any. 
+We generally base our measurement of the fair value of a reporting unit on a blended analysis of the present value of future discounted cash flows and the market
+valuation approach. The discounted cash flows model indicates the fair value of the reporting unit based on the present value of the cash flows that we expect the reporting unit to generate in the future. Our significant estimates in the discounted
+cash flows model include: our weighted average cost of capital; long-term rate of growth and profitability of the reporting unit’s business; and working capital effects. The market valuation approach indicates the fair value of the business
+based on a comparison of the reporting unit to comparable publicly traded companies in similar lines of business. Significant estimates in the market valuation approach model include identifying similar companies with comparable business factors
+such as size, growth, profitability, risk and return on investment, and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit. 
+Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks. In measuring the fair value for these intangible assets, we utilize the relief-from-royalty method. This method assumes
+that trade names and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the
+appropriate royalty rate and the weighted average cost of capital. 
+On May 31, 2012, we announced our intention to divest of the Cole Haan and Umbro
+businesses. As of May 31, 2012, Cole Haan had no goodwill or indefinite-lived intangible assets on our balance sheet, while Umbro had $70 million of goodwill and $164 million of trademark and other intangible assets. As of May 31,
+2012, both asset groups for Cole Haan and Umbro did not quality as “assets-held-for-sale” under applicable accounting guidance. The decision to divest these businesses was deemed a triggering event to perform an impairment analysis of
+Umbro’s intangible assets at that date and was considered in our fourth quarter impairment analysis. We are currently in the process of preparing the businesses for divestiture and identifying potential acquirers. Therefore, we believe the
+weighted use of discounted cash flows and the market valuation approach is the best method for determining the fair value of the Umbro reporting unit because these are the most common valuation methodologies used within our industry; and the blended
+use of both models compensates for the inherent risks associated with either model if used on a stand-alone basis. As discussed above, the asset groups for Umbro did not qualify as “assets-held-for-sale”; therefore, we did not consider
+potential disposition costs or cumulative translation adjustments in the carrying value of the Umbro reporting unit in our fiscal 2012 fourth quarter impairment analysis. Because we are still in the preliminary stages of the divestiture process and
+have not yet identified potential acquirers or the likely deal structure, these methods represent our best estimate of the fair value of the Umbro business. Our analysis determined there was no impairment of intangible assets or goodwill related to
+Umbro. If the sales process indicates a fair value that is below the current carrying value of the reporting unit, an analysis would be required to determine if impairment charges exist at that point. 
+32 
+Table of Contents 
+Fair Value Measurements 
+For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market
+participant at the measurement date. In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine the fair values of our financial instruments. This pricing methodology applies to our
+Level 1 investments, including U.S. Treasury securities. 
+In the absence of active markets for identical assets or liabilities, such measurements involve
+developing assumptions based on market observable data, including quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. This pricing
+methodology applies to our Level 2 investments such as commercial paper and bonds, U.S. agency securities and money market funds. Level 3 investments are valued using internally developed models with unobservable inputs. Assets and
+liabilities measured using unobservable inputs are an immaterial portion of our portfolio. 
+A majority of our available-for-sale securities are priced by
+pricing vendors and are generally Level 1 or Level 2 investments, as these vendors either provide a quoted market price in an active market or use observable inputs without applying significant adjustments in their pricing. Observable inputs
+include broker quotes, interest rates and yield curves observable at commonly quoted intervals, volatilities and credit risks. Our fair value processes include controls that are designed to ensure appropriate fair values are recorded. These
+controls include an analysis of period-over-period fluctuations and comparison to another independent pricing vendor. 
+Hedge
+Accounting for Derivatives 
+We use forward and option contracts to hedge certain anticipated foreign currency exchange transactions as well as
+certain non-functional monetary assets and liabilities. When the specific criteria to qualify for hedge accounting has been met, changes in the fair value of contracts hedging probable forecasted future cash flows are recorded in other comprehensive
+income, rather than net income, until the underlying hedged transaction affects net income. In most cases, this results in gains and losses on hedge derivatives being released from other comprehensive income into net income some time after the
+maturity of the derivative. One of the criteria for this accounting treatment is that the forward and option contracts amount should not be in excess of specifically identified anticipated transactions. By their very nature, our estimates of
+anticipated transactions may fluctuate over time and may ultimately vary from actual transactions. When anticipated transaction estimates or actual transaction amounts decline below hedged levels, or if it is no longer probable that a forecasted
+transaction will occur by the end of the originally specified time period or within an additional two-month period of time thereafter, we are required to reclassify the cumulative changes in fair values of the over-hedged portion of the related
+hedge contract from other comprehensive income to other expense (income), net during the quarter in which such changes occur. 
+We use forward contracts
+to hedge our investment in the net assets of certain international subsidiaries to offset foreign currency translation related to our net investment in those subsidiaries. The change in fair value of the forward contracts hedging our net investments
+is reported in the cumulative translation adjustment component of accumulated other comprehensive income within stockholders’ equity, to the extent effective, to offset the foreign currency translation adjustments on those investments. As the
+value of our underlying net investments in wholly-owned international subsidiaries is known at the time a hedge is placed, the designated hedge is matched to the portion of our net investment at risk. Accordingly, the variability involved in net
+investment hedges is substantially less than that of other types of hedge transactions and we do not expect any material ineffectiveness. We consider, on a quarterly basis, the need to redesignate existing hedge relationships based on changes in the
+underlying net investment. Should the level of our net investment decrease below hedged levels, the cumulative change in fair value of the over-hedged portion of the related hedge contract would be reported directly to earnings in the period in
+which changes occur. 
+Stock-based Compensation 
+We account for stock-based compensation by estimating the fair value of stock-based compensation on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires
+the input of highly subjective assumptions including volatility. Expected volatility is estimated based on implied volatility in market traded options on our common stock with a term greater than one year, along with other factors. Our decision to
+use implied volatility was based on the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility. If factors change and we
+use different assumptions for estimating stock-based compensation expense in future periods, stock-based compensation expense may differ materially in the future from that recorded in the current period. 
+Taxes 
+We record valuation allowances
+against our deferred tax assets, when necessary. Realization of deferred tax assets (such as net operating loss carry-forwards) is dependent on future taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our
+deferred tax asset balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance against our net deferred tax asset, which increases our income tax expense in the
+period when such determination is made. 
+In addition, we have not recorded U.S. income tax expense for foreign earnings that we have determined to be
+indefinitely reinvested outside the U.S., thus reducing our overall income tax expense. The amount of earnings designated as indefinitely reinvested offshore is based upon the actual deployment of such earnings in our offshore assets and our
+expectations of the future cash needs of our U.S. and foreign entities. Income tax considerations are also a factor in determining the amount of foreign earnings to be indefinitely reinvested offshore. 
+We carefully review all factors that drive the ultimate disposition of foreign earnings determined to be reinvested offshore and apply stringent standards to
+overcome the presumption of repatriation. Despite this approach, because the determination involves our future plans and expectations of future events, the possibility exists that amounts declared as indefinitely reinvested offshore may ultimately
+be repatriated. For instance, the actual cash needs of our U.S. entities may exceed our current expectations, or the actual cash needs of our foreign entities may be less than our current expectations. This would result in additional income tax
+expense in the year we determined that amounts were no longer indefinitely reinvested offshore. Conversely, our approach may also result in a determination that accumulated foreign earnings (for which U.S. income taxes have been provided) will be
+indefinitely reinvested offshore. In this case, our income tax expense would be reduced in the year of such determination. 
+On an interim basis, we
+estimate what our effective tax rate will be for the full fiscal year. This estimated annual effective tax rate is then applied to the year-to-date pre-tax income excluding infrequently occurring or unusual items, to determine the year-to-date tax
+expense. The income tax effects of infrequent or unusual items are recognized in the interim period in which they occur. As the fiscal year progresses, we continually refine our estimate based upon actual events and earnings by jurisdiction during
+the year. This continual estimation process periodically results in a change to our expected effective tax rate for the fiscal year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs.
+On a quarterly basis, we reevaluate the probability that a tax position will be effectively sustained and the appropriateness of the amount recognized
+for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity. Changes in our assessment may result in the recognition of a tax benefit or an additional
+charge to the tax provision in the period our assessment changes. We recognize interest and penalties related to income tax matters in income tax expense. 
+33 
+Table of Contents 
+Other Contingencies 
+In the ordinary course of business, we are involved in legal proceedings regarding contractual and employment relationships, product liability claims, trademark rights, and a variety of other matters. We record
+contingent liabilities resulting from claims against us, including related legal costs, when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Assessing probability of loss and estimating probable losses requires
+analysis of multiple factors, including in some cases judgments about the potential actions of third-party claimants and courts. Recorded contingent liabilities are based on the best information available and actual losses in any future period are
+inherently uncertain. If future adjustments to estimated probable future losses or actual losses exceed our recorded liability for such claims, we would record additional charges as other expense (income), net during the period in which the actual
+loss or change in estimate occurred. In addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will materially exceed the recorded liability.
+While we cannot predict the outcome of pending legal matters with certainty, we do not believe any currently identified claim, proceeding or litigation, either individually or in aggregate, will have a material impact on our results of operations,
+financial position or cash flows. 
+34 
+Table of Contents 
+ITEM 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+In the normal course of business and consistent with established policies and procedures, we employ a variety of financial instruments to manage exposure to
+fluctuations in the value of foreign currencies and interest rates. It is our policy to utilize these financial instruments only where necessary to finance our business and manage such exposures; we do not enter into these transactions for
+speculative purposes. 
+We are exposed to foreign currency fluctuations, primarily as a result of our international sales, product sourcing and funding
+activities. Our foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our consolidated results of operations, financial position and cash flows. We use forward exchange
+contracts and options to hedge certain anticipated but not yet firmly committed transactions as well as certain firm commitments and the related receivables and payables, including third-party and intercompany transactions. We also use forward
+contracts to hedge our investment in the net assets of certain international subsidiaries to offset foreign currency translation adjustments related to our net investment in those subsidiaries. Where hedged, our program has the effect of delaying
+the impact of current market rates on our consolidated financial statements dependent upon hedge horizons. 
+When we begin hedging exposures, the type and
+duration of each hedge depends on the nature of the exposure and market conditions. Generally, all anticipated and firmly committed transactions that are hedged are to be recognized within 12 to 18 months. The majority of the contracts expiring in
+more than 12 months relate to the anticipated purchase of inventory. When intercompany loans are hedged, it is typically for their expected duration. Hedged transactions are principally denominated in Euros, British Pounds and Japanese Yen. See
+section “Foreign Currency Exposures and Hedging Practices” under Item 7 for additional detail. 
+Our earnings are also exposed to movements
+in short and long-term market interest rates. Our objective in managing this interest rate exposure is to limit the impact of interest rate changes on earnings and cash flows and to reduce overall borrowing costs. To achieve these objectives, we
+maintain a mix of commercial paper, bank loans and fixed rate debt of varying maturities and have entered into receive-fixed, pay-variable interest rate swaps. 
+Market Risk Measurement 
+We monitor foreign exchange risk, interest rate risk and related derivatives using a variety of
+techniques including a review of market value, sensitivity analysis, and Value-at-Risk (“VaR”). Our market-sensitive derivative and other financial instruments are foreign currency forward contracts, foreign currency option contracts,
+interest rate swaps, intercompany loans denominated in non-functional currencies, fixed interest rate U.S. Dollar denominated debt, and fixed interest rate Japanese Yen denominated debt. 
+We use VaR to monitor the foreign exchange risk of our foreign currency forward and foreign currency option derivative instruments only. The VaR determines the maximum potential one-day loss in the fair value of
+these foreign exchange rate-sensitive financial instruments. The VaR model estimates assume normal market conditions and a 95% confidence level. There are various modeling techniques that can be used in the VaR computation. Our computations are
+based on interrelationships between currencies and interest rates (a “variance/co-variance” technique). These interrelationships are a function of foreign exchange currency market changes and interest rate changes over the preceding
+one year period. The value of foreign currency options does not change on a one-to-one basis with changes in the underlying currency rate. We adjust the potential loss in option value for the estimated sensitivity (the “delta” and
+“gamma”) to changes in the underlying currency rate. This calculation reflects the impact of foreign currency rate fluctuations on the derivative instruments only and does not include the impact of such rate fluctuations on non-functional
+currency transactions (such as anticipated transactions, firm commitments, cash balances, and accounts and loans receivable and payable), including those which are hedged by these instruments. 
+The VaR model is a risk analysis tool and does not purport to represent actual losses in fair value that we will incur, nor does it consider the potential effect of favorable changes in market rates. It also does
+not represent the full extent of the possible loss that may occur. Actual future gains and losses will differ from those estimated because of changes or differences in market rates and interrelationships, hedging instruments and hedge percentages,
+timing and other factors. 
+The estimated maximum one-day loss in fair value on our foreign currency sensitive derivative financial instruments, derived
+using the VaR model, was $21 million and $33 million at May 31, 2012 and 2011, respectively. The VaR decreased year-over-year primarily as a result of decreased foreign currency volatilities at May 31, 2012. Such a hypothetical loss in
+fair value of our derivatives would be offset by increases in the value of the underlying transactions being hedged. The average monthly change in the fair values of foreign currency forward and foreign currency option derivative instruments was $87
+million and $79 million during fiscal 2012 and fiscal 2011, respectively. 
+The instruments not included in the VaR are intercompany loans denominated in
+non-functional currencies, fixed interest rate Japanese Yen denominated debt, fixed interest rate U.S. Dollar denominated debt and interest rate swaps. Intercompany loans and related interest amounts are eliminated in consolidation.
+Furthermore, our non-functional currency intercompany loans are substantially hedged against foreign exchange risk through the use of forward contracts, which are included in the VaR calculation above. Therefore, we consider the interest rate and
+foreign currency market risks associated with our non-functional currency intercompany loans to be immaterial to our consolidated financial position, results from operations and cash flows. 
+Details of third-party debt and interest rate swaps are provided in the table below. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. Weighted average
+interest rates for the fixed rate swapped to floating rate debt reflect the effective interest rates as of May 31, 2012. 
+35 
+Table of Contents 
+Expected Maturity Date 
+Year Ending May 31, 
+(Dollars in millions) 
+2013 
+2014 
+2015 
+2016 
+2017 
+Thereafter 
+Total 
+Fair Value 
+Foreign Exchange Risk 
+Japanese Yen Functional Currency 
+Japanese Yen debt — Fixed rate 
+Principal payments 
+$ 
+9 
+$ 
+9 
+$ 
+9 
+$ 
+9 
+$ 
+9 
+$ 
+27 
+$ 
+72 
+$ 
+76 
+Average interest rate 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+Interest Rate Risk 
+Japanese Yen Functional Currency 
+Long-term Japanese Yen debt — Fixed rate 
+Principal payments 
+$ 
+9 
+$ 
+9 
+$ 
+9 
+$ 
+9 
+$ 
+9 
+$ 
+27 
+$ 
+72 
+$ 
+76 
+Average interest rate 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+U.S. Dollar Functional Currency 
+Long-term U.S. Dollar debt — Fixed rate swapped to Floating rate 
+Principal payments 
+$ 
+40 
+$ 
+— 
+$ 
+— 
+$ 
+100 
+$ 
+— 
+$ 
+— 
+$ 
+140 
+$ 
+154 
+Average interest rate 
+0.8 
+% 
+0.0 
+% 
+0.0 
+% 
+0.7 
+% 
+0.0 
+% 
+0.0 
+% 
+0.7 
+% 
+Long-term U.S. Dollar debt — Fixed rate 
+Principal payments 
+$ 
+— 
+$ 
+50 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+50 
+$ 
+53 
+Average interest rate 
+0.0 
+% 
+4.7 
+% 
+0.0 
+% 
+0.0 
+% 
+0.0 
+% 
+0.0 
+% 
+4.7 
+% 
+The fixed interest rate Japanese Yen denominated debt instruments were issued by and are accounted for by one of our Japanese
+subsidiaries. Accordingly, the monthly translation of these instruments, which varies due to changes in foreign exchange rates, is recognized in accumulated other comprehensive income upon the consolidation of this subsidiary. 
+ITEM 8. 
+Financial Statements and Supplemental Data 
+Management of NIKE, Inc. is responsible for the information and representations contained in this report. The financial statements have been prepared in conformity
+with the generally accepted accounting principles we considered appropriate in the circumstances and include some amounts based on our best estimates and judgments. Other financial information in this report is consistent with these financial
+statements. 
+Our accounting systems include controls designed to reasonably assure assets are safeguarded from unauthorized use or disposition and
+provide for the preparation of financial statements in conformity with generally accepted accounting principles. These systems are supplemented by the selection and training of qualified financial personnel and an organizational structure providing
+for appropriate segregation of duties. 
+An Internal Audit department reviews the results of its work with the Audit Committee of the Board of Directors,
+presently consisting of three outside directors. The Audit Committee is responsible for the appointment of the independent registered public accounting firm and reviews with the independent registered public accounting firm, management and the
+internal audit staff, the scope and the results of the annual examination, the effectiveness of the accounting control system and other matters relating to the financial affairs of NIKE as the Audit Committee deems appropriate. The independent
+registered public accounting firm and the internal auditors have full access to the Committee, with and without the presence of management, to discuss any appropriate matters. 
+36 
+Table of Contents 
+Management’s Annual Report on Internal Control Over Financial Reporting 
+Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Securities Exchange Act of 1934, as
+amended. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with
+generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately
+and fairly reflect the transactions and dispositions of assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
+accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of
+unauthorized acquisition, use or disposition of assets of the Company that could have a material effect on the financial statements. 
+While
+“reasonable assurance” is a high level of assurance, it does not mean absolute assurance. Because of its inherent limitations, internal control over financial reporting may not prevent or detect every misstatement and instance of fraud.
+Controls are susceptible to manipulation, especially in instances of fraud caused by the collusion of two or more people, including our senior management. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
+that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the
+effectiveness of our internal control over financial reporting based upon the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the
+results of our evaluation, our management concluded that our internal control over financial reporting was effective as of May 31, 2012. 
+PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited (1) the consolidated financial statements and (2) the
+effectiveness of our internal control over financial reporting as of May 31, 2012, as stated in their report herein. 
+Mark G. Parker 
+Donald W. Blair 
+President and Chief Executive Officer 
+Chief Financial Officer 
+37 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm 
+To the Board of Directors and Shareholders of NIKE, Inc.: 
+In our opinion, the consolidated financial statements
+listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of NIKE, Inc. and its subsidiaries at May 31, 2012 and 2011, and the results of their operations and their cash flows for
+each of the three years in the period ended May 31, 2012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the appendix appearing
+under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects,
+effective internal control over financial reporting as of May 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
+The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
+financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on these financial statements, on the financial statement schedule,
+and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
+that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our
+audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
+evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
+testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
+provide a reasonable basis for our opinions. 
+A company’s internal control over financial reporting is a process designed to provide reasonable
+assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting
+includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
+assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
+authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
+effect on the financial statements. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect
+misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
+deteriorate. 
+/ S / P RICEWATERHOUSE C OOPERS LLP 
+Portland, Oregon 
+July 24, 2012 
+38 
+Table of Contents 
+Consolidated Statements Of Income 
+Year Ended May 31, 
+(In millions, except per share data) 
+2012 
+2011 
+2010 
+Revenues 
+$ 
+24,128 
+$ 
+20,862 
+$ 
+19,014 
+Cost of sales 
+13,657 
+11,354 
+10,214 
+Gross profit 
+10,471 
+9,508 
+8,800 
+Demand creation expense 
+2,711 
+2,448 
+2,356 
+Operating overhead expense 
+4,720 
+4,245 
+3,970 
+Total selling and administrative expense 
+7,431 
+6,693 
+6,326 
+Interest expense, net (Notes 6, 7 and 8) 
+3 
+4 
+6 
+Other expense (income), net (Note 16) 
+54 
+(33 
+) 
+(49 
+) 
+Income before income taxes 
+2,983 
+2,844 
+2,517 
+Income tax expense (Note 9) 
+760 
+711 
+610 
+Net income 
+$ 
+2,223 
+$ 
+2,133 
+$ 
+1,907 
+Basic earnings per common share (Notes 1 and 12) 
+$ 
+4.83 
+$ 
+4.48 
+$ 
+3.93 
+Diluted earnings per common share (Notes 1 and 12) 
+$ 
+4.73 
+$ 
+4.39 
+$ 
+3.86 
+Dividends declared per common share 
+$ 
+1.39 
+$ 
+1.20 
+$ 
+1.06 
+The accompanying notes to consolidated financial statements are an integral part of this statement. 
+39 
+Table of Contents 
+Consolidated Balance Sheets 
+May 31, 
+(In millions) 
+2012 
+2011 
+ASSETS 
+Current assets: 
+Cash and equivalents 
+$ 
+2,317 
+$ 
+1,955 
+Short-term investments (Note 6) 
+1,440 
+2,583 
+Accounts receivable, net (Note 1) 
+3,280 
+3,138 
+Inventories (Notes 1 and 2) 
+3,350 
+2,715 
+Deferred income taxes (Note 9) 
+274 
+312 
+Prepaid expenses and other current assets (Notes 6 and 16) 
+870 
+594 
+Total current assets 
+11,531 
+11,297 
+Property, plant and equipment, net (Note 3) 
+2,279 
+2,115 
+Identifiable intangible assets, net (Note 4) 
+535 
+487 
+Goodwill (Note 4) 
+201 
+205 
+Deferred income taxes and other assets (Notes 6, 9 and 16) 
+919 
+894 
+TOTAL ASSETS 
+$ 
+15,465 
+$ 
+14,998 
+LIABILITIES AND SHAREHOLDERS’ EQUITY 
+Current liabilities: 
+Current portion of long-term debt (Note 8) 
+$ 
+49 
+$ 
+200 
+Notes payable (Note 7) 
+108 
+187 
+Accounts payable (Note 7) 
+1,588 
+1,469 
+Accrued liabilities (Notes 5, 6 and 16) 
+2,053 
+1,985 
+Income taxes payable (Note 9) 
+67 
+117 
+Total current liabilities 
+3,865 
+3,958 
+Long-term debt (Note 8) 
+228 
+276 
+Deferred income taxes and other liabilities (Notes 6, 9 and 16) 
+991 
+921 
+Commitments and contingencies (Note 15) 
+— 
+— 
+Redeemable Preferred Stock (Note 10) 
+— 
+— 
+Shareholders’ equity: 
+Common stock at stated value (Note 11): 
+Class A convertible — 90 and 90 shares outstanding 
+— 
+— 
+Class B — 368 and 378 shares outstanding 
+3 
+3 
+Capital in excess of stated value 
+4,641 
+3,944 
+Accumulated other comprehensive income (Note 14) 
+149 
+95 
+Retained earnings 
+5,588 
+5,801 
+Total shareholders’ equity 
+10,381 
+9,843 
+TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 
+$ 
+15,465 
+$ 
+14,998 
+The accompanying notes to consolidated financial statements are an integral part of this statement. 
+40 
+Table of Contents 
+Consolidated Statements of Cash Flows 
+Year Ended May 31, 
+(In millions) 
+2012 
+2011 
+2010 
+Cash provided by operations: 
+Net income 
+$ 
+2,223 
+$ 
+2,133 
+$ 
+1,907 
+Income charges (credits) not affecting cash: 
+Depreciation 
+373 
+335 
+324 
+Deferred income taxes 
+(60 
+) 
+(76 
+) 
+8 
+Stock-based compensation (Note 11) 
+130 
+105 
+159 
+Amortization and other 
+32 
+23 
+72 
+Changes in certain working capital components and other assets and liabilities: 
+(Increase) decrease in accounts receivable 
+(323 
+) 
+(273 
+) 
+182 
+(Increase) decrease in inventories 
+(805 
+) 
+(551 
+) 
+285 
+(Increase) decrease in prepaid expenses and other current assets 
+(141 
+) 
+(35 
+) 
+(70 
+) 
+Increase (decrease) in accounts payable, accrued liabilities and income taxes payable 
+470 
+151 
+297 
+Cash provided by operations 
+1,899 
+1,812 
+3,164 
+Cash provided (used) by investing activities: 
+Purchases of short-term investments 
+(2,705 
+) 
+(7,616 
+) 
+(3,724 
+) 
+Maturities of short-term investments 
+2,585 
+4,313 
+2,334 
+Sales of short-term investments 
+1,244 
+2,766 
+453 
+Additions to property, plant and equipment 
+(597 
+) 
+(432 
+) 
+(335 
+) 
+Disposals of property, plant and equipment 
+2 
+1 
+10 
+Increase in other assets, net of other liabilities 
+(37 
+) 
+(30 
+) 
+(11 
+) 
+Settlement of net investment hedges 
+22 
+(23 
+) 
+5 
+Cash provided (used) by investing activities 
+514 
+(1,021 
+) 
+(1,268 
+) 
+Cash used by financing activities: 
+Reductions in long-term debt, including current portion 
+(203 
+) 
+(8 
+) 
+(32 
+) 
+(Decrease) increase in notes payable 
+(65 
+) 
+41 
+(205 
+) 
+Proceeds from exercise of stock options and other stock issuances 
+468 
+345 
+364 
+Excess tax benefits from share-based payment arrangements 
+115 
+64 
+58 
+Repurchase of common stock 
+(1,814 
+) 
+(1,859 
+) 
+(741 
+) 
+Dividends — common and preferred 
+(619 
+) 
+(555 
+) 
+(505 
+) 
+Cash used by financing activities 
+(2,118 
+) 
+(1,972 
+) 
+(1,061 
+) 
+Effect of exchange rate changes 
+67 
+57 
+(47 
+) 
+Net increase (decrease) in cash and equivalents 
+362 
+(1,124 
+) 
+788 
+Cash and equivalents, beginning of year 
+1,955 
+3,079 
+2,291 
+CASH AND EQUIVALENTS, END OF YEAR 
+$ 
+2,317 
+$ 
+1,955 
+$ 
+3,079 
+Supplemental disclosure of cash flow information: 
+Cash paid during the year for: 
+Interest, net of capitalized interest 
+$ 
+29 
+$ 
+32 
+$ 
+48 
+Income taxes 
+638 
+736 
+537 
+Dividends declared and not paid 
+165 
+145 
+131 
+The accompanying notes to consolidated financial statements are an integral part of this statement. 
+41 
+Table of Contents 
+Consolidated Statements of Shareholders’ Equity 
+Common Stock 
+Capital in 
+Excess 
+of Stated 
+Value 
+Accumulated 
+Other 
+Comprehensive 
+Income 
+Retained 
+Earnings 
+Total 
+Class A 
+Class B 
+(In millions, except per share data) 
+Shares 
+Amount 
+Shares 
+Amount 
+BALANCE AT MAY 31, 2009 
+95 
+$ 
+— 
+390 
+$ 
+3 
+$ 
+2,871 
+$ 
+368 
+$ 
+5,451 
+$ 
+8,693 
+Stock options exercised 
+9 
+380 
+380 
+Conversion to Class B 
+Common Stock 
+(5 
+) 
+5 
+— 
+Repurchase of Class B 
+Common Stock 
+(11 
+) 
+(7 
+) 
+(747 
+) 
+(754 
+) 
+Dividends on Common stock 
+($1.06 per share) 
+(515 
+) 
+(515 
+) 
+Issuance of shares to employees 
+1 
+40 
+40 
+Stock-based compensation (Note 11) 
+159 
+159 
+Forfeiture of shares from employees 
+— 
+(2 
+) 
+(1 
+) 
+(3 
+) 
+Comprehensive income: 
+Net income 
+1,907 
+1,907 
+Other comprehensive income 
+(Notes 14 and 16): 
+Foreign currency translation and 
+other (net of tax benefit of $72) 
+(159 
+) 
+(159 
+) 
+Net gain on cash flow hedges (net of tax expense of $28) 
+87 
+87 
+Net gain on net investment hedges 
+(net of tax expense of $21) 
+45 
+45 
+Reclassification to net income of previously 
+deferred net gains related to hedge derivatives (net of tax 
+expense of $42) 
+(122 
+) 
+(122 
+) 
+Reclassification of ineffective hedge 
+gains to net income (net of tax expense of $1) 
+(4 
+) 
+(4 
+) 
+Total comprehensive income 
+(153 
+) 
+1,907 
+1,754 
+BALANCE AT MAY 31, 2010 
+90 
+$ 
+— 
+394 
+$ 
+3 
+$ 
+3,441 
+$ 
+215 
+$ 
+6,095 
+$ 
+9,754 
+Stock options exercised 
+7 
+368 
+368 
+Repurchase of Class B Common Stock 
+(24 
+) 
+(14 
+) 
+(1,857 
+) 
+(1,871 
+) 
+Dividends on Common stock ($1.20 per share) 
+(569 
+) 
+(569 
+) 
+Issuance of shares to employees 
+1 
+49 
+49 
+Stock-based compensation (Note 11) 
+105 
+105 
+Forfeiture of shares from employees 
+— 
+(5 
+) 
+(1 
+) 
+(6 
+) 
+Comprehensive income: 
+Net income 
+2,133 
+2,133 
+Other comprehensive income (Notes 14 and 16): 
+Foreign currency translation and 
+other (net of tax expense of $121) 
+263 
+263 
+Net loss on cash flow hedges (net of 
+tax benefit of $66) 
+(242 
+) 
+(242 
+) 
+Net loss on net investment hedges 
+(net of tax benefit of $28) 
+(57 
+) 
+(57 
+) 
+Reclassification to net income of previously 
+deferred net gains related to hedge derivatives (net of tax 
+expense of $24) 
+(84 
+) 
+(84 
+) 
+Total comprehensive income 
+(120 
+) 
+2,133 
+2,013 
+42 
+Table of Contents 
+Common Stock 
+Capital in 
+Excess 
+of Stated 
+Value 
+Accumulated 
+Other 
+Comprehensive 
+Income 
+Retained 
+Earnings 
+Total 
+Class A 
+Class B 
+(In millions, except per share data) 
+Shares 
+Amount 
+Shares 
+Amount 
+BALANCE AT MAY 31, 2011 
+90 
+$ 
+— 
+378 
+$ 
+3 
+$ 
+3,944 
+$ 
+95 
+$ 
+5,801 
+$ 
+9,843 
+Stock options exercised 
+9 
+528 
+528 
+Repurchase of Class B Common Stock 
+(20 
+) 
+(12 
+) 
+(1,793 
+) 
+(1,805 
+) 
+Dividends on Common stock ($1.39 per share) 
+(639 
+) 
+(639 
+) 
+Issuance of shares to employees 
+1 
+57 
+57 
+Stock-based compensation (Note 11) 
+130 
+130 
+Forfeiture of shares from employees 
+— 
+(6 
+) 
+(4 
+) 
+(10 
+) 
+Comprehensive income: 
+Net income 
+2,223 
+2,223 
+Other comprehensive income (Notes 14 and 16): 
+Foreign currency translation and other (net of $0 tax) 
+(295 
+) 
+(295 
+) 
+Net gain on cash flow hedges (net of tax expense of $8) 
+255 
+255 
+Net gain on net investment hedges (net of $0 tax) 
+45 
+45 
+Reclassification to net income of previously deferred net losses related to hedge derivatives (net of tax benefit of
+$14) 
+49 
+49 
+Total comprehensive income 
+54 
+2,223 
+2,277 
+Balance at May 31, 2012 
+90 
+$ 
+— 
+368 
+$ 
+3 
+$ 
+4,641 
+$ 
+149 
+$ 
+5,588 
+$ 
+10,381 
+The accompanying notes to consolidated financial statements are an integral part of this statement. 
+43 
+Table of Contents 
+Notes to Consolidated Financial Statements 
+Note 1 
+Summary of Significant Accounting Policies 
+45 
+Note 2 
+Inventories 
+48 
+Note 3 
+Property, Plant and Equipment 
+49 
+Note 4 
+Identifiable Intangible Assets and Goodwill 
+49 
+Note 5 
+Accrued Liabilities 
+50 
+Note 6 
+Fair Value Measurements 
+50 
+Note 7 
+Short-Term Borrowings and Credit Lines 
+52 
+Note 8 
+Long-Term Debt 
+52 
+Note 9 
+Income Taxes 
+53 
+Note 10 
+Redeemable Preferred Stock 
+55 
+Note 11 
+Common Stock and Stock-Based Compensation 
+55 
+Note 12 
+Earnings Per Share 
+57 
+Note 13 
+Benefit Plans 
+57 
+Note 14 
+Accumulated Other Comprehensive Income 
+57 
+Note 15 
+Commitments and Contingencies 
+57 
+Note 16 
+Risk Management and Derivatives 
+58 
+Note 17 
+Operating Segments and Related Information 
+60 
+44 
+Table of Contents 
+NOTE 1 — Summary of Significant Accounting Policies 
+Description of Business 
+NIKE, Inc. is a worldwide leader in the design, marketing and
+distribution of athletic and sports-inspired footwear, apparel, equipment, accessories and services. Wholly-owned NIKE subsidiaries include Cole Haan, which designs, markets and distributes dress and casual shoes, handbags, accessories and coats;
+Converse Inc., which designs, markets and distributes athletic and casual footwear, apparel and accessories; Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories; and
+Umbro International Limited, which designs, distributes and licenses athletic and casual footwear, apparel and equipment, primarily for the sport of football (soccer). 
+Basis of Consolidation 
+The consolidated financial statements include the accounts of NIKE,
+Inc. and its subsidiaries (the “Company”). All significant intercompany transactions and balances have been eliminated. 
+Recognition of Revenues 
+Wholesale revenues
+are recognized when title and the risks and rewards of ownership have passed to the customer, based on the terms of sale. This occurs upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the
+customer. Retail store revenues are recorded at the time of sale. Provisions for sales discounts, returns and miscellaneous claims from customers are recorded as a reduction to revenue at the time of sale. As of May 31, 2012 and 2011, the
+Company’s reserve balances for sales discounts, returns and miscellaneous claims were $480 million and $423 million, respectively. 
+Shipping and Handling Costs 
+Shipping and
+handling costs are expensed as incurred and included in cost of sales. 
+Demand Creation Expense 
+Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, television, digital and print advertising, brand
+events, and retail brand presentation. Advertising production costs are expensed the first time an advertisement is run. Advertising placement costs are expensed in the month the advertising appears, while costs related to brand events are expensed
+when the event occurs. Costs related to retail brand presentation are expensed when the presentation is completed and delivered. 
+A significant amount of
+the Company’s promotional expenses result from payments under endorsement contracts. Accounting for endorsement payments is based upon specific contract provisions. Generally, endorsement payments are expensed on a straight-line basis over the
+term of the contract after giving recognition to periodic performance compliance provisions of the contracts. Prepayments made under contracts are included in prepaid expenses or other assets depending on the period to which the prepayment applies.
+Some of the contracts provide for contingent payments to endorsers based upon specific achievements in their sports (e.g., winning a championship). The
+Company records selling and administrative expense for these amounts when the endorser achieves the specific goal. 
+Some of the contracts provide for
+payments based upon endorsers maintaining a level of performance in their sport over an extended period of time (e.g., maintaining a top ranking in a sport for a year). These amounts are recorded in selling and administrative expense when the
+Company determines that it is probable that the specified level of performance will be maintained throughout the period. In these instances, to the extent that actual payments to the endorser differ from our estimate due to changes in the
+endorser’s athletic performance, increased or decreased selling and administrative expense may be recorded in a future period. 
+Some of the
+contracts provide for royalty payments to endorsers based upon a predetermined percentage of sales of particular products. The Company expenses these payments in cost of sales as the related sales occur. In certain contracts, the Company offers
+minimum guaranteed royalty payments. For contractual obligations for which the Company estimates it will not meet the minimum guaranteed amount of royalty fees through sales of product, the Company records the amount of the guaranteed payment in
+excess of that earned through sales of product in selling and administrative expense uniformly over the remaining guarantee period. 
+Through cooperative
+advertising programs, the Company reimburses retail customers for certain costs of advertising the Company’s products. The Company records these costs in selling and administrative expense at the point in time when it is obligated to its
+customers for the costs, which is when the related revenues are recognized. This obligation may arise prior to the related advertisement being run. 
+Total advertising and promotion expenses were $2,711 million, $2,448 million, and $2,356 million for the years ended May 31, 2012, 2011 and 2010, respectively.
+Prepaid advertising and promotion expenses recorded in prepaid expenses and other assets totaled $309 million and $291 million at May 31, 2012 and 2011, respectively. 
+Cash and Equivalents 
+Cash and equivalents represent cash and short-term, highly liquid
+investments with maturities of three months or less at date of purchase. The carrying amounts reflected in the consolidated balance sheets for cash and equivalents approximate fair value. 
+Short-Term Investments 
+Short-term investments consist of highly liquid investments, including
+commercial paper, U.S. treasury, U.S. agency, and corporate debt securities, with maturities over three months from the date of purchase. Debt securities that the Company has the ability and positive intent to hold to maturity are carried at
+amortized cost. At May 31, 2012 and 2011, the Company did not hold any short-term investments that were classified as trading or held-to-maturity. 
+At May 31, 2012 and 2011, short-term investments consisted of available-for-sale securities. Available-for-sale securities are recorded at fair value with
+unrealized gains and losses reported, net of tax, in other comprehensive income, unless unrealized losses are determined to be other than temporary. Realized gains and losses on the sale of securities are determined by specific identification. The
+Company considers all available-for-sale securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs and therefore classifies all securities with maturity dates beyond three months at
+the date of purchase as current assets within short-term investments on the consolidated balance sheets. 
+See Note 6 — Fair Value Measurements for
+more information on the Company’s short-term investments. 
+Allowance for Uncollectible Accounts Receivable 
+Accounts receivable consists primarily of amounts receivable from customers. We make ongoing estimates relating to the collectability of our
+45 
+Table of Contents 
+accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the allowance, we consider
+our historical level of credit losses and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Accounts receivable with anticipated collection dates greater than 12 months from the balance sheet
+date and related allowances are considered non-current and recorded in other assets. The allowance for uncollectible accounts receivable was $95 million and $124 million at May 31, 2012 and 2011, respectively, of which $45 million and $50
+million, respectively, was classified as long-term and recorded in other assets. 
+Inventory Valuation 
+Inventories are stated at lower of cost or market and valued on an average cost basis. 
+Property, Plant and Equipment and Depreciation 
+Property, plant and equipment are recorded at
+cost. Depreciation for financial reporting purposes is determined on a straight-line basis for buildings and leasehold improvements over 2 to 40 years and for machinery and equipment over 2 to 15 years. 
+Depreciation and amortization of assets used in manufacturing, warehousing and product distribution are recorded in cost of sales. Depreciation and amortization of
+other assets are recorded in selling and administrative expense. 
+Software Development Costs 
+Internal Use Software . Expenditures for major software purchases and software developed for internal use are capitalized and amortized over a 2 to 10 year
+period on a straight-line basis. The Company’s policy provides for the capitalization of external direct costs of materials and services associated with developing or obtaining internal use computer software. In addition, the Company also
+capitalizes certain payroll and payroll-related costs for employees who are directly associated with internal use computer software projects. The amount of capitalizable payroll costs with respect to these employees is limited to the time directly
+spent on such projects. Costs associated with preliminary project stage activities, training, maintenance and all other post-implementation stage activities are expensed as incurred. 
+Computer Software to be Sold, Leased or Otherwise Marketed . Development costs of computer software to be sold, leased, or otherwise marketed as an integral part of a product are subject to capitalization
+beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility
+has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed as incurred. 
+Impairment of Long-Lived Assets 
+The Company
+reviews the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an
+impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in
+the observable market value of an asset, among others. If such facts indicate a potential impairment, the Company would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the
+projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the
+asset group is not recoverable, the Company will estimate the fair value of the asset group using appropriate valuation methodologies, which would typically include an estimate of discounted cash flows. Any impairment would be measured as the
+difference between the asset group’s carrying amount and its estimated fair value. 
+Identifiable Intangible Assets and Goodwill
+The Company performs annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal year, or
+when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite life below its carrying value. Events or changes in circumstances that may trigger
+interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, planned divestitures or an expectation that the carrying amount may not be recoverable, among other factors.
+The impairment test requires the Company to estimate the fair value of its reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and the Company proceeds to
+step two of the impairment analysis. In step two of the analysis, the Company measures and records an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value if any. 
+The Company generally bases its measurement of the fair value of a reporting unit on a blended analysis of the present value of future discounted cash flows and the
+market valuation approach. The discounted cash flows model indicates the fair value of the reporting unit based on the present value of the cash flows that the Company expects the reporting unit to generate in the future. The Company’s
+significant estimates in the discounted cash flows model include: its weighted average cost of capital; long-term rate of growth and profitability of the reporting unit’s business; and working capital effects. The market valuation approach
+indicates the fair value of the business based on a comparison of the reporting unit to comparable publicly traded companies in similar lines of business. Significant estimates in the market valuation approach model include identifying similar
+companies with comparable business factors such as size, growth, profitability, risk and return on investment, and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit. 
+Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks. In measuring the fair value for these intangible assets, the Company
+utilizes the relief-from-royalty method. This method assumes that trade names and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires the
+Company to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. 
+On May 31,
+2012, the Company announced its intention to divest of the Cole Haan and Umbro businesses. As of May 31, 2012, Cole Haan had no goodwill or indefinite-lived intangible assets on the Company’s balance sheet, while Umbro had $70 million of
+goodwill and $164 million of trademark and other intangible assets. As of May 31, 2012, both asset groups for Cole Haan and Umbro did not quality as “assets-held-for-sale” under applicable accounting guidance. The decision to divest
+these businesses was deemed a triggering event to perform an impairment analysis of Umbro’s intangible assets at that date and was considered in the Company’s fourth quarter impairment analysis. The Company is currently in the process of
+preparing the businesses for divestiture and identifying potential acquirers. Therefore, the Company believes the weighted use of discounted cash flows and the market valuation approach is the best method for determining the fair value of the Umbro
+reporting unit because these are the most common valuation methodologies used within its industry; and the blended use of both models compensates for the inherent risks associated with either model if used on a stand-alone basis. As discussed above,
+the asset groups for Umbro did not qualify as “assets-held-for-sale”; therefore, the Company did not consider potential disposition costs or cumulative translation adjustments in the carrying value of the Umbro reporting unit in its fiscal
+2012 fourth quarter impairment analysis. Because the Company is still in the preliminary stages of 
+46 
+Table of Contents 
+the divestiture process and has not yet identified potential acquirers or the likely deal structure, these methods represent management’s best estimate of the fair value of the Umbro
+business. The Company’s analysis determined there was no impairment of intangible assets or goodwill related to Umbro. If the sales process indicates a fair value that is below the current carrying value of the reporting unit, an analysis would
+be required to determine if impairment charges exist at that point. 
+Operating Leases 
+The Company leases retail store space, certain distribution and warehouse facilities and office space under operating leases. Operating lease agreements may contain
+rent escalation clauses, rent holidays or certain landlord incentives, including tenant improvement allowances. Rent expense for non-cancelable operating leases with scheduled rent increases or landlord incentives are recognized on a straight-line
+basis over the lease term, beginning with the effective lease commencement date, which is generally the date in which the Company takes possession of or controls the physical use of the property. Certain leases also provide for contingent rents,
+which are determined as a percentage of sales in excess of specified levels. A contingent rent liability is recognized together with the corresponding rent expense when specified levels have been achieved or when the Company determines that
+achieving the specified levels during the period is probable. 
+Fair Value Measurements 
+The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives and available-for-sale securities. Fair
+value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. The Company uses a three-level hierarchy established by the FASB that
+prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). 
+The levels of hierarchy are described below: 
+• 
+Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. 
+• 
+Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for
+similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. 
+• 
+Level 3: Unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.
+The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires
+judgment and considers factors specific to the asset or liability. Financial assets and liabilities are classified in their entirety based on the most conservative level of input that is significant to the fair value measurement. 
+Pricing vendors are utilized for certain Level 1 or Level 2 investments. These vendors either provide a quoted market price in an active market or use observable
+inputs without applying significant adjustments in their pricing. Observable inputs include broker quotes, interest rates and yield curves observable at commonly quoted intervals, volatilities and credit risks. The Company’s fair value
+processes include controls that are designed to ensure appropriate fair values are recorded. These controls include an analysis of period-over-period fluctuations and comparison to another independent pricing vendor. 
+Refer to Note 6 — Fair Value Measurements for additional information. 
+Foreign Currency Translation and Foreign Currency Transactions 
+Adjustments resulting from
+translating foreign functional currency financial statements into U.S. Dollars are included in the foreign currency translation adjustment, a component of accumulated other comprehensive income in shareholders’ equity. 
+The Company’s global subsidiaries have various assets and liabilities, primarily receivables and payables, which are denominated in currencies other than their
+functional currency. These balance sheet items are subject to remeasurement, the impact of which is recorded in other expense (income), net, within the consolidated statements of income. 
+Accounting for Derivatives and Hedging Activities 
+The Company uses derivative financial
+instruments to limit exposure to changes in foreign currency exchange rates and interest rates. All derivatives are recorded at fair value on the balance sheet and changes in the fair value of derivative financial instruments are either recognized
+in other comprehensive income (a component of shareholders’ equity), debt or net income depending on the nature of the underlying exposure, whether the derivative is formally designated as a hedge, and, if designated, the extent to which the
+hedge is effective. The Company classifies the cash flows at settlement from derivatives in the same category as the cash flows from the related hedged items. For undesignated hedges and designated cash flow hedges, this is within the cash provided
+by operations component of the consolidated statements of cash flows. For designated net investment hedges, this is generally within the cash provided or used by investing activities component of the cash flow statement. As our fair value hedges are
+receive-fixed, pay-variable interest rate swaps, the cash flows associated with these derivative instruments are periodic interest payments while the swaps are outstanding. These cash flows are reflected within the cash provided by operations
+component of the cash flow statement. 
+See Note 16 — Risk Management and Derivatives for more information on the Company’s risk management
+program and derivatives. 
+Stock-Based Compensation 
+The Company estimates the fair value of options and stock appreciation rights granted under the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”) and employees’ purchase rights under the
+Employee Stock Purchase Plans (“ESPPs”) using the Black-Scholes option pricing model. The Company recognizes this fair value, net of estimated forfeitures, as selling and administrative expense in the consolidated statements of income over
+the vesting period using the straight-line method. 
+See Note 11 — Common Stock and Stock-Based Compensation for more information on the
+Company’s stock programs. 
+Income Taxes 
+The Company accounts for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary
+differences between the carrying amounts and the tax basis of assets and liabilities. The Company records a valuation allowance to reduce deferred tax assets to the amount management believes is more likely than not to be realized. United States
+income taxes are provided currently on financial statement earnings of non-U.S. subsidiaries that are expected to be repatriated. The Company determines annually the amount of undistributed non-U.S. earnings to invest indefinitely in its non-U.S.
+operations. 
+The Company recognizes a tax benefit from uncertain tax positions in the financial statements only when it is more likely than not that the
+position will be sustained upon examination by relevant tax authorities. The Company recognizes interest and penalties related to income tax matters in income tax expense. 
+See Note 9 — Income Taxes for further discussion. 
+47 
+Table of Contents 
+Earnings Per Share 
+Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per common share is calculated by adjusting
+weighted average outstanding shares, assuming conversion of all potentially dilutive stock options and awards. 
+See Note 12 — Earnings Per Share for
+further discussion. 
+Management Estimates 
+The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, including estimates relating to assumptions that affect the reported
+amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these
+estimates. 
+Recently Adopted Accounting Standards 
+In April 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance to achieve common fair value measurement and disclosure requirements between U.S. GAAP and International Financial
+Reporting Standards. This new guidance, which became effective for the Company beginning March 1, 2012, amends current U.S. GAAP fair value measurement and disclosure guidance to include increased transparency around valuation inputs and
+investment categorization. The adoption did not have a material impact on the Company’s consolidated financial position or results of operations. 
+In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires
+additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3 of the fair
+value measurement hierarchy (as described in Note 6. —Fair Value Measurements). This guidance became effective for the Company beginning March 1, 2010, except for disclosures relating to purchases, sales, issuances and settlements of Level
+3 assets and liabilities, which became effective for the Company beginning June 1, 2011. As this guidance only requires expanded disclosures, the adoption did not have an impact on the Company’s consolidated financial position or results
+of operations. 
+In October 2009, the FASB issued new standards that revised the guidance for revenue recognition with multiple deliverables. These new
+standards impact the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, these new standards modify the manner in which the transaction
+consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. These new standards became effective for the Company beginning June 1, 2011. The
+adoption did not have a material impact on the Company’s consolidated financial position or results of operations. 
+Recently
+Issued Accounting Standards 
+In December 2011, the FASB issued guidance enhancing disclosure requirements surrounding the nature of an entity’s
+right to offset and related arrangements associated with its financial instruments and derivative instruments. This new guidance requires companies to disclose both gross and net information about instruments and transactions eligible for offset in
+the statement of financial position and instruments and transactions subject to master netting arrangements. This new guidance is effective for the Company beginning June 1, 2013. As this guidance only requires expanded disclosures, the Company
+does not anticipate the adoption will have an impact on its consolidated financial position or results of operations. 
+In September 2011, the FASB issued
+updated guidance on the periodic testing of goodwill for impairment. This guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform
+the two-step goodwill impairment test required under current accounting standards. This new guidance is effective for the Company beginning June 1, 2012. The Company does not expect the adoption will have a material effect on its consolidated
+financial position or results of operations. 
+In June 2011, the FASB issued guidance on the presentation of comprehensive income. This new guidance
+eliminates the current option to report other comprehensive income and its components in the statement of shareholders’ equity. Companies will now be required to present the components of net income and other comprehensive income in either one
+continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. This guidance also required companies to present reclassification adjustments out of accumulated other comprehensive income
+by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. However, in December 2011, the FASB issued guidance which indefinitely defers the requirement related to the
+presentation of reclassification adjustments. Both issuances on the presentation of comprehensive income are effective for the Company beginning June 1, 2012. As this guidance only amends the presentation of the components of comprehensive
+income, the Company does not anticipate the adoption will have an impact on its consolidated financial position or results of operations. 
+NOTE 2 — Inventories 
+Inventory balances of $3,350 million and
+$2,715 million at May 31, 2012 and 2011, respectively, were substantially all finished goods. 
+48 
+Table of Contents 
+NOTE 3 — Property, Plant and Equipment 
+Property, plant and equipment included
+the following: 
+As of May 31, 
+(In millions) 
+2012 
+2011 
+Land 
+$ 
+252 
+$ 
+237 
+Buildings 
+1,158 
+1,124 
+Machinery, equipment and internal-use software 
+2,755 
+2,487 
+Leasehold improvements 
+968 
+931 
+Construction in process 
+111 
+127 
+Total property, plant and equipment, gross 
+5,244 
+4,906 
+Less accumulated depreciation 
+2,965 
+2,791 
+TOTAL PROPERTY, PLANT AND EQUIPMENT, NET 
+$ 
+2,279 
+$ 
+2,115 
+Capitalized interest was not material for the years ended May 31, 2012, 2011, and 2010. 
+NOTE 4 — Identifiable Intangible Assets and Goodwill 
+The following table summarizes the
+Company’s identifiable intangible asset balances as of May 31, 2012 and 2011: 
+May 31, 2012 
+May 31, 2011 
+(In millions) 
+Gross Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net Carrying 
+Amount 
+Gross Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net Carrying 
+Amount 
+Amortized intangible assets: 
+Patents 
+$ 
+99 
+$ 
+(29 
+) 
+$ 
+70 
+$ 
+80 
+$ 
+(24 
+) 
+$ 
+56 
+Trademarks 
+41 
+(26 
+) 
+15 
+44 
+(25 
+) 
+19 
+Other 
+94 
+(30 
+) 
+64 
+47 
+(22 
+) 
+25 
+TOTAL 
+$ 
+234 
+$ 
+(85 
+) 
+$ 
+149 
+$ 
+171 
+$ 
+(71 
+) 
+$ 
+100 
+Unamortized intangible assets — 
+Trademarks 
+386 
+387 
+IDENTIFIABLE INTANGIBLE 
+ASSETS, NET 
+$ 
+535 
+$ 
+487 
+The effect of foreign exchange fluctuations for the year ended
+May 31, 2012 decreased unamortized intangible assets by approximately $2 million, resulting from the strengthening of the U.S. Dollar in relation to the British Pound. 
+Amortization expense, which is included in selling and administrative expense, was $22 million, $16 million, and $14 million for the years ended May 31, 2012, 2011, and 2010, respectively. The estimated
+amortization expense for intangible assets subject to amortization for each of the years ending May 31, 2013 through May 31, 2017 are as follows: 2013: $21 million; 2014: $19 million; 2015: $15 million; 2016: $14 million; 2017: $13
+million. 
+All goodwill balances are included in the Company’s “Other”
+category for segment reporting purposes. The following table summarizes the Company’s goodwill balance as of May 31, 2012 and 2011: 
+(In millions) 
+Goodwill 
+Accumulated 
+Impairment 
+Goodwill, net 
+May 31, 2010 
+$ 
+387 
+$ 
+(199 
+) 
+$ 
+188 
+Umbro France (1) 
+10 
+— 
+10 
+Other (2) 
+7 
+— 
+7 
+May 31, 2011 
+404 
+(199 
+) 
+205 
+Other (2) 
+(4 
+) 
+— 
+(4 
+) 
+MAY 31, 2012 
+$ 
+400 
+$ 
+(199 
+) 
+$ 
+201 
+(1) 
+In March 2011, Umbro acquired the remaining 51% of the exclusive licensee and distributor of the Umbro brand in France for approximately $15 million.
+(2) 
+Other consists of foreign currency translation adjustments on Umbro goodwill. 
+49 
+Table of Contents 
+NOTE 5 — Accrued Liabilities 
+Accrued liabilities included the
+following: 
+May 31, 
+(In millions) 
+2012 
+2011 
+Compensation and benefits, excluding taxes 
+$ 
+711 
+$ 
+628 
+Endorsement compensation 
+294 
+284 
+Taxes other than income taxes 
+179 
+214 
+Dividends payable 
+165 
+145 
+Import and logistics costs 
+133 
+98 
+Advertising and marketing 
+132 
+139 
+Fair value of derivatives 
+55 
+186 
+Other (1) 
+384 
+291 
+TOTAL ACCRUED LIABILITIES 
+$ 
+2,053 
+$ 
+1,985 
+(1) 
+Other consists of various accrued expenses with no individual item accounting for more than 5% of the balance at May 31, 2012 and 2011. 
+NOTE 6 — Fair Value Measurements 
+The following table presents information
+about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of May 31, 2012 and 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair
+value. Refer to Note 1 – Summary of Significant Accounting Policies for additional detail regarding the Company’s fair value measurement methodology. 
+May 31, 2012 
+Fair Value 
+Measurements Using 
+Assets/Liabilities 
+at Fair Value 
+(In millions) 
+Level 1 
+Level 2 
+Level 3 
+Balance Sheet Classification 
+ASSETS 
+Derivatives: 
+Foreign exchange forwards and options 
+$ 
+— 
+$ 
+265 
+$ 
+— 
+$ 
+265 
+Other current assets and other long-term assets 
+Embedded derivatives 
+— 
+1 
+— 
+1 
+Other current assets 
+Interest rate swap contracts 
+— 
+15 
+— 
+15 
+Other current assets and other long-term assets 
+Total derivatives 
+— 
+281 
+— 
+281 
+Available-for-sale securities: 
+U.S. Treasury securities 
+226 
+— 
+— 
+226 
+Cash and equivalents 
+U.S. Agency securities 
+— 
+254 
+— 
+254 
+Cash and equivalents 
+Commercial paper and bonds 
+— 
+159 
+— 
+159 
+Cash and equivalents 
+Money market funds 
+— 
+770 
+— 
+770 
+Cash and equivalents 
+U.S. Treasury securities 
+927 
+— 
+— 
+927 
+Short-term investments 
+U.S. Agency securities 
+— 
+230 
+— 
+230 
+Short-term investments 
+Commercial paper and bonds 
+— 
+283 
+— 
+283 
+Short-term investments 
+Non-marketable preferred stock 
+— 
+— 
+3 
+3 
+Other long-term assets 
+Total available-for-sale securities 
+1,153 
+1,696 
+3 
+2,852 
+TOTAL ASSETS 
+$ 
+1,153 
+$ 
+1,977 
+$ 
+3 
+$ 
+3,133 
+LIABILITIES 
+Derivatives: 
+Foreign exchange forwards and options 
+$ 
+— 
+$ 
+55 
+$ 
+— 
+$ 
+55 
+Accrued liabilities and other long-term liabilities 
+TOTAL LIABILITIES 
+$ 
+— 
+$ 
+55 
+$ 
+— 
+$ 
+55 
+50 
+Table of Contents 
+May 31, 2011 
+Fair Value 
+Measurements Using 
+Assets / Liabilities 
+at Fair Value 
+(In millions) 
+Level 1 
+Level 2 
+Level 3 
+Balance Sheet Classification 
+ASSETS 
+Derivatives: 
+Foreign exchange forwards and options 
+$ 
+— 
+$ 
+38 
+$ 
+— 
+$ 
+38 
+Other current assets and other long-term assets 
+Interest rate swap contracts 
+— 
+15 
+— 
+15 
+Other current assets and other long-term assets 
+Total derivatives 
+— 
+53 
+— 
+53 
+Available-for-sale securities: 
+U.S. Treasury securities 
+125 
+— 
+— 
+125 
+Cash and equivalents 
+Commercial paper and bonds 
+— 
+157 
+— 
+157 
+Cash and equivalents 
+Money market funds 
+— 
+780 
+— 
+780 
+Cash and equivalents 
+U.S. Treasury securities 
+1,473 
+— 
+— 
+1,473 
+Short-term investments 
+U.S. Agency securities 
+— 
+308 
+— 
+308 
+Short-term investments 
+Commercial paper and bonds 
+— 
+802 
+— 
+802 
+Short-term investments 
+Total available-for-sale securities 
+1,598 
+2,047 
+— 
+3,645 
+TOTAL ASSETS 
+$ 
+1,598 
+$ 
+2,100 
+$ 
+— 
+$ 
+3,698 
+LIABILITIES 
+Derivatives: 
+Foreign exchange forwards and options 
+$ 
+— 
+$ 
+197 
+$ 
+— 
+$ 
+197 
+Accrued liabilities and other long-term liabilities 
+TOTAL LIABILITIES 
+$ 
+— 
+$ 
+197 
+$ 
+— 
+$ 
+197 
+Derivative financial instruments include foreign exchange
+forwards, embedded derivatives and interest rate swap contracts. The fair value of derivative contracts is determined using observable market inputs such as the daily market foreign currency rates, forward pricing curves, currency volatilities,
+currency correlations and interest rates, and considers nonperformance risk of the Company and that of its counterparties. Adjustments relating to these nonperformance risks were not material at May 31, 2012 or 2011. Refer to Note 16 —
+Risk Management and Derivatives for additional detail. 
+Available-for-sale securities are comprised of investments in U.S. Treasury and agency
+securities, money market funds, corporate commercial paper and bonds. These securities are valued using market prices on both active markets (Level 1) and less active markets (Level 2). Pricing vendors are utilized for certain Level 1 or Level 2
+investments. These vendors either provide a quoted market price in an active market or use observable inputs without applying significant adjustments in their pricing. Observable inputs include broker quotes, interest rates and yield curves
+observable at commonly quoted intervals, volatilities and credit risks. 
+The Company’s Level 3 assets are comprised of investments in certain
+non-marketable preferred stock. These investments are valued using internally developed models with unobservable inputs. These Level 3 investments are an immaterial portion of our portfolio. Changes in Level 3 investment assets were immaterial
+during the year ended May 31, 2012. As of May 31, 2011, the Company had no Level 3 assets and liabilities. 
+No transfers among the levels
+within the fair value hierarchy occurred during the years ended May 31, 2012 or 2011. 
+As of May 31, 2012 and 2011, the Company had no assets
+or liabilities that were required to be measured at fair value on a non-recurring basis. 
+Short-Term Investments 
+As of May 31, 2012 and 2011, short-term investments consisted of available-for-sale securities. As of May 31, 2012, the Company held $1,129 million of
+available-for-sale securities with maturity dates within one year from purchase date and $311 million with maturity dates over one year and less than five years from purchase date within short-term investments. As of May 31, 2011, the Company
+held $2,253 million of available-for-sale securities with maturity dates within one year from purchase date and $330 million with maturity dates over one year and less than five years from purchase date within short-term investments. 
+Short-term investments classified as available-for-sale consist of the following at fair value: 
+As of May 31, 
+(In millions) 
+2012 
+2011 
+Available-for-sale investments: 
+U.S. treasury and agencies 
+$ 
+1,157 
+$ 
+1,781 
+Commercial paper and bonds 
+283 
+802 
+TOTAL AVAILABLE-FOR-SALE INVESTMENTS 
+$ 
+1,440 
+$ 
+2,583 
+Included in interest expense, net was interest income of $30
+million for each of the years ended May 31, 2012, 2011, and 2010, related to cash and equivalents and short-term investments. 
+For fair value
+information regarding notes payable and long-term debt, refer to Note 7 — Short-Term Borrowings and Credit Lines and Note 8 — Long-Term Debt. 
+51 
+Table of Contents 
+NOTE 7 — Short-Term Borrowings and Credit Lines 
+Notes payable and interest-bearing
+accounts payable to Sojitz Corporation of America (“Sojitz America”) as of May 31, 2012 and 2011, are summarized below: 
+May 31, 
+2012 
+2011 
+(In millions) 
+Borrowings 
+Interest Rate 
+Borrowings 
+Interest Rate 
+Notes payable: 
+U.S. operations 
+30 
+5.50 
+% (1) 
+35 
+0.00 
+% (1) 
+Non-U.S. operations 
+78 
+9.46 
+% (1) 
+152 
+7.05 
+% (1) 
+TOTAL NOTES PAYABLE 
+$ 
+108 
+$ 
+187 
+Interest-Bearing Accounts Payable: 
+Sojitz America 
+$ 
+75 
+1.10 
+% 
+$ 
+111 
+0.99 
+% 
+(1) 
+Weighted average interest rate includes non-interest bearing overdrafts. 
+The carrying amounts reflected in the consolidated balance sheets for notes payable approximate fair value. 
+The Company purchases through Sojitz America certain athletic footwear, apparel and equipment it acquires from non-U.S. suppliers. These purchases are for the Company’s operations outside of the United States,
+Europe and Japan. Accounts payable to Sojitz America are generally due up to 60 days after shipment of goods from the foreign port. The interest rate on such accounts payable is the 60-day London Interbank Offered Rate (“LIBOR”) as of the
+beginning of the month of the invoice date, plus 0.75%. 
+As of May 31, 2012 and 2011, the Company had no amounts outstanding under its commercial
+paper program. 
+In November 2011, the Company entered into a committed credit facility agreement with a syndicate of banks which provides for up to $1
+billion of borrowings pursuant to a revolving credit facility with the option to increase borrowings to $1.5 billion with lender approval. The facility matures in November 2016, with a one-year extension option prior to both the second and third
+anniversary of the closing date, provided that extensions shall not extend beyond November 1, 2018. This facility replaces the prior $1 billion committed credit facility agreement that would have expired in December 2012. Based on the
+Company’s current long-term senior unsecured debt ratings of A+ and A1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively, the interest rate charged on any outstanding borrowings would be the prevailing
+LIBOR plus 0.56%. The facility fee is 0.065% of the total commitment. Under this committed credit facility, the Company must maintain, among other things, certain minimum specified financial ratios with which the Company was in compliance at
+May 31, 2012. No amounts were outstanding under this facility as of May 31, 2012 or 2011. 
+NOTE 8 — Long-Term Debt 
+Long-term debt, net of unamortized
+premiums and discounts and swap fair value adjustments, is comprised of the following: 
+Book Value Outstanding 
+As of May 31, 
+Scheduled Maturity (Dollars in millions) 
+Original 
+Principal 
+Interest 
+Rate 
+Interest 
+Payments 
+2012 
+2011 
+Corporate Bond Payables: (1) 
+July 23, 2012 
+$ 
+25 
+5.66 
+% 
+Semi-Annually 
+$ 
+25 
+$ 
+26 
+August 7, 2012 
+$ 
+15 
+5.40 
+% 
+Semi-Annually 
+15 
+16 
+October 1, 2013 
+$ 
+50 
+4.70 
+% 
+Semi-Annually 
+50 
+50 
+October 15, 2015 
+$ 
+100 
+5.15 
+% 
+Semi-Annually 
+115 
+114 
+Japanese Yen Notes: 
+June 26, 2011 
+¥ 
+10,500 
+4.30 
+% 
+Semi-Annually 
+— 
+130 
+February 14, 2012 
+¥ 
+5,000 
+1.52 
+% 
+Semi-Annually 
+— 
+62 
+August 20, 2001 through November 20, 2020 (2) 
+¥ 
+9,000 
+2.60 
+% 
+Quarterly 
+50 
+54 
+August 20, 2001 through November 20, 2020 (2) 
+¥ 
+4,000 
+2.00 
+% 
+Quarterly 
+22 
+24 
+Total 
+277 
+476 
+Less current maturities 
+49 
+200 
+TOTAL LONG-TERM DEBT 
+$ 
+228 
+$ 
+276 
+(1) 
+For each of these notes, except the $50 million note maturing in October 1, 2013, the Company has entered into interest rate swap agreements whereby the Company receives
+fixed interest payments at the same rate as the notes and pays variable interest payments based on the six-month LIBOR plus a spread. Each swap has the same notional amount and maturity date as the corresponding note. At May 31, 2012, the
+interest rates payable on these swap agreements ranged from approximately 0.6% to 1.0%. 
+(2) 
+NIKE Logistics YK assumed a total of ¥13.0 billion in loans as part of its agreement to purchase a distribution center in Japan, which serves as collateral for the loans.
+These loans mature in equal quarterly installments during the period August 20, 2001 through November 20, 2020. 
+The scheduled maturity of long-term debt in each of the years ending May 31, 2013 through 2017 are $49 million, $59 million, $9 million,
+$109 million and $9 million, respectively, at face value. 
+The fair value of the Company’s long-term debt, including the current portion,
+was approximately $283 million at May 31, 2012 and $482 million at May 31, 2011. The fair value of long-term debt is estimated based upon quoted prices of similar instruments (level 2). 
+52 
+Table of Contents 
+NOTE 9 — Income Taxes 
+Income before income taxes is as follows:
+Year Ended May 31, 
+(In millions) 
+2012 
+2011 
+2010 
+Income before income taxes: 
+United States 
+$ 
+792 
+$ 
+1,084 
+$ 
+699 
+Foreign 
+2,191 
+1,760 
+1,818 
+TOTAL INCOME BEFORE INCOME TAXES 
+$ 
+2,983 
+$ 
+2,844 
+$ 
+2,517 
+The provision for income taxes is as follows: 
+Year Ended May 31, 
+(In millions) 
+2012 
+2011 
+2010 
+Current: 
+United States 
+Federal 
+$ 
+274 
+$ 
+289 
+$ 
+200 
+State 
+51 
+57 
+50 
+Foreign 
+495 
+441 
+349 
+Total 
+820 
+787 
+599 
+Deferred: 
+United States 
+Federal 
+(54 
+) 
+(61 
+) 
+18 
+State 
+4 
+— 
+(1 
+) 
+Foreign 
+(10 
+) 
+(15 
+) 
+(6 
+) 
+Total 
+(60 
+) 
+(76 
+) 
+11 
+TOTAL INCOME TAX EXPENSE 
+$ 
+760 
+$ 
+711 
+$ 
+610 
+A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate follows: 
+Year Ended May 31, 
+2012 
+2011 
+2010 
+Federal income tax rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State taxes, net of federal benefit 
+1.3 
+% 
+1.3 
+% 
+1.3 
+% 
+Foreign earnings 
+-11.5 
+% 
+-10.5 
+% 
+-12.7 
+% 
+Other, net 
+0.7 
+% 
+-0.8 
+% 
+0.6 
+% 
+EFFECTIVE INCOME TAX RATE 
+25.5 
+% 
+25.0 
+% 
+24.2 
+% 
+The effective tax rate for fiscal 2012 was 50 basis points
+higher than the effective tax rate for fiscal 2011 primarily due to changes in uncertain tax positions, partially offset by a reduction in the effective tax rate on operations outside of the United States as a result of changes in geographical mix
+of foreign earnings. The effective tax rate for fiscal 2011 was 80 basis points higher than the effective tax rate for fiscal 2010 primarily due to the change in geographic mix of earnings. A larger percentage of our earnings in fiscal 2011 were
+attributable to operations in the U.S., where the statutory tax rate is generally higher than the effective tax rate on operations outside of the U.S. This impact was partially offset by changes to uncertain tax positions. 
+53 
+Table of Contents 
+Deferred tax assets and (liabilities) are comprised of the following: 
+May 31, 
+(In millions) 
+2012 
+2011 
+Deferred tax assets: 
+Allowance for doubtful accounts 
+$ 
+18 
+$ 
+19 
+Inventories 
+40 
+63 
+Sales return reserves 
+85 
+72 
+Deferred compensation 
+177 
+152 
+Stock-based compensation 
+144 
+148 
+Reserves and accrued liabilities 
+68 
+66 
+Foreign loss carry-forwards 
+76 
+60 
+Foreign tax credit carry-forwards 
+216 
+236 
+Hedges 
+— 
+21 
+Undistributed earnings of foreign subsidiaries 
+82 
+— 
+Other 
+71 
+86 
+Total deferred tax assets 
+977 
+923 
+Valuation allowance 
+(81 
+) 
+(51 
+) 
+Total deferred tax assets after valuation allowance 
+896 
+872 
+Deferred tax liabilities: 
+Undistributed earnings of foreign subsidiaries 
+— 
+(40 
+) 
+Property, plant and equipment 
+(186 
+) 
+(151 
+) 
+Intangibles 
+(98 
+) 
+(97 
+) 
+Other 
+(21 
+) 
+(21 
+) 
+Total deferred tax liability 
+(305 
+) 
+(309 
+) 
+NET DEFERRED TAX ASSET 
+$ 
+591 
+$ 
+563 
+The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits, excluding interest and
+penalties: 
+May 31, 
+(In millions) 
+2012 
+2011 
+2010 
+Unrecognized tax benefits, as of the beginning of the period 
+$ 
+212 
+$ 
+282 
+$ 
+274 
+Gross increases related to prior period tax positions 
+48 
+13 
+87 
+Gross decreases related to prior period tax positions 
+(25 
+) 
+(98 
+) 
+(122 
+) 
+Gross increases related to current period tax positions 
+91 
+59 
+52 
+Gross decreases related to current period tax positions 
+(1 
+) 
+(6 
+) 
+— 
+Settlements 
+(20 
+) 
+(43 
+) 
+(3 
+) 
+Lapse of statute of limitations 
+(9 
+) 
+(8 
+) 
+(9 
+) 
+Changes due to currency translation 
+(11 
+) 
+13 
+3 
+UNRECOGNIZED TAX BENEFITS, AS OF THE END OF THE PERIOD 
+$ 
+285 
+$ 
+212 
+$ 
+282 
+As of May 31, 2012, the total gross unrecognized tax
+benefits, excluding related interest and penalties, were $285 million, $165 million of which would affect the Company’s effective tax rate if recognized in future periods. 
+The Company recognizes interest and penalties related to income tax matters in income tax expense. The liability for payment of interest and penalties increased $17 million, $10 million, and $6 million during the
+years ended May 31, 2012, 2011, and 2010, respectively. As of May 31, 2012 and 2011, accrued interest and penalties related to uncertain tax positions were $108 million and $91 million, respectively (excluding federal benefit). 
+The Company is subject to taxation primarily in the U.S., China, the Netherlands, and Brazil, as well as various state and other foreign jurisdictions. The Company
+has concluded substantially all U.S. federal income tax matters through fiscal year 2010. The Company is currently under audit by the Internal Revenue Service for the 2011 and 2012 tax years. The Company’s major foreign jurisdictions, China,
+the Netherlands and Brazil, have concluded substantially all income tax matters through calendar 2001, fiscal 2006 and calendar 2004, respectively. The Company estimates that it is reasonably possible that the total gross unrecognized tax benefits
+could decrease by up to $58 million within the next 12 months as a result of resolutions of global tax examinations and the expiration of applicable statutes of limitations. 
+The Company has indefinitely reinvested approximately $5.5 billion of the cumulative undistributed earnings of certain foreign subsidiaries. Such earnings would be subject to U.S. taxation if repatriated to the
+U.S. The amount of unrecognized deferred tax liability associated with the indefinitely reinvested undistributed earnings at May 31, 2012 is $1.8 billion. 
+A portion of the Company’s foreign operations are benefitting from tax holidays that will phase out in fiscal 2019 and fiscal 2021. These tax holidays may be extended when certain conditions are met or may be
+terminated early if certain conditions are not met. The decrease in income tax expense for the year ended May 31, 2012 as a result of these arrangements was approximately $103 million ($0.22 per diluted share) and $36 million ($0.07 per diluted
+share) for the year ended May 31, 2011. 
+Deferred tax assets at May 31, 2012 and 2011 were reduced by a valuation allowance relating to tax
+benefits of certain subsidiaries with operating losses. The net change in the valuation allowance was an increase of $30 million and $15 million for the years ended May 31, 2012 and 2011, respectively. 
+54 
+Table of Contents 
+The Company has recorded deferred tax assets of $216 million at May 31, 2012 for foreign tax credit carry-forwards
+with expiration dates between 2020 and 2022. 
+The Company has available domestic and foreign loss carry-forwards of $247 million at May 31, 2012. Such
+losses, if not utilized, will expire as follows: 
+Year Ending May 31, 
+(In millions) 
+2013 
+2014 
+2015 
+2016 
+2017- 2032 
+Indefinite 
+Total 
+Net Operating Losses 
+$ 
+— 
+8 
+3 
+8 
+131 
+97 
+$ 
+247 
+During the years ended May 31, 2012, 2011, and 2010, income tax benefits attributable to employee stock-based compensation
+transactions of $120 million, $68 million, and $57 million, respectively, were allocated to shareholders’ equity. 
+NOTE 10 — Redeemable Preferred Stock 
+Sojitz America is the sole owner of the Company’s authorized Redeemable Preferred Stock, $1 par value, which is redeemable at the option of Sojitz America or the Company at par value aggregating $0.3 million.
+A cumulative dividend of $0.10 per share is payable annually on May 31 and no dividends may be declared or paid on the common stock of the Company unless dividends on the Redeemable Preferred Stock have been declared and paid in full. There
+have been no changes in the Redeemable Preferred Stock in the three years ended May 31, 2012, 2011, and 2010. As the holder of the Redeemable Preferred Stock, Sojitz America does not have general voting rights but does have the right to vote as
+a separate class on the sale of all or substantially all of the assets of the Company and its subsidiaries, on merger, consolidation, liquidation or dissolution of the Company or on the sale or assignment of the NIKE trademark for athletic footwear
+sold in the United States. 
+NOTE 11 — Common Stock and Stock-Based Compensation 
+The authorized number of shares of Class A Common Stock, no par value, and Class B Common Stock, no par value, are 175 million and 750 million, respectively. Each share of Class A Common Stock
+is convertible into one share of Class B Common Stock. Voting rights of Class B Common Stock are limited in certain circumstances with respect to the election of directors. There are no differences in the dividend and liquidation preferences or
+participation rights of the Class A and Class B common stockholders. 
+In 1990, the Board of Directors adopted, and the shareholders approved, the
+NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”). The 1990 Plan provides for the issuance of up to 163 million previously unissued shares of Class B Common Stock in connection with stock options and other awards granted under
+the plan. The 1990 Plan authorizes the grant of non-statutory stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, and performance-based awards. The exercise price for stock options and stock
+appreciation rights may not be less than the fair market value of the underlying shares on the date of grant. A committee of the Board of Directors administers the 1990 Plan. The committee has the authority to determine the employees to whom awards
+will be made, the amount of the awards, and the other terms and conditions of the awards. Substantially all stock option grants outstanding under the 1990 Plan were granted in the first quarter of each fiscal year, vest ratably over four years, and
+expire 10 years from the date of grant. 
+The following table summarizes the
+Company’s total stock-based compensation expense recognized in selling and administrative expense: 
+Year Ended May 31, 
+(In millions) 
+2012 
+2011 
+2010 
+Stock options (1) 
+$96 
+$ 
+77 
+$ 
+135 
+ESPPs 
+16 
+14 
+14 
+Restricted stock 
+18 
+14 
+10 
+TOTAL STOCK-BASED COMPENSATION EXPENSE 
+$130 
+$ 
+105 
+$ 
+159 
+(1) 
+Expense for stock options includes the expense associated with stock appreciation rights. Accelerated stock option expense is recorded for employees eligible for accelerated
+stock option vesting upon retirement. In the first quarter of fiscal 2011, the Company changed the accelerated vesting provisions of its stock option plan. Under the new provisions, accelerated stock option expense for years ended May 31, 2012
+and 2011 was $17 million and $12 million, respectively. The accelerated stock option expense for the year ended May 31, 2010 was $74 million. 
+As of May 31, 2012, the Company had $151 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized as selling and administrative expense over a weighted
+average period of 2.2 years. 
+55 
+Table of Contents 
+The weighted average fair value per share of the options granted during the years ended May 31, 2012, 2011, and
+2010, as computed using the Black-Scholes pricing model, was $22.15, $17.68, and $23.43, respectively. The weighted average assumptions used to estimate these fair values are as follows: 
+Year Ended May 31, 
+2012 
+2011 
+2010 
+Dividend yield 
+1.4 
+% 
+1.6 
+% 
+1.9 
+% 
+Expected volatility 
+29.5 
+% 
+31.5 
+% 
+57.6 
+% 
+Weighted average expected life (in years) 
+5.0 
+5.0 
+5.0 
+Risk-free interest rate 
+1.4 
+% 
+1.7 
+% 
+2.5 
+% 
+The Company estimates the expected volatility based on the
+implied volatility in market traded options on the Company’s common stock with a term greater than one year, along with other factors. The weighted average expected life of options is based on an analysis of historical and expected future
+exercise patterns. The interest rate is based on the U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options. 
+The following summarizes the stock option transactions under the plan discussed above:
+Shares 
+(1) 
+Weighted Average 
+Option Price 
+(In millions) 
+Options outstanding May 31, 2009 
+38.8 
+$ 
+43.69 
+Exercised 
+(8.6 
+) 
+37.64 
+Forfeited 
+(0.6 
+) 
+51.92 
+Granted 
+6.4 
+52.79 
+Options outstanding May 31, 2010 
+36.0 
+$ 
+46.60 
+Exercised 
+(7.0 
+) 
+42.70 
+Forfeited 
+(0.5 
+) 
+58.08 
+Granted 
+6.3 
+69.20 
+Options outstanding May 31, 2011 
+34.8 
+$ 
+51.29 
+Exercised 
+(9.0 
+) 
+45.62 
+Forfeited 
+(0.4 
+) 
+71.04 
+Granted 
+6.8 
+91.74 
+Options outstanding May 31, 2012 
+32.2 
+$ 
+61.18 
+Options exercisable at May 31, 
+2010 
+20.4 
+41.16 
+2011 
+20.1 
+44.05 
+2012 
+17.0 
+$ 
+48.75 
+(1) 
+Includes stock appreciation rights transactions. 
+The weighted average contractual life remaining for options outstanding and options exercisable at May 31, 2012 was 6.3 years and 4.6 years, respectively. The
+aggregate intrinsic value for options outstanding and exercisable at May 31, 2012 was $1,512 million and $1,008 million, respectively. The aggregate intrinsic value was the amount by which the market value of the underlying stock exceeded the
+exercise price of the options. The total intrinsic value of the options exercised during the years ended May 31, 2012, 2011, and 2010 was $453 million, $267 million, and $239 million, respectively. 
+In addition to the 1990 Plan, the Company gives employees the right to purchase shares at a discount to the market price under employee stock purchase plans
+(“ESPPs”). Employees are eligible to participate through payroll deductions of up to 10% of their compensation. At the end of each six-month offering period, shares are purchased by the participants at 85% of the lower of the fair market
+value at the beginning or the end of the offering period. Employees purchased 0.8 million shares during each of the three years ended May 31, 2012, 2011 and 2010. 
+From time to time, the Company grants restricted stock units and restricted stock to key employees under the 1990 Plan. The number of shares underlying such awards granted to employees during the years ended
+May 31, 2012, 2011, and 2010 were 0.4 million, 0.2 million, and 0.5 million with weighted average values per share of $98.99, $70.23, and $53.16, respectively. Recipients of restricted stock are entitled to cash dividends and to
+vote their respective shares throughout the period of restriction. Recipients of restricted stock units are entitled to dividend equivalent cash payments upon vesting. The value of all grants of restricted stock and restricted stock units was
+established by the market price on the date of grant. During the years ended May 31, 2012, 2011, and 2010, the aggregate fair value of restricted stock and restricted stock units vested was $22 million, $15 million, and $8 million,
+respectively, determined as of the date of vesting. 
+56 
+Table of Contents 
+NOTE 12 — Earnings Per Share 
+The following is a reconciliation from
+basic earnings per share to diluted earnings per share. Options to purchase an additional 0.1 million, 0.2 million, and 0.2 million shares of common stock were outstanding at May 31, 2012, 2011, and 2010, respectively, but were
+not included in the computation of diluted earnings per share because the options were anti-dilutive. 
+Year Ended May 31, 
+(In millions, except per share data) 
+2012 
+2011 
+2010 
+Determination of shares: 
+Weighted average common shares outstanding 
+460.0 
+475.5 
+485.5 
+Assumed conversion of dilutive stock options and awards 
+9.8 
+10.2 
+8.4 
+DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 
+469.8 
+485.7 
+493.9 
+Basic earnings per common share 
+$ 
+4.83 
+$ 
+4.48 
+$ 
+3.93 
+Diluted earnings per common share 
+$ 
+4.73 
+$ 
+4.39 
+$ 
+3.86 
+NOTE 13 — Benefit Plans 
+The Company has a profit sharing plan available to most U.S.-based employees. The terms of the plan call for annual contributions by the Company as determined by the Board of Directors. A subsidiary of the Company
+also had a profit sharing plan available to its U.S.-based employees prior to fiscal 2012. The terms of the plan called for annual contributions as determined by the subsidiary’s executive management. Contributions of $40 million, $39 million,
+and $35 million were made to the plans and are included in selling and administrative expense for the years ended May 31, 2012, 2011, and 2010, respectively. The Company has various 401(k) employee savings plans available to U.S.-based
+employees. The Company matches a portion of employee contributions. Company contributions to the savings plans were $44 million, $39 million, and $34 million for the years ended May 31, 2012, 2011, and 2010, respectively, and are included in
+selling and administrative expense. 
+The Company also has a Long-Term Incentive Plan (“LTIP”) that was adopted by the Board of Directors and
+approved by shareholders in September 1997 and later amended in fiscal 2007. The Company recognized $51 million, $31 million, and $24 million of selling and administrative expense related to cash awards under the LTIP during the years ended
+May 31, 2012, 2011, and 2010, respectively. 
+The Company has pension plans in various countries worldwide. The pension plans are only available to
+local employees and are generally government mandated. The liability related to the unfunded pension liabilities of the plans was $115 million and $93 million at May 31, 2012 and 2011, respectively, which was primarily classified as long-term
+in other liabilities. 
+NOTE 14 — Accumulated Other Comprehensive Income 
+The components of accumulated other
+comprehensive income, net of tax, are as follows: 
+May 31, 
+(In millions) 
+2012 
+2011 
+Cumulative translation adjustment and other 
+$ 
+(127 
+) 
+$ 
+168 
+Net deferred gain (loss) on cash flow hedge derivatives 
+181 
+(123 
+) 
+Net deferred gain on net investment hedge derivatives 
+95 
+50 
+ACCUMULATED OTHER COMPREHENSIVE INCOME 
+$ 
+149 
+$ 
+95 
+Refer to Note 16 – Risk Management and Derivatives for more information on the Company’s risk management program and
+derivatives. 
+NOTE 15 — Commitments and Contingencies 
+The Company leases space for certain of its offices, warehouses and retail stores under leases expiring from 1 to 23 years after May 31, 2012. Rent expense was $494 million, $446 million, and $416 million for
+the years ended May 31, 2012, 2011 and 2010, respectively. Amounts of minimum future annual rental commitments under non-cancelable operating leases in each of the five years ending May 31, 2013 through 2017 are $408 million, $387 million,
+$271 million, $224 million, $186 million, respectively, and $662 million in later years. 
+As of May 31, 2012 and 2011, the Company had letters of
+credit outstanding totaling $138 million and $99 million, respectively. These letters of credit were generally issued for the purchase of inventory and guarantees of the Company’s performance under certain self-insurance and other programs.
+In connection with various contracts and agreements, the Company provides routine indemnifications relating to the enforceability of intellectual
+property rights, coverage for legal issues that arise and other items where the Company is acting as the guarantor. Currently, the Company has several such agreements in place. However, based on the Company’s historical experience and the
+estimated probability of future loss, the Company has determined that the fair value of such indemnifications is not material to the Company’s financial position or results of operations. 
+In the ordinary course of its business, the Company is involved in various legal proceedings involving contractual and employment relationships, product liability claims, trademark rights, and a variety of other
+matters. While the Company cannot predict the outcome of its pending legal matters with certainty, the Company does not believe any currently identified claim, proceeding or litigation, either individually or in aggregate, will have a material
+impact on the Company’s results of operations, financial position or cash flows. 
+57 
+Table of Contents 
+NOTE 16 — Risk Management and Derivatives 
+The Company is exposed to global market risks, including the effect of changes in foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal
+course of business. The Company does not hold or issue derivatives for trading purposes. 
+The Company may elect to designate certain derivatives as
+hedging instruments under the accounting standards for derivatives and hedging. The Company formally documents all relationships between designated hedging instruments and hedged items as well as its risk management objective and strategy for
+undertaking hedge transactions. This process includes linking all derivatives designated as hedges to either recognized assets or liabilities or forecasted transactions. 
+The majority of derivatives outstanding as of May 31, 2012 are designated as cash flow or fair value hedges. All derivatives are recognized on the balance sheet at fair value and classified based on the
+instrument’s maturity date. The total notional amount of outstanding derivatives as of May 31, 2012 was approximately $7 billion, which is primarily comprised of cash flow hedges for Euro/U.S. Dollar, British Pound/Euro, and Japanese
+Yen/U.S. Dollar currency pairs. 
+The following table presents the fair values of
+derivative instruments included within the consolidated balance sheets as of May 31, 2012 and 2011: 
+Asset Derivatives 
+Liability Derivatives 
+(In millions) 
+Balance Sheet 
+Location 
+May 31, 2012 
+May 31, 2011 
+Balance Sheet Location 
+May 31, 2012 
+May 31, 2011 
+Derivatives formally designated as hedging instruments: 
+Foreign exchange forwards and options 
+Prepaid expenses 
+and other 
+current assets 
+$ 
+203 
+$ 
+22 
+Accrued liabilities 
+$ 
+35 
+$ 
+170 
+Interest rate swap contracts 
+Prepaid expenses 
+and other 
+current assets 
+— 
+— 
+Accrued liabilities 
+— 
+— 
+Foreign exchange forwards and options 
+Deferred income 
+taxes and other 
+long-term assets 
+7 
+7 
+Deferred income 
+taxes and other 
+long-term liabilities 
+— 
+10 
+Interest rate swap contracts 
+Deferred income 
+taxes and other 
+long-term assets 
+15 
+15 
+Deferred income 
+taxes and other 
+long-term liabilities 
+— 
+— 
+Total derivatives formally designated as hedging instruments 
+225 
+44 
+35 
+180 
+Derivatives not designated as hedging instruments: 
+Foreign exchange forwards and options 
+Prepaid expenses 
+and other current 
+assets 
+$ 
+55 
+$ 
+9 
+Accrued liabilities 
+$ 
+20 
+$ 
+16 
+Embedded derivatives 
+Prepaid expenses 
+and other current 
+assets 
+1 
+— 
+Accrued liabilities 
+— 
+— 
+Foreign exchange forwards and options 
+Deferred income 
+taxes and other 
+long-term assets 
+— 
+— 
+Deferred income 
+taxes and other 
+long-term liabilities 
+— 
+1 
+Total derivatives not designated as hedging instruments 
+56 
+9 
+20 
+17 
+TOTAL DERIVATIVES 
+$ 
+281 
+$ 
+53 
+$ 
+55 
+$ 
+197 
+The following tables present the amounts affecting the consolidated statements of income for years ended May 31, 2012, 2011
+and 2010: 
+Derivatives formally designated 
+(In millions) 
+Amount of Gain (Loss) 
+Recognized in Other 
+Comprehensive Income 
+on Derivatives (1) 
+Amount of Gain (Loss) 
+Reclassified From Accumulated 
+Other Comprehensive Income into Income (1) 
+Year Ended May 31, 
+Location of Gain (Loss) 
+Reclassified From Accumulated 
+Other Comprehensive Income 
+Into Income (1) 
+Year Ended May 31, 
+2012 
+2011 
+2010 
+2012 
+2011 
+2010 
+Derivatives designated as cash flow hedges: 
+Foreign exchange forwards and options 
+$ 
+(29 
+) 
+$ 
+(87 
+) 
+$ 
+(30 
+) 
+Revenue 
+$ 
+5 
+$ 
+(30 
+) 
+$ 
+51 
+Foreign exchange forwards and options 
+253 
+(152 
+) 
+89 
+Cost of sales 
+(57 
+) 
+103 
+60 
+Foreign exchange forwards and options 
+3 
+(4 
+) 
+5 
+Selling and administrative expense 
+(2 
+) 
+1 
+1 
+Foreign exchange forwards and options 
+36 
+(65 
+) 
+51 
+Other expense (income), net 
+(9 
+) 
+34 
+56 
+Total designated cash flow hedges 
+$ 
+263 
+$ 
+(308 
+) 
+$ 
+115 
+$ 
+(63 
+) 
+$ 
+108 
+$ 
+168 
+Derivatives designated as net investment hedges: 
+Foreign exchange forwards and options 
+$ 
+45 
+$ 
+(85 
+) 
+$ 
+66 
+Other expense (income), net 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+(1) 
+For the years ended May 31, 2012, 2011, and 2010, the amounts recorded in other expense (income), net as a result of hedge ineffectiveness and the discontinuance of cash
+flow hedges because the forecasted transactions were no longer probable of occurring were immaterial. 
+58 
+Table of Contents 
+Amount of Gain (Loss) Recognized in 
+Income on Derivatives 
+Location of Gain (Loss) Recognized 
+in Income on Derivatives 
+Year Ended May 31, 
+(In millions) 
+2012 
+2011 
+2010 
+Derivatives designated as fair value hedges: 
+Interest rate swaps (1) 
+$ 
+6 
+$ 
+6 
+$ 
+7 
+Interest expense (income), net 
+Derivatives not designated as hedging instruments: 
+Foreign exchange forwards and options 
+64 
+(30 
+) 
+(91 
+) 
+Other expense (income), net 
+Embedded derivatives 
+$ 
+1 
+$ 
+— 
+$ 
+— 
+Other expense (income), net 
+(1) 
+All interest rate swap agreements meet the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly, changes in the fair values of
+the interest rate swap agreements are considered to exactly offset changes in the fair value of the underlying long-term debt. Refer to “Fair Value Hedges” in this note for additional detail. 
+Refer to Note 5 — Accrued Liabilities for derivative instruments recorded in accrued
+liabilities, Note 6 —Fair Value Measurements for a description of how the above financial instruments are valued, Note 14 — Accumulated Other Comprehensive Income and the consolidated statements of shareholders’ equity for
+additional information on changes in other comprehensive income for the years ended May 31, 2012, 2011 and 2010. 
+Cash Flow
+Hedges 
+The purpose of the Company’s foreign currency hedging activities is to protect the Company from the risk that the eventual cash flows
+resulting from transactions in foreign currencies will be adversely affected by changes in exchange rates. Foreign currency exposures that the Company may elect to hedge in this manner include product cost exposures, non-functional currency
+denominated external and intercompany revenues, selling and administrative expenses, investments in U.S. Dollar-denominated available-for-sale debt securities and certain other intercompany transactions. 
+Product cost exposures are primarily generated through non-functional currency denominated product purchases and the foreign currency adjustment program described
+below. NIKE entities primarily purchase products in two ways: 1) Certain NIKE entities purchase product from the NIKE Trading Company (“NTC”), a wholly-owned centralized sourcing hub that buys NIKE branded products from external factories,
+predominantly in U.S. Dollars. The NTC, whose functional currency is the U.S. Dollar, then sells the products to NIKE entities in their respective functional currencies. When the NTC sells to a NIKE entity with a different functional currency,
+the result is a foreign currency exposure for the NTC; 2) Other NIKE entities purchase product directly from external factories in U.S. Dollars. These purchases generate a foreign currency exposure for those NIKE entities with a functional currency
+other than the U.S. Dollar. 
+In January 2012, the Company implemented a foreign currency adjustment program with certain factories. The program is
+designed to more effectively manage foreign currency risk by assuming certain of the factories’ foreign currency exposures, some of which are natural offsets to our existing foreign currency exposures. Under this program, the Company’s
+payments to these factories are adjusted for rate fluctuations in the basket of currencies (“factory currency exposure index”) in which the labor, materials and overhead costs incurred by the factories in the production of NIKE branded
+products (“factory input costs”) are denominated. For the portion of the indices denominated in the local or functional currency of the factory, the Company may elect to place formally designated cash flow hedges. For all currencies within
+the indices, excluding the U.S. Dollar and the local or functional currency of the factory, an embedded derivative is created upon the factory’s acceptance of NIKE’s purchase order. Embedded derivatives are separated from the related
+purchase order and their accounting treatment is described further below. 
+The Company’s policy permits the utilization of derivatives to reduce its
+foreign currency exposures where internal netting or other strategies cannot be effectively employed. Hedged transactions are denominated primarily in Euros, British Pounds and Japanese Yen. The Company may enter into hedge contracts typically
+starting 12 to 18 months in advance of the forecasted transaction and may place incremental hedges for up to 100% of the exposure by the time the forecasted transaction occurs. 
+All changes in fair value of derivatives designated as cash flow hedges, excluding any ineffective portion, are recorded in other comprehensive income until net income is affected by the variability of cash flows
+of the hedged transaction. In most cases, amounts recorded in other comprehensive income will be released to net income some time after the maturity of the related derivative. Effective hedge results are classified within the consolidated statements
+of income in the same manner as the underlying exposure, with the results of hedges of non-functional currency denominated revenues and product cost exposures, excluding embedded derivatives as described below, recorded in revenues or cost of sales,
+when the underlying hedged transaction affects consolidated net income. Results of hedges of selling and administrative expense are recorded together with those costs when the related expense is recorded. Results of hedges of anticipated purchases
+and sales of U.S. Dollar-denominated available-for-sale securities are recorded in other expense (income), net when the securities are sold. Results of hedges of certain anticipated intercompany transactions are recorded in other expense
+(income), net when the transaction occurs. The Company classifies the cash flows at settlement from these designated cash flow hedge derivatives in the same category as the cash flows from the related hedged items, generally within the cash provided
+by operations component of the cash flow statement. 
+Premiums paid on options are initially recorded as deferred charges. The Company assesses the
+effectiveness of options based on the total cash flows method and records total changes in the options’ fair value to other comprehensive income to the degree they are effective. 
+The Company formally assesses, both at a hedge’s inception and on an ongoing basis, whether the derivatives that are used in the hedging transaction have been highly effective in offsetting changes in the cash
+flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. Effectiveness for cash flow hedges is assessed based on forward rates. Ineffectiveness was not material for the years ended
+May 31, 2012, 2011 and 2010. 
+The Company discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer
+highly effective in offsetting changes in the cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer
+probable that the forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate. 
+When the Company discontinues hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period, but is expected to occur within an additional two-month
+period of time thereafter, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified to net income when the forecasted transaction affects consolidated net income. However, if it is probable that a
+forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be recognized
+immediately in other expense (income), net. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing future changes
+in the fair value in other expense (income), net. For the years ended May 31, 2012, 2011 and 2010, the amounts recorded in other expense (income), net as a result of the 
+59 
+Table of Contents 
+discontinuance of cash flow hedging because the forecasted transaction was no longer probable of occurring were immaterial. 
+As of May 31, 2012, $162 million of deferred net gains (net of tax) on both outstanding and matured derivatives accumulated in other comprehensive income are expected to be reclassified to net income during
+the next 12 months concurrent with the underlying hedged transactions also being recorded in net income. Actual amounts ultimately reclassified to net income are dependent on the exchange rates in effect when derivative contracts that are currently
+outstanding mature. As of May 31, 2012, the maximum term over which the Company is hedging exposures to the variability of cash flows for its forecasted transactions is 24 months. 
+Fair Value Hedges 
+The Company is also exposed to the risk of changes in the fair value of
+certain fixed-rate debt attributable to changes in interest rates. Derivatives currently used by the Company to hedge this risk are receive-fixed, pay-variable interest rate swaps. As of May 31, 2012, all interest rate swap agreements are
+designated as fair value hedges of the related long-term debt and meet the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly, changes in the fair values of the interest rate swap agreements are
+considered to exactly offset changes in the fair value of the underlying long-term debt. The cash flows associated with the Company’s fair value hedges are periodic interest payments while the swaps are outstanding, which are reflected within
+the cash provided by operations component of the cash flow statement. The Company recorded no ineffectiveness from its interest rate swaps designated as fair value hedges for the years ended May 31, 2012, 2011, or 2010. 
+Net Investment Hedges 
+The Company also
+hedges the risk of variability in foreign-currency-denominated net investments in wholly-owned international operations. All changes in fair value of the derivatives designated as net investment hedges, except ineffective portions, are reported in
+the cumulative translation adjustment component of other comprehensive income along with the foreign currency translation adjustments on those investments. The Company classifies the cash flows at settlement of its net investment hedges within the
+cash provided or used by investing component of the cash flow statement. The Company assesses hedge effectiveness based on changes in forward rates. The Company recorded no ineffectiveness from its net investment hedges for the years ended
+May 31, 2012, 2011, or 2010. 
+Embedded Derivatives 
+As described above, for currencies within the factory currency exposure indices that are neither the U.S. Dollar nor the local or functional currency of the factory, an embedded derivative is created upon the
+factory’s acceptance of NIKE’s purchase order. Embedded derivatives are treated as foreign currency forward contracts that are bifurcated from the related purchase order and recorded at fair value as a derivative asset or liability on the
+balance sheet with their corresponding change in fair value recognized in other expense (income), net from the date a purchase order is accepted by a factory through the date the purchase price is no longer subject to foreign currency fluctuations.
+At May 31, 2012, the notional amount of embedded derivatives was approximately $131 million. For the year ended May 31, 2012, a $1 million gain was recorded within other expense (income), net related to embedded derivatives. There were no
+amounts recognized in other expense (income), net for the years ended May 31, 2011 or 2010. 
+Undesignated Derivative Instruments
+The Company may elect to enter into foreign exchange forwards to mitigate the change in fair value of specific assets and liabilities on the balance
+sheet and/or the embedded derivative contracts explained above. These forwards are not designated as hedging instruments under the accounting standards for derivatives and hedging. Accordingly, these undesignated instruments are recorded at fair
+value as a derivative asset or liability on the balance sheet with their corresponding change in fair value recognized in other expense (income), net, together with the re-measurement gain or loss from the hedged balance sheet position or embedded
+derivative contract. The Company classifies the cash flows at settlement from undesignated instruments in the same category as the cash flows from the related hedged items, generally within the cash provided by operations component of the cash flow
+statement. 
+Credit Risk 
+The
+Company is exposed to credit-related losses in the event of non-performance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However,
+this does not eliminate the Company’s exposure to credit risk with these institutions. This credit risk is limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted. To manage this risk,
+the Company has established strict counterparty credit guidelines that are continually monitored and managed according to prescribed guidelines. The Company also utilizes a portfolio of financial institutions either headquartered or operating in the
+same countries in which the Company conducts its business. 
+The Company’s derivative contracts contain credit risk related contingent features
+designed to protect against significant deterioration in counterparties’ creditworthiness and their ultimate ability to settle outstanding derivative contracts in the normal course of business. The Company’s bilateral credit related
+contingent features require the owing entity, either the Company or the derivative counterparty, to post collateral for the portion of the fair value in excess of $50 million should the fair value of outstanding derivatives per counterparty be
+greater than $50 million. Additionally, a certain level of decline in credit rating of either the Company or the counterparty could also trigger collateral requirements. As of May 31, 2012, the Company was in compliance with all credit risk
+related contingent features and the aggregate fair value of derivative instruments with credit risk related contingent features that were in a net liability position was $6 million. Accordingly, the Company was not required to post any collateral as
+a result of these contingent features. Given the considerations described above, the Company considers the impact of the risk of counterparty default to be immaterial. 
+NOTE 17 — Operating Segments and Related Information 
+Operating Segments. The Company’s operating segments are evidence of the structure of the Company’s internal organization. The major segments are defined by geographic regions for operations
+participating in NIKE Brand sales activity excluding NIKE Golf. Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of sports and fitness footwear, apparel, and equipment. The
+Company’s reportable operating segments for the NIKE Brand are: North America, Western Europe, Central & Eastern Europe, Greater China, Japan, and Emerging Markets. The Company’s NIKE Brand Direct to Consumer operations are
+managed within each geographic segment. 
+The Company’s “Other” category is broken into two components for presentation purposes to align
+with the way management views the Company. The “Global Brand Divisions” category primarily represents NIKE Brand licensing businesses that are not part of a geographic operating segment, demand creation and operating overhead expenses that
+are centrally managed for the NIKE Brand, and costs associated with product development and supply chain operations. The “Other Businesses” category primarily consists of the activities of Cole Haan, Converse Inc., Hurley
+International LLC, NIKE Golf and Umbro Ltd. Activities represented in the “Other” category are considered immaterial for individual disclosure. 
+60 
+Table of Contents 
+Corporate consists of unallocated general and administrative expenses, which include expenses associated with
+centrally managed departments, depreciation and amortization related to the Company’s headquarters, unallocated insurance and benefit programs, including stock-based compensation, certain foreign currency gains and losses, including hedge gains
+and losses, certain corporate eliminations and other items. 
+The primary financial measure used by the Company to evaluate performance of individual
+operating segments is earnings before interest and taxes (commonly referred to as “EBIT”), which represents net income before interest expense, net and income taxes in the consolidated statements of income. Reconciling items for EBIT
+represent corporate expense items that are not allocated to the operating segments for management reporting. 
+As part of our centrally managed foreign
+exchange risk management program, standard foreign currency rates are assigned twice per year to each NIKE Brand entity in our geographic operating segments and certain Other Businesses. These rates are set approximately nine months in advance of
+the future selling season based on average market spot rates in the calendar month preceding the date they are established. Inventories and cost of sales for geographic operating segments and certain Other Businesses reflect use of these standard
+rates to record non-functional currency product purchases in the entity’s functional currency. Differences between assigned standard foreign currency rates and actual market rates are included in Corporate, together with foreign currency hedge
+gains and losses generated from our centrally managed foreign exchange risk management program and other conversion gains and losses. 
+Accounts
+receivable, inventories and property, plant and equipment for operating segments are regularly reviewed by management and are therefore provided below. Additions to long-lived assets as presented in the following table represent capital
+expenditures. 
+Certain prior year amounts have been reclassified to conform to fiscal 2012 presentation. 
+61 
+Table of Contents 
+Year Ended May 31, 
+(In millions) 
+2012 
+2011 
+2010 
+REVENUE 
+North America 
+$ 
+8,839 
+$ 
+7,579 
+$ 
+6,697 
+Western Europe 
+4,144 
+3,868 
+3,839 
+Central & Eastern Europe 
+1,200 
+1,040 
+999 
+Greater China 
+2,539 
+2,060 
+1,742 
+Japan 
+829 
+766 
+882 
+Emerging Markets 
+3,410 
+2,736 
+2,198 
+Global Brand Divisions 
+111 
+96 
+86 
+Total NIKE Brand 
+21,072 
+18,145 
+16,443 
+Other Businesses 
+3,095 
+2,786 
+2,564 
+Corporate 
+(39 
+) 
+(69 
+) 
+7 
+TOTAL NIKE CONSOLIDATED REVENUES 
+$ 
+24,128 
+$ 
+20,862 
+$ 
+19,014 
+EARNINGS BEFORE INTEREST AND TAXES 
+North America 
+$ 
+2,007 
+$ 
+1,736 
+$ 
+1,538 
+Western Europe 
+597 
+730 
+807 
+Central & Eastern Europe 
+234 
+244 
+249 
+Greater China 
+911 
+777 
+637 
+Japan 
+136 
+114 
+180 
+Emerging Markets 
+853 
+688 
+521 
+Global Brand Divisions 
+(1,177 
+) 
+(971 
+) 
+(866 
+) 
+Total NIKE Brand 
+3,561 
+3,318 
+3,066 
+Other Businesses 
+341 
+335 
+298 
+Corporate 
+(916 
+) 
+(805 
+) 
+(841 
+) 
+Total NIKE Consolidated Earnings Before Interest and Taxes 
+2,986 
+2,848 
+2,523 
+Interest expense, net 
+3 
+4 
+6 
+TOTAL NIKE CONSOLIDATED EARNINGS BEFORE TAXES 
+$ 
+2,983 
+$ 
+2,844 
+$ 
+2,517 
+ADDITIONS TO LONG-LIVED ASSETS 
+North America 
+$ 
+131 
+$ 
+79 
+$ 
+45 
+Western Europe 
+93 
+75 
+59 
+Central & Eastern Europe 
+20 
+5 
+4 
+Greater China 
+38 
+43 
+80 
+Japan 
+14 
+9 
+12 
+Emerging Markets 
+27 
+21 
+11 
+Global Brand Divisions 
+131 
+44 
+30 
+Total NIKE Brand 
+454 
+276 
+241 
+Other Businesses 
+34 
+38 
+52 
+Corporate 
+109 
+118 
+42 
+TOTAL ADDITIONS TO LONG-LIVED ASSETS 
+$ 
+597 
+$ 
+432 
+$ 
+335 
+DEPRECIATION 
+North America 
+$ 
+78 
+$ 
+70 
+$ 
+65 
+Western Europe 
+62 
+52 
+57 
+Central & Eastern Europe 
+6 
+4 
+4 
+Greater China 
+25 
+19 
+11 
+Japan 
+23 
+22 
+26 
+Emerging Markets 
+15 
+14 
+12 
+Global Brand Divisions 
+53 
+39 
+33 
+Total NIKE Brand 
+262 
+220 
+208 
+Other Businesses 
+45 
+44 
+46 
+Corporate 
+66 
+71 
+70 
+TOTAL DEPRECIATION 
+$ 
+373 
+$ 
+335 
+$ 
+324 
+62 
+Table of Contents 
+May 31, 
+(In millions) 
+2012 
+2011 
+ACCOUNTS RECEIVABLE, NET 
+North America 
+$ 
+1,149 
+$ 
+1,069 
+Western Europe 
+420 
+500 
+Central & Eastern Europe 
+261 
+290 
+Greater China 
+221 
+140 
+Japan 
+152 
+153 
+Emerging Markets 
+476 
+466 
+Global Brand Divisions 
+30 
+23 
+Total NIKE Brand 
+2,709 
+2,641 
+Other Businesses 
+549 
+471 
+Corporate 
+22 
+26 
+TOTAL ACCOUNTS RECEIVABLE, NET 
+$ 
+3,280 
+$ 
+3,138 
+INVENTORIES 
+North America 
+$ 
+1,272 
+$ 
+1,034 
+Western Europe 
+488 
+434 
+Central & Eastern Europe 
+180 
+145 
+Greater China 
+217 
+152 
+Japan 
+83 
+82 
+Emerging Markets 
+521 
+429 
+Global Brand Divisions 
+35 
+25 
+Total NIKE Brand 
+2,796 
+2,301 
+Other Businesses 
+511 
+414 
+Corporate 
+43 
+— 
+TOTAL INVENTORIES 
+$ 
+3,350 
+$ 
+2,715 
+PROPERTY, PLANT AND EQUIPMENT, NET 
+North America 
+$ 
+378 
+$ 
+330 
+Western Europe 
+314 
+338 
+Central & Eastern Europe 
+30 
+13 
+Greater China 
+191 
+179 
+Japan 
+359 
+360 
+Emerging Markets 
+59 
+58 
+Global Brand Divisions 
+205 
+116 
+Total NIKE Brand 
+1,536 
+1,394 
+Other Businesses 
+146 
+164 
+Corporate 
+597 
+557 
+TOTAL PROPERTY, PLANT AND EQUIPMENT, NET 
+$ 
+2,279 
+$ 
+2,115 
+63 
+Table of Contents 
+Revenues by Major Product Lines. Revenues to external customers for NIKE Brand products are attributable
+to sales of footwear, apparel and equipment. Other revenues to external customers primarily include external sales by Cole Haan, Converse, Hurley, NIKE Golf, and Umbro. 
+Year Ended May 31, 
+(In millions) 
+2012 
+2011 
+2010 
+Footwear 
+$ 
+13,426 
+$ 
+11,518 
+$ 
+10,301 
+Apparel 
+6,333 
+5,513 
+5,026 
+Equipment 
+1,202 
+1,018 
+1,030 
+Other 
+3,167 
+2,813 
+2,657 
+TOTAL NIKE CONSOLIDATED REVENUES 
+$ 
+24,128 
+$ 
+20,862 
+$ 
+19,014 
+Revenues and Long-Lived Assets by Geographic
+Area 
+Geographical area information is similar to what is reflected above under operating segments with the exception of the Other activity, which
+has been allocated to the geographical areas based on the location where the sales originated. Revenues derived in the United States were $10,247 million, $8,956 million, and $7,914 million for the years ended May 31, 2012, 2011, and 2010,
+respectively. The Company’s largest concentrations of long-lived assets primarily consist of the Company’s world headquarters and distribution facilities in the United States and distribution facilities in Japan, Belgium and China.
+Long-lived assets attributable to operations in the United States, which are comprised of net property, plant & equipment, were $1,260 million, $1,115 million, and $1,070 million at May 31, 2012, 2011, and 2010, respectively.
+Long-lived assets attributable to operations in Japan were $363 million at May 31, 2012 and 2011, and $336 million at May 31, 2010. Long-lived assets attributable to operations in Belgium were $164 million, $182 million, and $164 million
+at May 31, 2012, 2011, and 2010, respectively. Long-lived assets attributable to operations in China were $188 million, $175 million, and $144 million at May 31, 2012, 2011, and 2010, respectively. 
+Major Customers 
+No customer accounted for
+10% or more of the Company’s net revenues during the years ended May 31, 2012, 2011, and 2010. 
+ITEM 9. 
+Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
+There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or practices or financial statement disclosure required to be reported under this Item.
+ITEM 9A. 
+Controls and Procedures 
+We maintain disclosure controls and procedures that are designed to ensure information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods
+specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for
+timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
+assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 
+We carry out a variety of on-going procedures, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of
+the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance
+level as of May 31, 2012. 
+“Management’s Annual Report on Internal Control Over Financial Reporting” is included in Item 8 on
+page 37 of this Report. 
+There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has
+materially affected, or is reasonable likely to materially affect, our internal control over financial reporting. 
+ITEM 9B. 
+Other Information 
+On July 20, 2012, the Compensation Committee of the Company’s Board of Directors approved the grant of restricted stock units under the Company’s 1990 Stock Incentive Plan (the “RSUs”), to
+Donald W. Blair, Vice President and Chief Financial Officer, and Eric D. Sprunk, Vice President, Merchandising & Product. The grant to Mr. Blair consists of 32,231 RSUs, and the grant to Mr. Sprunk consists of 53,718 RSUs. Each RSU obligates the
+Company upon vesting of the RSU to issue to the RSU holder one share of NIKE Class B Common Stock plus a cash payment equal to the total amount of dividends paid per share between grant and vesting of the RSU. One hundred percent of the RSUs are
+scheduled to vest for Mr. Blair on July 20, 2015, and for Mr. Sprunk on July 20, 2017, subject to their continued employment with the Company through the applicable vesting date. In addition, the RSUs will become 100% vested upon (i) the
+recipient’s earlier death or disability, or (ii) if a “change in control” of the Company occurs and within two years after the change in control, the recipient’s employment is terminated by the Company without “cause”
+or by him for “good reason,” as such terms are defined in the Company’s current form of Restricted Stock Unit Agreement. Shares acquired under the RSUs are subject to the Company’s Policy for Recoupment of Incentive Compensation.
+64 
+Table of Contents 
+PART III 
+ITEM 10. 
+Directors, Executive Officers and Corporate Governance 
+The information required by Item 401 of Regulation S-K regarding directors is included under “Election of Directors” in the definitive Proxy
+Statement for our 2012 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 401 of Regulation S-K regarding executive officers is included under “Executive Officers of the
+Registrant” in Item 1 of this Report. The information required by Item 405 of Regulation S-K is included under “Election of Directors — Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive
+Proxy Statement for our 2012 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 406 of Regulation S-K is included under “Corporate Governance — Code of Business Conduct and
+Ethics” in the definitive Proxy Statement for our 2012 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Items 407(d)(4) and (d)(5) of Regulation S-K regarding the Audit Committee of the
+Board of Directors is included under “Corporate Governance — Board Committees” in the definitive Proxy Statement for our 2012 Annual Meeting of Shareholders and is incorporated herein by reference. 
+ITEM 11. 
+Executive Compensation 
+The information required by Items 402, 407(e)(4) and 407(e)(5) of Regulation S-K regarding executive compensation is included under “Election of Directors — Director Compensation for Fiscal
+2012,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Election of Directors — Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in
+the definitive Proxy Statement for our 2012 Annual Meeting of Shareholders and is incorporated herein by reference. 
+ITEM 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+The information required by Item 201(d) of Regulation S-K is included under
+“Executive Compensation — Equity Compensation Plans” in the definitive Proxy Statement for our 2012 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 403 of Regulation S-K is
+included under “Election of Directors — Stock Holdings of Certain Owners and Management” in the definitive Proxy Statement for our 2012 Annual Meeting of Shareholders and is incorporated herein by reference. 
+ITEM 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+The information required by Items 404 and 407(a) of Regulation S-K is included under “Election of Directors — Transactions with Related Persons” and “Corporate Governance — Director
+Independence” in the definitive Proxy Statement for our 2012 Annual Meeting of Shareholders and is incorporated herein by reference. 
+ITEM 14. 
+Principal Accountant Fees and Services 
+The information
+required by Item 9(e) of Schedule 14A is included under “Ratification Of Independent Registered Public Accounting Firm” in the definitive Proxy Statement for our 2012 Annual Meeting of Shareholders and is incorporated herein by
+reference. 
+65 
+Table of Contents 
+PART IV 
+ITEM 15. 
+Exhibits and Financial Statement Schedules 
+(a) 
+The following documents are filed as part of this report: 
+Form 10-K 
+Page No. 
+1. 
+Financial Statements: 
+Report of Independent Registered Public Accounting Firm 
+38 
+Consolidated Statements of Income for each of the three years ended May 31, 2012, May 31, 2011 and May 31, 2010 
+39 
+Consolidated Balance Sheets at May 31, 2012 and May 31, 2011 
+40 
+Consolidated Statements of Cash Flows for each of the three years ended May 31, 2012, May 31, 2011 and May 31, 2010 
+41 
+Consolidated Statements of Shareholders’ Equity for each of the three years ended May 31, 2012, May 31, 2011 and May 31, 2010 
+42 
+Notes to Consolidated Financial Statements 
+44 
+2. 
+Financial Statement Schedule: 
+II — Valuation and Qualifying Accounts 
+68 
+All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 
+3. 
+Exhibits: 
+66 
+Table of Contents 
+3.1 
+Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the
+fiscal quarter ended August 31, 2005). 
+3.2 
+Third Restated Bylaws, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed February 20, 2007). 
+4.1 
+Restated Articles of Incorporation, as amended (see Exhibit 3.1). 
+4.2 
+Third Restated Bylaws, as amended (see Exhibit 3.2). 
+10.1 
+Form of Non-Statutory Stock Option Agreement for options granted to non-employee directors prior to May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to
+Exhibit 10.3 to the Company’s Current Report on Form 8-K filed June 21, 2005).* 
+10.2 
+Form of Non-Statutory Stock Option Agreement for options granted to non-employee directors after May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit
+10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010).* 
+10.3 
+Form of Non-Statutory Stock Option Agreement for options granted to executives prior to May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to
+the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009).* 
+10.4 
+Form of Non-Statutory Stock Option Agreement for options granted to executives after May 31, 2010 under the 1990 Stock Incentive Plan.* 
+10.5 
+Form of Indemnity Agreement entered into between the Company and each of its officers and directors (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form
+10-K for the fiscal year ended May 31, 2008).* 
+10.6 
+NIKE, Inc. 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 24, 2010).* 
+10.7 
+NIKE, Inc. Executive Performance Sharing Plan.* 
+10.8 
+NIKE, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31,
+2008).* 
+10.9 
+NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective January 1, 2009) (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K
+for the fiscal year ended May 31, 2009).* 
+10.10 
+NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective June 1, 2004) (applicable to amounts deferred before January 1, 2005) (incorporated by reference to Exhibit
+10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004).* 
+10.11 
+Amendment No. 1 effective January 1, 2008 to the NIKE, Inc. Deferred Compensation Plan (June 1, 2004 Restatement) (incorporated by reference to Exhibit 10.9 to the Company’s
+Annual Report on Form 10-K for the fiscal year ended May 31, 2009).* 
+10.12 
+NIKE, Inc. Foreign Subsidiary Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
+November 30, 2008).* 
+10.13 
+Amended and Restated Covenant Not To Compete and Non-Disclosure Agreement between NIKE, Inc. and Mark G. Parker dated July 24, 2008 (incorporated by reference to Exhibit 10.1 to the
+Company’s Current Report on Form 8-K filed July 24, 2008).* 
+10.14 
+Amended and Restated Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Charles D. Denson dated July 24, 2008 (incorporated by reference to Exhibit 10.2 to the
+Company’s Current Report on Form 8-K filed July 24, 2008).* 
+10.15 
+Form of Long-Term Incentive Award Agreement under the Long-Term Incentive Plan (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the fiscal
+year ended May 31, 2010).* 
+10.16 
+Form of Restricted Stock Bonus Agreement under the 1990 Stock Incentive Plan for awards prior to May 31, 2010 (incorporated by reference to Exhibit 10.2 to the Company’s Current
+Report on Form 8-K filed June 21, 2005).* 
+10.17 
+Form of Restricted Stock Agreement under the 1990 Stock Incentive Plan for awards after May 31, 2010 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
+Form 8-K filed July 20, 2010).* 
+10.18 
+Form of Restricted Stock Unit Agreement under the 1990 Stock Incentive Plan.* 
+10.19 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Donald W. Blair dated November 10, 1999 (incorporated by reference to Exhibit 10.15 to the
+Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2006).* 
+10.20 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Gary DeStefano (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
+filed August 11, 2006).* 
+10.21 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Eric D. Sprunk dated April 18, 2001 (incorporated by reference to Exhibit 10.23 to the Company’s Annual
+Report on Form 10-K for the fiscal year ended May 31, 2010).* 
+10.22 
+Policy for Recoupment of Incentive Compensation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed July 20, 2010).* 
+10.23 
+Credit Agreement dated as of November 1, 2011 among NIKE, Inc., Bank of America, N.A., individually and as Agent and the other banks party thereto (incorporated by reference to Exhibit
+10.1 to the Company’s Current Report on Form 8-K filed November 2, 2011). 
+12.1 
+Computation of Ratio of Earnings to Fixed Charges. 
+21 
+Subsidiaries of the Registrant. 
+23 
+Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm (set forth on page 69 of this Annual Report on Form 10-K). 
+31.1 
+Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. 
+31.2 
+Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. 
+32 
+Section 1350 Certifications. 
+101.INS 
+XBRL Instance Document 
+67 
+Table of Contents 
+101.SCH 
+XBRL Taxonomy Extension Schema 
+101.CAL 
+XBRL Taxonomy Extension Calculation Linkbase 
+101.DEF 
+XBRL Taxonomy Extension Definition Document 
+101.LAB 
+XBRL Taxonomy Extension Label Linkbase 
+101.PRE 
+XBRL Taxonomy Extension Presentation Linkbase 
+* 
+Management contract or compensatory plan or arrangement. 
+The
+Exhibits filed herewith do not include certain instruments with respect to long-term debt of NIKE and its subsidiaries, inasmuch as the total amount of debt authorized under any such instrument does not exceed 10 percent of the total assets of NIKE
+and its subsidiaries on a consolidated basis. NIKE agrees, pursuant to Item 601(b)(4)(iii) of Regulation S-K, that it will furnish a copy of any such instrument to the SEC upon request. 
+Upon written request to Investor Relations, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453, NIKE will furnish shareholders with a copy of any Exhibit upon payment of $.10 per page, which represents
+our reasonable expenses in furnishing Exhibits. 
+SCHEDULE II — Valuation and qualifying accounts 
+(In millions) 
+Balance at 
+Beginning of Period 
+Charged to Costs 
+and Expenses 
+Charged to 
+Other Accounts 
+Write-Offs Net 
+of Recoveries 
+Balance at End 
+of Period 
+Allowance for doubtful accounts 
+(current
+and non-current) (1) 
+For the year ended May 31, 2010 
+$ 
+111 
+$ 
+46 
+$ 
+(10 
+) 
+$ 
+(30 
+) 
+$ 
+117 
+For the year ended May 31, 2011 
+117 
+25 
+15 
+(33 
+) 
+124 
+For the year ended May 31, 2012 
+124 
+24 
+(10 
+) 
+(43 
+) 
+95 
+(1) 
+The non-current portion of the allowance for doubtful accounts is classified in deferred income taxes and other assets on the consolidated balance sheets.
+68 
+Table of Contents 
+Consent of Independent Registered Public Accounting Firm 
+We hereby consent to the incorporation by reference in the
+Registration Statements on Form S-8 (Nos. 033-63995, 333-63581, 333-63583, 333-68864, 333-68886, 333-71660, 333-104822, 333-117059, 333-133360, 333-164248, 333-171647, and 333-173727) of NIKE, Inc. of our report dated July 24, 2012 relating to
+the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. 
+/s/ PRICEWATERHOUSECOOPERS LLP 
+Portland, Oregon 
+July 24, 2012 
+69 
+Table of Contents 
+Signatures 
+Pursuant to the requirements of Section 13 or 15(d) of
+the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 
+NIKE, INC. 
+By: 
+/s/ MARK G. PARKER 
+Mark G. Parker 
+Chief Executive Officer and President 
+Date: 
+July 24, 2012 
+Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following
+persons on behalf of the registrant and in the capacities and on the dates indicated. 
+Signature 
+Title 
+Date 
+PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR: 
+/s/ MARK G. PARKER 
+Mark G.
+Parker 
+Director, Chief Executive Officer and President 
+July 24, 2012 
+PRINCIPAL FINANCIAL OFFICER: 
+/s/ DONALD W. BLAIR 
+Donald W.
+Blair 
+Chief Financial Officer 
+July 24, 2012 
+PRINCIPAL ACCOUNTING OFFICER: 
+/s/ BERNARD F. PLISKA 
+Bernard F.
+Pliska 
+Corporate Controller 
+July 24, 2012 
+DIRECTORS: 
+/s/ PHILIP H. KNIGHT 
+Philip H.
+Knight 
+Director, Chairman of the Board 
+July 24, 2012 
+/s/ ELIZABETH J. COMSTOCK 
+Elizabeth J.
+Comstock 
+Director 
+July 24, 2012 
+/s/ JOHN G. CONNORS 
+John G.
+Connors 
+Director 
+July 24, 2012 
+/s/ TIMOTHY D. COOK 
+Timothy D.
+Cook 
+Director 
+July 24, 2012 
+/s/ ALAN B. GRAF, JR. 
+Alan B. Graf,
+Jr. 
+Director 
+July 24, 2012 
+/s/ DOUGLAS G. HOUSER 
+Douglas G.
+Houser 
+Director 
+July 24, 2012 
+/s/ JOHN C. LECHLEITER 
+John C.
+Lechleiter 
+Director 
+July 24, 2012 
+/s/ JOHNATHAN A. RODGERS 
+Johnathan A.
+Rodgers 
+Director 
+July 24, 2012 
+/s/ ORIN C. SMITH 
+Orin C.
+Smith 
+Director 
+July 24, 2012 
+/s/ JOHN R. THOMPSON, JR. 
+John R.
+Thompson, Jr. 
+Director 
+July 24, 2012 
+/s/ PHYLLIS M. WISE 
+Phyllis M. Wise 
+Director 
+July 24, 2012 
+70
\ No newline at end of file
diff --git a/raw/filings/0000320187/2011/0001193125-12-312306/filing_metadata.csv b/raw/filings/0000320187/2011/0001193125-12-312306/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..13974cc8625d8914d5d1b493bcd6e76d1cd736a2
--- /dev/null
+++ b/raw/filings/0000320187/2011/0001193125-12-312306/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000320187,NKE,"NIKE, Inc.",10-K,2012-07-24,2012-05-31,2012-07-25T00:16:23.000Z,0001193125-12-312306,d341264d10k.htm,FORM 10-K,12966294,1,0,https://www.sec.gov/Archives/edgar/data/320187/000119312512312306/d341264d10k.htm,https://www.sec.gov/Archives/edgar/data/320187/000119312512312306/,2011,2011,1
diff --git a/raw/filings/0000320187/2011/0001193125-12-312306/item1.txt b/raw/filings/0000320187/2011/0001193125-12-312306/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..94b8a9a6dff545f35419ee81e5a2647ae670056a
--- /dev/null
+++ b/raw/filings/0000320187/2011/0001193125-12-312306/item1.txt
@@ -0,0 +1,278 @@
+ITEM 1. 
+Business 
+General
+NIKE, 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 the context indicates otherwise. Our internet address is www.nike.com. On our NIKE Corporate web site, located at www.nikeinc.com, we post the following filings as soon as reasonably
+practicable after they are electronically filed with or furnished to the 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 furnished 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 free of charge. Also available on the NIKE Corporate web site are the
+charters of the committees of our board of directors, as well as our corporate governance guidelines and code of ethics; copies of any of these documents 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 worldwide marketing and
+selling of high quality footwear, apparel, equipment, accessories and services. NIKE is the largest seller of athletic footwear and athletic apparel in the world. We sell our products to retail accounts, through NIKE-owned retail stores and internet
+sales, which we refer to as our “Direct to Consumer” operations, and through a mix of independent distributors and licensees, in approximately 190 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. 
+Products 
+We focus our product offerings in seven key categories: Running, Basketball, Football (Soccer), Men’s Training, Women’s Training, NIKE Sportswear (our sports-inspired products), and Action Sports. We also
+market products designed for kids, as well as for other athletic and recreational uses such as baseball, cricket, golf, lacrosse, outdoor activities, football (American), tennis, volleyball, walking and wrestling. 
+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. NIKE Sportswear, Running, Basketball, Football (Soccer) 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 sell sports apparel and accessories covering most of
+the above categories, 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 use or by category. 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, including bags, socks, sport balls, eyewear, timepieces, digital 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
+directly to customers through our Direct to Consumer operations, we have entered into license agreements that permit unaffiliated parties to manufacture and sell certain apparel, digital devices and applications 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”), headquartered in North Andover, Massachusetts, designs, distributes and
+licenses athletic and casual footwear, apparel and accessories under the Converse ® , Chuck
+Taylor ® , All Star ® , One Star ® , Star Chevron ® and Jack Purcell ® trademarks. 
+Our wholly-owned subsidiary, Hurley
+International LLC (“Hurley”), headquartered in Costa Mesa, California, designs and distributes a line of action sports and youth lifestyle apparel and accessories under the Hurley ® trademark. 
+Our wholly-owned subsidiary, Umbro
+International Limited (“Umbro”), headquartered in Cheadle, United Kingdom, designs, distributes and licenses athletic and casual footwear, apparel and equipment, primarily for the sport of football (soccer), under the Umbro ® trademark. 
+As part of our long-term growth strategy, we continually evaluate
+our existing portfolio of businesses to ensure we are investing in those businesses that are accretive to the NIKE Brand, and with the largest growth potential and highest returns. On May 31, 2012, we announced our intention to divest of the
+Cole Haan and Umbro businesses, which will allow us to focus our resources on driving growth in the NIKE, Jordan, Converse and Hurley brands. Refer to the “Other Businesses” section under Item 7— Management Discussion and
+Analysis of Financial Condition and Results of Operations for additional information. 
+1 
+Table of Contents 
+Sales and Marketing 
+Financial information about geographic and segment operations
+appears in Note 17 — Operating Segments and Related Information of the accompanying Notes to the Consolidated Financial Statements on page 60. 
+We
+experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly 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 fitness activities and changing design trends affect the demand for our products. We must therefore respond to trends and shifts in consumer preferences by adjusting the mix of
+existing product offerings, developing new products, styles and categories, and influencing sports and fitness preferences through aggressive marketing. Failure to respond in a timely and adequate manner could have a material adverse effect on our
+sales and profitability. This is a continuing risk. 
+We report our NIKE Brand operations based on our internal geographic organization. Each NIKE
+Brand geography operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel, and equipment. Our reportable operating segments for the NIKE Brand are: North America, Western Europe,
+Central & Eastern Europe, Greater China, Japan, and Emerging Markets. Our NIKE Brand Direct to Consumer operations are managed within each geographic segment. 
+United States Market 
+In fiscal 2012, sales in the United States including U.S. sales of our Other Businesses accounted for approximately 42% of total revenues, compared to 43% in fiscal 2011 and 42% in fiscal 2010. Our Other
+Businesses were primarily comprised of our affiliate brands; Cole Haan, Converse, Hurley and Umbro; and NIKE Golf. We sell to thousands of retail accounts in the United States, including a mix of footwear stores, sporting goods stores, athletic
+specialty stores, department stores, skate, tennis and golf shops, and other retail accounts. During fiscal 2012, our three largest customers accounted for approximately 24% of sales in the United States. 
+We make substantial use of our “futures” ordering program, which allows retailers to order five to six months in advance of delivery with the
+commitment that their orders will be delivered within a set time period at a fixed price. In fiscal 2012, 86% of our U.S. wholesale footwear shipments (excluding our Other Businesses) were made under the futures program, compared to 87% in fiscal
+2011 and 89% in fiscal 2010. In fiscal 2012, 64% of our U.S. wholesale apparel shipments (excluding our Other Businesses) were made under the futures program, compared to 60% in fiscal 2011 and 62% in fiscal 2010. 
+We utilize NIKE sales offices to solicit sales in the United States as well as independent sales representatives to sell specialty products for golf, skateboarding
+and snowboarding products. In addition, our Direct to Consumer operations sell NIKE Brand products through our internet website, www.nikestore.com , and the following in-line and factory retail outlets in the United States: 
+U.S. Retail Stores 
+Number 
+NIKE factory stores 
+156 
+NIKE in-line stores, including NIKETOWNs and employee-only stores 
+28 
+Cole Haan stores (including factory stores) 
+109 
+Converse stores (including factory stores) 
+62 
+Hurley stores (including factory and employee stores) 
+29 
+TOTAL 
+384 
+NIKE’s three significant distribution centers in the
+United States for NIKE Brand products, including NIKE Golf, are located in Memphis, Tennessee. NIKE also operates and leases one facility in Memphis, Tennessee for NIKE Brand product returns. NIKE Brand apparel and equipment products are also
+shipped from our Foothill Ranch, California distribution center. Cole Haan products are distributed primarily from Greenland, New Hampshire, and Converse and Hurley products are shipped primarily from Ontario, California. 
+International Markets 
+In fiscal 2012, non-U.S. sales (including non-U.S. sales of our Other Businesses) accounted for 58% of total revenues, compared to 57% in fiscal 2011 and 58% in fiscal 2010. We sell our products to retail accounts,
+through our own Direct to Consumer operations, and through a mix of independent distributors, licensees and sales representatives around the world. We sell to thousands of retail accounts and operate 16 distribution centers outside of the United
+States. In many countries and regions, including Canada, Asia, some Latin American countries, and Europe, we have a futures ordering program for retailers similar to the United States futures program described above. During fiscal 2012, NIKE’s
+three largest customers outside of the U.S. accounted for approximately 11% of total non-U.S. sales. 
+Our Direct to Consumer business operates the following in-line and factory retail outlets outside the United States: 
+Non-U.S. Retail Stores 
+Number 
+NIKE factory stores 
+308 
+NIKE in-line stores, including NIKETOWNs and employee-only stores 
+65 
+Cole Haan stores (including factory stores) 
+69 
+TOTAL 
+442 
+2 
+Table of Contents 
+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. 
+3 
+Table of Contents 
+International Operations and Trade 
+Our international operations and sources of supply are subject to the usual risks 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 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 developments occurring. 
+The global economic recession resulted in a significant 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 may in turn adversely affect our sales or profitability and the imported footwear and apparel industry as a whole. Accordingly, we are actively monitoring the developments
+described below. 
+Footwear Imports into the European Union 
+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 within the scope of the investigation, and (ii) does not meet the legal requirements of injury and price in an anti-dumping
+investigation. Our arguments were successful and the EU agreed in October 2006 on definitive duties of 16.5% for China and 10% for Vietnam for non-STAF leather footwear, but excluded STAF from the final measures. Prior to the scheduled expiration in
+October 2008 of the measures imposed on the non-STAF footwear, the domestic industry requested and the EC agreed to review a petition to extend these restrictions on non-STAF leather footwear. In December 2009, following a review of the ongoing
+restrictions, EU member states voted to extend the measures for an additional 15 months, until March 31, 2011. In early 2011, the EC declined to further extend the measures and since April 1, 2011 these restrictions have been terminated.
+The EC noted at the time that it would monitor leather footwear imports from Vietnam and China over the next 12 months. No new trade defense actions have been taken by the EC. 
+On February 3, 2010, the Chinese government announced it would seek to refer 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. On October 28, 2011, the
+WTO issued a ruling in which it supported China’s positions on a number of issues. Neither party has filed an appeal. 
+Footwear, Apparel and Equipment Imports into Brazil and Argentina 
+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 final
+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. This decision does not materially affect us. In October 2011, the Brazilian government initiated an anti-circumvention investigation to determine whether Chinese-made products or components were subject to minimal assembly or
+finishing in Vietnam or Indonesia to evade anti-dumping duties on Chinese-made products. In July 2012, the Brazilian government found no circumvention was taking place and this matter is closed. 
+Many products, including footwear, apparel and equipment, that we and others in our industry import into Argentina and Brazil are subject to the WTO non-automatic
+licensing requirements, which means that it may take up to 60 days for those products to clear customs and enter into those jurisdictions. From time to time, in addition to these WTO licensing requirements, these jurisdictions 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. 
+Footwear, Apparel and Equipment Imports into Turkey 
+In 2006, Turkey introduced safeguard measures in the form of additional duties on all imported
+footwear into Turkey with the goal of protecting its local shoe manufacturing industry until August 2009. In June 2009, Turkish shoe-manufacturers submitted, and the Turkish government agreed to review, a request for extension of the safeguard
+measures claiming that the rehabilitation process of the local Turkish industry was interrupted due to the continuing increase of footwear imports. Despite the importers opposition to the continuation of the safeguard measures, the Turkish
+authorities extended these safeguard measures until August 2012, but reduced the duty from $3 per pair of footwear to $1.60 per pair of footwear. In June 2012, the government of Turkey launched an expiry review on the footwear safeguards to assess
+if they should be extended for three additional years (until August 2015). Together with other companies in our industry, we are advocating for exclusion of certain footwear products (STAF shoes) that cannot be manufactured in Turkey and
+therefore should not be subject to a higher import duty. 
+In 2011, two new safeguard measures and reviews were initiated by the Turkish Undersecretariat
+of Foreign Trade (“UFT”) on apparel and equipment imports. In January 2011, the UFT began an investigation on apparel imports that could result in a 20-30% increase in import duties applied to imported apparel products, regardless of
+country of origin and with exceptions for EU 
+4 
+Table of Contents 
+and countries that are included in a cross-cumulation of origin system in the framework of the Free Trade Agreements to which Turkey is a party, subject to evidence of preferential origin. In
+July 2011, these higher import duties were approved and will be in place through July 2014. 
+Together with other companies in our industry, we advocated
+for exclusion of certain apparel products used for sporting activities that cannot be manufactured in Turkey and therefore should not be subject to a higher import duty but no exclusion has been granted. 
+In February 2011, the UFT began a review of existing safeguard measure on travel goods, handbags and similar accessories and containers listed under applicable
+regulations. One Turkish bag manufacturers association has requested the continuation of the safeguard measures through April 2014, with the application of an additional import duty of $2.50/kg (max. $3.75/unit) to $2.70/kg (max. $4.25/unit),
+regardless of country of origin. In October 2011, these higher import duties were approved and will be in place through April 2014. 
+Together with other
+companies in our industry, we advocated for the exclusion of non-leather bags from the scope of the continued safeguards but no exclusion has been granted. 
+Trade Relations with China 
+China represents an important sourcing country and consumer marketing country for us. Many
+governments around the world are concerned about China’s growing and fast-paced economy, compliance with WTO rules, currency valuation, and high trade surpluses. As a result, a wide range of legislative proposals have been introduced to address
+these concerns. We are working with broad coalitions of global businesses and trade associations representing a wide variety of sectors (e.g., services, manufacturing, and agriculture) to help ensure 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. We believe
+other companies in our industry as well as most other multi-national companies are in a similar position regarding these trade measures. 
+In the event
+any of these 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. We believe our principal competitors are subject to similar risks. 
+Competition 
+The athletic footwear, apparel, and equipment industry is keenly competitive in the United
+States and on a worldwide basis. We compete internationally with a significant number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of
+athletic and leisure shoes, apparel, and equipment, including Adidas, Puma, and 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 and athletic apparel in the world. Performance and reliability of shoes, apparel, and equipment, new product development, price, product identity through marketing
+and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel, and equipment industry. To help market our products, we contract with prominent and influential 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 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 150 jurisdictions. In addition, we own many other trademarks that we
+utilize in marketing our products. We continue to vigorously protect our trademarks against infringement. 
+NIKE has an exclusive,
+worldwide license to make and sell footwear using patented “Air” technology. The process utilizes pressurized gas encapsulated in polyurethane. Some of the early NIKE
+AIR ® patents have expired, which may enable competitors to use certain types of similar technology. Subsequent NIKE AIR ® patents will not expire for several years. We also have over a thousand U.S. and foreign utility patents, and thousands of U.S. and foreign design patents covering
+components, manufacturing techniques and features used in various athletic and leisure shoes, apparel, athletic equipment, digital devices and golf products. These patents expire at various times, and patents issued for applications filed this year
+will last from now to 2026 for design patents, and from now to 2032 for utility patents. We believe our success 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 filing applications for United States and foreign patents on inventions, designs, and improvements that we deem valuable. 
+Employees 
+As of May 31, 2012, we had approximately 44,000 employees worldwide, including retail and
+part-time employees. Management considers its relationship with employees to be excellent. None of our employees are represented by a union, except for certain employees in the Emerging Markets geography, where local law requires those employees to
+be represented by a trade union, and in the United States, where certain employees of Cole Haan are represented by a union. Also, in some countries outside of the United States, local laws require representation for employees by works councils (such
+as in certain countries in the European Union, in which they are entitled to information and consultation on certain Company decisions) or other employee representation by 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 wide or national) collective bargaining agreements. There has never been a material interruption of operations due to labor disagreements. 
+5 
+Table of Contents 
+Executive Officers of the Registrant 
+The executive officers of NIKE as of July 19, 2012 are as follows: 
+Philip H. Knight, Chairman of the Board —
+Mr. Knight, 74, a director since 1968, is a co-founder of NIKE and, except for the period from June 1983 through September 1984, served as its President from 1968 to 1990 and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a
+certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State University. 
+Mark G. Parker, President and Chief Executive Officer — Mr. Parker, 56, was appointed CEO and
+President in January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge of
+development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. 
+David J. Ayre, Vice President, Global Human Resources — Mr. Ayre, 52, joined NIKE as Vice
+President, Global Human Resources in 2007. Prior to joining NIKE, he held a number of senior human resource positions with PepsiCo, Inc. since 1990, most recently as head of Talent and Performance Rewards. 
+Donald W. Blair, Vice President and Chief Financial
+Officer — Mr. Blair, 54, joined NIKE in November 1999. Prior to joining NIKE, he held a number of financial management positions with PepsiCo, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice President, Planning of
+PepsiCo’s Pizza Hut Division, and Senior Vice President, Finance of The Pepsi Bottling Group, Inc. Prior to joining PepsiCo, Mr. Blair was a certified public accountant with Deloitte, Haskins, and Sells. 
+Charles D. Denson, President of the NIKE Brand —
+Mr. Denson, 56, has been employed by NIKE since 1979. Mr. Denson held several management positions within the Company, including his appointments as Director of USA Apparel Sales in 1994, divisional Vice President, U.S. Sales in 1994,
+divisional Vice President European Sales in 1997, divisional Vice President and General Manager, NIKE Europe in 1998, Vice President and General Manager of NIKE USA in 2000, and President of the NIKE Brand in 2001. 
+Gary M. DeStefano, President, Global Operations —
+Mr. DeStefano, 55, has been employed by NIKE since 1982, with primary responsibilities in sales and regional administration. Mr. DeStefano was appointed Director of Domestic Sales in 1990, divisional Vice President in charge of domestic
+sales in 1992, Vice President of Global Sales in 1996, Vice President and General Manager of Asia Pacific in 1997, President of USA Operations in 2001, and President of Global Operations in 2006. 
+Trevor A. Edwards, Vice President, Global Brand and
+Category Management — Mr. Edwards, 49, joined NIKE in 1992. He was appointed Marketing Manager, Strategic Accounts, Foot Locker in 1993, Director of Marketing, the Americas in 1995, Director of Marketing, Europe in 1997, Vice President,
+Marketing for Europe, Middle East and Africa in 1999, and Vice President, U.S. Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in 2002 and Vice President, Global Brand and Category Management
+in 2006. Prior to NIKE, Mr. Edwards was with the Colgate-Palmolive Company. 
+Jeanne P.
+Jackson, President, Direct to Consumer — Ms. Jackson, 60, served as a member of the NIKE, Inc. Board of Directors from 2001 through 2009, when she resigned from our Board
+and was appointed President, Direct to Consumer. She is founder and CEO of MSP Capital, a private investment company. Ms. Jackson was CEO of Walmart.com from March 2000 to January 2002. She was with Gap, Inc., as President and
+CEO of Banana Republic from 1995 to 2000, also serving as CEO of Gap, Inc. Direct from 1998 to 2000. Since 1978, she has held various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated
+Department Stores. Ms. Jackson is the past President of the United States Ski and Snowboard Foundation Board of Trustees, and is a director of McDonald’s Corporation. She is a former director of Nordstrom, Inc., and Harrah’s
+Entertainment, Inc. 
+Hilary K. Krane, Vice
+President, General Counsel and Corporate Affairs — Ms. Krane, 48, joined NIKE as Vice President and General Counsel in April 2010. In 2011, her responsibilities expanded and she became Vice President, General Counsel and Corporate
+Affairs. Prior to joining NIKE, Ms. Krane was General Counsel and Senior Vice President for Corporate Affairs at Levi Strauss & Co. where she was responsible for legal affairs and overseeing the global brand protection department from
+2006 to 2010. From 1996 to 2006, she was a partner and assistant general counsel at PricewaterhouseCoopers LLP. 
+Bernard F. Pliska, Vice President, Corporate Controller — Mr. Pliska, 50, joined NIKE as Corporate Controller in 1995. He was appointed Vice
+President, Corporate Controller in 2003. Prior to NIKE, Mr. Pliska was with Price Waterhouse from 1984 to 1995. Mr. Pliska is a certified public accountant. 
+John F. Slusher, Vice President, Global Sports Marketing — Mr. Slusher, 43, has been employed
+by NIKE since 1998 with primary responsibilities in global sports marketing. Mr. Slusher was appointed Director of Sports Marketing for the Asia Pacific and Americas Regions in 2006, divisional Vice President, Asia Pacific & Americas
+Sports Marketing in September 2007 and Vice President, Global Sports Marketing in November 2007. Prior to joining NIKE, Mr. Slusher was an attorney at the law firm of O’Melveny & Myers from 1995 to 1998. 
+Eric D. Sprunk, Vice President, Merchandising and
+Product — Mr. Sprunk, 48, joined NIKE in 1993. He was appointed Finance Director and General Manager of the Americas in 1994, Finance Director, NIKE Europe in 1995, Regional General Manager, NIKE Europe Footwear in 1998, and Vice
+President & General Manager of the Americas in 2000. Mr. Sprunk was appointed corporate Vice President, Global Footwear in 2001 and Vice President, Merchandising and Product in 2009. Prior to joining NIKE, Mr. Sprunk was a
+certified public accountant with Price Waterhouse from 1987 to 1993. 
+Hans van Alebeek,
+Vice President, Global Operations and Technology — Mr. van Alebeek, 46, joined NIKE as Director of Operations of Europe in 1999, and was appointed Vice President,
+Operations & Administration in EMEA in 2001, Vice President, Global Operations in 2003, Vice President, Global Operations & Technology in 2004, and Corporate Vice President in November 2005. Prior to joining NIKE, Mr. van
+Alebeek worked for McKinsey & Company as a management consultant and at N.V. Indivers in business development. 
+Roger S. Wyett, President, Affiliates — Mr. Wyett, 55, joined NIKE in April 2005 as President and Chief Operating Officer of the
+Company’s Hurley brand and was appointed Vice President, Global Apparel in 2006. In October 2007, Mr. Wyett returned to the Company’s Hurley brand as President and Chief Executive Officer, and then in February 2011 was appointed
+President of Affiliates. Mr. Wyett first joined NIKE in 1994, holding a number of management positions in soccer and NIKE Team Sports. From 2000 to 2005, Mr. Wyett was employed by The Walt Disney Company where he was Senior Vice President
+for Global Apparel, Accessories and Footwear, and later promoted to Executive Vice President for Global Sales and Marketing for Consumer Products. 
+6 
+Table of Contents
\ No newline at end of file
diff --git a/raw/filings/0000320187/2011/0001193125-12-312306/item13.txt b/raw/filings/0000320187/2011/0001193125-12-312306/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..42fde869ed0a7a61d25181225ba877f3beb8e6a2
--- /dev/null
+++ b/raw/filings/0000320187/2011/0001193125-12-312306/item13.txt
@@ -0,0 +1,4 @@
+ITEM 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+The information required by Items 404 and 407(a) of Regulation S-K is included under “Election of Directors — Transactions with Related Persons” and “Corporate Governance — Director
+Independence” in the definitive Proxy Statement for our 2012 Annual Meeting of Shareholders and is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2011/0001193125-12-312306/item9a.txt b/raw/filings/0000320187/2011/0001193125-12-312306/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0b20ae130c3ed62a137239a54498dc8fb439661d
--- /dev/null
+++ b/raw/filings/0000320187/2011/0001193125-12-312306/item9a.txt
@@ -0,0 +1,13 @@
+ITEM 9A. 
+Controls and Procedures 
+We maintain disclosure controls and procedures that are designed to ensure information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods
+specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for
+timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
+assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 
+We carry out a variety of on-going procedures, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of
+the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance
+level as of May 31, 2012. 
+“Management’s Annual Report on Internal Control Over Financial Reporting” is included in Item 8 on
+page 37 of this Report. 
+There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has
+materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2011/0001193125-12-312306/rp_note.txt b/raw/filings/0000320187/2011/0001193125-12-312306/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2011/0001193125-12-312306/rpt_disclosure.txt b/raw/filings/0000320187/2011/0001193125-12-312306/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f8388eac7d1e483be8b79f1ff43b073fb4ce67ae
--- /dev/null
+++ b/raw/filings/0000320187/2011/0001193125-12-312306/rpt_disclosure.txt
@@ -0,0 +1,8 @@
+Transactions with Related Persons 
+Mr. Knight makes his airplane available for business use by the Company for no charge. NIKE operates and maintains the aircraft. Mr. Knight reimbursed the Company $960,015 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2013, determined based on the cost of fuel and other variable costs associated with the flights under FAR 91-501(d). 
+Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health and life insurance policies for Howard Slusher, the father of John Slusher, Executive Vice President of Sports Marketing, following expiration of the agreement. During fiscal 2013, the Company paid Howard Slusher $130,427 for health and life insurance premiums. 
+Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker is a Marketplace Director, and has been employed by the Company for over 29 years; Stephen Parker is the General Manager, China-Converse, and has been employed by the Company for over 25 years; and Ann Parker is an Executive Talent Scout, and has been employed by the Company for over 23 years. During fiscal year 2013, the Company paid aggregate compensation to Bob Parker, Stephen Parker and Ann Parker in the amounts of $439,806, $545,015, $299,425, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary, bonuses, the grant date fair value of stock options granted during the fiscal year estimated using the Black-Scholes pricing model, profit sharing and matching contributions to Company-sponsored retirement plans. 
+Mr. Thompson’s son, John Thompson III, is the head basketball coach at Georgetown University, and the Company has a contract with him to provide endorsement and consulting services to the Company through August 2014, with base compensation over the five year term of the contract of $500,000, and up to $80,000 per year of product and other performance incentives. 
+Compensation Committee Interlocks and Insider Participation 
+The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2013 were Timothy D. Cook, Elizabeth J. Comstock, John C. Lechleiter, and Johnathan A. Rodgers. The Committee is composed solely of independent, non-employee directors. No member of the Compensation Committee has been an executive officer of the Company, and no member of the Compensation Committee had any relationships requiring disclosure by the Company under the SEC’s rules requiring disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or member of a compensation committee (or other committee serving an equivalent function) of any other entity, the executive officers of which served as a director or member of the Compensation Committee of the Company during the fiscal year ended May 31, 2013. 
+12
\ No newline at end of file
diff --git a/raw/filings/0000320187/2013/0000320187-14-000097/filing.txt b/raw/filings/0000320187/2013/0000320187-14-000097/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0461308e9e1ee2d3775634300ee0c47c8cedee7c
--- /dev/null
+++ b/raw/filings/0000320187/2013/0000320187-14-000097/filing.txt
@@ -0,0 +1,6818 @@
+10-K
+1
+nke-5312014x10k.htm
+10-K
+NKE - 5.31.2014 - 10K 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+FORM 10-K 
+(Mark One) 
+þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 
+FOR THE FISCAL YEAR ENDED May 31, 2014 
+OR 
+¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 
+FOR THE TRANSITION PERIOD FROM TO . 
+Commission File No. 1-10635 
+(Exact name of Registrant as specified in its charter) 
+OREGON 
+93-0584541 
+(State or other jurisdiction of incorporation) 
+(IRS Employer Identification No.) 
+One Bowerman Drive, Beaverton, Oregon 
+97005-6453 
+(Address of principal executive offices) 
+(Zip Code) 
+(503) 671-6453 
+(Registrant’s Telephone Number, Including Area Code) 
+SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: 
+Class B Common Stock 
+New York Stock Exchange 
+(Title of Each Class) 
+(Name of Each Exchange on Which Registered) 
+SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: 
+NONE 
+Indicate by check mark 
+YES 
+NO 
+• 
+if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 
+þ 
+¨ 
+• 
+if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 
+¨ 
+þ 
+• 
+whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
+þ 
+¨ 
+• 
+whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
+þ 
+¨ 
+• 
+if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 
+¨ 
+þ 
+• 
+whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
+Large accelerated filer þ 
+Accelerated filer ¨ 
+Non-accelerated file ¨ 
+Smaller Reporting Company ¨ 
+• 
+whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 
+¨ 
+þ 
+As of November 30, 2013, the aggregate market values of the Registrant’s Common Stock held by non-affiliates were: 
+Class A 
+$ 
+3,536,091,219 
+Class B 
+56,098,067,138 
+$ 
+59,634,158,357 
+As of July 18, 2014, the number of shares of the Registrant’s Common Stock outstanding were: 
+Class A 
+177,557,876 
+Class B 
+690,739,620 
+868,297,496 
+DOCUMENTS INCORPORATED BY REFERENCE: 
+Parts of Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on September 18, 2014 are incorporated by reference into Part III of this Report. 
+Table of Contents 
+NIKE, INC. 
+ANNUAL REPORT ON FORM 10-K 
+Table of Contents 
+Page 
+PART I 
+1 
+ITEM 1. 
+Business 
+1 
+General 
+1 
+Products 
+1 
+Sales and Marketing 
+2 
+United States Market 
+2 
+International Markets 
+2 
+Significant Customer 
+2 
+Orders 
+3 
+Product Research, Design and Development 
+3 
+Manufacturing 
+3 
+International Operations and Trade 
+4 
+Competition 
+4 
+Trademarks and Patents 
+4 
+Employees 
+5 
+Executive Officers of the Registrant 
+5 
+ITEM 1A. 
+Risk Factors 
+6 
+ITEM 1B. 
+Unresolved Staff Comments 
+14 
+ITEM 2. 
+Properties 
+14 
+ITEM 3. 
+Legal Proceedings 
+14 
+ITEM 4. 
+Mine Safety Disclosures 
+14 
+PART II 
+15 
+ITEM 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+15 
+ITEM 6. 
+Selected Financial Data 
+17 
+ITEM 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+19 
+ITEM 7A. 
+Quantitative and Qualitative Disclosures about Market Risk 
+40 
+ITEM 8. 
+Financial Statements and Supplementary Data 
+41 
+ITEM 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+74 
+ITEM 9A. 
+Controls and Procedures 
+74 
+ITEM 9B. 
+Other Information 
+74 
+PART III 
+75 
+(Except for the information set forth under “Executive Officers of the Registrant” in Item 1 above, Part III is incorporated by reference from the Proxy Statement for the NIKE, Inc. 2014 Annual Meeting of Shareholders.) 
+ITEM 10. 
+Directors, Executive Officers and Corporate Governance 
+75 
+ITEM 11. 
+Executive Compensation 
+75 
+ITEM 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+75 
+ITEM 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+75 
+ITEM 14. 
+Principal Accountant Fees and Services 
+75 
+PART IV 
+76 
+ITEM 15. 
+Exhibits and Financial Statement Schedules 
+76 
+Signatures 
+80 
+Table of Contents 
+PART I 
+ITEM 1. Business 
+General 
+NIKE, 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, collectively, unless the context indicates otherwise. Our NIKE e-commerce website is located at www.nike.com. On our NIKE corporate website, located at www.nikeinc.com, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the United States Securities and Exchange Commission (the "SEC"): 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 furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended. Our definitive Proxy Statements are also posted. All such filings on our NIKE corporate website are available free of charge. Copies of these filings may also be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website ( www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically. Also available on the NIKE corporate website are the charters of the committees of our Board of Directors, as well as our corporate governance guidelines and code of ethics; copies of any of these documents 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 worldwide marketing and selling of athletic footwear, apparel, equipment, accessories, and services. NIKE is the largest seller of athletic footwear and athletic apparel in the world. We sell our products to retail accounts, through NIKE-owned retail stores and internet websites (which we refer to as our “Direct to Consumer” or "DTC" operations), and through a mix of independent distributors and licensees throughout the world. Virtually all of our products are manufactured by independent contractors. Practically all footwear and apparel products are produced outside the United States, while equipment products are produced both in the United States and abroad. 
+Products 
+We focus our NIKE Brand product offerings in eight key categories: Running, Basketball, Football (Soccer), Men’s Training, Women’s Training, Action Sports, Sportswear (our sports-inspired lifestyle products), and Golf. Basketball includes our Brand Jordan product offerings and Men's Training includes our baseball and U.S. football product offerings. We also market products designed for kids, as well as for other athletic and recreational uses such as cricket, lacrosse, tennis, volleyball, wrestling, walking, and outdoor activities. 
+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 our products. Sportswear, Running, Basketball, and Football (Soccer) are currently our top-selling footwear categories and we expect them to continue to lead in product sales. 
+We sell sports apparel and accessories covering most of the above-mentioned categories, which feature the same trademarks and are sold predominantly through the same marketing and distribution channels as athletic footwear. We often market footwear, apparel, and accessories in “collections” of similar use or by category. 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, including bags, socks, sport balls, eyewear, timepieces, digital 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. 
+One of our wholly-owned subsidiary brands, Hurley, headquartered in Costa Mesa, California (“Hurley”), designs and distributes a line of action sports and youth lifestyle apparel and accessories under the Hurley trademark. Sales of Hurley brand products are included within the NIKE Brand Action Sports category. 
+Our Brand Jordan division designs, distributes and licenses athletic and casual footwear, apparel and accessories predominantly focused on Basketball using the Jumpman trademark. Sales of Brand Jordan products are included within the NIKE Brand Basketball category. 
+Another of our wholly-owned subsidiary brands, Converse, headquartered in North Andover, Massachusetts (“Converse”), designs, distributes, and licenses casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. Converse results are reported on a stand-alone basis. 
+In addition to the products we sell to our wholesale customers and directly to consumers through our Direct to Consumer operations, we have also entered into license agreements that permit unaffiliated parties to manufacture and sell using NIKE-owned trademarks, certain apparel, digital devices and applications, and other equipment designed for sports activities. 
+On February 1, 2013, and November 30, 2012, we completed the divestitures of the Cole Haan and Umbro businesses, respectively, allowing us to better focus our resources on driving growth in the NIKE, Jordan, Converse, and Hurley brands. 
+1 
+Table of Contents 
+Sales and Marketing 
+Financial information about geographic and segment operations appears in Note 18 — Operating Segments and Related Information of the accompanying Notes to the Consolidated Financial Statements. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly 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 fitness activities and changing design trends affect the demand for our products. We must, therefore, respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories, and influencing sports and fitness preferences through extensive marketing. Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability. This is a continuing risk.We report our NIKE Brand operations based on our internal geographic organization. Each NIKE Brand geography operates predominantly in one industry: the design, development, marketing, and selling of athletic footwear, apparel, equipment, accessories, and services. Our reportable operating segments for the NIKE Brand are: North America, Western Europe, Central & Eastern Europe, Greater China, Japan, and Emerging Markets. Our NIKE Brand Direct to Consumer operations are managed within each geographic segment. 
+Converse is also a reportable segment, and operates in one industry: the design, marketing, licensing, and selling of casual sneakers, apparel, and accessories. 
+United States Market 
+In fiscal 2014, NIKE Brand and Converse sales in the United States accounted for approximately 46% of total revenues, compared to 45% in fiscal 2013 and 42% in fiscal 2012. We sell to thousands of retail accounts in the United States, including a mix of footwear stores, sporting goods stores, athletic specialty stores, department stores, skate, tennis, and golf shops, and other retail accounts. During fiscal 2014, our three largest customers accounted for approximately 26% of sales in the United States. 
+We make substantial use of our futures ordering program, which allows retailers to order five to six months in advance of delivery with the commitment that their orders will be delivered within a set time period at a fixed price. In fiscal 2014, 86% of our U.S. wholesale footwear shipments (excluding NIKE Golf, Hurley, and Converse) were made under the futures program, compared to 87% in fiscal 2013 and 86% in fiscal 2012. In fiscal 2014, 71% of our U.S. wholesale apparel shipments (excluding NIKE Golf, Hurley, and Converse) were made under the futures program, compared to 67% in fiscal 2013 and 64% in fiscal 2012. 
+We utilize NIKE sales offices to solicit sales in the United States, as well as independent sales representatives to sell specialty products for golf, skateboarding, and snowboarding. In addition, our Direct to Consumer operations sell NIKE Brand products to consumers through our e-commerce website, www.nike.com , and through the following number of retail stores in the United States: 
+U.S. Retail Stores 
+Number 
+NIKE Brand factory stores 
+176 
+NIKE Brand in-line stores, including NIKETOWNs and employee-only stores 
+33 
+Converse stores (including factory stores) 
+84 
+Hurley stores (including factory and employee stores) 
+29 
+TOTAL 
+322 
+NIKE has five primary distribution centers in the United States located in Memphis, Tennessee, three of which are leased. NIKE Brand apparel and equipment products are also shipped from our Foothill Ranch, California distribution center. Converse and Hurley products are shipped primarily from Ontario, California. 
+International Markets 
+In fiscal 2014, non-U.S. NIKE Brand and Converse sales accounted for 54% of total revenues, compared to 55% in fiscal 2013 and 58% in fiscal 2012. We sell our products to retail accounts, through our own Direct to Consumer operations, and through a mix of independent distributors, licensees, and sales representatives around the world. We sell to thousands of retail accounts and operate 16 distribution centers outside of the United States. In many countries and regions, including Canada, Asia, some Latin American countries, and Europe, we have a futures ordering program for retailers similar to the United States futures ordering program described above. During fiscal 2014, NIKE’s three largest customers outside of the United States accounted for approximately 6% of total non-U.S. sales. 
+Our Direct to Consumer business operates the following number of retail stores outside the United States: 
+Non-U.S. Retail Stores 
+Number 
+NIKE Brand factory stores 
+459 
+NIKE Brand in-line stores, including NIKETOWNs and employee-only stores 
+71 
+Converse stores (including factory stores) 
+6 
+TOTAL 
+536 
+International branch offices and subsidiaries of NIKE are located in Argentina, Australia, Austria, Belgium, Bermuda, Brazil, Canada, Chile, China, Costa Rica, Croatia, Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, 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 sales during fiscal 2014. 
+2 
+Table of Contents 
+Orders 
+Worldwide futures orders for NIKE Brand (excluding NIKE Golf and Hurley) athletic footwear and apparel, scheduled for delivery from June through November 2014, were $13.3 billion compared to $12.1 billion for the same period last year. This futures orders 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 discounts, order cancellations, 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 at-once and closeout sales of NIKE Brand footwear and apparel, sales of NIKE Brand equipment, sales from our Direct to Consumer 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 NIKE strives to produce products that help to enhance athletic performance, reduce injury, and maximize comfort. 
+In addition to NIKE’s 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, NIKE is simultaneously focused on the design of innovative products incorporating such technologies throughout our product categories. Using market intelligence and research, the various NIKE design teams identify opportunities to leverage new technologies in existing categories responding to consumer preferences. The proliferation of NIKE AIR, Lunar, Shox, Free, Flywire, Dri-Fit, FlyKnit, NIKE+, and NIKE Fuel technologies through Running, Basketball, Men's Training, Women's Training, and Sportswear, among others, typifies the Company's dedication to designing innovative products. 
+Manufacturing 
+We are supplied by approximately 150 footwear factories located in 14 countries. The largest single footwear factory accounted for approximately 5% of total fiscal 2014 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 2014, contract factories in Vietnam, China, and Indonesia manufactured approximately 43%, 28%, 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. In fiscal 2014, five footwear contract manufacturers each accounted for greater than 10% of fiscal 2014 footwear production, and in aggregate accounted for approximately 67% of NIKE Brand footwear production in fiscal 2014. 
+We are supplied by approximately 430 apparel factories located in 41 countries. The largest single apparel factory accounted for approximately 7% of total fiscal 2014 NIKE Brand apparel production. Virtually all of our apparel is manufactured outside of the United States by independent contract manufacturers who often operate multiple factories. In fiscal 2014, most of this apparel production occurred in China, Vietnam, Thailand, Indonesia, Sri Lanka, Pakistan, and Malaysia. In fiscal 2014, one apparel contract manufacturer accounted for greater than 10% of fiscal 2014 apparel production, and the top five contract manufacturers in aggregate accounted for approximately 34% of NIKE Brand apparel production in fiscal 2014. 
+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 NIKE Air-Sole cushioning components. During fiscal 2014, NIKE IHM, Inc., a wholly-owned subsidiary of NIKE, Inc., with facilities near Beaverton, Oregon and in St. Louis, 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, repel rain and/or snow, as well as plastic and metal hardware. 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. 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 2014, 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, Malaysia, 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, 2015. 
+3 
+Table of Contents 
+International Operations and Trade 
+Our international operations and sources of supply are subject to the usual risks 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 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, such protectionist measures, if implemented, could result in increases in the cost of our products, which may in turn adversely affect our sales or profitability as well as the imported footwear and apparel industry as a whole. 
+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, we are actively monitoring for dumping investigations against products from China and 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 increase customs clearance times for imports of footwear, apparel, and equipment. Moreover, with respect to trade restrictions targeting China, which represents an important sourcing and consumer marketing country 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. 
+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, V.F. Corp., Puma, Li Ning, and Under Armour, among others. We also compete with a number of vertical retailers such as lululemon athletica and Uniqlo. 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 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; 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; and 
+• 
+effective 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. 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 shoe designs and elements. For certain trade dress, we have sought and obtained federal trademark registrations. 
+NIKE has copyright protection in its design, graphics and other original works. When appropriate, we have sought registrations for this content. 
+NIKE owns patents, and has a patent license, facilitating its use of “Air” technologies. The "Air" process utilizes pressurized gas encapsulated in polyurethane. Some of the early NIKE AIR patents have expired, which may enable competitors to use certain types of similar technology. Subsequent NIKE AIR patents will not expire for several years. 
+We also file and maintain many U.S. and foreign utility patents, as well as many U.S. and foreign design patents protecting components, manufacturing techniques, features, and industrial design used in various athletic and leisure footwear, apparel, athletic equipment, digital devices, and golf products. These patents expire at various times; and patents issued for applications filed this calendar year in the United States will last until 2028 for design patents and until 2034 for utility patents. 
+We believe our success depends primarily upon our capabilities in design, research and development, production, and marketing rather than exclusively upon our patent position. However, we have followed a policy of filing patent applications for the United States and select foreign countries on inventions, designs, and improvements that we deem valuable. We continue to vigorously protect our trademarks and patents against infringement. 
+4 
+Table of Contents 
+Employees 
+As of May 31, 2014, we had approximately 56,500 employees worldwide, including retail and part-time employees. Management considers its relationship with employees to be excellent. None of our employees are represented by a union, except for certain employees in the Emerging Markets geography, where local law requires those employees to be represented by a trade union. Also, in some countries outside of the United States, local laws require employee representation by works councils (which may be entitled to information and consultation on certain Company decisions) or by organizations similar to a union. In certain European countries, we are required by local law to enter into and/or comply with industry-wide or national collective bargaining agreements. NIKE has never experienced a material interruption of operations due to labor disagreements. 
+Executive Officers of the Registrant 
+The executive officers of NIKE, Inc. as of July 18, 2014 are as follows: 
+Philip H. Knight, Chairman of the Board of Directors — Mr. Knight, 76, a director since 1968, is a co-founder of NIKE and, except for the period from June 1983 through September 1984, served as its President from 1968 to 1990 and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State University. 
+Mark G. Parker, President and Chief Executive Officer — Mr. Parker, 58, was appointed President and Chief Executive Officer in January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge of product development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. 
+David J. Ayre, Executive Vice President, Global Human Resources — Mr. Ayre, 54, joined NIKE as Vice President, Global Human Resources in 2007. Prior to joining NIKE, he held a number of senior human resource positions with PepsiCo, Inc. since 1990, most recently as head of Talent and Performance Rewards. 
+Donald W. Blair, Executive Vice President and Chief Financial Officer — Mr. Blair, 56, joined NIKE in November 1999. Prior to joining NIKE, he held a number of financial management positions with PepsiCo, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice President, Planning of PepsiCo’s Pizza Hut Division, and Senior Vice President, Finance of The Pepsi Bottling Group, Inc. Prior to joining PepsiCo, Mr. Blair was a certified public accountant with Deloitte, Haskins & Sells. 
+Trevor A. Edwards, President, NIKE Brand — Mr. Edwards, 51, joined NIKE in 1992. He was appointed Marketing Manager, Strategic Accounts for Foot Locker in 1993, Director of Marketing for the Americas Region in 1995, Director of Marketing for Europe in 1997, Vice President, Marketing for the Europe, Middle East and Africa Region in 1999, and Vice President, U.S. Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in 2002, Vice President, Global Brand and Category Management in 2006 and President, NIKE Brand in 2013. Prior to NIKE, Mr. Edwards was with the Colgate-Palmolive Company. 
+Jeanne P. Jackson, President, Product and Merchandising — Ms. Jackson, 62, joined NIKE in 2009. She was appointed President, Direct to Consumer in 2009 and President, Product and Merchandising in 2013. Ms. Jackson also served as a member of the NIKE, Inc. Board of Directors from 2001 through 2009. She founded and served as Chief Executive Officer of MSP Capital, a private investment company, from 2002 to 2009. Ms. Jackson was Chief Executive Officer of Walmart.com from March 2000 to January 2002. She was with Gap, Inc., as President and Chief Executive Officer of Banana Republic from 1995 to 2000, also serving as Chief Executive Officer of Gap, Inc. Direct from 1998 to 2000. Since 1978, she has held various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated Department Stores. 
+Hilary K. Krane, Executive Vice President, Chief Administrative Officer and General Counsel — Ms. Krane, 50, joined NIKE as Vice President and General Counsel in April 2010. In 2011, her responsibilities expanded and she became Vice President, General Counsel and Corporate Affairs. Ms. Krane was appointed to Executive Vice President, Chief Administrative Officer and General Counsel in 2013. Prior to joining NIKE, Ms. Krane was General Counsel and Senior Vice President for Corporate Affairs at Levi Strauss & Co. from 2006 to 2010. From 1996 to 2006, she was a partner and assistant general counsel at PricewaterhouseCoopers LLP. 
+Bernard F. Pliska, Vice President, Corporate Controller — Mr. Pliska, 52, joined NIKE as Corporate Controller in 1995. He was appointed Vice President, Corporate Controller in 2003. Prior to NIKE, Mr. Pliska was with Price Waterhouse from 1984 to 1995. Mr. Pliska is a certified public accountant. 
+John F. Slusher, Executive Vice President, Global Sports Marketing — Mr. Slusher, 45, has been employed by NIKE since 1998 with primary responsibilities in global sports marketing. Mr. Slusher was appointed Director of Sports Marketing for the Asia Pacific and Americas Regions in 2006, divisional Vice President of Asia Pacific & Americas Sports Marketing in September 2007, and Vice President, Global Sports Marketing in November 2007. Prior to joining NIKE, Mr. Slusher was an attorney at the law firm of O’Melveny & Myers from 1995 to 1998. 
+Eric D. Sprunk, Chief Operating Officer — Mr. Sprunk, 50, joined NIKE in 1993. He was appointed Finance Director and General Manager of the Americas Region in 1994, Finance Director for NIKE Europe in 1995, Regional General Manager of NIKE Europe Footwear in 1998, and Vice President & General Manager of the Americas Region in 2000. Mr. Sprunk was appointed Vice President of Global Footwear in 2001, Vice President of Merchandising and Product in 2009, and Chief Operating Officer in 2013. Prior to joining NIKE, Mr. Sprunk was a certified public accountant with Price Waterhouse from 1987 to 1993. 
+5 
+Table of Contents 
+ITEM 1A. Risk Factors 
+Special Note Regarding Forward-Looking Statements and Analyst Reports 
+Certain written and oral statements, other than purely historic information, including estimates, projections, statements relating to NIKE’s business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, made or incorporated by reference from time to time by NIKE or its representatives in this report, other reports, filings with the SEC, press releases, conferences, or otherwise, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by NIKE with the SEC, including Forms 8-K, 10-Q, and 10-K, and include, among others, the following: international, national, and local general economic and market conditions; the size and growth of the overall athletic footwear, apparel, and equipment markets; intense competition among designers, marketers, distributors, and sellers of athletic footwear, apparel, and equipment for consumers and endorsers; demographic changes; changes in consumer preferences; popularity of particular designs, categories of products, and sports; seasonal and geographic demand for NIKE products; difficulties in anticipating or forecasting changes in consumer preferences, consumer demand for NIKE products, and the various market factors described above; difficulties in implementing, operating, and maintaining NIKE’s increasingly complex information systems and controls, including, without limitation, the systems related to demand and supply planning and inventory control; interruptions in data and information technology systems; consumer data security; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that advance futures orders may not be indicative of future revenues due to changes in shipment timing, the changing mix of futures and at-once orders, and discounts, order cancellations, and returns; the ability of NIKE to sustain, manage, or forecast its growth and inventories; the size, timing, and mix of purchases of NIKE’s products; increases in the cost of materials, labor, and energy used to manufacture products, new product development, and introduction; the ability to secure and protect trademarks, patents, and other intellectual property; product performance and quality; customer service; adverse publicity; the loss of significant customers or suppliers; dependence on distributors and licensees; business disruptions; increased costs of freight and transportation to meet delivery deadlines; increases in borrowing costs due to any decline in NIKE's debt ratings; changes in business strategy or development plans; general risks associated with doing business outside the United States, including, without limitation, exchange rate fluctuations, import duties, tariffs, quotas, political and economic instability, and terrorism; changes in government regulations; the impact of, including business and legal developments relating to, climate change; natural disasters; liability and other claims asserted against NIKE; the ability to attract and retain qualified personnel; the effects of NIKE's decision to invest in or divest of businesses; and other factors referenced or incorporated by reference in this report and other reports. 
+The risks included here are not exhaustive. Other sections of this report may include additional factors which could adversely affect NIKE’s business and financial performance. Moreover, NIKE operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on NIKE’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. 
+Investors should also be aware that while NIKE does, from time to time, communicate with securities analysts, it is against NIKE’s policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that NIKE agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, NIKE has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts, or opinions, such reports are not the responsibility of NIKE. 
+Our products face intense competition. 
+NIKE is a consumer products company and the relative popularity of various sports and fitness activities and changing design trends affect the demand for our products. The athletic footwear, apparel, and equipment industry is highly competitive in the United States and 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. We also compete with other companies for the production capacity of independent manufacturers that produce our products. 
+Product offerings, technologies, marketing expenditures (including expenditures for advertising and endorsements), pricing, costs of production, and customer service are areas of intense competition. This, in addition to 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. If we do not adequately and timely anticipate and respond to our competitors, our costs may increase or the consumer demand for our products may decline significantly. 
+Failure to maintain our reputation and brand image could negatively impact our business. 
+Our iconic brands have worldwide recognition, and our success depends on our ability to maintain and enhance our brand image and reputation. Maintaining, promoting, and growing our brands will depend on our design and marketing efforts, including advertising and consumer campaigns, product innovation, and product quality. Our commitment to product innovation and quality and our continuing investment in design (including materials) and marketing may not have the desired impact on our brand image and reputation. We could be adversely impacted if we fail to achieve any of these objectives or if the reputation or image of any of our brands is tarnished or receives negative publicity. In addition, adverse publicity about regulatory or legal action against us could damage our reputation and brand image, undermine consumer confidence in us and reduce long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our operations. 
+In addition, our success in maintaining, extending, and expanding our brand image depends on our ability to adapt to a rapidly changing media environment, including our increasing reliance on social media and online dissemination of advertising campaigns. Negative posts or comments about us on social networking websites could seriously damage our reputation and brand image. If we do not maintain, extend, and expand our brand image, then our product sales, financial condition, and results of operations could be materially and adversely affected. 
+6 
+Table of Contents 
+If we are unable to anticipate consumer preferences and develop new products, we may not be able to maintain or increase our revenues and profits. 
+Our success depends on our ability to identify, originate, and define product trends as well as to anticipate, gauge, and react to changing consumer demands in a timely manner. However, lead times for many of our products may make it more difficult for us to respond rapidly to new or changing product trends or consumer preferences. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of performance products or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes. If we fail to anticipate accurately and respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, designs, styles, and categories, and influencing sports and fitness preferences through aggressive marketing, we could experience lower sales, excess inventories, or lower profit margins, any of which could have an adverse effect on our results of operations and financial condition. In addition, we market our products globally through a diverse spectrum of advertising and promotional programs and campaigns, including social media and online advertising. If we do not successfully market our products or if advertising and promotional costs increase, these factors could have an adverse effect on our business, financial condition, and results of operations. 
+We rely on technical innovation and high-quality products to compete in the market for our products. 
+Technical innovation and quality control in the design and manufacturing process of footwear, apparel, and athletic equipment is essential to the commercial success of our products. Research and development plays a key role in technical innovation. We rely upon specialists in the fields of biomechanics, chemistry, exercise physiology, engineering, industrial design, sustainability, and related fields, as well as research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists, and other experts to develop and test cutting edge performance products. While we strive to produce products that help to enhance athletic performance, reduce injury, and maximize comfort, if we fail to introduce technical innovation in our products, consumer demand for our products could decline, and if we experience problems with the quality of our products, we may incur substantial expense to remedy the problems. 
+Failure to continue to obtain high quality endorsers of our products could harm our business. 
+We establish relationships with professional athletes, sports teams, and leagues to develop, evaluate and promote our products, as well as establish product authenticity with consumers. If certain endorsers were to stop using our products contrary to their endorsement agreements, our business could be adversely affected. In addition, actions taken by athletes, teams, or leagues associated with our products that harm the reputations of those athletes, teams, or leagues, could also seriously harm our brand image with consumers and, as a result, could have an adverse effect on our sales and financial condition. In addition, poor performance by our endorsers, a failure to continue to correctly identify promising athletes to use and endorse our products, or a failure to enter into cost-effective endorsement arrangements with prominent athletes and sports organizations could adversely affect our brand, sales, and profitability. 
+Currency exchange rate fluctuations could result in lower revenues, higher costs, and decreased margins and earnings. 
+A majority of our products are manufactured and sold outside of the United States. As a result, we conduct purchase and sale transactions in various currencies, which increases our exposure to fluctuations in foreign currency exchange rates globally. Our international revenues and expenses generally are derived from sales and operations in foreign currencies, and these revenues and expenses could be affected by currency fluctuations, including amounts recorded in foreign currencies and translated into U.S. Dollars for consolidated financial reporting, as weakening of foreign currencies relative to the U.S. Dollar adversely affects the U.S. Dollar value of the Company's foreign currency-denominated sales and earnings. Currency exchange rate fluctuations could also disrupt the business of the independent manufacturers that produce our products by making their purchases of raw materials more expensive and more difficult to finance. Foreign currency fluctuations have adversely affected, and could continue to have an adverse effect on our results of operations and financial condition. 
+7 
+Table of Contents 
+We may hedge certain foreign currency exposures to lessen and delay, but not to completely eliminate, the effects of foreign currency fluctuations on our financial results. Since the hedging activities are designed to lessen volatility, they not only reduce the negative impact of a stronger U.S. Dollar or other trading currency, but they also reduce the positive impact of a weaker U.S. Dollar or other trading currency. Our future financial results could be significantly affected by the value of the U.S. Dollar in relation to the foreign currencies in which we conduct business. The degree to which our financial results are affected for any given time period will depend in part upon our hedging activities. 
+Global economic conditions could have a material adverse effect on our business, operating results, and financial condition. 
+Although the global economy has been showing signs of improvement, its uncertain state continues to impact businesses around the world, and most acutely in emerging markets and developing economies. Continuing uncertainty in the global capital and credit markets have led to fluctuations in the availability of business credit and capital liquidity, a contraction of consumer credit, business failures, sustained unemployment at historically high levels, and declines in consumer confidence and spending in many parts of the world. If global economic and financial market conditions do not improve or deteriorate, the following factors could have a material adverse effect on our business, operating results, and financial condition: 
+• 
+Slower consumer spending may result in reduced demand for our products, reduced orders from retailers for our products, order cancellations, lower revenues, higher discounts, increased inventories, and lower gross margins. 
+• 
+In the future, we may be unable to access financing in the credit and capital markets at reasonable rates in the event we find it desirable to do so. 
+• 
+We conduct transactions in various currencies, which increase our exposure to fluctuations in foreign currency exchange rates relative to the U.S. Dollar. Continued volatility in the markets and exchange rates for foreign currencies and contracts in foreign currencies could have a significant impact on our reported financial results and condition. 
+• 
+Continued volatility in the availability and prices for commodities and raw materials we use in our products and in our supply chain (such as cotton or petroleum derivatives) could have a material adverse effect on our costs, gross margins, and profitability. 
+• 
+If retailers of our products experience declining revenues, or experience difficulty obtaining financing in the capital and credit markets to purchase our products, this could result in reduced orders for our products, order cancellations, late retailer payments, extended payment terms, higher accounts receivable, reduced cash flows, greater expense associated with collection efforts, and increased bad debt expense. 
+• 
+If retailers of our products experience severe financial difficulty, some may become insolvent and cease business operations, which could negatively impact the sale of our products to consumers. 
+• 
+If contract manufacturers of our products or other participants in our supply chain experience difficulty obtaining financing in the capital and credit markets to purchase raw materials or to finance capital equipment and other general working capital needs, it may result in delays or non-delivery of shipments of our products. 
+Our business is affected by seasonality, which could result in fluctuations in our operating results. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly exceeded those in the second and third fiscal quarters. However, the mix of product sales may vary considerably from time to time as a result of changes in seasonal and geographic demand for particular types of footwear, apparel, and equipment. In addition, our customers may cancel orders, change delivery schedules, or change the mix of products ordered with minimal notice. As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our results of operations are likely to fluctuate significantly from period to period. This seasonality, along with other factors that are beyond our control, including general economic conditions, changes in consumer preferences, weather conditions, availability of import quotas, and currency exchange rate fluctuations, could adversely affect our business and cause our results of operations to fluctuate. Our operating margins are also sensitive to a number of additional factors that are beyond our control, including manufacturing and transportation costs, shifts in product sales mix, and geographic sales trends, all of which we expect to continue. Results of operations in any period should not be considered indicative of the results to be expected for any future period. 
+Futures orders may not be an accurate indication of our future revenues. 
+We make substantial use of our futures ordering program, which allows retailers to order five to six months in advance of delivery with the commitment that their orders will be delivered within a set period of time at a fixed price. Our futures ordering program allows us to minimize the amount of products we hold in inventory, purchasing costs, the time necessary to fill customer orders, and the risk of non-delivery. We report changes in futures orders in our periodic financial reports. Although we believe futures orders are an important indicator of our future revenues, reported futures orders are not necessarily indicative of our expectation of changes in revenues for any future period. This is because the mix of orders can shift between futures and at-once orders. In addition, foreign currency exchange rate fluctuations, order cancellations, shipping timing, returns, 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 closeout sales of NIKE Brand footwear and apparel, sales of NIKE Brand equipment, sales from our Direct to Consumer operations, and sales from our Converse, Hurley, and NIKE Golf businesses. 
+Our futures ordering program does not prevent excess inventories or inventory shortages, which could result in decreased operating margins, cash flows and harm to our business. 
+We purchase products from manufacturers outside of our futures ordering program and in advance of customer orders, which we hold in inventory and resell to customers. There is a risk we may be unable to sell excess products ordered from manufacturers. Inventory levels in excess of customer demand may result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and have an adverse effect on our operating results and financial condition. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply products we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer and distributor relationships, and diminish brand loyalty. 
+The difficulty in forecasting demand also makes it difficult to estimate our future results of operations and financial condition from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in advance. 
+8 
+Table of Contents 
+We may be adversely affected by the financial health of our retailers. 
+We extend credit to our customers based on an assessment of a customer’s financial condition, generally without requiring collateral. To assist in the scheduling of production and the shipping of seasonal products, we offer customers the ability to place orders five to six months ahead of delivery under our futures ordering program. These advance orders may be canceled, and the risk of cancellation may increase when dealing with financially ailing retailers or retailers struggling with economic uncertainty. In the past, some customers have experienced financial difficulties, which have had an adverse effect on our business. When the retail economy weakens, retailers may be more cautious with orders. A slowing economy in our key markets could adversely affect the financial health of our customers, which in turn could have an adverse effect on our results of operations and financial condition. In addition, product sales are dependent in part on high quality merchandising and an appealing store environment to attract consumers, which requires continuing investments by retailers. Retailers that experience financial difficulties may fail to make such investments or delay them, resulting in lower sales and orders for our products. 
+Consolidation of retailers or concentration of retail market share among a few retailers may increase and concentrate our credit risk, and impair our ability to sell products. 
+The athletic footwear, apparel, and equipment retail markets in some countries are dominated by a few large athletic footwear, apparel, and equipment retailers with many stores. These retailers have in the past increased their market share and may continue to do so in the future by expanding through acquisitions and construction of additional stores. These situations concentrate our credit risk with a relatively small number of retailers, and, if any of these retailers were to experience a shortage of liquidity, it would increase the risk that their outstanding payables to us may not be paid. In addition, increasing market share concentration among one or a few retailers in a particular country or region increases the risk that if any one of them substantially reduces their purchases of our products, we may be unable to find a sufficient number of other retail outlets for our products to sustain the same level of sales and revenues. 
+Our Direct to Consumer operations have required and will continue to require a substantial investment and commitment of resources, and are subject to numerous risks and uncertainties. 
+Our Direct to Consumer stores have required substantial fixed investment in equipment and leasehold improvements, information systems, inventory, and personnel. We have entered into substantial operating lease commitments for retail space. Certain stores have been designed and built to serve as high-profile venues to promote brand awareness and marketing activities. Because of their unique design elements, locations, and size, these stores require substantially more investment than other stores. Due to the high fixed-cost structure associated with our Direct to Consumer operations, a decline in sales, or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements, and employee-related costs. 
+Many factors unique to retail operations, some of which are beyond the Company’s control, pose risks and uncertainties. Risks include, but are not limited to: credit card fraud; mismanagement of existing retail channel partners; and inability to manage costs associated with store construction and operation. In addition, extreme weather conditions in the areas in which our stores are located could adversely affect our business. Risks specific to our e-commerce business also include diversion of sales from our and our retailer's brick and mortar stores, difficulty in recreating the in-store experience through direct channels, and liability for online content. Our failure to successfully respond to these risks might adversely affect sales in our e-commerce business, as well as damage our reputation and brands. 
+Failure to adequately protect or enforce our intellectual property rights could adversely affect our business. 
+We utilize trademarks on nearly all of our products and believe that having distinctive marks that are readily identifiable is an important factor in creating a market for our goods, in identifying us, 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. In addition, we own many other trademarks that we utilize in marketing our products and services. 
+We believe that our trademarks, patents, trade secrets, and other intellectual property rights are important to our brand, our success, and our competitive position. We periodically discover products that are counterfeit reproductions of our products or that otherwise infringe on our intellectual property rights. If we are unsuccessful in challenging a party’s products on the basis of trade secret misappropriation or trademark, copyright, design patent, utility patent, or other intellectual property infringement, continued sales of these products could adversely affect our sales and our brand and result in the shift of consumer preference away from our products. 
+The actions we take to establish and protect trademarks, copyrights, trade secrets, patents, and other intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as violations of proprietary rights. 
+We may be subject to liability if third parties successfully claim that we infringe on their trademarks, copyrights, patents, or other intellectual property rights. Defending infringement claims could be expensive and time-consuming and might result in our entering into costly license agreements. We also may be subject to significant damages or injunctions against development, use, importation, and/or sale of certain products. 
+We take various actions to prevent confidential information from unauthorized use and/or disclosure. Such actions include contractual measures such as entering into non-disclosure agreements and providing confidential information awareness training. Our controls and efforts to prevent unauthorized use and/or disclosure of confidential information might not always be effective. Confidential information that is related to business strategy, new technologies, mergers and acquisitions, unpublished financial results, or personal data could be prematurely or inadvertently used and/or disclosed, resulting in a loss of reputation, or a decline in our stock price, or a negative impact on our market position, and could lead to damages, fines, penalties, or injunctions. 
+In addition, the laws of certain foreign countries may not protect or allow enforcement of intellectual property rights to the same extent as the laws of the United States. We may face significant expenses and liability in connection with the protection of our intellectual property rights outside the United States, and if we are unable to successfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition may be adversely affected. 
+We are subject to data security and privacy risks that could negatively affect our results, operations or reputation. 
+Hackers and data thieves are increasingly sophisticated and operate large-scale and complex automated attacks. Any breach of our network may result in the loss of valuable business data, misappropriation of our consumers’ or employees’ personal information, or a disruption of our business, which could give rise to unwanted media attention, materially damage our customer relationships and reputation, and result in lost sales, fines, or lawsuits. 
+9 
+Table of Contents 
+In addition, we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data. Any failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against the Company by governmental entities or others, damage to our reputation and credibility, and could have a negative impact on revenues and profits. 
+Failure of our contractors or our licensees’ contractors to comply with our code of conduct, local laws, and other standards could harm our business. 
+We work with hundreds of contractors outside of the United States to manufacture our products, and we also have license agreements that permit unaffiliated parties to manufacture or contract for the manufacture of products using our intellectual property. We require the contractors that directly manufacture our products and our licensees that make products using our intellectual property (including, indirectly, their contract manufacturers) to comply with a code of conduct and other environmental, health, and safety standards for the benefit of workers. We also require these contractors to comply with applicable standards for product safety. Notwithstanding their contractual obligations, from time to time contractors may not comply with such standards or applicable local law or our licensees may fail to enforce such standards or applicable local law on their contractors. Significant or continuing noncompliance with such standards and laws by one or more contractors could harm our reputation or result in a product recall and, as a result, could have an adverse effect on our sales and financial condition. 
+Our international operations involve inherent risks which could result in harm to our business. 
+Virtually all of our athletic footwear and apparel is manufactured outside of the United States, and the majority of our products are sold outside of the United States. Accordingly, we are subject to the risks generally associated with global trade and doing business abroad, which include foreign laws and regulations, varying consumer preferences across geographic regions, political unrest, disruptions or delays in cross-border shipments, and changes in economic conditions in countries in which we manufacture or sell products. In addition, disease outbreaks, terrorist acts, and military conflict have increased the risks of doing business abroad. These factors, among others, could affect our ability to manufacture products or procure materials, our ability to import products, our ability to sell products in international markets, and our cost of doing business. If any of these or other factors make the conduct of business in a particular country undesirable or impractical, our business could be adversely affected. In addition, many of our imported products are subject to duties, tariffs, or quotas that affect the cost and quantity of various types of goods imported into the United States and other countries. Any country in which our products are produced or sold may eliminate, adjust, or impose new quotas, duties, tariffs, safeguard measures, anti-dumping duties, cargo restrictions to prevent terrorism, restrictions on the transfer of currency, climate change legislation, product safety regulations, or other charges or restrictions, any of which could have an adverse effect on our results of operations and financial condition. 
+Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability. 
+We are subject to income taxes in the United States and numerous foreign jurisdictions. We earn a substantial portion of our income in foreign countries. If our capital or financing needs in the United States require us to repatriate earnings from foreign jurisdictions above our current levels, our effective income tax rates for the affected periods could be negatively impacted. Current economic and political conditions make tax rules in any jurisdiction, including the United States, subject to significant change. There have been proposals to reform U.S. and foreign tax laws that could significantly impact how U.S. multinational corporations are taxed on foreign earnings. Although we cannot predict whether or in what form these proposals will pass, several of the proposals considered, if enacted into law, could have an adverse impact on our income tax expense and cash flows. 
+Our effective income tax rate in the future could be adversely affected by a number of factors, including changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, the outcome of income tax audits in various jurisdictions around the world, and any repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes. 
+We and our subsidiaries are engaged in a number of intercompany transactions across multiple tax jurisdictions. Although we believe that these transactions reflect the accurate economic allocation of profit and that the proper transfer pricing documentation is in place, the profit allocation and transfer pricing terms and conditions (required to be arm's length) may be scrutinized by local tax authorities during an audit and any resulting changes may impact our mix of earnings in countries with differing statutory tax rates. 
+Portions of our operations are subject to a reduced tax rate or are free of tax under various tax holidays and rulings that expire in whole or in part from time to time. These tax holidays and rulings may be extended when certain conditions are met, or terminated if certain conditions are not met. If the tax holidays and rulings are not extended, or if we fail to satisfy the conditions of the reduced tax rate, then our effective tax rate would increase in the future. 
+We are also subject to the examination of our tax returns by the Internal Revenue Service and other tax authorities. We regularly assess all of these matters to determine the adequacy of our tax provision, which is subject to significant discretion. Although we believe our tax provisions are adequate, the final determination of tax audits and any related disputes could be materially different from our historical income tax provisions and accruals. The results of audits or related disputes could have an adverse effect on our financial statements for the period or periods for which the applicable final determinations are made. 
+If one or more of our counterparty financial institutions default on their obligations to us or fail, we may incur significant losses. 
+As part of our hedging activities, we enter into transactions involving derivative financial instruments, which may include forward contracts, commodity futures contracts, option contracts, collars, and swaps with various financial institutions. In addition, we have significant amounts of cash, cash equivalents, and other investments on deposit or in accounts with banks or other financial institutions in the United States and abroad. As a result, we are exposed to the risk of default by or failure of counterparty financial institutions. The risk of counterparty default or failure may be heightened during economic downturns and periods of uncertainty in the financial markets. If one of our counterparties were to become insolvent or file for bankruptcy, our ability to recover losses incurred as a result of default or our assets that are deposited or held in accounts with such counterparty may be limited by the counterparty’s liquidity or the applicable laws governing the insolvency or bankruptcy proceedings. In the event of default or failure of one or more of our counterparties, we could incur significant losses, which could negatively impact our results of operations and financial condition. 
+10 
+Table of Contents 
+We rely on a concentrated source base of contract manufacturers to supply a significant portion of our footwear products. 
+NIKE is supplied by approximately 150 footwear factories located in 14 countries. We do not own or operate any of our own manufacturing facilities and depend upon independent contract manufacturers to manufacture all of the products we sell. In fiscal 2014, five footwear contract manufacturers each accounted for greater than 10% of fiscal 2014 footwear production, and in aggregate accounted for approximately 67% of NIKE Brand footwear production in fiscal 2014. Our ability to meet our customers' needs depends on our ability to maintain a steady supply of products from our independent contract manufacturers. If one or more of our significant suppliers were to sever their relationship with us or significantly alter the terms of our relationship, we may not be able to obtain replacement products in a timely manner, which could have a material adverse effect on our sales, financial condition, or results of operations. Additionally, if any of our primary contract manufacturers fail to make timely shipments, do not meet our quality standards, or otherwise fail to deliver us product in accordance with our plans, there could be a material adverse effect on our results of operations. 
+Our products are subject to risks associated with overseas sourcing, manufacturing, and financing. 
+The principal materials used in our apparel products — natural and synthetic fabrics and threads, specialized performance fabrics designed to efficiently wick moisture away from the body, retain heat, or repel rain and/or snow as well as plastic and metal hardware — are available in countries where our manufacturing takes place. The principal materials used in our footwear products — natural and synthetic rubber, plastic compounds, foam cushioning materials, nylon, leather, canvas, and polyurethane films — are also locally available to manufacturers. Both our apparel and footwear products are dependent upon the ability of our unaffiliated contract manufacturers to locate, train, and employ adequate personnel. NIKE contractors and suppliers buy raw materials in bulk and are subject to wage rates that are oftentimes regulated by the governments of the countries in which our products are manufactured. 
+There could be a significant disruption in the supply of fabrics or raw materials from current sources or, in the event of a disruption, our contract manufacturers might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price, or at all. Further, our unaffiliated contract manufacturers have experienced and may continue to experience in the future, unexpected increases in work wages, whether government mandated or otherwise. In addition, we cannot be certain that our unaffiliated manufacturers will be able to fill our orders in a timely manner. If we experience significant increases in demand, or reductions in the availability of materials, or need to replace an existing manufacturer, there can be no assurance that additional supplies of fabrics or raw materials or additional manufacturing capacity will be available when required on terms that are acceptable to us, or at all, or that any supplier or manufacturer would allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand existing or find new manufacturing or sources of materials, we may encounter delays in production and added costs as a result of the time it takes to train suppliers and manufacturers in our methods, products, quality control standards, and labor, health, and safety standards. Any delays, interruption, or increased costs in labor or wages, or the supply of materials or manufacture of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower revenues and net income both in the short- and long- term. 
+Because independent manufacturers manufacture a majority of our products outside of our principal sales markets, our products must be transported by third parties over large geographic distances. Delays in the shipment or delivery of our products due to the availability of transportation, work stoppages, port strikes, infrastructure congestion, or other factors, and costs and delays associated with consolidating or transitioning between manufacturers, could adversely impact our financial performance. In addition, manufacturing delays or unexpected demand for our products may require us to use faster, but more expensive, transportation methods such as air freight, which could adversely affect our profit margins. The cost of oil is a significant component in manufacturing and transportation costs, so increases in the price of petroleum products can adversely affect our profit margins. 
+In addition, Sojitz America performs significant import-export financing services for the Company. During fiscal 2014, 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, Malaysia, South Africa, and Thailand (collectively the "Sojitz Markets"), excluding products produced and sold in the same country. 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 the Sojitz Markets. Such a disruption could result in canceled orders that would adversely affect sales and profitability. 
+Our success depends on our global distribution facilities. 
+We distribute our products to customers directly from the factory and through distribution centers located throughout the world. Our ability to meet customer expectations, manage inventory, complete sales, and achieve objectives for operating efficiencies and growth, particularly in emerging markets, depends on the proper operation of our distribution facilities, the development or expansion of additional distribution capabilities, and the timely performance of services by third parties (including those involved in shipping product to and from our distribution facilities). Our distribution facilities could be interrupted by information technology problems and disasters such as earthquakes or fires. Any significant failure in our distribution facilities could result in an adverse effect on our business. We maintain business interruption insurance, but it may not adequately protect us from adverse effects that could be caused by significant disruptions in our distribution facilities. 
+We rely significantly on information technology to operate our business, including our supply chain and retail operations, and any failure, inadequacy, or interruption of that technology could harm our ability to effectively operate our business. 
+We are heavily dependent on information technology systems and networks, including the Internet and third-party hosted services (“information technology systems”), across our supply chain, including product design, production, forecasting, ordering, manufacturing, transportation, sales, and distribution, as well as for processing financial information for external and internal reporting purposes, retail operations, and other business activities. Our ability to effectively manage and maintain our inventory and to ship products to customers on a timely basis depends significantly on the reliability of these information technology systems. Over a number of years, we have implemented information technology systems in all of the geographical regions in which we operate. Our work to integrate and enhance these systems and related processes in our global operations is ongoing. The failure of these systems to operate effectively or problems with transitioning to upgraded or replacement systems could cause delays in product fulfillment and reduced efficiency of our operations, could require significant capital investments to remediate the problem, and may have an adverse effect on our results of operations and financial condition. 
+We also use information technology systems to process financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal, and tax requirements. If our information technology systems suffer severe damage, disruption, or shutdown 
+11 
+Table of Contents 
+and our business continuity plans do not effectively resolve the issues in a timely manner, we could experience delays in reporting our financial results, which could result in lost revenues and profits, as well as reputational damage. Furthermore, we depend on information technology systems and personal data collection and use for digital marketing, digital commerce, and the marketing and use of our Digital Sport products. We also engage in electronic communications throughout the world between and among our employees as well as with other third parties, including customers, suppliers, vendors, and consumers. Our information technology systems are critical to many of our operating activities and our business processes and may be negatively impacted by any service interruption or shutdown. 
+The market for prime real estate is competitive. 
+Our ability to effectively obtain real estate to open new retail stores and otherwise conduct our operations, both domestically and internationally, depends on the availability of real estate that meets our criteria for traffic, square footage, co-tenancies, lease economics, demographics, and other factors. We also must be able to effectively renew our existing real estate leases. In addition, from time to time, we seek to downsize, consolidate, reposition, or close some of our real estate locations, which may require modification of an existing lease. Failure to secure adequate new locations or successfully modify leases for existing locations, or failure to effectively manage the profitability of our existing fleet of retail stores, could have an adverse effect on our operating results and financial condition. 
+Additionally, the economic environment may at times make it difficult to determine the fair market rent of real estate properties domestically and internationally. This could impact the quality of our decisions to exercise lease options at previously negotiated rents and to renew expiring leases at negotiated rents. Any adverse effect on the quality of these decisions could impact our ability to retain real estate locations adequate to meet our targets or efficiently manage the profitability of our existing fleet of stores, which could have an adverse effect on our operating results and financial condition. 
+Extreme weather conditions and natural disasters could negatively impact our operating results and financial condition. 
+Extreme weather conditions in the areas in which our retail stores, suppliers, customers, and vendors are located could adversely affect our operating results and financial condition. Moreover, natural disasters such as earthquakes, hurricanes, and tsunamis, whether occurring in the United States or abroad, and their related consequences and effects, including energy shortages and public health issues, could disrupt our operations, the operations of our vendors and other suppliers, or result in economic instability that may negatively impact our operating results and financial condition. 
+Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns. 
+From time to time, we may invest in business infrastructure, new businesses, product offering and manufacturing innovation, and expansion of existing businesses, such as our retail operations, which require substantial cash investments and management attention. We believe cost-effective investments are essential to business growth and profitability. However, significant investments are subject to typical risks and uncertainties inherent in developing a new business or expanding an existing business. The failure of any significant investment to provide expected returns or profitability could have a material adverse effect on our financial results and divert management attention from more profitable business operations. 
+We are subject to periodic litigation and other regulatory proceedings, which could result in unexpected expense of time and resources. 
+From time to time we are called upon to defend ourselves against lawsuits and regulatory actions relating to our business. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on our business, financial condition and results of operations. In addition, any significant litigation in the future, regardless of its merits, could divert management’s attention from our operations and result in substantial legal fees. 
+We depend on key personnel, the loss of whom would harm our business. 
+Our future success will depend in part on the continued service of key executive officers and personnel. The loss of the services of any key individual could harm our business. Our future success also depends on our ability to recruit, retain, and motivate our personnel sufficiently, both to maintain our current business and to execute our strategic initiatives. Competition for employees in our industry is intense and we may not be successful in attracting and retaining such personnel. 
+The sale of a large number of shares held by our Chairman could depress the market price of our common stock. 
+As of June 30, 2014, Philip H. Knight, Co-founder and Chairman of our Board of Directors, beneficially owned more than 75.1% of our Class A Common Stock. If on June 30, 2014 all of his Class A Common Stock were converted into Class B Common Stock, Mr. Knight would have owned more than 16.2% of our Class B Common Stock. These shares are available for resale, subject to the requirements of the U.S. securities laws. The sale or prospect of the sale of a substantial number of these shares could have an adverse effect on the market price of our common stock. 
+Changes in our credit ratings or macroeconomic conditions may affect our liquidity, increasing borrowing costs and limiting our financing options. 
+Our long-term debt is currently rated investment grade by Standard & Poor’s and Moody’s Investors Service. If our credit ratings are lowered, borrowing costs for future long-term debt or short-term credit facilities may increase and our financing options, including our access to the unsecured credit market, could be limited. We may also be subject to restrictive covenants that would reduce our flexibility. In addition, macroeconomic conditions, such as increased volatility or disruption in the credit markets, could adversely affect our ability to refinance existing debt or obtain additional financing to support operations or to fund new initiatives. 
+Anti-takeover provisions may impair an acquisition of the Company or reduce the price of our common stock. 
+There are provisions of our articles of incorporation and Oregon law that are intended to protect shareholder interests by providing the Board of Directors a means to attempt to deny coercive takeover attempts or to negotiate with a potential acquirer in order to obtain more favorable terms. Such provisions include a control share acquisition statute, a freeze-out statute, two classes of stock that vote separately on certain issues, and the fact that holders of Class A Common Stock elect three-quarters of the Board of Directors rounded down to the next whole number. However, such provisions could discourage, delay or prevent an unsolicited merger, acquisition, or other change in control of our company that some 
+12 
+Table of Contents 
+shareholders might believe to be in their best interests or in which shareholders might receive a premium for their common stock over the prevailing market price. These provisions could also discourage proxy contests for control of the Company. 
+We may fail to meet market expectations, which could cause the price of our stock to decline. 
+Our Class B Common Stock is traded publicly, and at any given time various securities analysts follow our financial results and issue reports on us. These reports include information about our historical financial results as well as analysts’ estimates of our future performance. Analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If our operating results are below the estimates or expectations of public market analysts and investors, our stock price could decline. In the past, securities class action litigation has been brought against NIKE and other companies following a decline in the market price of their securities. If our stock price is volatile, we may become involved in this type of litigation in the future. Any litigation could result in substantial costs and a diversion of management’s attention and resources that are needed to successfully run our business. 
+13 
+Table of Contents 
+ITEM 1B. Unresolved Staff Comments 
+Not applicable. 
+ITEM 2. Properties 
+The following is a summary of principal properties owned or leased by NIKE. 
+The NIKE World Campus, owned by NIKE and located near Beaverton, Oregon, USA, is a 270-acre facility of 38 buildings which, together with adjacent leased properties, functions as our world headquarters and is occupied by more than 8,500 e mployees engaged in management, research, design, development, marketing, finance, and other administrative functions serving nearly all of our divisions. We also lease various office facilities in the surrounding metropolitan area. We lease a similar, but smaller, administrative facility in Hilversum, the Netherlands, which serves as the headquarters for the Western Europe and Central & Eastern Europe geographies, and manages certain brand management functions for our non-U.S. operations. We also lease an office complex in Shanghai, China, our headquarters for Greater China, occupied by employees focused on implementing our wholesale, DTC and merchandising strategies in the region, among other functions. In the United States, there are five significant distribution centers in Memphis, Tennessee; two are owned and three are leased. NIKE Brand apparel and equipment are also shipped from our Foothill Ranch, California distribution center, which we lease. Smaller leased distribution facilities for non-NIKE Brand businesses are located in various parts of the United States. We also own or lease distribution and customer service facilities outside the United States. The most significant are the distribution facilities located in Laakdal, Belgium; Taicang, China; and Tomisato, Japan; all of which we own. 
+NIKE IHM, Inc. manufactures Air-Sole cushioning components at NIKE-owned facilities located near Beaverton, Oregon and in St. Charles, Missouri. We also manufacture and sell small amounts of various other plastic products to other manufacturers through NIKE IHM, Inc. 
+Aside from the principal properties described above, we lease approximately 111 sales offices and approximately 110 administrative offices worldwide. We lease more than 850 retail stores worldwide, which consist primarily of factory outlet stores. See “United States Market” and “International Markets” in Part 1 of this Report. Our leases expire at various dates through the year 2033. 
+ITEM 3. Legal Proceedings 
+There are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or of which any of our property is the subject. 
+ITEM 4. Mine Safety Disclosures 
+Not applicable. 
+14 
+Table of Contents 
+PART II 
+ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+NIKE’s Class B Common Stock is listed on the New York Stock Exchange and trades under the symbol NKE. At July 18, 2014 , there were 32,758 holders of record of our Class B Common Stock and 21 holders of record of our Class A Common Stock. These figures do not include beneficial owners who hold shares in nominee name. The Class A Common Stock is not publicly traded but each share is convertible upon request of the holder into one share of Class B Common Stock. The following tables set forth, for each of the quarterly periods indicated, the high and low sales prices for the Class B Common Stock as reported on the New York Stock Exchange Composite Tape and dividends declared on the Class A and Class B Common Stock. All share and per share amounts presented are reflective of the two-for-one stock split that began trading at the split adjusted price on December 26, 2012. 
+Fiscal 2014 (June 1, 2013 — May 31, 2014) 
+High 
+Low 
+Dividends 
+Declared 
+First quarter 
+$ 
+66.85 
+$ 
+59.11 
+$ 
+0.21 
+Second quarter 
+79.87 
+63.50 
+0.24 
+Third quarter 
+80.26 
+69.85 
+0.24 
+Fourth quarter 
+80.09 
+70.60 
+0.24 
+Fiscal 2013 (June 1, 2012 — May 31, 2013) 
+High 
+Low 
+Dividends 
+Declared 
+First quarter 
+$ 
+54.32 
+$ 
+43.89 
+$ 
+0.18 
+Second quarter 
+50.42 
+45.30 
+0.21 
+Third quarter 
+55.55 
+48.46 
+0.21 
+Fourth quarter 
+65.91 
+53.49 
+0.21 
+The following table presents a summary of share repurchases made by NIKE during the quarter ended May 31, 2014 . During the second quarter of fiscal 2013, the Company completed the previous four-year, $5 billion share repurchase program approved by our Board of Directors in September 2008. During the prior program, the Company purchased a total of 118.8 million shares at an average price of $42.08 per share. Following the completion of this program, the Company began repurchases under the four-year, $8 billion share repurchase program approved by the Board in September 2012. 
+Period 
+Total Number of Shares Purchased 
+Average Price 
+Paid per Share 
+Total Number of Shares 
+Purchased as Part of 
+Publicly Announced 
+Plans or Programs 
+Maximum Number (or Approximate Dollar Value) 
+of Shares that May Yet 
+Be Purchased Under the 
+Plans or Programs 
+(In millions) 
+March 1 — March 31, 2014 
+2,775,000 
+$ 
+77.68 
+2,775,000 
+$ 
+5,280 
+April 1 — April 30, 2014 
+4,797,224 
+$ 
+73.16 
+4,797,224 
+$ 
+4,929 
+May 1 — May 31, 2014 
+4,709,740 
+$ 
+73.40 
+4,709,740 
+$ 
+4,583 
+12,281,964 
+$ 
+74.27 
+12,281,964 
+15 
+Table of Contents 
+Performance Graph 
+The following graph demonstrates a five-year comparison of cumulative total returns for NIKE’s Class B Common Stock, the Standard & Poor’s 500 Stock Index, the Standard & Poor’s Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. The graph assumes an investment of $100 on May 31, 2009 in each of our Class B Common Stock, and the stocks comprising the Standard & Poor’s 500 Stock Index, the Standard & Poor’s Apparel, Accessories & Luxury Goods Index, and the Dow Jones U.S. Footwear Index. Each of the indices assumes that all dividends were reinvested on the day of issuance. 
+COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG NIKE, INC.; S&P 500 INDEX; S&P APPAREL, ACCESSORIES & LUXURY GOODS INDEX; AND THE DOW JONES U.S. FOOTWEAR INDEX 
+The Dow Jones U.S. Footwear Index consists of NIKE, Deckers Outdoor Corp., Wolverine World Wide, Inc., Iconix Brand Group, Inc., Crocs, Inc., and Steven Madden, Ltd. Because NIKE is part of the Dow Jones U.S. Footwear Index, the price and returns of NIKE stock have a substantial effect on this index. The Standard & Poor’s Apparel, Accessories & Luxury Goods Index consists of V.F. Corp., Coach, Inc., Polo Ralph Lauren Corporation, and Fossil Group, Inc. The Dow Jones U.S. Footwear Index and the Standard & Poor’s Apparel, Accessories, and Luxury Goods Index include companies in two major lines of business in which the Company competes. The indices do not encompass all of the Company’s competitors, nor all product categories and lines of business in which the Company is engaged. 
+The stock performance shown on the performance graph above is not necessarily indicative of future performance. The Company will not make or endorse any predictions as to future stock performance. 
+The performance graph above is being furnished solely to accompany this Report pursuant to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. 
+16 
+Table of Contents 
+ITEM 6. Selected Financial Data 
+Unless otherwise indicated, the following disclosures reflect the Company’s continuing operations; refer to Note 15 — Discontinued Operations in the accompanying Notes to the Consolidated Financial Statements for additional information regarding discontinued operations. All per share amounts are reflective of the two-for-one stock split that began trading at the split-adjusted price on December 26, 2012. 
+(Dollars in millions, except per share data and financial ratios) 
+Financial History 
+2014 
+2013 (1) 
+2012 (1) 
+2011 (1) 
+2010 (1) 
+Year Ended May 31, 
+Revenues 
+$ 
+27,799 
+$ 
+25,313 
+$ 
+23,331 
+$ 
+20,117 
+$ 
+18,324 
+Gross profit 
+12,446 
+11,034 
+10,148 
+9,202 
+8,498 
+Gross margin % 
+44.8 
+% 
+43.6 
+% 
+43.5 
+% 
+45.7 
+% 
+46.4 
+% 
+Net income from continuing operations 
+2,693 
+2,451 
+2,257 
+2,163 
+1,916 
+Net income (loss) from discontinued operations 
+— 
+21 
+(46 
+) 
+(39 
+) 
+(16 
+) 
+Net income 
+2,693 
+2,472 
+2,211 
+2,124 
+1,900 
+Earnings per share from continuing operations: 
+Basic earnings per common share 
+3.05 
+2.74 
+2.45 
+2.27 
+1.98 
+Diluted earnings per common share 
+2.97 
+2.68 
+2.40 
+2.23 
+1.94 
+Earnings per share from discontinued operations: 
+Basic earnings per common share 
+— 
+0.02 
+(0.05 
+) 
+(0.04 
+) 
+(0.02 
+) 
+Diluted earnings per common share 
+— 
+0.02 
+(0.05 
+) 
+(0.04 
+) 
+(0.02 
+) 
+Weighted average common shares outstanding 
+883.4 
+897.3 
+920.0 
+951.1 
+971.0 
+Diluted weighted average common shares outstanding 
+905.8 
+916.4 
+939.6 
+971.3 
+987.8 
+Cash dividends declared per common share 
+0.93 
+0.81 
+0.70 
+0.60 
+0.53 
+Cash flow from operations, inclusive of discontinued operations 
+3,003 
+2,968 
+1,824 
+1,796 
+3,167 
+Price range of common stock: 
+High 
+80.26 
+65.91 
+57.20 
+46.15 
+39.28 
+Low 
+59.11 
+43.89 
+39.29 
+33.61 
+25.08 
+At May 31, 
+Cash and equivalents 
+$ 
+2,220 
+$ 
+3,337 
+$ 
+2,254 
+$ 
+1,877 
+$ 
+3,026 
+Short-term investments 
+2,922 
+2,628 
+1,503 
+2,661 
+2,120 
+Inventories 
+3,947 
+3,484 
+3,251 
+2,630 
+1,953 
+Working capital, excluding assets and liabilities of discontinued operations (2)(3) 
+8,669 
+9,686 
+7,531 
+7,275 
+7,518 
+Total assets, excluding assets of discontinued operations (2) 
+18,594 
+17,545 
+14,804 
+14,398 
+13,852 
+Long-term debt 
+1,199 
+1,210 
+228 
+276 
+446 
+Capital lease obligations 
+74 
+81 
+— 
+— 
+— 
+Redeemable preferred stock 
+0.3 
+0.3 
+0.3 
+0.3 
+0.3 
+Shareholders’ equity 
+10,824 
+11,081 
+10,319 
+9,793 
+9,713 
+Year-end stock price 
+76.91 
+61.66 
+54.09 
+42.23 
+36.19 
+Market capitalization 
+66,921 
+55,124 
+49,546 
+39,523 
+35,032 
+Financial Ratios: 
+Return on equity 
+24.6 
+% 
+23.1 
+% 
+22.0 
+% 
+21.8 
+% 
+20.7 
+% 
+Return on assets 
+14.9 
+% 
+15.3 
+% 
+15.1 
+% 
+15.0 
+% 
+14.3 
+% 
+Inventory turns 
+4.1 
+4.2 
+4.5 
+4.8 
+4.7 
+Current ratio at May 31 
+2.7 
+3.5 
+3.0 
+2.9 
+3.3 
+Price/Earnings ratio at May 31 
+25.9 
+22.8 
+23.0 
+19.3 
+18.8 
+(1) 
+Prior year amounts have been revised to correct immaterial misstatements, as described in Note 1 — Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements. Shareholders' equity for fiscal year 2010 includes a decrease to beginning Retained earnings of $34 million for the cumulative effect of the revision to correctly expense internally developed patent and trademark costs as incurred. 
+(2) 
+Assets of discontinued operations were $0 million, $0 million, $615 million, $560 million, and $530 million for the years ended May 31, 2014 , 2013 , 2012 , 2011 , and 2010 , respectively. 
+(3) 
+Liabilities of discontinued operations were $0 million, $18 million, $170 million, $184 million, and $182 million for the years ended May 31, 2014 , 2013 , 2012 , 2011 , and 2010 , respectively. 
+17 
+Table of Contents 
+Selected Quarterly Financial Data 
+(Unaudited) 
+(Dollars in millions, except per share data) 
+1st Quarter 
+2nd Quarter 
+3rd Quarter 
+4th Quarter 
+2014 (1) 
+2013 (1) 
+2014 (1) 
+2013 (1) 
+2014 (1) 
+2013 (1) 
+2014 
+2013 (1) 
+Revenues 
+$ 
+6,971 
+$ 
+6,474 
+$ 
+6,431 
+$ 
+5,955 
+$ 
+6,972 
+$ 
+6,187 
+$ 
+7,425 
+$ 
+6,697 
+Gross profit 
+3,132 
+2,828 
+2,826 
+2,530 
+3,103 
+2,736 
+3,385 
+2,940 
+Gross margin % 
+44.9 
+% 
+43.7 
+% 
+43.9 
+% 
+42.5 
+% 
+44.5 
+% 
+44.2 
+% 
+45.6 
+% 
+43.9 
+% 
+Net income from continuing operations 
+779 
+582 
+534 
+519 
+682 
+660 
+698 
+690 
+Net income (loss) from discontinued operations 
+— 
+(18 
+) 
+— 
+(137 
+) 
+— 
+204 
+— 
+(28 
+) 
+Net income 
+779 
+564 
+534 
+382 
+682 
+864 
+698 
+662 
+Earnings per share from continuing operations: 
+Basic earnings per common share 
+0.88 
+0.64 
+0.60 
+0.58 
+0.77 
+0.74 
+0.80 
+0.77 
+Diluted earnings per common share 
+0.86 
+0.63 
+0.59 
+0.57 
+0.75 
+0.72 
+0.78 
+0.76 
+Earnings per share from discontinued operations: 
+Basic earnings per common share 
+— 
+(0.03 
+) 
+— 
+(0.15 
+) 
+— 
+0.23 
+— 
+(0.03 
+) 
+Diluted earnings per common share 
+— 
+(0.02 
+) 
+— 
+(0.15 
+) 
+— 
+0.22 
+— 
+(0.03 
+) 
+Weighted average common shares outstanding 
+889.4 
+905.6 
+888.0 
+897.0 
+882.3 
+893.9 
+873.7 
+892.6 
+Diluted weighted average common shares outstanding 
+910.7 
+922.8 
+910.6 
+913.1 
+904.8 
+911.7 
+895.2 
+913.4 
+Cash dividends declared per common share 
+0.21 
+0.18 
+0.24 
+0.21 
+0.24 
+0.21 
+0.24 
+0.21 
+Price range of common stock 
+High 
+66.85 
+54.32 
+79.87 
+50.42 
+80.26 
+55.55 
+80.09 
+65.91 
+Low 
+59.11 
+43.89 
+63.50 
+45.30 
+69.85 
+48.46 
+70.60 
+53.49 
+(1) 
+Amounts presented have been revised from what was previously filed to correctly expense internally developed patent and trademark costs as incurred. As a result of this revision, Net income as previously presented for the three months ended August 31, 2013, November 30, 2013 and February 28, 2014 decreased by $1 million , $3 million and $3 million , respectively. Net income as previously presented for the three months ended August 31, 2012, November 30, 2012, February 28, 2013 and May 31, 2013 decreased by $3 million , $2 million , $2 million and $6 million , respectively. The Company plans to reflect the revised amounts in its quarterly Condensed Consolidated Financial Statements for fiscal 2014 in future filings containing such information. Refer to Note 1 — Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements. 
+18 
+Table of Contents 
+ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+NIKE designs, develops, markets, and sells athletic footwear, apparel, equipment, accessories, and services worldwide. We are the largest seller of athletic footwear and apparel in the world. We sell our products to retail accounts, as well as through NIKE-owned in-line and factory retail stores and NIKE-owned internet websites (which we refer to as our “Direct to Consumer” or "DTC" operations), and through a mix of independent distributors, licensees, and sales representatives in virtually all countries around the world. Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear, apparel, equipment, and accessories businesses. Our strategy is to achieve long-term revenue growth by creating innovative, “must have” products, building deep personal consumer connections with our brands, and delivering compelling consumer experiences at retail and online. 
+In addition to achieving long-term, sustainable revenue growth, we continue to strive to deliver shareholder value by driving operational excellence in several key areas: 
+• 
+Expanding gross margin by: 
+- Delivering innovative, premium products that command higher prices while maintaining a strong consumer price-to-value proposition; 
+- Reducing product costs through a continued focus on manufacturing efficiency, product design, and innovation; and 
+- Making our supply chain a competitive advantage. 
+• 
+Improving selling and administrative expense productivity by focusing on investments that drive economic returns in the form of incremental revenue and gross profit, and leveraging existing infrastructure across our portfolio of businesses to eliminate duplicative costs; 
+• 
+Improving working capital efficiency; and 
+• 
+Deploying capital effectively. 
+Through execution of this strategy, our long-term financial goals continue to be: 
+• 
+High single-digit revenue growth, 
+• 
+Mid-teens earnings per share growth, 
+• 
+Consistent return on invested capital and accelerated cash flows, and 
+• 
+Steady results through effective management of our diversified portfolio of businesses. 
+Over the past ten years, we have achieved many of these financial goals. During this time, revenues and diluted earnings per common share for NIKE, Inc., inclusive of both continuing and discontinued operations, have grown 9% and 13%, respectively, on an annual compounded basis. Our return on invested capital has increased from 22% to 25% and we expanded gross margins by approximately 190 basis points. 
+On November 15, 2012, we announced a two-for-one stock split of both Class A and Class B Common shares. The stock split was in the form of a 100 percent stock dividend payable on December 24, 2012 to shareholders of record at the close of business December 10, 2012. Common stock began trading at the split-adjusted price on December 26, 2012. All share numbers and per share amounts presented reflect the stock split. 
+Our fiscal 2014 results from continuing operations demonstrated the power of the NIKE, Inc. portfolio to deliver consistent growth in revenues, earnings, and cash returns to shareholders, while investing for long-term growth. Despite significant foreign currency headwinds, we delivered record revenues and earnings per share in fiscal 2014. Our revenues grew 10% to $27.8 billion, net income from continuing operations increased 10% to $2.7 billion, and we delivered diluted earnings per common share of $2.97, an 11% increase from fiscal 2013. 
+Earnings before interest and income taxes ("EBIT") from continuing operations increased 10% for fiscal 2014, driven by revenue growth and improved gross margin, which more than offset higher selling and administrative expense. The increase in revenues was driven by growth across nearly all NIKE Brand geographies, key categories, and product types. This growth was primarily fueled by: 
+• 
+Innovative performance and sportswear products, incorporating proprietary technology platforms such as NIKE AIR, Lunar, Shox, Free, Flywire, Dri-Fit, FlyKnit, NIKE+, and NIKE Fuel; 
+• 
+Deep brand connections to consumers through a category lens, reinforced by investments in endorsements by high-profile athletes and teams, high-impact marketing around global sporting events (such as the World Cup, Olympics, and NFL Super Bowl) and digital marketing; and 
+• 
+Strong category retail presentation online and at NIKE-owned and retail partner stores. 
+We also delivered strong results for Converse, with revenue and EBIT growth of 16% and 17%, respectively. 
+Our gross margins improved largely due to the positive impact of higher average selling prices and contribution from our higher margin DTC business, partially offset by higher product input costs, due primarily to labor cost inflation in our product costs, and foreign currency headwinds. 
+For fiscal 2014, the growth of our net income from continuing operations was positively affected by a year-over-year decrease in our effective tax rate. In addition, diluted earnings per common share grew at a higher rate than net income due to a 1% decrease in the weighted average number of diluted common shares outstanding as a result of share repurchases. 
+During the second quarter of fiscal 2013, we completed the sale of certain assets of the Umbro brand and recorded a loss on the sale of these assets of $107 million, net of tax. During the third quarter of fiscal 2013, we completed the sale of Cole Haan and recorded a gain on sale of $231 million, net of tax. As of May 31, 2013, the Company had substantially completed all transition services related to the sale of both businesses. Unless otherwise indicated, the following disclosures reflect the Company's continuing operations; refer to our “Discontinued Operations" section for additional information regarding our discontinued operations. 
+While macroeconomic uncertainties in the global economy are likely to persist, we continue to see opportunities to drive future growth and remain committed to effectively managing our business to achieve our financial goals over the long term by executing against the operational strategies outlined above. 
+19 
+Table of Contents 
+Results of Operations 
+Unless otherwise indicated, the following disclosures reflect the Company’s continuing operations. 
+(Dollars in millions, except per share data) 
+Fiscal 2014 
+Fiscal 2013 (1) 
+% Change 
+Fiscal 2012 (1) 
+% Change 
+Revenues 
+$ 
+27,799 
+$ 
+25,313 
+10 
+% 
+$ 
+23,331 
+8 
+% 
+Cost of sales 
+15,353 
+14,279 
+8 
+% 
+13,183 
+8 
+% 
+Gross profit 
+12,446 
+11,034 
+13 
+% 
+10,148 
+9 
+% 
+Gross margin % 
+44.8 
+% 
+43.6 
+% 
+43.5 
+% 
+Demand creation expense 
+3,031 
+2,745 
+10 
+% 
+2,607 
+5 
+% 
+Operating overhead expense 
+5,735 
+5,051 
+14 
+% 
+4,472 
+13 
+% 
+Total selling and administrative expense 
+8,766 
+7,796 
+12 
+% 
+7,079 
+10 
+% 
+% of Revenues 
+31.5 
+% 
+30.8 
+% 
+30.3 
+% 
+Interest expense (income), net 
+33 
+(3 
+) 
+— 
+4 
+— 
+Other expense (income), net 
+103 
+(15 
+) 
+— 
+54 
+— 
+Income before income taxes 
+3,544 
+3,256 
+9 
+% 
+3,011 
+8 
+% 
+Income tax expense 
+851 
+805 
+6 
+% 
+754 
+7 
+% 
+Effective tax rate 
+24.0 
+% 
+24.7 
+% 
+25.0 
+% 
+Net income from continuing operations 
+2,693 
+2,451 
+10 
+% 
+2,257 
+9 
+% 
+Net income (loss) from discontinued operations 
+— 
+21 
+— 
+(46 
+) 
+— 
+Net income 
+$ 
+2,693 
+$ 
+2,472 
+9 
+% 
+$ 
+2,211 
+12 
+% 
+Diluted earnings per share - continuing operations 
+$ 
+2.97 
+$ 
+2.68 
+11 
+% 
+$ 
+2.40 
+12 
+% 
+Diluted earnings per share - discontinued operations 
+$ 
+— 
+$ 
+0.02 
+— 
+$ 
+(0.05 
+) 
+— 
+(1) 
+Prior year amounts have been revised to correctly expense internally developed patent and trademark costs as incurred. Refer to Note 1 — Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements. 
+20 
+Table of Contents 
+Consolidated Operating Results 
+Revenues 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 (1) 
+% Change 
+% Change Excluding Currency Changes (2) 
+Fiscal 2012 (1) 
+% Change 
+% Change Excluding Currency Changes (2) 
+NIKE, Inc. Revenues: 
+NIKE Brand Revenues by: 
+Footwear 
+$ 
+16,208 
+$ 
+14,635 
+11 
+% 
+12 
+% 
+$ 
+13,513 
+8 
+% 
+11 
+% 
+Apparel 
+8,109 
+7,491 
+8 
+% 
+10 
+% 
+6,958 
+8 
+% 
+10 
+% 
+Equipment 
+1,670 
+1,640 
+2 
+% 
+4 
+% 
+1,429 
+15 
+% 
+17 
+% 
+Global Brand Divisions (3) 
+125 
+115 
+9 
+% 
+6 
+% 
+111 
+4 
+% 
+7 
+% 
+Total NIKE Brand Revenues 
+26,112 
+23,881 
+9 
+% 
+11 
+% 
+22,011 
+8 
+% 
+11 
+% 
+Converse 
+1,684 
+1,449 
+16 
+% 
+15 
+% 
+1,324 
+9 
+% 
+10 
+% 
+Corporate (4) 
+3 
+(17 
+) 
+— 
+— 
+(4 
+) 
+— 
+— 
+TOTAL NIKE, INC. REVENUES 
+$ 
+27,799 
+$ 
+25,313 
+10 
+% 
+11 
+% 
+$ 
+23,331 
+8 
+% 
+11 
+% 
+Supplemental NIKE Brand Revenues Details: 
+NIKE Brand Revenues by: 
+Sales to Wholesale Customers 
+$ 
+20,683 
+$ 
+19,401 
+7 
+% 
+8 
+% 
+$ 
+18,335 
+6 
+% 
+8 
+% 
+Sales Direct to Consumer 
+5,304 
+4,365 
+22 
+% 
+22 
+% 
+3,565 
+22 
+% 
+24 
+% 
+Global Brand Divisions (3) 
+125 
+115 
+9 
+% 
+6 
+% 
+111 
+4 
+% 
+7 
+% 
+TOTAL NIKE BRAND REVENUES 
+$ 
+26,112 
+$ 
+23,881 
+9 
+% 
+11 
+% 
+$ 
+22,011 
+8 
+% 
+11 
+% 
+NIKE Brand Revenues on a Wholesale Equivalent Basis: (5) 
+Sales to Wholesale Customers 
+$ 
+20,683 
+$ 
+19,401 
+7 
+% 
+8 
+% 
+$ 
+18,335 
+6 
+% 
+8 
+% 
+Sales from our Wholesale Operations to Direct to Consumer Operations 
+3,107 
+2,499 
+24 
+% 
+25 
+% 
+2,027 
+23 
+% 
+25 
+% 
+TOTAL NIKE BRAND WHOLESALE EQUIVALENT REVENUES 
+$ 
+23,790 
+$ 
+21,900 
+9 
+% 
+10 
+% 
+$ 
+20,362 
+8 
+% 
+10 
+% 
+NIKE Brand Wholesale Equivalent Revenues by: (5) 
+Men's 
+$ 
+14,001 
+$ 
+13,073 
+7 
+% 
+9 
+% 
+$ 
+12,269 
+7 
+% 
+9 
+% 
+Women's 
+4,971 
+4,494 
+11 
+% 
+12 
+% 
+4,221 
+6 
+% 
+9 
+% 
+Young Athletes' 
+3,737 
+3,251 
+15 
+% 
+16 
+% 
+3,004 
+8 
+% 
+11 
+% 
+Others (6) 
+1,081 
+1,082 
+0 
+% 
+1 
+% 
+868 
+25 
+% 
+27 
+% 
+TOTAL NIKE BRAND WHOLESALE EQUIVALENT REVENUES 
+$ 
+23,790 
+$ 
+21,900 
+9 
+% 
+10 
+% 
+$ 
+20,362 
+8 
+% 
+10 
+% 
+NIKE Brand Wholesale Equivalent Revenues by: (5) 
+Running 
+$ 
+4,623 
+$ 
+4,274 
+8 
+% 
+10 
+% 
+$ 
+3,694 
+16 
+% 
+18 
+% 
+Basketball 
+3,119 
+2,629 
+19 
+% 
+19 
+% 
+2,169 
+21 
+% 
+22 
+% 
+Football (Soccer) 
+2,270 
+1,930 
+18 
+% 
+21 
+% 
+1,862 
+4 
+% 
+9 
+% 
+Men’s Training 
+2,479 
+2,391 
+4 
+% 
+5 
+% 
+2,072 
+15 
+% 
+17 
+% 
+Women’s Training 
+1,149 
+1,067 
+8 
+% 
+10 
+% 
+1,011 
+6 
+% 
+8 
+% 
+Action Sports 
+738 
+683 
+8 
+% 
+9 
+% 
+664 
+3 
+% 
+5 
+% 
+Sportswear 
+5,877 
+5,569 
+6 
+% 
+7 
+% 
+5,764 
+-3 
+% 
+-1 
+% 
+Golf 
+789 
+792 
+0 
+% 
+1 
+% 
+726 
+9 
+% 
+10 
+% 
+Others (7) 
+2,746 
+2,565 
+7 
+% 
+8 
+% 
+2,400 
+7 
+% 
+9 
+% 
+TOTAL NIKE BRAND WHOLESALE EQUIVALENT REVENUES 
+$ 
+23,790 
+$ 
+21,900 
+9 
+% 
+10 
+% 
+$ 
+20,362 
+8 
+% 
+10 
+% 
+21 
+Table of Contents 
+(1) 
+Certain prior year amounts have been reclassified to conform to fiscal 2014 presentation. These changes had no impact on previously reported results of operations or shareholders' equity. 
+(2) 
+Results have been restated using actual exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact of translation arising from foreign currency exchange rate fluctuations. 
+(3) 
+Global Brand Divisions revenues primarily represent NIKE Brand licensing businesses that are not part of a geographic operating segment. 
+(4) 
+Corporate revenues primarily consist of foreign currency revenue-related hedge gains and losses generated by entities within the NIKE Brand geographic operating segments and Converse through our centrally managed foreign exchange risk management program. 
+(5) 
+References to NIKE Brand wholesale equivalent revenues are intended to provide context as to the total size of our NIKE Brand market footprint if we had no Direct to Consumer operations. NIKE Brand wholesale equivalent revenues consist of (1) sales to external wholesale customers, and (2) internal sales from our wholesale operations to our Direct to Consumer operations which are charged at prices that are comparable to prices charged to external wholesale customers. 
+(6) 
+Others include all unisex products, equipment, and other products not allocated to Men's, Women's, and Young Athletes', as well as certain adjustments that are not allocated to products designated by gender or age. 
+(7) 
+Others include all other categories and certain adjustments that are not allocated at the category level. 
+Fiscal 2014 Compared to Fiscal 2013 
+On a currency neutral basis, revenues from NIKE, Inc. continuing operations grew 11% for fiscal 2014, driven by increases in revenues for both the NIKE Brand and Converse. Every NIKE Brand geography delivered higher revenues for fiscal 2014. North America contributed 5 percentage points of the increase in NIKE, Inc. revenues, while Western Europe and Emerging Markets each contributed 2 percentage points and Central & Eastern Europe and Converse each contributed 1 percentage point. 
+On a currency neutral basis, NIKE Brand footwear and apparel revenues increased 12% and 10%, respectively, while NIKE Brand equipment revenues increased 4% during fiscal 2014. The increase in NIKE Brand footwear revenues for fiscal 2014 was mainly due to growth in our Basketball, Sportswear, Running, and Football (Soccer) categories. The growth of NIKE footwear revenues continued to be fueled by increased demand for performance products, including NIKE and Brand Jordan Basketball styles; Running models with NIKE Free, Air Max, Lunar, and FlyKnit technologies; and performance Football (Soccer) products. Footwear unit sales in fiscal 2014 increased approximately 7% and the average selling price per pair increased approximately 5%, driven nearly equally by price increases and a shift in mix to higher priced products. 
+For NIKE Brand apparel, the increase in revenues for fiscal 2014 was driven by growth in all key categories, most notably our Football (Soccer), Running, and Women's Training categories. In fiscal 2014, unit sales of apparel increased approximately 6% and the average selling price per unit increased approximately 4%, driven by price increases, and to a lesser extent, a shift in mix to higher priced products. 
+While wholesale revenues remain the largest component of overall NIKE Brand revenues, we continue to expand our DTC businesses in each of our geographies. Our NIKE Brand DTC operations include NIKE-owned in-line and factory stores, as well as online sales through NIKE-owned websites. For fiscal 2014, DTC revenues represented approximately 20% of our total NIKE Brand revenues compared to 18% in fiscal 2013. On a currency neutral basis, DTC revenues grew 22% for fiscal 2014, as comparable store sales grew 10% and we continued to open new stores and expand our e-commerce business. Comparable store sales include revenues from NIKE-owned in-line and factory stores for which all three of the following requirements have been met: (1) the store has been open at least one year, (2) square footage has not changed by more than 15% within the past year, and (3) the store has not been permanently repositioned within the past year. Online sales through NIKE-owned websites, which are not included in comparable store sales, grew 42% in fiscal 2014. Online sales represented approximately 15% of our total NIKE Brand DTC revenues for fiscal 2014, compared to 12% for fiscal 2013. 
+On a wholesale equivalent basis and excluding the effects of changes in currency exchange rates, fiscal 2014 NIKE Brand Men's revenues increased 9% mainly as a result of strong growth in our Basketball, Football (Soccer), Running, and Sportswear categories. Women's revenues increased 12% in large part due to increases in our Running, Sportswear, and Women's Training categories. The 16% increase in the Young Athletes' business was driven by increases in the Basketball and Football (Soccer) categories in part due to our expanded footwear and apparel offerings for this age group. 
+Fiscal 2013 Compared to Fiscal 2012 
+On a currency neutral basis, revenues from our NIKE, Inc. continuing operations grew 11% for fiscal 2013, driven by increases in revenues for both the NIKE Brand and Converse. Every NIKE Brand geography except Greater China delivered higher revenues for fiscal 2013. North America contributed 7 percentage points of the increase in NIKE, Inc. revenues, while Emerging Markets contributed 2 percentage points and Western and Central & Eastern Europe each contributed 1 percentage point. Greater China ' s results reduced NIKE, Inc. revenue growth by 1 percentage point. Revenues for Converse contributed 1 percentage point to our consolidated revenue growth. 
+Excluding the effects of changes in currency exchange rates, NIKE Brand footwear and apparel revenues increased 11% and 10%, respectively, while NIKE Brand equipment revenues increased 17% during fiscal 2013. The increase in NIKE Brand footwear revenues for fiscal 2013 was attributable to growth across our Running, Basketball, Football (Soccer), and Sportswear categories. The growth of NIKE footwear revenues continued to be fueled by increased demand for performance products, including Running models with NIKE Free and Lunar technologies, NIKE and Brand Jordan Basketball styles, and performance Football (Soccer) products. In fiscal 2013, unit sales of footwear increased approximately 7% and the average selling price per pair increased approximately 4%, driven equally by price increases and a shift in mix to higher priced products. 
+For NIKE Brand apparel, the increase in revenues for fiscal 2013 was driven by our Men ' s Training category (which includes the NFL licensed business), in addition to strong demand for Running and Basketball products. Apparel unit sales in fiscal 2013 increased approximately 7% and the average selling price per unit increased approximately 3%, reflecting a favorable mix of higher priced products, such as performance Running, Basketball, and NFL licensed apparel; and to a lesser extent, higher selling prices . 
+For fiscal 2013, DTC channels represented approximately 18% of overall NIKE Brand revenues compared to 16% in fiscal 2012. On a currency neutral basis, DTC revenues grew 24% for fiscal 2013, as comparable store sales grew 14% and we continued to expand our store network and e-commerce businesses. Online sales through NIKE-owned websites grew 32% in fiscal 2013 and represented approximately 12% of our total NIKE Brand DTC revenues for fiscal 2013. 
+22 
+Table of Contents 
+On a wholesale equivalent and currency neutral basis, fiscal 2013 NIKE Brand Men's revenues increased 9% due primarily to growth in our Running, Men's Training, and Basketball categories. Women's revenues increased 9% driven primarily by an increase in Running and Women's Training. The 11% increase in the Young Athletes' business was due primarily to increases in Basketball. 
+Futures Orders 
+Futures orders for NIKE Brand footwear and apparel scheduled for delivery from June through November 2014 were 11% higher than the orders reported for the comparable prior year period. The U.S. Dollar futures order amount is calculated based upon our internal forecast of the currency exchange rates under which our revenues will be translated during this period. Excluding the impact of currency changes, futures orders increased 12%, with unit orders and average selling price per unit contributing approximately 8 and 4 percentage points of growth, respectively. 
+By geography, futures orders growth was as follows: 
+Reported Futures 
+Orders Growth 
+Futures Orders 
+Excluding Currency Changes (1) 
+North America 
+11 
+% 
+11 
+% 
+Western Europe 
+25 
+% 
+22 
+% 
+Central & Eastern Europe 
+10 
+% 
+14 
+% 
+Greater China 
+6 
+% 
+6 
+% 
+Japan 
+-6 
+% 
+0 
+% 
+Emerging Markets 
+2 
+% 
+9 
+% 
+Total NIKE Brand futures orders 
+11 
+% 
+12 
+% 
+(1) 
+Growth rates have been restated using constant exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations. 
+The reported futures orders growth is not necessarily indicative of our expectation of revenue growth during this period. This is due to year-over-year changes in shipment timing, changes in the mix of orders between futures and at-once orders, and the fulfillment of certain orders may fall outside of the schedule noted above. In addition, 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, NIKE Brand equipment, DTC operation sales, and sales from Converse, NIKE Golf, and Hurley. 
+Gross Margin 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 
+% Change 
+Fiscal 2012 
+% Change 
+Gross profit 
+$ 
+12,446 
+$ 
+11,034 
+13 
+% 
+$ 
+10,148 
+9 
+% 
+Gross margin % 
+44.8 
+% 
+43.6 
+% 
+120 
+bps 
+43.5 
+% 
+10 
+bps 
+Fiscal 2014 Compared to Fiscal 2013 
+For fiscal 2014, our consolidated gross margin was 120 basis points higher than fiscal 2013, primarily driven by higher NIKE Brand average selling prices (increasing gross margin approximately 160 basis points), attributable to both price increases and a shift in mix to higher priced products. Gross margin was also positively impacted by growth in our higher margin DTC business (increasing gross margin approximately 40 basis points) and improved margins due to cleaner closeout inventories (increasing margin approximately 20 basis points). These increases in gross margin were partially offset by higher product costs (decreasing gross margin approximately 50 basis points), primarily due to a shift in mix to higher cost products, as well as product labor input cost inflation. Gross margins were also negatively impacted by unfavorable foreign currency exchange rate movements (decreasing gross margin approximately 50 basis points). 
+Fiscal 2013 Compared to Fiscal 2012 
+For fiscal 2013, our consolidated gross margin was 10 basis points higher than fiscal 2012, primarily driven by higher average selling prices (approximately 160 basis points) that were attributable to higher prices and a favorable sales mix. The positive benefit of higher net average selling prices was largely offset by higher product costs (approximately 110 basis points), primarily due to higher factory labor costs, and unfavorable foreign currency exchange rate movements (approximately 40 basis points). 
+In addition, in fiscal 2013 we experienced significant shifts in the mix of revenues from higher to lower margin segments of our business. While growth in these lower gross margin segments delivered incremental revenue and profits, it had a negative effect on our consolidated gross margin. 
+23 
+Table of Contents 
+Total Selling and Administrative Expense 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 
+% Change 
+Fiscal 2012 
+% Change 
+Demand creation expense (1) 
+$ 
+3,031 
+$ 
+2,745 
+10 
+% 
+$ 
+2,607 
+5 
+% 
+Operating overhead expense (2) 
+5,735 
+5,051 
+14 
+% 
+4,472 
+13 
+% 
+Total selling and administrative expense 
+$ 
+8,766 
+$ 
+7,796 
+12 
+% 
+$ 
+7,079 
+10 
+% 
+% of Revenues 
+31.5 
+% 
+30.8 
+% 
+70 
+bps 
+30.3 
+% 
+50 
+bps 
+(1) 
+Demand creation expense consists of advertising and promotion expenses, including costs of endorsement contracts. 
+(2) 
+Fiscal 2013 and 2012 amounts have been revised to correctly expense internally developed patent and trademark costs as incurred. Refer to Note 1 — Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements. 
+Fiscal 2014 Compared to Fiscal 2013 
+Demand creation expense increased 10% compared to the prior year, mainly driven by marketing support for events, including the World Cup, higher sports marketing expense, key product launches and initiatives, and investments to upgrade the presentation of our products in wholesale accounts. For fiscal 2014, changes in foreign currency exchange rates did not have a material impact on Demand creation expense. 
+Compared to the prior year, Operating overhead expense increased 14%, primarily attributable to growth in our DTC business driven by new store openings, higher personnel costs, and e-commerce launches, as well as increased investments in our digital capabilities and corporate infrastructure. Changes in foreign currency exchange rates did not have a material impact on Operating overhead expense for fiscal 2014. 
+Fiscal 2013 Compared to Fiscal 2012 
+Demand creation expense increased 5% compared to the prior year, mainly driven by an increase in sports marketing expense, marketing support for key product initiatives, including the NIKE FuelBand and NFL launch, as well as an increased level of marketing spending around global sporting events such as the European Football Championships and London Summer Olympics. Excluding the effects of changes in foreign currency exchange rates, Demand creation expense increased 8%. 
+Compared to the prior year, Operating overhead expense increased 13%, primarily attributable to increased investments in our DTC operations, higher personnel costs, and corporate initiatives to support the growth of our overall business. Excluding the effects of changes in foreign currency exchange rates, the growth in Operating overhead expense was 15%. 
+Other Expense (Income), Net 
+(In millions) 
+Fiscal 2014 
+Fiscal 2013 
+Fiscal 2012 
+Other expense (income), net 
+$ 
+103 
+$ 
+(15 
+) 
+$ 
+54 
+Other expense (income), net comprises foreign currency conversion gains and losses from the re-measurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments, as well as unusual or non-operating transactions that are outside the normal course of business. 
+Fiscal 2014 Compared to Fiscal 2013 
+Other expense (income), net shifted from $15 million of other (income), net for fiscal 2013 to $103 million of other expense, net, for fiscal 2014, primarily driven by a $90 million adverse change in foreign currency conversion gains and losses as well as an adverse legal judgment in the second quarter of the current year related to a long outstanding bankruptcy case for a former customer in Western Europe. 
+We estimate the combination of the translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related gains and losses included in Other expense (income), net had an unfavorable impact on our Income before income taxes of $139 million for fiscal 2014. 
+Fiscal 2013 Compared to Fiscal 2012 
+Other expense (income), net shifted from $54 million of other expense, net for fiscal 2012 to $15 million of other (income) net, for fiscal 2013. This change was primarily driven by a $48 million decrease in foreign currency net losses as well as the recognition of a $24 million restructuring charge for NIKE Brand ' s Western Europe operations in fiscal 2012. These positive impacts were partially offset by smaller net gains from non-operating items. 
+We estimate the combination of the translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related gains and losses included in Other expense (income), net had an unfavorable impact on our Income before income taxes of $56 million for fiscal 2013. 
+24 
+Table of Contents 
+Income Taxes 
+Fiscal 2014 
+Fiscal 2013 
+% Change 
+Fiscal 2012 
+% Change 
+Effective tax rate 
+24.0 
+% 
+24.7 
+% 
+(70) bps 
+25.0 
+% 
+(30) bps 
+Fiscal 2014 Compared to Fiscal 2013 
+The 70 basis point decrease in our effective tax rate for the fiscal year was primarily driven by an increase in earnings in lower tax jurisdictions. During the fourth quarter of the fiscal year ended May 31, 2014, we reached a resolution with the IRS on an Advanced Pricing Agreement. This agreement did not have a material impact on our effective tax rate for fiscal 2014. Refer to Note 9 — Income Taxes in the accompanying Notes to the Consolidated Financial Statements for additional disclosure. 
+Fiscal 2013 Compared to Fiscal 2012 
+The 30 basis point decrease in our effective tax rate for the fiscal year was primarily driven by the U.S. legislative retroactive reinstatement of the research and development tax credit and a reduction of tax reserves on foreign operations, partially offset by an increase in the percentage of earnings in higher tax jurisdictions. 
+Discontinued Operations 
+During fiscal 2013, we divested of Umbro and Cole Haan, allowing us to focus our resources on driving growth in the NIKE, Jordan, Converse, and Hurley brands. The results of the divestiture are presented as discontinued operations. Please refer to Note 15 — Discontinued Operations in the accompanying Notes to the Consolidated Financial Statements for more detail. 
+Operating Segments 
+Our reportable operating segments are evidence of the structure of the Company's internal organization, which changed beginning in the first quarter of fiscal 2014. The NIKE Brand segments continue to be defined by geographic regions for operations participating in NIKE Brand sales activity, which now includes the results of NIKE Golf and Hurley. Previously, NIKE Golf and Hurley were combined with Converse and reported as "Other Businesses." 
+Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing, and selling of athletic footwear, apparel, and equipment. The Company’s reportable operating segments for the NIKE Brand are: North America, Western Europe, Central & Eastern Europe, Greater China, Japan, and Emerging Markets. The Company’s NIKE Brand DTC operations are managed within each geographic segment. Converse is also a reportable segment for NIKE, Inc., and operates in one industry: the design, marketing, licensing, and selling of casual sneakers, apparel, and accessories. Prior year amounts have been restated to conform to fiscal 2014 presentation. 
+As part of our centrally managed foreign exchange risk management program, standard foreign currency rates are assigned twice per year to each NIKE Brand entity in our geographic operating segments and Converse. These rates are set approximately nine months in advance of the future selling season based on average market spot rates in the calendar month preceding the date they are established. Inventories and cost of sales for geographic operating segments and Converse reflect the use of these standard rates to record non-functional currency product purchases into the entity’s functional currency. Differences between assigned standard foreign currency rates and actual market rates are included in Corporate together with foreign currency hedge gains and losses generated from our centrally managed foreign exchange risk management program. 
+The breakdown of revenues is as follows: 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 (1) 
+% Change 
+% Change Excluding Currency Changes (2) 
+Fiscal 2012 (1) 
+% Change 
+% Change Excluding Currency Changes (2) 
+North America 
+$ 
+12,299 
+$ 
+11,158 
+10 
+% 
+10 
+% 
+$ 
+9,538 
+17 
+% 
+17 
+% 
+Western Europe 
+4,979 
+4,193 
+19 
+% 
+14 
+% 
+4,212 
+0 
+% 
+5 
+% 
+Central & Eastern Europe 
+1,387 
+1,229 
+13 
+% 
+15 
+% 
+1,146 
+7 
+% 
+12 
+% 
+Greater China 
+2,602 
+2,478 
+5 
+% 
+3 
+% 
+2,561 
+-3 
+% 
+-5 
+% 
+Japan 
+771 
+876 
+-12 
+% 
+5 
+% 
+920 
+-5 
+% 
+2 
+% 
+Emerging Markets 
+3,949 
+3,832 
+3 
+% 
+13 
+% 
+3,523 
+9 
+% 
+16 
+% 
+Global Brand Divisions (3) 
+125 
+115 
+9 
+% 
+6 
+% 
+111 
+4 
+% 
+7 
+% 
+Total NIKE Brand Revenues 
+26,112 
+23,881 
+9 
+% 
+11 
+% 
+22,011 
+8 
+% 
+11 
+% 
+Converse 
+1,684 
+1,449 
+16 
+% 
+15 
+% 
+1,324 
+9 
+% 
+10 
+% 
+Corporate (4) 
+3 
+(17 
+) 
+— 
+— 
+(4 
+) 
+— 
+— 
+TOTAL NIKE, INC. REVENUES 
+$ 
+27,799 
+$ 
+25,313 
+10 
+% 
+11 
+% 
+$ 
+23,331 
+8 
+% 
+11 
+% 
+25 
+Table of Contents 
+(1) 
+Certain prior year amounts have been reclassified to conform to fiscal 2014 presentation. These changes had no impact on previously reported results of operations or shareholders’ equity. 
+(2) 
+Results have been restated using actual exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact of translation arising from foreign currency exchange rate fluctuations. 
+(3) 
+Global Brand Divisions revenues primarily represent NIKE Brand licensing businesses that are not part of a geographic segment. 
+(4) 
+Corporate revenues primarily consist of foreign currency revenue-related hedge gains and losses generated by entities within the NIKE Brand geographic operating segments and Converse through our centrally managed foreign exchange risk management program. 
+The primary financial measure used by the Company to evaluate performance of individual operating segments is earnings before interest and taxes (commonly referred to as “EBIT”), which represents Net income before Interest expense (income), net and Income tax expense in the Consolidated Statements of Income. As discussed in Note 18 — Operating Segments and Related Information in the accompanying Notes to the Consolidated Financial Statements, certain corporate costs are not included in EBIT of our operating segments. 
+The breakdown of earnings before interest and taxes is as follows: 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 (1) 
+% Change 
+Fiscal 2012 (1) 
+% Change 
+North America 
+$ 
+3,075 
+$ 
+2,641 
+16 
+% 
+$ 
+2,092 
+26 
+% 
+Western Europe 
+855 
+643 
+33 
+% 
+599 
+7 
+% 
+Central & Eastern Europe 
+279 
+234 
+19 
+% 
+209 
+12 
+% 
+Greater China 
+816 
+813 
+0 
+% 
+913 
+-11 
+% 
+Japan 
+131 
+139 
+-6 
+% 
+135 
+3 
+% 
+Emerging Markets 
+955 
+988 
+-3 
+% 
+826 
+20 
+% 
+Global Brand Divisions 
+(2,021 
+) 
+(1,746 
+) 
+-16 
+% 
+(1,479 
+) 
+-18 
+% 
+Total NIKE Brand 
+4,090 
+3,712 
+10 
+% 
+3,295 
+13 
+% 
+Converse 
+496 
+425 
+17 
+% 
+394 
+8 
+% 
+Corporate (2) 
+(1,009 
+) 
+(884 
+) 
+-14 
+% 
+(674 
+) 
+-31 
+% 
+TOTAL CONSOLIDATED EARNINGS 
+BEFORE INTEREST AND TAXES 
+3,577 
+3,253 
+10 
+% 
+3,015 
+8 
+% 
+Interest expense (income), net 
+33 
+(3 
+) 
+— 
+4 
+— 
+TOTAL CONSOLIDATED INCOME 
+BEFORE INCOME TAXES 
+$ 
+3,544 
+$ 
+3,256 
+9 
+% 
+$ 
+3,011 
+8 
+% 
+(1) 
+Certain prior year amounts have been reclassified to conform to fiscal 2014 presentation. These changes had no impact on previously reported results of operations or shareholders’ equity. 
+(2) 
+Fiscal 2013 and 2012 amounts have been revised to correctly expense internally developed patent and trademark costs as incurred. Refer to Note 1 — Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements. 
+North America 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 
+% Change 
+% Change Excluding Currency Changes 
+Fiscal 2012 
+% Change 
+% Change Excluding Currency Changes 
+Revenues by: 
+Footwear 
+$ 
+7,495 
+$ 
+6,751 
+11 
+% 
+11 
+% 
+$ 
+5,941 
+14 
+% 
+14 
+% 
+Apparel 
+3,937 
+3,591 
+10 
+% 
+10 
+% 
+2,993 
+20 
+% 
+20 
+% 
+Equipment 
+867 
+816 
+6 
+% 
+6 
+% 
+604 
+35 
+% 
+35 
+% 
+TOTAL REVENUES 
+$ 
+12,299 
+$ 
+11,158 
+10 
+% 
+10 
+% 
+$ 
+9,538 
+17 
+% 
+17 
+% 
+Revenues by: 
+Sales to Wholesale Customers 
+$ 
+9,296 
+$ 
+8,571 
+8 
+% 
+9 
+% 
+$ 
+7,385 
+16 
+% 
+16 
+% 
+Sales Direct to Consumer 
+3,003 
+2,587 
+16 
+% 
+16 
+% 
+2,153 
+20 
+% 
+20 
+% 
+TOTAL REVENUES 
+$ 
+12,299 
+$ 
+11,158 
+10 
+% 
+10 
+% 
+$ 
+9,538 
+17 
+% 
+17 
+% 
+EARNINGS BEFORE INTEREST 
+AND TAXES 
+$ 
+3,075 
+$ 
+2,641 
+16 
+% 
+$ 
+2,092 
+26 
+% 
+Fiscal 2014 Compared to Fiscal 2013 
+Our continued focus on the category offense drove increased demand for NIKE Brand products across all key categories for fiscal 2014. Our Basketball, Men's Training, Running, and Sportswear categories fueled the revenue growth in fiscal 2014. DTC revenue growth in North America for fiscal 2014 was driven by a 7% increase in comparable store sales, the addition of 16 net new stores, and strong online sales growth. 
+Footwear revenues growth in North America was driven by higher demand in nearly all key categories, led by our Basketball, Running, and Sportswear categories. For fiscal 2014, unit sales increased 7% and average selling price per pair increased 4%. The increase in average selling price per pair was driven by price increases and shift in mix toward higher priced products in nearly equal amounts. 
+26 
+Table of Contents 
+North America apparel revenues growth was fueled by higher demand in all key categories, most notably our Men ' s Training, Women's Training, and Sportswear categories. Both unit sales and average selling price per unit increased, with unit sales increasing 6% and average selling price per unit increasing 4%. The increase in average selling price per unit was primarily driven by price increases, and to a lesser extent, a change in mix to higher priced products. 
+North America EBIT increased at a faster rate than revenues due to gross margin expansion and slight selling and administrative expense leverage. Gross margin increased 120 basis points for fiscal 2014, reflecting pricing initiatives as well as lower product costs as a result of favorable changes in product mix. These gross margin benefits were partially offset by higher off-price mix. Selling and administrative expenses grew in line with revenues as a result of higher operating overhead costs to support DTC growth and higher demand creation expense in support of the World Cup and key product and brand initiatives. 
+Fiscal 2013 Compared to Fiscal 2012 
+Our category offense continued to deliver innovative products, deep brand connections, and compelling retail experiences to consumers in North America, driving increased demand for NIKE Brand products across all key categories except Action Sports. Our Basketball, Men's Training, Running, and Sportswear categories drove the revenue growth in fiscal 2013. North America ' s DTC revenue growth for fiscal 2013 was fueled by 15% growth in comparable store sales as well as the addition of new stores and rapid growth in online sales. 
+North America footwear revenues growth was driven by higher demand in all key categories, most notably Basketball, Running, and Sportswear. Both unit sales and average selling price per pair increased 7% in fiscal 2013. The increase in average selling price per pair was driven approximately equally by price increases and a favorable mix of higher priced products. 
+Apparel revenues growth in North America was driven by higher demand in our Men ' s Training category, reflecting the addition of the NFL licensed business, as well as Basketball, Women ' s Training, and Running. Unit sales increased 9% while average selling price per unit increased 11%, largely driven by a favorable mix of higher priced products. 
+North America EBIT increased faster than revenues due to gross margin expansion and selling and administrative expense leverage. Gross margin increased 50 basis points for fiscal 2013, reflecting the favorable impact of selling price increases, partially offset by higher product costs, an unfavorable mix of lower margin products, and royalties for the NFL business. Selling and administrative expenses increased versus fiscal 2012, though at a rate slower than revenues; the growth was largely driven by higher demand creation expense for the Olympics in the first quarter of fiscal 2013 as well as key product initiatives, including the NFL launch, and higher operating overhead costs to support the expansion of our DTC business and overall growth of the business. 
+Western Europe 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 
+% Change 
+% Change Excluding Currency Changes 
+Fiscal 2012 
+% Change 
+% Change Excluding Currency Changes 
+Revenues by: 
+Footwear 
+$ 
+3,299 
+$ 
+2,657 
+24 
+% 
+20 
+% 
+$ 
+2,538 
+5 
+% 
+10 
+% 
+Apparel 
+1,427 
+1,289 
+11 
+% 
+7 
+% 
+1,407 
+-8 
+% 
+-4 
+% 
+Equipment 
+253 
+247 
+2 
+% 
+-1 
+% 
+267 
+-7 
+% 
+-3 
+% 
+TOTAL REVENUES 
+$ 
+4,979 
+$ 
+4,193 
+19 
+% 
+14 
+% 
+$ 
+4,212 
+0 
+% 
+5 
+% 
+Revenues by: 
+Sales to Wholesale Customers 
+$ 
+4,022 
+$ 
+3,481 
+16 
+% 
+11 
+% 
+$ 
+3,623 
+-4 
+% 
+1 
+% 
+Sales Direct to Consumer 
+957 
+712 
+34 
+% 
+29 
+% 
+589 
+21 
+% 
+27 
+% 
+TOTAL REVENUES 
+$ 
+4,979 
+$ 
+4,193 
+19 
+% 
+14 
+% 
+$ 
+4,212 
+0 
+% 
+5 
+% 
+EARNINGS BEFORE INTEREST AND TAXES 
+$ 
+855 
+$ 
+643 
+33 
+% 
+$ 
+599 
+7 
+% 
+Fiscal 2014 Compared to Fiscal 2013 
+The ongoing implementation of the category offense in Western Europe yielded successful results in fiscal 2014. On a currency neutral basis, all territories in Western Europe reported revenue growth for fiscal 2014, except Italy and Iberia, which declined 7% and 1%, respectively. Revenues for the U.K. & Ireland and AGS (Austria, Germany, and Switzerland), our largest territories in Western Europe, increased 20% and 23%, respectively. On a category basis, revenue growth in fiscal 2014 was fueled by our Running, Football (Soccer), and Sportswear categories. The growth in DTC revenues for fiscal 2014 was driven by 17% growth in comparable store sales, rapid growth in online sales, and the addition of 19 net new stores. 
+Constant currency footwear revenues growth in Western Europe reflected increases in every key category, most notably our Sportswear, Running, Football (Soccer), and Basketball categories. Unit sales in fiscal 2014 increased 11% and average selling price per pair increased 9%. The increase in average price per pair was primarily the result of price increases, a shift in mix to higher priced products, and lower discounts. 
+The constant currency increase in Western Europe apparel revenues was due to increases in Football (Soccer), Running, and Women's Training, partially offset by a decline in Sportswear. Unit sales increased 3% while average selling price per unit increased 4%, driven primarily by lower discounts on off-price closeout sales compared to the prior year. 
+On a reported basis, Western Europe EBIT for fiscal 2014 grew at a faster rate than revenues as a result of a 150 basis point increase in gross margin and selling and administrative expense leverage. The gross margin increase was fueled by higher average selling prices, growth in our higher margin DTC business, lower discounts, and lower off-price mix, which more than offset unfavorable standard foreign currency exchange rates and higher product input costs. Selling and administrative expense was lower as a percentage of revenue despite higher operating overhead costs to support growth in our DTC business and higher demand creation spending for sports marketing to support key events such as the World Cup. 
+27 
+Table of Contents 
+Fiscal 2013 Compared to Fiscal 2012 
+On a currency neutral basis, most territories in Western Europe reported revenue growth for fiscal 2013, which more than offset revenues declines of 17% and 18% in Italy and Iberia, respectively, reflecting poor economic conditions in southern Europe. Revenues for the U.K. & Ireland and AGS territories increased 8% and 12%, respectively. The growth in DTC revenues reflected 17% growth in comparable store sales, the addition of 19 net new stores and strong growth in online sales. On a category basis, Western Europe ' s revenues growth was largely driven by growth in our Running and Basketball categories. 
+Constant currency footwear revenues growth in Western Europe was primarily driven by growth in Running, Sportswear, and Basketball. Unit sales increased 7% and average selling price per pair increased 3%, the latter primarily the result of price increases. 
+The constant currency decrease in Western Europe apparel revenues was due to a decline in Sportswear, partially offset by growth in Running, Men ' s Training, and Basketball. Unit sales in fiscal 2013 decreased 1% while average selling price per unit decreased 3%, as higher discounts on closeout sales more than offset selling price increases. 
+The EBIT growth in fiscal 2013 was driven by a 200 basis point increase in gross margin, partially offset by higher selling and administrative expenses. The gross margin increase was primarily driven by favorable standard foreign currency exchange rates; higher net average selling prices were mostly offset by higher product costs. The increase in selling and administrative expense was mainly driven by an increased level of demand creation spending around the European Football Championships and Olympics in the first quarter of fiscal 2013, as well as higher sports marketing expense. Additionally, operating overhead costs increased to support the expansion of our DTC business and overall growth of the business. Fiscal 2013 EBIT growth for Western Europe was also increased by a $24 million, one-time restructuring charge that was recorded in Other expense (income), net, in the fourth quarter of fiscal 2012. 
+Central & Eastern Europe 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 
+% Change 
+% Change Excluding Currency Changes 
+Fiscal 2012 
+% Change 
+% Change Excluding Currency Changes 
+Revenues by: 
+Footwear 
+$ 
+763 
+$ 
+672 
+14 
+% 
+15 
+% 
+$ 
+631 
+6 
+% 
+11 
+% 
+Apparel 
+532 
+468 
+14 
+% 
+17 
+% 
+430 
+9 
+% 
+14 
+% 
+Equipment 
+92 
+89 
+3 
+% 
+7 
+% 
+85 
+5 
+% 
+9 
+% 
+TOTAL REVENUES 
+$ 
+1,387 
+$ 
+1,229 
+13 
+% 
+15 
+% 
+$ 
+1,146 
+7 
+% 
+12 
+% 
+EARNINGS BEFORE INTEREST AND TAXES 
+$ 
+279 
+$ 
+234 
+19 
+% 
+$ 
+209 
+12 
+% 
+Fiscal 2014 Compared to Fiscal 2013 
+On a currency neutral basis, Central & Eastern Europe revenues for fiscal 2014 was driven by growth across nearly all territories, particularly Russia, our largest territory, which grew 14%, and Turkey, which grew 17%. Revenues growth in Central & Eastern Europe was driven by growth in nearly every key category, led by Football (Soccer) and Running. 
+Constant currency footwear revenues growth in fiscal 2014 was driven by growth in nearly all categories, most notably Running and Football (Soccer). Unit sales increased 11% while average selling price per pair increased 4%, due primarily to price increases. 
+Constant currency apparel revenues growth in fiscal 2014 was driven by growth in every key category, led by Football (Soccer) and Running. Unit sales increased 15%, while average selling price per unit increased 2%, driven by price increases. 
+On a reported basis, EBIT for Central & Eastern Europe grew faster than revenues primarily due to gross margin improvement, partially offset by higher selling and administrative expense. Gross margin increased 180 basis points, primarily driven by price increases, a shift in mix to higher margin products, warehousing efficiencies, and the favorable impact of our higher margin DTC business, partially offset by unfavorable standard foreign currency exchange rates. Selling and administrative expense increased as a result of higher demand creation expense to support key events as well as higher operating overhead to support overall growth, including our expanding DTC business. 
+Fiscal 2013 Compared to Fiscal 2012 
+On a currency neutral basis, Central & Eastern Europe revenues for fiscal 2013 was driven by growth across most territories, particularly Russia and Turkey, which grew 28% and 19%, respectively. Revenues growth in Central & Eastern Europe was driven by growth in all key categories, most notably Running, Football (Soccer), and Sportswear. 
+Constant currency footwear revenues growth in fiscal 2013 was primarily driven by growth in Running, Football (Soccer), and Basketball, partially offset by lower revenues in Sportswear. Unit sales increased 6% while average selling price per pair increased 5%, primarily driven by price increases. 
+Constant currency apparel revenues growth in fiscal 2013 was driven by growth in nearly all categories, most notably Sportswear, Football (Soccer), and Running. Unit sales increased 16%, while average selling price per unit decreased 2%, as an unfavorable mix of lower priced products more than offset higher selling prices. 
+EBIT for Central & Eastern Europe grew faster than revenues primarily due to gross margin improvement and selling and administrative expense leverage. Gross margin increased 30 basis points, largely driven by price increases and the favorable impact of our higher margin DTC business, more than offsetting higher product costs and unfavorable standard foreign currency exchange rates. 
+28 
+Table of Contents 
+Greater China 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 
+% Change 
+% Change Excluding Currency Changes 
+Fiscal 2012 
+% Change 
+% Change Excluding Currency Changes 
+Revenues by: 
+Footwear 
+$ 
+1,600 
+$ 
+1,495 
+7 
+% 
+5 
+% 
+$ 
+1,520 
+-2 
+% 
+-3 
+% 
+Apparel 
+876 
+844 
+4 
+% 
+1 
+% 
+910 
+-7 
+% 
+-8 
+% 
+Equipment 
+126 
+139 
+-9 
+% 
+-11 
+% 
+131 
+6 
+% 
+4 
+% 
+TOTAL REVENUES 
+$ 
+2,602 
+$ 
+2,478 
+5 
+% 
+3 
+% 
+$ 
+2,561 
+-3 
+% 
+-5 
+% 
+Revenues by: 
+Sales to Wholesale Customers 
+$ 
+2,041 
+$ 
+2,079 
+-2 
+% 
+-4 
+% 
+$ 
+2,266 
+-8 
+% 
+-9 
+% 
+Sales Direct to Consumer 
+561 
+399 
+41 
+% 
+38 
+% 
+295 
+35 
+% 
+33 
+% 
+TOTAL REVENUES 
+$ 
+2,602 
+$ 
+2,478 
+5 
+% 
+3 
+% 
+$ 
+2,561 
+-3 
+% 
+-5 
+% 
+EARNINGS BEFORE INTEREST AND TAXES 
+$ 
+816 
+$ 
+813 
+0 
+% 
+$ 
+913 
+-11 
+% 
+Fiscal 2014 Compared to Fiscal 2013 
+Excluding changes in currency exchange rates, Greater China revenues increased 3% in fiscal 2014, primarily driven by strong growth in our DTC business, which represented 22% of total Greater China revenues for fiscal 2014. The growth in DTC revenues reflected a 20% increase in comparable store sales, the addition of 30 net new stores, as well as online sales growth. The increase in DTC revenues more than offset a 4% decrease in sales in our wholesale business as we continued to manage the amount of product sold into the market and worked with our wholesale partners to optimize product mix for the consumer. On a category basis, higher revenues in our Basketball, Sportswear, and Running categories more than offset declines in Men's Training, Action Sports, and Women's Training. 
+Constant currency footwear revenues growth for Greater China in fiscal 2014 was driven by increased sales in our Basketball and Sportswear categories, partially offset by declines in our Men's Training, Running, and Action Sports categories. Unit sales for fiscal 2014 were flat compared to the prior year while average selling price per pair increased 5%, driven by favorable revenue mix resulting from a higher percentage of sales from our higher price DTC business, as well as a shift in mix to higher priced product. 
+Constant currency apparel revenues growth for fiscal 2014 was driven by increases in the Running, Sportswear, and Basketball categories, partially offset by decreases in Men's Training and Women's Training. Apparel unit sales in fiscal 2014 were 1% higher while average selling price per unit was flat. 
+Fiscal 2014 reported EBIT for Greater China was flat compared to the prior year as reported revenue and gross margin increases were offset by higher selling and administrative expense as a percentage of sales. Gross margin increased150 basis points as higher average selling prices, growth in our higher margin DTC business, and improved margins on closeout sales more than offset higher product input costs and unfavorable product mix. Selling and administrative expense increased due to higher operating overhead costs driven by increased investments to support DTC growth and our new Greater China headquarters in Shanghai, as well as higher demand creation spending. 
+Fiscal 2013 Compared to Fiscal 2012 
+On a currency neutral basis, Greater China revenues decreased in fiscal 2013, driven by lower futures orders as well as increased discounts, product returns and proactive cancellation of orders to manage inventory levels at retail. These downsides were partially offset by 33% growth in our DTC business driven by comparable store sales growth of 13% and the addition of 29 net new stores. Fiscal 2013 revenues for most key categories were lower than in fiscal 2012. 
+For fiscal 2013, constant currency footwear revenues for Greater China declined, driven by lower sales across most key categories, most notably Sportswear, Men ' s Training, and Women ' s Training; and increased reserves for product discounts and returns. Unit sales decreased 1%, while average selling price per pair decreased 2%, reflecting a higher mix of closeout sales and higher discounts. 
+The decrease in constant currency apparel revenues for fiscal 2013 was driven by lower revenues in Sportswear, Men ' s Training, and Women ' s Training, partially offset by higher revenues in Basketball. Apparel unit sales in fiscal 2013 were 3% lower than the prior year while average selling price per unit was down 5%, reflecting a higher mix of closeout sales and higher discounts. 
+Fiscal 2013 EBIT for Greater China decreased at a faster rate than revenues, driven by lower gross margin and higher selling and administrative expense. Fiscal 2013 gross margin decreased 50 basis points due to a lower average selling price per unit driven by higher discounts and closeout mix partially offset by favorable standard foreign currency exchange rates. Selling and administrative expense increased as a percent of revenues, driven primarily by the increased investment in our DTC business and the decrease in revenues. 
+29 
+Table of Contents 
+Japan 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 
+% Change 
+% Change Excluding Currency Changes 
+Fiscal 2012 
+% Change 
+% Change Excluding Currency Changes 
+Revenues by: 
+Footwear 
+$ 
+409 
+$ 
+439 
+-7 
+% 
+11 
+% 
+$ 
+447 
+-2 
+% 
+5 
+% 
+Apparel 
+276 
+337 
+-18 
+% 
+-2 
+% 
+364 
+-7 
+% 
+-1 
+% 
+Equipment 
+86 
+100 
+-14 
+% 
+2 
+% 
+109 
+-8 
+% 
+0 
+% 
+TOTAL REVENUES 
+$ 
+771 
+$ 
+876 
+-12 
+% 
+5 
+% 
+$ 
+920 
+-5 
+% 
+2 
+% 
+EARNINGS BEFORE INTEREST AND TAXES 
+$ 
+131 
+$ 
+139 
+-6 
+% 
+$ 
+135 
+3 
+% 
+Fiscal 2014 Compared to Fiscal 2013 
+On a currency neutral basis, revenues increased 5% for Japan, driven by higher revenues in Sportswear, Football (Soccer), and Basketball, partially offset by lower revenues in Men's Training and NIKE Golf. 
+Fiscal 2014 EBIT for Japan decreased 6% as a 12% decline in reported revenues, due to the weaker Yen, was only partially offset by higher gross margin and selling and administrative expense leverage. Gross margin increased 20 basis points as higher average selling prices, favorable off-price mix, and the favorable impact of higher margin DTC revenues were mostly offset by unfavorable standard foreign currency exchange rates. The decrease in selling and administrative expense in fiscal 2014 was attributable to lower operating overhead and demand creation spending. 
+Fiscal 2013 Compared to Fiscal 2012 
+Excluding changes in currency exchange rates, the revenues increase for Japan was driven by higher revenues in Running, Football (Soccer), and Basketball, partially offset by lower revenues in Sportswear, Men ' s Training, and Women ' s Training. 
+Fiscal 2013 EBIT for Japan increased as lower reported revenues were more than offset by gross margin improvement and lower selling and administrative expense. The decrease in selling and administrative expense in fiscal 2013 was attributable to both lower operating overhead and demand creation spending. 
+Emerging Markets 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 
+% Change 
+% Change Excluding Currency Changes 
+Fiscal 2012 
+% Change 
+% Change Excluding Currency Changes 
+Revenues by: 
+Footwear 
+$ 
+2,642 
+$ 
+2,621 
+1 
+% 
+10 
+% 
+$ 
+2,436 
+8 
+% 
+15 
+% 
+Apparel 
+1,061 
+962 
+10 
+% 
+21 
+% 
+854 
+13 
+% 
+19 
+% 
+Equipment 
+246 
+249 
+-1 
+% 
+9 
+% 
+233 
+7 
+% 
+13 
+% 
+TOTAL REVENUES 
+$ 
+3,949 
+$ 
+3,832 
+3 
+% 
+13 
+% 
+$ 
+3,523 
+9 
+% 
+16 
+% 
+EARNINGS BEFORE INTEREST 
+AND TAXES 
+$ 
+955 
+$ 
+988 
+-3 
+% 
+$ 
+826 
+20 
+% 
+Fiscal 2014 Compared to Fiscal 2013 
+Excluding changes in currency exchange rates, fiscal 2014 revenues for Emerging Markets increased 13% as a result of growth across nearly every territory. Our largest territory, Brazil, grew 19%, while our SOCO territory (which includes Argentina, Uruguay, and Chile) grew 25%. Mexico revenues decreased 3% as a result of shipping delays caused by issues with a distribution center transition in the first half of fiscal 2014. On a category basis, revenues were higher in nearly every category, led by Football (Soccer), Running, and Sportswear. 
+Constant currency footwear revenues growth for fiscal 2014 was driven by growth in nearly every key category, led by Running, Sportswear, Football (Soccer), and Action Sports. Unit sales for fiscal 2014 increased 4% and average selling price per pair increased 6%, primarily driven by price increases, in part reflecting inflationary conditions in certain Latin American territories, and to a lesser extent, a shift in mix to higher priced product. 
+Constant currency apparel revenues increased driven by growth in every key category, most notably Football (Soccer) and Running. Unit sales increased 11% and average selling price per unit increased 10%, primarily due to price increases, in part reflecting inflationary conditions in certain Latin American territories. 
+Fiscal 2014 reported EBIT for Emerging Markets decreased primarily due to a decline in gross margin, higher selling and administrative expense, and weaker currencies in a number of developing markets. Gross margin decreased 30 basis points due primarily to unfavorable foreign currency exchange rates, higher product costs, higher warehousing costs related to distribution center transition challenges in Mexico, and higher discounts, which more than offset higher average selling prices and a favorable shift to higher priced products. Selling and administrative expense increased due to higher operating overhead costs to support the expansion of our DTC business and infrastructure investments to support growth, as well as increases in demand creation spending to support the World Cup and key product launches. 
+30 
+Table of Contents 
+Fiscal 2013 Compared to Fiscal 2012 
+For fiscal 2013, constant currency revenues growth for the Emerging Markets geography was driven by growth in every key category and territory, led by SOCO, Brazil, and Mexico. 
+Constant currency footwear revenues growth for fiscal 2013 was driven by growth in most key categories, most notably Running, Football (Soccer), and Women ' s Training. Unit sales increased approximately 9% and average selling price per pair increased 6%, primarily driven by selling price increases. 
+Fiscal 2013 constant currency apparel revenues were driven by growth in every key category, led by Football (Soccer), Running, Sportswear, and Men ' s Training. Unit sales increased approximately 10% and average selling price per unit increased 9%, largely attributable to price increases. 
+Fiscal 2013 Emerging Markets EBIT grew faster than revenue primarily driven by gross margin improvement, partially offset by higher selling and administrative expense as a percent of revenue. Gross margin increased 260 basis points due largely to the favorable impact of price increases, the anniversary of a one-time customs duty charge in fiscal 2012, and favorable standard foreign currency exchange rates, which more than offset the unfavorable impact of higher product costs. As a percent of revenue, selling and administrative expense was higher due to higher operating overhead costs to support the expansion of our DTC business and overall growth of the business. 
+Global Brand Divisions 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 
+% Change 
+% Change Excluding Currency Changes 
+Fiscal 2012 
+% Change 
+% Change Excluding Currency Changes 
+Revenues 
+$ 
+125 
+$ 
+115 
+9 
+% 
+6 
+% 
+$ 
+111 
+4 
+% 
+7 
+% 
+(Loss) Before Interest and Taxes 
+$ 
+(2,021 
+) 
+$ 
+(1,746 
+) 
+16 
+% 
+$ 
+(1,479 
+) 
+18 
+% 
+Global Brand Divisions primarily represent demand creation, operating overhead, and product creation and design expenses that are centrally managed for the NIKE Brand. Revenues for Global Brand Divisions are primarily attributable to NIKE Brand licensing businesses that are not part of a geographic operating segment. 
+Fiscal 2014 Compared to Fiscal 2013 
+For fiscal 2014, Global Brand Divisions ' loss before interest and taxes increased $275 million, primarily driven by an increase in centrally managed product costs, increased investments in our digital infrastructure, higher demand creation spending in the fourth quarter of fiscal 2014 to support the World Cup, and product creation and design initiatives. 
+Fiscal 2013 Compared to Fiscal 2012 
+For fiscal 2013, Global Brand Divisions ' loss before interest and taxes increased $267 million, primarily driven by increased investments and marketing support for our digital business, product creation and design initiatives, and higher demand creation spending in the first quarter of fiscal 2013 around the Olympics and European Football Championships. 
+Converse 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 
+% Change 
+% Change Excluding Currency Changes 
+Fiscal 2012 
+% Change 
+% Change Excluding Currency Changes 
+Revenues 
+$ 
+1,684 
+$ 
+1,449 
+16 
+% 
+15 
+% 
+$ 
+1,324 
+9 
+% 
+10 
+% 
+Earnings Before Interest and Taxes 
+$ 
+496 
+$ 
+425 
+17 
+% 
+$ 
+394 
+8 
+% 
+In territories we define as "direct distribution markets," Converse designs, markets, and sells products directly to distributors, wholesale customers, and to consumers through DTC operations. The largest direct distribution markets are the United States, the United Kingdom, and China. Converse does not own the Converse trademarks in Japan. Territories other than direct distribution markets and Japan are serviced by third-party licensees who pay royalty revenues to Converse for the use of its registered trademarks and other intellectual property rights. 
+Fiscal 2014 Compared to Fiscal 2013 
+Excluding changes in currency exchange rates, revenues for Converse increased 15% for fiscal 2014. Revenue growth in direct distribution markets, which represent approximately 84% of Converse revenues, contributed 16 percentage points to the total increase for fiscal 2014, while licensing revenues decreased overall revenue by 1 percentage point. Revenues from our direct distribution markets grew 19% for fiscal 2014 driven by growth in "comparable" direct distribution markets (i.e., markets served under a direct distribution model for comparable periods in the current and prior fiscal years), primarily the United States, China, and the United Kingdom. Comparable direct distribution markets revenues increased 13%, contributing 12 percentage points of direct distribution markets revenues growth for fiscal 2014, while conversion of markets from licensed to direct distribution contributed 7 percentage points. Comparable direct distribution markets unit sales increased 12% and average selling price per unit increased 1% for fiscal 2014. The increase in average selling price per unit resulted primarily from a favorable mix of higher priced product. Due to market conversions and business declines in Latin America, licensing revenues decreased 3% for fiscal 2014. 
+On a reported basis, EBIT at Converse grew 17% for fiscal 2014 as higher revenues and gross margin were partially offset by higher selling and administrative expense. Gross margin increased 80 basis points, primarily due to growth in higher margin territories and products within our direct distribution markets. Selling and administrative expense grew faster than revenue for fiscal 2014 due to higher operating overhead to support growth initiatives and DTC expansion, as well as higher demand creation spending. 
+31 
+Table of Contents 
+Fiscal 2013 Compared to Fiscal 2012 
+Constant currency revenues for Converse increased 10% for fiscal 2013. Revenue growth in direct distribution markets, which represented approximately 81% of Converse revenues, contributed 11 percentage points to the total increase for fiscal 2013, while licensing revenues decreased overall revenue growth by 1 percentage point. Revenues from our direct distribution markets grew 15% for fiscal 2013 driven by growth in comparable direct distribution markets, primarily the United States, China, and the United Kingdom. Comparable direct distribution markets revenues increased 11%, contributing 10 percentage points of direct distribution markets revenues growth for fiscal 2013; conversion of markets from licensed to direct distribution contributed 5 percentage points. Comparable direct distribution markets unit sales increased 6% and average selling price per unit increased 5% for fiscal 2013. The increase in average selling price per unit resulted primarily from a higher mix of higher priced product. Due to market conversions and business declines in Latin America, licensing revenues decreased 7% for fiscal 2013. 
+On a reported basis, EBIT for Converse grew 8% for fiscal 2013 as higher revenues and gross margin were partially offset by higher selling and administrative expense. Gross margin increased 120 basis points, primarily due to growth in higher margin territories and products within our direct distribution markets. Selling and administrative expense grew faster than revenue for fiscal 2013 due to higher operating overhead to support growth initiatives and DTC expansion, as well as higher demand creation spending. 
+Corporate 
+(Dollars in millions) 
+Fiscal 2014 
+Fiscal 2013 
+% Change 
+Fiscal 2012 
+% Change 
+Revenues 
+$ 
+3 
+$ 
+(17 
+) 
+— 
+$ 
+(4 
+) 
+— 
+(Loss) Before Interest and Taxes 
+$ 
+(1,009 
+) 
+$ 
+(884 
+) 
+14 
+% 
+$ 
+(674 
+) 
+31 
+% 
+Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse but managed through our central foreign exchange risk management program. 
+The Corporate loss before interest and taxes consists largely of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to our corporate headquarters; unallocated insurance, benefit, and compensation programs, including stock-based compensation; and certain foreign currency gains and losses. 
+In addition to the foreign currency gains and losses recognized in Corporate revenues, foreign currency results included in gross margin are gains and losses resulting from the difference between actual foreign currency rates and standard rates used to record non-functional currency denominated product purchases within the NIKE Brand geographic operating segments and Converse; related foreign currency hedge results; conversion gains and losses arising from re-measurement of monetary assets and liabilities in non-functional currencies; and certain other foreign currency hedge results. 
+Fiscal 2014 Compared to Fiscal 2013 
+For fiscal 2014, Corporate's loss before interest and taxes increased by $125 million primarily due to the following: 
+• 
+a $99 million increase in corporate overhead expense related to corporate initiatives to support the growth of the business as well as performance-based compensation; 
+• 
+a $90 million increase in foreign currency net losses, reported as a component of Other expense (income), net; and 
+• 
+a $56 million decrease in foreign exchange losses related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to the NIKE Brand geographic operating segments and Converse, net of hedge gains; these losses are reported as a component of consolidated gross margin. 
+Fiscal 2013 Compared to Fiscal 2012 
+For fiscal 2013, Corporate's loss before interest and taxes increased by $210 million primarily due to the following: 
+• 
+a $165 million increase in foreign exchange losses related to the difference between actual foreign currency exchange rates and standard foreign currency exchange rates assigned to the NIKE Brand geographic operating segments and Converse, net of hedge gains; these losses are reported as a component of consolidated gross margin; 
+• 
+an $86 million increase in corporate overhead expense related to corporate initiatives to support the growth of the business and performance-based compensation; and 
+• 
+a $48 million decrease in foreign currency net losses, reported as a component of Other expense (income), net. 
+Foreign Currency Exposures and Hedging Practices 
+Overview 
+As a global company with significant operations outside the United States, in the normal course of business we are exposed to risk arising from changes in currency exchange rates. Our primary foreign currency exposures arise from the recording of transactions denominated in non-functional currencies and the translation of foreign currency denominated results of operations, financial position, and cash flows into U.S. Dollars. 
+Our foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our consolidated results of operations, financial position, and cash flows. We manage global foreign exchange risk centrally on a portfolio basis to address those risks that are material to NIKE, Inc. We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio and, where practical and material, by hedging a portion of the remaining exposures using derivative instruments such as forward contracts and options. As described below, the implementation of the NIKE Trading Company ("NTC") and our foreign currency adjustment program enhanced our ability to manage our foreign exchange risk by increasing the natural offsets and currency correlation benefits that exist within our portfolio of foreign exchange exposures. Our hedging policy is designed to partially or entirely offset the impact of exchange rate changes on the underlying net exposures being hedged. Where exposures are hedged, our program has the effect of delaying the impact of exchange rate movements on our consolidated financial statements; the length of the delay is dependent upon hedge horizons. We do not hold or issue derivative instruments for trading or speculative purposes. 
+Transactional exposures 
+We conduct business in various currencies and have transactions which subject us to foreign currency risk. Our most significant transactional foreign currency exposures are: 
+• 
+Product Costs — NIKE’s product costs are exposed to fluctuations in foreign currencies in the following ways: 
+1. 
+Product purchases denominated in currencies other than the functional currency of the transacting entity: 
+a. 
+Some NIKE entities purchase product from the NTC, a wholly-owned sourcing hub that buys NIKE branded products from third-party factories, predominantly in U.S. Dollars. The NTC, whose functional currency is the U.S. Dollar, then sells the products to NIKE entities in their respective functional currencies. When the NTC sells to a NIKE entity with a different functional currency, the result is a foreign currency exposure for the NTC. 
+b. 
+Other NIKE entities purchase product directly from third-party factories in U.S. Dollars. These purchases generate a foreign currency exposure for those NIKE entities with a functional currency other than the U.S. Dollar. 
+In both purchasing scenarios, a weaker U.S. Dollar decreases the inventory cost incurred by NIKE whereas a stronger U.S. Dollar increases its cost. 
+2. 
+Factory input costs: In January 2012, NIKE implemented a foreign currency adjustment program with certain factories. The program is designed to more effectively manage foreign currency risk by assuming certain of the factories’ foreign currency exposures, some of which are natural offsets to our existing foreign currency exposures. Under this program, our payments to these factories are adjusted for rate fluctuations in the basket of currencies (“factory currency exposure index”) in which the labor, materials and overhead costs incurred by the factories in the production of NIKE branded products (“factory input costs”) are denominated. 
+32 
+Table of Contents 
+For the currency within the factory currency exposure indices that is the local or functional currency of the factory, the currency rate fluctuation affecting the product cost is recorded within Inventories and is recognized in Cost of sales when the related product is sold to a third-party. All currencies within the indices, excluding the U.S. Dollar and the local or functional currency of the factory, are recognized as embedded derivative contracts and are recorded at fair value through Other expense (income), net . Refer to Note 17 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional detail. 
+As an offset to the impacts of the fluctuating U.S. Dollar on our non-functional currency denominated product purchases described above, a strengthening U.S. Dollar against the foreign currencies within the factory currency exposure indices decreases NIKE’s U.S. Dollar inventory cost. Conversely, a weakening U.S. Dollar against the indexed foreign currencies increases our inventory cost. 
+• 
+Non-Functional Currency Denominated External Sales — A portion of our Western Europe and Central & Eastern Europe geography revenues are earned in currencies other than the Euro (e.g. British Pound) but are recognized at a subsidiary that uses the Euro as its functional currency. These sales generate a foreign currency exposure. 
+• 
+Other Costs — Non-functional currency denominated costs, such as endorsement contracts, intercompany royalties and other intercompany charges, also generate foreign currency risk though to a lesser extent. 
+• 
+Non-Functional Currency Denominated Monetary Assets and Liabilities — Our global subsidiaries have various assets and liabilities, primarily receivables and payables, denominated in currencies other than their functional currencies. These balance sheet items are subject to re-measurement, which may create fluctuations in Other expense (income), net within our consolidated results of operations. 
+Managing transactional exposures 
+Transactional exposures are managed on a portfolio basis within our foreign currency risk management program. We manage these exposures by taking advantage of natural offsets and currency correlations that exist within the portfolio and may also elect to use currency forward and option contracts to hedge a portion of the remaining effect of exchange rate fluctuations on probable forecasted future cash flows, including certain product cost purchase exposures, non-functional currency denominated external sales, and other costs described above. Generally, these are accounted for as cash flow hedges in accordance with the accounting standards for derivatives and hedging, except for hedges of the embedded derivatives component of the product cost exposures as discussed below. 
+Certain currency forward contracts used to manage the foreign exchange exposure of non-functional currency denominated monetary assets and liabilities subject to re-measurement and the embedded derivative contracts discussed above are not formally designated as hedging instruments under the accounting standards for derivatives and hedging. Accordingly, changes in fair value of these instruments are immediately recognized in Other expense (income), net and are intended to offset the foreign currency impact of the re-measurement of the related non-functional currency denominated asset or liability or the embedded derivative contract being hedged. 
+Refer to Note 6 — Fair Value Measurements and Note 17 – Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional description of how the above financial instruments are valued and recorded as well as the fair value of outstanding derivatives at period end. 
+Translational exposures 
+Many of our foreign subsidiaries operate in functional currencies other than the U.S. Dollar. Fluctuations in currency exchange rates create volatility in our reported results as we are required to translate the balance sheets, operational results, and cash flows of these subsidiaries into U.S. Dollars for consolidated reporting. The translation of foreign subsidiaries’ non-U.S. Dollar denominated balance sheets into U.S. Dollars for consolidated reporting results in a cumulative translation adjustment to Other comprehensive income within the Consolidated Statements of Shareholders’ Equity. In the translation of our Consolidated Statements of Income, a weaker U.S. Dollar in relation to foreign functional currencies benefits our consolidated earnings whereas a stronger U.S. Dollar reduces our consolidated earnings. The impact of foreign exchange rate fluctuations on the translation of our consolidated Revenues was a detriment of approximately $288 million and $605 million for the years ended May 31, 2014 and 2013, respectively. The impact of foreign exchange rate fluctuations on the translation of our Income before income taxes was a detriment of approximately $49 million and $104 million for the years ended May 31, 2014 and 2013, respectively. 
+Managing translational exposures 
+To minimize the impact of translating foreign currency denominated revenues and expenses into U.S. Dollars for consolidated reporting, certain foreign subsidiaries use excess cash to purchase U.S. Dollar denominated available-for-sale investments. The variable future cash flows associated with the purchase and subsequent sale of these U.S. Dollar denominated securities at non-U.S. Dollar functional currency subsidiaries creates a foreign currency exposure that qualifies for hedge accounting under the accounting standards for derivatives and hedging. We utilize forward contracts and/or options to mitigate the variability of the forecasted future purchases and sales of these U.S. Dollar investments. The combination of the purchase and sale of the U.S. Dollar investment and the hedging instrument has the effect of partially offsetting the year-over-year foreign currency translation impact on net earnings in the period the investments are sold. Hedges of available-for-sale investments are accounted for as cash flow hedges. 
+Refer to Note 6 — Fair Value Measurements and Note 17 — Risk Management and Derivatives in the accompanying Notes to the Consolidated Financial Statements for additional description of how the above financial instruments are valued and recorded as well as the fair value of outstanding derivatives at period end. 
+We estimate the combination of translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreign currency related gains and losses included in Other expense (income), net had an unfavorable impact of approximately $139 million and $56 million on our Income before income taxes for the years ended May 31, 2014 and 2013, respectively. 
+33 
+Table of Contents 
+Net investments in foreign subsidiaries 
+We are also exposed to the impact of foreign exchange fluctuations on our investments in wholly-owned foreign subsidiaries denominated in a currency other than the U.S. Dollar, which could adversely impact the U.S. Dollar value of these investments and therefore the value of future repatriated earnings. We have hedged and may, in the future, hedge net investment positions in certain foreign subsidiaries to mitigate the effects of foreign exchange fluctuations on these net investments. In accordance with the accounting standards for derivatives and hedging, the effective portion of the change in fair value of the forward contracts designated as net investment hedges is recorded in the cumulative translation adjustment component of Accumulated other comprehensive income. Any ineffective portion is immediately recognized in earnings as a component of Other expense (income), net . The impact of ineffective hedges was immaterial for any period presented. To minimize credit risk, we have structured these net investment hedges to be generally less than six months in duration. Upon maturity, the hedges are settled based on the current fair value of the forward contracts with the realized gain or loss remaining in Other comprehensive income. There were no outstanding net investment hedges as of May 31, 2014 and 2013. There were no cash flows from net investment hedge settlements for the years ended May 31, 2014 and 2013. 
+Liquidity and Capital Resources 
+Cash Flow Activity 
+Cash provided by operations was $3,003 million for fiscal 2014 compared to $2,968 million for fiscal 2013 . Our primary source of operating cash flow for fiscal 2014 was net income of $2,693 million . Our fiscal 2014 change in working capital was a net cash outflow of $488 million as compared to a net cash outflow of $78 million for fiscal 2013 . Our investments in working capital increased due to higher inventory levels to support higher reported futures orders, growth in accounts receivable reflecting the increase in sales, and higher prepaid marketing expenses in advance of the World Cup. These increases in working capital were partially offset by increases in accounts payable and accrued liabilities. 
+Cash used by investing activities was $1,207 million during fiscal 2014 , compared to a $940 million use of cash for fiscal 2013 . A major driver of the change was a $282 million increase in additions to property, plant and equipment from $598 million in fiscal 2013 to $880 million in fiscal 2014, reflective of investments in infrastructure to support current and future growth, as well as digital capabilities. In fiscal 2014, we made $328 million in net purchases of short-term investments (net of sales/maturities) compared to $1,140 million in net purchases (net of sales/maturities) in fiscal 2013. Cash used by investing activities in fiscal 2013 was partially offset by $786 million in proceeds from the sale of Umbro and Cole Haan. 
+Cash used by financing activities was $2,914 million for fiscal 2014 compared to $1,045 million for fiscal 2013 , an increase of $1,869 million. The increase was primarily due to a $954 million increase in share repurchases to $2,628 million, a $ 986 million decrease in net proceeds from long term debt issuance (reflecting the issuance of 10- and 30-year notes in April 2013), and a $96 million increase in dividends, partially offset by a year-on-year increase in proceeds from the exercise of stock options. 
+In fiscal 2014 , we purchased 36.6 million shares of NIKE’s Class B Common Stock for $2,628 million , an average price of $ 71.80 . During fiscal 2013, we completed the four-year, $5 billion share repurchase program approved by our Board of Directors in September 2008. Under that program, we purchased a total of 118.8 million shares at an average price of $42.08. Subsequently, we began repurchases under a four-year, $8 billion program approved by the Board in September 2012. As of the end of fiscal 2014 , we had repurchased 51.9 million shares at an average price of $65.83 for a total cost of $3,417 million under this current program. We continue to expect funding of share repurchases will come from operating cash flow, excess cash, and/or debt. The timing and the amount of shares purchased will be dictated by our capital needs and stock market conditions. 
+Capital Resources 
+On April 23, 2013, we filed a shelf registration statement (the "Shelf") with the SEC which permits us to issue an unlimited amount of debt securities. The Shelf expires on April 23, 2016. On April 23, 2013, we issued $1.0 billion of senior notes with tranches maturing in 2023 and 2043. The 2023 senior notes were issued in an initial aggregate principal amount of $500 million at a 2.25% fixed, annual interest rate and will mature on May 1, 2023. The 2043 senior notes were issued in an initial aggregate principal amount of $500 million at a 3.625% fixed, annual interest rate and will mature on May 1, 2043. Interest on the senior notes is payable semi-annually on May 1 and November 1 of each year. The issuance resulted in gross proceeds before expenses of $998 million. 
+On November 1, 2011, we entered into a committed credit facility agreement with a syndicate of banks which provides for up to $1 billion of borrowings with the option to increase borrowings to $1.5 billion with lender approval. Following an extension agreement on September 17, 2013 between the Company and the syndicate of banks, the facility matures November 1, 2017, with a one-year extension option exercisable through October 31, 2014. No amounts were outstanding under this facility as of May 31, 2014 or 2013 . 
+We currently have long-term debt ratings of AA- and A1 from Standard and Poor's Corporation and Moody's Investor Services, respectively. If our long-term debt rating were to decline, the facility fee and interest rate under our committed credit facility would increase. Conversely, if our long-term debt rating were to improve, the facility fee and interest rate would decrease. Changes in our long-term debt rating would not trigger acceleration of maturity of any then-outstanding borrowings or any future borrowings under the committed credit facility. Under this committed revolving credit facility, we have agreed to various covenants. These covenants include limits on our disposal of fixed assets, the amount of debt secured by liens we may incur, as well as a minimum capitalization ratio. In the event we were to have any borrowings outstanding under this facility and failed to meet any covenant, and were unable to obtain a waiver from a majority of the banks in the syndicate, any borrowings would become immediately due and payable. As of May 31, 2014 , we were in full compliance with each of these covenants and believe it is unlikely we will fail to meet any of these covenants in the foreseeable future. 
+Liquidity is also provided by our $1 billion commercial paper program. During the year ended May 31, 2014 , we did not issue commercial paper, and as of May 31, 2014 , there were no outstanding borrowings under this program. We may continue to issue commercial paper or other debt securities during fiscal 2015 depending on general corporate needs. We currently have short-term debt ratings of A1+ and P1 from Standard and Poor's Corporation and Moody's Investor Services, respectively. 
+As of May 31, 2014 , we had cash, cash equivalents, and short-term investments totaling $5.1 billion , of which $2.5 billion was held by our foreign subsidiaries. Cash equivalents and short-term investments consist primarily of deposits held at major banks, money market funds, commercial paper, corporate notes, U.S. Treasury obligations, U.S. government sponsored enterprise obligations, and other investment grade fixed income securities. Our fixed income investments are exposed to both credit and interest rate risk. All of our investments are investment grade to minimize our credit risk. While individual securities have varying durations, as of May 31, 2014 the average duration of our short-term investments and cash equivalents portfolio was 126 days. 
+34 
+Table of Contents 
+To date we have not experienced difficulty accessing the credit markets or incurred higher interest costs. Future volatility in the capital markets, however, may increase costs associated with issuing commercial paper or other debt instruments or affect our ability to access those markets. We believe that existing cash, cash equivalents, short-term investments, and cash generated by operations, together with access to external sources of funds as described above, will be sufficient to meet our domestic and foreign capital needs in the foreseeable future. 
+We utilize a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where they are needed. We routinely repatriate a portion of our foreign earnings for which U.S. taxes have previously been provided. We also indefinitely reinvest a significant portion of our foreign earnings, and our current plans do not demonstrate a need to repatriate these earnings. Should we require additional capital in the United States, we may elect to repatriate indefinitely reinvested foreign funds or raise capital in the United States through debt. If we were to repatriate indefinitely reinvested foreign funds, we would be required to accrue and pay additional U.S. taxes less applicable foreign tax credits. If we elect to raise capital in the United States through debt, we would incur additional interest expense . 
+Off-Balance Sheet Arrangements 
+In connection with various contracts and agreements, we routinely provide indemnification relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items where we are acting as the guarantor. Currently, we have several such agreements in place. However, based on our historical experience and the estimated probability of future loss, we have determined that the fair value of such indemnification is not material to our financial position or results of operations. 
+Contractual Obligations 
+Our significant long-term contractual obligations as of May 31, 2014 and significant endorsement contracts entered into through the date of this report are as follows: 
+Description of Commitment 
+Cash Payments Due During the Year Ending May 31, 
+(In millions) 
+2015 
+2016 
+2017 
+2018 
+2019 
+Thereafter 
+Total 
+Operating Leases 
+$ 
+427 
+$ 
+399 
+$ 
+366 
+$ 
+311 
+$ 
+251 
+$ 
+1,050 
+$ 
+2,804 
+Capital Leases 
+36 
+35 
+1 
+1 
+1 
+— 
+74 
+Long-term Debt (1) 
+46 
+145 
+79 
+56 
+37 
+1,488 
+1,851 
+Endorsement Contracts (2) 
+991 
+787 
+672 
+524 
+349 
+1,381 
+4,704 
+Product Purchase Obligations (3) 
+3,688 
+— 
+— 
+— 
+— 
+— 
+3,688 
+Other (4) 
+309 
+108 
+78 
+7 
+3 
+12 
+517 
+TOTAL 
+$ 
+5,497 
+$ 
+1,474 
+$ 
+1,196 
+$ 
+899 
+$ 
+641 
+$ 
+3,931 
+$ 
+13,638 
+(1) 
+The cash payments due for long-term debt include estimated interest payments. Estimates of interest payments are based on outstanding principal amounts, applicable fixed interest rates or currently effective interest rates as of May 31, 2014 (if variable), timing of scheduled payments, and the term of the debt obligations. 
+(2) 
+The amounts listed for endorsement contracts represent approximate amounts of base compensation and minimum guaranteed royalty fees we are obligated to pay athlete and sport team endorsers of our products. Actual payments under some contracts may be higher than the amounts listed as these contracts provide for bonuses to be paid to the endorsers based upon athletic achievements and/or royalties on product sales in future periods. Actual payments under some contracts may also be lower as these contracts include provisions for reduced payments if athletic performance declines in future periods. 
+In addition to the cash payments, we are obligated to furnish our endorsers with NIKE product for their use. It is not possible to determine how much we will spend on this product on an annual basis as the contracts generally do not stipulate a specific amount of cash to be spent on the product. The amount of product provided to the endorsers will depend on many factors, including general playing conditions, the number of sporting events in which they participate, and our own decisions regarding product and marketing initiatives. In addition, the costs to design, develop, source, and purchase the products furnished to the endorsers are incurred over a period of time and are not necessarily tracked separately from similar costs incurred for products sold to customers. 
+(3) 
+We generally order product at least four to five months in advance of sale based primarily on futures orders received from customers. The amounts listed for product purchase obligations represent agreements (including open purchase orders) to purchase products in the ordinary course of business that are enforceable and legally binding and that specify all significant terms. In some cases, prices are subject to change throughout the production process. The reported amounts exclude product purchase liabilities included in Accounts payable on the Consolidated Balance Sheet as of May 31, 2014 . 
+(4) 
+Other amounts primarily include service and marketing commitments made in the ordinary course of business. The amounts represent the minimum payments required by legally binding contracts and agreements that specify all significant terms, including open purchase orders for non-product purchases. The reported amounts exclude those liabilities included in Accounts payable or Accrued liabilities on the Consolidated Balance Sheet as of May 31, 2014 . 
+35 
+Table of Contents 
+The total liability for uncertain tax positions was $506 million , excluding related interest and penalties, at May 31, 2014 . We are not able to reasonably estimate when or if cash payments of the long-term liability for uncertain tax positions will occur. 
+We also have the following outstanding short-term debt obligations as of May 31, 2014 . Refer to Note 7 — Short-Term Borrowings and Credit Lines in the accompanying Notes to the Consolidated Financial Statements for further description and interest rates related to the short-term debt obligations listed below. 
+(In millions) 
+Outstanding as of May 31, 2014 
+Notes payable, due at mutually agreed-upon dates within one year of issuance or on demand 
+$ 
+167 
+Payable to Sojitz America for the purchase of inventories, generally due 60 days after shipment of goods from a foreign port 
+60 
+As of May 31, 2014 , letters of credit of $135 million were outstanding, which were generally issued for the purchase of inventory and as guarantees of the Company’s performance under certain self-insurance and other programs. 
+Recently Adopted Accounting Standards 
+In July 2013, the Financial Accounting Standards Board ("FASB") issued an accounting standards update intended to provide guidance on the presentation of unrecognized tax benefits, reflecting the manner in which an entity would settle, at the reporting date, any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. This accounting standard is effective for us beginning June 1, 2014 and early adoption is permitted. We early adopted this guidance and the adoption did not have a material impact on our consolidated financial position or results of operations. 
+In July 2012, the FASB issued an accounting standards update intended to simplify how an entity tests indefinite-lived intangible assets other than goodwill for impairment by providing entities with an option to perform a qualitative assessment to determine whether further impairment testing is necessary. This accounting standard update was effective for us beginning June 1, 2013. The adoption of this standard did not have a material impact on our consolidated financial position or results of operations. 
+In December 2011, the FASB issued guidance enhancing disclosure requirements surrounding the nature of an entity’s right to offset and related arrangements associated with its financial instruments and derivative instruments. This new guidance requires companies to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to master netting arrangements. This new guidance was effective for us beginning June 1, 2013. As this guidance only requires expanded disclosures, the adoption had no impact on our consolidated financial position or results of operations. 
+Recently Issued Accounting Standards 
+In May 2014, the FASB issued an accounting standards update that replaces existing revenue recognition guidance. Among other things, the updated guidance requires companies to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance is effective for the Company beginning June 1, 2017. We are currently evaluating the effect the guidance will have on the Company's consolidated financial position or results of operations. 
+Critical Accounting Policies 
+Our previous discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. 
+We believe that the estimates, assumptions, and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, the allowance for uncollectible accounts receivable, inventory reserves, and contingent payments under endorsement contracts. These policies require that we make estimates in the preparation of our financial statements as of a given date. However, since our business cycle is relatively short, actual results related to these estimates are generally known within the six-month period following the financial statement date. Thus, these policies generally affect only the timing of reported amounts across two to three fiscal quarters. 
+Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. 
+Revenue Recognition 
+We record wholesale revenues when title passes and the risks and rewards of ownership have passed to the customer, based on the terms of sale. Title passes generally upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale. 
+In some instances, we ship product directly from our supplier to the customer and recognize revenue when the product is delivered to and accepted by the customer. Our revenues may fluctuate in cases when our customers delay accepting shipment of product for periods of up to several weeks. 
+In certain countries outside of the United States, precise information regarding the date of receipt by the customer is not readily available. In these cases, we estimate the date of receipt by the customer based upon historical delivery times by geographic location. On the basis of our tests of actual transactions, we have no indication that these estimates have been materially inaccurate historically. 
+As part of our revenue recognition policy, we record estimated sales returns, discounts, and miscellaneous claims from customers as reductions to revenues at the time revenues are recorded. Our post invoice sales discounts consist of contractual programs with certain customers or discretionary discounts that are expected to be granted to certain customers at a later date. We base our estimates on historical rates of product returns, discounts and claims, specific identification of outstanding claims and outstanding returns not yet received from customers, and estimated returns, discounts, and claims expected but not yet finalized with our customers. Actual returns, discounts, and claims in any future period are inherently uncertain and thus may differ from our estimates. If actual or expected future returns, discounts, and claims were significantly greater or lower than the reserves we had established, we would record a reduction or increase to net revenues in the period in which we made such determination. 
+36 
+Table of Contents 
+Allowance for Uncollectible Accounts Receivable 
+We make ongoing estimates relating to the ability to collect our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the allowance, we consider our historical level of credit losses and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Since we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger allowance might be required. In the event we determine that a smaller or larger allowance is appropriate, we would record a credit or a charge to Operating overhead expense in the period in which such a determination is made. 
+Inventory Reserves 
+We also make ongoing estimates relating to the net realizable value of inventories based upon our assumptions about future demand and market conditions. If we estimate that the net realizable value of our inventory is less than the cost of the inventory recorded on our books, we record a reserve equal to the difference between the cost of the inventory and the estimated net realizable value. This reserve is recorded as a charge to Cost of sales. If changes in market conditions result in reductions in the estimated net realizable value of our inventory below our previous estimate, we would increase our reserve in the period in which we made such a determination and record a charge to Cost of sales. 
+Contingent Payments under Endorsement Contracts 
+A significant portion of our Demand creation expense relates to payments under endorsement contracts. In general, endorsement payments are expensed uniformly over the term of the contract. However, certain contract elements may be accounted for differently, based upon the facts and circumstances of each individual contract. 
+Certain contracts provide for contingent payments to endorsers based upon specific achievements in their sports (e.g., winning a championship). We record demand creation expense for these amounts when the endorser achieves the specific goal. 
+Certain contracts provide for variable payments based upon endorsers maintaining a level of performance in their sport over an extended period of time (e.g., maintaining a specified ranking in a sport for a year). These amounts are reported in Demand creation expense when we determine that it is probable that the specified level of performance will be maintained throughout the period. In these instances, to the extent that actual payments to the endorser differ from our estimate due to changes in the endorser’s performance, increased or decreased Demand creation expense may be reported in a future period. 
+Certain contracts provide for royalty payments to endorsers based upon a predetermined percentage of sales of particular products. We expense these payments in Cost of sales as the related sales occur. In certain contracts, we offer minimum guaranteed royalty payments. For contracts for which we estimate we will not meet the minimum guaranteed amount of royalty fees through sales of product, we record the amount of the guaranteed payment in excess of that earned through sales of product in Demand creation expense uniformly over the remaining guarantee period. 
+Property, Plant and Equipment and Definite-Lived Assets 
+Property, plant and equipment, including buildings, equipment, and computer hardware and software are recorded at cost (including, in some cases, the cost of internal labor) and are depreciated over the estimated useful life. Changes in circumstances (such as technological advances or changes to our business operations) can result in differences between the actual and estimated useful lives. In those cases where we determine that the useful life of a long-lived asset should be shortened, we increase depreciation expense over the remaining useful life to depreciate the asset’s net book value to its salvage value. 
+We review the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we will estimate the fair value of the asset group using appropriate valuation methodologies that would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset group’s carrying amount and its estimated fair value. 
+Goodwill and Indefinite-Lived Intangible Assets 
+We perform annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal year, or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite life below its carrying value. Events or changes in circumstances that may trigger interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, planned divestitures, or an expectation that the carrying amount may not be recoverable, among other factors. We may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, we determine that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, the two-step impairment test is unnecessary. The two-step impairment test requires us to estimate the fair value of our reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and we proceed to step two of the impairment analysis. In step two of the analysis, we measure and record an impairment loss equal to the excess of the carrying value of the reporting unit's goodwill over its implied fair value, if any. 
+37 
+Table of Contents 
+We generally base our measurement of the fair value of a reporting unit on a blended analysis of the present value of future discounted cash flows and the market valuation approach. The discounted cash flows model indicates the fair value of the reporting unit based on the present value of the cash flows that we expect the reporting unit to generate in the future. Our significant estimates in the discounted cash flows model include: our weighted average cost of capital; long-term rate of growth and profitability of the reporting unit's business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the reporting unit to comparable publicly traded companies in similar lines of business. Significant estimates in the market valuation approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk, and return on investment, and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit. 
+Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks. We may first perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, we determine that it is more likely than not that the indefinite-lived intangible asset is not impaired, no quantitative fair value measurement is necessary. If a quantitative fair value measurement calculation is required for these intangible assets, we utilize the relief-from-royalty method. This method assumes that trade names and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate, and the weighted average cost of capital. 
+Fair Value Measurements 
+For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine the fair values of our financial instruments. This pricing methodology applies to our Level 1 investments, including U.S. Treasury securities. 
+In the absence of active markets for identical assets or liabilities, such measurements involve developing assumptions based on market observable data, including quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. This pricing methodology applies to our Level 2 investments such as commercial paper and bonds, U.S. Agency securities, and money market funds. 
+Level 3 investments are valued using internally developed models with unobservable inputs. Assets and liabilities measured using unobservable inputs are an immaterial portion of our portfolio. 
+A majority of our available-for-sale securities are priced by pricing vendors and are generally Level 1 or Level 2 investments as these vendors either provide a quoted market price in an active market or use observable inputs without applying significant adjustments in their pricing. Observable inputs include broker quotes, interest rates and yield curves observable at commonly quoted intervals, volatilities, and credit risks. Our fair value processes include controls that are designed to ensure appropriate fair values are recorded. These controls include an analysis of period-over-period fluctuations and comparison to another independent pricing vendor. 
+Hedge Accounting for Derivatives 
+We use forward and option contracts to hedge certain anticipated foreign currency exchange transactions as well as certain non-functional currency monetary assets and liabilities. When the specific criteria to qualify for hedge accounting has been met, changes in the fair value of contracts hedging probable forecasted future cash flows are recorded in Other comprehensive income, rather than Net income, until the underlying hedged transaction affects Net income. In most cases, this results in gains and losses on hedge derivatives being released from Other comprehensive income into Net income sometime after the maturity of the derivative. One of the criteria for this accounting treatment is that the notional value of forward and option contracts should not be in excess of specifically identified anticipated transactions. By their very nature, our estimates of anticipated transactions may fluctuate over time and may ultimately vary from actual transactions. When anticipated transaction estimates or actual transaction amounts decline below hedged levels, or if it is no longer probable that a forecasted transaction will occur by the end of the originally specified time period or within an additional two-month period of time thereafter, we are required to reclassify the cumulative change in fair value of the over-hedged portion of the related hedge contract from Other comprehensive income to Other expense (income), net during the quarter in which the decrease occurs. 
+We have used and may in the future use, forward contracts or options to hedge our investment in the net assets of certain international subsidiaries to offset foreign currency translation related to our net investment in those subsidiaries. The change in fair value of the forward contracts or options hedging our net investments is reported in the cumulative translation adjustment component of Accumulated other comprehensive income within Total shareholders’ equity, to the extent effective, to offset the foreign currency translation adjustments on those investments. As the value of our underlying net investments in wholly-owned international subsidiaries is known at the time a hedge is placed, the designated hedge is matched to the portion of our net investment at risk. Accordingly, the variability involved in net investment hedges is substantially less than that of other types of hedge transactions and we do not expect any material ineffectiveness. We consider, on a quarterly basis, the need to redesignate existing hedge relationships based on changes in the underlying net investment. Should the level of our net investment decrease below hedged levels, the cumulative change in fair value of the over-hedged portion of the related hedge contract would be reported as Other expense (income), net during the period in which changes occur. 
+Stock-based Compensation 
+We account for stock-based compensation by estimating the fair value of stock-based compensation on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of highly subjective assumptions including volatility. Expected volatility is estimated based on implied volatility in market traded options on our common stock with a term greater than one year, along with other factors. Our decision to use implied volatility was based on the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility. If factors change and we use different assumptions for estimating stock-based compensation expense in future periods, stock-based compensation expense may differ materially in the future from that recorded in the current period. 
+38 
+Table of Contents 
+Income Taxes 
+We record valuation allowances against our deferred tax assets, when necessary. Realization of deferred tax assets (such as net operating loss carry-forwards) is dependent on future taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance against our net deferred tax asset, which increases our Income tax expense in the period when such determination is made. 
+In addition, we have not recorded U.S. income tax expense for foreign earnings that we have determined to be indefinitely reinvested outside the United States, thus reducing our overall Income tax expense. The amount of earnings designated as indefinitely reinvested offshore is based upon the actual deployment of such earnings in our offshore assets and our expectations of the future cash needs of our U.S. and foreign entities. Income tax considerations are also a factor in determining the amount of foreign earnings to be indefinitely reinvested offshore. 
+We carefully review all factors that drive the ultimate disposition of foreign earnings determined to be reinvested offshore and apply stringent standards to overcome the presumption of repatriation. Despite this approach, because the determination involves our future plans and expectations of future events, the possibility exists that amounts declared as indefinitely reinvested offshore may ultimately be repatriated. For instance, the actual cash needs of our U.S. entities may exceed our current expectations, or the actual cash needs of our foreign entities may be less than our current expectations. This would result in additional Income tax expense in the year we determined that amounts were no longer indefinitely reinvested offshore. Conversely, our approach may also result in a determination that accumulated foreign earnings (for which U.S. income taxes have been provided) will be indefinitely reinvested offshore. In this case, our Income tax expense would be reduced in the year of such determination. 
+On an interim basis, we estimate what our effective tax rate will be for the full fiscal year. This estimated annual effective tax rate is then applied to the year-to-date Income before income taxes excluding infrequently occurring or unusual items, to determine the year-to-date Income tax expense. The income tax effects of infrequent or unusual items are recognized in the interim period in which they occur. As the fiscal year progresses, we continually refine our estimate based upon actual events and earnings by jurisdiction during the year. This continual estimation process periodically results in a change to our expected effective tax rate for the fiscal year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs. 
+On a quarterly basis, we evaluate the probability that a tax position will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues, and new audit activity. Changes in our assessment may result in the recognition of a tax benefit or an additional charge to the tax provision in the period our assessment changes. We recognize interest and penalties related to income tax matters in Income tax expense. 
+Other Contingencies 
+In the ordinary course of business, we are involved in legal proceedings regarding contractual and employment relationships, product liability claims, trademark rights, and a variety of other matters. We record contingent liabilities resulting from claims against us, including related legal costs, when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including in some cases judgments about the potential actions of third-party claimants and courts. Recorded contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain. If future adjustments to estimated probable future losses or actual losses exceed our recorded liability for such claims, we would record additional charges as Other expense (income), net during the period in which the actual loss or change in estimate occurred. In addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will materially exceed the recorded liability. While we cannot predict the outcome of pending legal matters with certainty, we do not believe any currently identified claim, proceeding, or litigation, either individually or in aggregate, will have a material impact on our results of operations, financial position, or cash flows. 
+39 
+Table of Contents 
+ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk 
+In the normal course of business and consistent with established policies and procedures, we employ a variety of financial instruments to manage exposure to fluctuations in the value of foreign currencies and interest rates. It is our policy to utilize these financial instruments only where necessary to finance our business and manage such exposures; we do not enter into these transactions for trading or speculative purposes. 
+We are exposed to foreign currency fluctuations, primarily as a result of our international sales, product sourcing, and funding activities. Our foreign exchange risk management program is intended to lessen both the positive and negative effects of currency fluctuations on our consolidated results of operations, financial position, and cash flows. We use forward exchange contracts and options to hedge certain anticipated but not yet firmly committed transactions as well as certain firm commitments and the related receivables and payables, including third-party and intercompany transactions. We have, and may in the future, also use forward contracts or options to hedge our investment in the net assets of certain international subsidiaries to offset foreign currency translation adjustments related to our net investment in those subsidiaries. Where exposures are hedged, our program has the effect of delaying the impact of exchange rate movements on our Consolidated Financial Statements. 
+The timing for hedging exposures, as well as the type and duration of the hedge instruments employed, are guided by our hedging policies and determined based upon the nature of the exposure and prevailing market conditions. Typically, the Company may enter into hedge contracts starting 12 to 24 months in advance of the forecasted transaction and may place incremental hedges up to 100% of the exposure by the time the forecasted transaction occurs. Hedged transactions are principally denominated in Euros, British Pounds, and Japanese Yen. See section “Foreign Currency Exposures and Hedging Practices” under Item 7 for additional detail. 
+Our earnings are also exposed to movements in short- and long-term market interest rates. Our objective in managing this interest rate exposure is to limit the impact of interest rate changes on earnings and cash flows and to reduce overall borrowing costs. To achieve these objectives, we maintain a mix of commercial paper, bank loans, and fixed rate debt of varying maturities and have entered into receive-fixed, pay-variable interest rate swaps for a portion of our fixed rate debt. 
+Market Risk Measurement 
+We monitor foreign exchange risk, interest rate risk, and related derivatives using a variety of techniques including a review of market value, sensitivity analysis, and Value-at-Risk (“VaR”). Our market-sensitive derivative and other financial instruments are foreign currency forward contracts, foreign currency option contracts, interest rate swaps, intercompany loans denominated in non-functional currencies, fixed interest rate U.S. Dollar denominated debt, and fixed interest rate Japanese Yen denominated debt. 
+We use VaR to monitor the foreign exchange risk of our foreign currency forward and foreign currency option derivative instruments only. The VaR determines the maximum potential one-day loss in the fair value of these foreign exchange rate-sensitive financial instruments. The VaR model estimates assume normal market conditions and a 95% confidence level. There are various modeling techniques that can be used in the VaR computation. Our computations are based on interrelationships between currencies and interest rates (a “variance/co-variance” technique). These interrelationships are a function of foreign exchange currency market changes and interest rate changes over the preceding one year period. The value of foreign currency options does not change on a one-to-one basis with changes in the underlying currency rate. We adjust the potential loss in option value for the estimated sensitivity (the “delta” and “gamma”) to changes in the underlying currency rate. This calculation reflects the impact of foreign currency rate fluctuations on the derivative instruments only and does not include the impact of such rate fluctuations on non-functional currency transactions (such as anticipated transactions, firm commitments, cash balances, and accounts and loans receivable and payable), including those which are hedged by these instruments. 
+The VaR model is a risk analysis tool and does not purport to represent actual losses in fair value that we will incur nor does it consider the potential effect of favorable changes in market rates. It also does not represent the full extent of the possible loss that may occur. Actual future gains and losses will differ from those estimated because of changes or differences in market rates and interrelationships, hedging instruments and hedge percentages, timing, and other factors. 
+The estimated maximum one-day loss in fair value on our foreign currency sensitive derivative financial instruments, derived using the VaR model, was $50 million and $34 million at May 31, 2014 and 2013, respectively. The VaR increased year-over-year as a result of an increase in the total notional value of our foreign currency derivative portfolio combined with a longer average duration on our outstanding trades at May 31, 2014. Such a hypothetical loss in the fair value of our derivatives would be offset by increases in the value of the underlying transactions being hedged. The average monthly change in the fair values of foreign currency forward and foreign currency option derivative instruments was $70 million and $49 million during fiscal 2014 and fiscal 2013, respectively. 
+The instruments not included in the VaR are intercompany loans denominated in non-functional currencies, fixed interest rate Japanese Yen denominated debt, fixed interest rate U.S. Dollar denominated debt, and interest rate swaps. Intercompany loans and related interest amounts are eliminated in consolidation. Furthermore, our non-functional currency intercompany loans are substantially hedged against foreign exchange risk through the use of forward contracts, which are included in the VaR calculation above. Therefore, we consider the interest rate and foreign currency market risks associated with our non-functional currency intercompany loans to be immaterial to our consolidated financial position, results from operations and cash flows. 
+Details of third-party debt and interest rate swaps are provided in the table below. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. Weighted average interest rates for the fixed rate swapped to floating rate debt reflect the effective interest rates at May 31, 2014. 
+40 
+Table of Contents 
+Expected Maturity Date 
+Year Ending May 31, 
+(Dollars in millions) 
+2015 
+2016 
+2017 
+2018 
+2019 
+Thereafter 
+Total 
+Fair Value 
+Foreign Exchange Risk 
+Japanese Yen Functional Currency 
+Long-term Japanese Yen debt — Fixed rate 
+Principal payments 
+$ 
+7 
+$ 
+7 
+$ 
+7 
+$ 
+7 
+$ 
+7 
+$ 
+7 
+$ 
+42 
+$ 
+45 
+Average interest rate 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+Interest Rate Risk 
+Japanese Yen Functional Currency 
+Long-term Japanese Yen debt — Fixed rate 
+Principal payments 
+$ 
+7 
+$ 
+7 
+$ 
+7 
+$ 
+7 
+$ 
+7 
+$ 
+7 
+$ 
+42 
+$ 
+45 
+Average interest rate 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+2.4 
+% 
+U.S. Dollar Functional Currency 
+Long-term U.S. Dollar debt — Fixed rate swapped to Floating rate 
+Principal payments 
+$ 
+— 
+$ 
+100 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+100 
+$ 
+106 
+Average interest rate 
+0.0 
+% 
+0.3 
+% 
+0.0 
+% 
+0.0 
+% 
+0.0 
+% 
+0.0 
+% 
+0.3 
+% 
+Long-term U.S. Dollar debt — Fixed rate 
+Principal payments 
+$ 
+1 
+$ 
+1 
+$ 
+38 
+$ 
+18 
+$ 
+— 
+$ 
+1,000 
+$ 
+1,058 
+$ 
+1,003 
+Average interest rate 
+6.4 
+% 
+6.4 
+% 
+6.2 
+% 
+6.8 
+% 
+— 
+% 
+2.9 
+% 
+3.1 
+% 
+The fixed interest rate Japanese Yen denominated debt instruments were issued by and are accounted for by one of our Japanese subsidiaries. Accordingly, the monthly translation of these instruments, which varies due to changes in foreign exchange rates, is recognized in Accumulated other comprehensive income upon consolidation of this subsidiary. 
+ITEM 8. Financial Statements and Supplementary Data 
+Management of NIKE, Inc. is responsible for the information and representations contained in this report. The financial statements have been prepared in conformity with the generally accepted accounting principles we considered appropriate in the circumstances and include some amounts based on our best estimates and judgments. Other financial information in this report is consistent with these financial statements. 
+Our accounting systems include controls designed to reasonably assure assets are safeguarded from unauthorized use or disposition and provide for the preparation of financial statements in conformity with generally accepted accounting principles. These systems are supplemented by the selection and training of qualified financial personnel and an organizational structure providing for appropriate segregation of duties. 
+An internal Corporate Audit department reviews the results of its work with the Audit Committee of the Board of Directors, presently consisting of four outside directors. The Audit Committee is responsible for the appointment of the independent registered public accounting firm and reviews with the independent registered public accounting firm, management, and the internal audit staff, the scope and the results of the annual examination, the effectiveness of the accounting control system, and other matters relating to the financial affairs of NIKE as the Audit Committee deems appropriate. The independent registered public accounting firm and the internal auditors have full access to the Committee, with and without the presence of management, to discuss any appropriate matters. 
+41 
+Table of Contents 
+Management’s Annual Report on Internal Control Over Financial Reporting 
+Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13(a) - 15(f) and Rule 15(d) - 15(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets of the Company that could have a material effect on the financial statements. 
+While “reasonable assurance” is a high level of assurance, it does not mean absolute assurance. Because of its inherent limitations, internal control over financial reporting may not prevent or detect every misstatement and instance of fraud. Controls are susceptible to manipulation, especially in instances of fraud caused by the collusion of two or more people, including our senior management. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of May 31, 2014 . 
+PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited (1) the Consolidated Financial Statements and (2) the effectiveness of our internal control over financial reporting as of May 31, 2014 , as stated in their report herein. 
+Mark G. Parker 
+Donald W. Blair 
+President and Chief Executive Officer 
+Chief Financial Officer 
+42 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm 
+To the Board of Directors and Shareholders of NIKE, Inc.: 
+In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of NIKE, Inc. and its subsidiaries at May 31, 2014 and 2013 , and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2014 , based on criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 
+A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+/S/ PRICEWATERHOUSECOOPERS LLP 
+Portland, Oregon 
+July 25, 2014 
+43 
+Table of Contents 
+NIKE, Inc. Consolidated Statements of Income 
+Year Ended May 31, 
+(In millions, except per share data) 
+2014 
+2013 
+2012 
+Income from continuing operations: 
+Revenues 
+$ 
+27,799 
+$ 
+25,313 
+$ 
+23,331 
+Cost of sales 
+15,353 
+14,279 
+13,183 
+Gross profit 
+12,446 
+11,034 
+10,148 
+Demand creation expense 
+3,031 
+2,745 
+2,607 
+Operating overhead expense 
+5,735 
+5,051 
+4,472 
+Total selling and administrative expense 
+8,766 
+7,796 
+7,079 
+Interest expense (income), net (Notes 6, 7, and 8) 
+33 
+(3 
+) 
+4 
+Other expense (income), net (Note 17) 
+103 
+(15 
+) 
+54 
+Income before income taxes 
+3,544 
+3,256 
+3,011 
+Income tax expense (Note 9) 
+851 
+805 
+754 
+NET INCOME FROM CONTINUING OPERATIONS 
+2,693 
+2,451 
+2,257 
+NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS 
+— 
+21 
+(46 
+) 
+NET INCOME 
+$ 
+2,693 
+$ 
+2,472 
+$ 
+2,211 
+Earnings per share from continuing operations: 
+Basic earnings per common share (Notes 1 and 12) 
+$ 
+3.05 
+$ 
+2.74 
+$ 
+2.45 
+Diluted earnings per common share (Notes 1 and 12) 
+$ 
+2.97 
+$ 
+2.68 
+$ 
+2.40 
+Earnings per share from discontinued operations: 
+Basic earnings per common share (Notes 1 and 12) 
+$ 
+— 
+$ 
+0.02 
+$ 
+(0.05 
+) 
+Diluted earnings per common share (Notes 1 and 12) 
+$ 
+— 
+$ 
+0.02 
+$ 
+(0.05 
+) 
+Dividends declared per common share 
+$ 
+0.93 
+$ 
+0.81 
+$ 
+0.70 
+The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 
+44 
+Table of Contents 
+NIKE, Inc. Consolidated Statements of Comprehensive Income 
+Year Ended May 31, 
+(In millions) 
+2014 
+2013 
+2012 
+Net income 
+$ 
+2,693 
+$ 
+2,472 
+$ 
+2,211 
+Other comprehensive income (loss), net of tax: 
+Change in net foreign currency translation adjustment (1) 
+(32 
+) 
+38 
+(277 
+) 
+Change in net gains (losses) on cash flow hedges (2) 
+(161 
+) 
+12 
+304 
+Change in net gains (losses) on net investment hedges (3) 
+— 
+— 
+45 
+Change in net gains (losses) on other (4) 
+4 
+(8 
+) 
+(18 
+) 
+Change in release of cumulative translation loss related to Umbro (5) 
+— 
+83 
+— 
+Total other comprehensive income (loss), net of tax 
+(189 
+) 
+125 
+54 
+TOTAL COMPREHENSIVE INCOME 
+$ 
+2,504 
+$ 
+2,597 
+$ 
+2,265 
+(1) 
+Net of tax benefit (expense) of $0 million , $(13) million , and $0 million , respectively. 
+(2) 
+Net of tax benefit (expense) of $18 million , $(22) million , and $(22) million , respectively. 
+(3) 
+Net of tax benefit of $0 million , $0 million , and $0 million , respectively. 
+(4) 
+Net of tax benefit of $0 million , $1 million , and $0 million , respectively. 
+(5) 
+Net of tax benefit of $0 million , $47 million , and $0 million , respectively. 
+The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 
+45 
+Table of Contents 
+NIKE, Inc. Consolidated Balance Sheets 
+May 31, 
+(In millions) 
+2014 
+2013 
+ASSETS 
+Current assets: 
+Cash and equivalents 
+$ 
+2,220 
+$ 
+3,337 
+Short-term investments (Note 6) 
+2,922 
+2,628 
+Accounts receivable, net (Note 1) 
+3,434 
+3,117 
+Inventories (Notes 1 and 2) 
+3,947 
+3,484 
+Deferred income taxes (Note 9) 
+355 
+308 
+Prepaid expenses and other current assets (Notes 6 and 17) 
+818 
+756 
+Total current assets 
+13,696 
+13,630 
+Property, plant and equipment, net (Note 3) 
+2,834 
+2,452 
+Identifiable intangible assets, net (Note 4) 
+282 
+289 
+Goodwill (Note 4) 
+131 
+131 
+Deferred income taxes and other assets (Notes 6, 9, and 17) 
+1,651 
+1,043 
+TOTAL ASSETS 
+$ 
+18,594 
+$ 
+17,545 
+LIABILITIES AND SHAREHOLDERS’ EQUITY 
+Current liabilities: 
+Current portion of long-term debt (Note 8) 
+$ 
+7 
+$ 
+57 
+Notes payable (Note 7) 
+167 
+98 
+Accounts payable (Note 7) 
+1,930 
+1,669 
+Accrued liabilities (Notes 5, 6, and 17) 
+2,491 
+2,036 
+Income taxes payable (Note 9) 
+432 
+84 
+Liabilities of discontinued operations (Note 15) 
+— 
+18 
+Total current liabilities 
+5,027 
+3,962 
+Long-term debt (Note 8) 
+1,199 
+1,210 
+Deferred income taxes and other liabilities (Notes 6, 9, 13 and 17) 
+1,544 
+1,292 
+Commitments and contingencies (Note 16) 
+Redeemable preferred stock (Note 10) 
+— 
+— 
+Shareholders’ equity: 
+Common stock at stated value (Note 11): 
+Class A convertible — 178 and 178 shares outstanding 
+— 
+— 
+Class B — 692 and 716 shares outstanding 
+3 
+3 
+Capital in excess of stated value 
+5,865 
+5,184 
+Accumulated other comprehensive income (Note 14) 
+85 
+274 
+Retained earnings 
+4,871 
+5,620 
+Total shareholders’ equity 
+10,824 
+11,081 
+TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 
+$ 
+18,594 
+$ 
+17,545 
+The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 
+46 
+Table of Contents 
+NIKE, Inc. Consolidated Statements of Cash Flows 
+Year Ended May 31, 
+(In millions) 
+2014 
+2013 
+2012 
+Cash provided by operations: 
+Net income 
+$ 
+2,693 
+$ 
+2,472 
+$ 
+2,211 
+Income charges (credits) not affecting cash: 
+Depreciation 
+518 
+438 
+373 
+Deferred income taxes 
+(11 
+) 
+20 
+(59 
+) 
+Stock-based compensation (Note 11) 
+177 
+174 
+130 
+Amortization and other 
+114 
+66 
+23 
+Net gain on divestitures 
+— 
+(124 
+) 
+— 
+Changes in certain working capital components and other assets and liabilities: 
+(Increase) decrease in accounts receivable 
+(298 
+) 
+142 
+(323 
+) 
+(Increase) in inventories 
+(505 
+) 
+(219 
+) 
+(815 
+) 
+(Increase) in prepaid expenses and other current assets 
+(210 
+) 
+(28 
+) 
+(141 
+) 
+Increase in accounts payable, accrued liabilities and income taxes payable 
+525 
+27 
+425 
+Cash provided by operations 
+3,003 
+2,968 
+1,824 
+Cash (used) provided by investing activities: 
+Purchases of short-term investments 
+(5,386 
+) 
+(4,133 
+) 
+(3,245 
+) 
+Maturities of short-term investments 
+3,932 
+1,663 
+2,663 
+Sales of short-term investments 
+1,126 
+1,330 
+1,721 
+Additions to property, plant and equipment 
+(880 
+) 
+(598 
+) 
+(563 
+) 
+Disposals of property, plant and equipment 
+3 
+14 
+2 
+Proceeds from divestitures 
+— 
+786 
+— 
+Increase in other assets, net of other liabilities 
+(2 
+) 
+(2 
+) 
+(14 
+) 
+Settlement of net investment hedges 
+— 
+— 
+22 
+Cash (used) provided by investing activities 
+(1,207 
+) 
+(940 
+) 
+586 
+Cash used by financing activities: 
+Net proceeds from long-term debt issuance 
+— 
+986 
+— 
+Long-term debt payments, including current portion 
+(60 
+) 
+(49 
+) 
+(203 
+) 
+Increase (decrease) in notes payable 
+75 
+10 
+(47 
+) 
+Payments on capital lease obligations 
+(17 
+) 
+— 
+— 
+Proceeds from exercise of stock options and other stock issuances 
+383 
+313 
+468 
+Excess tax benefits from share-based payment arrangements 
+132 
+72 
+115 
+Repurchase of common stock 
+(2,628 
+) 
+(1,674 
+) 
+(1,814 
+) 
+Dividends — common and preferred 
+(799 
+) 
+(703 
+) 
+(619 
+) 
+Cash used by financing activities 
+(2,914 
+) 
+(1,045 
+) 
+(2,100 
+) 
+Effect of exchange rate changes 
+1 
+100 
+67 
+Net (decrease) increase in cash and equivalents 
+(1,117 
+) 
+1,083 
+377 
+Cash and equivalents, beginning of year 
+3,337 
+2,254 
+1,877 
+CASH AND EQUIVALENTS, END OF YEAR 
+$ 
+2,220 
+$ 
+3,337 
+$ 
+2,254 
+Supplemental disclosure of cash flow information: 
+Cash paid during the year for: 
+Interest, net of capitalized interest 
+$ 
+53 
+$ 
+20 
+$ 
+29 
+Income taxes 
+856 
+702 
+638 
+Non-cash additions to property, plant and equipment 
+167 
+137 
+99 
+Dividends declared and not paid 
+209 
+188 
+165 
+The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 
+47 
+Table of Contents 
+NIKE, Inc. Consolidated Statements of Shareholders’ Equity 
+Common Stock 
+Capital in 
+Excess 
+of Stated 
+Value 
+Accumulated 
+Other 
+Comprehensive 
+Income 
+Retained 
+Earnings 
+Total 
+Class A 
+Class B 
+(In millions, except per share data) 
+Shares 
+Amount 
+Shares 
+Amount 
+Balance at May 31, 2011 
+180 
+$ 
+— 
+756 
+$ 
+3 
+$ 
+3,944 
+$ 
+95 
+$ 
+5,751 
+$ 
+9,793 
+Stock options exercised 
+18 
+528 
+528 
+Repurchase of Class B Common Stock 
+(40 
+) 
+(12 
+) 
+(1,793 
+) 
+(1,805 
+) 
+Dividends on common stock ($0.70 per share) 
+(639 
+) 
+(639 
+) 
+Issuance of shares to employees 
+2 
+57 
+57 
+Stock-based compensation (Note 11) 
+130 
+130 
+Forfeiture of shares from employees 
+— 
+(6 
+) 
+(4 
+) 
+(10 
+) 
+Net income 
+2,211 
+2,211 
+Other comprehensive income 
+54 
+54 
+Balance at May 31, 2012 
+180 
+$ 
+— 
+736 
+$ 
+3 
+$ 
+4,641 
+$ 
+149 
+$ 
+5,526 
+$ 
+10,319 
+Stock options exercised 
+10 
+322 
+322 
+Conversion to Class B Common Stock 
+(2 
+) 
+2 
+— 
+Repurchase of Class B Common Stock 
+(34 
+) 
+(10 
+) 
+(1,647 
+) 
+(1,657 
+) 
+Dividends on common stock ($0.81 per share) 
+(727 
+) 
+(727 
+) 
+Issuance of shares to employees 
+2 
+65 
+65 
+Stock-based compensation (Note 11) 
+174 
+174 
+Forfeiture of shares from employees 
+— 
+(8 
+) 
+(4 
+) 
+(12 
+) 
+Net income 
+2,472 
+2,472 
+Other comprehensive income 
+125 
+125 
+Balance at May 31, 2013 
+178 
+$ 
+— 
+716 
+$ 
+3 
+$ 
+5,184 
+$ 
+274 
+$ 
+5,620 
+$ 
+11,081 
+Stock options exercised 
+11 
+445 
+445 
+Repurchase of Class B Common Stock 
+(37 
+) 
+(11 
+) 
+(2,617 
+) 
+(2,628 
+) 
+Dividends on common stock ($0.93 per share) 
+(821 
+) 
+(821 
+) 
+Issuance of shares to employees 
+2 
+78 
+78 
+Stock-based compensation (Note 11) 
+177 
+177 
+Forfeiture of shares from employees 
+— 
+(8 
+) 
+(4 
+) 
+(12 
+) 
+Net income 
+2,693 
+2,693 
+Other comprehensive income 
+(189 
+) 
+(189 
+) 
+Balance at May 31, 2014 
+178 
+$ 
+— 
+692 
+$ 
+3 
+$ 
+5,865 
+$ 
+85 
+$ 
+4,871 
+$ 
+10,824 
+The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 
+48 
+Table of Contents 
+Notes to Consolidated Financial Statements 
+Note 1 
+Summary of Significant Accounting Policies 
+50 
+Note 2 
+Inventories 
+56 
+Note 3 
+Property, Plant and Equipment 
+56 
+Note 4 
+Identifiable Intangible Assets and Goodwill 
+57 
+Note 5 
+Accrued Liabilities 
+57 
+Note 6 
+Fair Value Measurements 
+57 
+Note 7 
+Short-Term Borrowings and Credit Lines 
+59 
+Note 8 
+Long-Term Debt 
+60 
+Note 9 
+Income Taxes 
+60 
+Note 10 
+Redeemable Preferred Stock 
+63 
+Note 11 
+Common Stock and Stock-Based Compensation 
+63 
+Note 12 
+Earnings Per Share 
+65 
+Note 13 
+Benefit Plans 
+65 
+Note 14 
+Accumulated Other Comprehensive Income 
+65 
+Note 15 
+Discontinued Operations 
+66 
+Note 16 
+Commitments and Contingencies 
+67 
+Note 17 
+Risk Management and Derivatives 
+67 
+Note 18 
+Operating Segments and Related Information 
+71 
+49 
+Table of Contents 
+NOTE 1 — Summary of Significant Accounting Policies 
+Description of Business 
+NIKE, Inc. is a worldwide leader in the design, development and worldwide marketing and selling of athletic footwear, apparel, equipment, accessories and services. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes casual sneakers, apparel and accessories and Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories. 
+Basis of Consolidation 
+The Consolidated Financial Statements include the accounts of NIKE, Inc. and its subsidiaries (the "Company”). All significant intercompany transactions and balances have been eliminated. 
+The Company completed the sale of Cole Haan during the third quarter ended February 28, 2013 and completed the sale of Umbro during the second quarter ended November 30, 2012. As a result, the Company reports the operating results of Cole Haan and Umbro in the Net income (loss) from discontinued operations line in the Consolidated Statements of Income for all periods presented. In addition, the liabilities associated with these businesses are reported as Liabilities of discontinued operations in the Consolidated Balance Sheets (refer to Note 15 — Discontinued Operations). Unless otherwise indicated, the disclosures accompanying the Consolidated Financial Statements reflect the Company’s continuing operations. 
+On November 15, 2012, the Company announced a two -for-one split of both NIKE Class A and Class B Common shares. The stock split was a 100 percent stock dividend payable on December 24, 2012 to shareholders of record at the close of business December 10, 2012. Common stock began trading at the split-adjusted price on December 26, 2012. All share numbers and per share amounts presented reflect the stock split. 
+Reclassifications 
+Certain prior year amounts have been reclassified to conform to fiscal 2014 presentation. 
+Revisions 
+The Company has historically capitalized costs associated with internally generated patents and trademarks, and amortized these assets over the legal term of the patents and trademarks. During the fourth quarter of fiscal 2014 , management determined that these capitalized costs were not accurately identified with specific patent or trademark assets, and therefore, concluded that amounts previously capitalized should have been expensed as incurred. Accordingly, the Consolidated Financial Statements have been revised to correctly expense costs associated with internally developed patents and trademarks in the period incurred and to reverse expenses for amortization of previously capitalized costs. The revisions resulted in a decrease in Net income from continuing operations of $13 million and $12 million for the years ended May 31, 2013 and 2012 , respectively. Identifiable intangible assets decreased $93 million at May 31, 2013 and Retained earnings at May 31, 2013 decreased $75 million as a result of the cumulative adjustment for prior periods. Cash provided by operations decreased $26 million and $23 million for the years ended May 31, 2013 and 2012 , respectively, while Cash used by investing activities decreased $26 million for the year ended May 31, 2013 and Cash provided by investing activities increased by $23 million for the year ended May 31, 2012 . 
+Also, in the fourth quarter of fiscal 2014 , the Company revised certain prior year amounts in the Consolidated Statements of Cash Flows to eliminate intercompany transfers of short-term investments, to correctly reflect the purchases, sales and maturities of short-term investments related to the Company's hedging program involving U.S. Dollar denominated available-for-sale securities, and to correctly classify certain investment holdings as Short-term investments. For the year ended May 31, 2013 , the revisions resulted in a net increase in Purchases of short-term investments of $431 million , a net increase in Maturities of short-term investments of $162 million , and a net increase in Sales of short-term investments of $332 million , which caused a net decrease of $63 million in Cash used by investing activities. For the year ended May 31, 2012 , the revisions resulted in a net increase in Purchases of short-term investments of $540 million , a net increase in Maturities of short-term investments of $78 million , and a net increase in Sales of short-term investments of $477 million , which caused an increase of $15 million in Cash provided by investing activities. For the year ended May 31, 2012 , these revisions also resulted in a decrease of $78 million in Cash and equivalents, beginning of year and a $63 million decrease in Cash and equivalents, end of year. 
+Certain prior year amounts have also been revised in the Consolidated Balance Sheets to correctly recognize certain inventory amounts held by third parties, which were identified during the third quarter of fiscal 2014 and resulted in a $50 million increase to both Inventories and Accrued liabilities at May 31, 2013 . In addition, prior year amounts on the Consolidated Statements of Cash Flows were revised to correctly reflect the related cash flow impacts of $22 million and $10 million for the years ended May 31, 2013 and 2012 , respectively. This revision had no impact on Cash provided by operations or Net (decrease) increase in cash and equivalents, for any year. 
+The Company also revised certain prior period amounts in the Consolidated Statements of Cash Flows to correctly reflect non-cash additions to property, plant, and equipment, which were identified during the second quarter of fiscal 2014 . For the year ended May 31, 2013 , this revision decreased Cash provided by operations and decreased Cash used by investing activities, each by $38 million . For the year ended May 31, 2012 , this revision decreased Cash provided by operations and increased Cash provided by investing activities, each by $34 million . 
+The Company assessed the materiality of these misstatements on prior periods’ financial statements in accordance with SEC Staff Accounting Bulletin ("SAB") No. 99, Materiality, codified in ASC 250 ("ASC 250"), Presentation of Financial Statements, and concluded that these misstatements were not material to any prior annual or interim periods. Accordingly, in accordance with ASC 250 (SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), the Consolidated Financial Statements as of May 31, 2013 and 2012 , and the years then ended, which are presented herein, have been revised. The following are selected line items from the Company's Consolidated Financial Statements illustrating the effect of these corrections and the correction of other immaterial errors: 
+50 
+Table of Contents 
+NIKE, Inc. Consolidated Statements of Income 
+Year Ended May 31, 2013 
+Year Ended May 31, 2012 
+(In millions, except per share data) 
+As Reported 
+Adjustment 
+As Revised 
+As Reported 
+Adjustment 
+As Revised 
+Total selling and administrative expense 
+$ 
+7,780 
+$ 
+16 
+$ 
+7,796 
+$ 
+7,065 
+$ 
+14 
+$ 
+7,079 
+Income before income taxes 
+3,272 
+(16 
+) 
+3,256 
+3,025 
+(14 
+) 
+3,011 
+Income tax expense 
+808 
+(3 
+) 
+805 
+756 
+(2 
+) 
+754 
+NET INCOME FROM CONTINUING OPERATIONS 
+2,464 
+(13 
+) 
+2,451 
+2,269 
+(12 
+) 
+2,257 
+NET INCOME 
+$ 
+2,485 
+$ 
+(13 
+) 
+$ 
+2,472 
+$ 
+2,223 
+$ 
+(12 
+) 
+$ 
+2,211 
+Earnings per share from continuing operations: 
+Basic earnings per common share 
+$ 
+2.75 
+$ 
+(0.01 
+) 
+$ 
+2.74 
+$ 
+2.47 
+$ 
+(0.02 
+) 
+$ 
+2.45 
+Diluted earnings per common share 
+$ 
+2.69 
+$ 
+(0.01 
+) 
+$ 
+2.68 
+$ 
+2.42 
+$ 
+(0.02 
+) 
+$ 
+2.40 
+Earnings per share for NIKE Inc. 
+Basic earnings per common share 
+$ 
+2.77 
+$ 
+(0.01 
+) 
+$ 
+2.76 
+$ 
+2.42 
+$ 
+(0.02 
+) 
+$ 
+2.40 
+Diluted earnings per common share 
+$ 
+2.71 
+$ 
+(0.01 
+) 
+$ 
+2.70 
+$ 
+2.37 
+$ 
+(0.02 
+) 
+$ 
+2.35 
+NIKE, Inc. Consolidated Statements of Comprehensive Income 
+Year Ended May 31, 2013 
+Year Ended May 31, 2012 
+(In millions) 
+As Reported 
+Adjustment 
+As Revised 
+As Reported 
+Adjustment 
+As Revised 
+Net income 
+$ 
+2,485 
+$ 
+(13 
+) 
+$ 
+2,472 
+$ 
+2,223 
+$ 
+(12 
+) 
+$ 
+2,211 
+TOTAL COMPREHENSIVE INCOME 
+$ 
+2,610 
+$ 
+(13 
+) 
+$ 
+2,597 
+$ 
+2,277 
+$ 
+(12 
+) 
+$ 
+2,265 
+NIKE, Inc. Consolidated Balance Sheet 
+May 31, 2013 
+(In millions) 
+As Reported 
+Adjustment 
+As Revised 
+ASSETS 
+Inventories 
+$ 
+3,434 
+$ 
+50 
+$ 
+3,484 
+Prepaid expenses and other current assets 
+802 
+(46 
+) 
+756 
+Total current assets 
+13,626 
+4 
+13,630 
+Identifiable intangible assets, net 
+382 
+(93 
+) 
+289 
+Deferred income taxes and other assets 
+993 
+50 
+1,043 
+TOTAL ASSETS 
+$ 
+17,584 
+$ 
+(39 
+) 
+$ 
+17,545 
+LIABILITIES AND SHAREHOLDERS' EQUITY 
+Notes payable 
+$ 
+121 
+$ 
+(23 
+) 
+$ 
+98 
+Accounts payable 
+1,646 
+23 
+1,669 
+Accrued liabilities 
+1,986 
+50 
+2,036 
+Income taxes payable 
+98 
+(14 
+) 
+84 
+Total current liabilities 
+3,926 
+36 
+3,962 
+Retained earnings 
+5,695 
+(75 
+) 
+5,620 
+Total shareholders’ equity 
+11,156 
+(75 
+) 
+11,081 
+TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 
+$ 
+17,584 
+$ 
+(39 
+) 
+$ 
+17,545 
+51 
+Table of Contents 
+NIKE, Inc. Consolidated Statements of Cash Flows 
+Year Ended May 31, 2013 
+Year Ended May 31, 2012 
+(In millions) 
+As Reported 
+Adjustment 
+As Revised 
+As Reported 
+Adjustment 
+As Revised 
+Cash provided by operations: 
+Net income 
+$ 
+2,485 
+$ 
+(13 
+) 
+$ 
+2,472 
+$ 
+2,223 
+$ 
+(12 
+) 
+$ 
+2,211 
+Income charges (credits) not affecting cash: 
+Deferred income taxes 
+21 
+(1 
+) 
+20 
+(60 
+) 
+1 
+(59 
+) 
+Amortization and other 
+75 
+(9 
+) 
+66 
+32 
+(9 
+) 
+23 
+(Increase) in inventories 
+(197 
+) 
+(22 
+) 
+(219 
+) 
+(805 
+) 
+(10 
+) 
+(815 
+) 
+Increase in accounts payable, accrued liabilities and income taxes payable 
+41 
+(14 
+) 
+27 
+470 
+(45 
+) 
+425 
+Cash provided by operations 
+3,027 
+(59 
+) 
+2,968 
+1,899 
+(75 
+) 
+1,824 
+Cash (used) provided by investing activities: 
+Purchases of short-term investments 
+(3,702 
+) 
+(431 
+) 
+(4,133 
+) 
+(2,705 
+) 
+(540 
+) 
+(3,245 
+) 
+Maturities of short-term investments 
+1,501 
+162 
+1,663 
+2,585 
+78 
+2,663 
+Sales of short-term investments 
+998 
+332 
+1,330 
+1,244 
+477 
+1,721 
+Additions to property, plant and equipment 
+(636 
+) 
+38 
+(598 
+) 
+(597 
+) 
+34 
+(563 
+) 
+Increase in other assets, net of other liabilities 
+(28 
+) 
+26 
+(2 
+) 
+(37 
+) 
+23 
+(14 
+) 
+Cash (used) provided by investing activities 
+(1,067 
+) 
+127 
+(940 
+) 
+514 
+72 
+586 
+Cash used by financing activities: 
+Increase (decrease) in notes payable 
+15 
+(5 
+) 
+10 
+(65 
+) 
+18 
+(47 
+) 
+Cash used by financing activities 
+(1,040 
+) 
+(5 
+) 
+(1,045 
+) 
+(2,118 
+) 
+18 
+(2,100 
+) 
+Net (decrease) increase in cash and equivalents 
+1,020 
+63 
+1,083 
+362 
+15 
+377 
+Cash and equivalents, beginning of year 
+2,317 
+(63 
+) 
+2,254 
+1,955 
+(78 
+) 
+1,877 
+CASH AND EQUIVALENTS, END OF YEAR 
+$ 
+3,337 
+$ 
+— 
+$ 
+3,337 
+$ 
+2,317 
+$ 
+(63 
+) 
+$ 
+2,254 
+NIKE, Inc. Consolidated Statements of Shareholders' Equity 
+Retained Earnings 
+Total Shareholders' Equity 
+(In millions) 
+As Reported 
+Adjustment 
+As Revised 
+As Reported 
+Adjustment 
+As Revised 
+Balance at May 31, 2011 
+$ 
+5,801 
+$ 
+(50 
+) 
+$ 
+5,751 
+$ 
+9,843 
+$ 
+(50 
+) 
+$ 
+9,793 
+Net income 
+2,223 
+(12 
+) 
+2,211 
+2,223 
+(12 
+) 
+2,211 
+Balance at May 31, 2012 
+$ 
+5,588 
+$ 
+(62 
+) 
+$ 
+5,526 
+$ 
+10,381 
+$ 
+(62 
+) 
+$ 
+10,319 
+Net income 
+2,485 
+(13 
+) 
+2,472 
+2,485 
+(13 
+) 
+2,472 
+Balance at May 31, 2013 
+$ 
+5,695 
+$ 
+(75 
+) 
+$ 
+5,620 
+$ 
+11,156 
+$ 
+(75 
+) 
+$ 
+11,081 
+Recognition of Revenues 
+Wholesale revenues are recognized when title and the risks and rewards of ownership have passed to the customer, based on the terms of sale. This occurs upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale. Provisions for post-invoice sales discounts, returns and miscellaneous claims from customers are estimated and recorded as a reduction to revenue at the time of sale. Post-invoice sales discounts consist of contractual programs with certain customers or discretionary discounts that are expected to be granted to certain customers at a later date. Estimates of discretionary discounts, returns and claims are based on historical rates, specific identification of outstanding claims and outstanding returns not yet received from customers, and estimated discounts, returns and claims expected but not yet finalized with customers. As of May 31, 2014 and 2013 , the Company’s reserve balances for post-invoice sales discounts, returns and miscellaneous claims were $610 million and $531 million , respectively. 
+Cost of Sales 
+Cost of sales consists primarily of inventory costs, as well as warehousing costs (including the cost of warehouse labor), third-party royalties, certain foreign currency hedge gains and losses, and research, design and development costs. 
+Shipping and Handling Costs 
+Shipping and handling costs are expensed as incurred and included in Cost of sales. 
+Operating Overhead Expense 
+Operating overhead expense consists primarily of payroll and benefit related costs, rent, depreciation and amortization, professional services, and meetings and travel. 
+52 
+Table of Contents 
+Demand Creation Expense 
+Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, television, digital and print advertising, brand events, and retail brand presentation. Advertising production costs are expensed the first time an advertisement is run. Advertising placement costs are expensed in the month the advertising appears, while costs related to brand events are expensed when the event occurs. Costs related to retail brand presentation are expensed when the presentation is completed and delivered. 
+A significant amount of the Company’s promotional expenses result from payments under endorsement contracts. Accounting for endorsement payments is based upon specific contract provisions. Generally, endorsement payments are expensed on a straight-line basis over the term of the contract after giving recognition to periodic performance compliance provisions of the contracts. Prepayments made under contracts are included in Prepaid expenses and other current assets or Deferred income taxes and other assets depending on the period to which the prepayment applies. 
+Certain contracts provide for contingent payments to endorsers based upon specific achievements in their sports (e.g., winning a championship). The Company records Demand creation expense for these amounts when the endorser achieves the specific goal. 
+Certain contracts provide for variable payments based upon endorsers maintaining a level of performance in their sport over an extended period of time (e.g., maintaining a specified ranking in a sport for a year). These amounts are recorded in Demand creation expense when the Company determines that it is probable that the specified level of performance will be maintained throughout the period. In these instances, to the extent that actual payments to the endorser differ from the Company's estimate due to changes in the endorser’s performance, increased or decreased Demand creation expense may be recorded in a future period. 
+Certain contracts provide for royalty payments to endorsers based upon a predetermined percentage of sales of particular products. The Company expenses these payments in Cost of sales as the related sales occur. In certain contracts, the Company offers minimum guaranteed royalty payments. For contracts for which the Company estimates it will not meet the minimum guaranteed amount of royalty fees through sales of product, the Company records the amount of the guaranteed payment in excess of that earned through sales of product in Demand creation expense uniformly over the remaining guarantee period. 
+Through cooperative advertising programs, the Company reimburses retail customers for certain costs of advertising the Company’s products. The Company records these costs in Demand creation expense at the point in time when it is obligated to its customers for the costs, which is when the related revenues are recognized. This obligation may arise prior to the related advertisement being run. 
+Total advertising and promotion expenses were $3,031 million , $2,745 million , and $2,607 million for the years ended May 31, 2014 , 2013 and 2012 , respectively. Prepaid advertising and promotion expenses totaled $516 million and $386 million at May 31, 2014 and 2013 , respectively, and were recorded in Prepaid expenses and other current assets and Deferred income taxes and other assets depending on the period to which the prepayment applies. 
+Cash and Equivalents 
+Cash and equivalents represent cash and short-term, highly liquid investments, including commercial paper, U.S. Treasury, U.S. Agency, and corporate debt securities with maturities of three months or less at date of purchase. 
+Short-Term Investments 
+Short-term investments consist of highly liquid investments, including commercial paper, U.S. Treasury, U.S. Agency, and corporate debt securities, with maturities over three months from the date of purchase. Debt securities that the Company has the ability and positive intent to hold to maturity are carried at amortized cost. At May 31, 2014 and 2013 , the Company did not hold any short-term investments that were classified as trading or held-to-maturity. 
+At May 31, 2014 and 2013 , Short-term investments consisted of available-for-sale securities. Available-for-sale securities are recorded at fair value with unrealized gains and losses reported, net of tax, in Other comprehensive income, unless unrealized losses are determined to be other than temporary. Realized gains and losses on the sale of securities are determined by specific identification. The Company considers all available-for-sale securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs and therefore classifies all securities with maturity dates beyond three months at the date of purchase as current assets within Short-term investments on the Consolidated Balance Sheets. 
+Refer to Note 6 — Fair Value Measurements for more information on the Company’s short-term investments. 
+Allowance for Uncollectible Accounts Receivable 
+Accounts receivable consists primarily of amounts receivable from customers. The Company makes ongoing estimates relating to the collectability of its accounts receivable and maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. In determining the amount of the allowance, the Company considers historical levels of credit losses and makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Accounts receivable with anticipated collection dates greater than 12 months from the balance sheet date and related allowances are considered non-current and recorded in Deferred income taxes and other assets. The allowance for uncollectible accounts receivable was $78 million and $104 million at May 31, 2014 and 2013 , respectively, of which $37 million and $54 million , respectively, was classified as long-term and recorded in Deferred income taxes and other assets. 
+Inventory Valuation 
+Inventories are stated at lower of cost or market and valued on either an average or specific identification cost basis. For inventories in transit that represent direct shipments to customers, the related inventory and cost of sales is recognized on a specific identification basis. Inventory costs primarily consist of product cost from the Company's suppliers, as well as freight, import duties, taxes, insurance and logistics and other handling fees. 
+53 
+Table of Contents 
+Property, Plant and Equipment and Depreciation 
+Property, plant and equipment are recorded at cost. Depreciation is determined on a straight-line basis for buildings and leasehold improvements over 2 to 40 years and for machinery and equipment over 2 to 15 years. 
+Depreciation and amortization of assets used in manufacturing, warehousing and product distribution are recorded in Cost of sales. Depreciation and amortization of other assets are recorded in Total selling and administrative expense. 
+Software Development Costs 
+Internal Use Software . Expenditures for major software purchases and software developed for internal use are capitalized and amortized over a 2 to 10 year period on a straight-line basis. The Company’s policy provides for the capitalization of external direct costs of materials and services associated with developing or obtaining internal use computer software. In addition, the Company also capitalizes certain payroll and payroll-related costs for employees who are directly associated with internal use computer software projects. The amount of capitalizable payroll costs with respect to these employees is limited to the time directly spent on such projects. Costs associated with preliminary project stage activities, training, maintenance and all other post-implementation stage activities are expensed as incurred. 
+Computer Software to be Sold, Leased or Otherwise Marketed . Development costs of computer software to be sold, leased, or otherwise marketed as an integral part of a product are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, software development costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed as incurred. 
+Impairment of Long-Lived Assets 
+The Company reviews the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, the Company would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group using appropriate valuation methodologies, which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset group’s carrying amount and its estimated fair value. 
+Goodwill and Indefinite-Lived Intangible Assets 
+The Company performs annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal year, or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite life below its carrying value. Events or changes in circumstances that may trigger interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, planned divestitures or an expectation that the carrying amount may not be recoverable, among other factors. The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, the two-step impairment test is unnecessary. The two-step impairment test first requires the Company to estimate the fair value of its reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and the Company proceeds to step two of the impairment analysis. In step two of the analysis, the Company measures and records an impairment loss equal to the excess of the carrying value of the reporting unit's goodwill over its implied fair value, if any. 
+The Company generally bases its measurement of the fair value of a reporting unit on a blended analysis of the present value of future discounted cash flows and the market valuation approach. The discounted cash flows model indicates the fair value of the reporting unit based on the present value of the cash flows that the Company expects the reporting unit to generate in the future. The Company's significant estimates in the discounted cash flows model include: its weighted average cost of capital; long-term rate of growth and profitability of the reporting unit's business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the reporting unit to comparable publicly traded companies in similar lines of business. Significant estimates in the market valuation approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit. 
+Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks. The Company may first perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, the C ompany determines that it is more likely than not that the indefinite-lived intangible asset is not impaired, no quantitative fair value measurement is necessary. If a quantitative fair value measurement calculation is required for these intangible assets, the Company utilizes the relief-from-royalty method. This method assumes that trade names and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires the Company to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. 
+Operating Leases 
+The Company leases retail store space, certain distribution and warehouse facilities, office space, and other non-real estate assets under operating leases. Operating lease agreements may contain rent escalation clauses, rent holidays or certain landlord incentives, including tenant improvement allowances. Rent expense for non-cancelable operating leases with scheduled rent increases or landlord incentives are recognized on a straight-line basis over the lease term, beginning with the effective lease commencement date, which is generally the date in which the Company takes possession of or controls the physical use of the property. Certain leases also provide for contingent rents, which are determined as a percentage of sales in excess of specified levels. A contingent rent liability is recognized together with the corresponding rent expense when specified levels have been achieved or when the Company determines that achieving the specified levels during the period is probable. 
+54 
+Table of Contents 
+Fair Value Measurements 
+The Company measures certain financial assets and liabilities at fair value on a recurring basis, including derivatives and available-for-sale securities. Fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. The Company uses a three-level hierarchy established by the Financial Accounting Standards Board ("FASB") that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). 
+The levels of hierarchy are described below: 
+• 
+Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. 
+• 
+Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. 
+• 
+Level 3: Unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions. 
+The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Financial assets and liabilities are classified in their entirety based on the most conservative level of input that is significant to the fair value measurement. 
+Pricing vendors are utilized for certain Level 1 and Level 2 investments. These vendors either provide a quoted market price in an active market or use observable inputs without applying significant adjustments in their pricing. Observable inputs include broker quotes, interest rates and yield curves observable at commonly quoted intervals, volatilities and credit risks. The fair value of derivative contracts is determined using observable market inputs such as the daily market foreign currency rates, forward pricing curves, currency volatilities, currency correlations and interest rates, and considers nonperformance risk of the Company and that of its counterparties. 
+The Company’s fair value processes include controls that are designed to ensure appropriate fair values are recorded. These controls include an analysis of period-over-period fluctuations and comparison to another independent pricing vendor. 
+Refer to Note 6 — Fair Value Measurements for additional information. 
+Foreign Currency Translation and Foreign Currency Transactions 
+Adjustments resulting from translating foreign functional currency financial statements into U.S. Dollars are included in the foreign currency translation adjustment, a component of Accumulated other comprehensive income in Total shareholders’ equity. 
+The Company’s global subsidiaries have various assets and liabilities, primarily receivables and payables, which are denominated in currencies other than their functional currency. These balance sheet items are subject to re-measurement, the impact of which is recorded in Other expense (income), net , within the Consolidated Statements of Income. 
+Accounting for Derivatives and Hedging Activities 
+The Company uses derivative financial instruments to reduce its exposure to changes in foreign currency exchange rates and interest rates. All derivatives are recorded at fair value on the Consolidated Balance Sheets and changes in the fair value of derivative financial instruments are either recognized in Accumulated other comprehensive income (a component of Total shareholders’ equity), Long-term debt or Net income depending on the nature of the underlying exposure, whether the derivative is formally designated as a hedge, and, if designated, the extent to which the hedge is effective. The Company classifies the cash flows at settlement from derivatives in the same category as the cash flows from the related hedged items. For undesignated hedges and designated cash flow hedges, this is within the Cash provided by operations component of the Consolidated Statements of Cash Flows. For designated net investment hedges, this is generally within the Cash (used) provided by investing activities component of the Consolidated Statement of Cash Flows. For the Company’s fair value hedges, which are interest rate swaps used to mitigate the change in fair value of its fixed-rate debt attributable to changes in interest rates, the related cash flows from periodic interest payments are reflected within the Cash provided by operations component of the Consolidated Statements of Cash Flows. Refer to Note 17 — Risk Management and Derivatives for more information on the Company’s risk management program and derivatives. 
+Stock-Based Compensation 
+The Company estimates the fair value of options and stock appreciation rights granted under the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”) and employees’ purchase rights under the Employee Stock Purchase Plans (“ESPPs”) using the Black-Scholes option pricing model. The Company recognizes this fair value, net of estimated forfeitures, as Total selling and administrative expense in the Consolidated Statements of Income over the vesting period using the straight-line method. 
+Refer to Note 11 — Common Stock and Stock-Based Compensation for more information on the Company’s stock programs. 
+Income Taxes 
+The Company accounts for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The Company records a valuation allowance to reduce deferred tax assets to the amount management believes is more likely than not to be realized. United States income taxes are provided currently on financial statement earnings of non-U.S. subsidiaries that are expected to be repatriated. The Company determines annually the amount of undistributed non-U.S. earnings to invest indefinitely in its non-U.S. operations. 
+The Company recognizes a tax benefit from uncertain tax positions in the financial statements only when it is more likely than not that the position will be sustained upon examination by relevant tax authorities. The Company recognizes interest and penalties related to income tax matters in Income tax expense. 
+Refer to Note 9 — Income Taxes for further discussion. 
+55 
+Table of Contents 
+Earnings Per Share 
+Basic earnings per common share is calculated by dividing Net income by the weighted average number of common shares outstanding during the year. Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive stock options and awards. 
+Refer to Note 12 — Earnings Per Share for further discussion. 
+Management Estimates 
+The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, including estimates relating to assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 
+Recently Adopted Accounting Standards 
+In July 2013, the FASB issued an accounting standards update intended to provide guidance on the presentation of unrecognized tax benefits, reflecting the manner in which an entity would settle, at the reporting date, any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. This accounting standard is effective for the Company beginning June 1, 2014 and early adoption is permitted. Management early adopted this guidance and the adoption did not have a material impact on the Company's consolidated financial position or results of operations. 
+In July 2012, the FASB issued an accounting standards update intended to simplify how an entity tests indefinite-lived intangible assets other than goodwill for impairment by providing entities with an option to perform a qualitative assessment to determine whether further impairment testing is necessary. This accounting standard update was effective for us beginning June 1, 2013. The adoption of this standard did not have a material impact on our consolidated financial position or results of operations. 
+In December 2011, the FASB issued guidance enhancing disclosure requirements surrounding the nature of an entity’s right to offset and related arrangements associated with its financial instruments and derivative instruments. This new guidance requires companies to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to master netting arrangements. This new guidance was effective for the Company beginning June 1, 2013. As this guidance only requires expanded disclosures, the adoption had no impact on the Company's consolidated financial position or results of operations. 
+Recently Issued Accounting Standards 
+In May 2014, the FASB issued an accounting standards update that replaces existing revenue recognition guidance. Among other things, the updated guidance requires companies to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance is effective for the Company beginning June 1, 2017. The Company is currently evaluating the effect the guidance will have on the Consolidated Financial Statements. 
+NOTE 2 — Inventories 
+Inventory balances of $3,947 million and $3,484 million at May 31, 2014 and 2013 , respectively, were substantially all finished goods. 
+NOTE 3 — Property, Plant and Equipment 
+Property, plant and equipment included the following: 
+As of May 31, 
+(In millions) 
+2014 
+2013 
+Land 
+$ 
+270 
+$ 
+268 
+Buildings 
+1,261 
+1,174 
+Machinery, equipment and internal-use software 
+3,376 
+2,985 
+Leasehold improvements 
+1,066 
+945 
+Construction in process 
+247 
+128 
+Total property, plant and equipment, gross 
+6,220 
+5,500 
+Less accumulated depreciation 
+3,386 
+3,048 
+TOTAL PROPERTY, PLANT AND EQUIPMENT, NET 
+$ 
+2,834 
+$ 
+2,452 
+Capitalized interest was not material for the years ended May 31, 2014 , 2013 , and 2012 . The Company had $74 million and $81 million in capital lease obligations as of May 31, 2014 and May 31, 2013 , respectively, included in machinery, equipment and internal-use software. 
+56 
+Table of Contents 
+NOTE 4 — Identifiable Intangible Assets and Goodwill 
+The following table summarizes the Company’s Identifiable intangible asset balances as of May 31, 2014 and 2013 : 
+As of May 31, 2014 
+As of May 31, 2013 
+(In millions) 
+Gross Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net Carrying 
+Amount 
+Gross Carrying 
+Amount 
+Accumulated 
+Amortization 
+Net Carrying 
+Amount 
+Acquired trademarks and other 
+$ 
+39 
+$ 
+(39 
+) 
+$ 
+— 
+$ 
+43 
+$ 
+(36 
+) 
+$ 
+7 
+Indefinite-lived trademarks 
+282 
+282 
+IDENTIFIABLE INTANGIBLE 
+ASSETS, NET 
+$ 
+282 
+$ 
+289 
+Goodwill was $131 million at May 31, 2014 and May 31, 2013 ; $64 million is included in the Converse segment and the remaining amounts are included in Global Brand Divisions for segment reporting purposes. There were no accumulated impairment balances for goodwill as of either period end. 
+NOTE 5 — Accrued Liabilities 
+Accrued liabilities included the following: 
+As of May 31, 
+(In millions) 
+2014 
+2013 
+Compensation and benefits, excluding taxes 
+$ 
+782 
+$ 
+713 
+Endorsement compensation 
+328 
+264 
+Dividends payable 
+209 
+188 
+Taxes other than income taxes 
+204 
+192 
+Advertising and marketing 
+133 
+77 
+Import and logistics costs 
+127 
+111 
+Fair value of derivatives 
+85 
+34 
+Other (1) 
+623 
+457 
+TOTAL ACCRUED LIABILITIES 
+$ 
+2,491 
+$ 
+2,036 
+(1) 
+Other consists of various accrued expenses with no individual item accounting for more than 5% of the total Accrued liabilities balance at May 31, 2014 and 2013 . 
+NOTE 6 — Fair Value Measurements 
+The following tables present information about the Company's financial assets and liabilities measured at fair value on a recurring basis as of May 31, 2014 and 2013 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. Refer to Note 1 – Summary of Significant Accounting Policies for additional detail regarding the Company’s fair value measurement methodology. 
+As of May 31, 2014 
+(In millions) 
+Assets at Fair Value 
+Cash and Cash Equivalents 
+Short-term Investments 
+Other Long-term Assets 
+Cash 
+$ 
+780 
+$ 
+780 
+$ 
+— 
+$ 
+— 
+Level 1: 
+U.S. Treasury securities 
+1,137 
+151 
+986 
+— 
+Level 2: 
+Time deposits 
+227 
+227 
+— 
+— 
+U.S. Agency securities 
+1,027 
+25 
+1,002 
+— 
+Commercial paper and bonds 
+959 
+25 
+934 
+— 
+Money market funds 
+1,012 
+1,012 
+— 
+— 
+Total level 2 
+3,225 
+1,289 
+1,936 
+— 
+Level 3: 
+Non-marketable preferred stock 
+7 
+— 
+— 
+7 
+TOTAL 
+$ 
+5,149 
+$ 
+2,220 
+$ 
+2,922 
+$ 
+7 
+57 
+Table of Contents 
+As of May 31, 2013 
+(In millions) 
+Assets at Fair Value 
+Cash and Cash Equivalents 
+Short-term Investments 
+Other Long-term Assets 
+Cash 
+$ 
+663 
+$ 
+663 
+$ 
+— 
+$ 
+— 
+Level 1: 
+U.S. Treasury securities 
+2,008 
+425 
+1,583 
+— 
+Level 2: 
+Time deposits 
+358 
+358 
+— 
+— 
+U.S. Agency securities (1) 
+1,026 
+395 
+631 
+— 
+Commercial paper and bonds (1) 
+1,074 
+660 
+414 
+— 
+Money market funds 
+836 
+836 
+— 
+— 
+Total level 2 
+3,294 
+2,249 
+1,045 
+— 
+Level 3: 
+Non-marketable preferred stock 
+5 
+— 
+— 
+5 
+TOTAL 
+$ 
+5,970 
+$ 
+3,337 
+$ 
+2,628 
+$ 
+5 
+(1) 
+Amounts have been revised to reflect proper classification between U.S. Agency securities and commercial paper and bonds. 
+As of May 31, 2014 
+Asset Derivatives 
+Liability Derivatives 
+(In millions) 
+Assets at Fair Value 
+Other Current Assets 
+Other Long-term Assets 
+Liabilities at Fair Value 
+Accrued Liabilities 
+Other Long-term Liabilities 
+Level 2: 
+Foreign exchange forwards and options (1) 
+$ 
+127 
+$ 
+101 
+$ 
+26 
+$ 
+85 
+$ 
+84 
+$ 
+1 
+Interest rate swap contracts 
+6 
+— 
+6 
+— 
+— 
+— 
+TOTAL 
+$ 
+133 
+$ 
+101 
+$ 
+32 
+$ 
+85 
+$ 
+84 
+$ 
+1 
+(1) 
+The Company’s derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contract. The Company elects to record the gross assets and liabilities of its derivative financial instruments in the Consolidated Balance Sheets. If the derivative financial instruments had been netted in the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $63 million . No material amounts of collateral were received or posted on the Company’s derivative assets and liabilities as of May 31, 2014. 
+As of May 31, 2013 
+Asset Derivatives 
+Liability Derivatives 
+(In millions) 
+Assets at Fair Value 
+Other Current Assets 
+Other Long-term Assets 
+Liabilities at Fair Value 
+Accrued Liabilities 
+Other Long-term Liabilities 
+Level 2: 
+Foreign exchange forwards and options (1) 
+$ 
+278 
+$ 
+199 
+$ 
+79 
+$ 
+34 
+$ 
+34 
+$ 
+— 
+Interest rate swap contracts 
+11 
+— 
+11 
+— 
+— 
+— 
+TOTAL 
+$ 
+289 
+$ 
+199 
+$ 
+90 
+$ 
+34 
+$ 
+34 
+$ 
+— 
+(1) 
+The Company’s derivative financial instruments are subject to master netting arrangements that allow for the offset of assets and liabilities in the event of default or early termination of the contract. The Company elects to record the gross assets and liabilities of its derivative financial instruments in the Consolidated Balance Sheets. If the derivative financial instruments had been netted in the Consolidated Balance Sheets, the asset and liability positions each would have been reduced by $34 million . No material amounts of collateral were received or posted on the Company’s derivative assets and liabilities as of May 31, 2013. 
+Available-for-sale securities comprise investments in U.S. Treasury and Agency securities, money market funds, corporate commercial paper, and bonds. These securities are valued using market prices on both active markets (Level 1) and less active markets (Level 2). The gross realized gains and losses on sales of available-for-sale securities were immaterial for the fiscal years ended May 31, 2014 and 2013. Unrealized gains and losses on available-for-sale securities included in Other comprehensive income were immaterial as of May 31, 2014 and 2013. 
+The Company regularly reviews its available-for-sale securities for other-than-temporary impairment. For the years ended May 31, 2014 and 2013 , the Company did not consider its securities to be other-than-temporarily impaired and accordingly, did not recognize any impairment losses. 
+As of May 31, 2014 , the Company held $2,287 million of available-for-sale securities with maturity dates within one year from the purchase date and $635 million with maturity dates over one year and less than five years from the purchase date within short-term investments. As of May 31, 2013 , the Company held $ 2,229 million of available-for-sale securities with maturity dates within one year from purchase date and $ 399 million with maturity dates over one year and less than five years from purchase date within Short-term investments. 
+Included in Interest expense (income), net was interest income related to the Company's available-for-sale securities of $5 million , $4 million , and $6 million for the years ended May 31, 2014 , 2013 , and 2012 , respectively. 
+58 
+Table of Contents 
+The Company’s Level 3 assets comprise investments in certain non-marketable preferred stock. These Level 3 investments are an immaterial portion of the Company's portfolio. Changes in Level 3 investment assets were immaterial during the years ended May 31, 2014 and 2013 . 
+Derivative financial instruments include foreign exchange forwards and options, embedded derivatives and interest rate swap contracts. Refer to Note 17 — Risk Management and Derivatives for additional detail. 
+No transfers among the levels within the fair value hierarchy occurred during the years ended May 31, 2014 or 2013 . 
+As of May 31, 2014 and 2013 , the Company had no assets or liabilities that were required to be measured at fair value on a non-recurring basis. 
+For fair value information regarding Notes payable and Long-term debt, refer to Note 7 — Short-Term Borrowings and Credit Lines and Note 8 — Long-Term Debt. 
+NOTE 7 — Short-Term Borrowings and Credit Lines 
+Notes payable and interest-bearing accounts payable to Sojitz Corporation of America (“Sojitz America”) as of May 31, 2014 and 2013 are summarized below: 
+As of May 31, 
+2014 
+2013 
+(Dollars in millions) 
+Borrowings 
+Interest Rate 
+Borrowings 
+Interest Rate 
+Notes payable: 
+U.S. operations 
+$ 
+— 
+0.00 
+% 
+(1) 
+$ 
+— 
+0.00 
+% 
+(1) 
+Non-U.S. operations 
+167 
+10.04 
+% 
+(1) 
+98 
+4.94 
+% 
+(1) 
+TOTAL NOTES PAYABLE 
+$ 
+167 
+$ 
+98 
+Interest-Bearing Accounts Payable: 
+Sojitz America 
+$ 
+60 
+0.94 
+% 
+$ 
+55 
+0.99 
+% 
+(1) 
+Weighted average interest rate includes non-interest bearing overdrafts. 
+The carrying amounts reflected in the Consolidated Balance Sheets for Notes payable approximate fair value. 
+The Company purchases through Sojitz America certain NIKE Brand products it acquires from non-U.S. suppliers. These purchases are for products sold in certain countries in the Company's Emerging Markets geographic segment and Canada, excluding products produced and sold in the same country. Accounts payable to Sojitz America are generally due up to 60 days after shipment of goods from the foreign port. The interest rate on such accounts payable is the 60 -day London Interbank Offered Rate (“LIBOR”) as of the beginning of the month of the invoice date, plus 0.75% . 
+As of May 31, 2014 and 2013 , the Company had no amounts outstanding under its commercial paper program. 
+On November 1, 2011, the Company entered into a committed credit facility agreement with a syndicate of banks which provides for up to $1 billion of borrowings with the option to increase borrowings to $1.5 billion with lender approval. Following an extension agreement on September 17, 2013 between the Company and the syndicate of banks, the facility matures November 1, 2017, with a one -year extension option exercisable through October 31, 2014. Based on the Company’s current long-term senior unsecured debt ratings of AA- and A1 from Standard and Poor’s Corporation and Moody’s Investor Services, respectively, the interest rate charged on any outstanding borrowings would be the prevailing LIBOR plus 0.445% . The facility fee is 0.055% of the total commitment. Under this committed credit facility, the Company must maintain, among other things, certain minimum specified financial ratios with which the Company was in compliance at May 31, 2014 . No amounts were outstanding under this facility as of May 31, 2014 or 2013 . 
+59 
+Table of Contents 
+NOTE 8 — Long-Term Debt 
+Long-term debt, net of unamortized premiums and discounts and swap fair value adjustments, comprises the following: 
+Book Value Outstanding 
+As of May 31, 
+Scheduled Maturity (Dollars and Yen in millions) 
+Original 
+Principal 
+Interest 
+Rate 
+Interest 
+Payments 
+2014 
+2013 
+Corporate Bond Payables: (4) 
+October 1, 2013 
+$ 
+50 
+4.70 
+% 
+Semi-Annually 
+$ 
+— 
+$ 
+50 
+October 15, 2015 (1) 
+$ 
+100 
+5.15 
+% 
+Semi-Annually 
+108 
+111 
+May 1, 2023 (5) 
+$ 
+500 
+2.25 
+% 
+Semi-Annually 
+499 
+499 
+May 1, 2043 (5) 
+$ 
+500 
+3.63 
+% 
+Semi-Annually 
+499 
+499 
+Promissory Notes: 
+April 1, 2017 (2) 
+$ 
+40 
+6.20 
+% 
+Monthly 
+39 
+40 
+January 1, 2018 (2) 
+$ 
+19 
+6.79 
+% 
+Monthly 
+19 
+19 
+Japanese Yen Notes: 
+August 20, 2001 through November 20, 2020 (3) 
+¥ 
+9,000 
+2.60 
+% 
+Quarterly 
+29 
+34 
+August 20, 2001 through November 20, 2020 (3) 
+¥ 
+4,000 
+2.00 
+% 
+Quarterly 
+13 
+15 
+Total 
+1,206 
+1,267 
+Less current maturities 
+7 
+57 
+TOTAL LONG-TERM DEBT 
+$ 
+1,199 
+$ 
+1,210 
+(1) 
+The Company has entered into interest rate swap agreements whereby the Company receives fixed interest payments at the same rate as the note and pays variable interest payments based on the six -month LIBOR plus a spread. The swaps have the same notional amount and maturity date as the corresponding note. At May 31, 2014 , the interest rates payable on these swap agreements ranged from approximately 0.2% to 0.4% . 
+(2) 
+On May 30, 2013, the Company assumed a total of $59 million in bonds payable as part of its agreement to purchase certain Corporate properties; this was treated as a non-cash financing transaction. The property serves as collateral for the debt. The purchase of these properties was accounted for as a business combination where the total consideration of $85 million was allocated to the land and buildings acquired; no other tangible or intangible assets or liabilities resulted from the purchase. The bonds mature in 2017 and 2018 and the Company does not have the ability to re-negotiate the terms of the debt agreements and would incur significant financial penalties if the notes were paid off prior to maturity. 
+(3) 
+NIKE Logistics YK assumed a total of ¥13.0 billion in loans as part of its agreement to purchase a distribution center in Japan, which serves as collateral for the loans. These loans mature in equal quarterly installments during the period August 20, 2001 through November 20, 2020 . 
+(4) 
+These senior unsecured obligations rank equally with the Company's other unsecured and unsubordinated indebtedness. 
+(5) 
+The bonds are redeemable at the Company's option prior to February 1, 2023 and November 1, 2042, respectively, at a price equal to the greater of (i) 100% of the aggregate principal amount of the notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments, plus in each case, accrued and unpaid interest. Subsequent to February 1, 2023 and November 1, 2042, respectively, the bonds also feature a par call provision which allows for the bonds to be redeemed at a price equal to 100% of the aggregate principal amount of the notes being redeemed, plus accrued and unpaid interest. 
+The scheduled maturity of Long-term debt in each of the years ending May 31, 2015 through 2019 are $7 million , $108 million , $45 million , $25 million and $7 million , respectively, at face value. 
+The fair value of the Company’s Long-term debt, including the current portion, was approximately $1,154 million at May 31, 2014 and $1,219 million at May 31, 2013 . The fair value of Long-term debt is estimated based upon quoted prices of similar instruments (level 2). 
+NOTE 9 — Income Taxes 
+Income before income taxes is as follows: 
+Year Ended May 31, 
+(In millions) 
+2014 
+2013 
+2012 
+Income before income taxes: 
+United States 
+$ 
+3,066 
+$ 
+1,231 
+$ 
+799 
+Foreign 
+478 
+2,025 
+2,212 
+TOTAL INCOME BEFORE INCOME TAXES 
+$ 
+3,544 
+$ 
+3,256 
+$ 
+3,011 
+60 
+Table of Contents 
+The provision for income taxes is as follows: 
+Year Ended May 31, 
+(In millions) 
+2014 
+2013 
+2012 
+Current: 
+United States 
+Federal 
+$ 
+371 
+$ 
+432 
+$ 
+286 
+State 
+93 
+69 
+51 
+Foreign 
+398 
+398 
+488 
+Total 
+862 
+899 
+825 
+Deferred: 
+United States 
+Federal 
+8 
+— 
+(47 
+) 
+State 
+(3 
+) 
+(4 
+) 
+5 
+Foreign 
+(16 
+) 
+(90 
+) 
+(29 
+) 
+Total 
+(11 
+) 
+(94 
+) 
+(71 
+) 
+TOTAL INCOME TAX EXPENSE 
+$ 
+851 
+$ 
+805 
+$ 
+754 
+A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate is as follows: 
+Year Ended May 31, 
+2014 
+2013 
+2012 
+Federal income tax rate 
+35.0 
+% 
+35.0 
+% 
+35.0 
+% 
+State taxes, net of federal benefit 
+1.8 
+% 
+1.4 
+% 
+1.3 
+% 
+Foreign earnings 
+2.2 
+% 
+-11.8 
+% 
+-11.9 
+% 
+Deferred charge 
+-14.6 
+% 
+0.0 
+% 
+0.0 
+% 
+Other, net 
+-0.4 
+% 
+0.1 
+% 
+0.6 
+% 
+EFFECTIVE INCOME TAX RATE 
+24.0 
+% 
+24.7 
+% 
+25.0 
+% 
+The effective tax rate from continuing operations for the year ended May 31, 2014 was 70 basis points lower than the effective tax rate from continuing operations for the year ended May 31, 2013 primarily due to an increase in the amount of earnings from lower tax rate jurisdictions. 
+During the fourth quarter of the fiscal year ended May 31, 2014 , the Company reached a resolution with the IRS on a U.S. Unilateral Advanced Pricing Agreement that covers intercompany transfer pricing for fiscal years 2011 through 2020. This agreement resulted in a reduction in the Company's permanently reinvested foreign earnings, which increased the effective income tax rate and Income taxes payable. The agreement also resulted in a reduction of previously unrecognized tax benefits and the creation of a deferred tax charge, both of which reduced the effective income tax rate. The net result of the agreement did not have a material impact on the Company’s effective income tax rate in fiscal 2014. 
+The effective tax rate from continuing operations for the year ended May 31, 2013 was 30 basis points lower than the effective tax rate from continuing operations for the year ended May 31, 2012 primarily due to tax benefits received from the intercompany sale of intellectual property rights outside of the U.S., the retroactive reinstatement of the research and development credit and the intra-period allocation of tax expense between continuing operations, discontinued operations and Other comprehensive income. The decrease in the effective rate was partially offset by a higher effective tax rate on operations as a result of an increase in earnings in higher tax jurisdictions. 
+61 
+Table of Contents 
+Deferred tax assets and (liabilities) comprise the following: 
+As of May 31, 
+(In millions) 
+2014 
+2013 
+Deferred tax assets: 
+Allowance for doubtful accounts 
+$ 
+11 
+$ 
+20 
+Inventories 
+49 
+40 
+Sales return reserves 
+113 
+101 
+Deferred compensation 
+211 
+197 
+Stock-based compensation 
+162 
+140 
+Reserves and accrued liabilities 
+95 
+66 
+Foreign loss carry-forwards 
+16 
+19 
+Foreign tax credit carry-forwards 
+— 
+106 
+Undistributed earnings of foreign subsidiaries 
+194 
+147 
+Other 
+51 
+47 
+Total deferred tax assets 
+902 
+883 
+Valuation allowance 
+(9 
+) 
+(5 
+) 
+Total deferred tax assets after valuation allowance 
+893 
+878 
+Deferred tax liabilities: 
+Property, plant and equipment 
+(237 
+) 
+(241 
+) 
+Intangibles 
+(94 
+) 
+(78 
+) 
+Other 
+(2 
+) 
+(20 
+) 
+Total deferred tax liability 
+(333 
+) 
+(339 
+) 
+NET DEFERRED TAX ASSET 
+$ 
+560 
+$ 
+539 
+The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits: 
+As of May 31, 
+(In millions) 
+2014 
+2013 
+2012 
+Unrecognized tax benefits, as of the beginning of the period 
+$ 
+447 
+$ 
+285 
+$ 
+212 
+Gross increases related to prior period tax positions (1) 
+814 
+77 
+48 
+Gross decreases related to prior period tax positions (1) 
+(166 
+) 
+(3 
+) 
+(25 
+) 
+Gross increases related to current period tax positions 
+125 
+130 
+91 
+Gross decreases related to current period tax positions 
+(30 
+) 
+(9 
+) 
+(1 
+) 
+Settlements (1) 
+(676 
+) 
+— 
+(20 
+) 
+Lapse of statute of limitations 
+(4 
+) 
+(21 
+) 
+(9 
+) 
+Changes due to currency translation 
+(4 
+) 
+(12 
+) 
+(11 
+) 
+UNRECOGNIZED TAX BENEFITS, AS OF THE END OF THE PERIOD 
+$ 
+506 
+$ 
+447 
+$ 
+285 
+(1) 
+During the fourth quarter of the fiscal year ended May 31, 2014 , the Company reached a resolution with the IRS on a U.S. Unilateral Advanced Pricing Agreement that covers intercompany transfer pricing for fiscal years 2011 through 2020. As a result, the Company recorded a gross increase in unrecognized tax benefits related to prior period tax positions, a gross decrease in unrecognized tax benefits related to prior period tax positions, and a settlement. The net impact of these items resulted in a decrease to unrecognized tax benefits. 
+As of May 31, 2014 , the total gross unrecognized tax benefits, excluding related interest and penalties, were $506 million , $264 million of which would affect the Company's effective tax rate if recognized in future periods. 
+The Company recognizes interest and penalties related to income tax matters in Income tax expense. The liability for payment of interest and penalties increased $55 million , $4 million , and $17 million during the years ended May 31, 2014 , 2013 , and 2012 , respectively. As of May 31, 2014 and 2013 , accrued interest and penalties related to uncertain tax positions were $167 million and $112 million , respectively (excluding federal benefit). 
+The Company is subject to taxation primarily in the United States, China, the Netherlands, and Brazil, as well as various state and other foreign jurisdictions. The Company has concluded substantially all U.S. federal income tax matters through fiscal 2010. The Company is currently under audit by the Internal Revenue Service for the 2011 through 2014 tax years, and many issues are at an advanced stage in the examination process. In addition, the Company is in appeals regarding the validation of foreign tax credits taken. The Company’s major foreign jurisdictions, China, the Netherlands and Brazil, have concluded substantially all income tax matters through calendar 2005, fiscal 2008 and calendar 2008, respectively. Although the timing of resolution of audits is not certain, the Company evaluates all domestic and foreign audit issues in the aggregate, along with the expiration of applicable statutes of limitations, and estimates that it is reasonably possible the total gross unrecognized tax benefits could decrease by up to $70 million within the next 12 months. 
+62 
+Table of Contents 
+The Company provides for U.S. income taxes on the undistributed earnings of foreign subsidiaries unless they are considered indefinitely reinvested outside the United States. At May 31, 2014 , the indefinitely reinvested earnings in foreign subsidiaries upon which United States income taxes have not been provided was approximately $6.6 billion , which includes a reduction of permanently reinvested earnings for the year ended May 31, 2014 . If these undistributed earnings were repatriated to the United States, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, they would generate foreign tax credits that would reduce the federal tax liability associated with the foreign dividend or the otherwise taxable transaction. Assuming a full utilization of the foreign tax credits, the potential net deferred tax liability associated with these temporary differences of undistributed earnings would be approximately $2.1 billion at May 31, 2014 . 
+A portion of the Company's foreign operations are benefiting from a tax holiday, which is set to expire in 2021 . This tax holiday may be extended when certain conditions are met or may be terminated early if certain conditions are not met. The impact of this tax holiday decreased foreign taxes by $138 million , $108 million , and $117 million for the fiscal years ended May 31, 2014 , 2013 , and 2012 , respectively. The benefit of the tax holiday on Diluted earnings per common share was $0.15 , $0.12 , and $0.12 for the fiscal years ended May 31, 2014 , 2013 , and 2012 , respectively. 
+Deferred tax assets at May 31, 2014 and 2013 were reduced by a valuation allowance relating to tax benefits of certain subsidiaries with operating losses. The net change in the valuation allowance was an increase of $4 million , a decrease of $22 million , and an increase of $23 million for the years ended May 31, 2014 , 2013 , and 2012 , respectively. 
+The Company has available domestic and foreign loss carry-forwards of $55 million at May 31, 2014 . Such losses will expire as follows: 
+Year Ending May 31, 
+(In millions) 
+2015 
+2016 
+2017 
+2018 
+2019-2034 
+Indefinite 
+Total 
+Net operating losses 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+$ 
+6 
+$ 
+37 
+$ 
+12 
+$ 
+55 
+During the years ended May 31, 2014 , 2013 , and 2012 , income tax benefits attributable to employee stock-based compensation transactions of $135 million , $76 million , and $120 million , respectively, were allocated to Total shareholders’ equity. 
+NOTE 10 — Redeemable Preferred Stock 
+Sojitz America is the sole owner of the Company’s authorized Redeemable p referred s tock, $1 par value, which is redeemable at the option of Sojitz America or the Company at par value aggregating $0.3 million . A cumulative dividend of $0.10 per share is payable annually on May 31 and no dividends may be declared or paid on the common stock of the Company unless dividends on the Redeemable p referred s tock have been declared and paid in full. There have been no changes in the Redeemable p referred s tock in the three years ended May 31, 2014 , 2013 , and 2012 . As the holder of the Redeemable p referred s tock, Sojitz America does not have general voting rights but does have the right to vote as a separate class on the sale of all or substantially all of the assets of the Company and its subsidiaries, on merger, consolidation, liquidation or dissolution of the Company or on the sale or assignment of the NIKE trademark for athletic footwear sold in the United States. The Redeemable p referred s tock has been fully issued to Sojitz America and is not blank check preferred stock. The Company's articles of incorporation do not permit the issuance of additional preferred stock. 
+NOTE 11 — Common Stock and Stock-Based Compensation 
+The authorized number of shares of Class A Common Stock, no par value, and Class B Common Stock, no par value, are 200 million and 1,200 million , respectively. Each share of Class A Common Stock is convertible into one share of Class B Common Stock. Voting rights of Class B Common Stock are limited in certain circumstances with respect to the election of directors. There are no differences in the dividend and liquidation preferences or participation rights of the Class A and Class B common shareholders. 
+In 1990, the Board of Directors adopted, and the shareholders approved, the NIKE, Inc. 1990 Stock Incentive Plan (the “1990 Plan”). The 1990 Plan, as amended, provides for the issuance of up to 326 million previously unissued shares of Class B Common Stock in connection with stock options and other awards granted under the plan. The 1990 Plan authorizes the grant of non-statutory stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, and performance-based awards. The exercise price for stock options and stock appreciation rights may not be less than the fair market value of the underlying shares on the date of grant. A committee of the Board of Directors administers the 1990 Plan. The committee has the authority to determine the employees to whom awards will be made, the amount of the awards, and the other terms and conditions of the awards. Substantially all stock option grants outstanding under the 1990 Plan were granted in the first quarter of each fiscal year, vest ratably over four years, and expire 10 years from the date of grant. 
+The following table summarizes the Company’s total stock-based compensation expense recognized in Total selling and administrative expense: 
+Year Ended May 31, 
+(In millions) 
+2014 
+2013 
+2012 
+Stock options (1) 
+$ 
+125 
+$ 
+123 
+$ 
+96 
+ESPPs 
+22 
+19 
+16 
+Restricted stock 
+30 
+32 
+18 
+TOTAL STOCK-BASED COMPENSATION EXPENSE 
+$ 
+177 
+$ 
+174 
+$ 
+130 
+(1) 
+Expense for stock options includes the expense associated with stock appreciation rights. Accelerated stock option expense is recorded for employees eligible for accelerated stock option vesting upon retirement. Accelerated stock option expense for years ended May 31, 2014 , 2013 , and 2012 was $15 million , $22 million , and $17 million , respectively. 
+As of May 31, 2014 , the Company had $179 million of unrecognized compensation costs from stock options, net of estimated forfeitures, to be recognized as selling and administrative expense over a weighted average period of 2.1 years. 
+63 
+Table of Contents 
+The weighted average fair value per share of the options granted during the years ended May 31, 2014 , 2013 , and 2012 , as computed using the Black-Scholes pricing model, was $14.89 , $12.71 , and $11.08 , respectively. The weighted average assumptions used to estimate these fair values are as follows: 
+Year Ended May 31, 
+2014 
+2013 
+2012 
+Dividend yield 
+1.3 
+% 
+1.5 
+% 
+1.4 
+% 
+Expected volatility 
+27.9 
+% 
+35.0 
+% 
+29.5 
+% 
+Weighted average expected life (in years) 
+5.3 
+5.3 
+5.0 
+Risk-free interest rate 
+1.3 
+% 
+0.6 
+% 
+1.4 
+% 
+The Company estimates the expected volatility based on the implied volatility in market traded options on the Company’s common stock with a term greater than 1 year, along with other factors. The weighted average expected life of options is based on an analysis of historical and expected future exercise patterns. The interest rate is based on the U.S. Treasury (constant maturity) risk-free rate in effect at the date of grant for periods corresponding with the expected term of the options. 
+The following summarizes the stock option transactions under the plan discussed above: 
+Shares (1) 
+Weighted Average 
+Option Price 
+(In millions) 
+Options outstanding May 31, 2011 
+69.6 
+$ 
+25.65 
+Exercised 
+(18.0 
+) 
+22.81 
+Forfeited 
+(1.0 
+) 
+35.61 
+Granted 
+13.7 
+45.87 
+Options outstanding May 31, 2012 
+64.3 
+$ 
+30.59 
+Exercised 
+(9.9 
+) 
+24.70 
+Forfeited 
+(1.3 
+) 
+40.14 
+Granted 
+14.6 
+46.55 
+Options outstanding May 31, 2013 
+67.7 
+$ 
+34.72 
+Exercised 
+(11.0 
+) 
+28.29 
+Forfeited 
+(1.3 
+) 
+48.33 
+Granted 
+8.1 
+63.54 
+Options outstanding May 31, 2014 
+63.5 
+$ 
+39.28 
+Options exercisable at May 31, 
+2012 
+33.9 
+$ 
+24.38 
+2013 
+35.9 
+27.70 
+2014 
+37.0 
+31.42 
+(1) 
+Includes stock appreciation rights transactions. 
+The weighted average contractual life remaining for options outstanding and options exercisable at May 31, 2014 was 6.0 years and 4.6 years, respectively. The aggregate intrinsic value for options outstanding and exercisable at May 31, 2014 was $2,391 million and $1,682 million , respectively. The aggregate intrinsic value was the amount by which the market value of the underlying stock exceeded the exercise price of the options. The total intrinsic value of the options exercised during the years ended May 31, 2014 , 2013 , and 2012 was $474 million , $293 million , and $453 million , respectively. 
+In addition to the 1990 Plan, the Company gives employees the right to purchase shares at a discount to the market price under employee stock purchase plans (“ESPPs”). Employees are eligible to participate through payroll deductions of up to 10% of their compensation. At the end of each six -month offering period, shares are purchased by the participants at 85% of the lower of the fair market value at the beginning or the end of the offering period. Employees purchased 1.4 million , 1.6 million , and 1.7 million shares during each of the three years ended May 31, 2014 , 2013 and 2012 , respectively. 
+From time to time, the Company grants restricted stock units and restricted stock to key employees under the 1990 Plan. The number of shares underlying such awards granted to employees during the years ended May 31, 2014 , 2013 , and 2012 were 0.3 million , 1.6 million , and 0.7 million with weighted average values per share of $63.89 , $46.86 , and $49.49 , respectively. Recipients of restricted stock are entitled to cash dividends and to vote their respective shares throughout the period of restriction. Recipients of restricted stock units are entitled to dividend equivalent cash payments upon vesting. The value of all grants of restricted stock and restricted stock units was established by the market price on the date of grant. During the years ended May 31, 2014 , 2013 , and 2012 , the aggregate fair value of restricted stock and restricted stock units vested was $28 million , $25 million , and $22 million , respectively, determined as of the date of vesting. As of May 31, 2014, the Company had $61 million of unrecognized compensation costs from restricted stock units to be recognized in Total selling and administrative expense over a weighted average period of 2.7 years. 
+64 
+Table of Contents 
+NOTE 12 — Earnings Per Share 
+The following is a reconciliation from Basic earnings per common share to Diluted earnings per common share. Options to purchase an additional 0.1 million , 0.1 million , and 0.2 million shares of common stock were outstanding at May 31, 2014 , 2013 , and 2012 , respectively, but were not included in the computation of Diluted earnings per common share because the options were anti-dilutive. 
+Year Ended May 31, 
+(In millions, except per share data) 
+2014 
+2013 
+2012 
+Determination of shares: 
+Weighted average common shares outstanding 
+883.4 
+897.3 
+920.0 
+Assumed conversion of dilutive stock options and awards 
+22.4 
+19.1 
+19.6 
+DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 
+905.8 
+916.4 
+939.6 
+Earnings per share from continuing operations: 
+Basic earnings per common share 
+$ 
+3.05 
+$ 
+2.74 
+$ 
+2.45 
+Diluted earnings per common share 
+$ 
+2.97 
+$ 
+2.68 
+$ 
+2.40 
+Earnings per share from discontinued operations: 
+Basic earnings per common share 
+$ 
+— 
+$ 
+0.02 
+$ 
+(0.05 
+) 
+Diluted earnings per common share 
+$ 
+— 
+$ 
+0.02 
+$ 
+(0.05 
+) 
+Basic earnings per common share for NIKE, Inc. 
+$ 
+3.05 
+$ 
+2.76 
+$ 
+2.40 
+Diluted earnings per common share for NIKE, Inc. 
+$ 
+2.97 
+$ 
+2.70 
+$ 
+2.35 
+NOTE 13 — Benefit Plans 
+The Company has a qualified 401(k) Savings and Profit Sharing Plan to which all U.S. employees who work at least 1,000 hours in a year are able to participate. The Company matches a portion of employee contributions. Company contributions to the savings plan were $51 million , $46 million , and $42 million for the years ended May 31, 2014 , 2013 , and 2012 , respectively, and are included in Total selling and administrative expense. The terms of the plan also allow for annual discretionary profit sharing contributions to the accounts of eligible employees by the Company as determined by the Board of Directors. Contributions of $49 million , $47 million , and $40 million were made to the plan and are included in Total selling and administrative expense for the years ended May 31, 2014 , 2013 , and 2012 , respectively. 
+The Company also has a Long-Term Incentive Plan (“LTIP”) that was adopted by the Board of Directors and approved by shareholders in September 1997 and later amended in fiscal 2007. The Company recognized $46 million , $50 million , and $51 million of Total selling and administrative expense related to cash awards under the LTIP during the years ended May 31, 2014 , 2013 , and 2012 , respectively. 
+The Company allows certain highly compensated employees and non-employee directors of the Company to defer compensation under a nonqualified deferred compensation plan. Deferred compensation plan liabilities were $390 million and $326 million at May 31, 2014 and May 31, 2013, respectively, and classified as long-term in Deferred income taxes and other liabilities. 
+The Company has pension plans in various countries worldwide. The pension plans are only available to local employees and are generally government mandated. The liability related to the unfunded pension liabilities of the plans was $100 million and $104 million at May 31, 2014 and May 31, 2013 , respectively, which was primarily classified as long-term in Deferred income taxes and other liabilities. 
+NOTE 14 — Accumulated Other Comprehensive Income 
+The changes in Accumulated other comprehensive income, net of tax, were as follows: 
+(In millions) 
+Foreign Currency Translation Adjustment (1) 
+Cash Flow Hedges 
+Net Investment Hedges (1) 
+Other 
+Total 
+Balance at May 31, 2013 
+$ 
+41 
+$ 
+193 
+$ 
+95 
+$ 
+(55 
+) 
+$ 
+274 
+Other comprehensive gains (losses) before reclassifications (2) 
+(32 
+) 
+(134 
+) 
+— 
+— 
+(166 
+) 
+Reclassifications to net income of previously deferred (gains) losses (3) 
+— 
+(27 
+) 
+— 
+4 
+(23 
+) 
+Other comprehensive income (loss) 
+(32 
+) 
+(161 
+) 
+— 
+4 
+(189 
+) 
+Balance at May 31, 2014 
+$ 
+9 
+$ 
+32 
+$ 
+95 
+$ 
+(51 
+) 
+$ 
+85 
+(1) 
+The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or upon complete or substantially complete liquidation of the respective entity. 
+(2) 
+Net of tax benefit of $ 0 million , $ 9 million , $ 0 million , $ 0 million , and $ 9 million , respectively. 
+(3) 
+Net of tax expense of $ 0 million , $ 9 million , $ 0 million , $ 0 million , and $ 9 million , respectively. 
+65 
+Table of Contents 
+The following table summarizes the reclassifications from Accumulated other comprehensive income to the Consolidated Statements of Income: 
+Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income 
+Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income 
+(In millions) 
+Year Ended May 31, 2014 
+Gains on cash flow hedges: 
+Foreign exchange forwards and options 
+$ 
+14 
+Revenues 
+Foreign exchange forwards and options 
+12 
+Cost of sales 
+Foreign exchange forwards and options 
+— 
+Total selling and administrative expense 
+Foreign exchange forwards and options 
+10 
+Other expense (income), net 
+Total before tax 
+36 
+Tax expense 
+(9 
+) 
+Gain, net of tax 
+27 
+Losses on other 
+(4 
+) 
+Other expense (income), net 
+Total before tax 
+(4 
+) 
+Tax expense 
+— 
+Loss, net of tax 
+(4 
+) 
+Total net gain reclassified for the period 
+$ 
+23 
+Refer to Note 17— Risk Management and Derivatives for more information on the Company's risk management program and derivatives. 
+NOTE 15 — Discontinued Operations 
+During the year ended May 31, 2013 , the Company divested of Umbro and Cole Haan, allowing it to focus its resources on driving growth in the NIKE, Jordan, Converse, and Hurley brands. 
+On February 1, 2013, the Company completed the sale of Cole Haan to Apax Partners for an agreed upon purchase price of $570 million and received at closing $561 million , net of $9 million of purchase price adjustments. The transaction resulted in a gain on sale of $231 million , net of $137 million in Income tax expense; this gain is included in the Net income (loss) from discontinued operations line item on the Consolidated Statements of Income. There were no adjustments to these recorded amounts as of May 31, 2014 . Beginning November 30, 2012, the Company classified the Cole Haan disposal group as held-for-sale and presented the results of Cole Haan's operations in the Net income (loss) from discontinued operations line item on the Consolidated Statements of Income. From this date until the sale, the assets and liabilities of Cole Haan were recorded in the Assets of discontinued operations and Liabilities of discontinued operations line items on the Consolidated Balance Sheets, respectively. Previously, these amounts were reported in the Company's segment presentation as “Other Businesses.” 
+Under the sale agreement, the Company agreed to provide certain transition services to Cole Haan for an expected period of 3 to 9 months from the date of sale. These services were essentially complete as of May 31, 2013 and the Company has had no significant involvement with Cole Haan beyond the transition services. The Company has also licensed NIKE proprietary Air and Lunar technologies to Cole Haan for a transition period. The continuing cash flows related to these items are not significant to Cole Haan. Additionally, preexisting guarantees of certain Cole Haan lease payments remained in place after the sale; the maximum exposure under the guarantees is $ 33 million at May 31, 2014 . The fair value of the guarantees is not material. 
+On November 30, 2012, the Company completed the sale of certain assets of Umbro to Iconix Brand Group (“Iconix”) for $ 225 million . The Umbro disposal group was classified as held-for-sale as of November 30, 2012 and the results of Umbro's operations are presented in the Net income (loss) from discontinued operations line item on the Consolidated Statements of Income. The liabilities of Umbro were recorded in the Liabilities of discontinued operations line items on the Consolidated Balance Sheets. Previously, these amounts were reported in the Company's segment presentation as “Other Businesses.” Upon meeting the held-for-sale criteria, the Company recorded a loss of $ 107 million , net of tax, on the sale of Umbro and the loss is included in the Net income (loss) from discontinued operations line item on the Consolidated Statements of Income. The loss on sale was calculated as the net sales price less Umbro assets of $ 248 million , including intangibles, goodwill, and fixed assets, other miscellaneous charges of $ 22 million , and the release of the associated cumulative translation adjustment of $ 129 million . The tax benefit on the loss was $ 67 million . There were no adjustments to these recorded amounts as of May 31, 2014 . 
+Under the sale agreement, the Company provided transition services to Iconix while certain markets were transitioned to Iconix-designated licensees. These transition services are complete and the Company has wound down the remaining operations of Umbro. 
+66 
+Table of Contents 
+Summarized results of the Company's discontinued operations are as follows: 
+Year Ended May 31, 
+(In millions) 
+2014 
+2013 
+2012 
+Revenues 
+$ 
+— 
+$ 
+523 
+$ 
+796 
+Income (loss) before income taxes 
+— 
+108 
+(43 
+) 
+Income tax expense 
+— 
+87 
+3 
+Net income (loss) from discontinued operations 
+$ 
+— 
+$ 
+21 
+$ 
+(46 
+) 
+As of May 31, 2014 and 2013 , the aggregate components of liabilities classified as discontinued operations and included in Total current liabilities consisted of the following: 
+As of May 31, 
+(In millions) 
+2014 
+2013 
+Accounts payable 
+$ 
+— 
+$ 
+1 
+Accrued liabilities 
+— 
+17 
+TOTAL LIABILITIES 
+$ 
+— 
+$ 
+18 
+There were no assets of discontinued operations as of May 31, 2014 and May 31, 2013 . 
+NOTE 16 — Commitments and Contingencies 
+The Company leases space for certain of its offices, warehouses and retail stores under leases expiring from 1 to 20 years after May 31, 2014 . Rent expense was $533 million , $482 million , and $431 million for the years ended May 31, 2014 , 2013 and 2012 , respectively. Amounts of minimum future annual commitments under non-cancelable operating and capital leases are as follows (in millions): 
+2015 
+2016 
+2017 
+2018 
+2019 
+Thereafter 
+Total 
+Operating leases 
+$ 
+427 
+$ 
+399 
+$ 
+366 
+$ 
+311 
+$ 
+251 
+$ 
+1,050 
+$ 
+2,804 
+Capital leases 
+$ 
+36 
+$ 
+35 
+$ 
+1 
+$ 
+1 
+$ 
+1 
+$ 
+— 
+$ 
+74 
+As of May 31, 2014 and 2013 , the Company had letters of credit outstanding totaling $135 million and $149 million , respectively. These letters of credit were generally issued for the purchase of inventory and guarantees of the Company’s performance under certain self-insurance and other programs. 
+In connection with various contracts and agreements, the Company provides routine indemnification relating to the enforceability of intellectual property rights, coverage for legal issues that arise and other items where the Company is acting as the guarantor. Currently, the Company has several such agreements in place. However, based on the Company’s historical experience and the estimated probability of future loss, the Company has determined that the fair value of such indemnification is not material to the Company’s financial position or results of operations. 
+In the ordinary course of its business, the Company is involved in various legal proceedings involving contractual and employment relationships, product liability claims, trademark rights, and a variety of other matters. While the Company cannot predict the outcome of its pending legal matters with certainty, the Company does not believe any currently identified claim, proceeding or litigation, either individually or in aggregate, will have a material impact on the Company’s results of operations, financial position or cash flows. 
+NOTE 17 — Risk Management and Derivatives 
+The Company is exposed to global market risks, including the effect of changes in foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes. 
+The Company may elect to designate certain derivatives as hedging instruments under the accounting standards for derivatives and hedging. The Company formally documents all relationships between designated hedging instruments and hedged items as well as its risk management objective and strategy for undertaking hedge transactions. This process includes linking all derivatives designated as hedges to either recognized assets or liabilities or forecasted transactions. 
+The majority of derivatives outstanding as of May 31, 2014 are designated as cash flow or fair value hedges. All derivatives are recognized on the balance sheet at fair value and classified based on the instrument’s maturity date. The total notional amount of outstanding derivatives as of May 31, 2014 was approximately $12 billion , which primarily comprises cash flow hedges for Euro/U.S. Dollar, British Pound/Euro, and Japanese Yen/U.S. Dollar currency pairs. As of May 31, 2014 , there were outstanding currency forward contracts with maturities up to 24 months. 
+67 
+Table of Contents 
+The following table presents the fair values of derivative instruments included within the Consolidated Balance Sheets as of May 31, 2014 and 2013 : 
+Asset Derivatives 
+Liability Derivatives 
+(In millions) 
+Balance Sheet 
+Location 
+2014 
+2013 
+Balance Sheet 
+Location 
+2014 
+2013 
+Derivatives formally designated as hedging instruments: 
+Foreign exchange forwards and options 
+Prepaid expenses and other current assets 
+$ 
+76 
+$ 
+141 
+Accrued liabilities 
+$ 
+57 
+$ 
+12 
+Foreign exchange forwards and options 
+Deferred income taxes and other assets 
+26 
+79 
+Deferred income taxes and other liabilities 
+1 
+— 
+Interest rate swap contracts 
+Deferred income taxes and other assets 
+6 
+11 
+Deferred income taxes and other liabilities 
+— 
+— 
+Total derivatives formally designated as hedging instruments 
+108 
+231 
+58 
+12 
+Derivatives not designated as hedging instruments: 
+Foreign exchange forwards and options 
+Prepaid expenses and other current assets 
+25 
+58 
+Accrued liabilities 
+27 
+22 
+Total derivatives not designated as hedging instruments 
+25 
+58 
+27 
+22 
+TOTAL DERIVATIVES 
+$ 
+133 
+$ 
+289 
+$ 
+85 
+$ 
+34 
+The following tables present the amounts affecting the Consolidated Statements of Income for years ended May 31, 2014 , 2013 and 2012 : 
+(In millions) 
+Amount of Gain (Loss) 
+Recognized in Other 
+Comprehensive Income 
+on Derivatives (1) 
+Amount of Gain (Loss) 
+Reclassified From Accumulated 
+Other Comprehensive Income into Income (1) 
+Year Ended May 31, 
+Location of Gain (Loss) Reclassified From 
+Accumulated Other Comprehensive Income Into Income (1) 
+Year Ended May 31, 
+2014 
+2013 
+2012 
+2014 
+2013 
+2012 
+Derivatives designated as cash flow hedges: 
+Foreign exchange forwards and options 
+$ 
+(48 
+) 
+$ 
+42 
+$ 
+(29 
+) 
+Revenues 
+$ 
+14 
+$ 
+(19 
+) 
+$ 
+5 
+Foreign exchange forwards and options 
+(78 
+) 
+67 
+253 
+Cost of sales 
+12 
+113 
+(57 
+) 
+Foreign exchange forwards and options 
+4 
+(3 
+) 
+3 
+Total selling and administrative expense 
+— 
+2 
+(2 
+) 
+Foreign exchange forwards and options 
+(21 
+) 
+33 
+36 
+Other expense (income), net 
+10 
+9 
+(9 
+) 
+Total designated cash flow hedges 
+$ 
+(143 
+) 
+$ 
+139 
+$ 
+263 
+$ 
+36 
+$ 
+105 
+$ 
+(63 
+) 
+Derivatives designated as net investment hedges: 
+Foreign exchange forwards and options 
+$ 
+— 
+$ 
+— 
+$ 
+45 
+Other expense (income), net 
+$ 
+— 
+$ 
+— 
+$ 
+— 
+(1) 
+For the years ended May 31, 2014 , 2013 , and 2012 , the amounts recorded in Other expense (income), net as a result of hedge ineffectiveness and the discontinuance of cash flow hedges because the forecasted transactions were no longer probable of occurring were immaterial. 
+Amount of Gain (Loss) Recognized in 
+Income on Derivatives 
+Location of Gain (Loss) 
+Recognized in Income on Derivatives 
+Year Ended May 31, 
+(In millions) 
+2014 
+2013 
+2012 
+Derivatives designated as fair value hedges: 
+Interest rate swaps (1) 
+$ 
+5 
+$ 
+5 
+$ 
+6 
+Interest expense (income), net 
+Derivatives not designated as hedging instruments: 
+Foreign exchange forwards and options 
+$ 
+(75 
+) 
+$ 
+51 
+$ 
+64 
+Other expense (income), net 
+Embedded derivatives 
+$ 
+(1 
+) 
+$ 
+(4 
+) 
+$ 
+1 
+Other expense (income), net 
+(1) 
+All interest rate swap agreements meet the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly, changes in the fair values of the interest rate swap agreements are considered to exactly offset changes in the fair value of the underlying long-term debt. Refer to “Fair Value Hedges” in this note for additional detail. 
+68 
+Table of Contents 
+Refer to Note 5 — Accrued Liabilities for derivative instruments recorded in Accrued liabilities, Note 6 — Fair Value Measurements for a description of how the above financial instruments are valued, Note 14 — Accumulated Other Comprehensive Income and the Consolidated Statements of Shareholders’ Equity for additional information on changes in Other comprehensive income for the years ended May 31, 2014 , 2013 and 2012 . 
+Cash Flow Hedges 
+The purpose of the Company’s foreign currency hedging activities is to reduce the volatility of the Company's cash flows resulting from changes in currency exchange rates. Foreign currency exposures that the Company may elect to hedge in this manner include product cost exposures, non-functional currency denominated external and intercompany revenues, selling and administrative expenses, investments in U.S. Dollar-denominated available-for-sale debt securities and certain intercompany transactions. 
+Product cost exposures are primarily generated through non-functional currency denominated product purchases and the foreign currency adjustment program described below. NIKE entities primarily purchase products in two ways: (1) Some NIKE entities purchase product from the NIKE Trading Company (“NTC”), a wholly-owned sourcing hub that buys NIKE branded products from third-party factories, predominantly in U.S. Dollars. The NTC, whose functional currency is the U.S. Dollar, then sells the products to NIKE entities in their respective functional currencies. When the NTC sells to a NIKE entity with a different functional currency, the result is a foreign currency exposure for the NTC; (2) Other NIKE entities purchase product directly from third-party factories in U.S. Dollars. These purchases generate a foreign currency exposure for those NIKE entities with a functional currency other than the U.S. Dollar. 
+In January 2012, the Company implemented a foreign currency adjustment program with certain factories. The program is designed to more effectively manage foreign currency risk by assuming certain of the factories’ foreign currency exposures, some of which are natural offsets to the Company's existing foreign currency exposures. Under this program, the Company’s payments to these factories are adjusted for rate fluctuations in the basket of currencies (“factory currency exposure index”) in which the labor, materials and overhead costs incurred by the factories in the production of NIKE branded products (“factory input costs”) are denominated. For the portion of the indices denominated in the local or functional currency of the factory, the Company may elect to place formally designated cash flow hedges. For all currencies within the indices, excluding the U.S. Dollar and the local or functional currency of the factory, an embedded derivative contract is created upon the factory’s acceptance of NIKE’s purchase order. Embedded derivative contracts are separated from the related purchase order and their accounting treatment is described further below. 
+The Company’s policy permits the utilization of derivatives to reduce its foreign currency exposures where internal netting or other strategies cannot be effectively employed. Hedged transactions are denominated primarily in Euros, British Pounds and Japanese Yen. Typically the Company may enter into hedge contracts starting 12 to 24 months in advance of the forecasted transaction and may place incremental hedges up to 100% of the exposure by the time the forecasted transaction occurs. 
+All changes in the fair value of derivatives designated as cash flow hedges, excluding any ineffective portion, are recorded in Other comprehensive income until Net income is affected by the variability of cash flows of the hedged transaction. In most cases, amounts recorded in Other comprehensive income will be released to Net income sometime after the maturity of the related derivative. Effective hedge results are classified within the Consolidated Statements of Income in the same manner as the underlying exposure, with the results of hedges of non-functional currency denominated revenues and product cost exposures, excluding embedded derivatives as described below, recorded in Revenues or Cost of sales, when the underlying hedged transaction affects consolidated Net income. Results of hedges of selling and administrative expense are recorded together with those costs when the related expense is recorded. Results of hedges of anticipated purchases and sales of U.S. Dollar-denominated available-for-sale securities are recorded in Other expense (income), net when the securities are sold. Results of hedges of certain anticipated intercompany transactions are recorded in Other expense (income), net when the transaction occurs. The Company classifies the cash flows at settlement from these designated cash flow hedge derivatives in the same category as the cash flows from the related hedged items, generally within the Cash provided by operations component of the Consolidated Statement of Cash Flows. 
+Premiums paid on options are initially recorded as deferred charges. The Company assesses the effectiveness of options based on the total cash flows method and records total changes in the options’ fair value to Other comprehensive income to the degree they are effective. 
+The Company formally assesses, both at a hedge’s inception and on an ongoing basis, whether the derivatives that are used in the hedging transaction have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. Effectiveness for cash flow hedges is assessed based on changes in forward rates. Ineffectiveness was immaterial for the years ended May 31, 2014 , 2013 , and 2012 . 
+The Company discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer highly effective in offsetting changes in the cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate. 
+When the Company discontinues hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period, but is expected to occur within an additional two-month period of time thereafter, the gain or loss on the derivative remains in Accumulated other comprehensive income and is reclassified to Net income when the forecasted transaction affects consolidated Net income. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in Other comprehensive income will be recognized immediately in Other expense (income), net . In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the Consolidated Balance Sheets, recognizing future changes in the fair value in Other expense (income), net . For the years ended May 31, 2014 , 2013 , and 2012 , the amounts recorded in Other expense (income), net as a result of the discontinuance of cash flow hedging because the forecasted transaction was no longer probable of occurring were immaterial . 
+As of May 31, 2014 , $10 million of deferred net gains (net of tax) on both outstanding and matured derivatives accumulated in Other comprehensive income are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded in Net income. Actual amounts ultimately reclassified to Net income are dependent on the exchange rates in effect when derivative contracts that are currently outstanding mature. As of May 31, 2014 , the maximum term over which the Company is hedging exposures to the variability of cash flows for its forecasted transactions is 24 months. 
+69 
+Table of Contents 
+Fair Value Hedges 
+The Company is also exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in interest rates. Derivatives currently used by the Company to hedge this risk are receive-fixed, pay-variable interest rate swaps. As of May 31, 2014 , all interest rate swap agreements are designated as fair value hedges of the related long-term debt and meet the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly, changes in the fair values of the interest rate swap agreements are considered to exactly offset changes in the fair value of the underlying long-term debt. The cash flows associated with the Company’s fair value hedges are periodic interest payments while the swaps are outstanding, which are reflected within the Cash provided by operations component of the Consolidated Statement of Cash Flows. The Company recorded no ineffectiveness from its interest rate swaps designated as fair value hedges for the years ended May 31, 2014 , 2013 , or 2012 . 
+Net Investment Hedges 
+The Company has hedged and may, in the future, hedge the risk of variability in foreign-currency-denominated net investments in wholly-owned international operations. All changes in fair value of the derivatives designated as net investment hedges, except ineffective portions, are reported in the Cumulative translation adjustment component of Other comprehensive income along with the foreign currency translation adjustments on those investments. The Company classifies the cash flows at settlement of its net investment hedges within the Cash (used) provided by investing activities component of the Consolidated Statement of Cash Flows. The Company assesses hedge effectiveness based on changes in forward rates. The Company recorded no ineffectiveness from its net investment hedges for the years ended May 31, 2014 , 2013 , or 2012 . 
+Embedded Derivatives 
+As part of the foreign currency adjustment program described above, an embedded derivative contract is created upon the factory's acceptance of NIKE's purchase order for currencies within the factory currency exposure indices that are neither the U.S. Dollar nor the local or functional currency of the factory. Embedded derivative contracts are treated as foreign currency forward contracts that are bifurcated from the related purchase order and recorded at fair value as a derivative asset or liability on the Consolidated Balance Sheets with their corresponding change in fair value recognized in Other expense (income), net from the date a purchase order is accepted by a factory through the date the purchase price is no longer subject to foreign currency fluctuations. At May 31, 2014 , the notional amount of embedded derivatives was approximately $100 million . 
+Undesignated Derivative Instruments 
+The Company may elect to enter into foreign exchange forwards to mitigate the change in fair value of specific assets and liabilities on the Consolidated Balance Sheets and/or the embedded derivative contracts explained above. These forwards are not designated as hedging instruments under the accounting standards for derivatives and hedging. Accordingly, these undesignated instruments are recorded at fair value as a derivative asset or liability on the Consolidated Balance Sheets with their corresponding change in fair value recognized in Other expense (income), net , together with the re-measurement gain or loss from the hedged balance sheet position or embedded derivative contract. The Company classifies the cash flows at settlement from undesignated instruments in the same category as the cash flows from the related hedged items, generally within the Cash provided by operations component of the Consolidated Statement of Cash Flows. 
+Credit Risk 
+The Company is exposed to credit-related losses in the event of non-performance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate the Company’s exposure to credit risk with these institutions. This credit risk is limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted. To manage this risk, the Company has established strict counterparty credit guidelines that are continually monitored. 
+The Company’s derivative contracts contain credit risk related contingent features designed to protect against significant deterioration in counterparties’ creditworthiness and their ultimate ability to settle outstanding derivative contracts in the normal course of business. The Company’s bilateral credit related contingent features generally require the owing entity, either the Company or the derivative counterparty, to post collateral for the portion of the fair value in excess of $50 million should the fair value of outstanding derivatives to either counterparty be greater than $50 million . Additionally, a certain level of decline in credit rating of either the Company or the counterparty could also trigger collateral requirements. As of May 31, 2014 , the Company was in compliance with all credit risk related contingent features and the fair value of its derivative instruments with credit risk related contingent features in a net liability position was $22 million . Accordingly, the Company was not required to post any collateral as a result of these contingent features. Further, as of May 31, 2014 those counterparties which were required to post collateral complied with such requirements. Given the considerations described above, the Company considers the impact of the risk of counterparty default to be immaterial . 
+70 
+Table of Contents 
+NOTE 18 — Operating Segments and Related Information 
+The Company’s operating segments are evidence of the structure of the Company's internal organization. The Company's operating segments have changed beginning in the first quarter of fiscal 2014 to mirror the changes in the structure of the Company’s internal organization that were effective during the first quarter of fiscal 2014. The NIKE Brand segments continue to be defined by geographic regions for operations participating in NIKE Brand sales activity and also include the results of NIKE Golf and Hurley, which are now managed within the geographies. Previously, NIKE Golf and Hurley were combined with Converse and reported as "Other Businesses." 
+Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing and selling of athletic footwear, apparel, and equipment. The Company’s reportable operating segments for the NIKE Brand are: North America, Western Europe, Central & Eastern Europe, Greater China, Japan, and Emerging Markets. The Company’s NIKE Brand Direct to Consumer operations are managed within each geographic operating segment. Converse is also a reportable segment for NIKE, Inc., and operates in one industry: the design, marketing, licensing, and selling of casual sneakers, apparel, and accessories. Prior period segment information has been restated to reflect these changes. 
+Global Brand Divisions is included within the NIKE Brand for presentation purposes to align with the way management views the Company. Global Brand Divisions primarily represent NIKE Brand licensing businesses that are not part of a geographic operating segment, Demand creation expense and Operating overhead expense that are centrally managed for the NIKE Brand, and costs associated with product development and supply chain operations. 
+Corporate consists largely of unallocated general and administrative expenses, including expenses associated with centrally managed departments, depreciation and amortization related to the Company’s headquarters, unallocated insurance and benefit programs, including stock-based compensation, certain foreign currency gains and losses, including certain hedge gains and losses, certain corporate eliminations and other items. 
+The primary financial measure used by the Company to evaluate performance of individual operating segments is earnings before interest and taxes (commonly referred to as “EBIT”), which represents Net income before Interest expense (income), net and Income tax expense in the Consolidated Statements of Income. Reconciling items for EBIT represent corporate expense items that are not allocated to the operating segments for management reporting. 
+As part of the Company's centrally managed foreign exchange risk management program, standard foreign currency rates are assigned twice per year to each NIKE Brand entity in the Company's geographic operating segments and to Converse. These rates are set approximately nine months in advance of the future selling season based on average market spot rates in the calendar month preceding the date they are established. Inventories and Cost of sales for geographic operating segments and Converse reflect use of these standard rates to record non-functional currency product purchases in the entity’s functional currency. Differences between assigned standard foreign currency rates and actual market rates are included in Corporate, together with foreign currency hedge gains and losses generated from the Company's centrally managed foreign exchange risk management program and other conversion gains and losses. 
+Accounts receivable, Inventories and Property, plant and equipment for operating segments are regularly reviewed by management and are therefore provided below. Additions to long-lived assets as presented in the following table represent capital expenditures. 
+Certain prior year amounts have been reclassified to conform to fiscal 2014 presentation. 
+71 
+Table of Contents 
+Year Ended May 31, 
+(In millions) 
+2014 
+2013 
+2012 
+REVENUE 
+North America 
+$ 
+12,299 
+$ 
+11,158 
+$ 
+9,538 
+Western Europe 
+4,979 
+4,193 
+4,212 
+Central & Eastern Europe 
+1,387 
+1,229 
+1,146 
+Greater China 
+2,602 
+2,478 
+2,561 
+Japan 
+771 
+876 
+920 
+Emerging Markets 
+3,949 
+3,832 
+3,523 
+Global Brand Divisions 
+125 
+115 
+111 
+Total NIKE Brand 
+26,112 
+23,881 
+22,011 
+Converse 
+1,684 
+1,449 
+1,324 
+Corporate 
+3 
+(17 
+) 
+(4 
+) 
+TOTAL NIKE CONSOLIDATED REVENUES 
+$ 
+27,799 
+$ 
+25,313 
+$ 
+23,331 
+EARNINGS BEFORE INTEREST AND TAXES 
+North America 
+$ 
+3,075 
+$ 
+2,641 
+$ 
+2,092 
+Western Europe 
+855 
+643 
+599 
+Central & Eastern Europe 
+279 
+234 
+209 
+Greater China 
+816 
+813 
+913 
+Japan 
+131 
+139 
+135 
+Emerging Markets 
+955 
+988 
+826 
+Global Brand Divisions 
+(2,021 
+) 
+(1,746 
+) 
+(1,479 
+) 
+Total NIKE Brand 
+4,090 
+3,712 
+3,295 
+Converse 
+496 
+425 
+394 
+Corporate 
+(1,009 
+) 
+(884 
+) 
+(674 
+) 
+Total NIKE Consolidated Earnings Before Interest and Taxes 
+3,577 
+3,253 
+3,015 
+Interest expense (income), net 
+33 
+(3 
+) 
+4 
+TOTAL NIKE CONSOLIDATED EARNINGS BEFORE TAXES 
+$ 
+3,544 
+$ 
+3,256 
+$ 
+3,011 
+ADDITIONS TO LONG-LIVED ASSETS 
+North America 
+$ 
+240 
+$ 
+132 
+$ 
+139 
+Western Europe 
+120 
+75 
+93 
+Central & Eastern Europe 
+19 
+22 
+20 
+Greater China 
+63 
+52 
+38 
+Japan 
+9 
+7 
+14 
+Emerging Markets 
+55 
+50 
+27 
+Global Brand Divisions 
+225 
+270 
+220 
+Total NIKE Brand 
+731 
+608 
+551 
+Converse 
+30 
+20 
+11 
+Corporate 
+161 
+153 
+25 
+TOTAL ADDITIONS TO LONG-LIVED ASSETS 
+$ 
+922 
+$ 
+781 
+$ 
+587 
+DEPRECIATION 
+North America 
+$ 
+109 
+$ 
+92 
+$ 
+85 
+Western Europe 
+71 
+68 
+62 
+Central & Eastern Europe 
+11 
+9 
+6 
+Greater China 
+38 
+32 
+25 
+Japan 
+19 
+22 
+23 
+Emerging Markets 
+25 
+20 
+16 
+Global Brand Divisions 
+175 
+122 
+85 
+Total NIKE Brand 
+448 
+365 
+302 
+Converse 
+16 
+15 
+14 
+Corporate 
+54 
+38 
+37 
+TOTAL DEPRECIATION 
+$ 
+518 
+$ 
+418 
+$ 
+353 
+72 
+Table of Contents 
+As of May 31, 
+(In millions) 
+2014 
+2013 
+ACCOUNTS RECEIVABLE, NET 
+North America 
+$ 
+1,505 
+$ 
+1,459 
+Western Europe 
+341 
+375 
+Central & Eastern Europe 
+280 
+287 
+Greater China 
+68 
+56 
+Japan 
+162 
+154 
+Emerging Markets 
+819 
+574 
+Global Brand Divisions 
+71 
+30 
+Total NIKE Brand 
+3,246 
+2,935 
+Converse 
+171 
+131 
+Corporate 
+17 
+51 
+TOTAL ACCOUNTS RECEIVABLE, NET 
+$ 
+3,434 
+$ 
+3,117 
+INVENTORIES 
+North America 
+$ 
+1,758 
+$ 
+1,626 
+Western Europe 
+711 
+560 
+Central & Eastern Europe 
+271 
+207 
+Greater China 
+221 
+209 
+Japan 
+94 
+69 
+Emerging Markets 
+633 
+567 
+Global Brand Divisions 
+18 
+30 
+Total NIKE Brand 
+3,706 
+3,268 
+Converse 
+261 
+210 
+Corporate 
+(20 
+) 
+6 
+TOTAL INVENTORIES 
+$ 
+3,947 
+$ 
+3,484 
+PROPERTY, PLANT AND EQUIPMENT, NET 
+North America 
+$ 
+545 
+$ 
+424 
+Western Europe 
+384 
+327 
+Central & Eastern Europe 
+51 
+44 
+Greater China 
+232 
+213 
+Japan 
+258 
+269 
+Emerging Markets 
+115 
+89 
+Global Brand Divisions 
+537 
+473 
+Total NIKE Brand 
+2,122 
+1,839 
+Converse 
+70 
+52 
+Corporate 
+642 
+561 
+TOTAL PROPERTY, PLANT AND EQUIPMENT, NET 
+$ 
+2,834 
+$ 
+2,452 
+Revenues by Major Product Lines 
+Revenues to external customers for NIKE Brand products are attributable to sales of footwear, apparel and equipment. Other revenues to external customers consist primarily of sales by Converse. 
+Year Ended May 31, 
+(In millions) 
+2014 
+2013 
+2012 
+Footwear 
+$ 
+16,208 
+$ 
+14,635 
+$ 
+13,513 
+Apparel 
+8,109 
+7,491 
+6,958 
+Equipment 
+1,670 
+1,640 
+1,429 
+Other 
+1,812 
+1,547 
+1,431 
+TOTAL NIKE CONSOLIDATED REVENUES 
+$ 
+27,799 
+$ 
+25,313 
+$ 
+23,331 
+73 
+Table of Contents 
+Revenues and Long-Lived Assets by Geographic Area 
+After allocation of revenues for Global Brand Divisions, Converse and Corporate to geographical areas based on the location where the sales originated, revenues by geographical area are essentially the same as reported above under operating segments with the exception of the United States. Revenues derived in the United States were $12,711 million , $11,385 million , and $9,793 million for the years ended May 31, 2014 , 2013 , and 2012 , respectively. The Company’s largest concentrations of long-lived assets primarily consist of the Company’s world headquarters and distribution facilities in the United States and distribution facilities in Japan, Belgium and China. Long-lived assets attributable to operations in the United States, which are primarily composed of net property, plant & equipment, were $1,652 million and $1,374 million at May 31, 2014 and 2013 , respectively. Long-lived assets attributable to operations in Japan were $258 million and $270 million at May 31, 2014 and 2013 , respectively. Long-lived assets attributable to operations in Belgium were $175 million and $157 million at May 31, 2014 and 2013 , respectively. Long-lived assets attributable to operations in China were $234 million and $212 million at May 31, 2014 and 2013 , respectively. 
+Major Customers 
+No customer accounted for 10% or more of the Company’s net Revenues during the years ended May 31, 2014 , 2013 , and 2012 . 
+ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
+There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or practices or financial statement disclosure required to be reported under this Item. 
+ITEM 9A. Controls and Procedures 
+We maintain disclosure controls and procedures that are designed to ensure information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 
+We carry out a variety of ongoing procedures, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of May 31, 2014 . 
+“Management’s Annual Report on Internal Control Over Financial Reporting” is included in Item 8 of this Report. 
+There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting. 
+ITEM 9B. Other Information 
+No disclosure is required under this Item. 
+74 
+Table of Contents 
+PART III 
+ITEM 10. Directors, Executive Officers and Corporate Governance 
+The information required by Item 401 of Regulation S-K regarding directors is included under “Election of Directors” in the definitive Proxy Statement for our 2014 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 401 of Regulation S-K regarding executive officers is included under “Executive Officers of the Registrant” in Item 1 of this Report. The information required by Item 405 of Regulation S-K is included under “Election of Directors — Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for our 2014 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 406 of Regulation S-K is included under “Corporate Governance — Code of Business Conduct and Ethics” in the definitive Proxy Statement for our 2014 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Items 407(d)(4) and (d)(5) of Regulation S-K regarding the Audit Committee of the Board of Directors is included under “Corporate Governance — Board Committees” in the definitive Proxy Statement for our 2014 Annual Meeting of Shareholders and is incorporated herein by reference. 
+ITEM 11. Executive Compensation 
+The information required by Items 402, 407(e)(4), and 407(e)(5) of Regulation S-K regarding executive compensation is included under “Election of Directors — Director Compensation for Fiscal 2014 ,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Election of Directors — Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” in the definitive Proxy Statement for our 2014 Annual Meeting of Shareholders and is incorporated herein by reference. 
+ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+The information required by Item 201(d) of Regulation S-K is included under “Executive Compensation — Equity Compensation Plans” in the definitive Proxy Statement for our 2014 Annual Meeting of Shareholders and is incorporated herein by reference. The information required by Item 403 of Regulation S-K is included under “Election of Directors — Stock Holdings of Certain Owners and Management” in the definitive Proxy Statement for our 2014 Annual Meeting of Shareholders and is incorporated herein by reference. 
+ITEM 13. Certain Relationships and Related Transactions, and Director Independence 
+The information required by Items 404 and 407(a) of Regulation S-K is included under “Election of Directors — Transactions with Related Persons” and “Corporate Governance — Director Independence” in the definitive Proxy Statement for our 2014 Annual Meeting of Shareholders and is incorporated herein by reference. 
+ITEM 14. Principal Accountant Fees and Services 
+The information required by Item 9(e) of Schedule 14A is included under “Ratification Of Independent Registered Public Accounting Firm” in the definitive Proxy Statement for our 2014 Annual Meeting of Shareholders and is incorporated herein by reference. 
+75 
+Table of Contents 
+PART IV 
+ITEM 15. Exhibits and Financial Statement Schedules 
+(a) 
+The following documents are filed as part of this report: 
+Form 10-K 
+Page No. 
+1. 
+Financial Statements: 
+Report of Independent Registered Public Accounting Firm 
+43 
+Consolidated Statements of Income for each of the three years ended May 31, 2014, May 31, 2013, and May 31, 2012 
+44 
+Consolidated Statements of Comprehensive Income for each of the three years ended May 31, 2014, May 31, 2013, and May 31, 2012 
+45 
+Consolidated Balance Sheets at May 31, 2014 and May 31, 2013 
+46 
+Consolidated Statements of Cash Flows for each of the three years ended May 31, 2014, May 31, 2013, and May 31, 2012 
+47 
+Consolidated Statements of Shareholders’ Equity for each of the three years ended May 31, 2014, May 31, 2013, and May 31, 2012 
+48 
+Notes to Consolidated Financial Statements 
+49 
+2. 
+Financial Statement Schedule: 
+II — Valuation and Qualifying Accounts 
+78 
+All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 
+3. 
+Exhibits: 
+3.1 
+Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2012). 
+3.2 
+Third Restated Bylaws, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed June 21, 2013). 
+4.1 
+Restated Articles of Incorporation, as amended (see Exhibit 3.1). 
+4.2 
+Third Restated Bylaws, as amended (see Exhibit 3.2). 
+10.1 
+Form of Non-Statutory Stock Option Agreement for options granted to non-employee directors prior to May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed June 21, 2005, File No. 1-10635).* 
+10.2 
+Form of Non-Statutory Stock Option Agreement for options granted to non-employee directors after May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010).* 
+10.3 
+Form of Non-Statutory Stock Option Agreement for options granted to executives prior to May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009, File No. 1-10635).* 
+10.4 
+Form of Restricted Stock Agreement for non-employee directors under the 1990 Stock Incentive Plan.* 
+10.5 
+Form of Non-Statutory Stock Option Agreement for options granted to executives after May 31, 2010 under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended May 3, 2013).* 
+10.6 
+Form of Indemnity Agreement entered into between the Company and each of its officers and directors (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008, File No. 1-10635).* 
+10.7 
+NIKE, Inc. 1990 Stock Incentive Plan.* 
+10.8 
+NIKE, Inc. Executive Performance Sharing Plan (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2012).* 
+10.9 
+NIKE, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 26, 2012).* 
+76 
+Table of Contents 
+10.10 
+NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective April 1, 2013) (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2013).* 
+10.11 
+NIKE, Inc. Deferred Compensation Plan (Amended and Restated effective June 1, 2004) (applicable to amounts deferred before January 1, 2005) (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004, File No. 1-10635).* 
+10.12 
+Amendment No. 1 effective January 1, 2008 to the NIKE, Inc. Deferred Compensation Plan (June 1, 2004 Restatement) (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009, File No. 1-10635).* 
+10.13 
+NIKE, Inc. Foreign Subsidiary Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2008, File No. 1-10635).* 
+10.14 
+Amended and Restated Covenant Not To Compete and Non-Disclosure Agreement between NIKE, Inc. and Mark G. Parker dated July 24, 2008 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 24, 2008, File No. 1-10635).* 
+10.15 
+Form of Restricted Stock Bonus Agreement under the 1990 Stock Incentive Plan for awards prior to May 31, 2010 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 21, 2005, File No. 1-10635).* 
+10.16 
+Form of Restricted Stock Agreement under the 1990 Stock Incentive Plan for awards after May 31, 2010 (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2013).* 
+10.17 
+Form of Restricted Stock Unit Agreement under the 1990 Stock Incentive Plan (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2013).* 
+10.18 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Donald W. Blair dated November 10, 1999 (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2006, File No. 1-10635).* 
+10.19 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Eric D. Sprunk dated April 18, 2001 (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010).* 
+10.20 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Trevor A. Edwards dated November 14, 2002 (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2008, File No. 1-10635).* 
+10.21 
+Covenant Not to Compete and Non-Disclosure Agreement between NIKE, Inc. and Jeanne Jackson dated March 4, 2009.* 
+10.22 
+Policy for Recoupment of Incentive Compensation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed July 20, 2010).* 
+10.23 
+Credit Agreement dated as of November 1, 2011 among NIKE, Inc., Bank of America, N.A., individually and as Agent and the other banks party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 2, 2011). 
+12.1 
+Computation of Ratio of Earnings to Fixed Charges. 
+21 
+Subsidiaries of the Registrant. 
+23 
+Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm (included within this Annual Report on Form 10-K). 
+31.1 
+Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. 
+31.2 
+Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. 
+32 
+Section 1350 Certifications. 
+101.INS 
+XBRL Instance Document 
+101.SCH 
+XBRL Taxonomy Extension Schema 
+101.CAL 
+XBRL Taxonomy Extension Calculation Linkbase 
+101.DEF 
+XBRL Taxonomy Extension Definition Document 
+101.LAB 
+XBRL Taxonomy Extension Label Linkbase 
+101.PRE 
+XBRL Taxonomy Extension Presentation Linkbase 
+* Management contract or compensatory plan or arrangement. 
+The Exhibits filed herewith do not include certain instruments with respect to long-term debt of NIKE and its subsidiaries, inasmuch as the total amount of debt authorized under any such instrument does not exceed 10 percent of the total assets of NIKE and its subsidiaries on a consolidated basis. NIKE agrees, pursuant to Item 601(b)(4)(iii) of Regulation S-K, that it will furnish a copy of any such instrument to the SEC upon request. 
+Upon written request to Investor Relations, NIKE, Inc., One Bowerman Drive, Beaverton, Oregon 97005-6453, NIKE will furnish shareholders with a copy of any Exhibit upon payment of $0.10 per page, which represents our reasonable expenses in furnishing Exhibits. 
+77 
+Table of Contents 
+SCHEDULE II — Valuation and Qualifying Accounts 
+(In millions) 
+Balance at 
+Beginning of Period 
+Charged to Costs 
+and Expenses 
+Charged to 
+Other Accounts 
+Write-Offs, Net 
+Balance at End 
+of Period 
+Sales returns reserve 
+For the year ended May 31, 2012 
+$ 
+151 
+$ 
+401 
+$ 
+(3 
+) 
+$ 
+(376 
+) 
+$ 
+173 
+For the year ended May 31, 2013 
+173 
+538 
+1 
+(471 
+) 
+241 
+For the year ended May 31, 2014 
+241 
+619 
+(3 
+) 
+(549 
+) 
+308 
+Allowance for doubtful accounts (1) 
+For the year ended May 31, 2012 
+$ 
+120 
+$ 
+21 
+$ 
+(9 
+) 
+$ 
+(41 
+) 
+$ 
+91 
+For the year ended May 31, 2013 
+91 
+31 
+1 
+(19 
+) 
+104 
+For the year ended May 31, 2014 
+104 
+13 
+(2 
+) 
+(37 
+) 
+78 
+(1) 
+Includes both current and non-current portions of the allowance for doubtful accounts. The non-current portion is classified in Deferred income taxes and other assets on the Consolidated Balance Sheets. 
+78 
+Table of Contents 
+Consent of Independent Registered Public Accounting Firm 
+We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-188072) and Form S-8 (Nos. 033-63995, 333-63581, 333-63583, 333-68864, 333-68886, 333-71660, 333-104822, 333-117059, 333-133360, 333-164248, 333-171647, and 333-173727) of NIKE, Inc. of our report dated July 25, 2014 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. 
+/s/ PRICEWATERHOUSECOOPERS LLP 
+Portland, Oregon 
+July 25, 2014 
+79 
+Table of Contents 
+Signatures 
+Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 
+NIKE, INC. 
+By: 
+/s/ MARK G. PARKER 
+Mark G. Parker 
+Chief Executive Officer and President 
+Date: 
+July 25, 2014 
+Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 
+Signature 
+Title 
+Date 
+PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR: 
+/s/ MARK G. PARKER 
+Mark G. Parker 
+Director, Chief Executive Officer and President 
+July 25, 2014 
+PRINCIPAL FINANCIAL OFFICER: 
+/s/ DONALD W. BLAIR 
+Donald W. Blair 
+Chief Financial Officer 
+July 25, 2014 
+PRINCIPAL ACCOUNTING OFFICER: 
+/s/ BERNARD F. PLISKA 
+Bernard F. Pliska 
+Corporate Controller 
+July 25, 2014 
+DIRECTORS: 
+/s/ PHILIP H. KNIGHT 
+Philip H. Knight 
+Director, Chairman of the Board 
+July 25, 2014 
+/s/ ELIZABETH J. COMSTOCK 
+Elizabeth J. Comstock 
+Director 
+July 25, 2014 
+/s/ JOHN G. CONNORS 
+John G. Connors 
+Director 
+July 25, 2014 
+/s/ TIMOTHY D. COOK 
+Timothy D. Cook 
+Director 
+July 25, 2014 
+/s/ JOHN J. DONAHOE II 
+John J. Donahoe II 
+Director 
+July 25, 2014 
+/s/ ALAN B. GRAF, JR. 
+Alan B. Graf, Jr. 
+Director 
+July 25, 2014 
+/s/ DOUGLAS G. HOUSER 
+Douglas G. Houser 
+Director 
+July 25, 2014 
+/s/ JOHN C. LECHLEITER 
+John C. Lechleiter 
+Director 
+July 25, 2014 
+/s/ MICHELLE A. PELUSO 
+Michelle A. Peluso 
+Director 
+July 25, 2014 
+/s/ JOHNATHAN A. RODGERS 
+Johnathan A. Rodgers 
+Director 
+July 25, 2014 
+/s/ ORIN C. SMITH 
+Orin C. Smith 
+Director 
+July 25, 2014 
+/s/ JOHN R. THOMPSON, JR. 
+John R. Thompson, Jr. 
+Director 
+July 25, 2014 
+/s/ PHYLLIS M. WISE 
+Phyllis M. Wise 
+Director 
+July 25, 2014 
+80
\ No newline at end of file
diff --git a/raw/filings/0000320187/2013/0000320187-14-000097/filing_metadata.csv b/raw/filings/0000320187/2013/0000320187-14-000097/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..a2dab58b63a716ef9e420cce54dcd6c5e70a6e36
--- /dev/null
+++ b/raw/filings/0000320187/2013/0000320187-14-000097/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000320187,NKE,"NIKE, Inc.",10-K,2014-07-25,2014-05-31,2014-07-26T00:22:20.000Z,0000320187-14-000097,nke-5312014x10k.htm,10-K,21966330,1,0,https://www.sec.gov/Archives/edgar/data/320187/000032018714000097/nke-5312014x10k.htm,https://www.sec.gov/Archives/edgar/data/320187/000032018714000097/,2013,2013,1
diff --git a/raw/filings/0000320187/2013/0000320187-14-000097/item1.txt b/raw/filings/0000320187/2013/0000320187-14-000097/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..499717746f76f773256764781789da34d83b5dd1
--- /dev/null
+++ b/raw/filings/0000320187/2013/0000320187-14-000097/item1.txt
@@ -0,0 +1,108 @@
+ITEM 1. Business 
+General 
+NIKE, 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, collectively, unless the context indicates otherwise. Our NIKE e-commerce website is located at www.nike.com. On our NIKE corporate website, located at www.nikeinc.com, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the United States Securities and Exchange Commission (the "SEC"): 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 furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended. Our definitive Proxy Statements are also posted. All such filings on our NIKE corporate website are available free of charge. Copies of these filings may also be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website ( www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically. Also available on the NIKE corporate website are the charters of the committees of our Board of Directors, as well as our corporate governance guidelines and code of ethics; copies of any of these documents 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 worldwide marketing and selling of athletic footwear, apparel, equipment, accessories, and services. NIKE is the largest seller of athletic footwear and athletic apparel in the world. We sell our products to retail accounts, through NIKE-owned retail stores and internet websites (which we refer to as our “Direct to Consumer” or "DTC" operations), and through a mix of independent distributors and licensees throughout the world. Virtually all of our products are manufactured by independent contractors. Practically all footwear and apparel products are produced outside the United States, while equipment products are produced both in the United States and abroad. 
+Products 
+We focus our NIKE Brand product offerings in eight key categories: Running, Basketball, Football (Soccer), Men’s Training, Women’s Training, Action Sports, Sportswear (our sports-inspired lifestyle products), and Golf. Basketball includes our Brand Jordan product offerings and Men's Training includes our baseball and U.S. football product offerings. We also market products designed for kids, as well as for other athletic and recreational uses such as cricket, lacrosse, tennis, volleyball, wrestling, walking, and outdoor activities. 
+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 our products. Sportswear, Running, Basketball, and Football (Soccer) are currently our top-selling footwear categories and we expect them to continue to lead in product sales. 
+We sell sports apparel and accessories covering most of the above-mentioned categories, which feature the same trademarks and are sold predominantly through the same marketing and distribution channels as athletic footwear. We often market footwear, apparel, and accessories in “collections” of similar use or by category. 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, including bags, socks, sport balls, eyewear, timepieces, digital 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. 
+One of our wholly-owned subsidiary brands, Hurley, headquartered in Costa Mesa, California (“Hurley”), designs and distributes a line of action sports and youth lifestyle apparel and accessories under the Hurley trademark. Sales of Hurley brand products are included within the NIKE Brand Action Sports category. 
+Our Brand Jordan division designs, distributes and licenses athletic and casual footwear, apparel and accessories predominantly focused on Basketball using the Jumpman trademark. Sales of Brand Jordan products are included within the NIKE Brand Basketball category. 
+Another of our wholly-owned subsidiary brands, Converse, headquartered in North Andover, Massachusetts (“Converse”), designs, distributes, and licenses casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. Converse results are reported on a stand-alone basis. 
+In addition to the products we sell to our wholesale customers and directly to consumers through our Direct to Consumer operations, we have also entered into license agreements that permit unaffiliated parties to manufacture and sell using NIKE-owned trademarks, certain apparel, digital devices and applications, and other equipment designed for sports activities. 
+On February 1, 2013, and November 30, 2012, we completed the divestitures of the Cole Haan and Umbro businesses, respectively, allowing us to better focus our resources on driving growth in the NIKE, Jordan, Converse, and Hurley brands. 
+1 
+Table of Contents 
+Sales and Marketing 
+Financial information about geographic and segment operations appears in Note 18 — Operating Segments and Related Information of the accompanying Notes to the Consolidated Financial Statements. 
+We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly 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 fitness activities and changing design trends affect the demand for our products. We must, therefore, respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories, and influencing sports and fitness preferences through extensive marketing. Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability. This is a continuing risk.We report our NIKE Brand operations based on our internal geographic organization. Each NIKE Brand geography operates predominantly in one industry: the design, development, marketing, and selling of athletic footwear, apparel, equipment, accessories, and services. Our reportable operating segments for the NIKE Brand are: North America, Western Europe, Central & Eastern Europe, Greater China, Japan, and Emerging Markets. Our NIKE Brand Direct to Consumer operations are managed within each geographic segment. 
+Converse is also a reportable segment, and operates in one industry: the design, marketing, licensing, and selling of casual sneakers, apparel, and accessories. 
+United States Market 
+In fiscal 2014, NIKE Brand and Converse sales in the United States accounted for approximately 46% of total revenues, compared to 45% in fiscal 2013 and 42% in fiscal 2012. We sell to thousands of retail accounts in the United States, including a mix of footwear stores, sporting goods stores, athletic specialty stores, department stores, skate, tennis, and golf shops, and other retail accounts. During fiscal 2014, our three largest customers accounted for approximately 26% of sales in the United States. 
+We make substantial use of our futures ordering program, which allows retailers to order five to six months in advance of delivery with the commitment that their orders will be delivered within a set time period at a fixed price. In fiscal 2014, 86% of our U.S. wholesale footwear shipments (excluding NIKE Golf, Hurley, and Converse) were made under the futures program, compared to 87% in fiscal 2013 and 86% in fiscal 2012. In fiscal 2014, 71% of our U.S. wholesale apparel shipments (excluding NIKE Golf, Hurley, and Converse) were made under the futures program, compared to 67% in fiscal 2013 and 64% in fiscal 2012. 
+We utilize NIKE sales offices to solicit sales in the United States, as well as independent sales representatives to sell specialty products for golf, skateboarding, and snowboarding. In addition, our Direct to Consumer operations sell NIKE Brand products to consumers through our e-commerce website, www.nike.com , and through the following number of retail stores in the United States: 
+U.S. Retail Stores 
+Number 
+NIKE Brand factory stores 
+176 
+NIKE Brand in-line stores, including NIKETOWNs and employee-only stores 
+33 
+Converse stores (including factory stores) 
+84 
+Hurley stores (including factory and employee stores) 
+29 
+TOTAL 
+322 
+NIKE has five primary distribution centers in the United States located in Memphis, Tennessee, three of which are leased. NIKE Brand apparel and equipment products are also shipped from our Foothill Ranch, California distribution center. Converse and Hurley products are shipped primarily from Ontario, California. 
+International Markets 
+In fiscal 2014, non-U.S. NIKE Brand and Converse sales accounted for 54% of total revenues, compared to 55% in fiscal 2013 and 58% in fiscal 2012. We sell our products to retail accounts, through our own Direct to Consumer operations, and through a mix of independent distributors, licensees, and sales representatives around the world. We sell to thousands of retail accounts and operate 16 distribution centers outside of the United States. In many countries and regions, including Canada, Asia, some Latin American countries, and Europe, we have a futures ordering program for retailers similar to the United States futures ordering program described above. During fiscal 2014, NIKE’s three largest customers outside of the United States accounted for approximately 6% of total non-U.S. sales. 
+Our Direct to Consumer business operates the following number of retail stores outside the United States: 
+Non-U.S. Retail Stores 
+Number 
+NIKE Brand factory stores 
+459 
+NIKE Brand in-line stores, including NIKETOWNs and employee-only stores 
+71 
+Converse stores (including factory stores) 
+6 
+TOTAL 
+536 
+International branch offices and subsidiaries of NIKE are located in Argentina, Australia, Austria, Belgium, Bermuda, Brazil, Canada, Chile, China, Costa Rica, Croatia, Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, 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 sales during fiscal 2014. 
+2 
+Table of Contents 
+Orders 
+Worldwide futures orders for NIKE Brand (excluding NIKE Golf and Hurley) athletic footwear and apparel, scheduled for delivery from June through November 2014, were $13.3 billion compared to $12.1 billion for the same period last year. This futures orders 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 discounts, order cancellations, 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 at-once and closeout sales of NIKE Brand footwear and apparel, sales of NIKE Brand equipment, sales from our Direct to Consumer 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 NIKE strives to produce products that help to enhance athletic performance, reduce injury, and maximize comfort. 
+In addition to NIKE’s 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, NIKE is simultaneously focused on the design of innovative products incorporating such technologies throughout our product categories. Using market intelligence and research, the various NIKE design teams identify opportunities to leverage new technologies in existing categories responding to consumer preferences. The proliferation of NIKE AIR, Lunar, Shox, Free, Flywire, Dri-Fit, FlyKnit, NIKE+, and NIKE Fuel technologies through Running, Basketball, Men's Training, Women's Training, and Sportswear, among others, typifies the Company's dedication to designing innovative products. 
+Manufacturing 
+We are supplied by approximately 150 footwear factories located in 14 countries. The largest single footwear factory accounted for approximately 5% of total fiscal 2014 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 2014, contract factories in Vietnam, China, and Indonesia manufactured approximately 43%, 28%, 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. In fiscal 2014, five footwear contract manufacturers each accounted for greater than 10% of fiscal 2014 footwear production, and in aggregate accounted for approximately 67% of NIKE Brand footwear production in fiscal 2014. 
+We are supplied by approximately 430 apparel factories located in 41 countries. The largest single apparel factory accounted for approximately 7% of total fiscal 2014 NIKE Brand apparel production. Virtually all of our apparel is manufactured outside of the United States by independent contract manufacturers who often operate multiple factories. In fiscal 2014, most of this apparel production occurred in China, Vietnam, Thailand, Indonesia, Sri Lanka, Pakistan, and Malaysia. In fiscal 2014, one apparel contract manufacturer accounted for greater than 10% of fiscal 2014 apparel production, and the top five contract manufacturers in aggregate accounted for approximately 34% of NIKE Brand apparel production in fiscal 2014. 
+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 NIKE Air-Sole cushioning components. During fiscal 2014, NIKE IHM, Inc., a wholly-owned subsidiary of NIKE, Inc., with facilities near Beaverton, Oregon and in St. Louis, 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, repel rain and/or snow, as well as plastic and metal hardware. 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. 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 2014, 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, Malaysia, 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, 2015. 
+3 
+Table of Contents 
+International Operations and Trade 
+Our international operations and sources of supply are subject to the usual risks 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 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, such protectionist measures, if implemented, could result in increases in the cost of our products, which may in turn adversely affect our sales or profitability as well as the imported footwear and apparel industry as a whole. 
+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, we are actively monitoring for dumping investigations against products from China and 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 increase customs clearance times for imports of footwear, apparel, and equipment. Moreover, with respect to trade restrictions targeting China, which represents an important sourcing and consumer marketing country 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. 
+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, V.F. Corp., Puma, Li Ning, and Under Armour, among others. We also compete with a number of vertical retailers such as lululemon athletica and Uniqlo. 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 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; 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; and 
+• 
+effective 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. 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 shoe designs and elements. For certain trade dress, we have sought and obtained federal trademark registrations. 
+NIKE has copyright protection in its design, graphics and other original works. When appropriate, we have sought registrations for this content. 
+NIKE owns patents, and has a patent license, facilitating its use of “Air” technologies. The "Air" process utilizes pressurized gas encapsulated in polyurethane. Some of the early NIKE AIR patents have expired, which may enable competitors to use certain types of similar technology. Subsequent NIKE AIR patents will not expire for several years. 
+We also file and maintain many U.S. and foreign utility patents, as well as many U.S. and foreign design patents protecting components, manufacturing techniques, features, and industrial design used in various athletic and leisure footwear, apparel, athletic equipment, digital devices, and golf products. These patents expire at various times; and patents issued for applications filed this calendar year in the United States will last until 2028 for design patents and until 2034 for utility patents. 
+We believe our success depends primarily upon our capabilities in design, research and development, production, and marketing rather than exclusively upon our patent position. However, we have followed a policy of filing patent applications for the United States and select foreign countries on inventions, designs, and improvements that we deem valuable. We continue to vigorously protect our trademarks and patents against infringement. 
+4 
+Table of Contents 
+Employees 
+As of May 31, 2014, we had approximately 56,500 employees worldwide, including retail and part-time employees. Management considers its relationship with employees to be excellent. None of our employees are represented by a union, except for certain employees in the Emerging Markets geography, where local law requires those employees to be represented by a trade union. Also, in some countries outside of the United States, local laws require employee representation by works councils (which may be entitled to information and consultation on certain Company decisions) or by organizations similar to a union. In certain European countries, we are required by local law to enter into and/or comply with industry-wide or national collective bargaining agreements. NIKE has never experienced a material interruption of operations due to labor disagreements. 
+Executive Officers of the Registrant 
+The executive officers of NIKE, Inc. as of July 18, 2014 are as follows: 
+Philip H. Knight, Chairman of the Board of Directors — Mr. Knight, 76, a director since 1968, is a co-founder of NIKE and, except for the period from June 1983 through September 1984, served as its President from 1968 to 1990 and from June 2000 to December 2004. Prior to 1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and was an Assistant Professor of Business Administration at Portland State University. 
+Mark G. Parker, President and Chief Executive Officer — Mr. Parker, 58, was appointed President and Chief Executive Officer in January 2006. He has been employed by NIKE since 1979 with primary responsibilities in product research, design and development, marketing, and brand management. Mr. Parker was appointed divisional Vice President in charge of product development in 1987, corporate Vice President in 1989, General Manager in 1993, Vice President of Global Footwear in 1998, and President of the NIKE Brand in 2001. 
+David J. Ayre, Executive Vice President, Global Human Resources — Mr. Ayre, 54, joined NIKE as Vice President, Global Human Resources in 2007. Prior to joining NIKE, he held a number of senior human resource positions with PepsiCo, Inc. since 1990, most recently as head of Talent and Performance Rewards. 
+Donald W. Blair, Executive Vice President and Chief Financial Officer — Mr. Blair, 56, joined NIKE in November 1999. Prior to joining NIKE, he held a number of financial management positions with PepsiCo, Inc., including Vice President, Finance of Pepsi-Cola Asia, Vice President, Planning of PepsiCo’s Pizza Hut Division, and Senior Vice President, Finance of The Pepsi Bottling Group, Inc. Prior to joining PepsiCo, Mr. Blair was a certified public accountant with Deloitte, Haskins & Sells. 
+Trevor A. Edwards, President, NIKE Brand — Mr. Edwards, 51, joined NIKE in 1992. He was appointed Marketing Manager, Strategic Accounts for Foot Locker in 1993, Director of Marketing for the Americas Region in 1995, Director of Marketing for Europe in 1997, Vice President, Marketing for the Europe, Middle East and Africa Region in 1999, and Vice President, U.S. Brand Marketing in 2000. Mr. Edwards was appointed corporate Vice President, Global Brand Management in 2002, Vice President, Global Brand and Category Management in 2006 and President, NIKE Brand in 2013. Prior to NIKE, Mr. Edwards was with the Colgate-Palmolive Company. 
+Jeanne P. Jackson, President, Product and Merchandising — Ms. Jackson, 62, joined NIKE in 2009. She was appointed President, Direct to Consumer in 2009 and President, Product and Merchandising in 2013. Ms. Jackson also served as a member of the NIKE, Inc. Board of Directors from 2001 through 2009. She founded and served as Chief Executive Officer of MSP Capital, a private investment company, from 2002 to 2009. Ms. Jackson was Chief Executive Officer of Walmart.com from March 2000 to January 2002. She was with Gap, Inc., as President and Chief Executive Officer of Banana Republic from 1995 to 2000, also serving as Chief Executive Officer of Gap, Inc. Direct from 1998 to 2000. Since 1978, she has held various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue, and Federated Department Stores. 
+Hilary K. Krane, Executive Vice President, Chief Administrative Officer and General Counsel — Ms. Krane, 50, joined NIKE as Vice President and General Counsel in April 2010. In 2011, her responsibilities expanded and she became Vice President, General Counsel and Corporate Affairs. Ms. Krane was appointed to Executive Vice President, Chief Administrative Officer and General Counsel in 2013. Prior to joining NIKE, Ms. Krane was General Counsel and Senior Vice President for Corporate Affairs at Levi Strauss & Co. from 2006 to 2010. From 1996 to 2006, she was a partner and assistant general counsel at PricewaterhouseCoopers LLP. 
+Bernard F. Pliska, Vice President, Corporate Controller — Mr. Pliska, 52, joined NIKE as Corporate Controller in 1995. He was appointed Vice President, Corporate Controller in 2003. Prior to NIKE, Mr. Pliska was with Price Waterhouse from 1984 to 1995. Mr. Pliska is a certified public accountant. 
+John F. Slusher, Executive Vice President, Global Sports Marketing — Mr. Slusher, 45, has been employed by NIKE since 1998 with primary responsibilities in global sports marketing. Mr. Slusher was appointed Director of Sports Marketing for the Asia Pacific and Americas Regions in 2006, divisional Vice President of Asia Pacific & Americas Sports Marketing in September 2007, and Vice President, Global Sports Marketing in November 2007. Prior to joining NIKE, Mr. Slusher was an attorney at the law firm of O’Melveny & Myers from 1995 to 1998. 
+Eric D. Sprunk, Chief Operating Officer — Mr. Sprunk, 50, joined NIKE in 1993. He was appointed Finance Director and General Manager of the Americas Region in 1994, Finance Director for NIKE Europe in 1995, Regional General Manager of NIKE Europe Footwear in 1998, and Vice President & General Manager of the Americas Region in 2000. Mr. Sprunk was appointed Vice President of Global Footwear in 2001, Vice President of Merchandising and Product in 2009, and Chief Operating Officer in 2013. Prior to joining NIKE, Mr. Sprunk was a certified public accountant with Price Waterhouse from 1987 to 1993. 
+5 
+Table of Contents
\ No newline at end of file
diff --git a/raw/filings/0000320187/2013/0000320187-14-000097/item13.txt b/raw/filings/0000320187/2013/0000320187-14-000097/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bdbc9a80e8f8f9f1b5f7410f296694bd8eb8e316
--- /dev/null
+++ b/raw/filings/0000320187/2013/0000320187-14-000097/item13.txt
@@ -0,0 +1,2 @@
+ITEM 13. Certain Relationships and Related Transactions, and Director Independence 
+The information required by Items 404 and 407(a) of Regulation S-K is included under “Election of Directors — Transactions with Related Persons” and “Corporate Governance — Director Independence” in the definitive Proxy Statement for our 2014 Annual Meeting of Shareholders and is incorporated herein by reference.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2013/0000320187-14-000097/item9a.txt b/raw/filings/0000320187/2013/0000320187-14-000097/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2fb2d8ec5516f2f8501d2a486b7670a92025e335
--- /dev/null
+++ b/raw/filings/0000320187/2013/0000320187-14-000097/item9a.txt
@@ -0,0 +1,5 @@
+ITEM 9A. Controls and Procedures 
+We maintain disclosure controls and procedures that are designed to ensure information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 
+We carry out a variety of ongoing procedures, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of May 31, 2014 . 
+“Management’s Annual Report on Internal Control Over Financial Reporting” is included in Item 8 of this Report. 
+There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.
\ No newline at end of file
diff --git a/raw/filings/0000320187/2013/0000320187-14-000097/rp_note.txt b/raw/filings/0000320187/2013/0000320187-14-000097/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0000320187/2013/0000320187-14-000097/rpt_disclosure.txt b/raw/filings/0000320187/2013/0000320187-14-000097/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5e8ccdd1618e324876863b30424bb8fac1fee1e1
--- /dev/null
+++ b/raw/filings/0000320187/2013/0000320187-14-000097/rpt_disclosure.txt
@@ -0,0 +1,9 @@
+Transactions with Related Persons 
+Effective July 1, 2013, Mr. Knight terminated an arrangement whereby he made his airplane available to the Company for business use for no charge. During the course of the arrangement NIKE operated and maintained the aircraft. Mr. Knight reimbursed the Company $96,835 for NIKE’s operating costs related to his personal use of this aircraft during fiscal 2014, determined based on the cost of fuel and other variable costs associated with the flights under FAR 91-501(d). In connection with the termination of the airplane arrangement, the Company sold a tug and power cart, purchased for Mr. Knight's plane, to a company owned by Mr. Knight for $110,000. 
+Mr. Howard S. Slusher, the father of John Slusher, Executive Vice President of Sports Marketing, and the Company are parties to a Consulting Agreement pursuant to which Howard Slusher manages the planning, design, and construction of new buildings at, and improvements to, NIKE's World Headquarters. Howard Slusher was selected due to his deep history and experience with the Company, as he has managed several significant construction projects for the Company, including the original World Headquarters construction and later expansions. In addition, Howard Slusher's previous engagement with the Company garnered the trust of management and makes him uniquely qualified to oversee the project. During fiscal 2014, the Company paid Howard Slusher $1,525,000 for these services. 
+Pursuant to the terms of a past consulting agreement with the Company, the Company agreed to pay for health and life insurance policies for Howard Slusher following expiration of the agreement. During fiscal 2014, the Company paid $129,801 for health and life insurance premiums. 
+Three of Mr. Parker’s siblings are employed by the Company in non-executive roles. Bob Parker is a Marketplace Director, and has been employed by the Company for over 30 years; Stephen Parker is Vice President & General Manager, Converse Asia-Pacific, and has been employed by the Company for over 26 years; and Ann Parker is an Executive Talent Scout, and has been employed by the Company for over 24 years. During fiscal year 2014, the Company paid aggregate compensation to each of Bob Parker, Stephen Parker and Ann Parker in the amounts of $384,637, $514,215, $277,678, respectively. The compensation was consistent with compensation paid to other employees holding similar positions, and was composed of salary, bonuses, the grant date fair value of stock options granted during the fiscal year estimated using the Black-Scholes pricing model, profit sharing and matching contributions to Company-sponsored retirement plans. 
+Mr. Thompson’s son, John Thompson III, head basketball coach at Georgetown University, and the Company are parties to a contract pursuant to which Mr. Thompson III provides certain endorsement and consulting services to the Company. The terms of this agreement, effective August 2014 through August 2019, provide for annual base compensation of $200,000, and up to $112,000 per year of product and merchandise, for use by him, the basketball staff and team. In addition, there are annual incentive payments based upon his team's performance of up to $100,000. 
+Compensation Committee Interlocks and Insider Participation 
+The members of the Compensation Committee of the Board of Directors during the fiscal year ended May 31, 2014 were Timothy D. Cook, Elizabeth J. Comstock, John C. Lechleiter, and Johnathan A. Rodgers. The Committee is composed solely of independent, non-employee directors. No member of the Compensation Committee has been an executive officer of the Company, and no member of the Compensation 
+NIKE, INC. Ÿ 2014 Notice of Annual Meeting 14
\ No newline at end of file
diff --git a/raw/filings/0001116463/2003/0001193125-04-034555/filing.txt b/raw/filings/0001116463/2003/0001193125-04-034555/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..69ec5ab5d7a3f5130c3a0a2698650e1aea9db47b
--- /dev/null
+++ b/raw/filings/0001116463/2003/0001193125-04-034555/filing.txt
@@ -0,0 +1,4001 @@
+10-K
+1
+d10k.htm
+FORM 10-K - ORASURE TECHNOLOGIES, INC.
+Form 10-K - Orasure Technologies, Inc. 
+Table of Contents 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+FORM 10-K 
+(Mark one) 
+x 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 
+for the fiscal year ended December 31, 2003. 
+OR 
+¨ 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 
+for the transition period from to
+. 
+Commission File No. 001-16537 
+ORASURE TECHNOLOGIES, INC. 
+(Exact Name of Registrant as Specified in Its Charter) 
+Delaware 
+36-4370966 
+(State or Other Jurisdiction 
+of Incorporation or Organization) 
+(I.R.S. Employer Identification No.) 
+220 East First Street 
+Bethlehem, Pennsylvania 
+18015 
+(Address of Principal Executive Offices) 
+(Zip Code) 
+(610) 882-1820
+(Registrant’s Telephone Number, Including Area Code) 
+Securities registered pursuant to Section 12(b) of the Act: None 
+Securities registered pursuant to Section 12(g) of the Act:
+Common Stock, $.000001 par value per share
+(Title of Class) 
+Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
+1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
+and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x 
+Indicate by check mark whether the Registrant is an
+accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨ 
+State the aggregate market value of the voting and non-voting common equity
+held by nonaffiliates, computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal
+quarter (June 30, 2003) : $266,719,016 
+Indicate the
+number of shares outstanding of each of the Registrant’s classes of common stock, as of March 1, 2004: 44,260,931 shares. 
+Documents Incorporated by Reference: 
+Portions of the Registrant’s Definitive Proxy Statement for the 2004 Annual Meeting of Stockholders are incorporated by reference into Part III of
+this Report. 
+Table of Contents 
+TABLE OF CONTENTS 
+Page 
+PART I 
+ITEM 1. 
+Business 
+1 
+ITEM 2. 
+Properties 
+32 
+ITEM 3. 
+Legal Proceedings 
+32 
+ITEM 4. 
+Submission of Matters to a Vote of Security Holders 
+32 
+PART II 
+ITEM 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+33 
+ITEM 6. 
+Selected Financial Data 
+34 
+ITEM 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+35 
+ITEM 7A. 
+Quantitative and Qualitative Disclosures About Market Risk 
+49 
+ITEM 8. 
+Financial Statements and Supplementary Data 
+50 
+ITEM 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+50 
+ITEM 9A. 
+Controls and Procedures 
+50 
+PART III 
+ITEM 10. 
+Directors and Executive Officers of the Registrant 
+51 
+ITEM 11. 
+Executive Compensation 
+51 
+ITEM 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+51 
+ITEM 13. 
+Certain Relationships and Related Transactions 
+51 
+ITEM 14. 
+Principal Accountant Fees and Services 
+51 
+PART IV 
+ITEM 15. 
+Exhibits, Financial Statement Schedules, and Reports on Form 8-K 
+52 
+Table of Contents 
+Statements contained in this Report regarding future events or performance are “forward-looking
+statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results could be quite different from those expressed or implied by the forward-looking statements. Factors that could affect our results are
+discussed more fully under the Sections entitled, “Forward-Looking Statements” and “Risk Factors,” in Item 1 and elsewhere in this Report. Although forward-looking statements help to provide complete information about us, readers
+should keep in mind that forward-looking statements may not be reliable. Readers are cautioned not to place undue reliance on the forward-looking statements. 
+PART I 
+ITEM 1. Business. 
+Our business principally involves the development, manufacture, marketing and sale of oral fluid specimen collection devices using our proprietary oral fluid technologies, as well as other diagnostic products including immunoassays and
+other in vitro diagnostic tests that are used on other specimen types, and other medical devices. Our diagnostic products include tests which are processed in a laboratory and tests which are performed on a rapid basis at the point of care.
+These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians’ offices,
+and commercial and industrial entities. 
+In vitro 
+diagnostic testing is the process of analyzing oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific substances or markers for infectious diseases, drugs of abuse or other conditions. In vitro diagnostic
+tests are performed outside the body, in contrast to in vivo tests, which are performed directly on or within the body. The substance or marker that a diagnostic test is intended to detect is generally referred to as an analyte. 
+Immunodiagnostic testing is the leading method of in vitro testing
+for antigens and antibodies. When an infectious disease caused by pathogens, such as bacteria, viruses and fungi, or other substances are present, the body responds by producing an antibody. Substances that stimulate production of antibodies are
+generally referred to as antigens. An antibody binds specifically with an antigen in a lock-and-key fashion that initiates a biochemical reaction to attempt to neutralize and, ultimately, eliminate the antigen. The ability of an antibody to bind
+with a specific antigen provides the basis for immunodiagnostic testing. 
+Our Company was formed in May 2000 under Delaware law solely for the purposes of combining two companies, STC Technologies, Inc. (“STC” or “STC Technologies”) and Epitope, Inc.
+(“Epitope”), and changing the state of incorporation of Epitope from Oregon to Delaware. STC Technologies and Epitope were merged into our Company on September 29, 2000 (the “Merger”). Our principal offices are located at 220
+East First Street, Bethlehem, Pennsylvania 18015, and our telephone number is (610) 882-1820. 
+Additional information about us can be found on our website. Our website address is www.orasure.com. We make available free of charge through a link provided at such website our Annual Reports on Form 10-K, our
+Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, as well as any amendments to those Reports. These Reports are made available as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange
+Commission. Our Internet website and the information contained in or connected to that website are not intended to be incorporated by reference into this Annual Report. 
+1 
+Table of Contents 
+Products 
+The following is a summary of our principal products and their existing and pending approvals/clearances by the U.S. Food and Drug Administration
+(“FDA”) and commercial status: 
+Product 
+Description 
+FDA Approval Status 
+Commercial 
+Status 
+OraQuick ® 
+A rapid, point-of-care test for antibodies to the Human Immunodeficiency Virus Type 1 (“HIV-1”) that can be visually read at the point of care in approximately 20 minutes. 
+Finger-stick whole blood—Pre-market application (“PMA”) approved by FDA in November 2002. CLIA (Clinical Laboratory Improvement Amendments of 1988) waived in January
+2003. 
+Marketed 
+Venipuncture whole blood—PMA supplement approved by FDA in September 2003. 
+Marketed 
+HIV-2—PMA supplement initially filed with FDA in June 2003; resubmitted with additional data in December 2003. 
+Pending 
+Oral fluid—PMA supplement filed with FDA in September 2003. 
+Pending 
+Plasma—PMA supplement filed with FDA in September 2003. 
+Pending 
+OraSure ® 
+Oral fluid collection device for the detection of antibodies to HIV-1 in an oral fluid sample in a laboratory setting. 
+PMA approved by FDA in December 1994. 
+Also have FDA 510(k) clearance for use of this device in detecting cocaine and cotinine (an indicator of nicotine) in oral fluid. 
+Marketed 
+Marketed 
+Intercept ® 
+Oral fluid collection device, along with nine related immunoassays, for oral fluid drug testing in a laboratory setting. 
+Collection device—FDA 510(k) cleared in 2000. 
+Marketed 
+Used to detect the following drugs in an oral fluid sample: marijuana, cocaine, opiates, amphetamines, methamphetamines, PCP, benzodiazepines, barbiturates and methadone. 
+Nine drug assays—FDA 510(k) cleared during 2000-2001. 
+Marketed 
+Histofreezer ® -Rx 
+A cryosurgical (freezing) system for the removal of warts and other benign skin lesions, marketed primarily to the physicians’ office market. 
+Nine indications—FDA 510(k) cleared during 1991 – 1999. 
+Marketed 
+Histofreezer ® -OTC (Freeze Off ™ ) 
+Sold under the Freeze Off ™ and Compound W ® tradenames in the over-the-counter market in the U.S. for the cryosurgical removal of common and plantar
+warts. 
+Two indications—FDA 510(k) cleared in February 2003. 
+Marketed 
+UP link ® 
+A rapid, point-of-care oral fluid drug detection system. 
+510(k) application filed with FDA in September 2003. 
+Pending 
+2 
+Table of Contents 
+In addition to the above products, we also sell certain immunoassay tests and reagents for insurance risk
+assessment, substance abuse testing and forensic toxicology applications; an oral fluid Western blot HIV-1 confirmatory test approved by the FDA for confirming positive HIV-1 test results obtained from the use of our OraSure ® device; and the FDA 510(k) cleared Q.E.D. ® saliva alcohol test. 
+OraQuick ® Rapid Test 
+OraQuick ® is our
+rapid test platform designed to test an oral fluid, whole blood (i.e., both fingerstick and venipuncture) or plasma sample for the presence of various antibodies or analytes. The device uses a porous flat pad to collect an oral fluid specimen. After
+collection, the pad is inserted into a vial containing a pre-measured amount of developer solution and allowed to develop. When whole blood or plasma is to be tested, a loop collection device is used to collect a drop of blood or plasma and mix it
+in the developer solution, after which the collection pad is inserted into the solution. In all cases, the specimen and solution then flow through the testing device where test results are observable in approximately 20 minutes. The OraQuick ® device is a screening test and requires a confirmation
+test where an initial positive result is obtained. 
+Our first
+product utilizing this technology is the OraQuick ® 
+rapid HIV-1 antibody test, a rapid test for the presence of antibodies against HIV-1. On November 7, 2002, we received premarket approval of this test from the FDA for detecting HIV-1 in finger-stick whole blood samples. This FDA approval is based
+on data from clinical studies we performed using finger-stick whole blood specimens, which indicate that the OraQuick ® test has sensitivity of 99.6% and specificity of 100%. Sensitivity is a measure of the accuracy for detecting positive specimens, and specificity is a
+measure of the accuracy for identifying negative specimens. 
+As
+a result of this FDA approval, the OraQuick ® test
+is available for use by nearly 40,000 locations in the United States certified under the Clinical Laboratory Improvements Amendments of 1988, or CLIA, to perform moderately complex diagnostic tests. Additionally, in January 2003, we received a
+waiver under CLIA for OraQuick ® which permits the
+use of this test by approximately 140,000 additional sites in the United States not certified under CLIA to perform moderately complex tests, such as outreach clinics, community-based organizations and physicians’ offices. 
+On September 5, 2003, we received FDA approval for use of the OraQuick ® test in detecting HIV-1 antibodies in venipuncture
+whole blood samples. We believe this claim will help us further penetrate the hospital market where venipuncture whole blood samples are routinely taken from patients. 
+We are seeking FDA approval for certain other claims for OraQuick ® . We have completed the necessary clinical trials and filed for FDA approval for use of
+the OraQuick ® device to detect antibodies to the
+Human Immunodeficiency Virus, Type 2 (“HIV-2”), a second type of the HIV virus. We have taken this action in anticipation of obtaining access to an HIV-2 patent license, either through an arrangement with a third party or directly with the
+holder of the HIV-2 patents. Although we believe the addition of an FDA-approved HIV-2 claim would enhance the versatility of our OraQuick ® test and allow us to more fully implement a strategy to sell OraQuick ® internationally, there is no assurance that we will receive FDA approval of an HIV-2 claim or be able to obtain access
+to an HIV-2 patent license. 
+We have also completed the
+required clinical trials and submitted an application for FDA approval of oral fluid and plasma claims in September 2003. Although there is no assurance that we will receive approval of these claims, we believe that an OraQuick ® device approved for detecting antibodies to both HIV-1
+and 2 in fingerstick and venipuncture whole blood, oral fluid and plasma samples, will provide a significant competitive advantage in the market for rapid HIV testing in the United States. 
+In April 2003, the Centers for Disease Control and Prevention
+(“CDC”) announced a new four-part initiative for HIV testing and diagnosis, which is intended to increase the use of rapid HIV testing as part of routine medical care. Under this program, the CDC purchased 250,000 OraQuick ® devices during 2003 and placed a second order for an
+additional 250,000 devices for delivery in 2004. 
+3 
+Table of Contents 
+The OraQuick ® device is also being used in the CDC’s Mother-Infant Rapid Intervention at Delivery Project (MIRIAD) to test pregnant women in five U.S.
+metropolitan areas. The goal of this project is to identify those individuals who would benefit from the administration of nevirapine, a drug used to reduce mother-to-child HIV-1 transmission. In September 2003, the CDC reported that, based on data
+from the MIRIAD study, the use of the OraQuick ® 
+test at the point of care provided test results four times faster than when the OraQuick ® test was used in a laboratory setting. As a result, the study found that rapid HIV-1 testing enables healthcare professionals to determine the HIV status of a mother and administer antiretroviral drugs to both
+mother and child more quickly than traditional laboratory tests, thereby reducing the chances of mother-to-child transmission of HIV. 
+Finally, the OraQuick ® device has been selected for use in the CDC’s LIFE Initiative, an international effort to address the AIDS epidemic in certain African countries.
+This initiative focuses on areas such as preventing mother-to-child transmission, secondary transmitted disease prevention, HIV prevention for youth, and blood safety systems. 
+OraSure ® /Intercept ® Collection Devices 
+Our OraSure ® oral fluid collection device is used in conjunction with screening and confirmatory tests for HIV-1 antibodies and other analytes. This device consists of a small, treated cotton-fiber
+pad on a nylon handle that is placed in a person’s mouth for two to five minutes. The device collects oral mucosal transudate (“OMT”), a serum-derived fluid that contains higher concentrations of certain antibodies and analytes than
+saliva. As a result, OMT testing is a highly accurate method for detecting HIV-1 infection and other analytes. 
+We believe that oral fluid testing has several significant advantages over blood or urine-based systems for infectious disease testing, for both health
+care professionals and the individuals being tested. These advantages include eliminating the risk of needle-stick accidents, providing a noninvasive collection technique, requiring minimal training to administer, providing rapid and efficient
+collection in almost any setting, and reducing the cost of administration by a trained health care professional. 
+We have received premarket approval from the FDA to sell the OraSure ® collection device for use with a laboratory-based enzyme immunoassay (“EIA”) screening test for HIV-1
+antibody detection. This EIA screening test has been approved by the FDA for use with our OraSure ® device and is manufactured and sold by bioMerieux, Inc. (“BMX”). 
+HIV-1 antibody detection using the OraSure ® collection device involves three steps: 
+• 
+Collection of an oral fluid specimen using the OraSure ® device; 
+• 
+Screening of the specimen for HIV-1 antibodies at a laboratory with an EIA screening test approved by the FDA for use with the OraSure ® device; and 
+• 
+Laboratory confirmation of any positive screening test results with our oral fluid Western Blot HIV-1 confirmatory test (described below). 
+A trained health care professional then conveys test results and provides
+appropriate counseling to the individual who was tested. We have also received FDA 510(k) clearance for use of the OraSure ® collection device with EIAs to test for cocaine and cotinine (a metabolite of nicotine) in oral fluid specimens primarily for insurance risk assessment
+purposes. 
+A collection device that is substantially similar to
+the OraSure ® device is sold under the name,
+Intercept ® , and is used to collect OMT for oral
+fluid drug testing. We have received FDA 510(k) clearance to use the Intercept ® collection device with laboratory-based EIAs to test for drugs of abuse commonly identified by the National Institute for Drug Abuse (“NIDA”) as the NIDA-5 (i.e., cannabinoids (marijuana), cocaine, opiates,
+amphetamines/methamphetamines, and phencyclidine (“PCP”)), and for barbiturates, methadone and benzodiazepines. Each of these EIA’s is also FDA 510(k) cleared for use exclusively with the Intercept ® device. 
+4 
+Table of Contents 
+We believe that the Intercept ® device has several advantages over competing urine and other drugs of abuse testing products, including its lower total
+testing cost, its non-invasive nature, safety, mobility and accuracy, the ease of maintaining a chain-of-custody, the treatment of test subjects with greater dignity, no requirement for specially-prepared collection facilities, and difficulty of
+sample adulteration. The availability of an oral fluid test is intended to allow our customers to test for drug impairment on demand, eliminate scheduling costs and inconvenience, and thereby streamline the testing process. 
+Histofreezer ® and Freeze Off ™ 
+The Histofreezer ® cryosurgical removal system is a low-cost alternative to liquid nitrogen and other methods for removal of warts and other benign skin lesions by physicians. The Histofreezer ® product mixes two environmentally friendly cryogenic
+gases in a small aerosol canister. When released, these gases are delivered to a specially designed foam bud, cooling the bud to –50°C. The frozen bud is then applied to the wart or lesion for 15 to 40 seconds (depending on the type of
+lesion) creating localized destruction of the target area by freezing. We have received 510(k) clearance for use of the Histofreezer ® product to remove common warts and eight other types of benign skin lesions. 
+In February 2003, we received FDA 510(k) clearance to market and sell the Histofreezer ® product in the retail or over-the-counter market for the removal of common and plantar
+warts only. This product is being distributed under the name Freeze Off ™ by MedTech Holdings, Inc., the owner of the Compound W ® line of wart removal products. 
+Immunoassay Tests and Reagents 
+We develop and
+sell immunoassay tests in two formats, known as MICRO-PLATE and AUTO-LYTE ® , to meet the specific needs of our customers. 
+In a MICRO-PLATE kit, the sample to be tested is placed into a small plastic receptacle, called a microwell, along with the reagents. The result of the test is determined by the color of the microwell upon completion
+of the reaction. Controlling the reaction involves the use of a variety of reagents by laboratory personnel. Test results are analyzed by any of a variety of commercially available laboratory instruments, which we may also provide to our laboratory
+customers. MICRO-PLATE tests can be performed on commonly used instruments and can detect drugs in urine, serum, and sweat specimens. MICRO-PLATE tests are also used as part of the Intercept ® product line to detect drugs of abuse in oral fluid specimens. 
+AUTO-LYTE ® tests are sold in the form of bottles of liquid reagents. These reagents are run on
+commercially available laboratory-based automated analytical instruments, which are manufactured by a variety of third parties. AUTO-LYTE ® is typically used in high volume, automated, commercial reference insurance laboratories to detect certain drugs or chemicals in urine. Test results
+are produced quickly, allowing for high throughput. 
+Whenever
+possible, we enter into multi-year sales agreements with our customers. These agreements generally are entered into with a laboratory that has agreed to purchase a minimum number of tests over a two-to-five-year period. We also offer these customers
+the option of a reagent rental agreement under which we sell the tests at an increased price over a fixed period of time, which includes an additional equipment charge in exchange for providing the customer with the required analytical laboratory
+equipment. We obtain this equipment from third party vendors. 
+Western Blot HIV-1 Confirmatory Test 
+We sell
+an oral fluid Western Blot HIV-1 confirmatory test that received premarket approval from the FDA in 1996. This test uses the original specimen collected with the OraSure ® oral fluid collection device to confirm 
+5 
+Table of Contents 
+positive results of initial oral fluid HIV-1 EIA screening tests. The oral fluid Western Blot HIV-1 confirmatory test is marketed under an exclusive
+arrangement with BMX. 
+Q.E.D. ® Saliva Alcohol Test 
+Our Q.E.D. ® saliva alcohol test is an on-site, cost-effective test device that is an alternative to
+breath or blood alcohol testing. The test is a quantitative, saliva-based method for the detection of ethanol, and has been cleared for sale by the FDA and the U.S. Department of Transportation (“DOT”). In 1998, the product also received a
+CLIA waiver. 
+Each Q.E.D. ® test kit contains a collection stick that is used to collect a sample of saliva and a
+disposable detection device that displays results in a format similar to a thermometer. The Q.E.D. ® device is easy to operate and instrumentation is not required to read the result. The product has a testing range of 0 to 0.145% blood alcohol, and produces results in approximately two
+minutes. 
+Products Under Development 
+UPT ™ and UP link ® Development 
+During 2003 and several prior years, much of our research and development efforts were focused on our Up-Converting Phosphor Technology (“UPT ™ ”) and the first UPT ™ application expected to be commercialized, our UP link ® rapid, point-of-care system for detecting drugs of
+abuse in oral fluid. 
+Up-Converting Phosphor
+Technology . UPT ™ is
+a proprietary label detection platform that uses phosphor particles to detect minute quantities of various substances. UPT ™ utilizes the same particle shell that is coated onto a television screen, but the internal chemistry of the particle has been changed. These changes
+result in a particle that is excited by infrared light as compared to an ultraviolet light source for television screens. With assistance from our research partners, we have developed phosphorescent particles that up-convert infrared light to
+visible light, which we believe may be a label technology with broad applications. 
+Phosphor particles have been used for decades in television screens and in fluorescent light bulbs. When high energy ultraviolet light strikes the phosphor-coated area in a screen or bulb, it excites the particles and
+low energy visible colored light is produced. Our patented improvements on this base technology employ chemical changes inside the phosphor particles so that low energy infrared light can be used to produce a high energy visible colored signal and
+is the basis for UPT ™ . This use of infrared light
+to create a colored signal is called up-conversion as opposed to down-conversion, which occurs in phosphors designed to be used with ultraviolet light. 
+The use of infrared light to excite the phosphor particles and produce a visible light signal creates what we believe is an important competitive
+advantage for the technology in biological systems, especially human clinical diagnostics. Existing enzyme or fluorescent-based assays employ visible or ultraviolet light to generate the signals from the enzyme substrate or fluorescent molecules
+used as reporter signals in these systems. The disadvantage of using light in the visible or ultraviolet portion of the spectrum is that often molecules in the cells or samples for analysis can also produce background interference from these
+excitation sources. When this occurs, a non-specific signal is generated which dilutes or obscures the signal of interest for the diagnostic test being administered. Because up-conversion does not occur in nature, biological samples and specimens
+will not produce light and, therefore, will not cause background interference when excited by infrared light. 
+We believe that UPT ™ has the potential to overcome some of the limitations of other diagnostic detection methods and offers features not commercially available today. The
+fact that UPT ™ testing produces zero background
+interference dramatically increases the potential sensitivity of any test system. In addition, we believe that UPT ™ offers the following other key competitive features: 
+• 
+Ability to multiplex or detect biological markers for several substances simultaneously through the use of phosphor particles having various colors; 
+6 
+Table of Contents 
+• 
+Applicability to a variety of instrument platforms; and 
+• 
+Compatibility with alternative testing matrices such as oral fluid, blood or others. 
+We have reached certain important milestones in the development of UPT ™ , including improving the manufacturing process to produce UPT ™ particles, working to optimize UPT ™ particle coating techniques, producing four colors of
+UPT ™ particles to permit multiplexing,
+demonstrating initial feasibility for the use of UPT ™ particles in infectious disease and limited DNA detection applications, and developing an UP link ® collector, test cassette, and analyzer for use in testing oral fluid for drugs of abuse (as described below). 
+Although we believe that UPT ™ may have several potential applications for in vitro diagnostics, we have not
+yet completed development of UPT ™ or fully
+explored these potential UPT ™ applications. We
+also have not determined which applications to pursue or the manner in which these opportunities will be pursued, if at all. Additional research and development will be required to determine the full potential of the UPT ™ label technology, including with respect to the potential limits on the level
+of detection of this technology. In addition, we believe we may need to enter into partnering arrangements with other entities and devote substantial funds and other resources to exploit fully the potential of UPT ™ . 
+UP link ® . UP link ® is our first UPT ™ -based product application under development. UP link ® is designed to be a rapid, point–of-care system utilizing a collector, lateral flow test cassette, and analyzer (including software),
+that can quickly provide instrument-read results on a variety of samples, including oral fluid, blood, serum, urine and stool samples. 
+In April 2002, we received FDA 510(k) clearance for the UP link ® system to detect opiates in oral fluid. This is the only point-of-care oral fluid drug test system to receive FDA
+clearance. The UP link ® analyzer has also
+been certified by Underwriters Laboratories, Inc. (i.e., UL approval) as meeting certain standards required for the sale of electrical and light-emitting equipment internationally. Although an opiates-only UP link ® detection system has no commercial potential, we have developed an
+UP link ® detection system for the full NIDA-5
+panel of tests – cocaine, methamphetamines/amphetamines, PCP, opiates and marijuana – which we believe can be commercialized. In September 2003, we submitted an application for FDA 510(k) clearance of an UP link ® system for the full NIDA-5 panel of tests. We plan
+initially to distribute this product through Dräger Safety AG & Co. KGaA (as discussed below) in the roadside testing market in Europe and other countries. Subject to receipt of FDA clearance and the completion of additional market
+research, we eventually intend to market this system directly in the workplace and criminal justice markets in the United States. 
+Although we have made significant progress with respect to the development of the UP link ® rapid point-of-care drugs of abuse detection system, there can be no assurance that we
+will be successful in commercializing this product. Assuming FDA 510(k) clearance is obtained, we do not expect to receive significant amounts of revenues from this product until at least the second half of 2004 or in subsequent years. 
+In March 2000, we signed a research and development agreement with
+Dräger Safety AG & Co. KGaA (“Dräger”), a European manufacturer and supplier of medical and safety technology products for health care and industrial applications. This agreement provided for the development of the
+UP link ® system for rapid detection of drugs
+of abuse in oral fluid. After completion of all research and development activities, Dräger has the option to become our exclusive distributor of this product in Europe and certain other countries to law enforcement officials for rapidly
+assessing whether an operator or passenger in a motor vehicle is under the influence of one or more drugs of abuse (the “roadside market”) and ultimately to certain military, criminal justice, and workplace testing markets. We received a
+non-refundable fee from Dräger under the agreement and will receive additional fees upon achievement of certain technical milestones. We expect Dräger to exercise its option and to commercially launch the UP link ® system in the roadside market in Europe by April 2004.
+In September 2000, we signed a research and development
+agreement with Meridian Bioscience, Inc. (“Meridian”), a medical diagnostics company. Under this agreement, we intended to develop a range of UP link ® 
+7 
+Table of Contents 
+point-of-care tests for the rapid detection of parasites, and gastrointestinal and upper respiratory diseases. Development of one test, for detection of the
+respiratory syncytial virus (“RSV”), has been substantially completed. However, due to development delays and certain other events, we terminated our agreement with Meridian in 2003. 
+We are participating in the second year of a $4.2 million, four-year grant
+for research and development of saliva/oral fluid-based diagnostic technologies, awarded by the National Institutes of Health (the “NIH”) to the University of Pennsylvania. The grant covers basic research in the following three main areas:
+• 
+New technologies for collecting bacterial/viral protein and nucleic acid samples from the human mouth; 
+• 
+The combination of the University of Pennsylvania’s microfluidic processing technology with our UPT ™ technology for sample preparation; and 
+• 
+The detection of viral or bacterial markers. 
+The research plan under the grant contemplates achieving these goals through the use of our UP link ® rapid detection system. 
+Our portion of funding under the grant was approximately $400,000 in the first year and is expected to be approximately
+$350,000 in the second year, and if the grant is renewed by the NIH as we expect, approximately $350,000 to $400,000 each year thereafter. Payments under the grant are subject to availability of funding from the NIH and satisfactory progress of the
+research and development project. 
+OraQuick ® Platform 
+We believe that OraQuick ® has significant potential as a point-of-care testing platform for physicians’
+offices, hospitals, and other markets. We believe that OraQuick ® provides a platform technology that can be modified for detection of a variety of infectious diseases in addition to HIV, such as viral hepatitis and certain sexually transmitted diseases. 
+OraSure ® /Intercept ® Applications 
+Oral mucosal transudate, or OMT, contains many constituents found in blood and serum, although in lower concentrations. We believe the OraSure ® and Intercept ® devices are a platform technology with a wide variety of potential applications, where
+laboratory testing is available. For example, the OraSure ® device may be useful for the collection of a variety of antibodies or markers for infectious diseases or conditions in addition to HIV-1, such as antibodies to viral hepatitis. We also believe these devices may be
+useful for the collection of DNA in oral fluid. 
+Business Strategy
+We have adopted a three-part growth strategy, pursuant to
+which we intend to leverage our extensive diagnostic experience in order to maximize the available opportunities from our existing products and technologies, and supplement our existing product pipeline through the strategic acquisition of other
+technologies and products. We intend to follow a disciplined approach to maximize the value of our business for the benefit of our stockholders. Specifically, our business strategy includes the following key elements: 
+• 
+We intend to maximize the sales potential of our existing product lines in the markets where they are currently sold. This would principally involve fully capitalizing on the
+potential market reach of our OraQuick ® ,
+OraSure ® , Intercept ® , Histofreezer ® and Freeze Off ™ products by investing in our sales and marketing efforts where appropriate, making product improvements and
+enhancements, and optimizing our distribution channels. 
+8 
+Table of Contents 
+• 
+We intend to expand the use of our existing products and technology platforms into new applications and new markets. For example, we believe that both the OraQuick ® and OraSure ® product technologies are very flexible and could be used potentially for the detection
+of diseases or conditions other than HIV. We also expect to explore other potential applications for both the UP link ® and UPT ™ technology platforms in the future, and to selectively expand the distribution of our established products into certain international markets. 
+• 
+We will evaluate potential acquisitions that may provide new products and technology platforms to supplement our existing product pipeline. 
+Research and Development 
+In 2003, our research and development activities focused on the continued
+development of the UP link ® analyzer, test
+cassette and collector, the development of the UP link ® drugs of abuse assays, DNA feasibility studies, clinical trials related to claims for venipuncture whole blood, HIV-2, oral fluid and plasma for our OraQuick ® test, and improvements to certain of our existing products. 
+We supplement our own research and development activities by funding external
+research. We have funded research at Leiden University and certain other entities, and intend to continue funding external research. 
+Research and development expenses totaled approximately $8.0 million in 2003, $8.3 million in 2002 and $9.4 million in 2001. These expenses include the
+costs associated with research and development, regulatory affairs and clinical trials. 
+Sales and Marketing 
+We attempt to reach our
+major target markets through a combination of direct sales, strategic partnerships, and independent distributors. Our marketing strategy is to raise awareness of our products through a mix of trade shows, print advertising, and distributor
+promotions to support sales in each target market. 
+We market
+our products in the United States and internationally. Revenues attributable to customers in the United States amounted to $35.9 million, $28.1 million and $27.3 million in 2003, 2002 and 2001, respectively. Revenues attributable to international
+customers amounted to $4.6 million, $3.9 million and $5.3 million, or 11%, 12% and 16% of our total revenues, in 2003, 2002 and 2001, respectively. 
+Insurance Risk Assessment 
+We currently market the OraSure ® oral fluid collection device for use in screening life insurance applicants in the United States and internationally to test for three of the most
+important underwriting risk factors: HIV-1, cocaine, and cotinine (a metabolite of nicotine). Devices are sold to insurance testing laboratories, including Lab One , Inc., Heritage Labs and Clinical Reference Laboratories. These laboratories in
+turn provide the devices to insurance companies, usually in combination with testing services. 
+We also maintain a direct sales force that promotes use of the OraSure ® device directly to insurance companies for life insurance risk assessment. Insurance companies then make their own decision regarding which laboratory to use to supply their collection
+devices and testing services. Our OraSure ® Western
+Blot confirmatory test is distributed through BMX to laboratories and is used to confirm oral fluid specimens that initially test positive for HIV-1. 
+Because insurance companies are in various stages of their adoption of the OraSure ® device, there exists a wide range of policy limits where the product is being applied. Some insurance companies have
+chosen to extend their testing to lower policy limits where they did not test at all before, while others have used OraSure ® to 
+9 
+Table of Contents 
+replace some of their blood and urine-based testing. In general, most of our insurance company customers use the OraSure ® device in connection with life insurance policies having face amounts of up to
+$250,000, with some customers using the device for policies of up to $500,000 in amount. One large insurance customer uses the OraSure ® device with policies having face amounts up to $3 million. 
+Our sales force continues to encourage additional insurance companies to use OraSure ® and to extend the use of the product by existing customers. We believe there are several factors which will help expand
+the use of our device, including increasing acceptance of the reliability of oral fluid testing, the high quality of test results, the low cost of oral fluid testing relative to blood tests, the ease of use of the OraSure ® device, and the development of new oral fluid assays for use with our
+OraSure ® device for detecting substances or
+conditions that affect life insurance risk assessment. 
+We also
+sell our AUTO-LYTE ® and MICRO-PLATE assays and
+reagents in the insurance testing market directly to laboratories, including Lab One , Heritage Labs, and Clinical Reference Laboratory. 
+Infectious Disease Testing 
+Our sales personnel market the OraSure ® oral fluid collection device, separately and as a kit in combination with laboratory testing services (as described below), and the OraQuick ® rapid HIV-1 antibody test directly to customers in the
+public health market for HIV-1 testing. This market consists of a broad range of clinics and laboratories and includes states, counties, and other governmental agencies, The Centers for Disease Control and Prevention, colleges and universities,
+correctional facilities and the military. There are also a number of organizations in the public health market such as AIDS service organizations and various community-based organizations set up primarily for the purpose of encouraging and enabling
+HIV testing. 
+To better serve our public health customers, we
+have entered into agreements with Lab One and Heritage Labs to provide prepackaged OraSure ® test kits, with prepaid laboratory testing and specimen shipping costs included. We also sell the OraSure ® and OraQuick ® devices in the international public health markets. 
+In June 2002, we entered into an agreement under which Abbott Laboratories was appointed as the co-exclusive distributor of the OraQuick ® rapid HIV-1 antibody test in the United States,
+focusing primarily on the hospital and physicians’ office markets. We intended to primarily target our direct sales to the public health and criminal justice markets, the military, the CDC and other agencies. Because Abbott failed to meet its
+minimum purchase commitments under the Agreement, we asserted that the agreement terminated in 2003. Abbott disputed our right to terminate, and this dispute was submitted to binding arbitration for resolution. The arbitrator found that the
+agreement did not terminate and will continue. In addition, consistent with the arbitrator’s rulings we notified Abbott that its distribution rights were converted from co-exclusive to non-exclusive. For a further discussion of this dispute
+with Abbott Laboratories, see the Section of this Annual Report entitled, “Legal Proceedings.” 
+We are in the process of recruiting and intend to deploy a small sales force that will provide direct access to and marketing support for the hospital
+market for our OraQuick ® test and possibly other
+products. We also intend to seek one or more distributors to help penetrate the physicians’ office market with our OraQuick ® test. 
+Substance Abuse Testing 
+Our substance abuse testing products are marketed into the workplace testing, forensic toxicology, criminal justice, and drug rehabilitation markets,
+primarily through direct sales and laboratory distributors. The forensic toxicology market consists of 250 – 300 laboratories including federal, state and county crime laboratories, medical examiner laboratories, and reference laboratories. The
+criminal justice market consists of a wide variety of entities in the criminal justice system that require drug screening, such as pre-trial services, parole and probation officials, police forces, drug courts, prisons, drug treatment programs and
+community/family service programs. 
+10 
+Table of Contents 
+We have entered into agreements for the distribution of Intercept ® collection devices and associated MICRO-PLATE assays for drugs-of-abuse testing in the
+workplace testing market in the United States and Canada through several laboratory distributors, including Lab One , Quest Diagnostics, Clinical Reference Laboratory and NWT, Inc., and internationally for workplace and forensic toxicology
+testing through Bio-Rad Laboratories, Altrix HealthCare, plc, and other distributors. We assist our laboratory customers in customizing their testing services by selling them equipment required to test oral fluid specimens collected with the
+Intercept ® device. 
+We also distribute our Q.E.D. ® saliva alcohol test primarily through various distributors. The markets for alcohol
+testing are relatively small and fragmented with a broad range of legal and procedural barriers to entry. Markets range from law enforcement testing to workplace testing of employees in safety sensitive occupations. The Q.E.D. ® test has been successfully adopted by end users in the
+petroleum, heavy construction, trucking, and retail industries because it is a cost-effective, portable, easy-to-administer, quantitative testing method. Typical usage situations include pre-employment, random, post-accident, reasonable-cause, and
+return-to-duty testing. 
+Cryosurgical Systems
+Most of our Histofreezer ® sales occur in the United States to distributors that, in turn, resell the
+product to more than 150,000 primary care physicians and podiatrists in the United States. Major U.S. distributors include Cardinal Healthcare, McKesson HBOC, Physicians Sales & Service, AmerisourceBergen Corporation, and Henry Schein.
+Internationally, we established a sales office in Reeuwijk, The Netherlands, and we are selling the Histofreezer ® product through a dealer network in more than 20 countries worldwide. We have also commenced sales of Freeze Off ™ , a product similar to Histofreezer ® , in the over-the-counter market in the U.S. pursuant to a distribution agreement with MedTech Holdings, Inc., the owner
+of the Compound W ® line of wart removal products.
+International Markets 
+We sell a number of our products into international markets primarily
+through distributors with knowledge of their local markets. Principal markets include physicians’ offices, insurance risk assessment, substance abuse, public health, and laboratory testing. 
+We assist our international distributors in registering the products and
+obtaining required regulatory approvals in each country, and we provide training and support materials. Our international marketing program includes direct assistance to distributors in arranging for laboratory services, cooperation from screening
+test manufacturers, and performance of Western Blot confirmatory tests when necessary. 
+Significant Products and Customers 
+Several
+different products have contributed significantly to our financial performance, accounting for 15% or more of total revenues during the past three years. The OraSure ® and Intercept ® oral fluid collection devices, Histofreezer ® and Freeze Off ™ products, immunoassay tests and reagents, and OraQuick ® rapid HIV-1 antibody test accounted for total revenues of approximately $14.5 million, $10.8 million, $6.6 million and $6.3 million in 2003, $14.3
+million, $7.2 million, $7.6 million and $400,000 in 2002, and $12.7 million, $6.7 million, $7.9 million and $0.7 million in 2001, respectively. As new products are developed and commercialized, we expect to reduce our dependence on these products.
+We currently have two customers, Lab One and MedTech
+Holdings, Inc., that accounted for 17% and 12% of our total revenues, respectively, during 2003. 
+As of June 30, 2003, Lab One stopped purchasing our AUTO-LYTE ® urine assays. As a result, our revenues in 2003 were reduced by approximately $1.2 million and are expected to be
+reduced by as much as $1.7 million in 2004, when compared to 2002 revenues in the insurance risk assessment market. 
+11 
+Table of Contents 
+In the fourth quarter of 2003, Lab One acquired the Insurance Testing Laboratory of the
+Metropolitan Life Insurance Company (“Metlife”). Metlife had been a long time purchaser of our urine assays for life insurance risk assessment testing. In light of Lab One’s decision to stop purchasing our AUTO-LYTE ® urine assays, this acquisition is expected to result in
+further revenue loss for those products above the levels set forth above. 
+There can be no assurance that sales to Lab One will not decrease in an amount greater than our current expectations, or that this customer will not choose to replace our MICRO-PLATE oral fluid assays or other
+products with internally-developed products or products manufactured by our competitors. The loss of Lab One or a significant decrease in the volume of products purchased by it could have a material adverse effect on our results. 
+Supply and Manufacturing 
+We have entered into an agreement with a contractor in the United States for
+the assembly and supply of our OraSure ® and
+Intercept ® oral fluid collection devices. This
+agreement renews annually each calendar year unless either party provides timely notice of termination prior to the end of an annual period. A change in the manufacturer of the OraSure ® device would require FDA review and approval, which could require significant time to
+complete and disrupt our ability to manufacture this product. We intend to terminate the agreement with this contractor and transfer manufacturing of both the OraSure ® and Intercept ® collection devices to our Bethlehem, Pennsylvania facility. The transfer of the OraSure ® device requires FDA approval and, in August 2003, we completed the required equivalency
+and validation studies and filed a submission with the FDA seeking approval of the transfer. The transfer of our Intercept ® device requires only that we notify the FDA of the transfer. We expect to complete the transfer of both products during the first half of 2004, which
+is expected to lower our manufacturing costs and help assure that we can maintain our quality control for these products in the future. 
+We manufacture the OraQuick ® test in our Bethlehem, Pennsylvania facilities. In addition, we have entered into a supply agreement for the assembly of the OraQuick ® device in Thailand, in order to supply certain
+international markets. This supply agreement had an initial term of one year, and automatically renews for additional annual periods unless either party provides a timely notice of termination prior to the end of an annual period. We believe that
+other firms would be able to manufacture the OraQuick ® test on terms no less favorable than those set forth in the agreement if the Thailand contractor would be unable or unwilling to continue manufacturing this product. 
+We can purchase the HIV antigen and the nitrocellulose strips required for
+the OraQuick ® test only from a limited number of
+sources. The antigen is currently purchased from a single contract supplier under a long-term agreement with an initial term ending in January 2010 and one-year automatic renewal terms thereafter. The nitrocellulose used in the test is also provided
+by a single contract supplier, and we are presently negotiating a long-term supply agreement with this party. If for any reason these suppliers are no longer able to supply our antigen or nitrocellulose needs, we believe that alternative supplies
+could be obtained at a competitive cost. However, a change in the antigen or nitrocellulose would require FDA approval and some additional development work. This in turn would require significant time to complete and could disrupt our ability to
+manufacture and sell the OraQuick ® device.
+The oral fluid Western Blot HIV-1 confirmatory test is
+currently manufactured in our Beaverton, Oregon facility. In December 2003, the FDA approved the transfer of manufacturing of this product to our Bethlehem, Pennsylvania facility. This transfer is now complete, and we are currently ramping up
+manufacturing of this product in Pennsylvania. 
+The HIV antigen
+needed to manufacture the Western Blot test is available from only a limited number of sources. For many years, we have purchased the antigen for this product from BMX on an exclusive basis. BMX is also the exclusive distributor of the Western Blot
+test kits. 
+12 
+Table of Contents 
+In October 2002, we entered into new agreements with BMX, which replaced existing agreements between the
+companies. These new agreements provide for the continued supply by BMX of the HIV-1 antigen and distribution of the oral fluid Western Blot product by BMX on an exclusive worldwide basis. If for any reason BMX is no longer able to supply our
+antigen needs, we would be able to obtain alternate supplies at a competitive cost. However, a change in the antigen would require FDA approval and some additional development work, which would require significant time to complete and could disrupt
+our ability to manufacture and sell the Western Blot HIV-1 confirmatory test. 
+Histofreezer ® is
+assembled in The Netherlands by Koninklijke, Utermöhlen, N.V. (“Utermöhlen”), the company from which we acquired the product in 1998. We purchase the product pursuant to an exclusive production agreement. This agreement provides
+that Utermöhlen will be the exclusive supplier of the Histofreezer ® product until at least December 31, 2006. Utermöhlen also manufactures Freeze Off ™ , the over-the-counter version of Histofreezer ® . We believe that additional manufacturers of the Histofreezer ® and Freeze Off ™ products are available on terms no less favorable than the terms of the production agreement with Utermöhlen, in the event that Utermöhlen
+would be unable or unwilling to continue manufacturing these products. 
+Our AUTO-LYTE ® and MICRO-PLATE assays are
+manufactured in our Bethlehem, Pennsylvania facility. These tests require the production of highly specific and sensitive antibodies corresponding to the antigen of interest. Substantially all our antibody requirements are provided by contract
+suppliers. We believe that we have adequate reserves of antibody supplies and that we have access to sufficient raw materials for these products. 
+The Q.E.D. ® saliva alcohol test is manufactured and packaged for shipment in our Bethlehem, Pennsylvania facility. 
+We expect to assemble analyzers, test cassettes and collectors used in our UP link ® oral fluid drugs of abuse rapid detection system and to package this product
+for shipment at our Bethlehem, Pennsylvania facilities. 
+Employees
+As of December 31, 2003, we had 171 full-time employees,
+including 45 in sales, marketing, and client services; 48 in research and development; 51 in operations, manufacturing, quality control, quality assurance, regulatory affairs, clinical trials, information systems, purchasing and shipping; and 27 in
+administration and finance. This compares to 187 employees as of December 31, 2002. As of December 31, 2003, 15 of our employees held Ph.D. degrees. Our employees are not currently represented by a collective bargaining agreement. 
+Competition 
+The diagnostic industry is a multi-billion dollar international industry and is intensely competitive. Many of our
+competitors are substantially larger and have greater financial, research, manufacturing, and marketing resources. 
+Important competitive factors for our products include product quality, price, ease of use, customer service, and reputation. Industry competition is
+based on the following: 
+• 
+Scientific and technological capability; 
+• 
+Proprietary know-how; 
+• 
+The ability to develop and market products and processes; 
+• 
+The ability to obtain FDA or other regulatory approvals; 
+13 
+Table of Contents 
+• 
+The ability to manufacture products that meet applicable FDA requirements (i.e., good manufacturing practices); 
+• 
+Access to adequate capital; 
+• 
+The ability to attract and retain qualified personnel; and 
+• 
+The availability of patent protection. 
+A few large corporations produce a wide variety of diagnostic tests and other medical devices and equipment. A larger number of mid-size companies
+generally compete only in the diagnostic industry, and a significant number of small companies produce only a few diagnostic products. As a result, the diagnostic test industry is highly fragmented and segmented. 
+The future market for diagnostic tests is expected to be characterized by
+consolidation, greater cost consciousness, and tighter reimbursement policies. The purchasers of diagnostic products are expected to place increased emphasis on lowering costs, reducing inventory levels, automation, service, and volume discounts.
+The increased complexity of the market is expected to force many competitors to enter into joint ventures or license certain products or technologies. 
+We expect competition to intensify as technological advances are made and become more widely known, and as new products reach the market. Furthermore, new
+testing methodologies could be developed in the future that render our products impractical, uneconomical or obsolete. There can be no assurance that our competitors will not succeed in developing or marketing technologies and products that are more
+effective than those we develop or that would render our technologies and products obsolete or otherwise commercially unattractive. In addition, there can be no assurance that our competitors will not succeed in obtaining regulatory approval for
+these products, or introduce or commercialize them before we can do so. These developments could have a material adverse effect on our business, financial condition and results of operations. 
+Several companies market or have announced plans to market oral specimen
+collection devices and tests outside the United States. We expect the number of devices competing with our Intercept ® and OraSure ® devices to increase as the benefits of oral specimen-based testing become more widely accepted. 
+Competition in the market for HIV testing is intense and is expected to increase. We believe that the principal competition will come from existing
+laboratory-based blood tests, point-of-care rapid blood tests, laboratory-based urine assays, or other oral fluid-based tests that may be developed. Our competitors include specialized biotechnology firms as well as pharmaceutical companies with
+biotechnology divisions and medical diagnostic companies. 
+Significant competitors for our OraQuick ® 
+rapid HIV-1 antibody test, such as the Ortho Diagnostics division of Johnson & Johnson and Bio-Rad Laboratories, sell laboratory-based HIV-1 EIAs, and Calypte, Inc. sells an HIV-1 screening test for urine, in the United States. Abbott
+Laboratories sold a competing rapid HIV test internationally, but during 2003 terminated the manufacture of a rapid HIV test sold primarily into the United States hospital market. Under our OraQuick ® distribution agreement with Abbott, we compete with Abbott in selling our OraQuick ® test in many markets. In addition, MedMira and Trinity
+Biotech each recently received FDA approval to sell competing rapid HIV-1 blood tests in the United States, and we believe these tests, under their current FDA approvals, will compete with our OraQuick ® test in the hospital or other laboratory settings. We believe other companies may seek
+FDA approval to sell competing rapid HIV tests in the future. 
+In the insurance risk assessment market, our AUTO-LYTE ® homogeneous assays for cocaine and cotinine compete with reagents from Microgenics, Inc. (a subsidiary of Apogent Technologies). Our AUTO-LYTE ® homogeneous assays for beta-blockers and thiazide as well as MICRO-PLATE heterogeneous assays specifically designed for
+the detection of cocaine, cotinine, and Immunoglobulin G, or IgG, in oral fluid are the only assays 
+14 
+Table of Contents 
+available in the marketplace. In urine chemistries, our significant competitors include The Diagnostics Systems Group of Olympus America Inc. and Diagnostic
+Reagents International. However, the most significant competition facing our AUTO-LYTE ® assays is from assays developed internally by our laboratory customers (i.e., “home brews”), which can be produced at a cost lower than the price typically paid for our products. For example,
+effective June 30, 2003, Lab One , Inc. ceased purchasing our AUTO-LYTE ® urine assays in order, we believe, to use internally-developed assays. As a result, revenues from these products were substantially lower in 2003, and we expect revenues from these products to continue to decrease and
+eventually be eliminated. Our MICRO-PLATE assays may also face competition from lower cost “home brew” oral fluid assays. 
+Our MICRO-PLATE drugs-of-abuse reagents are targeted to forensic testing laboratories where sensitivity, automation, and “system solutions” are
+important. In the past, these laboratories have typically had to rely on radioimmunoassay test methods to provide an adequate level of sensitivity. Radioimmunoassays require radioactive materials, which have a short shelf-life and disposal problems.
+Our MICRO-PLATE tests meet the laboratories’ sensitivity needs, run on automated equipment, are not radioimmunoassays, and are offered to the laboratory as a complete system solution of reagents, instrumentation and software to meet the
+specific needs of each customer. Options to buy or rent the instrumentation and software, which we purchase from third party vendors, are offered to these customers. 
+In the forensic toxicology market, we compete with both homogeneous and heterogeneous tests manufactured by many companies.
+Significant competitors in the market for these assays include Microgenics, Inc., Roche Diagnostics, and Immunalysis. 
+The Intercept ® drug testing system competes with laboratory-based drug testing products and services using testing matrices such as urine, hair, sweat and oral fluid. Major competitors include Ansys
+Technologies, Inc., Dade Behring, Psychemedics, and Immunalysis. Our MICRO-PLATE oral fluid drug assays, which are sold for use with the Intercept ® collection device, are expected to come under increasing competitive pressure from “home-brew” assays developed internally by our laboratory
+customers. 
+The Histofreezer ® product’s delivery system and warmer operating temperature than liquid
+nitrogen provide us with the opportunity to target sales to primary care physicians, such as family practitioners, pediatricians, and podiatrists. We do not generally target sales to dermatologists because they have the volume of patients required
+to support the capital costs associated with a liquid nitrogen delivery system, which is also used to remove warts and other benign skin lesions. There is limited competition for convenient cryosurgical products for wart removal in the primary care
+physician market. Major competitors for the Histofreezer ® product include CryoSurgery, Inc. in the United States and Wartner in Europe. Wartner may also eventually compete with Histofreezer ® in the physician market in the United States. 
+The Freeze Off ™ product, sold by MedTech under its Compound W ® tradename, competes with other over-the-counter wart removal products in the United States. Wartner currently sells a competing cryosurgical wart
+removal product in the over-the-counter market, and Schering-Plough is expected to begin selling a competing cryosurgical wart removal product in 2004. 
+Q.E.D. ® has two direct competitors, Ansys Technologies, Inc. and Chematics. These companies offer semi-quantitative saliva-based alcohol tests and have received DOT approval. Indirect
+competitors who offer breath testing equipment include Intoximeters, Dräger, and CMI. Although there are lower priced tests on the market that use oral fluid or breath as a test medium, these tests are qualitative tests that are believed to be
+substantially lower in quality and scope of benefits than our Q.E.D. ® test. 
+Our UP link ® product also is expected to compete with other on-site,
+rapid drug assays and instrument-read tests. Major competitors in this area include American Biomedica, Biosite Diagnostics, Avitar, Inc., Ansys Technologies, Inc., and eScreen. Another potential competitor, LifePoint, Inc., has announced plans to
+sell a reader-based saliva test panel that will include alcohol testing. 
+15 
+Table of Contents 
+Patents and Proprietary Information 
+We seek patent and other intellectual property rights to protect and preserve our proprietary technology and our right to
+capitalize on the results of our research and development activities. We also rely on trade secrets, know-how, continuing technological innovations, and licensing opportunities to provide competitive advantages for our products in our markets and to
+accelerate new product introductions. We regularly search for third-party patents in fields related to our business to shape our own patent and product commercialization strategies as effectively as possible and to identify licensing opportunities.
+United States patents generally have a maximum term of 20 years from the date an application is filed. 
+We have 16 United States patents and numerous foreign patents for the OraSure ® and Intercept ® collection devices and related technology relating to oral fluid collection, containers for oral fluids, methods to test oral fluid, formulations for
+the manufacture of synthetic oral fluid, and methods to control the volume of oral fluid collected and dispersed. We have also applied for additional patents, in both the United States and certain foreign countries, on such products and technology.
+We have one patent for lateral flow diagnostic tests that
+covers our OraQuick ® rapid HIV antibody test in the
+United States, and we intend to apply for additional patents for this product. We have obtained licenses to certain lateral flow patents and to certain HIV-1 patents held by other parties in order to market the OraQuick ® test. We obtained these licenses through the payment of certain upfront fees
+and ongoing royalties. We believe these royalties are comparable to rates generally paid by other companies under similar arrangements. 
+We may need to obtain licenses or other rights under, or enter into distribution or other business arrangements in connection with, certain patents for
+HIV-2 and certain other lateral flow patents, in order to manufacture and sell the OraQuick ® HIV test. See the Section entitled, “Risk Factors,” for a further discussion of these issues. 
+In April 1995, we received exclusive worldwide rights under patents and know-how owned by SRI International to develop and
+market products that involve the use of UPT ™ . We
+also received non-exclusive worldwide rights under patents and know-how owned by the Sarnoff Corporation (a subsidiary of SRI International formerly called the David Sarnoff Research Center) to develop and market products that involve the use of
+UPT ™ . We have the right to sublicense these
+rights, subject to consent from SRI and Sarnoff. 
+Under the
+agreement with SRI, we are required to make license, maintenance and royalty payments to SRI. We must also make royalty payments for a period equal to the longer of ten years from the date of the first commercial sale of the products or the term
+during which the manufacture, use, or sale of a product would infringe licensed patents, but for our license with SRI. We believe that the royalty rates payable to SRI are comparable to the rates generally payable by other companies under similar
+arrangements. Our agreement with SRI terminates upon the expiration of our obligation to pay royalties. 
+In 1999, we paid $1.5 million to TPM Europe Holding B.V., our sublicensor, for the termination of an existing license agreement between the sublicensor
+and the Company with respect to the sublicense of UPT ™ patents owned by Leiden University, The Netherlands, and to secure a direct research, development, and license arrangement with Leiden University. 
+We have five United States patents and numerous foreign patents issued for apparatuses and methods for the topical removal
+of skin lesions relating to our Histofreezer ® and
+Freeze Off ™ products. We have also licensed
+another patent relating to apparatuses and methods for the topical removal of skin lesions relating to our Histofreezer ® and Freeze Off ™ products. 
+We have or have licensed rights under 16 United States patents and numerous foreign patents for methods, compositions, and apparatuses relating to our UPT ™ and UP link ® technologies. Several additional UPT ™ and 
+16 
+Table of Contents 
+UP link ® patent applications remain pending in the United States and abroad. We expect to continue to expand our UPT ™ patent portfolio in 2004. 
+We have one United States patent relating to the method for detecting blood in urine specimens using our AUTO-LYTE ® products. 
+We have four United States patents and numerous foreign patents and patent applications for the technology used in the
+Q.E.D. ® test. These patents are related to the
+analog-to-digital technology color control systems and methods, systems and devices for the test, and detection of biochemical molecules. 
+We require our employees, consultants, outside collaborators, and other advisors to execute confidentiality agreements upon the commencement of employment
+or consulting relationships with us. These agreements provide that all confidential information developed by or made known to the individual during the course of the individual’s relationship with us, is to be kept confidential and not
+disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual during his or her tenure with us will be our exclusive property. 
+We own rights to trademarks and service marks that we believe are necessary
+to conduct our business as currently operated. In the United States, we own the UPT ™ , UP link ® , OraSure ® ,
+Intercept ® , OraQuick ® , Histofreezer ® , Q.E.D. ® and AUTO-LYTE ® trademarks. We also own many of these marks and others in several foreign countries. 
+Although important, the issuance of a patent or existence of trademark or trade secret protection does not in itself ensure
+the success of our business. Competitors may be able to produce products competing with our patented products without infringing our patent rights. Issuance of a patent in one country generally does not prevent manufacture or sale of the patented
+product in other countries. The issuance of a patent is not conclusive as to validity or as to the enforceable scope of the patent. The validity or enforceability of a patent can be challenged by litigation after its issuance. If the outcome of such
+litigation is adverse to the owner of the patent, the owner’s rights could be diminished or withdrawn. Trade secret protection does not prevent independent discovery and exploitation of the secret product or technique. 
+We are not aware of any pending claims of infringement or other challenges to
+our patents or our rights to use our trademarks or trade secrets in the United States or in other countries. 
+Government Regulation 
+General 
+Most of our products are regulated by
+the FDA, certain state and local agencies, and comparable regulatory bodies in other countries. This regulation governs almost all aspects of development, production, and marketing, including product testing, authorizations to market, labeling,
+promotion, manufacturing, and recordkeeping. 
+All of our
+FDA-regulated products require some form of action by the FDA before they can be marketed in the United States. After approval or clearance by the FDA, we must continue to comply with other FDA requirements applicable to marketed products. Both
+before and after approval or clearance, failure to comply with the FDA’s requirements can lead to significant penalties and product recalls or could disrupt our ability to sell these products. In addition, the FDA could refuse permission to
+obtain certificates needed to export our products if the agency determines that we are not in compliance. 
+Domestic Regulation 
+Most of our diagnostic products are regulated in the United States as medical devices. 
+17 
+Table of Contents 
+There are two review procedures by which medical devices can receive FDA clearance or approval. Some
+products may qualify for clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act. To obtain this clearance, the manufacturer must provide a premarket notification that it intends to begin marketing the product, and show that the
+product is substantially equivalent to another legally marketed product (i.e., that it has the same intended use and is as safe and effective as a legally marketed device and does not raise different questions of safety and effectiveness). In some
+cases, the submission must include data from human clinical studies. Marketing may commence when the FDA issues a clearance letter finding substantial equivalence. An applicant must submit a 510(k) application at least 90 days before marketing of
+the affected product commences. Although FDA clearance may be granted within that 90-day period, in some cases as much as a year or more may be required before clearance is obtained, if at all. 
+If the medical device does not qualify for the 510(k) procedure (either
+because it is not substantially equivalent to a legally marketed device or because it is required by statute and the FDA’s regulations to have an approved application), the FDA must approve a premarket application, or PMA, before marketing can
+begin. PMAs must demonstrate, among other matters, that the medical device provides a reasonable assurance of safety and effectiveness. A PMA is typically a complex submission, including the results of preclinical and clinical studies. 
+Preparing a PMA is a detailed and time-consuming process. Once a PMA has
+been submitted, the FDA is required to review the submission within 180 days. However, the FDA’s review may, and often is, much longer, often requiring one year or more, and may include requests for additional data before approval is granted,
+if at all. 
+In 2002, Congress enacted the Medical Device User
+Fee and Modernization Act, which authorizes the FDA to assess and collect user fees for premarket notifications and premarket approval applications filed on or after October 1, 2002. Fees for fiscal year 2004 range from $3,480 for 510(k) premarket
+notifications to $206,811 for PMA’s, although fee reductions are available for companies qualifying as small businesses. We do not currently qualify as a small business. 
+Many of our insurance testing products are used for non-medical purposes and many of our drugs-of-abuse products sold to
+state crime labs are for forensic use. The FDA does not currently regulate products used for these purposes. 
+Every company that manufactures medical devices distributed in the United States must comply with the FDA’s Quality System Regulations
+(“QSRs”). These regulations govern the manufacturing process, including design, manufacture, testing, release, packaging, distribution, documentation and purchasing. In complying with QSRs, manufacturers must continue to expend time,
+money, and effort in the area of production and quality assurance to ensure full technical compliance. Companies are also subject to other post-market and general requirements, including restrictions imposed on marketed products, promotional
+standards, and requirements for recordkeeping and reporting of certain adverse reactions. If there are any modifications made to our marketed devices, a premarket notification or premarket approval application may be required to be submitted to, and
+cleared or approved by, the FDA, before the modified device may be marketed. The FDA regularly inspects companies to determine compliance with QSRs and other post-market requirements. Failure to comply with statutory requirements and the FDA’s
+regulations can result in warning letters, monetary penalties, suspension or withdrawal of regulatory approvals, operating restrictions, total or partial suspension of production, injunctions, product recalls, seizure of products, and criminal
+prosecution. 
+Products that include electrical or light
+emitting equipment must also comply with the FDA’s safety and performance standards applicable to such equipment. Our UP link ® analyzer is a piece of electrical equipment that uses a laser to read the test results and is, therefore, subject to these requirements. In addition,
+there is an industry safety and performance standard for electrical equipment established by Underwriters Laboratories, Inc., known as UL3101-1. Although a voluntary standard, compliance with UL3101-1 supported our 510(k) submission for 
+18 
+Table of Contents 
+the UP link ® analyzer. Underwriters Laboratories Inc. was retained to examine and test the UP link ® analyzer and has certified that this product meets the FDA requirements and UL3101-1 (i.e., UL approval). 
+The Clinical Laboratory Improvements Amendments of 1988, or CLIA, prohibit
+laboratories from performing in vitro tests for the purpose of providing information for the diagnosis, prevention or treatment of any disease or impairment of, or the assessment of, the health of human beings, unless there is in effect for
+such laboratories a certificate issued by the U.S. Department of Health and Human Services applicable to the category of examination or procedure performed. We consider the applicability of the requirements of CLIA in the design and development of
+our products. We have obtained a waiver of the CLIA requirements for our OraQuick ® rapid HIV-1 antibody test and Q.E.D. ® alcohol saliva test and may seek similar waivers for certain other products. A CLIA waiver allows certain customers to use the waived products that may not have been able to use them without complying with certain
+quality control and other requirements. 
+Certain of our
+products may also be affected by state regulations in the United States. For example, there are several states that restrict or do not currently permit oral fluid drug testing in the workplace or other markets. In addition, several states prohibit
+or limit the use of rapid, point-of-care HIV testing. We are presently working with legislators or regulators in certain of these states in an effort to modify or remove any restrictions affecting our ability to sell products. 
+International 
+We are also subject to regulations in foreign countries governing products,
+human clinical trials and marketing, and may need to obtain approval from international public health agencies, such as the World Health Organization, in order to sell products in certain countries. Approval processes vary from country to country,
+and the length of time required for approval or to obtain other clearances may in some cases be longer than that required for U.S. governmental approvals. We generally pursue approval only in those countries that we believe have a significant market
+opportunity. 
+The International Organization for
+Standardization (“ISO”) is a worldwide federation of national standards bodies from some 130 countries, established in 1947. The mission of the ISO is to promote the development of standardization and related activities in the world with a
+view to facilitating the international exchange of goods and services. ISO certification is a pre-requisite to use of the CE mark and indicates that our quality system complies with standards applicable to activities ranging from initial product
+design and development through production and distribution. The CE mark is a European Union (“EU”) requirement to sell products that fall under the scope of the Medical Devices Directive (“MDD”) and the In Vitro Diagnostic Device
+Directive (98/79/EC) (“IVDD”). The CE mark is evidence that the manufacturer meets the requirements of all applicable directives, including the MDD and IVDD. 
+On June 14, 1998, compliance with the MDD became mandatory for all manufacturers selling medical devices in the EU. In the
+first quarter of 1999, we received authorization to use the CE mark for the OraSure ® and Intercept ® collection devices based on meeting ISO standards at our Beaverton facility. In December 2000, our Bethlehem facility received final certification under the MDD and various ISO standards, enabling use of the CE mark
+for our Histofreezer ® product line. In November
+2003, we updated our certification to the MDD and ISO standards, and obtained additional certification under the Canadian Medical Devices Conformity Assessment System (“CMDCAS”), as discussed below. 
+In addition, we must comply with the essential requirements of the IVDD in
+order to receive authorization to affix a CE mark to our products. A CE mark indicates compliance with this directive and is required for distribution of in vitro diagnostic products in the EU. 
+Prior to international sale of a product containing electrical and
+light-emitting equipment, the safety and performance of such a product must be demonstrated. We retained Underwriters Laboratories, Inc. and Laird 
+19 
+Table of Contents 
+Technologies to examine and test the UP link ® analyzer, and they certified that this product meets various international standards and directives applicable to such equipment. 
+We must also comply with certain registration requirements as dictated by
+Health Canada, prior to commencing sales in Canada. We have completed this process for several of our current products and may do so with respect to other products in the future. In addition, Canadian law requires manufacturers of medical devices to
+have a quality management system that meets various ISO requirements in order to obtain a license to sell their devices in Canada. The CMDCAS was developed by Health Canada in collaboration with the Standards Council of Canada (“SCC”) to
+support the Canadian Medical Devices Regulations. 
+In July
+2003, Canada adopted a new ISO standard and will require all ISO certificate holders to transition to the new standard by March 14, 2006. The EU has a similar requirement with a compliance date of July 2006. We will need to do additional work and
+receive an updated certification in order to meet these deadlines. 
+Environmental Regulation 
+Because of the
+nature of our current and proposed research, development, and manufacturing processes, we are subject to stringent federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission,
+effluent discharge and handling and disposal of materials and wastes. We believe that we have complied with these laws and regulations in all material respects. We have not been required to take any action to correct any environmental noncompliance.
+Forward-Looking Statements 
+This Report contains certain “forward-looking statements,” within
+the meaning of the Federal securities laws. These may include statements about our expected revenues, earnings, expenses or other financial performance, future product performance or development, expected regulatory filings and approvals, planned
+business transactions, views of future industry, competitive or market conditions, and other factors that could affect our future operations, results of operations or financial position. These statements often include the words “believes,”
+“expects,” “anticipates,” “intends,” “plans,” “estimates,” “may,” “will,” “should,” “could,” or similar expressions. 
+Forward-looking statements are not guarantees of future performance or
+results. Known and unknown factors could cause actual performance or results to be materially different from those expressed or implied in these statements. Some of these factors are: ability to market products; impact of competitors, competing
+products and technology changes; ability to develop, commercialize and market new products; market acceptance of oral fluid testing products and up-converting phosphor technology products; ability to fund research and development and other projects
+and operations; ability to maintain new or existing product distribution channels (including our ability to implement a direct sales effort or alternate distribution method for OraQuick ® in the hospital market); reliance on sole supply sources for critical product
+components; availability of related products produced by third parties; ability to obtain and timing of obtaining necessary regulatory approvals; ability to comply with applicable regulatory requirements; history of losses and ability to achieve
+sustained profitability; volatility of our stock price; uncertainty relating to patent protection and potential patent infringement claims; availability of licenses to patents or other technology; ability to enter into international manufacturing
+agreements; obstacles to international marketing and manufacturing of products; ability to sell products internationally; loss or impairment of sources of capital; ability to meet financial covenants in agreements with financial institutions;
+ability to retain qualified personnel; exposure to product liability and other types of litigation; changes in international, federal or state laws and regulations; changes in relationships with strategic partners and reliance on strategic partners
+for the performance of critical activities under collaborative arrangements; changes in accounting practices or interpretation of accounting requirements; customer consolidations and inventory practices; equipment failures and ability to obtain
+needed raw materials and components; the impact of terrorist attacks, war and civil unrest; ability to complete consolidation or 
+20 
+Table of Contents 
+restructuring activities; ability to identify, complete and realize the full benefits of potential acquisitions; and general political, business and economic
+conditions. These and other factors that could cause the forward-looking statements to be materially different are described in greater detail in the Section entitled, “Risk Factors,” and elsewhere in this Report. 
+Although forward-looking statements help to provide complete information
+about future prospects, they may not be reliable. The forward-looking statements are made as of the date of this Report and we undertake no duty to update these statements. 
+Risk Factors 
+The following is a discussion of certain significant risk factors that could potentially negatively impact our financial condition, performance and
+prospects. 
+Regulatory Risks 
+The Time Needed to Obtain Regulatory Approvals and Respond to Changes in
+Regulatory Requirements Could Adversely Affect Our Business. 
+Many of our proposed and existing products are subject to regulation by the FDA and other governmental or public health agencies. In particular, we are subject to strict governmental controls on the development, manufacture, labeling,
+distribution and marketing of our products. In addition, we are often required to obtain approval or registration with foreign governments or regulatory bodies before we can import and sell our products in foreign countries. 
+The process of obtaining required approvals or clearances from governmental
+or public health agencies can involve lengthy and detailed laboratory testing, human clinical trials, sampling activities and other costly, time-consuming procedures. For example, we are seeking FDA approval for the use of the OraQuick ® test for detecting antibodies to HIV-2 and for testing
+oral fluid and plasma samples. Approval of these claims required the submission of clinical data and could require significant time to obtain. The submission of an application to the FDA or other regulatory authority for these or other claims does
+not guarantee that an approval or clearance to market the product will be received. Each authority may impose its own requirements and delay or refuse to grant approval or clearance, even though a product has been approved in another country or by
+another agency. 
+Moreover, the approval or clearance process
+for a new product can be complex and lengthy. This time span increases our costs to develop new products as well as the risk that we will not succeed in introducing or selling them in the United States or other countries. 
+Newly promulgated or changed regulations could also require us to undergo
+additional trials or procedures, or could make it impractical or impossible for us to market our products for certain uses, in certain markets, or at all. For example, the Substance Abuse and Mental Health Services Administration
+(“SAMHSA”), which is part of the U.S. Department of Health and Human Services, is expected to issue regulations for the use of oral fluid drug testing for federal workers. Although we believe the SAMHSA regulations, when issued in final
+form, will permit us to market and sell our oral fluid drug tests for use with federal workers, there is no guarantee that those regulations will do so, and our ability to sell those products in that market could be limited. In addition, the extent
+to which the final SAMHSA regulations permit the sale of our oral fluid drug tests for use with federal workers, may influence whether customers in the workplace, criminal justice or other unregulated markets use our products. 
+The regulations in some states may restrict our ability to sell products in
+those states. For example, certain states restrict or do not allow the testing of oral fluid for drugs of abuse or the rapid, point-of-care testing for 
+21 
+Table of Contents 
+HIV. While we intend to work with state legislators and regulators to remove or modify any applicable restrictions, there is no guarantee we will be
+successful in these efforts. 
+In addition, all in vitro 
+diagnostic products that are to be sold in the European Union (“EU”) must bear the CE mark indicating conformance with the essential requirements of the In Vitro Diagnostic Directive (“IVDD”). We are not permitted to sell our
+products in the EU without a CE mark, which could lead to the termination of strategic alliances and agreements for sales of those products in the EU. We have obtained the CE mark for many of our existing products, and we intend to CE mark certain
+of our future products and are not aware of any material reason why we will be unable to do so. However, there can be no assurance that compliance with all provisions of the IVDD will be demonstrated and the CE mark obtained for all products that we
+desire to sell in the EU. 
+Failure to Comply With FDA or
+Other Requirements May Require Us to Suspend Production of Our Products Which Could Result in a Loss of Revenues. 
+We can manufacture and sell many of our products, both in the United States and in some cases abroad, only if we comply with regulations of government
+agencies such as the FDA. We have implemented quality assurance and other systems that are intended to comply with applicable regulations. 
+Although we believe that we have adequate processes in place to ensure compliance with these requirements, the FDA could force us to stop manufacturing
+our products if it concludes that we are out of compliance with applicable regulations. The FDA could also require us to recall products if we fail to comply with applicable regulations, which could force us to stop manufacturing such products. See
+the Section entitled, “Government Regulations,” for a further discussion of applicable regulatory requirements. 
+Risks Relating to Our Financial Results, Structure and Need for Financing 
+We Have a History of Losses. 
+We have not achieved full-year profitability. We incurred net losses of approximately $1.1 million, $3.3 million, and $3.7
+million, in 2003, 2002 and 2001, respectively. As of December 31, 2003, the Company had an accumulated deficit of approximately $130.6 million. 
+Our limited combined operating history makes it difficult to forecast our future operating results. In order to achieve sustainable profitability, our
+revenues will have to continue to grow at a significant rate. Our ability to achieve revenue growth, and therefore profitability, will be dependent upon a number of factors including, without limitation, the following: 
+• 
+Creating market acceptance for and selling increasing volumes of the OraSure ® collection device, the Intercept ® and UP link ® drug testing products, and the OraQuick ® rapid HIV-1 antibody test; 
+• 
+The degree to which certain of our new products may replace sales of our existing products and the financial impact of that change, including the degree to which our OraQuick ® test will replace our OraSure ® collection device for HIV-1 testing or sales of the
+Freeze Off ® wart removal product in the
+over-the-counter market will replace sales of our Histofreezer ® product to physicians’ offices or other professional markets; 
+• 
+Achieving growth in sales of the Freeze Off ® wart removal product in the over-the-counter market; 
+• 
+Achieving growth in international markets with our OraQuick ® rapid HIV-1 antibody test and other products; and 
+• 
+Commercially developing, and obtaining regulatory approval and creating market acceptance for UPT ™ , the UP link ® drugs-of-abuse rapid detection system, and other new products in a time frame consistent with our objectives. 
+22 
+Table of Contents 
+We have not yet fully achieved our financial and business objectives and there can be no assurance that
+we will be able to do so. Moreover, even if we achieve our objectives and become profitable, there can be no assurance that we will be able to sustain such profitability in the future. 
+We May Require Future Additional Capital to Fund Our Operations. 
+Although we have made significant progress in the past toward controlling
+expenses and increasing product revenue, we have historically depended, to a substantial degree, on capital raised through the sale of equity securities and bank borrowings to fund our operations. 
+Our future liquidity and capital requirements will depend on numerous
+factors, including, but not limited to, the following: 
+• 
+The costs and timing of the expansion of our manufacturing capacity; 
+• 
+The success of our research and product development efforts; 
+• 
+The scope and results of clinical testing; 
+• 
+The magnitude of capital expenditures; 
+• 
+Changes in existing and potential relationships with business partners; 
+• 
+The time and cost of obtaining regulatory approvals; 
+• 
+The costs involved in obtaining and enforcing patents, proprietary rights and necessary licenses; 
+• 
+The costs and timing of expansion of sales and marketing activities; 
+• 
+The timing of the commercial launch of new products; 
+• 
+The extent to which existing and new products gain market acceptance; 
+• 
+Competing technological and market developments; and 
+• 
+The scope and timing of strategic acquisitions. 
+If additional financing is needed, we may seek to raise funds through the sale of equity or other securities or through bank borrowings. There can be no
+assurance that financing through the sale of securities, bank borrowings or otherwise, will be available to us on satisfactory terms, if at all. 
+An Economic Downturn or Terrorist Attacks May Adversely Affect Our Business. 
+Changes in economic conditions could adversely affect our business. For example, in a difficult economic environment,
+customers may be unwilling or unable to invest in new diagnostic products, may elect to reduce the amount of their purchases or may perform less drug testing because of declining employment levels or the issuance of fewer life insurance policies. A
+weakening business climate could also cause longer sales cycles and slower growth, and could expose us to increased business or credit risk in dealing with customers adversely affected by economic conditions. 
+Terrorist attacks and subsequent governmental responses to these attacks
+could cause further economic instability or lead to further acts of terrorism in the United States and elsewhere. These actions could adversely affect economic conditions outside the United States and reduce demand for our products internationally.
+Terrorist attacks could also cause regulatory agencies, such as the FDA or agencies that perform similar functions outside the United States, to focus their resources on vaccines or other products intended to address the threat of biological or
+chemical warfare. This diversion of resources could delay our ability to obtain regulatory approvals required to manufacture, market or sell our products in the United States and other countries. 
+23 
+Table of Contents 
+Our Stock Price Could Continue to be Volatile. 
+Our stock price may be volatile in the future, and could experience
+substantial declines. The following factors, among others, could have a significant impact on the market for our common stock: 
+• 
+Future announcements concerning us; 
+• 
+Future announcements concerning our competitors or industry; 
+• 
+Governmental regulation; 
+• 
+Clinical results with respect to our products in development or those of our competitors; 
+• 
+Developments in patent or other proprietary rights; 
+• 
+Litigation or public concern as to the safety of products that we or others have developed; 
+• 
+The relatively low trading volume for our common stock; 
+• 
+Period to period fluctuations in our operating results; 
+• 
+Changes in estimates of our performance by securities analysts; 
+• 
+General market and economic conditions; and 
+• 
+Terrorist attacks, civil unrest and war. 
+Our Reported Financial Results May be Adversely Affected by Changes in Accounting Principles Generally Accepted in the United States. 
+We prepare our financial statements in conformity with accounting
+principles generally accepted in the United States. These accounting principles are subject to creation or interpretation by the Financial Accounting Standards Board (“FASB”), the American Institute of Certified Public Accountants, the
+Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could
+affect the reporting of transactions completed before the announcement of a change. 
+For example, while current accounting rules allow us to exclude the expense of stock options granted to our employees from our financial statements, influential legislators and business policy groups have suggested
+that the rules be changed to require those options to be expensed. We rely on stock options as an important component of our employee compensation packages. 
+If we are required to expense stock options, we may be less likely to achieve profitability, or we may have to decrease or eliminate option grants.
+Decreasing or eliminating option grants may adversely impact our ability to attract and retain qualified employees. 
+Risks Relating to Our Industry, Business and Strategy 
+Our Ability to Sell Products Could be Affected by Competition From New and Existing Diagnostic Products and by Treatment or Other Non-Diagnostic
+Products Which May be Developed. 
+The diagnostic industry
+is focused on the testing of biological specimens in a laboratory or at the point of care and is highly competitive and rapidly changing. Our principal competitors often have considerably greater financial, technical and marketing resources. As new
+products enter the market, our products may become obsolete or a competitor’s products may be more effective or more effectively marketed and sold than ours. If we fail to maintain and enhance our competitive position, our customers may decide
+to use products developed by competitors which could result in a loss of revenues. 
+We also face competition from products which may be sold at a lower price. To the extent customers desire to purchase these lower cost products sold by other parties, our revenues could be lower. Additionally, under
+our OraQuick ® distribution agreement with Abbott Laboratories, we compete against Abbott in selling our
+OraQuick ® test in many markets. To the extent Abbott sells the OraQuick ® test below the price that we offer, customers may choose to buy this product from Abbott or we may be forced to sell the OraQuick ® test at a lower price, both of which could result in a loss of revenues and a lower gross margin contribution from the sale
+of our OraQuick ® test. 
+24 
+Table of Contents 
+In addition, the development and commercialization of products outside of the diagnostics industry could
+adversely affect sales of our product. For example, the development of a safe and effective vaccine to HIV or treatments for other diseases or conditions that our products are designed to detect, could reduce, or eventually eliminate, the demand for
+our HIV or other diagnostic products and thereby result in a loss of revenues. 
+Our Research, Development and Commercialization Efforts May Not Succeed or Our Competitors May Develop and Commercialize More Effective or Successful Diagnostic Products. 
+In order to remain competitive, we must regularly commit substantial
+resources to research and development and the commercialization of new products. 
+The research and development process generally takes a significant amount of time from inception to commercial product launch. This process is conducted in various stages. During each stage there is a substantial risk
+that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a product in which we have invested substantial amounts. 
+During 2003, 2002 and 2001, we incurred $8.0 million, $8.3 million and $9.4 million, respectively, in research and development expenses. We expect to
+continue to incur significant costs from our research and development activities. 
+A primary focus of our efforts has been, and is expected to continue to be, our UPT ™ technology and the related UP link ® rapid detection system, which are still under development. However, there can be no assurance that we will succeed in our research and development
+efforts with respect to UPT ™ , UP link ® or other technologies or products. 
+Successful products require significant development and investment, including
+testing, to demonstrate their cost-effectiveness or other benefits prior to commercialization. In addition, regulatory approval must be obtained before most products may be sold. Additional development efforts on these products will be required
+before any regulatory authority will review them. Regulatory authorities may not approve these products for commercial sale. In addition, even if a product is developed and all applicable regulatory approvals are obtained, there may be little or no
+market for the product. Accordingly, if we fail to develop commercially successful products, or if competitors develop more effective products or a greater number of successful new products, customers may decide to use products developed by our
+competitors. This would result in a loss of revenues and adversely affect our results of operations, cash flows and business. 
+If We Lose Our Key Personnel or Are Unable to Attract and Retain Qualified Personnel as Necessary, Our Business Could be Harmed. 
+Our success will depend to a large extent upon the contributions of our
+executive officers, management, and sales, marketing, operations and scientific staff. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among medical products
+businesses. 
+If we are not able to attract and retain the
+necessary personnel to accomplish our business objectives, we may experience constraints that will adversely affect our ability to effectively manufacture, sell and market our products, to meet the demands of our strategic partners in a timely
+fashion, or to support internal research and development programs. Although we believe we will be successful in attracting and retaining qualified personnel, competition for experienced scientists and other personnel from numerous companies and
+academic and other research institutions may limit our ability to do so on acceptable terms. 
+We May be Sued for Product Liabilities for Injuries Resulting From the Use of Our Products. 
+We may be held liable if any of our products, or any product which is made with the use or incorporation of any of our technologies, causes injury of any
+type or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or usage. Although we have obtained product liability insurance, this insurance may not fully cover potential liabilities. As we bring new products to
+market, we may need to increase our product liability coverage. 
+25 
+Table of Contents 
+We have obtained the required regulatory approvals to sell our Histofreezer ® portable cryosurgical system in the consumer or over-the-counter market. We
+believe the sale of this or other products in the over-the-counter market could increase the risk of potential product liability exposure and the required level of insurance coverage that we will need to maintain. Inability to obtain sufficient
+insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could affect our decision to commercialize new products and our results of operations. 
+Efforts to Consolidate or Restructure Could Adversely Affect Our Business.
+We may from time to time restructure and consolidate
+various aspects of our operations in order to achieve cost savings and other efficiencies. For example, during 2001 we began a restructuring of our manufacturing operations which included the transfer of OraQuick ® manufacturing from our Beaverton, Oregon facility to Bethlehem, Pennsylvania. In
+addition, we plan to close our Oregon facility and transfer all remaining manufacturing operations in that facility to our facilities in Pennsylvania. We must obtain FDA approval to transfer certain operations to another location. This transfer and
+the need to obtain FDA approval could interfere with or delay our manufacturing processes and disrupt continued operations. Any delay in or disruption of operations, and in particular manufacturing operations, could result in increased costs or
+could delay or prevent us from selling certain products and thereby result in a loss of revenue. 
+Future Acquisitions or Investments Could Disrupt Our Ongoing Business, Distract Our Management, Increase Our Expenses and Adversely Affect Our
+Business. 
+We may consider strategic acquisitions or
+investments as a way to expand our business in the future. These activities, and their impact on our business, are subject to the following risk factors: 
+• 
+Suitable acquisitions or investments may not be found or consummated on terms that are satisfactory to us; 
+• 
+We may be unable to successfully integrate an acquired company’s personnel, assets, management systems and technology into our business; 
+• 
+Acquisitions may require substantial expense and management time and could disrupt our business; 
+• 
+An acquisition and subsequent integration activities may require greater capital resources than originally anticipated at the time of acquisition; 
+• 
+An acquisition may result in the incurrence of unexpected expenses, the dilution of our earnings or our existing stockholders’ percentage ownership, or potential losses from
+undiscovered liabilities not covered by an indemnification from the seller(s) of the acquired business; 
+• 
+An acquisition may result in the loss of existing key personnel or customers or the loss of the acquired company’s key personnel or customers; 
+• 
+The benefits to be derived from an acquisition could be affected by other factors, such as regulatory developments, general economic conditions and increased competition; and
+• 
+An acquisition of a foreign business may involve additional risks, including not being able to successfully assimilate differences in foreign business practices or overcome language
+barriers. 
+The occurrence of one or more of the
+above or other factors may prevent us from achieving all or a significant part of the benefits expected from an acquisition or investment. This may adversely affect our financial condition, results of operations and ability to grow our business.
+26 
+Table of Contents 
+Risks Relating to Collaborators 
+Our Failure to Maintain Existing Distribution Channels, or Develop New Distribution Channels, May Result in Lower
+Revenues. 
+We have marketed many of our products by
+collaborating with laboratories, diagnostic companies and distributors. For example, our OraSure ® oral fluid collection device is distributed to the insurance industry through major insurance testing laboratories. Our sales depend to a substantial degree on our ability to sell
+products to these customers and develop new product distribution channels, and on the marketing abilities of the companies with which we collaborate. 
+Some of our distributors have recently consolidated, and such consolidation has had, and may continue to have, an adverse impact on the level of orders
+for our products. One of these laboratories, Lab One , Inc., acquired another large insurance laboratory customer, Osborne Group, Inc., in 2001. These customers together accounted for approximately 17%, 26% and 29% of our revenues for the years
+2003, 2002 and 2001, respectively. As a result of efficiencies gained following this acquisition, Lab One purchased approximately $1 million less of our insurance assays in 2002 than both companies purchased in 2001. 
+In addition, some distributors have experienced, and may continue to
+experience, pressure from their customers to reduce the price of their products and testing services. For example, Lab One and our other insurance testing laboratories are facing this pressure and are using lower cost “home brew”
+insurance testing assays that they have developed internally or purchased from our competitors. As a result, Lab One stopped purchasing our urine assays on June 30, 2003. This has reduced our sales of urine assays and is expected to lower
+sales of these products in 2004 and beyond. In addition, during the fourth quarter of 2003, Lab One acquired the Insurance Testing Laboratory of MetLife, which was another large purchaser of our urine assays. Given Lab One ’s recent
+decision to stop purchasing these products, this acquisition is expected to further reduce sales of our urine assays. 
+More recently, Lab One has announced that it has agreed to acquire the assets of the drug testing division of NWT, Inc., with an expected closing of
+that acquisition in March 2004. NWT is a laboratory that distributes the Company’s Intercept ® drug test into the workplace testing market. Although it is unclear what, if any, impact this consolidation may have, it is possible that revenues from Intercept ® sales could be reduced. 
+Finally, some of our distributors may not perform their contractual
+obligations. For example, during 2003 Abbott Laboratories did not meet its minimum purchase obligations under a co-exclusive distribution agreement for our OraQuick ® test. We asserted the agreement had terminated as a result of this failure, and an arbitrator recently ruled that the
+agreement did not terminate and our remedy was limited to converting Abbott’s distribution rights from co-exclusive to non-exclusive. Consequently, and although we have notified Abbott regarding the conversion of its rights to non-exclusive,
+Abbott was not required to compensate us for the shortfall in its purchases. 
+Although we will try to maintain and expand our business with our distributors and require that they fulfill their contractual obligations, there can be no assurance that such companies will continue to purchase or
+distribute our products, maintain historic order volumes or otherwise meet their purchase or other obligations, or that new distribution channels will be available on satisfactory terms. 
+The Use of Sole Supply Sources For Critical Components of Our Products Could Adversely Affect Our Business.
+We currently purchase certain critical components of our
+products from sole supply sources. For example, all of the HIV-1 antigen used to make our oral fluid Western blot HIV-1 confirmatory test is purchased from BMX, and all of the HIV antigen and nitrocellulose required to make our OraQuick ® rapid HIV-1 antibody test is 
+27 
+Table of Contents 
+purchased from sole source suppliers. If these suppliers are unable or unwilling to supply the required component, we would need to find another source, and
+perform additional development work and obtain FDA approval for the use of the alternative component for our products. Completing that development and obtaining such FDA approval could require significant time to complete and may not occur at all.
+These events could either disrupt our ability to manufacture and sell certain of our products or completely prevent us from doing so. Either event would have a material adverse effect on our results of operations, cash flows and business.
+The Unavailability of Certain Products Distributed by a
+Third Party Could Adversely Affect Sales of Our OraSure ® Oral Fluid Collection Device. 
+In testing an oral fluid sample collected with an OraSure ® device for HIV-1 in the United States, our customers must use an HIV-1 screening test approved by the FDA for use with our OraSure ® device. Where an oral fluid sample screens positive for HIV-1, our customers must then use our oral fluid Western blot
+HIV-1 confirmatory test, which has also been approved by the FDA for use with our OraSure ® device, to confirm that positive indication. 
+BMX manufactures and sells the only oral fluid HIV-1 screening test that has received FDA approval for use in detecting HIV-1 in an oral fluid specimen collected with our OraSure ® collection device. BMX has developed a new HIV-1 screening test, and has indicated that
+this new test will eventually replace its existing FDA-approved HIV-1 screening test. We are working with BMX to obtain FDA approval for use of the new screening test with our OraSure ® device. BMX also supplies the HIV-1 antigen used to manufacture our oral fluid Western
+blot HIV-1 confirmatory test and is the exclusive world-wide distributor of that product. 
+If BMX ceases to manufacture or sell an HIV-1 screening test approved by the FDA for use with our OraSure ® collection device, or if our oral fluid Western blot HIV-1 confirmatory test is not made available to our customers (because BMX either fails to supply
+the HIV-1 antigen required to make this product or fails to distribute this product), we would need to find alternate suppliers for these products, which would require additional development work and FDA approval. These activities would likely
+require significant time to complete. If our customers cannot obtain an HIV-1 screening test or Western blot HIV-1 confirmatory test that has been approved by the FDA for use in connection with our OraSure ® collection device, these customers would likely stop purchasing our OraSure ® device. Sales of the OraSure ® device were approximately $12.2 million and $12.7
+million, or 30% and 40% of our total revenues, in 2003 and 2002, respectively. 
+We Are Dependent Upon Strategic Partners to Assist in Developing and Commercializing Some of Our Diagnostic Products. 
+Although we intend to pursue some product opportunities independently, opportunities that require a significant level of investment for development and
+commercialization or a distribution network beyond our existing sales force may necessitate involving one or more strategic partners. In particular, our strategy for development and commercialization of UPT ™ , including the UP link ® rapid detection system, and certain other products may entail entering into additional
+arrangements with distributors or other corporate partners, universities, research laboratories, licensees and others. We may be required to transfer material rights to such strategic partners, licensees and others. While we expect that our current
+and future partners, licensees and others have and will have an economic motivation to succeed in performing their contractual responsibilities, there is no assurance that they will do so and the amount and timing of resources to be devoted to these
+activities will be controlled by others. Consequently, there can be no assurance that any revenues or profits will be derived from such arrangements. 
+Risks Relating to Intellectual Property 
+Our Success Depends on Our Ability to Protect Our Proprietary Technology. 
+The diagnostics industry places considerable importance on obtaining patent, trademark, and trade secret protection, as well
+as other intellectual property rights, for new technologies, products and processes. Our 
+28 
+Table of Contents 
+success depends, in part, on our ability to develop and maintain a strong intellectual property portfolio or obtain licenses to patents for products and
+technologies both in the United States and in other countries. 
+As appropriate, we intend to file patent applications and obtain patent protection for our proprietary technology. These patent applications and patents will cover, as applicable, compositions of matter for our products, methods of making
+those products, methods of using those products, and apparatus relating to the use or manufacture of those products. We will also rely on trade secrets, know-how, and continuing technological advancements to protect our proprietary technology.
+We have entered, and will continue to enter, into
+confidentiality agreements with our employees, consultants, advisors and collaborators. However, these parties may not honor these agreements and we may not be able to successfully protect our rights to unpatented trade secrets and know-how. Others
+may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how. 
+Many of our employees, including scientific and management personnel, were previously employed by competing companies. Although we encourage and expect
+all of our employees to abide by any confidentiality agreement with a prior employer, competing companies may allege trade secret violations and similar claims against us. 
+We may collaborate with universities and governmental research organizations which, as a result, may acquire part of the
+rights to any inventions or technical information derived from collaboration with them. 
+To facilitate development and commercialization of a proprietary technology base, we may need to obtain licenses to patents or other proprietary rights from other parties. Obtaining and maintaining such licenses may
+require the payment of substantial amounts. In addition, if we are unable to obtain these types of licenses, our product development and commercialization efforts may be delayed or precluded. 
+We may incur substantial costs and be required to expend substantial
+resources in asserting or protecting our intellectual property rights, or in defending suits against us related to intellectual property rights. Disputes regarding intellectual property rights could substantially delay product development or
+commercialization activities. Disputes regarding intellectual property rights might include state, federal or foreign court litigation as well as patent interference, patent reexamination, patent reissue, or trademark opposition proceedings in the
+United States Patent and Trademark Office. Opposition or revocation proceedings could be instituted in a foreign patent office. An adverse decision in any proceeding regarding intellectual property rights could result in the loss or limitation of
+our rights to a patent, an invention or trademark. 
+The
+Sales Potential for OraQuick ® Will be Affected by
+Our Ability to Obtain Certain Licenses. 
+There are several
+factors that will affect the specific countries in which we will be able to sell our OraQuick ® rapid HIV antibody test and therefore the overall sales potential of the test. One factor is whether we can arrange a sublicense or distribution agreement related to patents for
+detection of the HIV-2 virus. HIV-2 is a type of the HIV virus estimated to represent a small fraction of the known HIV cases worldwide. Nevertheless, HIV-2 is considered to be an important component in the testing regimen for HIV in many markets.
+HIV-2 patents are in force in the United States, Canada and Mexico, in most of the countries of Western Europe, and in Japan, Korea, South Africa, and Australia. Access to a license for one or more HIV-2 patents may be necessary to sell HIV-2 tests
+in countries where such patents are in force, or to manufacture in countries where such patents are in force and then sell into non-patent markets. 
+The importance of HIV-2 differs by country, and can be affected by both regulatory requirements and by competitive pressures. Because the competitive
+situation in each country will be affected by the availability of other testing products as well as the country’s regulatory environment, we may be at a competitive disadvantage 
+29 
+Table of Contents 
+in some markets without an HIV-2 product. In particular, our ability to sell a product that does not include an HIV-2 test may be limited, or a
+competitor’s product that includes an HIV-2 test may be preferred and have a competitive advantage over an HIV-1 only test that we sell. 
+We have approached Bio-Rad Laboratories, the holder of patents concerning the HIV-2 virus, about securing a world-wide non-exclusive license for HIV-2 and
+have completed negotiation of a license agreement that we believe is complete and satisfactory to both parties. Bio-Rad is now in the process of securing the necessary signatures and approval from several other licensees and other relevant parties.
+Another factor that may affect the specific countries in which
+we will be able to sell an OraQuick ® rapid HIV-1 or
+HIV-2 test, and therefore the overall sales potential, concerns whether we can arrange a sublicense or distribution agreement related to any patents which claim lateral flow assay methods and devices covering the OraQuick ® rapid HIV antibody tests or their use. OraQuick ® is a lateral flow assay device that tests for specific antibodies or other
+substances. The term “lateral flow” generally refers to a test strip through which a sample flows and which provides a test result on a portion of the strip downstream from where the sample is applied. There are numerous patents in the
+United States and other countries which claim lateral flow assay methods and devices. Some of these patents may broadly cover the technology used in the OraQuick ® test and are in force in the United States and other countries. We may not be able to make or sell the OraQuick ® test in the United States or other countries where
+these patents are in force. We have obtained licenses under several lateral flow patents, which we believe should be sufficient to permit the manufacturing and sale of the OraQuick ® device as currently contemplated. However, licenses under additional patents may be required. 
+In the event that it is determined that a license is required and it is not
+possible to negotiate a license agreement under a necessary patent, our ability to manufacture and sell the OraQuick ® device could be limited. In such case, we may be able to modify the OraQuick ® rapid HIV antibody test such that a license would not be necessary. However, this alternative could delay or limit our
+ability to sell the OraQuick ® rapid HIV antibody
+test in the United States and other markets, which would adversely affect our results of operations, cash flows and business. 
+We are Dependent Upon Patents, Licenses and Other Proprietary Rights From Third Parties, Including Rights to Up-Converting Phosphor Compositions,
+Methods and Apparatuses. 
+We have licensed the worldwide
+rights to UPT ™ compositions, methods and
+apparatuses for use in diagnostic applications, which are the subject of numerous United States patents and several pending United States applications. Corresponding patents and patent applications have been granted, issued or filed in numerous
+foreign countries, including, for example, European countries, Japan and Canada. We cooperate with the licensor to prosecute such patent applications and protect such patent rights. If the licensors do not meet their obligations under the license
+agreements or do not reasonably consent to sublicenses by us, or if the license agreement is terminated, we could lose the opportunity to develop UPT ™ . 
+Risks Relating to Product Marketing and Sales 
+A Market for Our Products May Not Develop. 
+Our future success will depend, in part, on the market acceptance, and the timing of such acceptance, of new products such as the Intercept ® drug test, the OraQuick ® rapid HIV-1 antibody test, the UP link ® oral fluid drugs of abuse rapid detection system, and other new products or
+technologies that may be developed or acquired. To achieve market acceptance, we must make substantial marketing efforts and spend significant funds to inform potential customers and the public of the perceived benefits of these products. We
+currently have limited evidence on which to evaluate the market reaction to products that may be developed, and there can be no assurance that any products will obtain market acceptance and fill the market need that is perceived to exist.
+30 
+Table of Contents 
+If Acceptance and Adoption of Our Oral Fluid Testing in the Market Does Not Continue, Our Future
+Results May Suffer. 
+We have made significant progress in
+gaining acceptance of oral fluid testing for HIV in the insurance and public health markets. We have also made significant progress in gaining acceptance of oral fluid testing for drugs of abuse in the workplace and criminal justice testing markets.
+However, the ultimate degree of acceptance in these markets is uncertain, and other markets may resist the adoption of oral fluid testing as a replacement for other testing methods in use today. In addition, certain state laws prohibit or restrict
+the use of oral fluid testing for drugs of abuse in certain markets or the rapid, point-of-care testing for HIV. As a result, there can be no assurance that we will be able to expand the use of our oral fluid testing products in these or other
+markets. 
+Our Increasing International Presence May be
+Affected by Regulatory, Cultural or Other Restraints. 
+We
+intend to increase revenue derived from international sales of our products. Our international sales accounted for approximately $4.6 million or 11% of total revenues for 2003, approximately $3.9 million or 12% of total revenues for 2002, and
+approximately $5.3 million or 16% of total revenues for 2001. 
+A number of factors can slow or prevent international sales, or substantially increase the cost of international sales, including those set forth below: 
+• 
+Regulatory requirements (including compliance with applicable customs regulations) may slow, limit, or prevent the offering of products in foreign countries;
+• 
+The unavailability of licenses to certain patents in force in a foreign country which cover our products may restrict our ability to sell into that country;
+• 
+Our ability to obtain the CE mark on our products in a timely manner may preclude or delay our ability to sell products to the European Union; 
+• 
+Cultural and political differences may make it difficult to effectively market, sell and gain acceptance of products in foreign countries; 
+• 
+Inexperience in international markets may slow or limit our ability to sell products in foreign countries; 
+• 
+Exchange rates, currency fluctuations, tariffs and other barriers, extended payment terms and dependence on and difficulties in managing international distributors or
+representatives may affect our revenues even when product sales occur; 
+• 
+The creditworthiness of foreign entities may be less certain and foreign accounts receivable collection may be more difficult; 
+• 
+Economic conditions, the absence of available funding sources, terrorism, civil unrest and war may slow or limit our ability to sell our products in foreign countries;
+• 
+International markets often have long sales cycles, especially for sales to foreign governments, quasi-governmental agencies and international public health agencies, thereby
+delaying or limiting our ability to sell our products; and 
+• 
+We may be at a disadvantage if competitors in foreign countries sell competing products at prices at or below such competitors’ or our cost. 
+In addition, we have entered into a contract for the manufacture and supply
+of the OraQuick ® rapid HIV antibody test in
+Thailand, and we may enter into agreements to manufacture other products in foreign countries as well. However, factors such as economic and political conditions and foreign regulatory requirements may slow or prevent the manufacture of our products
+in countries other than the United States. Interruption of the supply of our products could reduce revenues or cause us to incur significant additional expenses in finding an alternative source of supply. 
+31 
+Table of Contents 
+The previous discussion of our business should be read in conjunction with the Financial Statements and
+accompanying notes included in Item 15 of this Annual Report on Form 10-K. 
+ITEM 2. Properties. 
+In October 2002, we leased an approximate 48,000 square foot facility, which is our new primary corporate office and manufacturing facility, on property in Bethlehem, Pennsylvania. The lease has a ten-year initial
+term ending in October 2012 and base rental rate starting at approximately $780,000 and increasing to approximately $858,000 per year over that initial term. The lease also has a five-year renewal option at an annual base rental rate of
+approximately $975,000 and a ten-year purchase option. 
+In
+April 1999, we signed a five-year lease to rent 25,845 square feet of space at the John M. Cook Technology Center in Bethlehem, Pennsylvania, which we use for our sales and marketing and research and development offices. Annual base rent for the
+initial five-year term of this lease ending in March 2005 is approximately $244,000. The lease also includes a five-year renewal option at an annual base rental rate of $271,000 and a ten-year purchase option. 
+We own a 33,500 square foot building in Bethlehem, Pennsylvania, which is
+used for manufacturing, engineering and information systems activities. 
+We lease approximately 30,500 square feet of office, manufacturing, and laboratory space in Beaverton, Oregon, under a lease that expires in January, 2005. We have annual base lease obligations under the lease starting at $351,000 and
+increasing to $395,000 during the term of the lease. We expect to consolidate the manufacturing operations that remain in Oregon with our Bethlehem operations in 2004 and do not expect to renew the lease for our Oregon facilities. 
+We rent additional warehouse space on an as-needed basis. We also lease space
+for small sales offices in Chicago, Illinois and Reeuwijk, The Netherlands. 
+We believe that the facilities described above are adequate for our current requirements. 
+ITEM 3. Legal Proceedings. 
+In June 2002, Abbott Laboratories became a co-exclusive distributor of our OraQuick ® rapid HIV-1 antibody test in the United States under a five-year agreement, which required minimum monthly purchases totaling approximately $4 million
+during a 15-month period following initial FDA approval of the product. The OraQuick ® test received initial FDA approval in November 2002. 
+Abbott failed to meet its minimum purchase obligations under the agreement, and we asserted that the agreement was therefore terminated. Abbott disputed the termination, and in October 2003, it invoked the arbitration
+procedure for resolution of disputes under the agreement. In February 2004, the arbitrator ruled that the agreement did not terminate, and that our remedy is limited to revoking Abbott’s status as a co-exclusive distributor. We have notified
+Abbott that, based on the magnitude of its purchases, we have decided to convert Abbott’s distribution rights to non-exclusive. As a further result of the arbitrator’s rulings, we will be required to fulfill Abbott’s purchase orders
+at the agreed upon price contained in the original agreement. 
+ITEM 4. Submission of Matters to a Vote of Security Holders. 
+No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2003. 
+32 
+Table of Contents 
+PART II 
+ITEM 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 
+Our Common Stock is listed for trading on the National Market tier of The
+Nasdaq Stock Market (“NASDAQ”) under the symbol OSUR. High and low sales prices reported by NASDAQ during the periods indicated are shown below. 
+Year ended December 31, 
+2003 
+2002 
+High 
+Low 
+High 
+Low 
+First Quarter 
+$ 
+8.620 
+$ 
+5.050 
+$ 
+12.280 
+$ 
+4.750 
+Second Quarter 
+8.290 
+5.470 
+8.350 
+5.500 
+Third Quarter 
+10.920 
+7.363 
+6.820 
+3.330 
+Fourth Quarter 
+10.300 
+7.550 
+8.150 
+3.700 
+On March 1, 2004,
+there were 598 holders of record and approximately 13,000 holders in street name of the Common Stock, and the closing price of the Common Stock was $8.75 per share. We have never paid any cash dividends, and our Board of Directors does not
+anticipate paying cash dividends in the foreseeable future. We are generally not permitted to pay dividends or make other distributions to our stockholders under the terms of our credit facilities with Comerica Bank, without first obtaining
+Comerica’s consent. We intend to retain any future earnings to provide funds for the operation and expansion of our business. 
+ITEM 6. 
+Selected Financial Data. 
+The following table sets forth selected financial data of the Company. On September 29, 2000, STC and Epitope were merged into the Company (the
+“Merger”). The Merger was accounted for as a pooling of interests and, accordingly, all prior period financial statements of Epitope have been restated to include the results of operations, financial position and cash flows of STC. The
+selected financial data as of September 30, 1999 and for the year then ended, includes Epitope’s previous September 30 fiscal year amount and STC’s December 31 calendar year amount. On September 20, 2000, the Company changed its fiscal
+year-end from September 30 to December 31, effective with the calendar year beginning January 1, 2000. A three-month transition period from October 1, 1999 through December 31, 1999 (the “Transition Period”) precedes the start of the 2000
+fiscal year. As a result of the Merger, financial statements for the Transition Period include amounts for Epitope and STC for the three months ended December 31, 1999. Accordingly, STC’s results of operations for the three months ended
+December 31, 1999 are included in both the financial statements for the year ended September 30, 1999 and for the Transition Period. 
+This information should be read in conjunction with the Financial Statements and notes thereto included in Item 15 and the information set forth in Item
+7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 
+33 
+Table of Contents 
+Selected Financial Data 
+(In thousands, except per share data) 
+Year ended December 31, 
+Three months ended 
+December 31, 
+Year ended 
+September 30, 
+2003 
+2002 
+2001 
+2000 
+1999 
+1998 
+1999 
+Operating Results: 
+(Unaudited) 
+Revenues 
+$ 
+40,451 
+$ 
+32,010 
+$ 
+32,573 
+$ 
+28,788 
+$ 
+6,822 
+$ 
+5,138 
+$ 
+24,046 
+Costs and expenses 
+41,737 
+35,550 
+36,906 
+42,917 
+7,105 
+5,857 
+28,138 
+Other income (expense), net 
+177 
+198 
+634 
+1,407 
+(138 
+) 
+(159 
+) 
+(91 
+) 
+Net loss 
+(1,136 
+) 
+(3,342 
+) 
+(3,728 
+) 
+(12,747 
+) 
+(471 
+) 
+(878 
+) 
+(4,233 
+) 
+Basic and diluted net loss per share 
+$ 
+(0.03 
+) 
+$ 
+(0.09 
+) 
+$ 
+(0.10 
+) 
+$ 
+(0.36 
+) 
+$ 
+(0.02 
+) 
+$ 
+(0.03 
+) 
+$ 
+(0.14 
+) 
+Weighted average number of shares outstanding 
+39,794 
+37,583 
+36,868 
+35,002 
+30,887 
+26,246 
+30,597 
+December 31, 
+September 30, 
+2003 
+2002 
+2001 
+2000 
+1999 
+1998 
+1999 
+Financial position: 
+Working capital 
+$ 
+67,171 
+$ 
+18,931 
+$ 
+19,764 
+$ 
+21,440 
+$ 
+16,314 
+$ 
+8,255 
+$ 
+16,773 
+Total assets 
+86,151 
+35,737 
+37,285 
+37,736 
+29,626 
+20,075 
+30,251 
+Long-term debt, excluding current portion 
+2,456 
+3,409 
+3,586 
+4,644 
+5,820 
+6,001 
+5,820 
+Accumulated deficit 
+(130,570 
+) 
+(129,435 
+) 
+(126,092 
+) 
+(122,365 
+) 
+(109,618 
+) 
+(105,603 
+) 
+(109,104 
+) 
+Stockholders’ equity 
+73,509 
+26,019 
+26,541 
+26,172 
+18,238 
+10,264 
+18,592 
+34 
+Table of Contents 
+ITEM 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations. 
+Statements below regarding future events or performance are “forward-looking statements” within the meaning of
+the Private Securities Litigation Reform Act of 1995. Our actual results could be quite different from those expressed or implied by the forward-looking statements. Factors that could affect results are discussed more fully under the Sections
+entitled, “Forward-Looking Statements” and “Risk Factors,” in Item 1 and elsewhere in this Report. Although forward-looking statements help to provide complete information about us, readers should keep in mind that
+forward-looking statements may not be reliable. Readers are cautioned not to place undue reliance on the forward-looking statements. 
+The following discussion should be read in conjunction with the financial statements contained herein and the notes thereto, along with the Section
+entitled, “Critical Accounting Policies and Estimates,” set forth below. 
+Overview 
+Our Company operates primarily in
+the worldwide $22 billion in vitro diagnostics business. We develop, manufacture and market oral fluid specimen collection devices using proprietary oral fluid technologies, diagnostic products including immunoassays, and other in
+vitro diagnostic tests. We also manufacture and sell a medical device for the removal of warts and other benign skin lesions by cryosurgery, or freezing. 
+Our diagnostic product offerings primarily target the infectious disease and substance abuse testing segments of the larger in vitro diagnostic
+market, and are used in both laboratories as well as the emerging, and rapidly growing, point-of-care marketplace. Our OraSure ® and Intercept ® oral fluid collection devices, and their related assays, are processed in a laboratory, while the OraQuick ® rapid HIV-1 antibody test and UP link ® oral fluid rapid drug detection system are designed for use at the point-of-care. Our cryosurgical product, which is
+sold under the names Histofreezer ® and Freeze
+Off ™ , is also used at the point-of-care.
+In vitro diagnostics have traditionally used blood or
+urine as the bodily fluids upon which tests are conducted. However, we have targeted the use of oral fluid in our products as a differentiating factor, and believe that it provides a significant competitive advantage over blood and urine. Our oral
+fluid tests have sensitivity and specificity comparable to blood and/or urine tests and, when combined with their ease of use, non-invasive and dignified nature, and cost effectiveness, represent a very competitive alternative to the more
+traditional testing methods in the diagnostic space. 
+We have
+made significant progress in increasing our sales and gaining market acceptance for our products. As a result, we reported strong financial results for 2003. Our total revenues were $40.5 million, or an increase of 26% over 2002, and our net loss
+for the year was $1.1 million, representing an improvement of more than $2.2 million over 2002. Additionally, both the third and fourth quarters of 2003 were profitable. Our liquidity also improved, as we reported $2.7 million in cash flow from
+operations in 2003 and we had $64.0 million in cash, cash equivalents and short-term investments as of December 31, 2003. 
+Sales into the infectious disease testing market segment increased significantly in 2003 due to the market acceptance of our OraQuick ® device. This increase resulted largely from sales
+directly to various public health organizations, sales to the Centers for Disease Control and Prevention (“CDC”) for further distribution in the public health market, and sales to Abbott Laboratories for distribution primarily to
+hospitals. 
+In 2003, the CDC placed purchase orders totaling $4
+million for 500,000 OraQuick ® devices, with equal
+amounts to be shipped in 2003 and 2004. We expect that the CDC, and perhaps other federal governmental agencies, will make future bulk purchases of OraQuick ® devices for further distribution to the public health and other markets throughout the United States. 
+35 
+Table of Contents 
+In October 2003, we announced the termination of our agreement with Abbott for distribution of
+OraQuick ® . Abbott disputed our termination, and
+this dispute was recently resolved by an arbitrator who ruled that the agreement was not terminated and will continue in effect. In addition, consistent with the arbitrator’s rulings we recently notified Abbott that the agreement was converted
+from co-exclusive to non-exclusive. 
+We also announced our
+intent to establish an internal sales force for selling OraQuick ® directly into the hospital market. We have made progress in establishing this sales force with the recent hiring of a new Director, Hospital Sales to lead it. The success of this effort will impact the future sales of
+OraQuick ® . We also intend to address the market
+potential of physicians’ offices by engaging one or more distribution partners, as we believe it would be impractical to build and sustain an internal sales force large enough to adequately service that market. We believe that the combined
+efforts of our Company, Abbott and our other distribution partners will help us gain significant market penetration with OraQuick ® in the hospital, physicians’ office and other markets for rapid HIV testing. 
+During 2003, two competitors received U.S. Food and Drug Administration (“FDA”) approval for rapid HIV tests.
+Based on their current FDA approvals, we expect that these tests will be sold, and will compete with our OraQuick ® test, primarily in the hospital market in the United States. We are still waiting for FDA action on three pending PMA submissions for OraQuick ® . If we receive these approvals, as we expect, the additional claims will allow
+OraQuick ® to be used for detecting antibodies to
+both HIV-1 and HIV-2 and for testing oral fluid and plasma, in addition to finger-stick and venipuncture whole blood samples. We believe these approvals will give us the most versatile rapid HIV test in the world and provide a significant advantage
+over our competitors. 
+Sales to the substance abuse testing
+market also increased in 2003, reflecting the growing acceptance of our Intercept ® collection device and related oral fluid drug assays, as companies and criminal justice customers are increasingly shifting to oral fluid and away from traditional urine-based drug testing. We expect continuing growth
+in the utilization of our Intercept ® product line,
+primarily in the United States and United Kingdom. 
+We also
+expect to launch our UP link ® oral fluid
+rapid drugs of abuse detection system in Germany and other European countries with our partner, Dräger, beginning in April 2004. An application for 510(k) clearance of this system is currently pending with the FDA. Assuming this clearance is
+received, and subject to completion of additional market research, we also intend to market the UP link ® system to the workplace and criminal justice markets in the United States beginning in 2005. 
+Sales to the cryosurgical systems market grew substantially in 2003, largely because we entered the consumer or over-the-counter (“OTC”) market
+for the first time. The cryosurgical systems market represents sales of Histofreezer ® into both the domestic and international physicians’ office markets and sales of the OTC formulation of this product, called Freeze Off ™ , to our partner, MedTech Holdings, Inc. (“MedTech”). MedTech distributes
+Freeze Off ™ to consumers under its Compound W ® trademark. 
+Sales to MedTech accounted for all of the growth in this market during 2003
+and more than offset a decline of Histofreezer ® 
+revenues in the U.S. professional market. While we are pleased with the level of Freeze Off ™ sales and hope that they continue at the same or higher levels, these sales were largely initial stocking orders and may not be indicative of the ongoing sales levels we can expect for
+this channel. We believe that sales of Histofreezer ® in the U.S. professional market in 2004 should return to levels seen in 2002. 
+We experienced a significant decline in sales to the insurance risk assessment market during 2003, primarily as a result of the loss of urine assay sales
+to our largest customer, Lab One . These products have experienced substantial competitive pressure from “home-brew” assays internally developed by this customer. Sales of these products are not expected to recover. We anticipate
+little growth and we may continue to experience declines in this market until we are successful in developing new oral fluid based diagnostic tests for additional predictive health markers desired by the insurance industry. 
+36 
+Table of Contents 
+We currently are in the process of transferring the manufacture of our Intercept ® and OraSure ® collection devices and our oral fluid Western blot HIV-1 confirmatory test from Oregon
+to our facilities in Bethlehem, Pennsylvania. While this transfer has gone well to date, we are still waiting for FDA approval for the transfer of our OraSure ® device. Any disruption of this transfer could adversely affect our ability to sell these products. 
+Because of the regulatory approvals needed for most of our products, we often
+are required to rely on sole source providers for critical components and materials. This is particularly true for our OraQuick ® test and oral fluid Western blot HIV-1 confirmatory product. If we are unable to obtain necessary components or materials from these sole sources, the
+time required to develop replacements and obtain the required FDA approvals could disrupt our ability to sell the affected products. 
+Finally, we generated approximately 89% of our 2003 revenues in the U.S. marketplace. Consequently, we are evaluating strategies to increase our sales
+penetration in markets outside the U.S. 
+Results of Operations
+Twelve Months Ended December 31, 2003 Compared to December 31, 2002
+Total revenues increased 26% to approximately $40.5
+million in 2003 from approximately $32.0 million in 2002, primarily as a result of increased sales of our OraQuick ® rapid HIV-1 antibody test, the successful launch of the Freeze Off ™ wart removal product, and higher sales of our Intercept ® oral fluid collection device and related drug assays, partially offset by a decline in
+assay revenues in the insurance risk assessment market and lower sales of Histofreezer ® in the physicians’ office market in the U.S. Revenues derived from products sold in countries outside the U.S. were approximately $4.6 million and $3.9 million, or 11% and 12% of total revenues for the
+years ended December 31, 2003 and 2002, respectively. 
+The
+table below shows the amount of our total revenues (in thousands, except %) generated in each of our principal markets and by licensing and product development activities. 
+Years ended December 31, 
+Dollars 
+% 
+Change 
+Percentage 
+of Total 
+Revenues 
+2003 
+2002 
+2003 
+2002 
+Market Revenues 
+Insurance risk assessment 
+$ 
+9,708 
+$ 
+12,030 
+(19 
+)% 
+24 
+% 
+38 
+% 
+Infectious disease testing 
+11,909 
+6,063 
+96 
+29 
+19 
+Substance abuse testing 
+7,295 
+6,434 
+13 
+18 
+20 
+Cryosurgical systems 
+10,828 
+7,165 
+51 
+27 
+22 
+Product revenues 
+39,740 
+31,692 
+25 
+98 
+99 
+Licensing and product development 
+711 
+318 
+124 
+2 
+1 
+Total revenues 
+$ 
+40,451 
+$ 
+32,010 
+26 
+100 
+% 
+100 
+% 
+Sales to the insurance
+risk assessment market declined by 19% to approximately $9.7 million in 2003 from approximately $12.0 million in 2002, primarily as a result of lower insurance testing assay sales. We expect that sales of our urine assays will continue to come under
+competitive pressure because of sluggish sales and competitive conditions in the life insurance testing market. As a result of these conditions, our laboratory customers have reduced, and are expected to continue to reduce, their purchases of these
+products and instead use lower cost, internally-developed (i.e., “home-brew”) assays or testing products purchased from our competitors. For example, as of June 30, 2003, Lab One , Inc., our largest customer, stopped purchasing our
+urine assays. Our revenues have been negatively impacted by the loss of this business in 2003 and will likely suffer a further decline of approximately $0.5 million in 2004, when compared to 2003 revenues in the insurance risk assessment 
+37 
+Table of Contents 
+market. Overall, we expect revenues from this market in 2004 to be equal to or less than the level of revenues generated in 2003. 
+Sales to the infectious disease testing market increased 96% to approximately
+$11.9 million in 2003, primarily as a result of higher sales of our OraQuick ® rapid HIV-1 antibody test. OraQuick ® and OraSure ® sales in 2003 totaled approximately $6.3 million and $5.6 million, respectively, as compared to approximately $350,000
+and $5.7 million, respectively, for the comparable period in 2002. 
+In June 2002, Abbott became a co-exclusive distributor of our OraQuick ® rapid HIV-1 antibody test in the United States under a five-year agreement, which required minimum monthly purchases. Because Abbott’s purchases were below these levels, we declared the agreement terminated.
+However, Abbott disputed the termination, and this dispute was recently resolved through binding arbitration, which held that the agreement was not terminated and will continue in effect. In addition, consistent with the arbitrator’s rulings,
+we recently notified Abbott that our agreement was converted from co-exclusive to non-exclusive. As a result of the arbitration, we will be required to fulfill Abbott’s purchase orders at the agreed upon price contained in the original
+agreement. During the quarter ending March 31, 2004, we expect to incur legal fees and expenses of approximately $110,000 associated with this arbitration. 
+In order to improve penetration of the hospital market, we have decided to expand our internal sales force so that we can sell directly to hospitals,
+which was a primary market targeted by Abbott. We believe that expanding our direct sales efforts will provide us with greater control over distribution, a higher margin contribution from this product and a channel for distributing other high
+value-added products to these customers, and allow us to provide marketing support for hospital customers. 
+We currently intend to establish a small, but highly effective sales force focusing on the top metropolitan areas in the country, possibly supplemented
+with selective telemarketing and outside sales forces, and we may develop, purchase or license additional products to be sold by this sales force to hospitals in the future. We may also engage one or more distributors to help us penetrate the
+physicians’ office market, which is another market targeted by Abbott. 
+Abbott purchased approximately 400,000 OraQuick ® devices in 2003, representing approximately 40% of the total OraQuick ® sales in that year. We expect Abbott to purchase substantially more devices in 2004, largely because the OraQuick ® test is now approved by the FDA for use with venipuncture whole blood samples (as discussed below). In addition, we
+believe that our direct sales efforts, combined with the efforts of Abbott and other distribution partners, will help us gain significant market penetration in the hospital, physicians’ office and other markets for rapid HIV testing.
+As previously announced, we have received a total of $4.0
+million in purchase orders from the CDC for approximately 500,000 of our OraQuick ® rapid HIV-1 antibody tests. Pursuant to the CDC’s first purchase order, we sold 250,000 devices to the CDC in 2003. The second purchase order for an additional $2.0 million, which was received in late 2003,
+requires us to supply the remaining 250,000 devices to the CDC by no later than September 1, 2004. 
+Although sales of our OraQuick ® test are expected to increase, such sales may negatively impact sales of our OraSure ® oral fluid collection device in the infectious disease testing market. Customers who
+now or in the future may purchase our OraSure ® 
+device for HIV-1 testing may elect instead to purchase our OraQuick ® test. It is not possible at this time, however, to estimate the timing or extent of such change in purchasing patterns or the financial impact of replacing OraSure ® sales with sales of our OraQuick ® test, if it occurs at all. 
+In September 2003, we received approval from the FDA for use of the
+OraQuick ® device to detect HIV-1 antibodies in
+venipuncture whole blood samples. The device had previously received FDA approval for use with finger-stick whole blood samples, and has received a waiver under CLIA (Clinical Laboratory Improvement 
+38 
+Table of Contents 
+Amendments of 1988). We believe the venipuncture whole blood claim will assist us in penetrating the hospital market with our OraQuick ® device. 
+We have also filed for FDA approval for use of the OraQuick ® device to detect antibodies to HIV-2. We have taken
+this action in anticipation of obtaining access to an HIV-2 patent license, either directly with Bio-Rad Laboratories (“Bio-Rad”), the holder of the HIV-2 patents, or through a distribution arrangement with a third party. During September
+2003, we also completed the remaining clinical trials and filed an application with the FDA for approval of the OraQuick ® device for use with both oral fluid and plasma samples. 
+We believe that an OraQuick ® device which is approved for detecting antibodies to both HIV-1 and 2 on multiple sample types would enhance the versatility of our OraQuick ® test, provide a significant competitive advantage, and
+allow us to more fully implement a strategy to sell OraQuick ® internationally. However, there is no assurance that we will receive FDA approval of an HIV-2 claim or claims for oral fluid and plasma. 
+We have approached Bio-Rad about securing a world-wide non-exclusive license for HIV-2 and have completed negotiation of a
+license agreement that we believe is complete and satisfactory to both parties. Bio-Rad is now in the process of securing the necessary signatures and approval from several other licensees and other relevant parties. 
+Sales to the substance abuse testing market increased 13% to approximately
+$7.3 million in 2003 as a result of higher sales of our Intercept ® oral fluid collection device and related drug assays in the workplace, criminal justice and international marketplaces, which more than offset the absence of approximately $400,000 in laboratory equipment sales
+included in our substance abuse testing market revenues in 2002. Sales of our Intercept ® device and related drug assays in 2003 increased 37%, or by approximately $1,150,000 over the comparable period in 2002. We expect continued growth in Intercept ® sales in 2004 as customers shift from urine-based to oral-fluid based testing methods.
+In September 2003, we filed an application with the FDA for
+510(k) clearance of our UP link ® rapid
+point-of-care oral fluid drug detection system, including assays for the detection of drugs of abuse commonly identified by the National Institute for Drug Abuse (“NIDA”) as the NIDA-5, i.e. cocaine, opiates, amphetamines/methamphetamines,
+PCP and marijuana. We do not expect to generate revenues from the sale of this product until mid-2004, when our partner, Dräger Safety, is expected to begin distributing this product primarily in the roadside testing market in Europe.
+Sales of our products in the cryosurgical systems market
+(which includes both the physicians’ office and OTC markets) increased 51% to approximately $10.8 million in 2003. This increase was primarily the result of $5.0 million of sales of our OTC cryosurgical system to MedTech Holdings, Inc.
+(“MedTech”), the owner of the Compound W ® 
+line of wart removal products, offset by lower sales of Histofreezer ® in the professional markets in both the U.S. and international markets. We entered into an agreement with MedTech following receipt of FDA 510(k) clearance in February 2003 for the sale of Histofreezer ® in the OTC market in the U.S. 
+The product, which was launched by MedTech in the third quarter of 2003, is
+called Freeze Off ™ and is being sold under
+MedTech’s Compound W ® trademark. The five-year
+distribution agreement requires minimum purchases by MedTech of at least $2.0 million each year over the life of the contract in order for MedTech to maintain its exclusive distribution rights to the OTC market in the U.S. However, based on
+additional purchase orders received to date, we expect sales of product to MedTech to reach at least $5.0 million during the first half of 2004. 
+Sales of our Histofreezer ® product to physicians’ offices in the U.S. and international markets declined 23% and 2% to approximately $4.3 million and $1.5 million,
+respectively, in 2003, when compared to 2002, as a result of lower distributor purchases. We anticipate that U.S. sales of Histofreezer ® in the professional market will decrease further in the first quarter of 2004 compared to the fourth quarter of 2003, as a result of a 
+39 
+Table of Contents 
+preannounced price increase which became effective in December 2003. This type of price increase normally causes distributors to purchase additional product
+in advance of the increase. We are investing in promotional programs to raise the brand awareness of Histofreezer ® in the U.S. marketplace and expect our 2004 full-year revenues to increase over 2003 and approximate the revenue levels generated in 2002 as a result of a focused sales and marketing
+effort. Sales in the international market are expected to remain at approximately the 2003 levels until we are able to secure additional distributors in countries where the product is currently not sold. 
+It is possible that sales of the Freeze Off ™ product in the U.S. OTC market may reduce the number of individuals that will
+seek to obtain treatment of their warts by a physician, which in turn could negatively affect sales of our Histofreezer ® product in the professional market. However, it is not possible at this time to estimate the timing or financial impact of such a change, if it occurs
+at all. 
+Lab One , our largest customer, accounted for
+approximately 19% and 26% of total revenues for 2003 and 2002, respectively. MedTech accounted for approximately 12% of total revenues for 2003, their first year of business with us. 
+Licensing and product development revenues increased 124% to approximately $711,000 in 2003, from approximately $318,000 in
+the comparable period in 2002. Licensing and product development revenues in 2003 were primarily related to our collaborative UP link ® and oral fluid research project with the University of Pennsylvania, under a grant awarded by the National Institutes of Health. The current phase of
+this grant expires in June 2004 and we expect to receive approximately $350,000 in additional revenues through that date. Further revenues beyond June 2004 will depend on progress achieved in the research and future funding awarded by the National
+Institutes of Health. 
+The Company’s gross margin was 60%
+in 2003, which was unchanged from 2002. Our gross margin was positively impacted by increased sales of Intercept ® devices and related assays and more efficient utilization of our manufacturing capacity resulting in lower scrap and spoilage and better absorption of overhead. Offsetting these were
+negative contributions realized through lower urine assay and reagent sales in the insurance risk assessment market and the lower sales of Histofreezer ® in the U.S. professional market. 
+Research and development expenses decreased 3% to approximately $8.0 million in 2003, from approximately $8.3 million for the comparable period in 2002,
+primarily as a result of lower staffing costs, partially offset by higher outside consulting fees. Research and development costs are expected to decrease as a result of lower clinical trial and product transfer costs in 2004. 
+Sales and marketing expenses increased 33% to approximately $10.8 million in
+2003 from approximately $8.1 million in 2002. This increase was primarily the result of higher expenditures for advertising and collateral marketing materials, travel, compensation expense, market research and public relations fees. Included in the
+advertising expense for 2003 was $1.1 million paid to MedTech as reimbursement for marketing expenses incurred for the Compound W ® Freeze Off ™ product. We expect sales and marketing expenses to increase significantly during 2004 as a result of our recruitment and deployment of a sales force focused on selling our OraQuick ® test in the hospital market. Sales and marketing
+expenses are also expected to increase as we attempt to increase market awareness for our OraQuick ® , Intercept ® and Histofreezer ® 
+products. Pursuant to our agreement with MedTech, we will also continue to co-invest in MedTech’s marketing activities for the Compound W ® Freeze Off ™ product, and we will reimburse MedTech, on a declining basis over the first four years of the agreement, for a portion of MedTech’s out-of-pocket costs of advertising and promoting
+this product in the OTC market. 
+General and administrative
+expenses increased 9% to approximately $6.9 million in 2003 from approximately $6.3 million in 2002. This increase was primarily attributable to higher facility-related expenses, partially offset by the absence of a $500,000 severance charge related
+to the departure of the Company’s former Chief Executive Officer in 2002. General and administrative expenses are expected to increase in 2004 as a result 
+40 
+Table of Contents 
+of the additional costs to comply with the requirements of the Sarbanes-Oxley Act of 2002 and higher professional fees. 
+Interest expense decreased to approximately $190,000 in 2003 from
+approximately $285,000 in 2002, as a result of lower effective interest rates. Interest income decreased to approximately $425,000 in 2003 from approximately $483,000 in 2002, as a result of lower interest rates on investments, partially offset by
+significantly higher investment balances in the fourth quarter of 2003 as a result of investing approximately $44.8 million in net proceeds from our October 2003 common stock offering. 
+During the year ended December 31, 2003, a $59,000 loss on foreign currency transactions was recorded. 
+During the year ended December 31, 2003, a provision for foreign income taxes
+of approximately $27,000 was recorded. 
+Twelve Months Ended December 31,
+2002 Compared to December 31, 2001 
+Total revenues
+decreased 2% to approximately $32.0 million in 2002 from approximately $32.6 million in 2001. The decline in 2002 revenues was primarily the result of a $1.2 million decrease in licensing and product development revenues, partially offset by higher
+product revenues. Product revenues were approximately $31.7 million in 2002, representing an increase of 2% over 2001 levels. 
+The table below shows the amount of our total revenues (in thousands, except %) generated in each of our principal markets and by licensing and product
+development activities. 
+Dollars 
+Percentage 
+Change 
+Inc. (Dec.) 
+Percentage of 
+Total Revenues (%) 
+2002 
+2001 
+2002 
+2001 
+Market revenues 
+Insurance risk assessment 
+$ 
+12,030 
+$ 
+11,713 
+3 
+% 
+38 
+% 
+36 
+% 
+Infectious disease testing 
+6,063 
+5,754 
+5 
+19 
+18 
+Substance abuse testing 
+6,434 
+6,955 
+(7 
+) 
+20 
+21 
+Cryosurgical systems 
+7,165 
+6,674 
+7 
+22 
+20 
+Product revenues 
+31,692 
+31,096 
+2 
+99 
+95 
+Licensing and product development 
+318 
+1,477 
+(78 
+) 
+1 
+5 
+Total revenues 
+$ 
+32,010 
+$ 
+32,573 
+(2 
+)% 
+100 
+% 
+100 
+% 
+Sales to the insurance
+risk assessment market increased by 3% to approximately $12.0 million in 2002 from approximately $11.7 million in 2001, as a result of increased sales of our OraSure ® laboratory-based HIV-1 test, partially offset by lower sales of our urine assays and reagents. Sales of our urine
+assays and reagents faced increased competition as the laboratories that purchase these products were facing pressure from their insurance customers to reduce the cost of testing services. As a result, these laboratories reduced their purchases of
+our products and instead used lower cost internally developed assays or reagents (i.e., home-brews) or testing products purchased from our competitors. 
+Sales to the infectious disease testing market increased 5% to approximately $6.1 million in 2002 from approximately $5.8 million in 2001, as a result of
+a $0.6 million increase in sales of our OraSure ® 
+laboratory-based HIV-1 test into the public health market, offset by a $324,000 decrease in international sales of the OraQuick ® rapid HIV antibody test. In June 2002, we entered into an agreement with Abbott Laboratories for the co-exclusive distribution of the OraQuick ® test in the United States. We received FDA approval of
+the OraQuick ® test for detecting HIV-1 in
+finger-stick whole blood samples in November 2002 and received a CLIA waiver for this product in January 2003. We shipped an initial order for approximately $218,000 of OraQuick ® 
+41 
+Table of Contents 
+devices to Abbott in the fourth quarter of 2002, representing our first domestic sale of this product following FDA approval. 
+Sales to the substance abuse testing market decreased 7% to approximately
+$6.4 million in 2002 from approximately $7.0 million in 2001, primarily as a result of a decrease of approximately $500,000 in sales of laboratory equipment manufactured by third party vendors and the absence of approximately $500,000 in sales of
+UP link ® analyzers, which occurred in 2001,
+coupled with a $50,000 decrease in sales of domestic substance abuse products. Offsetting this aggregate decrease was an approximate $500,000 increase in international sales of our Intercept ® collection device and related assays. 
+Sales to the cryosurgical systems market, which consisted solely of our
+Histofreezer ® wart removal system to
+physicians’ offices, increased 7% to approximately $7.2 million in 2002 from approximately $6.7 million in 2001, as a result of increased product sales in the United States partially offset by lower international sales. The increase in domestic
+sales of Histofreezer ® was partially attributable
+to distributors increasing their inventory levels in the fourth quarter of 2002 as a result of an announced price increase in the U.S. market, which became effective in December 2002. 
+As a percentage of total revenues, international revenues decreased to approximately 12% in 2002 from approximately 16% in
+2001, with Histofreezer ® accounting for
+approximately 48% of 2002 international revenues. This decrease was primarily attributable to lower international sales of OraQuick ® and the absence of UP link ® analyzer sales to Dräger, which occurred in 2001. 
+Lab One , our largest customer, and Osborne Group, which was acquired by Lab One in 2001, together accounted for approximately 26% and 29% of
+total revenues in 2002 and 2001, respectively. 
+Licensing and
+product development revenues decreased 78% to approximately $318,000 in 2002 from approximately $1.5 million in 2001, reflecting a significant drop in funded research and development. During 2001, licensing and product development revenues were
+primarily derived from the continued development of the UP link ® drugs-of-abuse rapid detection system under our agreement with Dräger, development of infectious disease applications for UP link ® under our agreement with Meridian Bioscience, and the second phase of a grant from the National Institutes of Health
+(“NIH”) for the development of an oral fluid syphilis test. The decrease in 2002 resulted from the absence of research and development funding from both Dräger and Meridian, as our projects with these companies advanced to a stage
+where we became responsible for funding, and the termination of work under the NIH grant for the development of the syphilis test. 
+Our gross margin decreased to approximately 60% in 2002 from 62% in 2001. This decrease was primarily the result of lower licensing and product
+development revenues, partially offset by a more favorable product mix and our ongoing cost savings efforts. Additionally, as we prepared for FDA approval and the commercial launch of OraQuick ® in the United States during 2002, we incurred substantial expenses related to staffing,
+materials and overhead. These expenses were included in our cost of goods throughout 2002, however, we did not begin to generate revenues from OraQuick ® until the initial sales of this product in the United States in December 2002. We also recognized approximately $1.4 million of inventory
+scrap in 2002. 
+Research and development expenses declined 12%
+to approximately $8.3 million in 2002 from approximately $9.4 million in 2001. Decreased expenditures for staffing, consulting and travel were partially offset by increased clinical trial costs related to our efforts to obtain FDA approval of the
+OraQuick ® rapid HIV-1 antibody test. 
+Sales and marketing expenses increased 1% to approximately $8.1 million in
+2002 from approximately $8.0 million in 2001. This increase was primarily the result of additional consulting fees for the development of our strategic marketing plans and increased staffing costs, offset by lower travel expenses, sales commissions
+and freight costs. 
+42 
+Table of Contents 
+General and administrative expenses declined 6% to approximately $6.3 million in 2002 from approximately
+$6.8 million in 2001. This decrease was primarily the result of lower legal, recruiting, and staffing costs offset by an approximate $500,000 severance charge related to the departure of our former Chief Executive Officer in the first quarter of
+2002. 
+Restructuring-related expenses were $450,000 in 2001.
+These costs included expenses for employee severance and travel and transport resulting from relocating and consolidating manufacturing operations. There were no such costs in 2002. 
+Interest expense decreased by 29% to approximately $285,000 in 2002 from approximately $403,000 in 2001, as a result of
+lower average outstanding borrowings and lower effective interest rates. 
+Interest income decreased by 48% to approximately $483,000 in 2002 from approximately $933,000 in 2001, as a result of lower cash and cash equivalents available for investment and lower interest rates. 
+Gain on the sale of securities was $100,000 in 2001 as a result of the sale
+of Lab One common stock we received as part of an Intercept ® distribution agreement with Lab One, entered into in 1999. There were no such sales in 2002. 
+Liquidity and Capital Resources 
+December 31, 
+2003 
+December 31, 
+2002 
+(In thousands) 
+Cash and cash equivalents 
+$ 
+30,695 
+$ 
+4,364 
+Short-term investments 
+33,329 
+10,544 
+Working capital 
+67,171 
+18,931 
+The Company’s
+cash, cash equivalents and short-term investments increased approximately $49.1 million during 2003 to approximately $64.0 million at December 31, 2003, primarily as a result of the Company’s common stock offering that raised $44.8 million,
+proceeds of $3.7 million from stock option exercises and $2.7 million in cash flow from operations offset by net debt reduction of $0.9 million and purchases of capital equipment and licenses of $1.2 million. At December 31, 2003, the Company’s
+working capital was approximately $67.2 million. 
+Net cash
+provided by operating activities was approximately $2.7 million in 2003, an increase of approximately $3.2 million from the $500,000 used in operations in 2002. The $2.7 million of cash provided by operating activities resulted primarily from an
+increase in accounts payable and accruals, together with depreciation and amortization offset by the Company’s net loss for the year of $1.1 million and a $3.0 million increase in accounts receivable. Accounts receivable are expected to grow as
+our sales increase and the proportion of sales increase to parties such as the CDC and MedTech, which have 60-day payment terms. 
+Net cash used in investing activities during 2003 was $24.0 million. We purchased approximately $1.0 million of property and equipment and expended
+$250,000 on licenses, product supply and distribution agreements. Additionally, we purchased a net of $22.8 million of short-term investments. 
+Capital expenditures are anticipated to increase during 2004 to approximately $3.0 million as a result of additional commitments we have made for the
+purchase and installation of manufacturing and research and development equipment. We also expect to purchase additional information systems equipment and to upgrade certain older equipment in 2004. 
+Net cash provided by financing activities was approximately $47.7 million,
+reflecting the proceeds of $44.8 million received from the sale of common stock and approximately $3.7 million from the exercise of stock options, offset by approximately $0.9 million of net loan principal repayments. 
+43 
+Table of Contents 
+In September 2002, we entered into a $10.9 million credit facility (the “Credit Facility”) with
+Comerica Bank. The Credit Facility, when originally executed, was comprised of an $887,000 mortgage loan, a $3.0 million term loan, a $3.0 million non-revolving equipment line of credit, and a $4.0 million revolving working capital line of credit.
+In September 2003, we executed an amendment to the Credit
+Facility. Pursuant to this amendment, the $3.0 million non-revolving equipment line of credit (the “Original Non-Revolving Line”) was replaced with a new $4.0 million non-revolving line of credit for the purchase of both capital equipment
+and software (the “New Non-Revolving Line”). As a result, the Original Non-Revolving Line has expired and any new non-revolving borrowings for equipment or software will be made under the New Non-Revolving Line. Borrowings outstanding
+under the Original Non-Revolving Line at the time of the amendment will not be applied against the credit limit for the New Non-Revolving Line and will remain payable in accordance with their original terms. The amendment also extended the maturity
+date of the $4.0 million revolving working capital line of credit for one year, and provided for certain modifications to our financial covenants under the Credit Facility. The term loan and mortgage were not affected by the amendment. 
+The $887,000 mortgage loan matures in September 2012, bears interest at an
+annual floating rate equal to Comerica’s prime rate, and is repayable in fixed monthly principal and interest installments of $7,426 through September 2007, at which time the interest rate and fixed monthly repayment amount will be reset for
+the remaining 60 monthly installments. The outstanding balance of the loan at December 31, 2003 was $820,796. 
+The $3.0 million term loan matures in March 2006, bears interest at a fixed rate of 4.99% and is repayable in forty-two consecutive equal monthly
+principal payments of $71,429, plus interest. The outstanding balance of the loan at December 31, 2003 was $1,928,571. 
+Under the New Non-Revolving Line, we can borrow up to $4.0 million to finance eligible equipment and software purchases through December 31, 2004.
+Interest on outstanding borrowings accrues at a rate, selected at our option, equal to Comerica’s prime rate, 180-day or 360-day LIBOR plus 2.625%, or the 4-year Treasury Note Rate plus 2.30%, determined at the time of each borrowing.
+Borrowings are repayable in 48 (for equipment purchases) or 36 (for software purchases) consecutive, equal monthly principal installments, plus interest. We had no outstanding borrowings under this facility at December 31, 2003. 
+As of December 31, 2003, we had an outstanding balance of $493,095 under the
+Original Non-Revolving Line consisting of four individual loans of (i) $131,843 with a fixed annual interest rate of 5.07%, (ii) $182,904 with a floating annual interest rate equal to Comerica’s prime rate of 4.0% at December 31, 2003, (iii)
+$88,304 with a floating annual interest rate equal to Comerica’s prime rate of 4.0% at December 31, 2003, and (iv) $90,044 with a floating annual interest rate equal to Comerica’s prime rate of 4.0% at December 31, 2003. 
+Under the revolving working capital line of credit, we can borrow up to $4.0
+million to finance working capital and other needs. Interest on outstanding borrowings accrues at a rate, selected at our option, equal to Comerica’s prime rate less 0.25%, or 30-day LIBOR plus 2.55%, determined at the time of the initial
+borrowing. Borrowings are repayable by September 10, 2004, with interest payable monthly. We had no outstanding borrowings under this facility at December 31, 2003. 
+All borrowings under the Credit Facility are collateralized by a first priority security interest in all of our assets,
+including present and future accounts receivable, chattel paper, contracts and contract rights, equipment and accessories, general intangibles, investments, instruments, inventories, and a mortgage on our manufacturing facility in Bethlehem,
+Pennsylvania. Borrowings under the equipment and software non-revolving line and the revolving working capital line are limited to commercially standard percentages of equipment and software purchases and accounts receivable, respectively. The
+Credit Facility contains certain covenants that set forth minimum requirements for our quick ratio, liquidity, and tangible net worth. We were in full compliance with all covenants during 2003 and expect to remain in compliance with all covenants
+during 2004. The Credit Facility 
+44 
+Table of Contents 
+also restricts our ability to pay dividends, to make certain investments, to incur additional indebtedness, to sell or otherwise dispose of a substantial
+portion of assets, and to merge or consolidate operations with an unaffiliated entity, without the consent of Comerica. 
+In October 2002, we entered into new agreements with bioMérieux, Inc. (“BMX”), which replaced existing agreements between the parties,
+for the supply by BMX of HIV-1 antigen required to manufacture our oral fluid Western Blot HIV-1 confirmatory test, and for the distribution by BMX of the oral fluid Western Blot product on an exclusive worldwide basis. These agreements have an
+initial term ending December 31, 2005, which may be extended until December 31, 2007 under certain circumstances. As consideration for BMX entering into the new agreements, we paid BMX $750,000 in installments through March 31, 2003. 
+We have entered into a ten-year facility lease with Tech III Partners, LLC
+(“Tech Partners”), an entity owned and controlled by two of our executive officers (See “Certain Relationships and Related Transactions,” included herein). Under the terms of this operating lease, we began leasing a 48,000
+square-foot facility in October 2002 at a base rent of $780,000 per year, increasing to $858,240 per year, during the initial ten-year term. The base rental may be increased after the fifth year of the initial term in order to reflect changes in the
+interest rate on debt incurred by Tech Partners to finance construction of the leased facilities. We have not guaranteed any debt incurred by Tech Partners. The lease also provides us with options to renew the lease for an additional five years at a
+rental rate of $975,360 per year, and to purchase the facility at any time during the initial ten-year term based on a formula set forth in the lease. 
+The combination of our current cash position and available borrowings under our Credit Facility is expected to be sufficient to fund our foreseeable
+operating and capital needs. However, our cash requirements may vary materially from those now planned due to many factors, including, but not limited to, the scope and timing of strategic acquisitions, the cost and timing of the expansion of our
+manufacturing capacity, the progress of our research and development programs, the scope and results of clinical testing, the magnitude of capital expenditures, changes in existing and potential relationships with business partners, the time and
+cost of obtaining regulatory approvals, the costs involved in obtaining and enforcing patents, proprietary rights and any necessary licenses, the cost and timing of expansion of sales and marketing activities, the timing of commercial launch of new
+products, market acceptance of new products, competing technological and market developments, the potential exercise of our options to purchase one, or both, of our leased facilities in Bethlehem, Pennsylvania, and other factors. 
+Contractual Obligations and Commercial
+Commitments . The following sets forth our approximate aggregate obligations at December 31, 2003 for future payments under contracts and other contingent commitments, for the years 2004 and beyond: 
+Payments due by December 31, 
+Contractual Obligations 
+Total 
+2004 
+2005 
+2006 
+2007 
+2008 
+Thereafter 
+Long-term debt(1) 
+$ 
+3,582,877 
+$ 
+1,126,423 
+$ 
+1,130,071 
+$ 
+478,806 
+$ 
+138,062 
+$ 
+122,249 
+$ 
+587,266 
+Operating leases(2) 
+7,912,520 
+1,481,881 
+888,984 
+780,000 
+783,108 
+798,854 
+3,179,693 
+Employment contracts(3) 
+817,127 
+817,127 
+— 
+— 
+— 
+— 
+— 
+Purchase obligations(4) 
+3,121,469 
+3,121,469 
+— 
+— 
+— 
+— 
+— 
+Minimum commitments under contracts(5) 
+1,650,000 
+300,000 
+225,000 
+225,000 
+225,000 
+225,000 
+450,000 
+Total contractual obligations 
+$ 
+17,083,993 
+$ 
+6,846,900 
+$ 
+2,244,055 
+$ 
+1,483,806 
+$ 
+1,146,170 
+$ 
+1,146,103 
+$ 
+4,216,959 
+(1) 
+Represents principal repayments required under notes payable to our lenders. See Note 8 to the financial statements included herein. 
+(2) 
+Represents payments required under our operating leases. See Notes 11 and 12 to the financial statements included herein. 
+45 
+Table of Contents 
+(3) 
+Represents salary, retention bonus or severance payments payable under the terms of employment agreements executed by us with certain officers and employees. See Note 11 to the
+financial statements included herein. 
+(4) 
+Represents payments required by non-cancelable purchase orders related to inventory, capital expenditures and other goods or services. See Note 11 to the financial statements
+included herein. 
+(5) 
+Represents payments required pursuant to certain research, licensing and royalty agreements executed by the Company. See Note 11 to the financial statements included herein.
+Off-Balance Sheet
+Arrangements . We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended. 
+Critical Accounting Policies and Estimates 
+Management’s Discussion and Analysis of Financial Condition and Results
+of Operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that we make estimates and
+assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an
+on-going basis, we evaluate our judgments and estimates, including those related to bad debts, inventories, investments, intangible assets, income taxes, revenue recognition, restructuring costs, contingencies, and litigation. We base our judgments
+and estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not
+readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 
+Our significant accounting policies are described in Note 2 to the financial statements included in Item 15 of this Report. We consider the following
+accounting estimates, which have been discussed with our Audit Committee, to be most critical in understanding the more complex judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of
+operations, financial condition, and cash flows. 
+Revenue
+Recognition . We follow U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB No. 104”). This bulletin draws on existing accounting rules and provides
+specific guidance on revenue recognition of up-front non-refundable licensing and development fees. We license certain products or technology to outside third parties, in return for which we receive up-front licensing fees. Some of these fees can be
+significant. In accordance with SAB No. 104, we recognize this revenue ratably over the related license period. 
+We also enter into research and development contracts with corporate, government and/or private entities. These contracts generally provide for payments
+to us upon achievement of certain research or development milestones. Product development revenues from these contracts are recognized only if the specified milestone is achieved and accepted by the customer and payment from the customer is
+probable. Any amounts received prior to the performance of product development efforts are recorded as deferred revenues. Recognition of revenue under these contracts can be sporadic, as it is the result of achieving specific research and
+development milestones. Furthermore, revenue from future milestone payments will not be recognized if the underlying research and development milestone is not achieved. 
+We recognize product revenues when there is persuasive evidence that an arrangement exists, the price is fixed or
+determinable, title has passed and collection is reasonably assured. Product revenues are net of allowances for any discounts or rebates. We do not grant price protection or product return rights to our customers, except for warranty returns. Where
+a product fails to comply with its limited warranty, we can either replace the product or provide the customer with a refund of the purchase price or credit against future purchases. 
+46 
+Table of Contents 
+Historically, returns arising from warranty issues have been infrequent and immaterial. Accordingly, we expense warranty returns as incurred. While such
+returns have been immaterial in the past, we cannot guarantee that we will continue to experience the same rate of warranty claims as we have in the past. Any significant increase in product warranty claims could have a material adverse impact on
+our operating results for the period in which the claims occur. 
+Allowance for Uncollectible Accounts Receivable . Accounts receivable are reduced by an estimated allowance for amounts that may become uncollectible in the future. On an ongoing basis, we perform credit
+evaluations of our customers and adjust credit limits based upon the customer’s payment history and creditworthiness, as determined by a review of their current credit information. We also continuously monitor collections and payments from our
+customers. 
+Based upon historical experience and any specific
+customer collection issues that are identified, we use our judgment to establish and evaluate the adequacy of our allowance for estimated credit losses, which was $359,158 at December 31, 2003. While credit losses have been within our expectations
+and the allowance provided, these losses can vary from period to period ($88,659, $213,188 and $5,193 in 2003, 2002 and 2001, respectively). Furthermore, there is no assurance that we will experience credit losses at the same rates as we have in the
+past. Also, at December 31, 2003, approximately $2.5 million or 31% of our accounts receivable were due from two major customers. Any significant changes in the liquidity or financial position of these customers, or others, could have a material
+adverse impact on the collectibility of our accounts receivable and future operating results. 
+Inventories . Our inventories are valued at the lower of cost or market, determined on a first-in, first-out basis, and include the cost of raw materials, labor and overhead. The majority
+of our inventories are subject to expiration dating. We continually evaluate the carrying value of our inventories and when, in the opinion of management, factors indicate that impairment has occurred, either a reserve is established against the
+inventories’ carrying value or the inventories are completely written off. We base these decisions on the level of inventories on hand in relation to our estimated forecast of product demand, production requirements over the next twelve months
+and the expiration dates of raw materials and finished goods. During 2003, 2002 and 2001, we wrote-off inventory which had a cost of approximately $500,000, $1.4 million and $0.6 million, respectively, as a result of scrap levels and product
+expiration issues. Forecasting product demand can be a complex process, especially for a new product such as our OraQuick ® rapid HIV-1 antibody test, which was launched in the United States in November 2002. Although we make every effort to ensure the accuracy of our
+forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact on the carrying value of our inventories and reported operating results. 
+Long-lived and Intangible Assets . Our
+long-lived assets are comprised of property and equipment and an investment in a nonaffiliated entity, and our intangible assets primarily consist of patents and product rights. Together, these assets have a net book value of approximately $9.0
+million or 10% of our total assets at December 31, 2003. Our investment in a privately-held nonaffiliated company is recorded under the cost method of accounting because we do not have a controlling interest in this company nor do we have the
+ability to exert significant influence over the operating and financial policies of this investee company. Property and equipment, patents and product rights are amortized on a straight-line basis over their useful lives, which we determine based
+upon our estimate of the period of time over which each asset will generate revenues. An impairment of long-lived or intangible assets could occur whenever events or changes in circumstances indicate that the net book value of these assets may not
+be recoverable. Events which could trigger an asset impairment include significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of our use of an asset or in our strategy
+for our overall business, significant negative industry or economic trends, shortening of product life-cycles or changes in technology, and negative financial performance of our nonaffiliated investee company. If we believe impairment of an asset
+has occurred, we measure the amount of such impairment by comparing the net book value of the affected assets to the fair value of these assets, which is generally determined based upon the present value of the expected cash flows associated with
+the 
+47 
+Table of Contents 
+use of these assets. If the net book value exceeds the fair value of the impaired assets, we would incur an impairment expense equal to this difference. We
+currently believe the future cash flows to be received from our long-lived and intangible assets will exceed their book value and, as such, we have not recognized any impairment losses through December 31, 2003. Any unanticipated significant
+impairment in the future, however, could have a material adverse impact to our balance sheet and future operating results. 
+Deferred Tax Assets . At December 31, 2003, we have federal net operating loss (“NOL”) carryforwards of
+approximately $76.6 million. The deferred tax asset associated with these NOLs and other temporary differences is approximately $31.7 million at December 31, 2003. In assessing the realizability of deferred tax assets, we consider whether it is more
+likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary
+differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon our cumulative and recent history of losses and
+projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe that a full valuation allowance is necessary at December 31, 2003. Our level of future profitability could cause us to conclude that
+all or a portion of the deferred tax asset will be realizable. Upon reaching such a conclusion, we would immediately record the estimated net realizable value of the deferred tax asset and would begin to provide for income taxes at a rate equal to
+our combined federal and state effective rates, which we believe would approximate 40%. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period
+to period. 
+Contingencies . In the
+ordinary course of business, we have entered into various contractual relationships with strategic corporate partners, customers, distributors, research laboratories and universities, licensors, licensees, suppliers, vendors and other parties. As
+such, we could be subject to litigation, claims or assessments arising from any or all of these relationships. We account for contingencies such as these in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5,
+“Accounting for Contingencies.” SFAS No. 5 requires us to record an estimated loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a
+liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies arising from contractual or legal proceedings requires that we use our best judgment when
+estimating an accrual related to such contingencies. As additional information becomes known, our accrual for a loss contingency could fluctuate, thereby creating variability in our results of operations from period to period. Likewise, an actual
+loss arising from a loss contingency which significantly exceeds the amount accrued for in our financial statements could have a material adverse impact on our operating results for the period in which such actual loss becomes known. 
+Certain Relationships and Related Transactions 
+We have entered into a commercial lease (the “Lease”) with Tech
+III Partners, LLC (“Tech Partners”), which provided for the construction of a 48,000 square foot facility on land adjacent to our Bethlehem, Pennsylvania headquarters, and the lease of that facility to us. Tech Partners is owned and
+controlled by Michael J. Gausling, the Company’s President and Chief Executive Officer, and Dr. R. Sam Niedbala, the Company’s Executive Vice President and Chief Science Officer. The facility houses manufacturing and administrative
+operations required to support the expected growth of our business. Construction of the facility was completed in October 2002. 
+The Lease, as amended, has an initial ten-year term ending in October 2012 and a base rent starting at $780,000 and increasing to $858,240 per year over
+that term. The base rental rate may be increased after the fifth year of the initial term in order to reflect changes in the interest rate on debt incurred by Tech Partners to finance construction of the leased facilities. We have not guaranteed any
+debt incurred by Tech Partners. The Lease also provides us with options to renew the Lease for an additional five years at a rental rate of $975,360 per year, and to purchase the facility at any time during the initial ten-year term based on a
+formula set forth in the Lease. 
+48 
+Table of Contents 
+Prior to deciding to enter into the Lease and an amendment increasing the base rental to reflect the cost
+of certain tenant fit-out improvements, our Board of Directors retained Imperial Realty Appraisal LLC, an independent commercial real estate appraisal firm, to evaluate the proposed base rental rate. Imperial Realty issued opinions indicating that
+the annual base rent set forth in the Lease, as amended, is below the market rental rate we could otherwise expect to pay to lease a comparable commercial property in the same general geographic market. The terms of the Lease are otherwise
+substantially similar to a commercial lease we entered into with a third party for our existing Bethlehem, Pennsylvania headquarters. 
+In January 2002, we terminated the employment agreement with Robert D. Thompson, our former Chief Executive Officer, and Mr. Thompson entered into a
+severance agreement pursuant to which Mr. Thompson received approximately $480,000. We also held a $75,000 note receivable previously made to Mr. Thompson in connection with his relocation from Portland, Oregon, which was repaid during 2002.
+Recent Accounting Pronouncements 
+In December 2003, the Financial Accounting Standards Board
+(“FASB”) issued FASB Interpretation No. 46 (Revised), “Consolidation of Variable Interest Entities” (“FIN No. 46R”), which addresses how a business enterprise should evaluate whether it has a controlling financial
+interest in an entity through means other than voting rights, and accordingly should consolidate the entity. FIN No. 46R replaces FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” which was issued in January 2003.
+We will be required to apply FIN No. 46R to variable interests in variable interest entities created after December 31, 2003. For variable interests in variable interest entities created before January 1, 2004, FIN No. 46R will be applied beginning
+on January 1, 2005. We do not currently have any variable interests in variable interest entities. As such, the application of FIN No. 46R is not expected to have a material effect on our financial position, results of operations or cash flows.
+In April 2003, the FASB issued SFAS No. 149, “Amendment
+of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 138 “Accounting for Certain Derivative Instruments
+and Certain Hedging Activities” and is related to certain derivatives embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 was effective for contracts entered into or modified after June 30, 2003. We do not
+employ derivative instruments or engage in hedging activities. Accordingly, SFAS No. 149 currently has not had an impact on our financial position, results of operations or cash flows. 
+In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of Both
+Liabilities and Equity.” SFAS No. 150 establishes standards for how companies classify and measure, in their statement of financial position, certain financial instruments with characteristics of both liabilities and equities. SFAS No. 150 was
+effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. We do not have any financial instruments which embody the
+characteristics of SFAS No. 150. As such, SFAS No. 150 currently has not had any impact on our financial position, results of operations or cash flows. 
+ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk. 
+We do not hold any amounts of derivative financial instruments or derivative commodity instruments and, accordingly, we have no material derivative risk
+to report under this Item. 
+Our holdings of financial
+instruments are comprised of certificates of deposit, commercial paper, U.S. government and agency obligations, state and local government agency obligations, and U.S. corporate bonds. All such instruments are classified as available-for-sale
+securities. Our debt security portfolio represents funds held temporarily pending use in our business and operations. We seek reasonable assuredness of the safety of principal and market liquidity by investing in rated fixed income securities while
+at the same time seeking to 
+49 
+Table of Contents 
+achieve a favorable rate of return. Market risk exposure consists principally of exposure to changes in interest rates. If changes in interest rates would
+affect the investments adversely, we could decide to hold the security to maturity or sell the security. Our holdings are also exposed to the risks of changes in the credit quality of issuers. We typically invest in the shorter end of the maturity
+spectrum. 
+We do not currently have any foreign currency
+exchange contracts or purchase currency options to hedge local currency cash flows. We have operations in The Netherlands, which are subject to foreign currency fluctuations. As currency rates change, translation of revenues and expenses for these
+operations from euros to U.S. dollars affects year-to-year comparability of operating results. Sales denominated in a foreign currency represented approximately $1.6 million or 4.0% of our total revenues for the year ended December 31, 2003. We do
+not expect the risk of foreign currency fluctuations to be material. 
+ITEM 8. Financial Statements and Supplementary Data. 
+Information with respect to this Item is contained in our Financial Statements included in Item 15 of this Annual Report on Form 10-K. 
+Arthur Andersen LLP (“Andersen”) audited the Company’s
+financial statements as of December 31, 2001 and for the twelve-month period ended December 31, 2001. Because our former engagement team leaders have since left Andersen, Andersen did not reissue its report on those financial statements, and a copy
+of a previously issued report is included herein. Andersen has not consented to the use of such report or to any reference made to their firm in this Report. Andersen was convicted on June 15, 2002 of federal obstruction of justice arising from the
+government’s investigation of Enron Corp. You may have no effective remedy against Andersen in connection with a material misstatement or omission in the financial statements audited by Andersen, particularly in the event that Andersen ceases
+to exist or becomes insolvent as a result of the conviction or other proceedings against Andersen. 
+Additionally, as a result of the departure of our former engagement team leaders, Andersen is no longer in a position to consent to the inclusion or
+incorporation by reference in any prospectus of their report on the above-referenced financial statements, and investors in any offerings for which the Company uses their audit report will not be entitled to recovery against them under Section 11 of
+the Securities Act of 1933, as amended, for any material misstatements or omissions in those financial statements. 
+ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 
+Not applicable. 
+ITEM 9A. Controls and Procedures 
+(a) Evaluation of Disclosure Controls and Procedures . The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has
+evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2003. Based on that evaluation, the Company’s management, including such officers, concluded that the Company’s disclosure controls and
+procedures were effective in timely alerting them to material information relating to the Company, which is required to be included in its periodic filings with the Securities and Exchange Commission. 
+(b) Changes in Internal Control Over Financial
+Reporting . The evaluation referred to in paragraph (a) of this Item did not identify any change in the Company’s internal control over financial reporting that occurred during the twelve months ended December 31, 2003
+that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. 
+50 
+Table of Contents 
+PART III 
+We have omitted from
+Part III the information that will appear in our Definitive Proxy Statement for our 2004 Annual Meeting of Stockholders (the “Proxy Statement”), which will be filed within 120 days after the end of our fiscal year pursuant to Regulation
+14A. 
+ITEM 10. Directors and Executive Officers of the Registrant. 
+Certain information required by this Item is incorporated by reference to the information under the captions, “Election of Directors,”
+“Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” in the Proxy Statement. 
+Our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer and
+principal accounting officer, as well as to the members of our Board of Directors and our other officers and employees. This Code of Business Conduct and Ethics is available on our web site, at www.orasure.com. We intend to satisfy the amendment and
+waiver disclosure requirements under applicable securities regulations by posting any amendments of, or waivers to, the Code of Business Conduct and Ethics on our web site. 
+ITEM 11. Executive Compensation. 
+The information required by this Item is incorporated by reference to the information under the caption, “Executive Compensation,” in the Proxy Statement. 
+ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 
+The information required by this Item with respect to the securities ownership of certain beneficial owners and management, and equity compensation
+plan information, is incorporated by reference to the information under the captions, “Principal Stockholders” and “Equity Compensation Plan Information,” respectively, in the Proxy Statement. 
+ITEM 13. Certain Relationships and Related Transactions. 
+The information required by this Item is incorporated by reference to the information under the captions, “Certain Relationships and Related
+Transactions” and “Employment Agreements,” in the Proxy Statement. 
+ITEM 14. Principal Accountant Fees and Services. 
+The information required by this Item is incorporated by reference to the information under the caption, “Independent Accountants,” in the Proxy
+Statement. 
+51 
+Table of Contents 
+PART IV 
+ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 
+(a)(1) and (a)(2). Financial Statements and Schedules . For a list of the Financial Statements filed herewith, see the Index
+to Financial Statements following the signature page to this Report. No schedules are included with the Financial Statements because the required information is inapplicable or is presented in the Financial Statements or related notes thereto.
+(a)(3). Exhibits . See Index to Exhibits following the
+Financial Statements in this Report. 
+(b). Reports on Form
+8-K . 
+1. Current
+Report on Form 8-K dated October 2, 2003 (i) announcing that the Company had entered into an underwriting agreement with certain underwriters for the sale of 5,000,000 shares of its common stock and (ii) including as exhibits certain documents
+required to be filed in connection with the sale of such stock. 
+2. Current Report on Form 8-K dated October 28, 2003, in which the Company announced its financial results for the quarter and nine months ended September 30, 2003, provided an update on its
+strategy for distributing OraQuick ® into the
+hospital market, and reaffirmed its financial guidance for 2003 and 2004. 
+3. Current Report on Form 8-K dated November 3, 2003, announcing the exercise of the underwriters’ overallotment option in connection with a recent public offering of the Company’s
+common stock. 
+4. Current Report on Form 8-K dated November 17, 2003, announcing that the Company will be submitting additional data to the FDA in support of an HIV-2 claim for its OraQuick ® Rapid HIV-1 Antibody Test. 
+5. Current Report on Form 8-K dated
+December 18, 2003, announcing that (i) the Company has submitted the additional data requested by the FDA in support of an HIV-2 claim for its OraQuick ® Rapid HIV-1 Antibody Test and (ii) the FDA has successfully completed a facility inspection in connection with the transfer of the
+Company’s Oregon manufacturing operations to Bethlehem, Pennsylvania. 
+52 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed
+on its behalf by the undersigned, thereunto duly authorized, on March 4, 2004. 
+ORASURE TECHNOLOGIES, INC. 
+By: 
+/s/ M ICHAEL J.
+G AUSLING 
+Michael J. Gausling 
+President and Chief Executive Officer 
+Pursuant to
+the requirements of the Securities Exchange Act of 1934, this report has been signed on March 4, 2004, by the following persons on behalf of the Registrant and in the capacities indicated. 
+SIGNATURE 
+TITLE 
+/s/ M ICHAEL J.
+G AUSLING 
+President, Chief Executive Officer and Director 
+Michael J. Gausling 
+(Principal Executive Officer) 
+/s/ R ONALD H.
+S PAIR 
+Executive Vice President and Chief Financial Officer 
+Ronald H. Spair 
+(Principal Financial Officer) 
+/s/ M ARK L.
+K UNA 
+Vice President and Controller 
+Mark L. Kuna 
+(Principal Accounting Officer) 
+*C ARTER H. E CKERT 
+Director 
+Carter H. Eckert 
+*F RANK G. H AUSMANN 
+Director 
+Frank G. Hausmann 
+*R ONNY B. L ANCASTER 
+Director 
+Ronny B. Lancaster 
+*G REGORY B. L AWLESS 
+Director 
+Gregory B. Lawless 
+*R OGER L. P RINGLE 
+Director 
+Roger L. Pringle 
+*D OUGLAS G. W ATSON 
+Director 
+Douglas G. Watson 
+By: 
+/s/ R ONALD H.
+S PAIR 
+Ronald H. Spair 
+(Attorney-in-Fact) 
+53 
+Table of Contents 
+INDEX TO FINANCIAL STATEMENTS 
+Page 
+Independent Auditors’ Report 
+F-2 
+Report of Independent Public Accountants 
+F-3 
+Balance Sheets 
+F-4 
+Statements of Operations 
+F-5 
+Statements of Stockholders’ Equity and Comprehensive Loss 
+F-6 
+Statements of Cash Flows 
+F-7 
+Notes to the Financial Statements 
+F-8 
+F-1 
+Table of Contents 
+INDEPENDENT AUDITORS’ REPORT 
+The Board of
+Directors and Stockholders 
+OraSure Technologies, Inc.: 
+We have audited the accompanying balance sheets of OraSure Technologies, Inc. as of December 31, 2003 and 2002, and the related statements of operations,
+stockholders’ equity and comprehensive loss, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
+based on our audits. The financial statements of OraSure Technologies, Inc. for the year ended December 31, 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements
+in their report dated January 31, 2002, except for the facility lease discussed in Note 12, as to which the date was March 21, 2002. 
+We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the
+audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
+includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 
+In our opinion, the financial statements referred to above present fairly, in all material
+respects, the financial position of OraSure Technologies, Inc. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United
+States of America. 
+/s/ KPMG LLP 
+Philadelphia, Pennsylvania 
+January 29, 2004, except 
+as to the second paragraph 
+of Note 15, which is as of 
+February 18, 2004 
+F-2 
+Table of Contents 
+The following is a copy of a report issued by Arthur Andersen LLP and included in the Company’s 2001 Annual
+Report on Form 10-K. This report has not been reissued by Arthur Andersen LLP, and Arthur Andersen LLP has not issued a consent to its use in this filing. 
+REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 
+To
+OraSure Technologies, Inc.: 
+We have audited the accompanying
+balance sheets of OraSure Technologies, Inc. (a Delaware corporation) as of December 31, 2001 and 2000, and the related statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2001 and 2000, the three
+months ended December 31, 1999, and the year ended September 30, 1999. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
+We did not audit the financial statements of Epitope, Inc., a company acquired during 2000 in a transaction accounted for as a pooling of interests, as discussed in Note 1. Such statements are included in the financial statements of OraSure
+Technologies, Inc. and reflect total revenues of 39 percent and 42 percent for the three months ended December 31, 1999 and year ended September 30, 1999, respectively, of the related totals. Those statements were audited by other auditors whose
+report has been furnished to us, and our opinion, insofar as it relates to amounts included for Epitope, Inc., is based solely upon the report of the other auditors. 
+We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
+require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
+financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of
+other auditors provide a reasonable basis for our opinion. 
+In
+our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of OraSure Technologies, Inc. as of December 31, 2001 and 2000, and the
+results of its operations and its cash flows for the years ended December 31, 2001 and 2000, the three months ended December 31, 1999, and the year ended September 30, 1999, in conformity with accounting principles generally accepted in the United
+States. 
+ARTHUR ANDERSEN LLP 
+Philadelphia, Pennsylvania, 
+January 31, 2002 (except for the 
+facility lease discussed in Note 12, 
+as to which the date is March 21, 2002) 
+F-3 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+BALANCE SHEETS 
+December 31, 
+2003 
+2002 
+ASSETS 
+CURRENT ASSETS: 
+Cash and cash equivalents 
+$ 
+30,695,177 
+$ 
+4,364,308 
+Short-term investments 
+33,328,610 
+10,543,876 
+Accounts receivable, net of allowance for doubtful accounts 
+of $359,158 and $292,146 
+8,233,869 
+5,197,787 
+Inventories 
+4,003,519 
+4,088,474 
+Prepaid expenses and other 
+922,820 
+925,707 
+Total current assets 
+77,183,995 
+25,120,152 
+PROPERTY AND EQUIPMENT, net 
+6,471,209 
+7,427,950 
+PATENTS AND PRODUCT RIGHTS, net 
+1,886,171 
+2,543,519 
+OTHER ASSETS 
+609,932 
+645,626 
+$ 
+86,151,307 
+$ 
+35,737,247 
+LIABILITIES AND STOCKHOLDERS’ EQUITY 
+CURRENT LIABILITIES: 
+Current portion of long-term debt 
+$ 
+1,126,423 
+$ 
+1,065,966 
+Accounts payable 
+3,511,148 
+1,801,952 
+Accrued expenses 
+5,375,851 
+3,321,509 
+Total current liabilities 
+10,013,422 
+6,189,427 
+LONG-TERM DEBT 
+2,456,454 
+3,409,362 
+OTHER LIABILITIES 
+172,142 
+119,546 
+COMMITMENTS AND CONTINGENCIES (Note 11) 
+STOCKHOLDERS’ EQUITY: 
+Preferred stock, par value $.000001; 25,000,000 shares authorized, none issued 
+— 
+— 
+Common stock, par value $.000001; 120,000,000 shares authorized, 44,260,931 and 38,100,557 shares issued and outstanding 
+44 
+38 
+Additional paid-in capital 
+204,867,765 
+155,638,314 
+Deferred compensation 
+(614,515 
+) 
+— 
+Accumulated other comprehensive loss 
+(173,704 
+) 
+(184,676 
+) 
+Accumulated deficit 
+(130,570,301 
+) 
+(129,434,764 
+) 
+Total stockholders’ equity 
+73,509,289 
+26,018,912 
+$ 
+86,151,307 
+$ 
+35,737,247 
+The accompanying notes are an integral part of these statements. 
+F-4 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+STATEMENTS OF OPERATIONS 
+For the year ended December 31, 
+2003 
+2002 
+2001 
+REVENUES: 
+Product 
+$ 
+39,740,406 
+$ 
+31,691,495 
+$ 
+31,095,850 
+Licensing and product development 
+710,879 
+318,272 
+1,477,494 
+40,451,285 
+32,009,767 
+32,573,344 
+COST OF PRODUCTS SOLD 
+16,061,457 
+12,888,556 
+12,333,695 
+Gross profit 
+24,389,828 
+19,121,211 
+20,239,649 
+OPERATING EXPENSES: 
+Research and development 
+7,999,687 
+8,274,351 
+9,389,313 
+Sales and marketing 
+10,764,642 
+8,068,879 
+7,980,496 
+General and administrative 
+6,911,242 
+6,318,513 
+6,752,326 
+Restructuring-related 
+— 
+— 
+450,000 
+25,675,571 
+22,661,743 
+24,572,135 
+Operating loss 
+(1,285,743 
+) 
+(3,540,532 
+) 
+(4,332,486 
+) 
+INTEREST EXPENSE 
+(189,511 
+) 
+(284,678 
+) 
+(402,686 
+) 
+INTEREST INCOME 
+425,344 
+483,431 
+933,050 
+FOREIGN CURRENCY GAIN (LOSS) 
+(59,037 
+) 
+(694 
+) 
+3,122 
+GAIN ON SALE OF SECURITIES 
+— 
+— 
+100,000 
+Loss before income taxes 
+(1,108,947 
+) 
+(3,342,473 
+) 
+(3,699,000 
+) 
+INCOME TAXES 
+26,590 
+— 
+28,789 
+NET LOSS 
+$ 
+(1,135,537 
+) 
+$ 
+(3,342,473 
+) 
+$ 
+(3,727,789 
+) 
+BASIC AND DILUTED NET LOSS PER SHARE 
+$ 
+(0.03 
+) 
+$ 
+(0.09 
+) 
+$ 
+(0.10 
+) 
+WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED SHARES OUTSTANDING 
+39,793,919 
+37,582,780 
+36,868,101 
+The accompanying notes are an integral part of these statements. 
+F-5 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS 
+Common Stock 
+Additional 
+Paid-in Capital 
+Deferred 
+Compensation 
+Accumulated 
+Other 
+Comprehensive 
+Loss 
+Accumulated 
+Deficit 
+Total 
+Shares 
+Amount 
+Balance at December 31, 2000 
+36,434,004 
+$ 
+36 
+$ 
+148,767,789 
+$ 
+— 
+$ 
+(231,247 
+) 
+$ 
+(122,364,502 
+) 
+$ 
+26,172,076 
+Common stock issued upon exercise of options 
+968,729 
+1 
+3,851,805 
+— 
+— 
+— 
+3,851,806 
+Common stock issued under Employee Stock Purchase Plan 
+536 
+— 
+2,123 
+— 
+— 
+— 
+2,123 
+Compensation expense for stock option grants 
+— 
+— 
+136,874 
+— 
+— 
+— 
+136,874 
+Comprehensive loss: 
+Net loss 
+— 
+— 
+— 
+— 
+— 
+(3,727,789 
+) 
+(3,727,789 
+) 
+Currency translation adjustment 
+— 
+— 
+— 
+— 
+(75,670 
+) 
+— 
+(75,670 
+) 
+Net unrealized gain on marketable securities 
+— 
+— 
+— 
+— 
+181,253 
+— 
+181,253 
+Total comprehensive loss 
+(3,622,206 
+) 
+Balance at December 31, 2001 
+37,403,269 
+37 
+152,758,591 
+— 
+(125,664 
+) 
+(126,092,291 
+) 
+26,540,673 
+Common stock issued upon exercise of options 
+688,454 
+1 
+2,793,742 
+— 
+— 
+— 
+2,793,743 
+Common stock issued under Employee Stock Purchase Plan 
+8,834 
+— 
+35,042 
+— 
+— 
+— 
+35,042 
+Compensation expense for stock option grants 
+— 
+— 
+50,939 
+— 
+— 
+— 
+50,939 
+Comprehensive loss: 
+Net loss 
+— 
+— 
+— 
+— 
+— 
+(3,342,473 
+) 
+(3,342,473 
+) 
+Currency translation adjustment 
+— 
+— 
+— 
+— 
+(6,481 
+) 
+— 
+(6,481 
+) 
+Net unrealized loss on marketable securities 
+— 
+— 
+— 
+— 
+(52,531 
+) 
+— 
+(52,531 
+) 
+Total comprehensive loss 
+(3,401,485 
+) 
+Balance at December 31, 2002 
+38,100,557 
+38 
+155,638,314 
+— 
+(184,676 
+) 
+(129,434,764 
+) 
+26,018,912 
+Common stock issued upon exercise of options 
+849,374 
+1 
+3,716,890 
+— 
+— 
+— 
+3,716,891 
+Common stock issued via public offering 
+5,311,000 
+5 
+44,827,998 
+— 
+— 
+— 
+44,828,003 
+Compensation expense for stock option grants 
+— 
+— 
+33,900 
+— 
+— 
+— 
+33,900 
+Restricted stock grants to employees 
+— 
+— 
+650,663 
+(650,663 
+) 
+— 
+— 
+— 
+Amortization of deferred compensation expense 
+— 
+— 
+— 
+36,148 
+— 
+— 
+36,148 
+Comprehensive loss: 
+Net loss 
+— 
+— 
+— 
+— 
+— 
+(1,135,537 
+) 
+(1,135,537 
+) 
+Currency translation adjustment 
+— 
+— 
+— 
+— 
+16,560 
+— 
+16,560 
+Net unrealized loss on marketable securities 
+— 
+— 
+— 
+— 
+(5,588 
+) 
+— 
+(5,588 
+) 
+Total comprehensive loss 
+(1,124,565 
+) 
+Balance at December 31, 2003 
+44,260,931 
+$ 
+44 
+$ 
+204,867,765 
+$ 
+(614,515 
+) 
+$ 
+(173,704 
+) 
+$ 
+(130,570,301 
+) 
+$ 
+73,509,289 
+The accompanying notes
+are an integral part of these statements 
+F-6 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+STATEMENTS OF CASH FLOWS 
+For the year ended December 31, 
+2003 
+2002 
+2001 
+OPERATING ACTIVITIES: 
+Net loss 
+$ 
+(1,135,537 
+) 
+$ 
+(3,342,473 
+) 
+$ 
+(3,727,789 
+) 
+Adjustments to reconcile net loss to net cash provided by (used in) operating activities: 
+Stock based compensation expense 
+70,048 
+50,939 
+136,874 
+Amortization of deferred revenue 
+— 
+(107,500 
+) 
+(179,167 
+) 
+Depreciation and amortization 
+2,576,797 
+2,286,682 
+2,175,055 
+Gain on sale of securities and disposition of investment in affiliated company 
+— 
+— 
+(116,853 
+) 
+Loss on disposition of property and equipment 
+43,500 
+2,553 
+173,975 
+Provision for excess and obsolete inventories 
+539,647 
+1,373,614 
+600,000 
+Changes in assets and liabilities- 
+Accounts receivable 
+(3,036,082 
+) 
+860,140 
+(1,118,408 
+) 
+Notes receivable 
+— 
+75,000 
+100,649 
+Inventories 
+(454,692 
+) 
+(1,017,316 
+) 
+(3,549,168 
+) 
+Prepaid expenses and other 
+2,996 
+112,804 
+75,180 
+Accounts payable 
+1,738,171 
+(884,594 
+) 
+443,050 
+Accrued expenses and other 
+2,356,948 
+72,644 
+(269,248 
+) 
+Net cash provided by (used in) operating activities 
+2,701,796 
+(517,507 
+) 
+(5,255,850 
+) 
+INVESTING ACTIVITIES: 
+Purchases of property and equipment 
+(993,722 
+) 
+(1,649,129 
+) 
+(2,763,639 
+) 
+Proceeds from the sale of property and equipment 
+— 
+2,393 
+33,231 
+Purchase of patents, licenses and product rights 
+(250,000 
+) 
+(700,000 
+) 
+— 
+Purchases of short-term investments 
+(37,280,182 
+) 
+(9,306,439 
+) 
+(21,297,303 
+) 
+Proceeds from sales or maturities of short-term investments 
+14,489,860 
+11,474,935 
+23,420,432 
+Proceeds from sale of securities 
+— 
+— 
+637,500 
+Proceeds from disposition of investment in affiliated company 
+— 
+— 
+106,102 
+Increase in other assets 
+(5,886 
+) 
+(52,660 
+) 
+(202,819 
+) 
+Net cash used in investing activities 
+(24,039,930 
+) 
+(230,900 
+) 
+(66,496 
+) 
+FINANCING ACTIVITIES: 
+Borrowings of term debt 
+211,590 
+4,322,854 
+— 
+Repayment of term debt 
+(1,104,041 
+) 
+(4,491,556 
+) 
+(1,125,206 
+) 
+Proceeds from stock option exercises 
+3,716,891 
+2,828,785 
+3,853,929 
+Proceeds from common stock offering, net 
+44,828,003 
+— 
+— 
+Net cash provided by financing activities 
+47,652,443 
+2,660,083 
+2,728,723 
+EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 
+16,560 
+26,286 
+(75,670 
+) 
+NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 
+26,330,869 
+1,937,962 
+(2,669,293 
+) 
+CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 
+4,364,308 
+2,426,346 
+5,095,639 
+CASH AND CASH EQUIVALENTS, END OF YEAR 
+$ 
+30,695,177 
+$ 
+4,364,308 
+$ 
+2,426,346 
+The accompanying notes
+are an integral part of these statements. 
+F-7 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+NOTES TO THE FINANCIAL STATEMENTS 
+1. BACKGROUND: 
+The
+Company 
+We develop, manufacture and market oral specimen
+collection devices using our proprietary oral fluid technologies, diagnostic products including in vitro diagnostic tests, and other medical devices. These products are sold in the United States and internationally to various clinical
+laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. 
+Merger 
+On September 29, 2000, STC Technologies, Inc. (“STC”) and Epitope, Inc. (“Epitope”) were merged (the
+“Merger”) into OraSure Technologies, Inc., a newly formed company, incorporated under Delaware law solely for the purposes of combining the two companies and changing the state of incorporation of Epitope from Oregon to Delaware. The
+Merger was accounted for as a pooling of interests. There were no material adjustments required to conform the accounting policies of the two companies. 
+2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 
+Use of Estimates 
+The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to
+make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
+reporting period. Actual results could differ from those estimates. 
+Cash and Cash Equivalents 
+We consider all
+highly liquid investments with a purchased maturity of ninety days or less to be cash equivalents. As of December 31, 2003 and 2002, cash equivalents consisted of certificates of deposit, commercial paper, U.S. government and agency obligations,
+state and local government agency obligations and corporate bonds. 
+Short-term Investments 
+We consider all
+short-term investments as available-for-sale securities, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” These securities are
+comprised of certificates of deposits, commercial paper, U.S. government and agency obligations, state and local government agency obligations and corporate bonds with purchased maturities greater than ninety days. Available-for-sale securities are
+carried at fair value, based upon quoted market prices, with unrealized gains and losses reported in stockholders’ equity as a component of accumulated other comprehensive loss. 
+F-8 
+Table of Contents 
+The following is a summary of our available-for-sale securities at December 31, 2003 and 2002:
+Amortized 
+Cost 
+Gross 
+Unrealized 
+Gains 
+Gross 
+Unrealized 
+Losses 
+Fair Value 
+December 31, 2003 
+Certificates of deposit 
+$ 
+14,047,127 
+$ 
+1,167 
+$ 
+(5,586 
+) 
+$ 
+14,042,708 
+Commercial paper 
+1,296,941 
+121 
+— 
+1,297,062 
+Government and agency bonds 
+14,483,893 
+7,667 
+— 
+14,491,560 
+State and local government agency obligations 
+629,999 
+1,118 
+(3 
+) 
+631,114 
+Corporate bonds 
+2,867,261 
+1,641 
+(2,736 
+) 
+2,866,166 
+Total available-for-sale securities 
+$ 
+33,325,221 
+$ 
+11,714 
+$ 
+(8,325 
+) 
+$ 
+33,328,610 
+December 31, 2002 
+Certificates of deposit 
+$ 
+3,581,734 
+$ 
+— 
+$ 
+— 
+$ 
+3,581,734 
+Commercial paper 
+399,017 
+88 
+— 
+399,105 
+Government and agency bonds 
+1,974,734 
+— 
+(3,321 
+) 
+1,971,413 
+Corporate bonds 
+4,570,558 
+22,041 
+(975 
+) 
+4,591,624 
+Total available-for-sale securities 
+$ 
+10,526,043 
+$ 
+22,129 
+$ 
+(4,296 
+) 
+$ 
+10,543,876 
+At December 31, 2003, maturities of investments were as follows: 
+Less than one year 
+$ 
+27,590,483 
+$ 
+6,668 
+$ 
+(383 
+) 
+$ 
+27,596,768 
+1 – 2 years 
+5,734,738 
+5,046 
+(7,942 
+) 
+5,731,842 
+Total available-for-sale securities 
+$ 
+33,325,221 
+$ 
+11,714 
+$ 
+(8,325 
+) 
+$ 
+33,328,610 
+Supplemental Cash
+Flow Information 
+For 2003, 2002 and 2001, we paid
+interest of $184,906, $268,340 and $402,686, respectively. 
+For
+2003, 2002 and 2001, we recorded provisions for bad debts of $155,671, $295,842, and $100,000, respectively. We had deductions of $88,659, $213,188, and $5,193 against the allowance for doubtful accounts in 2003, 2002 and 2001, respectively.
+During 2001, the Company exchanged $337,253 of accounts
+receivable for an investment in a nonaffiliated entity. 
+Inventories 
+Inventories are stated at the
+lower of cost or market determined on a first-in, first-out basis, and include the cost of raw materials, labor and overhead. The majority of our inventories are subject to expiration dating. We continually evaluate quantities on hand and the
+carrying value of our inventories to determine the need for reserves for excess and obsolete inventories, based primarily on the estimated forecast of product sales. When factors indicate that impairment has occurred, either a reserve is established
+against the inventories’ carrying value or the inventories are completely written off, as in the case of lapsing expiration dates. We currently buy our entire cryosurgical product line from a foreign vendor, with such purchases payable in euros. Changes in the exchange rate of the euro could impact our product cost. 
+Property and Equipment 
+Property and equipment are stated at cost. Additions or improvements are
+capitalized, while repairs and maintenance are charged to expense. Depreciation and amortization are provided using the straight-line method 
+F-9 
+Table of Contents 
+over the estimated useful lives of the related assets or the lease term, whichever is shorter. Buildings are depreciated over 20 years, while computer
+equipment, machinery and equipment, and furniture and fixtures are depreciated over three to ten years. Leasehold improvements are generally amortized over the shorter of the estimated useful lives or the terms of the related leases. When assets are
+sold or otherwise disposed of, the related property amounts are relieved from the accounts, and any gain or loss is recorded in the statement of operations. 
+Patents and Product Rights 
+Patents and product rights consist of costs associated with the acquisition of patents and product distribution rights. Patents and product rights are
+amortized using the straight-line method over estimated useful lives of three to ten years. Amortization expense for 2003, 2002 and 2001 was $657,348, $416,247, and $359,853, respectively. 
+Other Assets 
+Included in other assets is a $337,253 investment, representing a 7.7%
+ownership interest in a privately-held nonaffiliated company. We do not have a controlling interest in this company, nor do we have an ownership or voting interest which allows us to exert significant influence over the operating and financial
+policies of this investee company. Accordingly, we have accounted for this investment using the cost method of accounting. 
+Impairment of Long-Lived Assets 
+In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” if indicators of impairment exist, we assess
+the recoverability of the affected long-lived assets, which include property and equipment, patents and product rights, by determining whether the carrying value of such assets can be recovered through the sum of the undiscounted future operating
+cash flows and eventual disposition of the asset. If impairment is indicated, we measure the amount of such impairment by comparing the carrying value of the assets to the fair value of these assets, generally determined based on the present value
+of the expected future cash flows associated with the use of the asset. We believe the future cash flows to be received from our long-lived assets will exceed the assets’ carrying value, and accordingly we have not recognized any impairment
+losses through December 31, 2003. 
+Revenue Recognition
+We recognize product revenues when there is persuasive
+evidence that an arrangement exists, the price is fixed or determinable, title has passed and collection is reasonably assured. Product revenues are net of allowances for any discounts or rebates. We do not grant price protection or product return
+rights to our customers, except for warranty returns. Historically, returns arising from warranty issues have been infrequent and immaterial. Accordingly, we expense warranty returns as incurred. 
+Up-front licensing fees are deferred and recognized ratably over the related
+license period. Product development revenues are recognized over the period in which the related product development efforts are performed. Amounts received prior to the performance of product development efforts are recorded as deferred revenues.
+Grant revenue is recognized as the related work is performed and costs are incurred. We record shipping and handling charges billed to our customers as product revenue and the related expense as cost of products sold. 
+Significant Customer Concentration 
+In 2003, 2002 and 2001, one customer accounted for approximately 17 percent,
+26 percent and 29 percent, respectively, of our total revenues. The same customer accounted for approximately 8 percent and 19 percent of accounts receivable as of December 31, 2003 and 2002, respectively. 
+F-10 
+Table of Contents 
+In 2003, another customer accounted for 12 percent of total revenues. We had no sales to this customer in
+2002 and 2001. This customer also accounted for approximately 23 percent of accounts receivable as of December 31, 2003. 
+Advertising Expenses 
+Advertising costs are charged to expense as incurred. During 2003, we incurred $1,774,093 in advertising expenses, primarily attributed to launching two
+new products in 2003. During 2002 and 2001, advertising expense was $53,452 and $88,591 respectively. 
+Research and Development 
+Research and development costs are charged to expense as incurred. 
+Restructuring-related Expenses 
+In February 2001, we announced plans to restructure certain of our manufacturing operations. As a result of this
+restructuring, we incurred a charge of $450,000 for restructuring costs, primarily comprised of expenses for employee severance, travel and transport resulting from relocating and consolidating manufacturing operations. All of these costs were paid
+by June 30, 2001. 
+Stock-Based Compensation 
+We account for stock-based compensation to employees and directors using
+the intrinsic value method in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. We account for stock-based compensation to nonemployees using the fair value method in accordance
+with SFAS No. 123, “Accounting for Stock-Based Compensation” and EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services.”
+We have elected to adopt the disclosure provisions of SFAS No.
+123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Under SFAS No. 123, compensation expense related to stock awards granted to employees and directors is computed based on the fair
+value of the award at the date of grant using a valuation methodology, typically the Black-Scholes option pricing model. Pursuant to the disclosure requirements of SFAS No. 123, had compensation expense for our common stock awards been determined
+based upon the fair value of the awards at the date of grant, our net loss for 2003, 2002 and 2001 would have increased as follows: 
+Year ended December 31, 
+2003 
+2002 
+2001 
+Net loss: 
+As reported 
+$ 
+(1,135,537 
+) 
+$ 
+(3,342,473 
+) 
+$ 
+(3,727,789 
+) 
+Add: stock-based employee compensation expense included in net loss 
+33,900 
+— 
+— 
+Deduct: total stock-based employee compensation expense determined under the fair value-based method for all awards 
+(4,270,439 
+) 
+(3,359,281 
+) 
+(2,913,149 
+) 
+Pro forma 
+$ 
+(5,372,076 
+) 
+$ 
+(6,701,754 
+) 
+$ 
+(6,640,938 
+) 
+Basic and diluted net loss per share: 
+As reported 
+$ 
+(0.03 
+) 
+$ 
+(0.09 
+) 
+$ 
+(0.10 
+) 
+Pro forma 
+$ 
+(0.13 
+) 
+$ 
+(0.18 
+) 
+$ 
+(0.18 
+) 
+F-11 
+Table of Contents 
+The weighted average fair value of the options granted during 2003, 2002 and 2001 is estimated at $4.15,
+$3.45 and $7.10 per share, respectively, using the Black-Scholes option pricing model, with the following assumptions: dividend yield of zero; volatility of 70 percent, 71 percent and 65 percent, respectively; weighted average risk-free interest
+rate of 2.93 percent, 2.89 percent and 4.86 percent, respectively; and an expected life of 5.0, 5.0 and 7.0 years, respectively. 
+Income Taxes 
+We follow the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the
+future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax basis of assets and liabilities, and operating loss and credit carryforwards. Deferred tax
+assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of
+a change in tax rates is recognized in income in the period that includes the enactment date. 
+Foreign Currency Translation 
+The assets and liabilities of our foreign operations are translated from euros into U.S. dollars at current exchange rates as of the balance sheet date, and revenues and expenses are translated at average exchange rates for the period.
+Resulting translation adjustments are reflected as a separate component of stockholders’ equity. 
+Gain on Sale of Securities 
+In December 2001, we recognized a gain of $100,000 on the sale of 50,000 shares of Lab One , Inc. common stock received in connection with a
+distribution agreement we entered into with Lab One , Inc. in April 1999. Our original investment associated with these shares was $537,500. We no longer hold any common shares or warrants of Lab One , Inc. 
+Net Loss Per Common Share 
+We have presented basic and diluted net loss per share pursuant to SFAS No.
+128, “Earnings per Share.” In accordance with SFAS No. 128, basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share is
+generally computed assuming the conversion or exercise of all dilutive securities such as common stock options, warrants and unvested restricted stock. As a result of our losses in 2003, 2002 and 2001, outstanding common stock options, warrants and
+unvested restricted stock representing 4,130,463, 3,999,608 and 3,915,233 shares were excluded from the computation of diluted net loss per common share for 2003, 2002 and 2001, respectively, as their inclusion would have been anti-dilutive.
+Other Comprehensive Income (Loss) 
+We follow SFAS No. 130, “Reporting Comprehensive Income.” This
+statement requires the classification of items of other comprehensive income (loss) by their nature and disclosure of the accumulated balance of other comprehensive income (loss), separately from accumulated deficit and additional paid-in capital,
+in the stockholders’ equity section of our balance sheet. 
+Fair Value of Financial Instruments 
+As of
+December 31, 2003, the carrying values of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and accrued expenses approximate their respective fair values based on their short-term nature. In addition, we
+believe the carrying value of our debt instruments, which do not have readily ascertainable market values, approximates their fair values, given that the interest rates on outstanding borrowings approximate market rates. 
+F-12 
+Table of Contents 
+Recent Accounting Pronouncements 
+In December 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (Revised),
+“Consolidation of Variable Interest Entities” (“FIN No. 46R”), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights, and
+accordingly should consolidate the entity. FIN No. 46R replaces FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” which was issued in January 2003. We will be required to apply FIN No. 46R to variable interests in
+variable interest entities created after December 31, 2003. For variable interests in variable interest entities created before January 1, 2004, FIN No. 46R will be applied beginning on January 1, 2005. We do not currently have any variable
+interests in variable interest entities. As such, the application of FIN No. 46R is not expected to have a material effect on our financial position, results of operations or cash flows. 
+In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging
+Activities.” SFAS No. 149 amends SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 138 “Accounting for Certain Derivative Instruments and Certain Hedging Activities” and is related to
+certain derivatives embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 was effective for contracts entered into or modified after June 30, 2003. We do not employ derivative instruments or engage in hedging
+activities. Accordingly, SFAS No. 149 currently has not had an impact on our financial position, results of operations or cash flows. 
+In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.”
+SFAS No. 150 establishes standards for how companies classify and measure, in their statement of financial position, certain financial instruments with characteristics of both liabilities and equities. SFAS No. 150 was effective for financial
+instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. We do not have any financial instruments which embody the characteristics of SFAS No.
+150. As such, SFAS No. 150 has not had any impact on our financial position, results of operations or cash flows. 
+3. INVENTORIES: 
+December 31, 
+2003 
+2002 
+Raw materials 
+$ 
+2,862,169 
+$ 
+2,787,967 
+Work in process 
+486,284 
+430,977 
+Finished goods 
+655,066 
+869,530 
+$ 
+4,003,519 
+$ 
+4,088,474 
+4. PROPERTY
+AND EQUIPMENT: 
+December 31, 
+2003 
+2002 
+Building and leasehold improvements 
+$ 
+5,989,170 
+$ 
+5,893,702 
+Machinery and equipment 
+10,361,701 
+10,104,511 
+Computer equipment 
+2,446,736 
+2,314,015 
+Furniture and fixtures 
+1,545,562 
+1,442,644 
+Construction in progress 
+990,115 
+656,061 
+21,333,284 
+20,410,933 
+Less—Accumulated depreciation and amortization 
+(14,862,075 
+) 
+(12,982,983 
+) 
+$ 
+6,471,209 
+$ 
+7,427,950 
+Depreciation expense
+was $1,879,092, $1,828,855 and $1,815,202 for 2003, 2002 and 2001, respectively. 
+F-13 
+Table of Contents 
+5. PATENTS AND PRODUCT RIGHTS: 
+In June 1998, we acquired the patents and exclusive worldwide distribution
+rights to our cryosurgical product line. The purchase price of $2,548,690, including transaction costs, has been recorded as patents and product rights and is being amortized using the straight-line method over an estimated useful life of ten years.
+In connection with this acquisition, we also entered into a product purchase agreement with the manufacturer of the cryosurgical product line, with an initial term extending through December 31, 2006. 
+In October 2002, we entered into new supply and distribution agreements with
+bioMérieux, Inc. (“BMX”), which replaced existing agreements between the parties, for the supply by BMX of HIV-1 antigen required to manufacture our oral fluid Western Blot HIV-1 confirmatory test and for the distribution by BMX of
+the oral fluid Western Blot product on an exclusive worldwide basis. These agreements have an initial term ending December 31, 2005, which may be extended until December 31, 2007 under certain circumstances. As consideration for BMX entering into
+the new agreements, we paid BMX $750,000, which we recorded as patent and product rights on our balance sheet. We are amortizing this amount through September 2005, the initial term of the agreements. 
+6. ACCRUED EXPENSES: 
+December 31, 
+2003 
+2002 
+Payroll and related benefits 
+$ 
+1,449,151 
+$ 
+1,387,834 
+Royalties 
+1,428,816 
+137,509 
+Deferred revenue 
+705,817 
+316,139 
+Advertising 
+474,817 
+— 
+Laboratory testing fees 
+305,647 
+531,921 
+Professional fees 
+222,710 
+296,162 
+Other 
+788,893 
+651,944 
+$ 
+5,375,851 
+$ 
+3,321,509 
+At December 31, 2003,
+accrued royalties and advertising expenses are primarily attributed to launching two new products during 2003. 
+7. CREDIT FACILITIES: 
+In September 2002, we entered into a $10,887,000 credit facility (“Credit Facility”) with Comerica Bank, comprised of an $887,000 mortgage loan, a $3,000,000 term loan, a $3,000,000 non-revolving equipment
+line of credit, and a $4,000,000 revolving working capital line of credit. In September 2003, we executed an amendment to this Credit Facility, pursuant to which the $3,000,000 non-revolving equipment line of credit (the “Original Non-Revolving
+Line”) was replaced with a new $4,000,000 non-revolving line of credit (the “New Non-Revolving Line”). The Original Non-Revolving Line expired and borrowings under that facility at the time of the amendment were not applied against
+the credit limit for the New Non-Revolving Line, but rather will remain payable in accordance with their original terms. This amendment also extended the maturity date of the $4,000,000 revolving working capital line of credit until September 10,
+2004, modified certain covenants related to liquidity and tangible net worth, and eliminated the covenant requiring us to achieve positive net income for the year ended December 31, 2003 and for each year thereafter. The term loan and mortgage loan
+were not affected by this amendment (see Note 8). 
+Under the
+New Non-Revolving Line, we can borrow up to $4,000,000 to finance eligible equipment or software purchases through December 31, 2004. Interest on outstanding borrowings accrues at a rate, selected at our option, equal to the bank’s prime rate,
+180-day or 360-day LIBOR plus 2.625%, or the 4-year Treasury Note rate plus 2.30%, determined at the time of each borrowing. Borrowings are repayable in either 36 or 48 
+F-14 
+Table of Contents 
+consecutive, equal monthly principal installments, depending upon the type of purchase financed, plus interest. We had no outstanding borrowings under this
+facility at December 31, 2003. 
+Under the revolving working
+capital line of credit, we can borrow up to $4,000,000 to finance working capital and other needs. Interest on outstanding borrowings accrues at a rate, selected at our option, equal to the bank’s prime rate less 0.25%, or 30-day LIBOR plus
+2.55%, determined at the time of the initial borrowing. Borrowings are repayable by September 10, 2004, with interest payable monthly. We had no outstanding borrowings under this facility at December 31, 2003. 
+All borrowings under the Credit Facility, as amended, are collateralized by a
+first priority security interest in all of our assets, including present and future accounts receivable, chattel paper, contracts and contract rights, equipment and accessories, general intangibles, investments, instruments, inventories, and a
+mortgage on our manufacturing facility in Bethlehem, Pennsylvania. Borrowings under the equipment and working capital lines of credit are limited to commercially standard percentages of equipment purchases and accounts receivable, respectively. The
+Credit Facility, as amended, contains certain covenants that set forth minimum requirements for our quick ratio, liquidity, and tangible net worth and also restricts our ability to pay dividends, to make certain investments, to incur additional
+indebtedness, to sell or otherwise dispose of a substantial portion of assets, and to merge or consolidate operations with an unaffiliated entity, without the consent of the bank. 
+8. LONG-TERM DEBT: 
+December 31, 
+2003 
+2002 
+Term loan payable to bank, interest at 4.97%, monthly principal installments of $71,429, plus interest, through March 2006, secured by a first
+priority security interest in all of our assets. 
+$ 
+1,928,571 
+$ 
+2,785,714 
+Mortgage loan payable to bank, interest at an annual floating rate equal to the bank’s prime rate (4.0% at December 31, 2003), fixed
+monthly installments of principal and interest of $7,426 through September 2007, at which time the interest rate and fixed monthly repayment amount is reset for the remaining sixty monthly installments, secured by our building. 
+820,796 
+874,186 
+Note payable to bank, interest at an annual floating rate equal to the bank’s prime rate (4.0% at December 31, 2003), monthly principal
+installments of $5,081, plus interest, through December 2006, secured by certain equipment. 
+182,904 
+243,872 
+Note payable to bank, interest at 5.07%, monthly principal installments of $3,995, plus interest, through September 2006, secured by certain
+equipment. 
+131,843 
+179,786 
+Note payable to bank, interest at an annual floating rate equal to the bank’s prime rate (4.0% at December 31, 2003), monthly principal
+installments of $2,144, plus interest, through July 2007, secured by certain equipment 
+90,044 
+— 
+Note payable to bank, interest at an annual floating rate equal to the bank’s prime rate (4.0% at December 31, 2003), monthly principal
+installments of $2,264, plus interest, through April 2007, secured by certain equipment. 
+88,304 
+— 
+Note payable to Pennsylvania Industrial Development Authority, interest at 2%, monthly installments of principal and interest of $4,895
+through March 2010, secured by a second lien on our building. 
+340,415 
+391,770 
+3,582,877 
+4,475,328 
+Less—Current portion 
+(1,126,423 
+) 
+(1,065,966 
+) 
+$ 
+2,456,454 
+$ 
+3,409,362 
+F-15 
+Table of Contents 
+Long-term debt maturities as of December 31, 2003 are as follows: 
+2004 
+$ 
+1,126,423 
+2005 
+1,130,071 
+2006 
+478,806 
+2007 
+138,062 
+2008 
+122,249 
+Thereafter 
+587,266 
+$ 
+3,582,877 
+Certain of these notes
+payable require, among other items, the maintenance of certain financial covenants (see Note 7). 
+9. INCOME TAXES: 
+At December 31, 2003, we have federal net operating loss (“NOL”) carryforwards of approximately $76,600,000. These federal NOL carryforwards will continue to expire through 2023. The Tax Reform Act of 1986
+contains provisions that may limit the annual amount of NOL carryforwards available to be used in any given year in the event of a significant change in ownership. We believe that there was a change in ownership in connection with the Merger. We are
+in the process of determining the effect of the limitation as to the utilization of NOL carryforwards related to any changes in ownership, and on a preliminary basis, do not expect that the limitation will have a material effect. 
+The tax effect of temporary differences that give rise to significant
+portions of deferred income taxes at December 31, 2003 and 2002 are as follows: 
+December 31, 
+2003 
+2002 
+Deferred tax asset: 
+Net operating loss carryforwards 
+$ 
+26,597,884 
+$ 
+26,583,157 
+Depreciation and amortization 
+389,344 
+636,332 
+Inventory 
+626,501 
+664,593 
+Accruals and reserves currently not deductible 
+581,937 
+313,497 
+Patent costs 
+517,827 
+558,270 
+Capitalized research and development costs 
+895,085 
+— 
+Research and development credit carryforwards 
+2,138,080 
+2,153,591 
+Valuation allowance on deferred tax asset 
+(31,746,658 
+) 
+(30,909,440 
+) 
+Net deferred tax asset 
+$ 
+— 
+$ 
+— 
+Of the total NOL
+carryforwards as of December 31, 2003 and 2002, approximately $9,600,000 and $8,500,000, respectively, are related to stock option exercises. Upon recognition of the tax benefit associated with our NOL carryforwards, the amount attributable to stock
+option exercises and not limited by the change in ownership will be recorded as additional paid-in capital in stockholders’ equity. 
+In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets
+will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. We consider the scheduled reversal of deferred
+tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon our cumulative and recent history of losses and projections for future taxable income over the periods in which the deferred tax
+assets are deductible, we believe that a full valuation allowance is necessary at December 31, 2003. 
+F-16 
+Table of Contents 
+10. STOCKHOLDERS’ EQUITY: 
+Common stock 
+On October 7, 2003, we successfully completed a public offering in which we
+sold 5,000,000 shares of our common stock. Upon the exercise of the underwriters’ over-allotment option on November 5, 2003, we sold an additional 311,000 shares of common stock. The price to the public of the 5,311,000 shares of common stock
+was $9.00 per share. We received proceeds of $44,828,003, net of expenses, from this offering. 
+Stock-based Awards 
+We
+grant stock-based awards under the OraSure Technologies, Inc. 2000 Stock Award Plan (the “2000 Plan”). The 2000 Plan permits stock-based awards to employees, outside directors and consultants or other third-party advisors. Awards which may
+be granted under the 2000 Plan include qualified incentive stock options, nonqualified stock options, stock appreciation rights, restricted awards, performance awards and other stock-based awards. 
+Under the terms of the 2000 Plan, qualified incentive stock options for
+shares of our common stock may be granted to eligible employees, including our officers. To date, options generally have been granted with ten-year exercise periods and an exercise price not less than the fair market value on the date of grant.
+Options generally vest over four years, with one quarter of the options vesting one year after grant and the remainder vesting on a monthly basis over the next three years. The 2000 Plan also provides that nonqualified options may be granted at a
+price not less than 75 percent of the fair market value of a share of common stock on the date of grant. The option term and vesting schedule of such awards may either be unlimited or have a specified period in which to vest and be exercised.
+We apply APB Opinion No. 25 and related interpretations in
+accounting for stock awards granted to employees and directors. Accordingly, compensation expense, if any, is recognized for the intrinsic value (the difference between the exercise price and the fair value of our common stock) on the date of grant.
+Compensation, if any, is deferred and charged to expense over the respective vesting period. 
+We account for stock-based compensation to non-employees using the fair value method, in accordance with SFAS No. 123 and EITF No. 96-18. In 2002 and 2001, we recorded compensation expense of $50,939 and $136,874
+related to options to purchase 20,000 shares and 19,000 shares, respectively, of our common stock granted to outside consultants or members of a non-employee advisory board. This compensation expense was computed based on the estimated fair value of
+the stock options at the date of grant, using the Black-Scholes option pricing model. No such awards were made in 2003. 
+F-17 
+Table of Contents 
+Information with respect to the options granted under the 2000 Plan and predecessor plans is as follows:
+Shares 
+Price per 
+Share 
+Weighted Average 
+Exercise Price 
+per Share 
+Balance, December 31, 2000 
+4,507,357 
+$ 
+0.80–15.03 
+$ 
+4.85 
+Granted 
+357,000 
+7.88–12.95 
+10.51 
+Exercised 
+(968,729 
+) 
+0.80– 9.47 
+3.98 
+Canceled 
+(150,395 
+) 
+0.80–14.81 
+6.14 
+Balance, December 31, 2001 
+3,745,233 
+0.80–15.03 
+5.57 
+Granted 
+1,267,275 
+3.83– 7.42 
+5.74 
+Exercised 
+(688,454 
+) 
+0.80– 7.09 
+4.06 
+Canceled 
+(444,446 
+) 
+0.80–14.84 
+6.14 
+Balance, December 31, 2002 
+3,879,608 
+0.80–15.03 
+5.83 
+Granted 
+1,129,885 
+5.51–10.47 
+6.97 
+Exercised 
+(849,374 
+) 
+0.80– 7.88 
+4.38 
+Canceled 
+(224,656 
+) 
+0.80–13.66 
+6.61 
+Balance, December 31, 2003 
+3,935,463 
+$ 
+0.80–15.03 
+$ 
+6.42 
+The following table
+summarizes information about stock options outstanding at December 31, 2003: 
+Options outstanding 
+Options exercisable 
+Range of exercise prices 
+Number 
+outstanding 
+Weighted 
+average 
+remaining 
+life, in 
+years 
+Weighted 
+average 
+exercise 
+price 
+Number 
+exercisable 
+Weighted 
+average 
+exercise 
+price 
+$ 0.80–$4.06 
+485,471 
+8.83 
+$ 
+2.46 
+397,471 
+$ 
+2.10 
+$ 4.17–$5.04 
+389,504 
+23.07 
+4.61 
+382,232 
+4.61 
+$ 5.50–$5.76 
+33,313 
+5.45 
+5.73 
+25,313 
+5.75 
+$ 5.87 
+756,211 
+8.08 
+5.87 
+411,029 
+5.87 
+$ 6.10–$6.87 
+190,577 
+7.92 
+6.69 
+120,784 
+6.79 
+$ 6.96 
+936,262 
+9.08 
+6.96 
+131,665 
+6.96 
+$ 6.98 
+40,000 
+9.17 
+6.98 
+15,000 
+6.98 
+$ 7.09 
+560,665 
+6.95 
+7.09 
+439,014 
+7.09 
+$ 7.13–$10.71 
+439,960 
+7.59 
+9.79 
+291,755 
+9.65 
+$10.92–$15.03 
+103,500 
+7.03 
+12.65 
+67,873 
+12.62 
+3,935,463 
+9.63 
+$ 
+6.42 
+2,282,136 
+$ 
+6.04 
+The 2000 Plan also
+permits us to grant restricted shares of our common stock to eligible employees, including officers. Generally, these shares are nontransferable and are subject to vesting requirements or forfeiture, as determined by the Compensation Committee of
+our Board of Directors. Upon granting of these restricted shares, deferred compensation expense equivalent to the market value at the date of grant is charged to stockholders’ equity and subsequently amortized over the periods during which the
+restrictions lapse, generally three years. During 2003, we granted 75,000 restricted shares to certain key executive officers and recorded $650,663 of deferred compensation. Amortization of deferred compensation related to these grants was $36,148
+in 2003. We did not grant any restricted shares in 2002 or 2001. 
+As of December 31, 2003, 1,228,976 shares were available for future grants under the 2000 Plan. 
+F-18 
+Table of Contents 
+Employee Stock Purchase Plan 
+In 1993, Epitope’s stockholders approved the adoption of the 1993 Employee Stock Purchase Plan (“1993 ESPP”).
+The 1993 ESPP, as subsequently amended by Epitope’s stockholders, covered a maximum of 500,000 shares of common stock for subscription over established offering periods. As a result of the Merger, the 1993 ESPP was adopted and renamed by us.
+The Compensation Committee of the Board of Directors determines the number of offering periods, the number of shares offered, and the length of each period, provided that no more than three offering periods may be set during any given fiscal year.
+The purchase price for stock purchased under the 1993 ESPP for each subscription period is the lesser of 85 percent of the fair market value of a share of common stock at the commencement of the subscription period and the fair market value at the
+close of the subscription period. An employee may also elect to withdraw at any time during the subscription period and receive the amounts paid plus interest at the rate of 6 percent. 
+As of December 31, 2003 and 2002, there were no subscriptions for common shares outstanding. As of December 31, 2001, 8,834
+shares of common stock were subscribed for through one offering. These shares could be purchased over 24 months at an initial subscription price of $3.96. During the years ended December 31, 2003, 2002 and 2001, 0, 8,834, and 536 shares,
+respectively, were issued at $3.96 per share under the 1993 ESPP. 
+Common Stock Warrants 
+As of December 31,
+2003, warrants to purchase 120,000 shares of common stock at $6.13 per share were outstanding. These warrants were issued on September 30, 1998 and expire on September 30, 2008. 
+11. COMMITMENTS AND CONTINGENCIES: 
+Phosphor Agreements 
+In April 1995, we entered into several research, licensing and royalty agreements (collectively the “Phosphor Agreements”), related to
+development and commercialization of our up-converting phosphor technology (“UPT ™ ”). Under the terms of the Phosphor Agreements, as amended, we are obligated to make an annual license payment of $50,000 and an annual minimum royalty payment of $100,000 for usage of patented technology
+licensed to us. Upon the first commercial sale of a UPT ™ -based product or service, we are obligated to pay royalties based upon a percentage of the net sales of UPT ™ -based products, research and development fees and sublicensing revenues, for a period equal to the longer of ten years from the date of the first
+commercial sale of a UPT ™ -based product or service
+(which occurred in 2001) or the remaining life of the patents underlying the licensed technology, which expire through 2017. Royalties from the commercial sale of products or services can be credited against our minimum royalty obligation of
+$100,000 per year. In connection with the acquisition of certain technology related to UPT ™ , we are also required to pay sponsored research funds of $125,000 in 2004, decreasing to $50,000 per year through 2008, as well as royalties of $25,000 per year, until 2008. All of these
+amounts are expensed as incurred. 
+Leases 
+We lease office, manufacturing, warehouse and laboratory facilities under
+operating lease agreements. Future payments required under these leases are as follows: 
+2004 
+$ 
+1,481,881 
+2005 
+888,984 
+2006 
+780,000 
+2007 
+783,108 
+2008 
+798,854 
+Thereafter 
+3,179,693 
+$ 
+7,912,520 
+Rent expense for 2003,
+2002 and 2001 was $1,594,240, $1,070,510 and $805,878, respectively. 
+F-19 
+Table of Contents 
+Purchase Commitments 
+As of December 31, 2003, we had outstanding non-cancelable purchase commitments in the amount of $3,121,469, of which
+$2,830,497, $183,291 and $107,681 are related to inventory, capital expenditures, and other goods or services, respectively. 
+Employment Agreements 
+Under terms of employment agreements with certain executive officers and other employees, extending through 2004, we are required to pay each individual a
+base salary and for some individuals, a retention bonus, for continuing employment with our Company. The agreements require payments of $817,127 in 2004. 
+Litigation 
+From time-to-time, we are involved in certain legal actions arising in the ordinary course of business. In management’s opinion, based upon the
+advice of counsel, the outcome of such actions are not expected to have a material adverse effect on our future financial position or results of operations. 
+12. RELATED-PARTY FACILITY LEASE: 
+We have entered into a ten-year facility lease with Tech III Partners, LLC (“Tech Partners”), an entity owned and controlled by two of our
+executive officers. Under the terms of this operating lease, we began leasing a 48,000 square foot facility in October 2002, at a base rent of $780,000 per year, increasing to $858,240 per year, during the initial ten-year term. The base rental rate
+may be increased after the fifth year of the initial term, in order to reflect changes in the debt incurred by Tech Partners to finance construction of the leased facilities. We have not guaranteed any debt incurred by Tech Partners. This lease also
+provides us with options to renew our lease for an additional five years at a rental rate of $975,360 per year and to purchase the facility at any time during the initial ten year-term, based upon a formula set forth in the lease agreement.
+13. RETIREMENT PLANS: 
+As a result of the Merger, during 2001, we maintained two distinct
+retirement plans covering substantially all of our employees. Both plans permitted voluntary employee contributions to be excluded from the employees’ current taxable income under the provisions of Internal Revenue Code Section 401(k) and the
+regulations thereunder. Generally, all employees of Epitope were eligible to participate in a profit sharing and deferred savings plan. The plan provided for us to make a matching contribution (either in cash, our common stock, or a combination of
+both) equal to 50 percent of an employee’s contribution, not to exceed 2.5 percent of an employee’s compensation. Generally, all employees of STC were eligible to participate in a profit sharing plan. The plan provided for us, subject to
+the Board of Directors’ discretion, to match employee contributions up to $3,000 or eight percent of a participant’s salary, whichever is less. Our contributions to these plans were $75,789 for 2001. 
+On May 1, 2001, we merged the two aforementioned plans into the OraSure
+Technologies, Inc. 401(k) Plan (the “New Plan”). The New Plan permits voluntary employee contributions to be excluded from an employee’s current taxable income under provisions of Internal Revenue Code Section 401(k) and the
+regulations thereunder. The New Plan also provides for us to match employee contributions up to the lesser of $4,000 or ten percent of the employee’s salary. Contributions to the New Plan were $376,541, $443,280 and $239,402 in 2003, 2002 and
+2001, respectively. 
+14. GEOGRAPHIC INFORMATION:
+Under the disclosure requirements of SFAS No.131,
+“Segment Disclosures and Related Information,” we operate within one segment. Our products are sold principally in the United States and Europe. Segmentation of operating income and identifiable assets is not applicable since all of our
+revenues outside the United States are export sales. 
+F-20 
+Table of Contents 
+The following table represents total revenues by geographic area (amounts in thousands): 
+For the year ended December 31, 
+2003 
+2002 
+2001 
+United States 
+$ 
+35,896 
+$ 
+28,124 
+$ 
+27,321 
+Europe 
+3,062 
+2,726 
+3,510 
+Other regions 
+1,493 
+1,160 
+1,742 
+$ 
+40,451 
+$ 
+32,010 
+$ 
+32,573 
+15. SUBSEQUENT EVENTS: 
+In June 2002, Abbott Laboratories became a co-exclusive distributor of our OraQuick ® rapid HIV-1 antibody test in the United States under a five-year agreement, which required minimum monthly purchases totaling approximately $4,000,000 during a 15-month period following
+initial FDA approval of the product. The OraQuick ® 
+test received initial FDA approval in November 2002. 
+Abbott
+failed to meet its minimum purchase obligations under the agreement, and we asserted that the agreement was therefore terminated. Abbott disputed the termination, and in October 2003, it invoked the arbitration procedure for resolution of disputes
+under the agreement. On February 18, 2004, the arbitrator ruled that the agreement did not terminate, and that our remedy is limited to revoking Abbott’s status as a co-exclusive distributor. We have notified Abbott that, based on the magnitude
+of its purchases, we have decided to convert Abbott’s distribution rights to non-exclusive. As a further result of the arbitrator’s rulings, we will be required to fulfill Abbott’s purchase orders at the agreed-upon price contained in
+the original agreement. During the quarter ending March 31, 2004, we expect to incur legal fees and expenses of approximately $110,000 associated with this arbitration. 
+16. QUARTERLY DATA (Unaudited): 
+The following tables summarize the quarterly results of operations for each of the quarters in 2003 and 2002. These
+quarterly results are unaudited, but in the opinion of management, have been prepared on the same basis as our audited financial information and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair
+presentation of the information set forth herein (all amounts in thousands, except per share amounts). 
+2003 Results 
+Three months ended 
+Year ended 
+December 31, 
+2003 
+March 31, 
+2003 
+June 30, 
+2003 
+September 30, 
+2003 
+December 31, 
+2003 
+Revenues 
+$ 
+8,611 
+$ 
+9,629 
+$ 
+10,331 
+$ 
+11,880 
+$ 
+40,451 
+Costs and expenses 
+9,736 
+10,181 
+10,319 
+11,501 
+41,737 
+Operating income (loss) 
+(1,125 
+) 
+(552 
+) 
+12 
+379 
+(1,286 
+) 
+Other income (loss), net 
+37 
+32 
+43 
+65 
+177 
+Income (loss) before income taxes 
+(1,088 
+) 
+(520 
+) 
+55 
+444 
+(1,109 
+) 
+Income taxes 
+5 
+10 
+2 
+9 
+26 
+Net income (loss) 
+$ 
+(1,093 
+) 
+$ 
+(530 
+) 
+$ 
+53 
+$ 
+435 
+$ 
+(1,135 
+) 
+Basic and diluted net income (loss) per share 
+$ 
+(0.03 
+) 
+$ 
+(0.01 
+) 
+$ 
+0.00 
+$ 
+0.01 
+$ 
+(0.03 
+) 
+Weighted average number of shares outstanding: 
+Basic 
+38,249 
+38,412 
+38,666 
+43,799 
+39,794 
+Diluted 
+38,249 
+38,412 
+39,777 
+44,795 
+39,794 
+F-21 
+Table of Contents 
+2002 Results 
+Three months ended 
+Year ended 
+December 31, 
+2002 
+March 31, 
+2002 
+June 30, 
+2002 
+September 30, 
+2002 
+December 31, 
+2002 
+Revenues 
+$ 
+7,725 
+$ 
+7,930 
+$ 
+8,107 
+$ 
+8,248 
+$ 
+32,010 
+Costs and expenses 
+9,387 
+9,285 
+8,508 
+8,371 
+35,551 
+Operating loss 
+(1,662 
+) 
+(1,355 
+) 
+(401 
+) 
+(123 
+) 
+(3,541 
+) 
+Other income (loss), net 
+69 
+74 
+14 
+41 
+198 
+Net loss 
+$ 
+(1,593 
+) 
+$ 
+(1,281 
+) 
+$ 
+(387 
+) 
+$ 
+(82 
+) 
+$ 
+(3,343 
+) 
+Basic and diluted net loss per share 
+$ 
+(0.04 
+) 
+$ 
+(0.03 
+) 
+$ 
+(0.01 
+) 
+$ 
+(0.00 
+) 
+$ 
+(0.09 
+) 
+Weighted average number of shares outstanding 
+37,434 
+37,494 
+37,536 
+37,863 
+37,583 
+F-22 
+Table of Contents 
+INDEX TO EXHIBITS 
+Exhibit 
+Number 
+Exhibit 
+3.1.1 
+Certificate of Incorporation of OraSure Technologies, Inc. is incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (No. 333-39210), filed June 14,
+2000. 
+3.1.2 
+Certificate of Amendment to Certificate of Incorporation dated May 23, 2000 is incorporated by reference to Exhibit 3.1.1 to the Company’s Registration Statement on Form S-4 (No.
+333-39210), filed June 14, 2000. 
+3.1.3 
+Certificate of Designation of Series A Preferred Stock of OraSure Technologies (filed as Exhibit A to the Rights Agreement referred to in Exhibit 4.1). 
+3.2 
+Amended and Restated Bylaws of OraSure Technologies, effective as of February 4, 2003, are incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the
+year ended December 31, 2002. 
+4.1 
+Rights Agreement, dated as of May 6, 2000, between OraSure Technologies, Inc. and ChaseMellon Shareholder Service, L.L.C. (now called Mellon Investor Services LLC), as Rights Agent, is
+incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 (No. 333-39210), filed August 8, 2000. 
+4.2 
+Stockholders’ Agreement among STC Technologies, Inc. (a predecessor to the Company), HealthCare Ventures V, L.P., RHO Management Trust II, Hudson Trust and Pennsylvania Early Stage
+Partners, L.P., dated March 30, 1999, is incorporated by reference to Exhibit 4.3 to Amendment No. 3 to the Company’s Registration Statement on Form S-4 (No. 333-39210), filed August 30, 2000. 
+4.3 
+Amendment to Stockholders’ Agreement filed as Exhibit 4.2 is incorporated by reference to Exhibit 4.4 to Amendment No. 3 to the Company’s Registration Statement on Form S-4 (No.
+333-39210), filed August 30, 2000. 
+4.4 
+Second Amendment to Stockholders’ Agreement filed as Exhibit 4.2 is incorporated by reference to Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June
+30, 2001. 
+10.1 
+Form of Indemnification Agreement (and list of parties to such agreement) is incorporated by reference to Exhibit 10.1 to Amendment No. 3 to the Company’s Registration Statement on Form
+S-4 (No. 333-39210), filed August 30, 2000.* 
+10.2 
+Employment Agreement, dated as of September 29, 2000, between OraSure Technologies, Inc. and Michael J. Gausling is incorporated by reference to Exhibit 10.4 to the Company’s Annual
+Report on Form 10-K for the year ended December 31, 2000.* 
+10.3 
+Employment Agreement, dated as of November 1, 2001, between OraSure Technologies, Inc. and Ronald H. Spair is incorporated by reference to Exhibit 10 to the Company’s Quarterly Report on
+Form 10-Q for the quarter ended September 30, 2001.* 
+10.4 
+Employment Agreement, dated as of September 29, 2000, between OraSure Technologies, Inc. and Dr. R. Sam Niedbala is incorporated by reference to Exhibit 10.6 to the Company’s Annual
+Report on Form 10-K for the year ended December 31, 2000.* 
+10.5 
+Employment Agreement, dated as of September 29, 2000, between OraSure Technologies, Inc. and P. Michael Formica is incorporated by reference to Exhibit 10.10 to the Company’s Annual
+Report on Form 10-K for the year ended December 31, 2001.* 
+10.6 
+Description of Nonemployee Director Compensation Policy.* 
+10.7 
+Amended and Restated Epitope, Inc. 1991 Stock Award Plan is incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31,
+2002.* 
+10.8 
+OraSure Technologies, Inc. Employee Incentive and Non-Qualified Stock Option Plan, as amended and restated effective September 29, 2000, is incorporated by reference to Exhibit 10.12 to the
+Company’s Annual Report on Form 10-K for the year ended December 31, 2000.* 
+Table of Contents 
+Exhibit 
+Number 
+Exhibit 
+10.9 
+OraSure Technologies, Inc. 2000 Stock Award Plan, as amended effective as of May 20, 2002, is incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Company’s Quarterly
+Report on Form 10-Q for the quarter ended June 30, 2002.* 
+10.10 
+Description of OraSure Technologies, Inc. 2003 Self-Funding Annual Incentive Plan is incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year
+ended December 31, 2002.* 
+10.11 
+Description of OraSure Technologies, Inc. 2004 Self-Funding Annual Incentive Plan.* 
+10.12 
+Description of OraSure Technologies, Inc. Management Stock Option Award Guidelines.* 
+10.13 
+Production Agreement between STC Technologies, Inc. and Koninklinjke Utermöhlen, N.V., dated June 9, 1998, is incorporated by reference to Exhibit 10.8 to Amendment No. 3 to the
+Company’s Registration Statement on Form S-4 (No. 333-39210), filed August 30, 2000. 
+10.14 
+Amendment No. 1 to Production Agreement, dated as of December 11, 2001, between OraSure Technologies, Inc. and Koninklijke Utermöhlen N.V., is incorporated by reference to Exhibit 10.18
+to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. 
+10.15 
+Amendment No. 2 to Production Agreement, dated as of April 28, 2003, between OraSure Technologies, Inc. and Koninklijke Utermöhlen N.V.** 
+10.16 
+Research and License Agreement with SRI International and David Sarnoff Research Center dated April 26, 1995 is incorporated by reference to Exhibit 10.9 to Amendment No. 4 to the
+Company’s Registration Statement on Form S-4 (No. 333-39210), filed August 31, 2000. 
+10.17 
+First Amendment to Research and License Agreement among SRI International and David Sarnoff Research Center and the Company dated September 1, 1995 is incorporated by reference to Exhibit
+10.10 to Amendment No. 3 to the Company’s Registration Statement on Form S-4 (No. 333-39210), filed August 30, 2000. 
+10.18 
+Third Amendment to Research and License Agreement dated August 30, 2000 among SRI International, Sarnoff Corporation (formerly David Sarnoff Research Center) and the Company is incorporated
+by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000. 
+10.19 
+Commercial Lease between Northampton County New Jobs Corp., as Landlord, and STC Technologies, Inc., as Tenant, dated April 30, 1999, is incorporated by reference to Exhibit 10.11 to
+Amendment No. 1 to the Company’s Registration Statement on Form S-4 (No 333-39210), filed August 8, 2000. 
+10.20 
+Lease dated October 25, 1999 between PS Business Parks, L.P., a California Limited Partnership, and Epitope, Inc., is incorporated by reference to Exhibit 10.6 to the Epitope, Inc. Annual
+Report on Form 10-K for 1999. 
+10.21 
+Commercial Lease between Tech III Partners, LLC and OraSure Technologies, Inc., dated March 1, 2002, is incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form
+10-K for the year ended December 31, 2001. 
+10.22 
+Amendment No. 1 to Commercial Lease, dated as of October 21, 2002, between Tech III Partners, LLC and OraSure Technologies, Inc., is incorporated by reference to Exhibit 10.2 to the
+Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002. 
+10.23 
+Loan and Security Agreement, dated as of September 10, 2002, between Comerica Bank – California and OraSure Technologies, Inc., is incorporated by reference to Exhibit 10.1 to the
+Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002. 
+10.24 
+First Amendment to Loan and Security Agreement, dated as of May 23, 2003, between OraSure Technologies, Inc. and Comerica Bank – California. 
+Table of Contents 
+Exhibit 
+Number 
+Exhibit 
+10.25 
+Second Amendment to Loan and Security Agreement, dated as of September 12, 2003, between OraSure Technologies, Inc. and Comerica Bank, is incorporated herein by reference to Exhibit 99.1 to
+the Company’s Current Report on Form 8-K, dated September 17, 2003. 
+10.26 
+Distribution Agreement, dated as of October 11, 2002, between OraSure Technologies, Inc. and bioMérieux, Inc., is incorporated by reference to Exhibit 10.3 to the Company’s
+Quarterly Report on Form 10-Q for the quarter ended September 30, 2002. 
+10.27 
+Supply Agreement, dated as of October 11, 2002, between OraSure Technologies, Inc. and bioMérieux, Inc., is incorporated by reference to Exhibit 10.4 to the Company’s Quarterly
+Report on Form 10-Q for the quarter ended September 30, 2002. 
+23 
+Consent of KPMG LLP. 
+24 
+Powers of Attorney. 
+31.1 
+Certification of Michael J. Gausling required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. 
+31.2 
+Certification of Ronald H. Spair required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. 
+32.1 
+Certification of Michael J. Gausling required by Rule 13a-14(b) or Rule 15a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to
+Section 906 of the Sarbanes-Oxley Act of 2002. 
+32.2 
+Certification of Ronald H. Spair required by Rule 13a-14(b) or Rule 15a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section
+906 of the Sarbanes-Oxley Act of 2002. 
+* 
+Management contract or compensatory plan or arrangement. 
+** 
+Portions of this exhibit were omitted and filed separately with the Securities and Exchange Commission pursuant to an application for confidential treatment.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2003/0001193125-04-034555/filing_metadata.csv b/raw/filings/0001116463/2003/0001193125-04-034555/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..2fa225670f021efdb3083c765b9bf7a7199edfcc
--- /dev/null
+++ b/raw/filings/0001116463/2003/0001193125-04-034555/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0001116463,OSUR,ORASURE TECHNOLOGIES INC,10-K,2004-03-04,2003-12-31,2004-03-04T19:56:43.000Z,0001193125-04-034555,d10k.htm,"FORM 10-K - ORASURE TECHNOLOGIES, INC.",1122808,0,0,https://www.sec.gov/Archives/edgar/data/1116463/000119312504034555/d10k.htm,https://www.sec.gov/Archives/edgar/data/1116463/000119312504034555/,2003,2003,1
diff --git a/raw/filings/0001116463/2003/0001193125-04-034555/item1.txt b/raw/filings/0001116463/2003/0001193125-04-034555/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7dce279bc2046c6cfce934ff088d8108d08f8282
--- /dev/null
+++ b/raw/filings/0001116463/2003/0001193125-04-034555/item1.txt
@@ -0,0 +1,992 @@
+ITEM 1. Business. 
+Our business principally involves the development, manufacture, marketing and sale of oral fluid specimen collection devices using our proprietary oral fluid technologies, as well as other diagnostic products including immunoassays and
+other in vitro diagnostic tests that are used on other specimen types, and other medical devices. Our diagnostic products include tests which are processed in a laboratory and tests which are performed on a rapid basis at the point of care.
+These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians’ offices,
+and commercial and industrial entities. 
+In vitro 
+diagnostic testing is the process of analyzing oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific substances or markers for infectious diseases, drugs of abuse or other conditions. In vitro diagnostic
+tests are performed outside the body, in contrast to in vivo tests, which are performed directly on or within the body. The substance or marker that a diagnostic test is intended to detect is generally referred to as an analyte. 
+Immunodiagnostic testing is the leading method of in vitro testing
+for antigens and antibodies. When an infectious disease caused by pathogens, such as bacteria, viruses and fungi, or other substances are present, the body responds by producing an antibody. Substances that stimulate production of antibodies are
+generally referred to as antigens. An antibody binds specifically with an antigen in a lock-and-key fashion that initiates a biochemical reaction to attempt to neutralize and, ultimately, eliminate the antigen. The ability of an antibody to bind
+with a specific antigen provides the basis for immunodiagnostic testing. 
+Our Company was formed in May 2000 under Delaware law solely for the purposes of combining two companies, STC Technologies, Inc. (“STC” or “STC Technologies”) and Epitope, Inc.
+(“Epitope”), and changing the state of incorporation of Epitope from Oregon to Delaware. STC Technologies and Epitope were merged into our Company on September 29, 2000 (the “Merger”). Our principal offices are located at 220
+East First Street, Bethlehem, Pennsylvania 18015, and our telephone number is (610) 882-1820. 
+Additional information about us can be found on our website. Our website address is www.orasure.com. We make available free of charge through a link provided at such website our Annual Reports on Form 10-K, our
+Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, as well as any amendments to those Reports. These Reports are made available as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange
+Commission. Our Internet website and the information contained in or connected to that website are not intended to be incorporated by reference into this Annual Report. 
+1 
+Table of Contents 
+Products 
+The following is a summary of our principal products and their existing and pending approvals/clearances by the U.S. Food and Drug Administration
+(“FDA”) and commercial status: 
+Product 
+Description 
+FDA Approval Status 
+Commercial 
+Status 
+OraQuick ® 
+A rapid, point-of-care test for antibodies to the Human Immunodeficiency Virus Type 1 (“HIV-1”) that can be visually read at the point of care in approximately 20 minutes. 
+Finger-stick whole blood—Pre-market application (“PMA”) approved by FDA in November 2002. CLIA (Clinical Laboratory Improvement Amendments of 1988) waived in January
+2003. 
+Marketed 
+Venipuncture whole blood—PMA supplement approved by FDA in September 2003. 
+Marketed 
+HIV-2—PMA supplement initially filed with FDA in June 2003; resubmitted with additional data in December 2003. 
+Pending 
+Oral fluid—PMA supplement filed with FDA in September 2003. 
+Pending 
+Plasma—PMA supplement filed with FDA in September 2003. 
+Pending 
+OraSure ® 
+Oral fluid collection device for the detection of antibodies to HIV-1 in an oral fluid sample in a laboratory setting. 
+PMA approved by FDA in December 1994. 
+Also have FDA 510(k) clearance for use of this device in detecting cocaine and cotinine (an indicator of nicotine) in oral fluid. 
+Marketed 
+Marketed 
+Intercept ® 
+Oral fluid collection device, along with nine related immunoassays, for oral fluid drug testing in a laboratory setting. 
+Collection device—FDA 510(k) cleared in 2000. 
+Marketed 
+Used to detect the following drugs in an oral fluid sample: marijuana, cocaine, opiates, amphetamines, methamphetamines, PCP, benzodiazepines, barbiturates and methadone. 
+Nine drug assays—FDA 510(k) cleared during 2000-2001. 
+Marketed 
+Histofreezer ® -Rx 
+A cryosurgical (freezing) system for the removal of warts and other benign skin lesions, marketed primarily to the physicians’ office market. 
+Nine indications—FDA 510(k) cleared during 1991 – 1999. 
+Marketed 
+Histofreezer ® -OTC (Freeze Off ™ ) 
+Sold under the Freeze Off ™ and Compound W ® tradenames in the over-the-counter market in the U.S. for the cryosurgical removal of common and plantar
+warts. 
+Two indications—FDA 510(k) cleared in February 2003. 
+Marketed 
+UP link ® 
+A rapid, point-of-care oral fluid drug detection system. 
+510(k) application filed with FDA in September 2003. 
+Pending 
+2 
+Table of Contents 
+In addition to the above products, we also sell certain immunoassay tests and reagents for insurance risk
+assessment, substance abuse testing and forensic toxicology applications; an oral fluid Western blot HIV-1 confirmatory test approved by the FDA for confirming positive HIV-1 test results obtained from the use of our OraSure ® device; and the FDA 510(k) cleared Q.E.D. ® saliva alcohol test. 
+OraQuick ® Rapid Test 
+OraQuick ® is our
+rapid test platform designed to test an oral fluid, whole blood (i.e., both fingerstick and venipuncture) or plasma sample for the presence of various antibodies or analytes. The device uses a porous flat pad to collect an oral fluid specimen. After
+collection, the pad is inserted into a vial containing a pre-measured amount of developer solution and allowed to develop. When whole blood or plasma is to be tested, a loop collection device is used to collect a drop of blood or plasma and mix it
+in the developer solution, after which the collection pad is inserted into the solution. In all cases, the specimen and solution then flow through the testing device where test results are observable in approximately 20 minutes. The OraQuick ® device is a screening test and requires a confirmation
+test where an initial positive result is obtained. 
+Our first
+product utilizing this technology is the OraQuick ® 
+rapid HIV-1 antibody test, a rapid test for the presence of antibodies against HIV-1. On November 7, 2002, we received premarket approval of this test from the FDA for detecting HIV-1 in finger-stick whole blood samples. This FDA approval is based
+on data from clinical studies we performed using finger-stick whole blood specimens, which indicate that the OraQuick ® test has sensitivity of 99.6% and specificity of 100%. Sensitivity is a measure of the accuracy for detecting positive specimens, and specificity is a
+measure of the accuracy for identifying negative specimens. 
+As
+a result of this FDA approval, the OraQuick ® test
+is available for use by nearly 40,000 locations in the United States certified under the Clinical Laboratory Improvements Amendments of 1988, or CLIA, to perform moderately complex diagnostic tests. Additionally, in January 2003, we received a
+waiver under CLIA for OraQuick ® which permits the
+use of this test by approximately 140,000 additional sites in the United States not certified under CLIA to perform moderately complex tests, such as outreach clinics, community-based organizations and physicians’ offices. 
+On September 5, 2003, we received FDA approval for use of the OraQuick ® test in detecting HIV-1 antibodies in venipuncture
+whole blood samples. We believe this claim will help us further penetrate the hospital market where venipuncture whole blood samples are routinely taken from patients. 
+We are seeking FDA approval for certain other claims for OraQuick ® . We have completed the necessary clinical trials and filed for FDA approval for use of
+the OraQuick ® device to detect antibodies to the
+Human Immunodeficiency Virus, Type 2 (“HIV-2”), a second type of the HIV virus. We have taken this action in anticipation of obtaining access to an HIV-2 patent license, either through an arrangement with a third party or directly with the
+holder of the HIV-2 patents. Although we believe the addition of an FDA-approved HIV-2 claim would enhance the versatility of our OraQuick ® test and allow us to more fully implement a strategy to sell OraQuick ® internationally, there is no assurance that we will receive FDA approval of an HIV-2 claim or be able to obtain access
+to an HIV-2 patent license. 
+We have also completed the
+required clinical trials and submitted an application for FDA approval of oral fluid and plasma claims in September 2003. Although there is no assurance that we will receive approval of these claims, we believe that an OraQuick ® device approved for detecting antibodies to both HIV-1
+and 2 in fingerstick and venipuncture whole blood, oral fluid and plasma samples, will provide a significant competitive advantage in the market for rapid HIV testing in the United States. 
+In April 2003, the Centers for Disease Control and Prevention
+(“CDC”) announced a new four-part initiative for HIV testing and diagnosis, which is intended to increase the use of rapid HIV testing as part of routine medical care. Under this program, the CDC purchased 250,000 OraQuick ® devices during 2003 and placed a second order for an
+additional 250,000 devices for delivery in 2004. 
+3 
+Table of Contents 
+The OraQuick ® device is also being used in the CDC’s Mother-Infant Rapid Intervention at Delivery Project (MIRIAD) to test pregnant women in five U.S.
+metropolitan areas. The goal of this project is to identify those individuals who would benefit from the administration of nevirapine, a drug used to reduce mother-to-child HIV-1 transmission. In September 2003, the CDC reported that, based on data
+from the MIRIAD study, the use of the OraQuick ® 
+test at the point of care provided test results four times faster than when the OraQuick ® test was used in a laboratory setting. As a result, the study found that rapid HIV-1 testing enables healthcare professionals to determine the HIV status of a mother and administer antiretroviral drugs to both
+mother and child more quickly than traditional laboratory tests, thereby reducing the chances of mother-to-child transmission of HIV. 
+Finally, the OraQuick ® device has been selected for use in the CDC’s LIFE Initiative, an international effort to address the AIDS epidemic in certain African countries.
+This initiative focuses on areas such as preventing mother-to-child transmission, secondary transmitted disease prevention, HIV prevention for youth, and blood safety systems. 
+OraSure ® /Intercept ® Collection Devices 
+Our OraSure ® oral fluid collection device is used in conjunction with screening and confirmatory tests for HIV-1 antibodies and other analytes. This device consists of a small, treated cotton-fiber
+pad on a nylon handle that is placed in a person’s mouth for two to five minutes. The device collects oral mucosal transudate (“OMT”), a serum-derived fluid that contains higher concentrations of certain antibodies and analytes than
+saliva. As a result, OMT testing is a highly accurate method for detecting HIV-1 infection and other analytes. 
+We believe that oral fluid testing has several significant advantages over blood or urine-based systems for infectious disease testing, for both health
+care professionals and the individuals being tested. These advantages include eliminating the risk of needle-stick accidents, providing a noninvasive collection technique, requiring minimal training to administer, providing rapid and efficient
+collection in almost any setting, and reducing the cost of administration by a trained health care professional. 
+We have received premarket approval from the FDA to sell the OraSure ® collection device for use with a laboratory-based enzyme immunoassay (“EIA”) screening test for HIV-1
+antibody detection. This EIA screening test has been approved by the FDA for use with our OraSure ® device and is manufactured and sold by bioMerieux, Inc. (“BMX”). 
+HIV-1 antibody detection using the OraSure ® collection device involves three steps: 
+• 
+Collection of an oral fluid specimen using the OraSure ® device; 
+• 
+Screening of the specimen for HIV-1 antibodies at a laboratory with an EIA screening test approved by the FDA for use with the OraSure ® device; and 
+• 
+Laboratory confirmation of any positive screening test results with our oral fluid Western Blot HIV-1 confirmatory test (described below). 
+A trained health care professional then conveys test results and provides
+appropriate counseling to the individual who was tested. We have also received FDA 510(k) clearance for use of the OraSure ® collection device with EIAs to test for cocaine and cotinine (a metabolite of nicotine) in oral fluid specimens primarily for insurance risk assessment
+purposes. 
+A collection device that is substantially similar to
+the OraSure ® device is sold under the name,
+Intercept ® , and is used to collect OMT for oral
+fluid drug testing. We have received FDA 510(k) clearance to use the Intercept ® collection device with laboratory-based EIAs to test for drugs of abuse commonly identified by the National Institute for Drug Abuse (“NIDA”) as the NIDA-5 (i.e., cannabinoids (marijuana), cocaine, opiates,
+amphetamines/methamphetamines, and phencyclidine (“PCP”)), and for barbiturates, methadone and benzodiazepines. Each of these EIA’s is also FDA 510(k) cleared for use exclusively with the Intercept ® device. 
+4 
+Table of Contents 
+We believe that the Intercept ® device has several advantages over competing urine and other drugs of abuse testing products, including its lower total
+testing cost, its non-invasive nature, safety, mobility and accuracy, the ease of maintaining a chain-of-custody, the treatment of test subjects with greater dignity, no requirement for specially-prepared collection facilities, and difficulty of
+sample adulteration. The availability of an oral fluid test is intended to allow our customers to test for drug impairment on demand, eliminate scheduling costs and inconvenience, and thereby streamline the testing process. 
+Histofreezer ® and Freeze Off ™ 
+The Histofreezer ® cryosurgical removal system is a low-cost alternative to liquid nitrogen and other methods for removal of warts and other benign skin lesions by physicians. The Histofreezer ® product mixes two environmentally friendly cryogenic
+gases in a small aerosol canister. When released, these gases are delivered to a specially designed foam bud, cooling the bud to –50°C. The frozen bud is then applied to the wart or lesion for 15 to 40 seconds (depending on the type of
+lesion) creating localized destruction of the target area by freezing. We have received 510(k) clearance for use of the Histofreezer ® product to remove common warts and eight other types of benign skin lesions. 
+In February 2003, we received FDA 510(k) clearance to market and sell the Histofreezer ® product in the retail or over-the-counter market for the removal of common and plantar
+warts only. This product is being distributed under the name Freeze Off ™ by MedTech Holdings, Inc., the owner of the Compound W ® line of wart removal products. 
+Immunoassay Tests and Reagents 
+We develop and
+sell immunoassay tests in two formats, known as MICRO-PLATE and AUTO-LYTE ® , to meet the specific needs of our customers. 
+In a MICRO-PLATE kit, the sample to be tested is placed into a small plastic receptacle, called a microwell, along with the reagents. The result of the test is determined by the color of the microwell upon completion
+of the reaction. Controlling the reaction involves the use of a variety of reagents by laboratory personnel. Test results are analyzed by any of a variety of commercially available laboratory instruments, which we may also provide to our laboratory
+customers. MICRO-PLATE tests can be performed on commonly used instruments and can detect drugs in urine, serum, and sweat specimens. MICRO-PLATE tests are also used as part of the Intercept ® product line to detect drugs of abuse in oral fluid specimens. 
+AUTO-LYTE ® tests are sold in the form of bottles of liquid reagents. These reagents are run on
+commercially available laboratory-based automated analytical instruments, which are manufactured by a variety of third parties. AUTO-LYTE ® is typically used in high volume, automated, commercial reference insurance laboratories to detect certain drugs or chemicals in urine. Test results
+are produced quickly, allowing for high throughput. 
+Whenever
+possible, we enter into multi-year sales agreements with our customers. These agreements generally are entered into with a laboratory that has agreed to purchase a minimum number of tests over a two-to-five-year period. We also offer these customers
+the option of a reagent rental agreement under which we sell the tests at an increased price over a fixed period of time, which includes an additional equipment charge in exchange for providing the customer with the required analytical laboratory
+equipment. We obtain this equipment from third party vendors. 
+Western Blot HIV-1 Confirmatory Test 
+We sell
+an oral fluid Western Blot HIV-1 confirmatory test that received premarket approval from the FDA in 1996. This test uses the original specimen collected with the OraSure ® oral fluid collection device to confirm 
+5 
+Table of Contents 
+positive results of initial oral fluid HIV-1 EIA screening tests. The oral fluid Western Blot HIV-1 confirmatory test is marketed under an exclusive
+arrangement with BMX. 
+Q.E.D. ® Saliva Alcohol Test 
+Our Q.E.D. ® saliva alcohol test is an on-site, cost-effective test device that is an alternative to
+breath or blood alcohol testing. The test is a quantitative, saliva-based method for the detection of ethanol, and has been cleared for sale by the FDA and the U.S. Department of Transportation (“DOT”). In 1998, the product also received a
+CLIA waiver. 
+Each Q.E.D. ® test kit contains a collection stick that is used to collect a sample of saliva and a
+disposable detection device that displays results in a format similar to a thermometer. The Q.E.D. ® device is easy to operate and instrumentation is not required to read the result. The product has a testing range of 0 to 0.145% blood alcohol, and produces results in approximately two
+minutes. 
+Products Under Development 
+UPT ™ and UP link ® Development 
+During 2003 and several prior years, much of our research and development efforts were focused on our Up-Converting Phosphor Technology (“UPT ™ ”) and the first UPT ™ application expected to be commercialized, our UP link ® rapid, point-of-care system for detecting drugs of
+abuse in oral fluid. 
+Up-Converting Phosphor
+Technology . UPT ™ is
+a proprietary label detection platform that uses phosphor particles to detect minute quantities of various substances. UPT ™ utilizes the same particle shell that is coated onto a television screen, but the internal chemistry of the particle has been changed. These changes
+result in a particle that is excited by infrared light as compared to an ultraviolet light source for television screens. With assistance from our research partners, we have developed phosphorescent particles that up-convert infrared light to
+visible light, which we believe may be a label technology with broad applications. 
+Phosphor particles have been used for decades in television screens and in fluorescent light bulbs. When high energy ultraviolet light strikes the phosphor-coated area in a screen or bulb, it excites the particles and
+low energy visible colored light is produced. Our patented improvements on this base technology employ chemical changes inside the phosphor particles so that low energy infrared light can be used to produce a high energy visible colored signal and
+is the basis for UPT ™ . This use of infrared light
+to create a colored signal is called up-conversion as opposed to down-conversion, which occurs in phosphors designed to be used with ultraviolet light. 
+The use of infrared light to excite the phosphor particles and produce a visible light signal creates what we believe is an important competitive
+advantage for the technology in biological systems, especially human clinical diagnostics. Existing enzyme or fluorescent-based assays employ visible or ultraviolet light to generate the signals from the enzyme substrate or fluorescent molecules
+used as reporter signals in these systems. The disadvantage of using light in the visible or ultraviolet portion of the spectrum is that often molecules in the cells or samples for analysis can also produce background interference from these
+excitation sources. When this occurs, a non-specific signal is generated which dilutes or obscures the signal of interest for the diagnostic test being administered. Because up-conversion does not occur in nature, biological samples and specimens
+will not produce light and, therefore, will not cause background interference when excited by infrared light. 
+We believe that UPT ™ has the potential to overcome some of the limitations of other diagnostic detection methods and offers features not commercially available today. The
+fact that UPT ™ testing produces zero background
+interference dramatically increases the potential sensitivity of any test system. In addition, we believe that UPT ™ offers the following other key competitive features: 
+• 
+Ability to multiplex or detect biological markers for several substances simultaneously through the use of phosphor particles having various colors; 
+6 
+Table of Contents 
+• 
+Applicability to a variety of instrument platforms; and 
+• 
+Compatibility with alternative testing matrices such as oral fluid, blood or others. 
+We have reached certain important milestones in the development of UPT ™ , including improving the manufacturing process to produce UPT ™ particles, working to optimize UPT ™ particle coating techniques, producing four colors of
+UPT ™ particles to permit multiplexing,
+demonstrating initial feasibility for the use of UPT ™ particles in infectious disease and limited DNA detection applications, and developing an UP link ® collector, test cassette, and analyzer for use in testing oral fluid for drugs of abuse (as described below). 
+Although we believe that UPT ™ may have several potential applications for in vitro diagnostics, we have not
+yet completed development of UPT ™ or fully
+explored these potential UPT ™ applications. We
+also have not determined which applications to pursue or the manner in which these opportunities will be pursued, if at all. Additional research and development will be required to determine the full potential of the UPT ™ label technology, including with respect to the potential limits on the level
+of detection of this technology. In addition, we believe we may need to enter into partnering arrangements with other entities and devote substantial funds and other resources to exploit fully the potential of UPT ™ . 
+UP link ® . UP link ® is our first UPT ™ -based product application under development. UP link ® is designed to be a rapid, point–of-care system utilizing a collector, lateral flow test cassette, and analyzer (including software),
+that can quickly provide instrument-read results on a variety of samples, including oral fluid, blood, serum, urine and stool samples. 
+In April 2002, we received FDA 510(k) clearance for the UP link ® system to detect opiates in oral fluid. This is the only point-of-care oral fluid drug test system to receive FDA
+clearance. The UP link ® analyzer has also
+been certified by Underwriters Laboratories, Inc. (i.e., UL approval) as meeting certain standards required for the sale of electrical and light-emitting equipment internationally. Although an opiates-only UP link ® detection system has no commercial potential, we have developed an
+UP link ® detection system for the full NIDA-5
+panel of tests – cocaine, methamphetamines/amphetamines, PCP, opiates and marijuana – which we believe can be commercialized. In September 2003, we submitted an application for FDA 510(k) clearance of an UP link ® system for the full NIDA-5 panel of tests. We plan
+initially to distribute this product through Dräger Safety AG & Co. KGaA (as discussed below) in the roadside testing market in Europe and other countries. Subject to receipt of FDA clearance and the completion of additional market
+research, we eventually intend to market this system directly in the workplace and criminal justice markets in the United States. 
+Although we have made significant progress with respect to the development of the UP link ® rapid point-of-care drugs of abuse detection system, there can be no assurance that we
+will be successful in commercializing this product. Assuming FDA 510(k) clearance is obtained, we do not expect to receive significant amounts of revenues from this product until at least the second half of 2004 or in subsequent years. 
+In March 2000, we signed a research and development agreement with
+Dräger Safety AG & Co. KGaA (“Dräger”), a European manufacturer and supplier of medical and safety technology products for health care and industrial applications. This agreement provided for the development of the
+UP link ® system for rapid detection of drugs
+of abuse in oral fluid. After completion of all research and development activities, Dräger has the option to become our exclusive distributor of this product in Europe and certain other countries to law enforcement officials for rapidly
+assessing whether an operator or passenger in a motor vehicle is under the influence of one or more drugs of abuse (the “roadside market”) and ultimately to certain military, criminal justice, and workplace testing markets. We received a
+non-refundable fee from Dräger under the agreement and will receive additional fees upon achievement of certain technical milestones. We expect Dräger to exercise its option and to commercially launch the UP link ® system in the roadside market in Europe by April 2004.
+In September 2000, we signed a research and development
+agreement with Meridian Bioscience, Inc. (“Meridian”), a medical diagnostics company. Under this agreement, we intended to develop a range of UP link ® 
+7 
+Table of Contents 
+point-of-care tests for the rapid detection of parasites, and gastrointestinal and upper respiratory diseases. Development of one test, for detection of the
+respiratory syncytial virus (“RSV”), has been substantially completed. However, due to development delays and certain other events, we terminated our agreement with Meridian in 2003. 
+We are participating in the second year of a $4.2 million, four-year grant
+for research and development of saliva/oral fluid-based diagnostic technologies, awarded by the National Institutes of Health (the “NIH”) to the University of Pennsylvania. The grant covers basic research in the following three main areas:
+• 
+New technologies for collecting bacterial/viral protein and nucleic acid samples from the human mouth; 
+• 
+The combination of the University of Pennsylvania’s microfluidic processing technology with our UPT ™ technology for sample preparation; and 
+• 
+The detection of viral or bacterial markers. 
+The research plan under the grant contemplates achieving these goals through the use of our UP link ® rapid detection system. 
+Our portion of funding under the grant was approximately $400,000 in the first year and is expected to be approximately
+$350,000 in the second year, and if the grant is renewed by the NIH as we expect, approximately $350,000 to $400,000 each year thereafter. Payments under the grant are subject to availability of funding from the NIH and satisfactory progress of the
+research and development project. 
+OraQuick ® Platform 
+We believe that OraQuick ® has significant potential as a point-of-care testing platform for physicians’
+offices, hospitals, and other markets. We believe that OraQuick ® provides a platform technology that can be modified for detection of a variety of infectious diseases in addition to HIV, such as viral hepatitis and certain sexually transmitted diseases. 
+OraSure ® /Intercept ® Applications 
+Oral mucosal transudate, or OMT, contains many constituents found in blood and serum, although in lower concentrations. We believe the OraSure ® and Intercept ® devices are a platform technology with a wide variety of potential applications, where
+laboratory testing is available. For example, the OraSure ® device may be useful for the collection of a variety of antibodies or markers for infectious diseases or conditions in addition to HIV-1, such as antibodies to viral hepatitis. We also believe these devices may be
+useful for the collection of DNA in oral fluid. 
+Business Strategy
+We have adopted a three-part growth strategy, pursuant to
+which we intend to leverage our extensive diagnostic experience in order to maximize the available opportunities from our existing products and technologies, and supplement our existing product pipeline through the strategic acquisition of other
+technologies and products. We intend to follow a disciplined approach to maximize the value of our business for the benefit of our stockholders. Specifically, our business strategy includes the following key elements: 
+• 
+We intend to maximize the sales potential of our existing product lines in the markets where they are currently sold. This would principally involve fully capitalizing on the
+potential market reach of our OraQuick ® ,
+OraSure ® , Intercept ® , Histofreezer ® and Freeze Off ™ products by investing in our sales and marketing efforts where appropriate, making product improvements and
+enhancements, and optimizing our distribution channels. 
+8 
+Table of Contents 
+• 
+We intend to expand the use of our existing products and technology platforms into new applications and new markets. For example, we believe that both the OraQuick ® and OraSure ® product technologies are very flexible and could be used potentially for the detection
+of diseases or conditions other than HIV. We also expect to explore other potential applications for both the UP link ® and UPT ™ technology platforms in the future, and to selectively expand the distribution of our established products into certain international markets. 
+• 
+We will evaluate potential acquisitions that may provide new products and technology platforms to supplement our existing product pipeline. 
+Research and Development 
+In 2003, our research and development activities focused on the continued
+development of the UP link ® analyzer, test
+cassette and collector, the development of the UP link ® drugs of abuse assays, DNA feasibility studies, clinical trials related to claims for venipuncture whole blood, HIV-2, oral fluid and plasma for our OraQuick ® test, and improvements to certain of our existing products. 
+We supplement our own research and development activities by funding external
+research. We have funded research at Leiden University and certain other entities, and intend to continue funding external research. 
+Research and development expenses totaled approximately $8.0 million in 2003, $8.3 million in 2002 and $9.4 million in 2001. These expenses include the
+costs associated with research and development, regulatory affairs and clinical trials. 
+Sales and Marketing 
+We attempt to reach our
+major target markets through a combination of direct sales, strategic partnerships, and independent distributors. Our marketing strategy is to raise awareness of our products through a mix of trade shows, print advertising, and distributor
+promotions to support sales in each target market. 
+We market
+our products in the United States and internationally. Revenues attributable to customers in the United States amounted to $35.9 million, $28.1 million and $27.3 million in 2003, 2002 and 2001, respectively. Revenues attributable to international
+customers amounted to $4.6 million, $3.9 million and $5.3 million, or 11%, 12% and 16% of our total revenues, in 2003, 2002 and 2001, respectively. 
+Insurance Risk Assessment 
+We currently market the OraSure ® oral fluid collection device for use in screening life insurance applicants in the United States and internationally to test for three of the most
+important underwriting risk factors: HIV-1, cocaine, and cotinine (a metabolite of nicotine). Devices are sold to insurance testing laboratories, including Lab One , Inc., Heritage Labs and Clinical Reference Laboratories. These laboratories in
+turn provide the devices to insurance companies, usually in combination with testing services. 
+We also maintain a direct sales force that promotes use of the OraSure ® device directly to insurance companies for life insurance risk assessment. Insurance companies then make their own decision regarding which laboratory to use to supply their collection
+devices and testing services. Our OraSure ® Western
+Blot confirmatory test is distributed through BMX to laboratories and is used to confirm oral fluid specimens that initially test positive for HIV-1. 
+Because insurance companies are in various stages of their adoption of the OraSure ® device, there exists a wide range of policy limits where the product is being applied. Some insurance companies have
+chosen to extend their testing to lower policy limits where they did not test at all before, while others have used OraSure ® to 
+9 
+Table of Contents 
+replace some of their blood and urine-based testing. In general, most of our insurance company customers use the OraSure ® device in connection with life insurance policies having face amounts of up to
+$250,000, with some customers using the device for policies of up to $500,000 in amount. One large insurance customer uses the OraSure ® device with policies having face amounts up to $3 million. 
+Our sales force continues to encourage additional insurance companies to use OraSure ® and to extend the use of the product by existing customers. We believe there are several factors which will help expand
+the use of our device, including increasing acceptance of the reliability of oral fluid testing, the high quality of test results, the low cost of oral fluid testing relative to blood tests, the ease of use of the OraSure ® device, and the development of new oral fluid assays for use with our
+OraSure ® device for detecting substances or
+conditions that affect life insurance risk assessment. 
+We also
+sell our AUTO-LYTE ® and MICRO-PLATE assays and
+reagents in the insurance testing market directly to laboratories, including Lab One , Heritage Labs, and Clinical Reference Laboratory. 
+Infectious Disease Testing 
+Our sales personnel market the OraSure ® oral fluid collection device, separately and as a kit in combination with laboratory testing services (as described below), and the OraQuick ® rapid HIV-1 antibody test directly to customers in the
+public health market for HIV-1 testing. This market consists of a broad range of clinics and laboratories and includes states, counties, and other governmental agencies, The Centers for Disease Control and Prevention, colleges and universities,
+correctional facilities and the military. There are also a number of organizations in the public health market such as AIDS service organizations and various community-based organizations set up primarily for the purpose of encouraging and enabling
+HIV testing. 
+To better serve our public health customers, we
+have entered into agreements with Lab One and Heritage Labs to provide prepackaged OraSure ® test kits, with prepaid laboratory testing and specimen shipping costs included. We also sell the OraSure ® and OraQuick ® devices in the international public health markets. 
+In June 2002, we entered into an agreement under which Abbott Laboratories was appointed as the co-exclusive distributor of the OraQuick ® rapid HIV-1 antibody test in the United States,
+focusing primarily on the hospital and physicians’ office markets. We intended to primarily target our direct sales to the public health and criminal justice markets, the military, the CDC and other agencies. Because Abbott failed to meet its
+minimum purchase commitments under the Agreement, we asserted that the agreement terminated in 2003. Abbott disputed our right to terminate, and this dispute was submitted to binding arbitration for resolution. The arbitrator found that the
+agreement did not terminate and will continue. In addition, consistent with the arbitrator’s rulings we notified Abbott that its distribution rights were converted from co-exclusive to non-exclusive. For a further discussion of this dispute
+with Abbott Laboratories, see the Section of this Annual Report entitled, “Legal Proceedings.” 
+We are in the process of recruiting and intend to deploy a small sales force that will provide direct access to and marketing support for the hospital
+market for our OraQuick ® test and possibly other
+products. We also intend to seek one or more distributors to help penetrate the physicians’ office market with our OraQuick ® test. 
+Substance Abuse Testing 
+Our substance abuse testing products are marketed into the workplace testing, forensic toxicology, criminal justice, and drug rehabilitation markets,
+primarily through direct sales and laboratory distributors. The forensic toxicology market consists of 250 – 300 laboratories including federal, state and county crime laboratories, medical examiner laboratories, and reference laboratories. The
+criminal justice market consists of a wide variety of entities in the criminal justice system that require drug screening, such as pre-trial services, parole and probation officials, police forces, drug courts, prisons, drug treatment programs and
+community/family service programs. 
+10 
+Table of Contents 
+We have entered into agreements for the distribution of Intercept ® collection devices and associated MICRO-PLATE assays for drugs-of-abuse testing in the
+workplace testing market in the United States and Canada through several laboratory distributors, including Lab One , Quest Diagnostics, Clinical Reference Laboratory and NWT, Inc., and internationally for workplace and forensic toxicology
+testing through Bio-Rad Laboratories, Altrix HealthCare, plc, and other distributors. We assist our laboratory customers in customizing their testing services by selling them equipment required to test oral fluid specimens collected with the
+Intercept ® device. 
+We also distribute our Q.E.D. ® saliva alcohol test primarily through various distributors. The markets for alcohol
+testing are relatively small and fragmented with a broad range of legal and procedural barriers to entry. Markets range from law enforcement testing to workplace testing of employees in safety sensitive occupations. The Q.E.D. ® test has been successfully adopted by end users in the
+petroleum, heavy construction, trucking, and retail industries because it is a cost-effective, portable, easy-to-administer, quantitative testing method. Typical usage situations include pre-employment, random, post-accident, reasonable-cause, and
+return-to-duty testing. 
+Cryosurgical Systems
+Most of our Histofreezer ® sales occur in the United States to distributors that, in turn, resell the
+product to more than 150,000 primary care physicians and podiatrists in the United States. Major U.S. distributors include Cardinal Healthcare, McKesson HBOC, Physicians Sales & Service, AmerisourceBergen Corporation, and Henry Schein.
+Internationally, we established a sales office in Reeuwijk, The Netherlands, and we are selling the Histofreezer ® product through a dealer network in more than 20 countries worldwide. We have also commenced sales of Freeze Off ™ , a product similar to Histofreezer ® , in the over-the-counter market in the U.S. pursuant to a distribution agreement with MedTech Holdings, Inc., the owner
+of the Compound W ® line of wart removal products.
+International Markets 
+We sell a number of our products into international markets primarily
+through distributors with knowledge of their local markets. Principal markets include physicians’ offices, insurance risk assessment, substance abuse, public health, and laboratory testing. 
+We assist our international distributors in registering the products and
+obtaining required regulatory approvals in each country, and we provide training and support materials. Our international marketing program includes direct assistance to distributors in arranging for laboratory services, cooperation from screening
+test manufacturers, and performance of Western Blot confirmatory tests when necessary. 
+Significant Products and Customers 
+Several
+different products have contributed significantly to our financial performance, accounting for 15% or more of total revenues during the past three years. The OraSure ® and Intercept ® oral fluid collection devices, Histofreezer ® and Freeze Off ™ products, immunoassay tests and reagents, and OraQuick ® rapid HIV-1 antibody test accounted for total revenues of approximately $14.5 million, $10.8 million, $6.6 million and $6.3 million in 2003, $14.3
+million, $7.2 million, $7.6 million and $400,000 in 2002, and $12.7 million, $6.7 million, $7.9 million and $0.7 million in 2001, respectively. As new products are developed and commercialized, we expect to reduce our dependence on these products.
+We currently have two customers, Lab One and MedTech
+Holdings, Inc., that accounted for 17% and 12% of our total revenues, respectively, during 2003. 
+As of June 30, 2003, Lab One stopped purchasing our AUTO-LYTE ® urine assays. As a result, our revenues in 2003 were reduced by approximately $1.2 million and are expected to be
+reduced by as much as $1.7 million in 2004, when compared to 2002 revenues in the insurance risk assessment market. 
+11 
+Table of Contents 
+In the fourth quarter of 2003, Lab One acquired the Insurance Testing Laboratory of the
+Metropolitan Life Insurance Company (“Metlife”). Metlife had been a long time purchaser of our urine assays for life insurance risk assessment testing. In light of Lab One’s decision to stop purchasing our AUTO-LYTE ® urine assays, this acquisition is expected to result in
+further revenue loss for those products above the levels set forth above. 
+There can be no assurance that sales to Lab One will not decrease in an amount greater than our current expectations, or that this customer will not choose to replace our MICRO-PLATE oral fluid assays or other
+products with internally-developed products or products manufactured by our competitors. The loss of Lab One or a significant decrease in the volume of products purchased by it could have a material adverse effect on our results. 
+Supply and Manufacturing 
+We have entered into an agreement with a contractor in the United States for
+the assembly and supply of our OraSure ® and
+Intercept ® oral fluid collection devices. This
+agreement renews annually each calendar year unless either party provides timely notice of termination prior to the end of an annual period. A change in the manufacturer of the OraSure ® device would require FDA review and approval, which could require significant time to
+complete and disrupt our ability to manufacture this product. We intend to terminate the agreement with this contractor and transfer manufacturing of both the OraSure ® and Intercept ® collection devices to our Bethlehem, Pennsylvania facility. The transfer of the OraSure ® device requires FDA approval and, in August 2003, we completed the required equivalency
+and validation studies and filed a submission with the FDA seeking approval of the transfer. The transfer of our Intercept ® device requires only that we notify the FDA of the transfer. We expect to complete the transfer of both products during the first half of 2004, which
+is expected to lower our manufacturing costs and help assure that we can maintain our quality control for these products in the future. 
+We manufacture the OraQuick ® test in our Bethlehem, Pennsylvania facilities. In addition, we have entered into a supply agreement for the assembly of the OraQuick ® device in Thailand, in order to supply certain
+international markets. This supply agreement had an initial term of one year, and automatically renews for additional annual periods unless either party provides a timely notice of termination prior to the end of an annual period. We believe that
+other firms would be able to manufacture the OraQuick ® test on terms no less favorable than those set forth in the agreement if the Thailand contractor would be unable or unwilling to continue manufacturing this product. 
+We can purchase the HIV antigen and the nitrocellulose strips required for
+the OraQuick ® test only from a limited number of
+sources. The antigen is currently purchased from a single contract supplier under a long-term agreement with an initial term ending in January 2010 and one-year automatic renewal terms thereafter. The nitrocellulose used in the test is also provided
+by a single contract supplier, and we are presently negotiating a long-term supply agreement with this party. If for any reason these suppliers are no longer able to supply our antigen or nitrocellulose needs, we believe that alternative supplies
+could be obtained at a competitive cost. However, a change in the antigen or nitrocellulose would require FDA approval and some additional development work. This in turn would require significant time to complete and could disrupt our ability to
+manufacture and sell the OraQuick ® device.
+The oral fluid Western Blot HIV-1 confirmatory test is
+currently manufactured in our Beaverton, Oregon facility. In December 2003, the FDA approved the transfer of manufacturing of this product to our Bethlehem, Pennsylvania facility. This transfer is now complete, and we are currently ramping up
+manufacturing of this product in Pennsylvania. 
+The HIV antigen
+needed to manufacture the Western Blot test is available from only a limited number of sources. For many years, we have purchased the antigen for this product from BMX on an exclusive basis. BMX is also the exclusive distributor of the Western Blot
+test kits. 
+12 
+Table of Contents 
+In October 2002, we entered into new agreements with BMX, which replaced existing agreements between the
+companies. These new agreements provide for the continued supply by BMX of the HIV-1 antigen and distribution of the oral fluid Western Blot product by BMX on an exclusive worldwide basis. If for any reason BMX is no longer able to supply our
+antigen needs, we would be able to obtain alternate supplies at a competitive cost. However, a change in the antigen would require FDA approval and some additional development work, which would require significant time to complete and could disrupt
+our ability to manufacture and sell the Western Blot HIV-1 confirmatory test. 
+Histofreezer ® is
+assembled in The Netherlands by Koninklijke, Utermöhlen, N.V. (“Utermöhlen”), the company from which we acquired the product in 1998. We purchase the product pursuant to an exclusive production agreement. This agreement provides
+that Utermöhlen will be the exclusive supplier of the Histofreezer ® product until at least December 31, 2006. Utermöhlen also manufactures Freeze Off ™ , the over-the-counter version of Histofreezer ® . We believe that additional manufacturers of the Histofreezer ® and Freeze Off ™ products are available on terms no less favorable than the terms of the production agreement with Utermöhlen, in the event that Utermöhlen
+would be unable or unwilling to continue manufacturing these products. 
+Our AUTO-LYTE ® and MICRO-PLATE assays are
+manufactured in our Bethlehem, Pennsylvania facility. These tests require the production of highly specific and sensitive antibodies corresponding to the antigen of interest. Substantially all our antibody requirements are provided by contract
+suppliers. We believe that we have adequate reserves of antibody supplies and that we have access to sufficient raw materials for these products. 
+The Q.E.D. ® saliva alcohol test is manufactured and packaged for shipment in our Bethlehem, Pennsylvania facility. 
+We expect to assemble analyzers, test cassettes and collectors used in our UP link ® oral fluid drugs of abuse rapid detection system and to package this product
+for shipment at our Bethlehem, Pennsylvania facilities. 
+Employees
+As of December 31, 2003, we had 171 full-time employees,
+including 45 in sales, marketing, and client services; 48 in research and development; 51 in operations, manufacturing, quality control, quality assurance, regulatory affairs, clinical trials, information systems, purchasing and shipping; and 27 in
+administration and finance. This compares to 187 employees as of December 31, 2002. As of December 31, 2003, 15 of our employees held Ph.D. degrees. Our employees are not currently represented by a collective bargaining agreement. 
+Competition 
+The diagnostic industry is a multi-billion dollar international industry and is intensely competitive. Many of our
+competitors are substantially larger and have greater financial, research, manufacturing, and marketing resources. 
+Important competitive factors for our products include product quality, price, ease of use, customer service, and reputation. Industry competition is
+based on the following: 
+• 
+Scientific and technological capability; 
+• 
+Proprietary know-how; 
+• 
+The ability to develop and market products and processes; 
+• 
+The ability to obtain FDA or other regulatory approvals; 
+13 
+Table of Contents 
+• 
+The ability to manufacture products that meet applicable FDA requirements (i.e., good manufacturing practices); 
+• 
+Access to adequate capital; 
+• 
+The ability to attract and retain qualified personnel; and 
+• 
+The availability of patent protection. 
+A few large corporations produce a wide variety of diagnostic tests and other medical devices and equipment. A larger number of mid-size companies
+generally compete only in the diagnostic industry, and a significant number of small companies produce only a few diagnostic products. As a result, the diagnostic test industry is highly fragmented and segmented. 
+The future market for diagnostic tests is expected to be characterized by
+consolidation, greater cost consciousness, and tighter reimbursement policies. The purchasers of diagnostic products are expected to place increased emphasis on lowering costs, reducing inventory levels, automation, service, and volume discounts.
+The increased complexity of the market is expected to force many competitors to enter into joint ventures or license certain products or technologies. 
+We expect competition to intensify as technological advances are made and become more widely known, and as new products reach the market. Furthermore, new
+testing methodologies could be developed in the future that render our products impractical, uneconomical or obsolete. There can be no assurance that our competitors will not succeed in developing or marketing technologies and products that are more
+effective than those we develop or that would render our technologies and products obsolete or otherwise commercially unattractive. In addition, there can be no assurance that our competitors will not succeed in obtaining regulatory approval for
+these products, or introduce or commercialize them before we can do so. These developments could have a material adverse effect on our business, financial condition and results of operations. 
+Several companies market or have announced plans to market oral specimen
+collection devices and tests outside the United States. We expect the number of devices competing with our Intercept ® and OraSure ® devices to increase as the benefits of oral specimen-based testing become more widely accepted. 
+Competition in the market for HIV testing is intense and is expected to increase. We believe that the principal competition will come from existing
+laboratory-based blood tests, point-of-care rapid blood tests, laboratory-based urine assays, or other oral fluid-based tests that may be developed. Our competitors include specialized biotechnology firms as well as pharmaceutical companies with
+biotechnology divisions and medical diagnostic companies. 
+Significant competitors for our OraQuick ® 
+rapid HIV-1 antibody test, such as the Ortho Diagnostics division of Johnson & Johnson and Bio-Rad Laboratories, sell laboratory-based HIV-1 EIAs, and Calypte, Inc. sells an HIV-1 screening test for urine, in the United States. Abbott
+Laboratories sold a competing rapid HIV test internationally, but during 2003 terminated the manufacture of a rapid HIV test sold primarily into the United States hospital market. Under our OraQuick ® distribution agreement with Abbott, we compete with Abbott in selling our OraQuick ® test in many markets. In addition, MedMira and Trinity
+Biotech each recently received FDA approval to sell competing rapid HIV-1 blood tests in the United States, and we believe these tests, under their current FDA approvals, will compete with our OraQuick ® test in the hospital or other laboratory settings. We believe other companies may seek
+FDA approval to sell competing rapid HIV tests in the future. 
+In the insurance risk assessment market, our AUTO-LYTE ® homogeneous assays for cocaine and cotinine compete with reagents from Microgenics, Inc. (a subsidiary of Apogent Technologies). Our AUTO-LYTE ® homogeneous assays for beta-blockers and thiazide as well as MICRO-PLATE heterogeneous assays specifically designed for
+the detection of cocaine, cotinine, and Immunoglobulin G, or IgG, in oral fluid are the only assays 
+14 
+Table of Contents 
+available in the marketplace. In urine chemistries, our significant competitors include The Diagnostics Systems Group of Olympus America Inc. and Diagnostic
+Reagents International. However, the most significant competition facing our AUTO-LYTE ® assays is from assays developed internally by our laboratory customers (i.e., “home brews”), which can be produced at a cost lower than the price typically paid for our products. For example,
+effective June 30, 2003, Lab One , Inc. ceased purchasing our AUTO-LYTE ® urine assays in order, we believe, to use internally-developed assays. As a result, revenues from these products were substantially lower in 2003, and we expect revenues from these products to continue to decrease and
+eventually be eliminated. Our MICRO-PLATE assays may also face competition from lower cost “home brew” oral fluid assays. 
+Our MICRO-PLATE drugs-of-abuse reagents are targeted to forensic testing laboratories where sensitivity, automation, and “system solutions” are
+important. In the past, these laboratories have typically had to rely on radioimmunoassay test methods to provide an adequate level of sensitivity. Radioimmunoassays require radioactive materials, which have a short shelf-life and disposal problems.
+Our MICRO-PLATE tests meet the laboratories’ sensitivity needs, run on automated equipment, are not radioimmunoassays, and are offered to the laboratory as a complete system solution of reagents, instrumentation and software to meet the
+specific needs of each customer. Options to buy or rent the instrumentation and software, which we purchase from third party vendors, are offered to these customers. 
+In the forensic toxicology market, we compete with both homogeneous and heterogeneous tests manufactured by many companies.
+Significant competitors in the market for these assays include Microgenics, Inc., Roche Diagnostics, and Immunalysis. 
+The Intercept ® drug testing system competes with laboratory-based drug testing products and services using testing matrices such as urine, hair, sweat and oral fluid. Major competitors include Ansys
+Technologies, Inc., Dade Behring, Psychemedics, and Immunalysis. Our MICRO-PLATE oral fluid drug assays, which are sold for use with the Intercept ® collection device, are expected to come under increasing competitive pressure from “home-brew” assays developed internally by our laboratory
+customers. 
+The Histofreezer ® product’s delivery system and warmer operating temperature than liquid
+nitrogen provide us with the opportunity to target sales to primary care physicians, such as family practitioners, pediatricians, and podiatrists. We do not generally target sales to dermatologists because they have the volume of patients required
+to support the capital costs associated with a liquid nitrogen delivery system, which is also used to remove warts and other benign skin lesions. There is limited competition for convenient cryosurgical products for wart removal in the primary care
+physician market. Major competitors for the Histofreezer ® product include CryoSurgery, Inc. in the United States and Wartner in Europe. Wartner may also eventually compete with Histofreezer ® in the physician market in the United States. 
+The Freeze Off ™ product, sold by MedTech under its Compound W ® tradename, competes with other over-the-counter wart removal products in the United States. Wartner currently sells a competing cryosurgical wart
+removal product in the over-the-counter market, and Schering-Plough is expected to begin selling a competing cryosurgical wart removal product in 2004. 
+Q.E.D. ® has two direct competitors, Ansys Technologies, Inc. and Chematics. These companies offer semi-quantitative saliva-based alcohol tests and have received DOT approval. Indirect
+competitors who offer breath testing equipment include Intoximeters, Dräger, and CMI. Although there are lower priced tests on the market that use oral fluid or breath as a test medium, these tests are qualitative tests that are believed to be
+substantially lower in quality and scope of benefits than our Q.E.D. ® test. 
+Our UP link ® product also is expected to compete with other on-site,
+rapid drug assays and instrument-read tests. Major competitors in this area include American Biomedica, Biosite Diagnostics, Avitar, Inc., Ansys Technologies, Inc., and eScreen. Another potential competitor, LifePoint, Inc., has announced plans to
+sell a reader-based saliva test panel that will include alcohol testing. 
+15 
+Table of Contents 
+Patents and Proprietary Information 
+We seek patent and other intellectual property rights to protect and preserve our proprietary technology and our right to
+capitalize on the results of our research and development activities. We also rely on trade secrets, know-how, continuing technological innovations, and licensing opportunities to provide competitive advantages for our products in our markets and to
+accelerate new product introductions. We regularly search for third-party patents in fields related to our business to shape our own patent and product commercialization strategies as effectively as possible and to identify licensing opportunities.
+United States patents generally have a maximum term of 20 years from the date an application is filed. 
+We have 16 United States patents and numerous foreign patents for the OraSure ® and Intercept ® collection devices and related technology relating to oral fluid collection, containers for oral fluids, methods to test oral fluid, formulations for
+the manufacture of synthetic oral fluid, and methods to control the volume of oral fluid collected and dispersed. We have also applied for additional patents, in both the United States and certain foreign countries, on such products and technology.
+We have one patent for lateral flow diagnostic tests that
+covers our OraQuick ® rapid HIV antibody test in the
+United States, and we intend to apply for additional patents for this product. We have obtained licenses to certain lateral flow patents and to certain HIV-1 patents held by other parties in order to market the OraQuick ® test. We obtained these licenses through the payment of certain upfront fees
+and ongoing royalties. We believe these royalties are comparable to rates generally paid by other companies under similar arrangements. 
+We may need to obtain licenses or other rights under, or enter into distribution or other business arrangements in connection with, certain patents for
+HIV-2 and certain other lateral flow patents, in order to manufacture and sell the OraQuick ® HIV test. See the Section entitled, “Risk Factors,” for a further discussion of these issues. 
+In April 1995, we received exclusive worldwide rights under patents and know-how owned by SRI International to develop and
+market products that involve the use of UPT ™ . We
+also received non-exclusive worldwide rights under patents and know-how owned by the Sarnoff Corporation (a subsidiary of SRI International formerly called the David Sarnoff Research Center) to develop and market products that involve the use of
+UPT ™ . We have the right to sublicense these
+rights, subject to consent from SRI and Sarnoff. 
+Under the
+agreement with SRI, we are required to make license, maintenance and royalty payments to SRI. We must also make royalty payments for a period equal to the longer of ten years from the date of the first commercial sale of the products or the term
+during which the manufacture, use, or sale of a product would infringe licensed patents, but for our license with SRI. We believe that the royalty rates payable to SRI are comparable to the rates generally payable by other companies under similar
+arrangements. Our agreement with SRI terminates upon the expiration of our obligation to pay royalties. 
+In 1999, we paid $1.5 million to TPM Europe Holding B.V., our sublicensor, for the termination of an existing license agreement between the sublicensor
+and the Company with respect to the sublicense of UPT ™ patents owned by Leiden University, The Netherlands, and to secure a direct research, development, and license arrangement with Leiden University. 
+We have five United States patents and numerous foreign patents issued for apparatuses and methods for the topical removal
+of skin lesions relating to our Histofreezer ® and
+Freeze Off ™ products. We have also licensed
+another patent relating to apparatuses and methods for the topical removal of skin lesions relating to our Histofreezer ® and Freeze Off ™ products. 
+We have or have licensed rights under 16 United States patents and numerous foreign patents for methods, compositions, and apparatuses relating to our UPT ™ and UP link ® technologies. Several additional UPT ™ and 
+16 
+Table of Contents 
+UP link ® patent applications remain pending in the United States and abroad. We expect to continue to expand our UPT ™ patent portfolio in 2004. 
+We have one United States patent relating to the method for detecting blood in urine specimens using our AUTO-LYTE ® products. 
+We have four United States patents and numerous foreign patents and patent applications for the technology used in the
+Q.E.D. ® test. These patents are related to the
+analog-to-digital technology color control systems and methods, systems and devices for the test, and detection of biochemical molecules. 
+We require our employees, consultants, outside collaborators, and other advisors to execute confidentiality agreements upon the commencement of employment
+or consulting relationships with us. These agreements provide that all confidential information developed by or made known to the individual during the course of the individual’s relationship with us, is to be kept confidential and not
+disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual during his or her tenure with us will be our exclusive property. 
+We own rights to trademarks and service marks that we believe are necessary
+to conduct our business as currently operated. In the United States, we own the UPT ™ , UP link ® , OraSure ® ,
+Intercept ® , OraQuick ® , Histofreezer ® , Q.E.D. ® and AUTO-LYTE ® trademarks. We also own many of these marks and others in several foreign countries. 
+Although important, the issuance of a patent or existence of trademark or trade secret protection does not in itself ensure
+the success of our business. Competitors may be able to produce products competing with our patented products without infringing our patent rights. Issuance of a patent in one country generally does not prevent manufacture or sale of the patented
+product in other countries. The issuance of a patent is not conclusive as to validity or as to the enforceable scope of the patent. The validity or enforceability of a patent can be challenged by litigation after its issuance. If the outcome of such
+litigation is adverse to the owner of the patent, the owner’s rights could be diminished or withdrawn. Trade secret protection does not prevent independent discovery and exploitation of the secret product or technique. 
+We are not aware of any pending claims of infringement or other challenges to
+our patents or our rights to use our trademarks or trade secrets in the United States or in other countries. 
+Government Regulation 
+General 
+Most of our products are regulated by
+the FDA, certain state and local agencies, and comparable regulatory bodies in other countries. This regulation governs almost all aspects of development, production, and marketing, including product testing, authorizations to market, labeling,
+promotion, manufacturing, and recordkeeping. 
+All of our
+FDA-regulated products require some form of action by the FDA before they can be marketed in the United States. After approval or clearance by the FDA, we must continue to comply with other FDA requirements applicable to marketed products. Both
+before and after approval or clearance, failure to comply with the FDA’s requirements can lead to significant penalties and product recalls or could disrupt our ability to sell these products. In addition, the FDA could refuse permission to
+obtain certificates needed to export our products if the agency determines that we are not in compliance. 
+Domestic Regulation 
+Most of our diagnostic products are regulated in the United States as medical devices. 
+17 
+Table of Contents 
+There are two review procedures by which medical devices can receive FDA clearance or approval. Some
+products may qualify for clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act. To obtain this clearance, the manufacturer must provide a premarket notification that it intends to begin marketing the product, and show that the
+product is substantially equivalent to another legally marketed product (i.e., that it has the same intended use and is as safe and effective as a legally marketed device and does not raise different questions of safety and effectiveness). In some
+cases, the submission must include data from human clinical studies. Marketing may commence when the FDA issues a clearance letter finding substantial equivalence. An applicant must submit a 510(k) application at least 90 days before marketing of
+the affected product commences. Although FDA clearance may be granted within that 90-day period, in some cases as much as a year or more may be required before clearance is obtained, if at all. 
+If the medical device does not qualify for the 510(k) procedure (either
+because it is not substantially equivalent to a legally marketed device or because it is required by statute and the FDA’s regulations to have an approved application), the FDA must approve a premarket application, or PMA, before marketing can
+begin. PMAs must demonstrate, among other matters, that the medical device provides a reasonable assurance of safety and effectiveness. A PMA is typically a complex submission, including the results of preclinical and clinical studies. 
+Preparing a PMA is a detailed and time-consuming process. Once a PMA has
+been submitted, the FDA is required to review the submission within 180 days. However, the FDA’s review may, and often is, much longer, often requiring one year or more, and may include requests for additional data before approval is granted,
+if at all. 
+In 2002, Congress enacted the Medical Device User
+Fee and Modernization Act, which authorizes the FDA to assess and collect user fees for premarket notifications and premarket approval applications filed on or after October 1, 2002. Fees for fiscal year 2004 range from $3,480 for 510(k) premarket
+notifications to $206,811 for PMA’s, although fee reductions are available for companies qualifying as small businesses. We do not currently qualify as a small business. 
+Many of our insurance testing products are used for non-medical purposes and many of our drugs-of-abuse products sold to
+state crime labs are for forensic use. The FDA does not currently regulate products used for these purposes. 
+Every company that manufactures medical devices distributed in the United States must comply with the FDA’s Quality System Regulations
+(“QSRs”). These regulations govern the manufacturing process, including design, manufacture, testing, release, packaging, distribution, documentation and purchasing. In complying with QSRs, manufacturers must continue to expend time,
+money, and effort in the area of production and quality assurance to ensure full technical compliance. Companies are also subject to other post-market and general requirements, including restrictions imposed on marketed products, promotional
+standards, and requirements for recordkeeping and reporting of certain adverse reactions. If there are any modifications made to our marketed devices, a premarket notification or premarket approval application may be required to be submitted to, and
+cleared or approved by, the FDA, before the modified device may be marketed. The FDA regularly inspects companies to determine compliance with QSRs and other post-market requirements. Failure to comply with statutory requirements and the FDA’s
+regulations can result in warning letters, monetary penalties, suspension or withdrawal of regulatory approvals, operating restrictions, total or partial suspension of production, injunctions, product recalls, seizure of products, and criminal
+prosecution. 
+Products that include electrical or light
+emitting equipment must also comply with the FDA’s safety and performance standards applicable to such equipment. Our UP link ® analyzer is a piece of electrical equipment that uses a laser to read the test results and is, therefore, subject to these requirements. In addition,
+there is an industry safety and performance standard for electrical equipment established by Underwriters Laboratories, Inc., known as UL3101-1. Although a voluntary standard, compliance with UL3101-1 supported our 510(k) submission for 
+18 
+Table of Contents 
+the UP link ® analyzer. Underwriters Laboratories Inc. was retained to examine and test the UP link ® analyzer and has certified that this product meets the FDA requirements and UL3101-1 (i.e., UL approval). 
+The Clinical Laboratory Improvements Amendments of 1988, or CLIA, prohibit
+laboratories from performing in vitro tests for the purpose of providing information for the diagnosis, prevention or treatment of any disease or impairment of, or the assessment of, the health of human beings, unless there is in effect for
+such laboratories a certificate issued by the U.S. Department of Health and Human Services applicable to the category of examination or procedure performed. We consider the applicability of the requirements of CLIA in the design and development of
+our products. We have obtained a waiver of the CLIA requirements for our OraQuick ® rapid HIV-1 antibody test and Q.E.D. ® alcohol saliva test and may seek similar waivers for certain other products. A CLIA waiver allows certain customers to use the waived products that may not have been able to use them without complying with certain
+quality control and other requirements. 
+Certain of our
+products may also be affected by state regulations in the United States. For example, there are several states that restrict or do not currently permit oral fluid drug testing in the workplace or other markets. In addition, several states prohibit
+or limit the use of rapid, point-of-care HIV testing. We are presently working with legislators or regulators in certain of these states in an effort to modify or remove any restrictions affecting our ability to sell products. 
+International 
+We are also subject to regulations in foreign countries governing products,
+human clinical trials and marketing, and may need to obtain approval from international public health agencies, such as the World Health Organization, in order to sell products in certain countries. Approval processes vary from country to country,
+and the length of time required for approval or to obtain other clearances may in some cases be longer than that required for U.S. governmental approvals. We generally pursue approval only in those countries that we believe have a significant market
+opportunity. 
+The International Organization for
+Standardization (“ISO”) is a worldwide federation of national standards bodies from some 130 countries, established in 1947. The mission of the ISO is to promote the development of standardization and related activities in the world with a
+view to facilitating the international exchange of goods and services. ISO certification is a pre-requisite to use of the CE mark and indicates that our quality system complies with standards applicable to activities ranging from initial product
+design and development through production and distribution. The CE mark is a European Union (“EU”) requirement to sell products that fall under the scope of the Medical Devices Directive (“MDD”) and the In Vitro Diagnostic Device
+Directive (98/79/EC) (“IVDD”). The CE mark is evidence that the manufacturer meets the requirements of all applicable directives, including the MDD and IVDD. 
+On June 14, 1998, compliance with the MDD became mandatory for all manufacturers selling medical devices in the EU. In the
+first quarter of 1999, we received authorization to use the CE mark for the OraSure ® and Intercept ® collection devices based on meeting ISO standards at our Beaverton facility. In December 2000, our Bethlehem facility received final certification under the MDD and various ISO standards, enabling use of the CE mark
+for our Histofreezer ® product line. In November
+2003, we updated our certification to the MDD and ISO standards, and obtained additional certification under the Canadian Medical Devices Conformity Assessment System (“CMDCAS”), as discussed below. 
+In addition, we must comply with the essential requirements of the IVDD in
+order to receive authorization to affix a CE mark to our products. A CE mark indicates compliance with this directive and is required for distribution of in vitro diagnostic products in the EU. 
+Prior to international sale of a product containing electrical and
+light-emitting equipment, the safety and performance of such a product must be demonstrated. We retained Underwriters Laboratories, Inc. and Laird 
+19 
+Table of Contents 
+Technologies to examine and test the UP link ® analyzer, and they certified that this product meets various international standards and directives applicable to such equipment. 
+We must also comply with certain registration requirements as dictated by
+Health Canada, prior to commencing sales in Canada. We have completed this process for several of our current products and may do so with respect to other products in the future. In addition, Canadian law requires manufacturers of medical devices to
+have a quality management system that meets various ISO requirements in order to obtain a license to sell their devices in Canada. The CMDCAS was developed by Health Canada in collaboration with the Standards Council of Canada (“SCC”) to
+support the Canadian Medical Devices Regulations. 
+In July
+2003, Canada adopted a new ISO standard and will require all ISO certificate holders to transition to the new standard by March 14, 2006. The EU has a similar requirement with a compliance date of July 2006. We will need to do additional work and
+receive an updated certification in order to meet these deadlines. 
+Environmental Regulation 
+Because of the
+nature of our current and proposed research, development, and manufacturing processes, we are subject to stringent federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission,
+effluent discharge and handling and disposal of materials and wastes. We believe that we have complied with these laws and regulations in all material respects. We have not been required to take any action to correct any environmental noncompliance.
+Forward-Looking Statements 
+This Report contains certain “forward-looking statements,” within
+the meaning of the Federal securities laws. These may include statements about our expected revenues, earnings, expenses or other financial performance, future product performance or development, expected regulatory filings and approvals, planned
+business transactions, views of future industry, competitive or market conditions, and other factors that could affect our future operations, results of operations or financial position. These statements often include the words “believes,”
+“expects,” “anticipates,” “intends,” “plans,” “estimates,” “may,” “will,” “should,” “could,” or similar expressions. 
+Forward-looking statements are not guarantees of future performance or
+results. Known and unknown factors could cause actual performance or results to be materially different from those expressed or implied in these statements. Some of these factors are: ability to market products; impact of competitors, competing
+products and technology changes; ability to develop, commercialize and market new products; market acceptance of oral fluid testing products and up-converting phosphor technology products; ability to fund research and development and other projects
+and operations; ability to maintain new or existing product distribution channels (including our ability to implement a direct sales effort or alternate distribution method for OraQuick ® in the hospital market); reliance on sole supply sources for critical product
+components; availability of related products produced by third parties; ability to obtain and timing of obtaining necessary regulatory approvals; ability to comply with applicable regulatory requirements; history of losses and ability to achieve
+sustained profitability; volatility of our stock price; uncertainty relating to patent protection and potential patent infringement claims; availability of licenses to patents or other technology; ability to enter into international manufacturing
+agreements; obstacles to international marketing and manufacturing of products; ability to sell products internationally; loss or impairment of sources of capital; ability to meet financial covenants in agreements with financial institutions;
+ability to retain qualified personnel; exposure to product liability and other types of litigation; changes in international, federal or state laws and regulations; changes in relationships with strategic partners and reliance on strategic partners
+for the performance of critical activities under collaborative arrangements; changes in accounting practices or interpretation of accounting requirements; customer consolidations and inventory practices; equipment failures and ability to obtain
+needed raw materials and components; the impact of terrorist attacks, war and civil unrest; ability to complete consolidation or 
+20 
+Table of Contents 
+restructuring activities; ability to identify, complete and realize the full benefits of potential acquisitions; and general political, business and economic
+conditions. These and other factors that could cause the forward-looking statements to be materially different are described in greater detail in the Section entitled, “Risk Factors,” and elsewhere in this Report. 
+Although forward-looking statements help to provide complete information
+about future prospects, they may not be reliable. The forward-looking statements are made as of the date of this Report and we undertake no duty to update these statements. 
+Risk Factors 
+The following is a discussion of certain significant risk factors that could potentially negatively impact our financial condition, performance and
+prospects. 
+Regulatory Risks 
+The Time Needed to Obtain Regulatory Approvals and Respond to Changes in
+Regulatory Requirements Could Adversely Affect Our Business. 
+Many of our proposed and existing products are subject to regulation by the FDA and other governmental or public health agencies. In particular, we are subject to strict governmental controls on the development, manufacture, labeling,
+distribution and marketing of our products. In addition, we are often required to obtain approval or registration with foreign governments or regulatory bodies before we can import and sell our products in foreign countries. 
+The process of obtaining required approvals or clearances from governmental
+or public health agencies can involve lengthy and detailed laboratory testing, human clinical trials, sampling activities and other costly, time-consuming procedures. For example, we are seeking FDA approval for the use of the OraQuick ® test for detecting antibodies to HIV-2 and for testing
+oral fluid and plasma samples. Approval of these claims required the submission of clinical data and could require significant time to obtain. The submission of an application to the FDA or other regulatory authority for these or other claims does
+not guarantee that an approval or clearance to market the product will be received. Each authority may impose its own requirements and delay or refuse to grant approval or clearance, even though a product has been approved in another country or by
+another agency. 
+Moreover, the approval or clearance process
+for a new product can be complex and lengthy. This time span increases our costs to develop new products as well as the risk that we will not succeed in introducing or selling them in the United States or other countries. 
+Newly promulgated or changed regulations could also require us to undergo
+additional trials or procedures, or could make it impractical or impossible for us to market our products for certain uses, in certain markets, or at all. For example, the Substance Abuse and Mental Health Services Administration
+(“SAMHSA”), which is part of the U.S. Department of Health and Human Services, is expected to issue regulations for the use of oral fluid drug testing for federal workers. Although we believe the SAMHSA regulations, when issued in final
+form, will permit us to market and sell our oral fluid drug tests for use with federal workers, there is no guarantee that those regulations will do so, and our ability to sell those products in that market could be limited. In addition, the extent
+to which the final SAMHSA regulations permit the sale of our oral fluid drug tests for use with federal workers, may influence whether customers in the workplace, criminal justice or other unregulated markets use our products. 
+The regulations in some states may restrict our ability to sell products in
+those states. For example, certain states restrict or do not allow the testing of oral fluid for drugs of abuse or the rapid, point-of-care testing for 
+21 
+Table of Contents 
+HIV. While we intend to work with state legislators and regulators to remove or modify any applicable restrictions, there is no guarantee we will be
+successful in these efforts. 
+In addition, all in vitro 
+diagnostic products that are to be sold in the European Union (“EU”) must bear the CE mark indicating conformance with the essential requirements of the In Vitro Diagnostic Directive (“IVDD”). We are not permitted to sell our
+products in the EU without a CE mark, which could lead to the termination of strategic alliances and agreements for sales of those products in the EU. We have obtained the CE mark for many of our existing products, and we intend to CE mark certain
+of our future products and are not aware of any material reason why we will be unable to do so. However, there can be no assurance that compliance with all provisions of the IVDD will be demonstrated and the CE mark obtained for all products that we
+desire to sell in the EU. 
+Failure to Comply With FDA or
+Other Requirements May Require Us to Suspend Production of Our Products Which Could Result in a Loss of Revenues. 
+We can manufacture and sell many of our products, both in the United States and in some cases abroad, only if we comply with regulations of government
+agencies such as the FDA. We have implemented quality assurance and other systems that are intended to comply with applicable regulations. 
+Although we believe that we have adequate processes in place to ensure compliance with these requirements, the FDA could force us to stop manufacturing
+our products if it concludes that we are out of compliance with applicable regulations. The FDA could also require us to recall products if we fail to comply with applicable regulations, which could force us to stop manufacturing such products. See
+the Section entitled, “Government Regulations,” for a further discussion of applicable regulatory requirements. 
+Risks Relating to Our Financial Results, Structure and Need for Financing 
+We Have a History of Losses. 
+We have not achieved full-year profitability. We incurred net losses of approximately $1.1 million, $3.3 million, and $3.7
+million, in 2003, 2002 and 2001, respectively. As of December 31, 2003, the Company had an accumulated deficit of approximately $130.6 million. 
+Our limited combined operating history makes it difficult to forecast our future operating results. In order to achieve sustainable profitability, our
+revenues will have to continue to grow at a significant rate. Our ability to achieve revenue growth, and therefore profitability, will be dependent upon a number of factors including, without limitation, the following: 
+• 
+Creating market acceptance for and selling increasing volumes of the OraSure ® collection device, the Intercept ® and UP link ® drug testing products, and the OraQuick ® rapid HIV-1 antibody test; 
+• 
+The degree to which certain of our new products may replace sales of our existing products and the financial impact of that change, including the degree to which our OraQuick ® test will replace our OraSure ® collection device for HIV-1 testing or sales of the
+Freeze Off ® wart removal product in the
+over-the-counter market will replace sales of our Histofreezer ® product to physicians’ offices or other professional markets; 
+• 
+Achieving growth in sales of the Freeze Off ® wart removal product in the over-the-counter market; 
+• 
+Achieving growth in international markets with our OraQuick ® rapid HIV-1 antibody test and other products; and 
+• 
+Commercially developing, and obtaining regulatory approval and creating market acceptance for UPT ™ , the UP link ® drugs-of-abuse rapid detection system, and other new products in a time frame consistent with our objectives. 
+22 
+Table of Contents 
+We have not yet fully achieved our financial and business objectives and there can be no assurance that
+we will be able to do so. Moreover, even if we achieve our objectives and become profitable, there can be no assurance that we will be able to sustain such profitability in the future. 
+We May Require Future Additional Capital to Fund Our Operations. 
+Although we have made significant progress in the past toward controlling
+expenses and increasing product revenue, we have historically depended, to a substantial degree, on capital raised through the sale of equity securities and bank borrowings to fund our operations. 
+Our future liquidity and capital requirements will depend on numerous
+factors, including, but not limited to, the following: 
+• 
+The costs and timing of the expansion of our manufacturing capacity; 
+• 
+The success of our research and product development efforts; 
+• 
+The scope and results of clinical testing; 
+• 
+The magnitude of capital expenditures; 
+• 
+Changes in existing and potential relationships with business partners; 
+• 
+The time and cost of obtaining regulatory approvals; 
+• 
+The costs involved in obtaining and enforcing patents, proprietary rights and necessary licenses; 
+• 
+The costs and timing of expansion of sales and marketing activities; 
+• 
+The timing of the commercial launch of new products; 
+• 
+The extent to which existing and new products gain market acceptance; 
+• 
+Competing technological and market developments; and 
+• 
+The scope and timing of strategic acquisitions. 
+If additional financing is needed, we may seek to raise funds through the sale of equity or other securities or through bank borrowings. There can be no
+assurance that financing through the sale of securities, bank borrowings or otherwise, will be available to us on satisfactory terms, if at all. 
+An Economic Downturn or Terrorist Attacks May Adversely Affect Our Business. 
+Changes in economic conditions could adversely affect our business. For example, in a difficult economic environment,
+customers may be unwilling or unable to invest in new diagnostic products, may elect to reduce the amount of their purchases or may perform less drug testing because of declining employment levels or the issuance of fewer life insurance policies. A
+weakening business climate could also cause longer sales cycles and slower growth, and could expose us to increased business or credit risk in dealing with customers adversely affected by economic conditions. 
+Terrorist attacks and subsequent governmental responses to these attacks
+could cause further economic instability or lead to further acts of terrorism in the United States and elsewhere. These actions could adversely affect economic conditions outside the United States and reduce demand for our products internationally.
+Terrorist attacks could also cause regulatory agencies, such as the FDA or agencies that perform similar functions outside the United States, to focus their resources on vaccines or other products intended to address the threat of biological or
+chemical warfare. This diversion of resources could delay our ability to obtain regulatory approvals required to manufacture, market or sell our products in the United States and other countries. 
+23 
+Table of Contents 
+Our Stock Price Could Continue to be Volatile. 
+Our stock price may be volatile in the future, and could experience
+substantial declines. The following factors, among others, could have a significant impact on the market for our common stock: 
+• 
+Future announcements concerning us; 
+• 
+Future announcements concerning our competitors or industry; 
+• 
+Governmental regulation; 
+• 
+Clinical results with respect to our products in development or those of our competitors; 
+• 
+Developments in patent or other proprietary rights; 
+• 
+Litigation or public concern as to the safety of products that we or others have developed; 
+• 
+The relatively low trading volume for our common stock; 
+• 
+Period to period fluctuations in our operating results; 
+• 
+Changes in estimates of our performance by securities analysts; 
+• 
+General market and economic conditions; and 
+• 
+Terrorist attacks, civil unrest and war. 
+Our Reported Financial Results May be Adversely Affected by Changes in Accounting Principles Generally Accepted in the United States. 
+We prepare our financial statements in conformity with accounting
+principles generally accepted in the United States. These accounting principles are subject to creation or interpretation by the Financial Accounting Standards Board (“FASB”), the American Institute of Certified Public Accountants, the
+Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could
+affect the reporting of transactions completed before the announcement of a change. 
+For example, while current accounting rules allow us to exclude the expense of stock options granted to our employees from our financial statements, influential legislators and business policy groups have suggested
+that the rules be changed to require those options to be expensed. We rely on stock options as an important component of our employee compensation packages. 
+If we are required to expense stock options, we may be less likely to achieve profitability, or we may have to decrease or eliminate option grants.
+Decreasing or eliminating option grants may adversely impact our ability to attract and retain qualified employees. 
+Risks Relating to Our Industry, Business and Strategy 
+Our Ability to Sell Products Could be Affected by Competition From New and Existing Diagnostic Products and by Treatment or Other Non-Diagnostic
+Products Which May be Developed. 
+The diagnostic industry
+is focused on the testing of biological specimens in a laboratory or at the point of care and is highly competitive and rapidly changing. Our principal competitors often have considerably greater financial, technical and marketing resources. As new
+products enter the market, our products may become obsolete or a competitor’s products may be more effective or more effectively marketed and sold than ours. If we fail to maintain and enhance our competitive position, our customers may decide
+to use products developed by competitors which could result in a loss of revenues. 
+We also face competition from products which may be sold at a lower price. To the extent customers desire to purchase these lower cost products sold by other parties, our revenues could be lower. Additionally, under
+our OraQuick ® distribution agreement with Abbott Laboratories, we compete against Abbott in selling our
+OraQuick ® test in many markets. To the extent Abbott sells the OraQuick ® test below the price that we offer, customers may choose to buy this product from Abbott or we may be forced to sell the OraQuick ® test at a lower price, both of which could result in a loss of revenues and a lower gross margin contribution from the sale
+of our OraQuick ® test. 
+24 
+Table of Contents 
+In addition, the development and commercialization of products outside of the diagnostics industry could
+adversely affect sales of our product. For example, the development of a safe and effective vaccine to HIV or treatments for other diseases or conditions that our products are designed to detect, could reduce, or eventually eliminate, the demand for
+our HIV or other diagnostic products and thereby result in a loss of revenues. 
+Our Research, Development and Commercialization Efforts May Not Succeed or Our Competitors May Develop and Commercialize More Effective or Successful Diagnostic Products. 
+In order to remain competitive, we must regularly commit substantial
+resources to research and development and the commercialization of new products. 
+The research and development process generally takes a significant amount of time from inception to commercial product launch. This process is conducted in various stages. During each stage there is a substantial risk
+that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a product in which we have invested substantial amounts. 
+During 2003, 2002 and 2001, we incurred $8.0 million, $8.3 million and $9.4 million, respectively, in research and development expenses. We expect to
+continue to incur significant costs from our research and development activities. 
+A primary focus of our efforts has been, and is expected to continue to be, our UPT ™ technology and the related UP link ® rapid detection system, which are still under development. However, there can be no assurance that we will succeed in our research and development
+efforts with respect to UPT ™ , UP link ® or other technologies or products. 
+Successful products require significant development and investment, including
+testing, to demonstrate their cost-effectiveness or other benefits prior to commercialization. In addition, regulatory approval must be obtained before most products may be sold. Additional development efforts on these products will be required
+before any regulatory authority will review them. Regulatory authorities may not approve these products for commercial sale. In addition, even if a product is developed and all applicable regulatory approvals are obtained, there may be little or no
+market for the product. Accordingly, if we fail to develop commercially successful products, or if competitors develop more effective products or a greater number of successful new products, customers may decide to use products developed by our
+competitors. This would result in a loss of revenues and adversely affect our results of operations, cash flows and business. 
+If We Lose Our Key Personnel or Are Unable to Attract and Retain Qualified Personnel as Necessary, Our Business Could be Harmed. 
+Our success will depend to a large extent upon the contributions of our
+executive officers, management, and sales, marketing, operations and scientific staff. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among medical products
+businesses. 
+If we are not able to attract and retain the
+necessary personnel to accomplish our business objectives, we may experience constraints that will adversely affect our ability to effectively manufacture, sell and market our products, to meet the demands of our strategic partners in a timely
+fashion, or to support internal research and development programs. Although we believe we will be successful in attracting and retaining qualified personnel, competition for experienced scientists and other personnel from numerous companies and
+academic and other research institutions may limit our ability to do so on acceptable terms. 
+We May be Sued for Product Liabilities for Injuries Resulting From the Use of Our Products. 
+We may be held liable if any of our products, or any product which is made with the use or incorporation of any of our technologies, causes injury of any
+type or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or usage. Although we have obtained product liability insurance, this insurance may not fully cover potential liabilities. As we bring new products to
+market, we may need to increase our product liability coverage. 
+25 
+Table of Contents 
+We have obtained the required regulatory approvals to sell our Histofreezer ® portable cryosurgical system in the consumer or over-the-counter market. We
+believe the sale of this or other products in the over-the-counter market could increase the risk of potential product liability exposure and the required level of insurance coverage that we will need to maintain. Inability to obtain sufficient
+insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could affect our decision to commercialize new products and our results of operations. 
+Efforts to Consolidate or Restructure Could Adversely Affect Our Business.
+We may from time to time restructure and consolidate
+various aspects of our operations in order to achieve cost savings and other efficiencies. For example, during 2001 we began a restructuring of our manufacturing operations which included the transfer of OraQuick ® manufacturing from our Beaverton, Oregon facility to Bethlehem, Pennsylvania. In
+addition, we plan to close our Oregon facility and transfer all remaining manufacturing operations in that facility to our facilities in Pennsylvania. We must obtain FDA approval to transfer certain operations to another location. This transfer and
+the need to obtain FDA approval could interfere with or delay our manufacturing processes and disrupt continued operations. Any delay in or disruption of operations, and in particular manufacturing operations, could result in increased costs or
+could delay or prevent us from selling certain products and thereby result in a loss of revenue. 
+Future Acquisitions or Investments Could Disrupt Our Ongoing Business, Distract Our Management, Increase Our Expenses and Adversely Affect Our
+Business. 
+We may consider strategic acquisitions or
+investments as a way to expand our business in the future. These activities, and their impact on our business, are subject to the following risk factors: 
+• 
+Suitable acquisitions or investments may not be found or consummated on terms that are satisfactory to us; 
+• 
+We may be unable to successfully integrate an acquired company’s personnel, assets, management systems and technology into our business; 
+• 
+Acquisitions may require substantial expense and management time and could disrupt our business; 
+• 
+An acquisition and subsequent integration activities may require greater capital resources than originally anticipated at the time of acquisition; 
+• 
+An acquisition may result in the incurrence of unexpected expenses, the dilution of our earnings or our existing stockholders’ percentage ownership, or potential losses from
+undiscovered liabilities not covered by an indemnification from the seller(s) of the acquired business; 
+• 
+An acquisition may result in the loss of existing key personnel or customers or the loss of the acquired company’s key personnel or customers; 
+• 
+The benefits to be derived from an acquisition could be affected by other factors, such as regulatory developments, general economic conditions and increased competition; and
+• 
+An acquisition of a foreign business may involve additional risks, including not being able to successfully assimilate differences in foreign business practices or overcome language
+barriers. 
+The occurrence of one or more of the
+above or other factors may prevent us from achieving all or a significant part of the benefits expected from an acquisition or investment. This may adversely affect our financial condition, results of operations and ability to grow our business.
+26 
+Table of Contents 
+Risks Relating to Collaborators 
+Our Failure to Maintain Existing Distribution Channels, or Develop New Distribution Channels, May Result in Lower
+Revenues. 
+We have marketed many of our products by
+collaborating with laboratories, diagnostic companies and distributors. For example, our OraSure ® oral fluid collection device is distributed to the insurance industry through major insurance testing laboratories. Our sales depend to a substantial degree on our ability to sell
+products to these customers and develop new product distribution channels, and on the marketing abilities of the companies with which we collaborate. 
+Some of our distributors have recently consolidated, and such consolidation has had, and may continue to have, an adverse impact on the level of orders
+for our products. One of these laboratories, Lab One , Inc., acquired another large insurance laboratory customer, Osborne Group, Inc., in 2001. These customers together accounted for approximately 17%, 26% and 29% of our revenues for the years
+2003, 2002 and 2001, respectively. As a result of efficiencies gained following this acquisition, Lab One purchased approximately $1 million less of our insurance assays in 2002 than both companies purchased in 2001. 
+In addition, some distributors have experienced, and may continue to
+experience, pressure from their customers to reduce the price of their products and testing services. For example, Lab One and our other insurance testing laboratories are facing this pressure and are using lower cost “home brew”
+insurance testing assays that they have developed internally or purchased from our competitors. As a result, Lab One stopped purchasing our urine assays on June 30, 2003. This has reduced our sales of urine assays and is expected to lower
+sales of these products in 2004 and beyond. In addition, during the fourth quarter of 2003, Lab One acquired the Insurance Testing Laboratory of MetLife, which was another large purchaser of our urine assays. Given Lab One ’s recent
+decision to stop purchasing these products, this acquisition is expected to further reduce sales of our urine assays. 
+More recently, Lab One has announced that it has agreed to acquire the assets of the drug testing division of NWT, Inc., with an expected closing of
+that acquisition in March 2004. NWT is a laboratory that distributes the Company’s Intercept ® drug test into the workplace testing market. Although it is unclear what, if any, impact this consolidation may have, it is possible that revenues from Intercept ® sales could be reduced. 
+Finally, some of our distributors may not perform their contractual
+obligations. For example, during 2003 Abbott Laboratories did not meet its minimum purchase obligations under a co-exclusive distribution agreement for our OraQuick ® test. We asserted the agreement had terminated as a result of this failure, and an arbitrator recently ruled that the
+agreement did not terminate and our remedy was limited to converting Abbott’s distribution rights from co-exclusive to non-exclusive. Consequently, and although we have notified Abbott regarding the conversion of its rights to non-exclusive,
+Abbott was not required to compensate us for the shortfall in its purchases. 
+Although we will try to maintain and expand our business with our distributors and require that they fulfill their contractual obligations, there can be no assurance that such companies will continue to purchase or
+distribute our products, maintain historic order volumes or otherwise meet their purchase or other obligations, or that new distribution channels will be available on satisfactory terms. 
+The Use of Sole Supply Sources For Critical Components of Our Products Could Adversely Affect Our Business.
+We currently purchase certain critical components of our
+products from sole supply sources. For example, all of the HIV-1 antigen used to make our oral fluid Western blot HIV-1 confirmatory test is purchased from BMX, and all of the HIV antigen and nitrocellulose required to make our OraQuick ® rapid HIV-1 antibody test is 
+27 
+Table of Contents 
+purchased from sole source suppliers. If these suppliers are unable or unwilling to supply the required component, we would need to find another source, and
+perform additional development work and obtain FDA approval for the use of the alternative component for our products. Completing that development and obtaining such FDA approval could require significant time to complete and may not occur at all.
+These events could either disrupt our ability to manufacture and sell certain of our products or completely prevent us from doing so. Either event would have a material adverse effect on our results of operations, cash flows and business.
+The Unavailability of Certain Products Distributed by a
+Third Party Could Adversely Affect Sales of Our OraSure ® Oral Fluid Collection Device. 
+In testing an oral fluid sample collected with an OraSure ® device for HIV-1 in the United States, our customers must use an HIV-1 screening test approved by the FDA for use with our OraSure ® device. Where an oral fluid sample screens positive for HIV-1, our customers must then use our oral fluid Western blot
+HIV-1 confirmatory test, which has also been approved by the FDA for use with our OraSure ® device, to confirm that positive indication. 
+BMX manufactures and sells the only oral fluid HIV-1 screening test that has received FDA approval for use in detecting HIV-1 in an oral fluid specimen collected with our OraSure ® collection device. BMX has developed a new HIV-1 screening test, and has indicated that
+this new test will eventually replace its existing FDA-approved HIV-1 screening test. We are working with BMX to obtain FDA approval for use of the new screening test with our OraSure ® device. BMX also supplies the HIV-1 antigen used to manufacture our oral fluid Western
+blot HIV-1 confirmatory test and is the exclusive world-wide distributor of that product. 
+If BMX ceases to manufacture or sell an HIV-1 screening test approved by the FDA for use with our OraSure ® collection device, or if our oral fluid Western blot HIV-1 confirmatory test is not made available to our customers (because BMX either fails to supply
+the HIV-1 antigen required to make this product or fails to distribute this product), we would need to find alternate suppliers for these products, which would require additional development work and FDA approval. These activities would likely
+require significant time to complete. If our customers cannot obtain an HIV-1 screening test or Western blot HIV-1 confirmatory test that has been approved by the FDA for use in connection with our OraSure ® collection device, these customers would likely stop purchasing our OraSure ® device. Sales of the OraSure ® device were approximately $12.2 million and $12.7
+million, or 30% and 40% of our total revenues, in 2003 and 2002, respectively. 
+We Are Dependent Upon Strategic Partners to Assist in Developing and Commercializing Some of Our Diagnostic Products. 
+Although we intend to pursue some product opportunities independently, opportunities that require a significant level of investment for development and
+commercialization or a distribution network beyond our existing sales force may necessitate involving one or more strategic partners. In particular, our strategy for development and commercialization of UPT ™ , including the UP link ® rapid detection system, and certain other products may entail entering into additional
+arrangements with distributors or other corporate partners, universities, research laboratories, licensees and others. We may be required to transfer material rights to such strategic partners, licensees and others. While we expect that our current
+and future partners, licensees and others have and will have an economic motivation to succeed in performing their contractual responsibilities, there is no assurance that they will do so and the amount and timing of resources to be devoted to these
+activities will be controlled by others. Consequently, there can be no assurance that any revenues or profits will be derived from such arrangements. 
+Risks Relating to Intellectual Property 
+Our Success Depends on Our Ability to Protect Our Proprietary Technology. 
+The diagnostics industry places considerable importance on obtaining patent, trademark, and trade secret protection, as well
+as other intellectual property rights, for new technologies, products and processes. Our 
+28 
+Table of Contents 
+success depends, in part, on our ability to develop and maintain a strong intellectual property portfolio or obtain licenses to patents for products and
+technologies both in the United States and in other countries. 
+As appropriate, we intend to file patent applications and obtain patent protection for our proprietary technology. These patent applications and patents will cover, as applicable, compositions of matter for our products, methods of making
+those products, methods of using those products, and apparatus relating to the use or manufacture of those products. We will also rely on trade secrets, know-how, and continuing technological advancements to protect our proprietary technology.
+We have entered, and will continue to enter, into
+confidentiality agreements with our employees, consultants, advisors and collaborators. However, these parties may not honor these agreements and we may not be able to successfully protect our rights to unpatented trade secrets and know-how. Others
+may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how. 
+Many of our employees, including scientific and management personnel, were previously employed by competing companies. Although we encourage and expect
+all of our employees to abide by any confidentiality agreement with a prior employer, competing companies may allege trade secret violations and similar claims against us. 
+We may collaborate with universities and governmental research organizations which, as a result, may acquire part of the
+rights to any inventions or technical information derived from collaboration with them. 
+To facilitate development and commercialization of a proprietary technology base, we may need to obtain licenses to patents or other proprietary rights from other parties. Obtaining and maintaining such licenses may
+require the payment of substantial amounts. In addition, if we are unable to obtain these types of licenses, our product development and commercialization efforts may be delayed or precluded. 
+We may incur substantial costs and be required to expend substantial
+resources in asserting or protecting our intellectual property rights, or in defending suits against us related to intellectual property rights. Disputes regarding intellectual property rights could substantially delay product development or
+commercialization activities. Disputes regarding intellectual property rights might include state, federal or foreign court litigation as well as patent interference, patent reexamination, patent reissue, or trademark opposition proceedings in the
+United States Patent and Trademark Office. Opposition or revocation proceedings could be instituted in a foreign patent office. An adverse decision in any proceeding regarding intellectual property rights could result in the loss or limitation of
+our rights to a patent, an invention or trademark. 
+The
+Sales Potential for OraQuick ® Will be Affected by
+Our Ability to Obtain Certain Licenses. 
+There are several
+factors that will affect the specific countries in which we will be able to sell our OraQuick ® rapid HIV antibody test and therefore the overall sales potential of the test. One factor is whether we can arrange a sublicense or distribution agreement related to patents for
+detection of the HIV-2 virus. HIV-2 is a type of the HIV virus estimated to represent a small fraction of the known HIV cases worldwide. Nevertheless, HIV-2 is considered to be an important component in the testing regimen for HIV in many markets.
+HIV-2 patents are in force in the United States, Canada and Mexico, in most of the countries of Western Europe, and in Japan, Korea, South Africa, and Australia. Access to a license for one or more HIV-2 patents may be necessary to sell HIV-2 tests
+in countries where such patents are in force, or to manufacture in countries where such patents are in force and then sell into non-patent markets. 
+The importance of HIV-2 differs by country, and can be affected by both regulatory requirements and by competitive pressures. Because the competitive
+situation in each country will be affected by the availability of other testing products as well as the country’s regulatory environment, we may be at a competitive disadvantage 
+29 
+Table of Contents 
+in some markets without an HIV-2 product. In particular, our ability to sell a product that does not include an HIV-2 test may be limited, or a
+competitor’s product that includes an HIV-2 test may be preferred and have a competitive advantage over an HIV-1 only test that we sell. 
+We have approached Bio-Rad Laboratories, the holder of patents concerning the HIV-2 virus, about securing a world-wide non-exclusive license for HIV-2 and
+have completed negotiation of a license agreement that we believe is complete and satisfactory to both parties. Bio-Rad is now in the process of securing the necessary signatures and approval from several other licensees and other relevant parties.
+Another factor that may affect the specific countries in which
+we will be able to sell an OraQuick ® rapid HIV-1 or
+HIV-2 test, and therefore the overall sales potential, concerns whether we can arrange a sublicense or distribution agreement related to any patents which claim lateral flow assay methods and devices covering the OraQuick ® rapid HIV antibody tests or their use. OraQuick ® is a lateral flow assay device that tests for specific antibodies or other
+substances. The term “lateral flow” generally refers to a test strip through which a sample flows and which provides a test result on a portion of the strip downstream from where the sample is applied. There are numerous patents in the
+United States and other countries which claim lateral flow assay methods and devices. Some of these patents may broadly cover the technology used in the OraQuick ® test and are in force in the United States and other countries. We may not be able to make or sell the OraQuick ® test in the United States or other countries where
+these patents are in force. We have obtained licenses under several lateral flow patents, which we believe should be sufficient to permit the manufacturing and sale of the OraQuick ® device as currently contemplated. However, licenses under additional patents may be required. 
+In the event that it is determined that a license is required and it is not
+possible to negotiate a license agreement under a necessary patent, our ability to manufacture and sell the OraQuick ® device could be limited. In such case, we may be able to modify the OraQuick ® rapid HIV antibody test such that a license would not be necessary. However, this alternative could delay or limit our
+ability to sell the OraQuick ® rapid HIV antibody
+test in the United States and other markets, which would adversely affect our results of operations, cash flows and business. 
+We are Dependent Upon Patents, Licenses and Other Proprietary Rights From Third Parties, Including Rights to Up-Converting Phosphor Compositions,
+Methods and Apparatuses. 
+We have licensed the worldwide
+rights to UPT ™ compositions, methods and
+apparatuses for use in diagnostic applications, which are the subject of numerous United States patents and several pending United States applications. Corresponding patents and patent applications have been granted, issued or filed in numerous
+foreign countries, including, for example, European countries, Japan and Canada. We cooperate with the licensor to prosecute such patent applications and protect such patent rights. If the licensors do not meet their obligations under the license
+agreements or do not reasonably consent to sublicenses by us, or if the license agreement is terminated, we could lose the opportunity to develop UPT ™ . 
+Risks Relating to Product Marketing and Sales 
+A Market for Our Products May Not Develop. 
+Our future success will depend, in part, on the market acceptance, and the timing of such acceptance, of new products such as the Intercept ® drug test, the OraQuick ® rapid HIV-1 antibody test, the UP link ® oral fluid drugs of abuse rapid detection system, and other new products or
+technologies that may be developed or acquired. To achieve market acceptance, we must make substantial marketing efforts and spend significant funds to inform potential customers and the public of the perceived benefits of these products. We
+currently have limited evidence on which to evaluate the market reaction to products that may be developed, and there can be no assurance that any products will obtain market acceptance and fill the market need that is perceived to exist.
+30 
+Table of Contents 
+If Acceptance and Adoption of Our Oral Fluid Testing in the Market Does Not Continue, Our Future
+Results May Suffer. 
+We have made significant progress in
+gaining acceptance of oral fluid testing for HIV in the insurance and public health markets. We have also made significant progress in gaining acceptance of oral fluid testing for drugs of abuse in the workplace and criminal justice testing markets.
+However, the ultimate degree of acceptance in these markets is uncertain, and other markets may resist the adoption of oral fluid testing as a replacement for other testing methods in use today. In addition, certain state laws prohibit or restrict
+the use of oral fluid testing for drugs of abuse in certain markets or the rapid, point-of-care testing for HIV. As a result, there can be no assurance that we will be able to expand the use of our oral fluid testing products in these or other
+markets. 
+Our Increasing International Presence May be
+Affected by Regulatory, Cultural or Other Restraints. 
+We
+intend to increase revenue derived from international sales of our products. Our international sales accounted for approximately $4.6 million or 11% of total revenues for 2003, approximately $3.9 million or 12% of total revenues for 2002, and
+approximately $5.3 million or 16% of total revenues for 2001. 
+A number of factors can slow or prevent international sales, or substantially increase the cost of international sales, including those set forth below: 
+• 
+Regulatory requirements (including compliance with applicable customs regulations) may slow, limit, or prevent the offering of products in foreign countries;
+• 
+The unavailability of licenses to certain patents in force in a foreign country which cover our products may restrict our ability to sell into that country;
+• 
+Our ability to obtain the CE mark on our products in a timely manner may preclude or delay our ability to sell products to the European Union; 
+• 
+Cultural and political differences may make it difficult to effectively market, sell and gain acceptance of products in foreign countries; 
+• 
+Inexperience in international markets may slow or limit our ability to sell products in foreign countries; 
+• 
+Exchange rates, currency fluctuations, tariffs and other barriers, extended payment terms and dependence on and difficulties in managing international distributors or
+representatives may affect our revenues even when product sales occur; 
+• 
+The creditworthiness of foreign entities may be less certain and foreign accounts receivable collection may be more difficult; 
+• 
+Economic conditions, the absence of available funding sources, terrorism, civil unrest and war may slow or limit our ability to sell our products in foreign countries;
+• 
+International markets often have long sales cycles, especially for sales to foreign governments, quasi-governmental agencies and international public health agencies, thereby
+delaying or limiting our ability to sell our products; and 
+• 
+We may be at a disadvantage if competitors in foreign countries sell competing products at prices at or below such competitors’ or our cost. 
+In addition, we have entered into a contract for the manufacture and supply
+of the OraQuick ® rapid HIV antibody test in
+Thailand, and we may enter into agreements to manufacture other products in foreign countries as well. However, factors such as economic and political conditions and foreign regulatory requirements may slow or prevent the manufacture of our products
+in countries other than the United States. Interruption of the supply of our products could reduce revenues or cause us to incur significant additional expenses in finding an alternative source of supply. 
+31 
+Table of Contents 
+The previous discussion of our business should be read in conjunction with the Financial Statements and
+accompanying notes included in Item 15 of this Annual Report on Form 10-K.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2003/0001193125-04-034555/item13.txt b/raw/filings/0001116463/2003/0001193125-04-034555/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0ecf2e447f0889a8421655b1da38237f087e9e63
--- /dev/null
+++ b/raw/filings/0001116463/2003/0001193125-04-034555/item13.txt
@@ -0,0 +1,3 @@
+ITEM 13. Certain Relationships and Related Transactions. 
+The information required by this Item is incorporated by reference to the information under the captions, “Certain Relationships and Related
+Transactions” and “Employment Agreements,” in the Proxy Statement.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2003/0001193125-04-034555/item9a.txt b/raw/filings/0001116463/2003/0001193125-04-034555/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3eb2312980792575555a2577435a3de1631e26fc
--- /dev/null
+++ b/raw/filings/0001116463/2003/0001193125-04-034555/item9a.txt
@@ -0,0 +1,13 @@
+ITEM 9A. Controls and Procedures 
+(a) Evaluation of Disclosure Controls and Procedures . The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has
+evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2003. Based on that evaluation, the Company’s management, including such officers, concluded that the Company’s disclosure controls and
+procedures were effective in timely alerting them to material information relating to the Company, which is required to be included in its periodic filings with the Securities and Exchange Commission. 
+(b) Changes in Internal Control Over Financial
+Reporting . The evaluation referred to in paragraph (a) of this Item did not identify any change in the Company’s internal control over financial reporting that occurred during the twelve months ended December 31, 2003
+that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. 
+50 
+Table of Contents 
+PART III 
+We have omitted from
+Part III the information that will appear in our Definitive Proxy Statement for our 2004 Annual Meeting of Stockholders (the “Proxy Statement”), which will be filed within 120 days after the end of our fiscal year pursuant to Regulation
+14A.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2003/0001193125-04-034555/rp_note.txt b/raw/filings/0001116463/2003/0001193125-04-034555/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f972289baa2194aec223aa1677f3645849fed34e
--- /dev/null
+++ b/raw/filings/0001116463/2003/0001193125-04-034555/rp_note.txt
@@ -0,0 +1,5 @@
+12. RELATED-PARTY FACILITY LEASE: 
+We have entered into a ten-year facility lease with Tech III Partners, LLC (“Tech Partners”), an entity owned and controlled by two of our
+executive officers. Under the terms of this operating lease, we began leasing a 48,000 square foot facility in October 2002, at a base rent of $780,000 per year, increasing to $858,240 per year, during the initial ten-year term. The base rental rate
+may be increased after the fifth year of the initial term, in order to reflect changes in the debt incurred by Tech Partners to finance construction of the leased facilities. We have not guaranteed any debt incurred by Tech Partners. This lease also
+provides us with options to renew our lease for an additional five years at a rental rate of $975,360 per year and to purchase the facility at any time during the initial ten year-term, based upon a formula set forth in the lease agreement.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2003/0001193125-04-034555/rpt_disclosure.txt b/raw/filings/0001116463/2003/0001193125-04-034555/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3266f3fb775bd6658f8221e6c319d3848982196e
--- /dev/null
+++ b/raw/filings/0001116463/2003/0001193125-04-034555/rpt_disclosure.txt
@@ -0,0 +1,16 @@
+Certain Relationships and Related Transactions 
+In October 2002, we entered into a commercial lease (the “Lease”)
+with Tech III Partners, LLC (“Tech Partners”), for a 48,000 square foot facility on land adjacent to our Bethlehem, Pennsylvania facilities, and the lease of that facility to us. Tech Partners is owned and controlled by Michael J.
+Gausling, the Company’s former President and Chief Executive Officer, and Dr. R. Sam Niedbala, the Company’s former Executive Vice President and Chief Science Officer. Mr. Gausling and Dr. Niedbala both resigned from the Company in 2004.
+The facility is currently our corporate headquarters and houses manufacturing and administrative operations. 
+The Lease, as amended, has an initial ten-year term ending in October 2012 and a base rent starting at $780,000 per year and increasing to $858,240 per
+year over that term. The base rental rate may be increased after the fifth year of the initial term in order to reflect changes in the interest rate on debt incurred by Tech Partners to finance construction of the leased facilities. We have not
+guaranteed any debt incurred by Tech Partners. We also have an option to renew the Lease for an additional five years at a rental rate of $975,360 per year, and to purchase the facility at any time during the initial ten-year term based on a formula
+set forth in the Lease. 
+Prior to deciding to enter into the
+Lease and an amendment increasing the base rent to reflect certain tenant fit-out costs, our Board of Directors retained Imperial Realty Appraisal LLC, an independent commercial real estate appraisal firm, to evaluate the proposed base rental rate.
+Imperial Realty issued opinions indicating that the annual base rent set forth in the Lease, as amended, is below the market rental rate we could otherwise expect to pay to lease a comparable commercial property in the same general geographic
+market. The terms of the Lease are otherwise substantially similar to a commercial lease we entered into with a third party for our other Bethlehem, Pennsylvania facilities. 
+Information regarding employment and severance agreements between the named executive officers and the Company is set forth
+in the Section entitled, “Employment and Transition Agreements,” in this Proxy Statement. 
+11
\ No newline at end of file
diff --git a/raw/filings/0001116463/2004/0001193125-05-051144/filing.txt b/raw/filings/0001116463/2004/0001193125-05-051144/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..61cc7fb32b53eefbe714198d2285f0889a714385
--- /dev/null
+++ b/raw/filings/0001116463/2004/0001193125-05-051144/filing.txt
@@ -0,0 +1,4103 @@
+10-K
+1
+d10k.htm
+ORASURE TECHNOLOGIES INC.
+Orasure Technologies Inc. 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+FORM 10-K 
+FOR ANNUAL AND TRANSITION REPORTS PURSUANT 
+TO SECTIONS 13 OR 15(d) OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+(Mark One)
+x 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31, 2004 
+OR 
+¨ 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the transition period from
+to
+Commission File No. 001-16537 
+ORASURE TECHNOLOGIES, INC. 
+(Exact Name of Registrant as Specified in Its Charter) 
+Delaware 
+36-4370966 
+(State or Other Jurisdiction of 
+Incorporation or Organization) 
+(I.R.S. Employer Identification No.) 
+220 East First Street 
+Bethlehem, Pennsylvania 
+18015 
+(Address of Principal Executive Offices) 
+(Zip Code) 
+(610) 882-1820
+(Registrant’s Telephone Number, Including Area Code) 
+Securities registered pursuant to Section 12(b) of the Act: None 
+Securities registered pursuant to Section 12(g) of the Act:
+Common Stock, $.000001 par value per share
+(Title of Class) 
+Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
+1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 
+No ¨ 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
+the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x 
+Indicate by check mark whether the Registrant is an accelerated filer (as
+defined in Exchange Act Rule 12b-2). Yes x No ¨ 
+State the aggregate market value of the voting and non-voting common equity
+held by nonaffiliates, computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal
+quarter (June 30, 2004) : $417,434,893 
+Indicate
+the number of shares outstanding of each of the Registrant’s classes of common stock, as of March 1, 2005: 44,639,664 shares. 
+Documents Incorporated by Reference: 
+Portions of the Registrant’s Definitive Proxy Statement for the 2005 Annual Meeting of Stockholders are incorporated by reference into Part III of
+this Report. 
+Table of Contents 
+Table of Contents 
+Page 
+PART I 
+ITEM 1. 
+Business 
+1 
+ITEM 2. 
+Properties 
+33 
+ITEM 3. 
+Legal Proceedings 
+33 
+ITEM 4. 
+Submission of Matters to a Vote of Security Holders 
+34 
+PART II 
+ITEM 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+35 
+ITEM 6. 
+Selected Financial Data 
+35 
+ITEM 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+36 
+ITEM 7A. 
+Quantitative and Qualitative Disclosures About Market Risk 
+50 
+ITEM 8. 
+Financial Statements and Supplementary Data 
+50 
+ITEM 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+51 
+ITEM 9A. 
+Controls and Procedures 
+51 
+ITEM 9B. 
+Other Information 
+53 
+PART III 
+ITEM 10. 
+Directors and Executive Officers of the Registrant 
+54 
+ITEM 11. 
+Executive Compensation 
+54 
+ITEM 12. 
+Security Ownership of Certain Beneficial Owners and Management 
+54 
+ITEM 13. 
+Certain Relationships and Related Transactions 
+54 
+ITEM 14. 
+Principal Accountant Fees and Services 
+54 
+PART IV 
+ITEM 15. 
+Exhibits and Financial Statement Schedules 
+55 
+Table of Contents 
+Statements contained in this Annual Report regarding future events or performance are
+“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results could be quite different from those expressed or implied by the forward-looking statements. Factors that could
+affect our results are discussed more fully under the Sections entitled, “Forward-Looking Statements” and “Risk Factors” in Item 1 and elsewhere in this Annual Report. Although forward-looking statements help to provide complete
+information about us, readers should keep in mind that forward-looking statements may not be reliable. Readers are cautioned not to place undue reliance on the forward-looking statements. 
+PART I 
+ITEM 1. 
+Business. 
+Our business
+principally involves the development, manufacture, marketing and sale of oral fluid specimen collection devices using our proprietary oral fluid technologies, as well as other diagnostic products including immunoassays and other in vitro 
+diagnostic tests that are used on other specimen types, and other medical devices. Our diagnostic products include tests which are processed in a laboratory and tests which are performed on a rapid basis at the point of care. These products are sold
+in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and
+industrial entities. One of our products is also sold in the United States over-the-counter or consumer retail market. 
+In vitro diagnostic testing is the process of analyzing oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific
+substances or markers for infectious diseases, drugs of abuse or other conditions. In vitro diagnostic tests are performed outside the body, in contrast to in vivo tests, which are performed directly on or within the body. The
+substance or marker that a diagnostic test is intended to detect is generally referred to as an analyte. 
+Immunodiagnostic testing is the leading method of in vitro testing for antigens and antibodies. When an infectious disease is caused by pathogens,
+such as bacteria, viruses and fungi, or other substances are present, the body responds by producing an antibody. Substances that stimulate production of antibodies are generally referred to as antigens. An antibody binds specifically with an
+antigen in a lock-and-key fashion that initiates a biochemical reaction to attempt to neutralize and, ultimately, eliminate the antigen. The ability of an antibody to bind with a specific antigen provides the basis for immunodiagnostic testing.
+Our Company was formed in May 2000 under Delaware law solely
+for the purposes of combining two companies, STC Technologies, Inc. (“STC” or “STC Technologies”) and Epitope, Inc. (“Epitope”), and changing the state of incorporation of Epitope from Oregon to Delaware. STC
+Technologies and Epitope were merged into our Company on September 29, 2000 (the “Merger”). Our principal offices are located at 220 East First Street, Bethlehem, Pennsylvania 18015, and our telephone number is (610) 882-1820. 
+Additional information about us can be found on our website. Our website
+address is www.orasure.com. We make available free of charge through a link provided at such website our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, as well as any amendments to those Reports.
+These Reports are made available as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange Commission. Our Internet website and the information contained in or connected to that website are not intended to be
+incorporated by reference into this Annual Report. 
+1 
+Table of Contents 
+Products 
+The following is a summary of our principal products and their existing and pending approvals/clearances by the U.S. Food and Drug Administration
+(“FDA”) and commercial status: 
+Product 
+Description 
+FDA Approval Status 
+Commercial 
+Status 
+OraQuick ® 
+ADVANCE ™ 
+A rapid, point-of-care test for antibodies to the Human Immunodeficiency Virus Type 1 and Type 2 (“HIV-1/2”) that can be visually read at the point of care in approximately 20
+minutes. 
+Premarket approval (“PMA”) approved by the FDA (March 2004 – June 2004) for use with oral fluid, fingerstick and venous whole blood
+and plasma. 
+CLIA (Clinical Laboratory Improvement Amendments of 1988) waived for use with oral fluid, fingerstick and venous whole blood (June
+2004). 
+Marketed 
+OraQuick ® 
+HIV-1 
+A rapid, point-of-care test for antibodies to the Human Immunodeficiency Virus Type 1 (“HIV-1”) that can be visually read at the point of care in approximately 20 minutes. 
+PMA approved by the FDA (November 2002 – September 2003) for use with fingerstick and venous whole blood. CLIA waived for use with fingerstick and venous whole blood (January
+2003). 
+Marketed 
+OraSure ® 
+Oral fluid collection device for the detection of antibodies to HIV-1 in an oral fluid sample in a laboratory setting. 
+PMA approved by FDA in December 1994. 
+Also have FDA 510(k) clearance for use of this device in detecting cocaine and cotinine (an indicator of nicotine) in oral fluid. 
+Marketed 
+Marketed 
+Intercept ® 
+Oral fluid collection device, along with nine related immunoassays, for oral fluid drug testing in a laboratory setting. 
+Collection device—FDA 510(k) cleared in 2000. 
+Marketed 
+Used to detect the following drugs in an oral fluid sample: marijuana, cocaine, opiates, amphetamines, methamphetamines, PCP, benzodiazepines, barbiturates and methadone. 
+Nine drug assays—FDA 510(k) cleared during 2000-2001. 
+Marketed 
+Histofreezer ® Rx 
+A cryosurgical (freezing) system for the removal of warts and other benign skin lesions, marketed primarily to the physicians’ office market. 
+Nine indications—FDA 510(k) cleared during 1991 – 1999. 
+Marketed 
+Freeze Off ™ 
+A cryosurgical (freezing) system for the removal of common and plantar warts, sold under the Freeze Off ™ and Compound W ® tradenames in the over-the-counter market
+in the U.S. 
+Two indications—FDA 510(k) cleared in February 2003. 
+Marketed 
+UP link ® 
+A rapid, point-of-care oral fluid drug detection system. 
+510(k) application filed with FDA in September 2003; withdrawn in March 2004 due to need to submit additional performance data. 
+Marketed Internationally 
+2 
+Table of Contents 
+In addition to the above products, we also sell certain immunoassay tests and reagents for insurance risk
+assessment, substance abuse testing and forensic toxicology applications; an oral fluid Western blot HIV-1 confirmatory test approved by the FDA for confirming positive HIV-1 test results obtained from the use of our OraSure ® device; and the FDA 510(k) cleared Q.E.D. ® saliva alcohol test. 
+OraQuick ® Rapid Test 
+OraQuick ® is our rapid test platform designed to test an oral fluid, whole blood (i.e., both fingerstick and venous) or plasma sample for the presence of various
+antibodies or analytes. The device uses a porous flat pad to collect an oral fluid specimen. After collection, the pad is inserted into a vial containing a pre-measured amount of developer solution and allowed to develop. When whole blood or plasma
+is to be tested, a loop collection device is used to collect a drop of blood or plasma and mix it in the developer solution, after which the collection pad is inserted into the solution. In all cases, the specimen and solution then flow through the
+testing device where test results are observable in approximately 20 minutes. The OraQuick ® device is a screening test and requires a confirmation test where an initial positive result is obtained. 
+Our first product utilizing this technology was the OraQuick ® rapid HIV-1 antibody test, a rapid test for the presence of antibodies against HIV-1. In 2002, we received premarket approval of this test
+from the FDA for detecting HIV-1 in finger-stick whole blood samples and in 2003 we received FDA approval for use of the OraQuick ® test with venous whole blood samples. These approvals were based on data from clinical studies we performed, which indicated that the OraQuick ® test has sensitivity of 99.6% and specificity of 100%.
+Sensitivity is a measure of the accuracy for detecting positive specimens, and specificity is a measure of the accuracy for identifying negative specimens. 
+As a result of this FDA approval, the OraQuick ® test has been made available for use by nearly 40,000 locations in the United States certified under the Clinical Laboratory Improvements Amendments of
+1988, or CLIA, to perform moderately complex diagnostic tests. Additionally, in January 2003, we received a waiver under CLIA for OraQuick ® which permits the use of this test by approximately 140,000 additional sites in the United States not certified under CLIA to perform moderately
+complex tests, such as outreach clinics, community-based organizations and physicians’ offices. 
+During the period March to June 2004, we received FDA approval for use of our new OraQuick ® test to detect antibodies to both HIV-1 and a second type of the HIV virus, known as
+HIV-2, in finger-stick and venous whole blood, oral fluid and plasma. In June 2004, we also received a CLIA waiver of this test for oral fluid, fingerstick whole blood and venous whole blood. We named this new test OraQuick ® ADVANCE ™ . 
+In mid-July 2004, we received data from an investigational clinical trial suggesting a higher rate of unconfirmed positive
+results from the use of our OraQuick ® HIV-1/2 test
+in oral fluid samples than was shown in the clinical data that we compiled in support of our FDA approval of an oral fluid claim, including data from Company-sponsored trials and independent Centers for Disease Control and Prevention
+(“CDC”) studies. Similar results were not indicated for blood samples tested with the device. We performed a technical and procedural assessment to understand this situation and delayed the launch of the OraQuick ® ADVANCE ™ HIV-1/2 test, which was originally scheduled for August of 2004, until the assessment
+was completed. Based on the results of this assessment, we determined that the OraQuick ® ADVANCE ™ test performed within specifications, and we commercially launched this product in October 2004. 
+We believe that the OraQuick ® ADVANCE ™ device, because it is approved for detecting antibodies to both HIV-1 and 2 in fingerstick and venous whole blood, oral fluid and plasma samples, will provide a significant competitive
+advantage in the market for rapid HIV testing in the United States. Demand for OraQuick ® ADVANCE ™ has quickly grown since the launch of that product, and it is our intent to convert all customers to this product and ultimately stop manufacturing and selling the OraQuick ® HIV-1 test. 
+3 
+Table of Contents 
+In April 2003, the CDC announced a new four-part initiative for HIV testing and diagnosis, which is
+intended to increase the use of rapid HIV testing as part of routine medical care. Under this program, the CDC purchased 250,000 OraQuick ® devices during 2003, 250,000 devices during 2004, and 209,000 additional devices for delivery in 2005. 
+In August 2004, the Substance Abuse and Mental Health Services Administration
+(“SAMHSA”) placed an order to purchase $4.0 million of our OraQuick ® ADVANCE ™ 
+tests and HIV confirmatory test services. The OraQuick ® tests are expected to be deployed by SAMHSA to over 22,000 substance abuse treatment and prevention sites throughout the United States. We are discussing an amendment to this contract with SAMHSA, which is expected to
+increase the number of OraQuick ® 
+ADVANCE ™ tests purchased and eliminate the
+confirmatory test component of the order. We expect that all tests ordered by SAMHSA will be fully deployed in 2005. 
+The OraQuick ® device is also being used in the CDC’s Mother-Infant Rapid Intervention at Delivery Project (MIRIAD) to test pregnant women in five U.S. metropolitan areas. The goal of this project
+is to identify those individuals who would benefit from the administration of nevirapine, a drug used to reduce mother-to-child HIV transmission. In September 2003, the CDC reported that, based on data from the MIRIAD study, the use of the
+OraQuick ® test at the point of care provided test
+results four times faster than when the OraQuick ® 
+test was used in a laboratory setting. As a result, the study found that rapid HIV testing enables healthcare professionals to determine the HIV status of a mother and administer antiretroviral drugs to both mother and child more quickly than
+traditional laboratory tests, thereby reducing the chances of mother-to-child transmission of HIV. 
+Finally, the OraQuick ® device has been selected for use in the CDC’s LIFE Initiative, an international effort to address the AIDS epidemic in certain African countries.
+This initiative focuses on areas such as preventing mother-to-child transmission, secondary transmitted disease prevention, HIV prevention for youth, and blood safety systems. 
+OraSure ® /Intercept ® Collection Devices 
+Our OraSure ® oral fluid collection device is used in conjunction with screening and confirmatory tests for HIV-1 antibodies and other analytes. This device consists of a small, treated cotton-fiber
+pad on a handle that is placed in a person’s mouth for two to five minutes. The device collects oral mucosal transudate (“OMT”), a serum-derived fluid that contains higher concentrations of certain antibodies and analytes than saliva.
+As a result, OMT testing is a highly accurate method for detecting HIV-1 infection and other analytes. 
+We believe that oral fluid testing has several significant advantages over blood or urine-based systems for infectious disease testing, for both health
+care professionals and the individuals being tested. These advantages include eliminating the risk of needle-stick accidents, providing a noninvasive collection technique, requiring minimal training to administer, providing rapid and efficient
+collection in almost any setting, and reducing the cost of administration by a trained health care professional. 
+We have received premarket approval from the FDA to sell the OraSure ® collection device for use with a laboratory-based enzyme immunoassay (“EIA”) screening test for HIV-1
+antibody detection. This EIA screening test has been approved by the FDA for use with our OraSure ® device and is manufactured and sold by bioMerieux, Inc. (“BMX”). During 2004, we completed clinical trials with BMX as part of an application to obtain FDA approval of the use
+of a new EIA screening test for HIV-1 with an OraSure ® device. The FDA submission is expected to be made by BMX during the first quarter of 2005. 
+HIV-1 antibody detection using the OraSure ® collection device involves three steps: 
+• 
+Collection of an oral fluid specimen using the OraSure ® device; 
+• 
+Screening of the specimen for HIV-1 antibodies at a laboratory with an EIA screening test approved by the FDA for use with the OraSure ® device; and 
+4 
+Table of Contents 
+• 
+Laboratory confirmation of any positive screening test results with our oral fluid Western Blot HIV-1 confirmatory test (described below). 
+A trained health care professional then conveys test results and provides
+appropriate counseling to the individual who was tested. We have also received FDA 510(k) clearance for use of the OraSure ® collection device with EIAs to test for cocaine and cotinine (a metabolite of nicotine) in oral fluid specimens primarily for insurance risk assessment
+purposes. 
+A collection device that is substantially similar to
+the OraSure ® device is sold under the name
+Intercept ® , and is used to collect OMT for oral
+fluid drug testing. We have received FDA 510(k) clearance to use the Intercept ® collection device with laboratory-based EIAs to test for drugs of abuse commonly identified by the National Institute for Drug Abuse (“NIDA”) as the NIDA-5 (i.e., cannabinoids (marijuana), cocaine, opiates,
+amphetamines/methamphetamines, and phencyclidine (“PCP”)), and for barbiturates, methadone and benzodiazepines. Each of these EIA’s is also FDA 510(k) cleared for use with the Intercept ® device. 
+We believe that the Intercept ® device has several advantages over competing urine and other drugs of abuse testing products, including its lower total testing cost, its
+non-invasive nature, safety, mobility and accuracy, the ease of maintaining a chain-of-custody, the treatment of test subjects with greater dignity, no requirement for specially-prepared collection facilities, and difficulty of sample adulteration.
+The availability of an oral fluid test is intended to allow our customers to test for drug impairment on demand, eliminate scheduling costs and inconvenience, and thereby streamline the testing process. 
+Histofreezer ® and Freeze Off ™ 
+The Histofreezer ® cryosurgical removal system is a low-cost alternative to liquid nitrogen and other methods for removal of warts and other benign skin lesions by physicians. The Histofreezer ® product mixes two environmentally friendly cryogenic
+gases in a small aerosol canister. When released, these gases are delivered to a specially designed foam bud, cooling the bud to –50°C. The frozen bud is then applied to the wart or lesion for 15 to 40 seconds (depending on the type of
+lesion) creating localized destruction of the target area by freezing. We have received 510(k) clearance for use of the Histofreezer ® product to remove common warts and eight other types of benign skin lesions. 
+In February 2003, we received FDA 510(k) clearance to market and sell a cryosurgical product similar to Histofreezer ® in the retail or over-the-counter market for the
+removal of common and plantar warts only. This product is being distributed under the name Freeze Off ™ by Medtech Holdings, Inc., the owner of the Compound W ® line of wart removal products. 
+Immunoassay Tests and Reagents 
+We develop and sell immunoassay tests in two formats, known as MICRO-PLATE and AUTO-LYTE ® , to meet the specific needs of our customers. 
+In a MICRO-PLATE kit, the sample to be tested is placed into a small plastic
+receptacle, called a microwell, along with the reagents. The result of the test is determined by the color of the microwell upon completion of the reaction. Controlling the reaction involves the use of a variety of reagents by laboratory personnel.
+Test results are analyzed by any of a variety of commercially available laboratory instruments, which we may also provide to our laboratory customers. MICRO-PLATE tests can be performed on commonly used instruments and can detect drugs in urine,
+serum, and sweat specimens. MICRO-PLATE tests are also used as part of the Intercept ® product line to detect drugs of abuse in oral fluid specimens. 
+AUTO-LYTE ® tests are sold in the form of bottles of liquid reagents. These reagents are run on commercially available laboratory-based automated analytical instruments, which are manufactured by a
+variety 
+5 
+Table of Contents 
+of third parties. AUTO-LYTE ® is typically used in high volume, automated, commercial reference insurance laboratories to detect certain drugs or chemicals in urine. Test results
+are produced quickly, allowing for high throughput. 
+Whenever
+possible, we enter into multi-year sales agreements with our customers. These agreements generally are entered into with a laboratory that has agreed to purchase a minimum number of tests over a two- to-five-year period. We also offer these
+customers the option of a reagent rental agreement under which we sell the tests at an increased price over a fixed period of time, which includes an additional equipment charge in exchange for providing the customer with the required analytical
+laboratory equipment. We obtain this equipment from third party vendors. 
+Western Blot HIV-1 Confirmatory Test 
+We sell an oral fluid Western Blot HIV-1 confirmatory test that received premarket approval from the FDA in 1996. This test uses the original specimen collected with the OraSure ® oral fluid collection device to confirm positive results of initial oral fluid HIV-1
+EIA screening tests. The oral fluid Western Blot HIV-1 confirmatory test is marketed under an exclusive arrangement with BMX. 
+Q.E.D. ® Saliva Alcohol Test 
+Our Q.E.D. ® saliva
+alcohol test is a point-of-care test device that is a cost-effective alternative to breath or blood alcohol testing. The test is a quantitative, saliva-based method for the detection of ethanol, and has been cleared for sale by the FDA and the U.S.
+Department of Transportation (“DOT”). In 1998, the product also received a CLIA waiver. 
+Each Q.E.D. ® test kit contains a collection stick that is used to collect a sample of saliva and a disposable detection device that displays results in a format similar to a thermometer. The
+Q.E.D. ® device is easy to operate and
+instrumentation is not required to read the result. The product has a testing range of 0 to 0.145% blood alcohol, and produces results in approximately two minutes. 
+UPlink ® 
+Based on our proprietary Up-Converting Phosphor Technology (UPT ™ ), UP link ® is a point-of-care system comprised of an oral fluid sample collector, test cassette, and analyzer, which is designed to deliver instrument-read
+results for simultaneously detecting the full NIDA-5 panel of tests – cocaine, methamphetamines/amphetamines, PCP, opiates and marijuana, in a single oral fluid sample. The Company believes the UP link ® point-of-care oral fluid detection system could offer several important advantages over
+traditional lab-based urine drug tests, including reduced costs and turn around time, the ability to perform accurate drug testing for a full NIDA-5 panel virtually anywhere, treatment of test subjects with greater dignity, and reduced risk of
+sample adulteration. 
+In September 2003, we filed an
+application with the FDA for 510(k) clearance of our UP link ® rapid oral fluid drugs of abuse detection system. In March 2004, the FDA responded to our application by indicating that additional performance data would be needed in order to obtain clearance. We are evaluating the
+FDA’s requirements and whether any modifications to our UP link ® system will be required in order to provide that data. At this time, we cannot predict if or when we will be able to resubmit an application for 510(k) clearance of the UP link ® system. However, the absence of 510(k) clearance does not affect our ability
+to sell the UP link ® system internationally.
+In March 2000, we signed a research and development agreement
+with Dräger Safety AG & Co. KGaA (“Dräger”), a European manufacturer and supplier of medical and safety technology products for health care and industrial applications. This agreement provided for the development of the
+UP link ® system for rapid detection of drugs
+of abuse in oral fluid. Under this agreement, Dräger has exercised an option to become our exclusive 
+6 
+Table of Contents 
+distributor of this product in Europe and certain other countries to law enforcement officials for rapidly assessing whether an operator or passenger in a
+motor vehicle is under the influence of one or more drugs of abuse (the “roadside market”) and ultimately to certain military, criminal justice, and workplace testing markets. In April 2004, we commercially launched the UP link ® system with Dräger in the roadside market in
+Europe and other countries. 
+As part of a recent strategic
+review of our business, we concluded that the roadside drugs of abuse testing market may not be as attractive as a number of our other opportunities we can pursue. Consequently, we are exploring our options with respect to the UP link ® system, including transferring the manufacturing of the
+product to Dräger, which is permitted under our agreement. If we enter into such an arrangement with Dräger, we would expect to receive royalties on future sales of the product by Dräger while retaining the rights to the workplace
+testing and possibly other markets. 
+Products Under Development
+OraQuick ® Platform 
+We believe that OraQuick ® has significant potential as a point-of-care testing platform for physicians’ offices, hospitals, and other markets. We believe that
+OraQuick ® provides a platform technology that can
+be modified for detection of a variety of infectious diseases in addition to HIV, such as viral hepatitis and certain sexually transmitted diseases. We are currently in negotiations with Ortho-Clinical Diagnostics and Chiron Corporation to obtain
+patent license rights that would enable us to develop and sell a test for detecting antibodies to the Hepatitis C virus using the OraQuick ® platform. 
+OraSure ® /Intercept ® Applications 
+Oral mucosal
+transudate, or OMT, contains many constituents found in blood and serum, although in lower concentrations. We believe the OraSure ® and Intercept ® devices are a platform technology with a wide variety of potential applications, where laboratory testing is available. For example, the OraSure ® device may be useful for the collection of a variety of antibodies or markers for
+infectious diseases or conditions in addition to HIV-1, such as antibodies to viral hepatitis. 
+In 2004, SAMHSA issued proposed regulations for oral fluid drug testing for federal workers. When issued in final form, these regulations may require certain modifications to our Intercept ® product in order to permit its use by federal workers. As a result, we are
+attempting to develop modifications to the Intercept ® collection device that we anticipate may be required by these regulations or are otherwise likely to be desired by our customers. We are also currently developing additional drugs of abuse assays for use with our
+Intercept ® collection device. 
+UPT ™ Development 
+During 2004 and for several prior years, much of our research and development efforts were focused on UPT ™ and the first UPT ™ application to be commercialized, our UP link ® rapid, point-of-care system for detecting drugs of abuse in oral fluid.
+UPT ™ is a proprietary label detection platform that uses phosphor particles to detect
+minute quantities of various substances. UPT ™ 
+utilizes the same particle shell that is coated onto a television screen, but the internal chemistry of the particle has been changed. These changes result in a particle that is excited by infrared light as compared to an ultraviolet light source
+for television screens. With assistance from our research partners, we have developed phosphorescent particles that up-convert infrared light to visible light, which we believe may be a label technology with broad applications. During 2004, research
+was conducted to decrease particle size and increase the light-emitting efficiency of the particles. 
+7 
+Table of Contents 
+We are participating in the third year of a $4.2 million, four-year grant for research and development of
+saliva/oral fluid-based diagnostic technologies, awarded by the National Institutes of Health (the “NIH”) to the University of Pennsylvania. The grant covers basic research in the following three main areas: 
+• 
+New technologies for collecting bacterial/viral protein and nucleic acid samples from the human mouth; 
+• 
+The combination of the University of Pennsylvania’s microfluidic processing technology with our UPT ™ technology for sample preparation; and 
+• 
+The detection of viral or bacterial markers. 
+The research plan under the grant contemplates achieving these goals through the use of our UP link ® rapid detection system. 
+Our portion of funding under the grant was approximately $400,000 in the first year, $350,000 in the second year, and
+$308,000 in the third year and if the grant is renewed by the NIH as we expect, approximately $300,000 in the last year. Payments under the grant are subject to availability of funding from the NIH and satisfactory progress of the research and
+development project. 
+Although we believe that UPT ™ may have several potential applications for in
+vitro diagnostics, we have not been able to successfully develop potential UPT ™ applications other than the UP link ® application for rapid detection of drugs of abuse in oral fluid. We are evaluating the viability of UPT ™ as a technology platform, and a final decision as to the future of UPT ™ has not been made. Accordingly, there can be no assurance that we will develop additional UPT ™ applications or continue to invest in research and
+development for UPT ™ . 
+Business Strategy 
+During the fourth quarter of 2004, we completed an intensive review and refinement of our strategic business plans. As a
+result, we have adopted a multi-part growth strategy, pursuant to which we intend to leverage our extensive diagnostic experience in order to maximize the available opportunities from our existing products and technologies, and supplement our
+existing product pipeline by accessing other technologies and products. We intend to follow a disciplined approach to maximize the value of our business for the benefit of our stockholders. 
+Our overall vision is to become a recognized global leader focused on
+providing innovative diagnostic solutions that add substantial value to existing and emerging healthcare needs. In order to achieve this vision, our business strategy will include the following key elements: 
+• 
+Extension of Base Businesses . We intend to maximize the sales potential of our existing product lines and technologies in the markets where they are
+currently sold, with a focus on expanding, where possible, the number of our oral fluid product offerings. Under this part of the strategy, we intend to fully capitalize on the potential market reach of our OraQuick ® , OraSure ® , Intercept ® , Histofreezer ® and Freeze Off ™ products by investing in our sales and marketing efforts where appropriate, making product improvements and enhancements, and optimizing our distribution channels. We also intend to expand the reach of our existing
+products and technology platforms into new markets and will focus specifically on expanding into international markets. 
+• 
+Infectious Disease Testing . We will pursue new products and technology platforms in the infectious disease, point-of-care testing business to
+supplement our existing product pipeline. This may include either the development of new infectious disease products or the acquisition of new technologies or products. One new product we are pursuing is the development of a rapid Hepatitis C test
+on our OraQuick ® platform.
+• 
+OTC Opportunities . We intend to identify or develop products that can be sold in the over-the-counter (“OTC”) or retail
+marketplace. One potential opportunity under this part of our strategy is to determine 
+8 
+Table of Contents 
+the feasibility of selling our OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test in the United States OTC market. We are also seeking a partner for distributing our cryosurgical wart removal product in the European OTC market.
+• 
+Operational Improvements . We intend to create a culture focused on the continuous improvement of our operations. These improvements will include, but
+not be limited to, expanding the use of automated manufacturing for our product lines as demand increases, expanding the global sourcing of components and assemblies to achieve efficiencies and cost improvements, making infrastructure and
+information technology investments as needed to improve effectiveness and productivity, and modifying our processes in order to continuously improve quality and the effectiveness of our operations. 
+Research and Development 
+In 2004, our research and development activities focused on the continued
+development of the UP link ® analyzer, test
+cassette and collector, the development of the UP link ® drugs of abuse assays, clinical trials and regulatory efforts related to claims for HIV-2, oral fluid and plasma for our OraQuick ® ADVANCE ™ test, CLIA waiver of our OraQuick ® ADVANCE ™ HIV-1/2 test and improvements to certain of our existing products. 
+We supplement our own research and development activities by funding external research. We have funded research at Leiden University and certain other
+entities, and may continue funding external research. 
+Research
+and development expenses totaled approximately $6.1 million in 2004, $8.0 million in 2003 and $8.3 million in 2002. These expenses include the costs associated with research and development, regulatory affairs and clinical trials. 
+Sales and Marketing 
+We attempt to reach our major target markets through a combination of direct sales, strategic partnerships, and independent
+distributors. Our marketing strategy is to raise awareness through a full array of marketing activities, which include trade shows, print advertising, special programs and distributor promotions, to support sales in each target market. 
+We market our products in the United States and internationally. Revenues
+attributable to customers in the United States amounted to $47.8 million, $35.9 million and $28.1 million in 2004, 2003 and 2002, respectively. Revenues attributable to international customers amounted to $6.2 million, $4.6 million and $3.9 million,
+or 11%, 11% and 12% of our total revenues, in 2004, 2003 and 2002, respectively. 
+Insurance Risk Assessment 
+We currently market the OraSure ® oral
+fluid collection device for use in screening life insurance applicants in the United States and internationally to test for three of the most important underwriting risk factors: HIV-1, cocaine and cotinine (a metabolite of nicotine). Devices are
+sold to insurance testing laboratories, including Lab One , Inc., Heritage Labs and Clinical Reference Laboratory. These laboratories in turn provide the devices to insurance companies, usually in combination with testing services. 
+We also maintain a direct sales force that promotes use of the
+OraSure ® device directly to insurance companies for
+life insurance risk assessment. Insurance companies then make their own decision regarding which laboratory to use to supply their collection devices and testing services. Our OraSure ® Western Blot confirmatory test is distributed through BMX to laboratories and is used
+to confirm oral fluid specimens that initially test positive for HIV-1. 
+Because insurance companies are in various stages of their adoption of the OraSure ® device, there exists a wide range of policy limits where the product is being applied. Some insurance companies have chosen to extend 
+9 
+Table of Contents 
+their testing to lower policy limits where they did not test at all before, while others have used OraSure ® to replace some of their blood and urine-based testing. In general, most of our
+insurance company customers use the OraSure ® device
+in connection with life insurance policies having face amounts of up to $250,000, with some customers using the device for policies of up to $500,000 in amount. One large insurance customer uses the OraSure ® device with policies having face amounts up to $3 million. 
+Our sales force continues to encourage additional insurance companies to use
+OraSure ® and to extend the use of the product by
+existing customers. We believe there are several factors which will help expand the use of our device, including increasing acceptance of the reliability of oral fluid testing, the high quality of test results, the low cost of oral fluid testing
+relative to blood tests, the ease of use of the OraSure ® device, and the development of new oral fluid assays for use with our OraSure ® device for detecting substances or conditions that affect life insurance risk assessment. 
+We also sell our AUTO-LYTE ® and MICRO-PLATE assays and reagents in the insurance testing market directly to laboratories, including Lab One , Heritage Labs and Clinical
+Reference Laboratory. 
+Infectious Disease Testing
+Our sales personnel market the OraSure ® oral fluid collection device, separately and as a kit
+in combination with laboratory testing services (as described below), and both the OraQuick ® ADVANCE ™ HIV-1/2 and OraQuick ® HIV-1 antibody tests directly to customers in the public health market for HIV testing. This market consists of a broad range of clinics and laboratories and includes states, counties, and other governmental agencies,
+the CDC, SAMHSA, colleges and universities, correctional facilities and the military. There are also a number of organizations in the public health market such as AIDS service organizations and various community-based organizations set up primarily
+for the purpose of encouraging and enabling HIV testing. 
+To
+better serve our public health customers, we have entered into agreements with Lab One and Heritage Labs to provide prepackaged OraSure ® test kits, with prepaid laboratory testing and specimen shipping costs included. We also sell the OraSure ® and OraQuick ® devices in the international public health markets. 
+In June 2002, we entered into an agreement under which Abbott Laboratories was appointed as the co-exclusive distributor of
+the OraQuick ® rapid HIV-1 antibody test in the
+United States, focusing primarily on the hospital and physicians’ office markets. This relationship was later converted to a non-exclusive distributorship in early 2004. In February 2005, we entered into a new agreement for the distribution of
+the OraQuick ® ADVANCE ™ HIV-1/2 test, appointing Abbott as our exclusive
+distributor in the U.S. hospital market and as a non-exclusive distributor in the U.S. physicians’ office marketplace. As our exclusive distributor to hospitals, Abbott will sell OraQuick ® ADVANCE ™ to federal hospitals under the terms of our Federal Supply Schedule on file with the General Services Administration.
+Under this new agreement, we have retained exclusive rights for all other markets including sales to the public health and criminal justice markets, the military, the CDC, SAMHSA and other governmental agencies. In February 2005, we terminated the
+distribution agreement with Abbott for the OraQuick ® rapid HIV-1 antibody test and expect Abbott to transition its customers to OraQuick ® ADVANCE ™ . 
+In 2004, we deployed a small sales force that provided direct access to and marketing support for the hospital market for our OraQuick ® test. This sales force successfully sold our OraQuick ® tests into the hospital market and will now support and work with Abbott to maximize the penetration of OraQuick ® ADVANCE ™ in this market. 
+Substance Abuse Testing 
+Our substance abuse testing products are marketed to laboratories serving the workplace testing, forensic toxicology, criminal justice, and drug
+rehabilitation markets. The forensic toxicology market consists of 250 – 
+10 
+Table of Contents 
+300 laboratories including federal, state and county crime laboratories, medical examiner laboratories, and reference laboratories. The criminal justice
+market consists of a wide variety of entities in the criminal justice system that require drug screening, such as pre-trial services, parole and probation officials, police forces, drug courts, prisons, drug treatment programs and community/family
+service programs. 
+We have entered into agreements for the
+distribution of Intercept ® collection devices and
+associated MICRO-PLATE assays for drugs-of-abuse testing in the workplace testing market in the United States and Canada through several laboratory distributors, including Lab One , Quest Diagnostics and Clinical Reference Laboratory, and
+internationally for workplace and forensic toxicology testing through Bio-Rad Laboratories, Altrix HealthCare, plc, and other distributors. We assist our laboratory customers in customizing their testing services by selling them equipment required
+to test oral fluid specimens collected with the Intercept ® device. 
+We also distribute our
+Q.E.D. ® saliva alcohol test primarily through
+various distributors. The markets for alcohol testing are relatively small and fragmented with a broad range of legal and procedural barriers to entry. Markets range from law enforcement testing to workplace testing of employees in safety sensitive
+occupations. The Q.E.D. ® test has been successfully
+adopted by end users in the petroleum, heavy construction, trucking, and retail industries because it is a cost-effective, portable, easy-to-administer and quantitative testing method. Typical usage situations include pre-employment, random,
+post-accident, reasonable-cause, and return-to-duty testing. 
+Cryosurgical Systems 
+We sell Freeze Off ™ , a product similar to Histofreezer ® , in the over-the-counter market in the U.S. pursuant to
+a distribution agreement with Medtech, the owner of the Compound W ® line of wart removal products and a wholly-owned subsidiary of Prestige Brands Holdings, Inc. 
+Most of our Histofreezer ® sales occur in the United States to distributors that, in turn, resell the product to more than 150,000 primary care physicians and podiatrists in the
+United States. Major U.S. distributors include Cardinal Healthcare, McKesson HBOC, Physicians Sales & Service, AmerisourceBergen Corporation, and Henry Schein. Internationally, we established a sales office in Reeuwijk, The Netherlands, and we
+are selling the Histofreezer ® product through a
+dealer network in more than 20 countries worldwide. 
+International Markets 
+We sell a number of our
+products into international markets primarily through distributors with knowledge of their local markets. Principal markets include physicians’ offices, insurance risk assessment, substance abuse, public health, and laboratory testing.
+We assist our international distributors in registering the
+products and obtaining required regulatory approvals in each country, and we provide training and support materials. Our international marketing program includes direct assistance to distributors in arranging for laboratory services, cooperation
+from screening test manufacturers, and performance of Western Blot confirmatory tests when necessary. 
+Significant Products and Customers 
+Several different products have contributed significantly to our financial performance, accounting for 15% or more of total revenues during the past three years. The OraSure ® and Intercept ® oral fluid collection devices, Histofreezer ® and Freeze Off ™ products, immunoassay tests and reagents, and OraQuick ® rapid HIV tests accounted for total revenues of approximately $14.6 million, $20.2 million, $6.4 million and $10.2 million in 2004, $14.5
+million, $10.8 million, $6.6 million and $6.3 million in 2003 and $14.3 million, $7.2 million, $7.6 million and $400,000 in 2002, respectively. As new products are developed and commercialized, we expect to reduce our dependence on these existing
+products. 
+11 
+Table of Contents 
+We currently have two customers, Lab One and Medtech Holdings, Inc., which accounted for 12% and
+25% of our total revenues, respectively, during 2004. 
+Lab One stopped purchasing our AUTO-LYTE ® urine assays as of June 2003, and our oral fluid assays as of June 2004. As a result, our assay revenues in the insurance risk assessment market in 2004 were reduced by approximately $1.2 million when compared to 2003.
+Similarly, our assay revenues in the insurance risk assessment market in 2003 were reduced by approximately $1.8 million when compared to 2002. 
+The loss of Lab One or Medtech, or a significant decrease in the volume of products purchased by either customer, could have a material adverse
+effect on our results. 
+Supply and Manufacturing 
+During 2004, we successfully transferred manufacturing of both the
+OraSure ® and Intercept ® collection devices and the oral fluid Western Blot HIV-1 confirmatory test to
+our Bethlehem, Pennsylvania facility. The transfer of the OraSure ® device and the Western Blot required FDA approval and, in August 2003, we completed the required equivalency and validation studies and filed a submission with the FDA seeking approval of the transfers. The FDA granted
+approval for the transfer of the Western Blot test in January 2004 and for the OraSure ® device in March 2004, after an inspection of our Bethlehem manufacturing facility. The transfer of the manufacturing of our Intercept ® device required only that we notify the FDA of the transfer. We expect the transfer of these products will lower our
+manufacturing costs and help assure that we can maintain our quality control for these products in the future. 
+We manufacture the OraQuick ® test in our Bethlehem, Pennsylvania facility. In addition, we have entered into a supply agreement for the assembly of the OraQuick ® device in Thailand, in order to supply certain
+international markets. This supply agreement had an initial term of one year, and automatically renews for additional annual periods unless either party provides a timely notice of termination prior to the end of an annual period. We believe that
+other firms would be able to manufacture the OraQuick ® test on terms no less favorable than those set forth in the agreement if the Thailand contractor would be unable or unwilling to continue manufacturing this product. 
+We can purchase the HIV antigen and the nitrocellulose required for the
+OraQuick ® test only from a limited number of
+sources. The antigen is currently purchased from a single contract supplier under a long-term agreement with an initial term ending in January 2010 and one-year automatic renewal terms thereafter. The nitrocellulose used in the test is also provided
+by a single contract supplier, under a supply agreement with a five-year term ending in 2009. If for any reason these suppliers are no longer able to supply our antigen or nitrocellulose needs, we believe that alternative supplies could be obtained
+at a competitive cost. However, a change in the antigen or nitrocellulose would require FDA approval and some additional development work. This in turn would require significant time to complete and could disrupt our ability to manufacture and sell
+the OraQuick ® device. 
+The oral fluid Western Blot HIV-1 confirmatory test is currently manufactured
+in our Bethlehem, Pennsylvania facility. The HIV antigen needed to manufacture the Western Blot test is available from only a limited number of sources. For many years, we have purchased the antigen for this product from BMX on an exclusive basis.
+BMX is also the exclusive distributor of the Western Blot test kits. 
+In October 2002, we entered into new agreements with BMX, which replaced existing agreements between our companies. These new agreements provide for the continued supply by BMX of the HIV-1 antigen and distribution of the oral fluid Western
+Blot product by BMX on an exclusive worldwide basis. If for any reason BMX is no longer able to supply our antigen needs, we believe we would be able to obtain alternate supplies at a competitive cost. However, a change in the antigen would require
+FDA approval and some additional development work, which would require significant time to complete and could disrupt our ability to manufacture and sell the Western Blot HIV-1 confirmatory test. 
+12 
+Table of Contents 
+Histofreezer ® is assembled in The Netherlands by Koninklijke, Utermöhlen, N.V. (“Utermöhlen”), the company from which we acquired the
+product in 1998. We purchase the product pursuant to an exclusive production agreement. This agreement provides that Utermöhlen will be the exclusive supplier of the Histofreezer ® product until at least December 31, 2006. Utermöhlen also manufactures Freeze
+Off ™ , the over-the-counter version of
+Histofreezer ® for the U.S. market. We believe that
+additional manufacturers of the Histofreezer ® and
+Freeze Off ™ products are available on terms no
+less favorable than the terms of the production agreement with Utermöhlen, in the event that Utermöhlen would be unable or unwilling to continue manufacturing these products. 
+Our AUTO-LYTE ® and MICRO-PLATE assays are manufactured in our Bethlehem, Pennsylvania facility. These tests require the production of highly specific and sensitive
+antibodies corresponding to the antigen of interest. Substantially all our antibody requirements are provided by contract suppliers. We believe that we have adequate reserves of antibody supplies and that we have access to sufficient raw materials
+for these products. 
+The Q.E.D. ® saliva alcohol test is manufactured and packaged for shipment in our
+Bethlehem, Pennsylvania facility. 
+We assemble analyzers, test
+cassettes and collectors used in our UP link ® 
+oral fluid drugs of abuse rapid detection system and package this product for shipment at our Bethlehem, Pennsylvania facility. 
+Employees 
+As of December 31, 2004, we had 194 full-time employees, including 61 in sales, marketing, and client services; 27 in research and development; 73 in
+operations, manufacturing, quality control, quality assurance, regulatory affairs, clinical trials, information systems, purchasing and shipping; and 33 in administration and finance. This compares to 171 employees as of December 31, 2003. As of
+December 31, 2004, eight of our employees held Ph.D. degrees. Our employees are not currently represented by a collective bargaining agreement. 
+Competition 
+The diagnostic industry is a multi-billion dollar international industry and is intensely competitive. Many of our competitors are substantially larger
+and have greater financial, research, manufacturing, and marketing resources. 
+Important competitive factors for our products include product quality, price, ease of use, customer service, and reputation. Industry competition is based on the following: 
+• 
+Scientific and technological capability; 
+• 
+Proprietary know-how; 
+• 
+The ability to develop and market products and processes; 
+• 
+The ability to obtain FDA or other regulatory approvals; 
+• 
+The ability to manufacture products that meet applicable FDA requirements (i.e., good manufacturing practices); 
+• 
+Access to adequate capital; 
+• 
+The ability to attract and retain qualified personnel; and 
+• 
+The availability of patent protection. 
+A few large corporations produce a wide variety of diagnostic tests and other medical devices and equipment. A larger number of mid-size companies
+generally compete only in the diagnostic industry, and a 
+13 
+Table of Contents 
+significant number of small companies produce only a few diagnostic products. As a result, the diagnostic test industry is highly fragmented and segmented.
+The future market for diagnostic tests is expected to be
+characterized by consolidation, greater cost consciousness, and tighter reimbursement policies. The purchasers of diagnostic products are expected to place increased emphasis on lowering costs, reducing inventory levels, automation, service, and
+volume discounts. The increased complexity of the market is expected to force many competitors to enter into joint ventures or license certain products or technologies. 
+We expect competition to intensify as technological advances are made and become more widely known, and as new products
+reach the market. Furthermore, new testing methodologies could be developed in the future that render our products impractical, uneconomical or obsolete. There can be no assurance that our competitors will not succeed in developing or marketing
+technologies and products that are more effective than those we develop or that would render our technologies and products obsolete or otherwise commercially unattractive. In addition, there can be no assurance that our competitors will not succeed
+in obtaining regulatory approval for these products, or introduce or commercialize them before we can do so. These developments could have a material adverse effect on our business, financial condition and results of operations. 
+Several companies market or have announced plans to market oral specimen
+collection devices and tests outside the United States. We expect the number of devices competing with our Intercept ® and OraSure ® devices to increase as the benefits of oral specimen-based testing become more widely accepted. 
+Competition in the market for HIV testing is intense and is expected to increase. We believe that the principal competition will come from existing
+laboratory-based blood tests, point-of-care rapid blood tests, laboratory-based urine assays, or other oral fluid-based tests that may be developed. Our competitors include specialized biotechnology firms as well as pharmaceutical companies with
+biotechnology divisions and medical diagnostic companies. 
+Significant competitors for our OraQuick ® 
+rapid tests, such as the Ortho Diagnostics division of Johnson & Johnson and Bio-Rad Laboratories, sell laboratory-based HIV-1 EIAs, and Calypte, Inc. sells an HIV-1 screening test for urine, in the United States. Abbott Laboratories sells a
+competing rapid HIV test internationally, but during 2003 terminated the manufacture of a rapid HIV test sold primarily into the United States hospital market. In addition, MedMira and Trinity Biotech have each received FDA approval to sell
+competing rapid HIV-1 blood tests, and Bio-Rad Laboratories has received FDA approval to sell a competing rapid HIV-1/2 blood test in the United States. We believe these tests, under their current FDA approvals, will compete with our OraQuick ® tests in the hospital or other laboratory settings. In
+addition, Trinity Biotech has received CLIA waiver for its rapid HIV test, and we believe that this test will compete with our OraQuick ® tests in the markets outside of the traditional hospital and laboratory settings. These companies, or others, may continue to expand the bodily fluids
+with which a rapid HIV test may be performed, or develop and commercialize new rapid HIV tests, which would provide further competition for our OraQuick ® tests. We believe other companies may also seek FDA approval to sell competing rapid HIV tests in the future. 
+In the insurance risk assessment market, our AUTO-LYTE ® homogeneous assays for cocaine and cotinine compete
+with reagents from Microgenics, Inc. (a subsidiary of Apogent Technologies). Our AUTO-LYTE ® homogeneous assays for beta-blockers and thiazides as well as MICRO-PLATE heterogeneous assays specifically designed for the detection of cocaine, cotinine, and Immunoglobulin G, or IgG, in oral fluid are the
+only assays available in the marketplace. In urine chemistries, our significant competitors include The Diagnostics Systems Group of Olympus America Inc. and Diagnostic Reagents International. However, the most significant competition facing our
+AUTO-LYTE ® assays is from assays developed
+internally by our laboratory customers (i.e., “home brews”), which can be produced at a cost lower than the price typically paid for our products. For example, effective June 30, 2003, Lab One , Inc. ceased purchasing our
+AUTO-LYTE ® urine assays for insurance risk
+assessment testing, in order, we believe, to use internally-developed assays. As a result, revenues from these products were substantially lower in 2004. 
+14 
+Table of Contents 
+Our MICRO-PLATE drugs-of-abuse reagents are targeted to forensic testing laboratories where sensitivity,
+automation, and “system solutions” are important. In the past, these laboratories have typically had to rely on radioimmunoassay test methods to provide an adequate level of sensitivity. Radioimmunoassays require radioactive materials,
+which have a short shelf-life and disposal problems. Our MICRO-PLATE tests meet the laboratories’ sensitivity needs, run on automated equipment, are not radioimmunoassays, and are offered to the laboratory as a complete system solution of
+reagents, instrumentation and software to meet the specific needs of each customer. Options to buy or rent the instrumentation and software, which we purchase from third party vendors, are offered to these customers. 
+In the forensic toxicology market, we compete with both homogeneous and
+heterogeneous tests manufactured by many companies. Significant competitors in the market for these assays include Microgenics, Inc., Roche Diagnostics, and Immunalysis. 
+The Intercept ® drug testing system competes with laboratory-based drug testing products and services using testing matrices such as urine, hair, sweat and oral fluid.
+Major competitors include Ansys Technologies, Inc., Dade Behring, Psychemedics, and Immunalysis. 
+Our MICRO-PLATE oral fluid drug assays, which are sold for use with the Intercept ® and OraSure ® collection devices, are expected to come under increasing competitive pressure from “home-brew” assays developed internally by our laboratory
+customers. In fact, on June 30, 2004 Lab One , Inc. ceased purchasing our MICRO-PLATE oral fluid assays for use with our OraSure ® collection device in the insurance risk assessment testing market and is now, we believe, using internally-developed home-brew assays instead.
+The Histofreezer ® product’s delivery system and warmer operating temperature than liquid nitrogen
+provide us with the opportunity to target sales to primary care physicians, such as family practitioners, pediatricians, and podiatrists. We do not generally target sales to dermatologists because they have the volume of patients required to support
+the capital costs associated with a liquid nitrogen delivery system, which is also used to remove warts and other benign skin lesions. There is limited competition for convenient cryosurgical products for wart removal in the primary care physician
+market. Major competitors for the Histofreezer ® 
+product include Cryosurgery, Inc. in the United States and Wartner in Europe. Wartner may also eventually compete with Histofreezer ® in the physician market in the United States. 
+The Freeze Off ™ product, sold by Medtech under its Compound W ® tradename, competes with other over-the-counter wart removal products in the United States. Wartner currently sells a competing cryosurgical wart removal product in the over-the-counter
+market, and Schering-Plough began selling a competing cryosurgical wart removal product under its Dr. Scholl’s brand in 2004. In July 2004, we filed a lawsuit against Schering-Plough alleging that Schering-Plough’s manufacture and sale of
+its Dr. Scholl’s ® Freeze Away ™ cryosurgical wart removal product in the
+over-the-counter market infringes three patents relating to our cryosurgical products. For a further discussion of this dispute with Schering-Plough, see the Section of this Annual Report entitled “Legal Proceedings.” 
+Q.E.D. ® has two direct competitors, Ansys Technologies, Inc. and Chematics. These companies offer semi-quantitative
+saliva-based alcohol tests and have received DOT approval. Indirect competitors who offer breath testing equipment include Intoximeters, Dräger, and CMI. Although there are lower priced tests on the market that use oral fluid or breath as a
+test medium, these tests are qualitative tests that are believed to be substantially lower in quality and provide fewer benefits than our Q.E.D. ® test. 
+Our UP link ® product also is expected to compete with other on-site, rapid drug assays and instrument-read tests. Major competitors in this area include American Biomedica, Biosite Diagnostics,
+Avitar, Inc., Ansys Technologies, Inc., and eScreen. Another potential competitor, LifePoint, Inc., has announced plans to sell a reader-based saliva test panel that will include alcohol testing. 
+15 
+Table of Contents 
+Patents and Proprietary Information 
+We seek patent and other intellectual property rights to protect and preserve our proprietary technology and our right to
+capitalize on the results of our research and development activities. We also rely on trade secrets, know-how, continuing technological innovations, and licensing opportunities to provide competitive advantages for our products in our markets and to
+accelerate new product introductions. We regularly search for third-party patents in fields related to our business to shape our own patent and product commercialization strategies as effectively as possible and to identify licensing opportunities.
+United States patents generally have a maximum term of 20 years from the date an application is filed. 
+We have 16 United States patents and numerous foreign patents for the OraSure ® and Intercept ® collection devices and technology relating to oral fluid collection, containers for oral fluids, methods to test oral fluid, formulations for the
+manufacture of synthetic oral fluid, and methods to control the volume of oral fluid collected and dispersed. We have also applied for additional patents, in both the United States and certain foreign countries, on such products and technology.
+We have one patent for lateral flow diagnostic tests that
+covers our OraQuick ® rapid HIV antibody tests in
+the United States, and we intend to apply for additional patents for this product. We have obtained licenses to certain lateral flow patents and to certain HIV-1 patents held by other parties in order to market the OraQuick ® tests. In June 2004, we received a worldwide,
+non-exclusive sublicense from Bio-Rad Laboratories under patents relating to the HIV-2 virus. Bio-Rad is the exclusive licensee of these patents, which are held by the Institute Pasteur of Paris, France. The non-exclusive rights to the HIV-2 patents
+obtained from Bio-Rad will permit us to sell a rapid test for both HIV-1 and HIV-2 using our OraQuick ® technology platform on a worldwide basis. We obtained these licenses through the payment of certain upfront fees and an agreement to pay ongoing royalties. We believe these fees and
+royalties are comparable to those generally paid by other companies under similar arrangements. 
+We may need to obtain licenses or other rights under, or enter into distribution or other business arrangements in connection with certain other
+intellectual property patents, in order to manufacture and sell the OraQuick ® HIV tests. See the Section entitled “Risk Factors,” for a further discussion of these issues. 
+In April 1995, we received exclusive worldwide rights under patents and know-how owned by SRI International to develop and market products that involve
+the use of UPT ™ . We also received non-exclusive
+worldwide rights under patents and know-how owned by the Sarnoff Corporation (a subsidiary of SRI International formerly called the David Sarnoff Research Center) to develop and market products that involve the use of UPT ™ . We have the right to sublicense these rights, subject to consent from SRI
+and Sarnoff. 
+Under the agreement with SRI, we are required to
+make license, maintenance and royalty payments to SRI. We must also make royalty payments for a period equal to the longer of ten years from the date of the first commercial sale of the products or the term during which the manufacture, use, or sale
+of a product would infringe licensed patents, but for our license with SRI. We believe that the royalty rates payable to SRI are comparable to the rates generally payable by other companies under similar arrangements. Our agreement with SRI
+terminates upon the expiration of our obligation to pay royalties. 
+In 1999, we paid $1.5 million to TPM Europe Holding B.V., our sublicensor, for the termination of an existing license agreement between the sublicensor and the Company with respect to the sublicense of UPT ™ patents owned by Leiden University, The Netherlands, and to secure a direct
+research, development, and license arrangement with Leiden University. 
+We have five United States patents and numerous foreign patents issued for apparatuses and methods for the topical removal of skin lesions relating to our Histofreezer ® and Freeze Off ™ products. We have also licensed another patent relating to apparatuses and methods for the topical removal of skin lesions relating to our
+Histofreezer ® and Freeze Off ™ products. 
+16 
+Table of Contents 
+We have or have licensed rights under 16 United States patents and numerous foreign patents for methods,
+compositions, and apparatuses relating to our UPT ™ 
+and UP link ® technologies. Several additional
+UPT ™ and UP link ® patent applications remain pending in the United States and abroad.
+We have one United States patent relating to the method for
+detecting blood in urine specimens using our AUTO-LYTE ® products. 
+We have four United
+States patents and numerous foreign patents and patent applications for the technology used in the Q.E.D. ® test. These patents are related to the analog-to-digital technology color control systems and methods, systems and devices for the test, and detection of biochemical molecules.
+We require our employees, consultants, outside collaborators,
+and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed by or made known to the individual during the
+course of the individual’s relationship with us, is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual
+during his or her tenure with us will be our exclusive property. 
+We own rights to trademarks and service marks that we believe are necessary to conduct our business as currently operated. In the United States, we own the UPT ™ , UP link ® , OraSure ® , Intercept ® , OraQuick ® ,
+OraQuick ® ADVANCE ™ , Histofreezer ® , Q.E.D. ® and AUTO-LYTE ® trademarks. We also own many of these marks and others in several foreign countries. The tradename, Freeze Off ™ , is owned by Medtech Holdings, Inc., in the U.S. and Canada. 
+Although important, the issuance of a patent or existence of trademark or
+trade secret protection does not in itself ensure the success of our business. Competitors may be able to produce products competing with our patented products without infringing our patent rights. Issuance of a patent in one country generally does
+not prevent manufacture or sale of the patented product in other countries. The issuance of a patent is not conclusive as to validity or as to the enforceable scope of the patent. The validity or enforceability of a patent can be challenged by
+litigation after its issuance. If the outcome of such litigation is adverse to the owner of the patent, the owner’s rights could be diminished or withdrawn. Trade secret protection does not prevent independent discovery and exploitation of the
+secret product or technique. 
+Government Regulation 
+General 
+Most of our products are regulated by the FDA, certain state and local
+agencies, and comparable regulatory bodies in other countries. This regulated environment governs almost all aspects of development, production, and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing,
+and recordkeeping. 
+All of our FDA-regulated products require
+some form of action by the FDA before they can be marketed in the United States. After approval or clearance by the FDA, we must continue to comply with other FDA requirements applicable to marketed products. Both before and after approval or
+clearance, failure to comply with the FDA’s requirements can lead to significant penalties or could disrupt our ability to sell these products. In addition, the FDA could refuse permission to obtain certificates needed to export our products if
+the agency determines that we are not in compliance. 
+Domestic Regulation 
+Most of our products are
+regulated in the United States as medical devices. 
+17 
+Table of Contents 
+There are two mechanisms by which regulated medical devices can be placed on the market in the United
+States. Some products may qualify for clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act. To obtain this clearance from the FDA, the manufacturer must provide a premarket notification that it intends to begin marketing the
+product, and show that the product is substantially equivalent to another legally marketed product (i.e., that it has the same intended use and is as safe and effective as a legally marketed device and does not raise different questions of safety
+and effectiveness). In some cases, the submission must include data from human clinical studies. Marketing may commence when the FDA issues a clearance letter finding substantial equivalence. An applicant must submit a 510(k) application at least 90
+days before marketing of the affected product commences. Although FDA clearance may be granted within that 90-day period, in some cases as much as a year or more may be required before clearance is obtained, if at all. 
+If the medical device does not qualify for the 510(k) procedure (either
+because it is not substantially equivalent to a legally marketed device or because it is required by statute and the FDA’s regulations to have an approved premarket application), the FDA must approve a premarket application, or PMA, before
+marketing can begin. PMAs must demonstrate, among other matters, that the medical device provides a reasonable assurance of safety and effectiveness. A PMA is typically a complex submission, including the results of preclinical and clinical studies.
+Preparing a PMA is a detailed and time-consuming process. Once a PMA has been submitted, the FDA is required to review the submission within 180 days. However, the FDA’s review may, and often is, much longer, often requiring one year or more,
+and may include requests for additional data before approval is granted, if at all. 
+Some of our products are used for non-medical purposes and many of our drugs-of-abuse products sold to state crime labs are for forensic use. The FDA does not currently regulate products used for these purposes.
+Every company that manufactures medical devices distributed in
+the United States must comply with the FDA’s Quality System Regulations (“QSRs”). These regulations govern the manufacturing process, including design, manufacture, testing, release, packaging, distribution, documentation and
+purchasing. In complying with QSRs, manufacturers must continue to expend time, money, and effort in the area of production and quality assurance to ensure full technical compliance. Companies are also subject to other post-market and general
+requirements, including restrictions imposed on marketed products, promotional standards, and requirements for recordkeeping and reporting of certain adverse reactions. If there are any modifications made to our marketed devices, a premarket
+notification or premarket approval application may be required to be submitted to, and cleared or approved by, the FDA, before the modified device may be marketed. The FDA regularly inspects companies to determine compliance with QSRs and other
+post-market requirements. Failure to comply with statutory requirements and the FDA’s regulations can result in warning letters, monetary penalties, suspension or withdrawal of regulatory approvals, operating restrictions, total or partial
+suspension of production, injunctions, product recalls, seizure of products, and criminal prosecution. 
+Products that include electrical or light emitting equipment must also comply with the FDA’s safety and performance standards applicable to such
+equipment. Our UP link ® analyzer is a piece
+of electrical equipment that uses a laser to read the test results and is, therefore, subject to these requirements. In addition, there is an industry safety and performance standard for electrical equipment established by Underwriters Laboratories,
+Inc., known as UL3101-1. Although a voluntary standard, compliance with UL3101-1 supported our 510(k) submission for the UP link ® analyzer. Underwriters Laboratories Inc. was retained to examine and test the UP link ® analyzer and has certified that this product meets the FDA requirements and UL3101-1
+(i.e., UL approval). 
+The Clinical Laboratory Improvements
+Amendments of 1988, or CLIA, prohibit laboratories from performing tests for the purpose of providing information for the diagnosis, prevention or treatment of any disease or impairment of, or the assessment of, the health of human beings, unless
+there is in effect for such laboratories a certificate issued by the U.S. Department of Health and Human Services applicable to the category of examination or procedure performed. We consider the applicability of the requirements of CLIA in the
+design and development of our products. We have obtained a waiver of the CLIA requirements for both our OraQuick ® 
+18 
+Table of Contents 
+rapid HIV-1 and OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody tests and our Q.E.D. ® alcohol saliva test, and may seek similar waivers for certain other products. A CLIA waiver allows certain customers to use the waived products that may not have been able to use them
+without complying with certain quality control and other requirements. 
+Certain of our products may also be affected by state regulations in the United States. For example, there are several states that restrict or do not currently permit oral fluid drug testing in the workplace or other markets. In addition,
+several states prohibit or limit the use of rapid, point-of-care HIV testing. We are presently working with legislators or regulators in certain of these states in an effort to modify or remove any restrictions affecting our ability to sell
+products. 
+International 
+We are also subject to regulations in foreign countries governing products,
+human clinical trials and marketing, and may need to obtain approval from international public health agencies, such as the World Health Organization, in order to sell products in certain countries. Approval processes vary from country to country,
+and the length of time required for approval or to obtain other clearances may in some cases be longer than that required for U.S. governmental approvals. We generally pursue approval only in those countries that we believe have a significant market
+opportunity. 
+The International Organization for
+Standardization (“ISO”) is a worldwide federation of national standards bodies from some 130 countries, established in 1947. The mission of the ISO is to promote the development of standardization and related activities in the world with a
+view to facilitating the international exchange of goods and services. ISO certification is a pre-requisite to use of the CE mark and indicates that our quality system complies with standards applicable to activities ranging from initial product
+design and development through production and distribution. The CE mark is a European Union (“EU”) requirement to sell products that fall under the scope of the Medical Devices Directive (“MDD”) and the In Vitro Diagnostic Device
+Directive (“IVDD”). The CE mark is evidence that the manufacturer meets the requirements of all applicable directives, including the MDD and IVDD. 
+On June 14, 1998, compliance with the MDD became mandatory for all manufacturers selling medical devices in the EU. In the first quarter of 1999, we
+received authorization to use the CE mark for the OraSure ® and Intercept ® 
+collection devices based on meeting ISO standards at our former Beaverton, Oregon facility, and we subsequently transferred this authorization to our Bethlehem, Pennsylvania facility in November 2003. In December 2000, our Bethlehem facility
+received final certification under the MDD and various ISO standards, enabling use of the CE mark for our Histofreezer ® product line. In November 2003, we updated our certification to the MDD and ISO standards, and obtained additional certification under the Canadian
+Medical Devices Conformity Assessment System (“CMDCAS”), as discussed below. 
+In addition, we are currently in the process of preparing the information to demonstrate that we meet the essential requirements of the IVDD in order to receive authorization to affix a CE mark to our OraQuick ® HIV products. A CE mark indicates compliance with this
+directive and is required for distribution of in vitro diagnostic products in the EU. 
+Prior to international sale of a product containing electrical and light-emitting equipment, the safety and performance of such a product must be demonstrated. We retained Underwriters Laboratories, Inc. and Laird
+Technologies to examine and test the UP link ® 
+analyzer, and they certified that this product meets various international standards and directives applicable to such equipment. 
+We must also comply with certain registration requirements as dictated by Health Canada, prior to commencing sales in Canada. We have completed this
+process for several of our current products and may do so with respect to other products in the future. In addition, Canadian law requires manufacturers of medical devices 
+19 
+Table of Contents 
+to have a quality management system that meets various ISO requirements in order to obtain a license to sell their devices in Canada. The CMDCAS was
+developed by Health Canada in collaboration with the Standards Council of Canada (“SCC”) to support the Canadian Medical Devices Regulations. 
+In July 2003, Canada adopted a new ISO standard and will require all ISO certificate holders to transition to the new standard by March 14, 2006. The EU
+has a similar requirement with a compliance date of July 2006. We will need to do additional work and receive an updated certification in order to meet these deadlines. 
+Anti-Kickback Laws 
+The Federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation, or receipt of any form of remuneration in return for, or
+to induce: 
+• 
+The referral of a person; 
+• 
+The furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental programs; or 
+• 
+The purchase, lease, or order of, or the arrangement or recommendation of the purchasing, leasing, or ordering of any item or service reimbursable under Medicare, Medicaid, or other
+governmental programs. 
+Our products are or may
+be purchased by customers that will seek or receive reimbursement under Medicare, Medicaid or other governmental programs. Noncompliance with the federal anti-kickback legislation can result in exclusion from Medicare, Medicaid, or other
+governmental programs, restrictions on our ability to operate in certain jurisdictions, as well as civil and criminal penalties, any of which could have an adverse effect on our business and results of operations. 
+The Federal Civil Monetary Penalties Law prohibits the offering or
+transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable items or services. Noncompliance
+can result in civil money penalties of up to $10,000 for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the Federal healthcare programs. 
+Many states have also adopted some form of anti-kickback laws. A
+determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions. 
+We believe that we are operating in compliance with these laws. 
+Environmental Regulation 
+Because of the nature of our current and proposed research, development, and manufacturing processes, we are subject to stringent federal, state and local
+laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge and handling and disposal of materials and wastes. We believe that we have complied with these laws and regulations in all
+material respects. We have not been required to take any action to correct any environmental noncompliance. 
+Forward-Looking Statements 
+This Report contains certain “forward-looking statements,” within the meaning of the Federal securities laws. These may include statements about our expected revenues, earnings, expenses or other financial performance, future
+product performance or development, expected regulatory filings and approvals, planned business transactions, views of future industry, competitive or market conditions, and other factors that could affect our future operations, results of
+operations or financial position. These statements often include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “may,” “will,”
+“should,” “could,” or similar expressions. 
+20 
+Table of Contents 
+Forward-looking statements are not guarantees of future performance or results. Known and unknown factors
+could cause actual performance or results to be materially different from those expressed or implied in these statements. Some of these factors are: ability to market products; impact of competitors, competing products and technology changes;
+ability to develop, commercialize and market new products; market acceptance of oral fluid testing products and other new products or technology; ability to fund research and development and other projects and operations; ability to obtain or
+maintain new or existing product distribution channels; reliance on sole supply sources for critical product components; availability of related products produced by third parties; ability to obtain and timing of obtaining necessary regulatory
+approvals; ability to comply with applicable regulatory requirements; history of losses and ability to achieve sustained profitability; volatility of our stock price; uncertainty relating to patent protection and potential patent infringement
+claims; uncertainty and costs of litigation relating to our patents or other intellectual property; availability of licenses to patents or other technology; ability to enter into international manufacturing agreements; obstacles to international
+marketing and manufacturing of products; ability to sell products internationally; loss or impairment of sources of capital; ability to meet financial covenants in our agreements with financial institutions; ability to retain qualified personnel;
+exposure to product liability, patent infringement and other types of litigation; changes in international, federal or state laws and regulations; changes in relationships with strategic partners and reliance on strategic partners for the
+performance of critical activities under collaborative arrangements; customer consolidations and inventory practices; equipment failures and ability to obtain needed raw materials and components; the impact of terrorist attacks, war and civil
+unrest; ability to identify, complete and realize the full benefits of potential acquisitions; and general political, business and economic conditions. These and other factors that could cause the forward-looking statements to be materially
+different are described in greater detail in the Section entitled, “Risk Factors,” and elsewhere in this Report. 
+Although forward-looking statements help to provide complete information about future prospects, they may not be reliable. The forward-looking statements
+are made as of the date of this Report and we undertake no duty to update these statements. 
+Risk Factors 
+The
+following is a discussion of certain significant risk factors that could potentially negatively impact our financial condition, performance and prospects. 
+Regulatory Risks 
+The Need to Obtain Regulatory Approvals and Respond to Changes in Regulatory Requirements Could Adversely Affect Our Business. 
+Many of our proposed and existing products are subject to regulation by the
+FDA and other governmental or public health agencies. In particular, we are subject to strict governmental controls on the development, manufacture, labeling, distribution and marketing of our products. In addition, we are often required to obtain
+approval or registration with foreign governments or regulatory bodies before we can import and sell our products in foreign countries. 
+The process of obtaining required approvals or clearances from governmental or public health agencies can involve lengthy and detailed laboratory testing,
+human clinical trials, sampling activities and other costly, time-consuming procedures. For example, during 2004, we received several FDA approvals for our new OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test, including approval for use of the test on oral fluid samples. These approvals required the submission of clinical data and
+required significant time to obtain. The submission of an application to the FDA or other regulatory authority does not guarantee that an approval or clearance to market the product will be received. Each authority may impose its own requirements
+and delay or refuse to grant approval or clearance, even though a product has been approved in another country or by another agency. 
+21 
+Table of Contents 
+Moreover, the approval or clearance process for a new product can be complex and lengthy. This time span
+increases our costs to develop new products as well as the risk that we will not succeed in introducing or selling them in the United States or other countries. 
+Newly promulgated or changed regulations could also require us to undergo additional trials or procedures, or could make it impractical or impossible
+for us to market our products for certain uses, in certain markets, or at all. For example, during 2004 the Substance Abuse and Mental Health Services Administration (“SAMHSA”), which is part of the U.S. Department of Health and Human
+Services, issued proposed regulations for the use of oral fluid drug testing for federal workers. The SAMHSA regulations, when issued in final form, could permit us to market and sell our oral fluid drug tests for use with federal workers only if
+certain modifications are made to our products. If we are unable to make these modifications, or if the modifications require significant time to develop, our ability to sell our oral fluid drug testing products in that market could be limited. In
+addition, the extent to which the final SAMHSA regulations permit the sale of our oral fluid drug tests for use with federal workers may influence whether customers in the workplace, criminal justice or other unregulated markets use our products.
+The regulations in some states may restrict our ability to
+sell products in those states. For example, certain states restrict or do not allow the testing of oral fluid for drugs of abuse or the rapid, point-of-care testing for HIV. While we intend to work with state legislators and regulators to remove or
+modify any applicable restrictions, there is no guarantee we will be successful in these efforts. 
+In addition, all in vitro diagnostic products that are to be sold in the European Union (“EU”) must bear the CE mark indicating
+conformance with the essential requirements of the In Vitro Diagnostic Directive, or IVDD. We are not permitted to sell our products in the EU without a CE mark, which could lead to the termination of strategic alliances and agreements for sales of
+those products in the EU. We have obtained the CE mark for many of our existing products, and we intend to CE mark certain of our future products and are not aware of any material reason why we will be unable to do so. However, there can be no
+assurance that compliance with all provisions of the IVDD will be demonstrated and the CE mark obtained for all products that we desire to sell in the EU. 
+Failure to Comply With FDA or Other Requirements May Require Us to Suspend Production of Our Products or Institute a Recall Which Could Result in
+Higher Costs and a Loss of Revenues. 
+We can manufacture
+and sell many of our products, both in the United States and in some cases abroad, only if we comply with regulations of government agencies such as the FDA. We have implemented quality assurance and other systems that are intended to comply with
+applicable regulations. 
+Although we believe that we have
+adequate processes in place to ensure compliance with these requirements, the FDA could force us to stop manufacturing our products if it concludes that we are out of compliance with applicable regulations. The FDA could also require us to recall
+products if we fail to comply with applicable regulations, which could force us to stop manufacturing such products. See the Section entitled “Government Regulation” for a further discussion of applicable regulatory requirements. 
+Risks Relating to Our Financial Results, Structure and Need
+for Financing 
+We Have a History of Losses.
+We have not achieved full-year profitability. We incurred
+net losses of approximately $0.6 million, $1.1 million and $3.3 million, in 2004, 2003 and 2002, respectively. As of December 31, 2004, the Company had an accumulated deficit of approximately $131.1 million. 
+22 
+Table of Contents 
+In order to achieve sustainable profitability, our revenues will have to continue to grow at a
+significant rate. Our ability to achieve revenue growth, and therefore profitability, will be dependent upon a number of factors including, without limitation, the following: 
+• 
+Creating market acceptance for and selling increasing volumes of the OraSure ® collection device, the Intercept ® drug testing product, and the OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test; 
+• 
+The degree to which certain of our new products may replace sales of our existing products and the financial impact of that change, including the degree to which our OraQuick ® test will replace our OraSure ® collection device for HIV-1 testing or sales of the
+Freeze Off ® wart removal product in the
+over-the-counter market will replace sales of our Histofreezer ® product to physicians’ offices or other professional markets; 
+• 
+Achieving growth in sales of the Freeze Off ® wart removal product in the over-the-counter market; 
+• 
+Achieving growth in international markets with our OraQuick ® test, Freeze Off ™ product and other products; 
+• 
+Changes in the level of competition, such as would occur if any larger and financially stronger competitors introduced new or lower priced products to compete with our products;
+• 
+Changes in economic conditions in domestic or international markets, such as economic downturns, reduced demand, inflation and currency fluctuations; 
+• 
+Failure to achieve our targets for growth in revenues; 
+• 
+Changes in distributor buying patterns or a buildup of significant quantities in our distributors’ inventories or distribution channels; and 
+• 
+Commercially developing, and obtaining regulatory approvals and creating market acceptance for new products in a time frame consistent with our objectives. 
+We have not yet fully achieved our financial and business objectives and
+there can be no assurance that we will be able to do so. Moreover, even if we achieve our objectives and become profitable, there can be no assurance that we will be able to sustain such profitability in the future. 
+We May Require Future Additional Capital to Fund Our Operations.
+Although we have made significant progress in the past
+toward controlling expenses and increasing product revenue, we have historically depended, to a substantial degree, on capital raised through the sale of equity securities and bank borrowings to fund our operations. 
+Our future liquidity and capital requirements will depend on numerous
+factors, including, but not limited to, the following: 
+• 
+The costs and timing of the expansion of our manufacturing capacity; 
+• 
+The success of our research and product development efforts; 
+• 
+The magnitude of capital expenditures; 
+• 
+Changes in existing and potential relationships with business partners; 
+• 
+The time and cost of obtaining regulatory approvals; 
+• 
+The costs involved in obtaining and enforcing patents, proprietary rights and necessary licenses; 
+• 
+The costs and timing of expansion of sales and marketing activities; 
+• 
+The timing of the commercial launch of new products; 
+23 
+Table of Contents 
+• 
+The extent to which existing and new products gain market acceptance; 
+• 
+The scope and results of clinical testing; 
+• 
+Competing technological and market developments; and 
+• 
+The scope and timing of strategic acquisitions. 
+If additional financing is needed, we may seek to raise funds through the sale of equity or other securities or through bank borrowings. There can be no
+assurance that financing through the sale of securities, bank borrowings or otherwise, will be available to us on satisfactory terms, if at all. 
+An Economic Downturn or Terrorist Attacks May Adversely Affect Our Business. 
+Changes in economic conditions could adversely affect our business. For example, in a difficult economic environment,
+customers may be unwilling or unable to invest in new diagnostic products, may elect to reduce the amount of their purchases or may perform less drug testing because of declining employment levels or the issuance of fewer life insurance policies. A
+weakening business climate could also cause longer sales cycles and slower growth, and could expose us to increased business or credit risk in dealing with customers adversely affected by economic conditions. 
+Terrorist attacks and subsequent governmental responses to these attacks
+could cause further economic instability or lead to further acts of terrorism in the United States and elsewhere. These actions could adversely affect economic conditions outside the United States and reduce demand for our products internationally.
+Terrorist attacks could also cause regulatory agencies, such as the FDA or agencies that perform similar functions outside the United States, to focus their resources on vaccines or other products intended to address the threat of biological or
+chemical warfare. This diversion of resources could delay our ability to obtain regulatory approvals required to manufacture, market or sell our products in the United States and other countries. 
+Our Stock Price Could Continue to be Volatile. 
+Our stock price has been volatile, has fluctuated substantially in the past
+and may be volatile in the future and could experience substantial declines. The following factors, among others, could have a significant impact on the market for our Common Stock: 
+• 
+Future announcements concerning us; 
+• 
+Future announcements concerning our competitors or industry; 
+• 
+Governmental regulation; 
+• 
+Clinical results with respect to our products in development or those of our competitors; 
+• 
+Developments in patent or other proprietary rights; 
+• 
+Litigation or threatened litigation; 
+• 
+Public concern as to the safety of products that we or others have developed; 
+• 
+Changes in the level of competition; 
+• 
+Loss of or declines in sales to major distributors or customers; 
+• 
+The relatively low trading volume for our Common Stock; 
+• 
+Period to period fluctuations in our operating results; 
+• 
+Failure to achieve, or changes in, financial estimates by securities analysts and comments or opinions about us by securities analysts or major stockholders;
+24 
+Table of Contents 
+• 
+General market and economic conditions; and 
+• 
+Terrorist attacks, civil unrest and war. 
+Future Sales by Existing Stockholders Could Depress the Market Price of Our Common Stock and Make It More Difficult For Us to Sell Stock in the Future.
+Sales of our Common Stock in the public market, or the
+perception that such sales could occur, could negatively impact the market price of our Common Stock. We are unable to estimate the number of shares of our Common Stock that may actually be resold in the public market since this will depend on the
+market price for our Common Stock, the individual circumstances of the sellers and other factors. We also have a number of institutional stockholders that own significant blocks of our Common Stock. If one or more of these stockholders sell large
+portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price of our Common Stock could be negatively affected. 
+Our Reported Financial Results May be Adversely Affected by Changes in Accounting Principles Generally Accepted in the
+United States. 
+We prepare our financial statements
+in conformity with accounting principles generally accepted in the United States. These accounting principles are subject to creation or interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public
+Accountants, the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial
+results, and could affect the reporting of transactions completed before the announcement of a change. 
+Risks Relating to Our Industry, Business and Strategy 
+Our Ability to Sell Products Could be Affected by Competition From New and Existing Diagnostic Products and by Treatment or Other Non-Diagnostic
+Products Which May be Developed. 
+The diagnostic industry
+is focused on the testing of biological specimens in a laboratory or at the point of care and is highly competitive and rapidly changing. Many of our principal competitors have considerably greater financial, technical and marketing resources. As
+new products enter the market, our products may become obsolete or a competitor’s products may be more effective or more effectively marketed and sold than ours. If we fail to maintain and enhance our competitive position, our customers may
+decide to use products developed by competitors which could result in a loss of revenues. 
+We also face competition from products which may be sold at a lower price. To the extent this competition arises, customers may choose to buy lower cost products from third parties or we may be forced to sell our
+products at a lower price, both of which could result in a loss of revenues or a lower gross margin contribution from the sale of our products. In addition, the development and commercialization of products outside of the diagnostics industry could
+adversely affect sales of our product. For example, the development of a safe and effective vaccine to HIV or treatments for other diseases or conditions that our products are designed to detect, could reduce, or eventually eliminate, the demand for
+our HIV or other diagnostic products and thereby result in a loss of revenues. 
+Our Research, Development and Commercialization Efforts May Not Succeed or Our Competitors May Develop and Commercialize More Effective or Successful Diagnostic Products. 
+In order to remain competitive, we must regularly commit substantial
+resources to research and development and the commercialization of new products. 
+25 
+Table of Contents 
+The research and development process generally takes a significant amount of time from inception to
+commercial product launch. This process is conducted in various stages. During each stage there is a substantial risk that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a product in which we have invested
+substantial amounts. 
+During 2004, 2003 and 2002, we incurred
+$6.1 million, $8.0 million and $8.3 million, respectively, in research and development expenses. We expect to continue to incur significant costs from our research and development activities. 
+A primary focus of our research and development efforts in recent years has
+been our UPT ™ technology and the related
+UP link ® rapid detection system; however, we
+are reevaluating the feasibility and market potential of this technology, and there can be no assurance that we will succeed or continue in our research and development efforts with respect to UPT ™ , UP link ® or other technologies or products. 
+Successful products require significant development and investment, including testing, to demonstrate their
+cost-effectiveness or other benefits prior to commercialization. In addition, regulatory approval must be obtained before most products may be sold. Additional development efforts on these products will be required before any regulatory authority
+will review them. Regulatory authorities may not approve these products for commercial sale. In addition, even if a product is developed and all applicable regulatory approvals are obtained, there may be little or no market for the product.
+Accordingly, if we fail to develop commercially successful products, or if competitors develop more effective products or a greater number of successful new products, customers may decide to use products developed by our competitors. This would
+result in a loss of revenues and adversely affect our results of operations, cash flows and business. 
+If We Lose Our Key Personnel or Are Unable to Attract and Retain Qualified Personnel as Necessary, Our Business Could be Harmed. 
+Our success will depend to a large extent upon the contributions of our
+executive officers, management, and sales, marketing, operations and scientific staff. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among medical products
+businesses. 
+If we are not able to attract and retain the
+necessary personnel to accomplish our business objectives, we may experience constraints that will adversely affect our ability to effectively manufacture, sell and market our products, to meet the demands of our strategic partners in a timely
+fashion, or to support internal research and development programs. Although we believe we will be successful in attracting and retaining qualified personnel, competition for experienced scientists and other personnel from numerous companies and
+academic and other research institutions may limit our ability to do so on acceptable terms. 
+We May be Sued for Product Liabilities for Injuries Resulting From the Use of Our Products. 
+We may be held liable if any of our products, or any product which is made with the use or incorporation of any of our technologies, causes injury of any
+type or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or usage. Although we have obtained product liability insurance, this insurance may not fully cover potential liabilities. As we bring new products to
+market, we may need to increase our product liability coverage. 
+We have obtained the required regulatory approvals to sell a cryosurgical wart removal product, called Freeze Off ™ , in the consumer or over-the-counter market. We believe the sale of this or other products in the over-the-counter market could increase the risk of
+potential product liability exposure and the required level of insurance coverage that we will need to maintain. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability
+claims could affect our decision to commercialize new products and our results of operations. 
+26 
+Table of Contents 
+Efforts to Consolidate or Restructure Could Adversely Affect Our Business. 
+We may from time to time restructure and consolidate various aspects of our
+operations in order to achieve cost savings and other efficiencies. For example, during 2004 we completed the restructuring of our manufacturing operations, which included the transfer of the manufacturing of our Intercept ® , OraSure ® and oral fluid Western Blot products from our Beaverton, Oregon facility and a contract
+manufacturer in Oregon to Bethlehem, Pennsylvania. We obtained FDA approval to transfer the operations to Pennsylvania. This type of transfer and the need to obtain FDA approval could interfere with or delay our manufacturing processes and disrupt
+continued operations. Any delay in or disruption of operations, and in particular manufacturing operations, could result in increased costs or could delay or prevent us from selling certain products and thereby result in a loss of revenue.
+Future Acquisitions or Investments Could Disrupt Our
+Ongoing Business, Distract Our Management, Increase Our Expenses and Adversely Affect Our Business. 
+We may consider strategic acquisitions or investments as a way to expand our business in the future. These activities, and their impact on our business,
+are subject to the following risk factors: 
+• 
+Suitable acquisitions or investments may not be found or consummated on terms that are satisfactory to us; 
+• 
+We may be unable to successfully integrate an acquired company’s personnel, assets, management systems and technology into our business; 
+• 
+Acquisitions may require substantial expense and management time and could disrupt our business; 
+• 
+An acquisition and subsequent integration activities may require greater capital resources than originally anticipated at the time of acquisition; 
+• 
+An acquisition may result in the incurrence of unexpected expenses, the dilution of our earnings or our existing stockholders’ percentage ownership, or potential losses from
+undiscovered liabilities not covered by an indemnification from the seller(s) of the acquired business; 
+• 
+An acquisition may result in the loss of existing key personnel or customers or the loss of the acquired company’s key personnel or customers; 
+• 
+The benefits to be derived from an acquisition could be affected by other factors, such as regulatory developments, general economic conditions and increased competition; and
+• 
+An acquisition of a foreign business may involve additional risks, including, but not limited to, foreign currency exposure, liability under foreign laws or regulations, and not
+being able to successfully assimilate differences in foreign business practices or overcome language or cultural barriers. 
+The occurrence of one or more of the above or other factors may prevent us from achieving all or a significant part of the benefits expected from an
+acquisition or investment. This may adversely affect our financial condition, results of operations and ability to grow our business or otherwise achieve our financial or strategic objectives. 
+Our Net Sales Could be Affected by Third-Party Reimbursement Policies and
+Potential Cost Constraints. 
+The end-users of our products
+are expected to increasingly include hospitals, physicians and other healthcare providers. Use of our products could be adversely impacted if these end-users do not receive reimbursement for the cost of our products by their patients’
+healthcare insurers or payors. Our net sales could also be adversely affected by changes in reimbursement policies of these governmental or private healthcare payors, including in particular the level of reimbursement for our products. In the United
+States, healthcare providers such as hospitals and physicians who purchase diagnostic products generally rely on third-party payors, principally private health insurance plans, Medicare and Medicaid, to reimburse all or part of the cost of the
+product and 
+27 
+Table of Contents 
+procedure. We believe that the overall escalating cost of medical products and services has led to, and will continue to lead to, increased pressures on the
+healthcare industry, both foreign and domestic, to reduce the cost of products and services. Given the efforts to control and reduce healthcare costs in the United States in recent years, currently available levels of reimbursement may not continue
+to be available in the future for our existing products or products under development. Third-party reimbursement and coverage may not be available or adequate in either the United States or foreign markets, current reimbursement amounts may be
+decreased in the future and future legislation, regulation or reimbursement policies of third-party payors may reduce the demand for our products or our ability to sell our products on a profitable basis. 
+Unexpected Increases in Demand for Our Products Could Require Us to Spend
+Considerable Resources to Meet the Demand or Harm Our Customer Relationships if We are Unable to Meet Demand. 
+If we experience unexpected increases in the demand for our products, we may be required to expend additional capital resources to meet these demands.
+These capital resources could involve the cost of new machinery or even the cost of new manufacturing facilities. This would increase our capital costs, which could adversely affect our earnings. If we are unable to develop necessary manufacturing
+capabilities in a timely manner, our net sales could be adversely affected. Failure to cost-effectively increase production volumes, if required, or lower than anticipated yields or production problems encountered as a result of changes that we make
+in our manufacturing processes to meet increased demand, could result in shipment delays and increased manufacturing costs, which could also have a material adverse effect on our revenues and profitability. 
+Our inability to meet customer demand for our products could also harm our
+customer relationships and impair our reputation within the industry. This, in turn, could have a material adverse effect on our business and prospects. 
+Risks Relating to Collaborators 
+Our Failure to Maintain Existing Distribution Channels, or Develop New Distribution Channels, May Result in Lower Revenues. 
+We have marketed many of our products by collaborating with laboratories,
+diagnostic companies and distributors. For example, our OraSure ® oral fluid collection device is distributed to the insurance industry through major insurance testing laboratories. Our sales depend to a substantial degree on our ability to sell products to these customers and
+develop new product distribution channels, and on the marketing abilities of the companies with which we collaborate. 
+Some of our distributors have consolidated in recent years, and such consolidation has had, and may continue to have, an adverse impact on the level of
+orders for our products. One of these laboratories, Lab One , Inc., acquired another large insurance laboratory customer, Osborne Group, Inc., in 2001 and our revenues decreased because of efficiencies resulting from that acquisition.
+In addition, some distributors have experienced, and may
+continue to experience, pressure from their customers to reduce the price of their products and testing services. For example, Lab One and our other insurance testing laboratories are facing this pressure and are using lower cost “home
+brew” insurance testing assays that they have developed internally or purchased from our competitors. As a result, Lab One has stopped purchasing our urine assays and certain of our MICRO-PLATE oral fluid assays. This has reduced our
+sales and is expected to lower sales of these products in 2005 and beyond. 
+In addition, during the fourth quarter of 2003, Lab One acquired the Insurance Testing Laboratory of MetLife, which was another large purchaser of our urine assays and in early 2004 acquired NWT, Inc., a
+laboratory that distributed the Company’s Intercept ® drug test into the workplace testing market. These acquisitions could further reduce sales of our products. 
+28 
+Table of Contents 
+Finally, some of our distributors may not fulfill their contractual obligations. Although we will try to
+maintain and expand our business with our distributors and require that they fulfill their contractual obligations, there can be no assurance that such companies will continue to purchase or distribute our products, maintain historic order volumes
+or otherwise meet their purchase or other obligations, or that new distribution channels will be available on satisfactory terms. 
+The Use of Sole Supply Sources For Critical Components of Our Products Could Adversely Affect Our Business. 
+We currently purchase certain critical components of our products from sole
+supply sources. For example, all of the HIV-1 antigen used to make our oral fluid Western blot HIV-1 confirmatory test is purchased from BMX, and all of the HIV antigen and nitrocellulose required to make our OraQuick ® rapid HIV-1 antibody test is purchased from sole source suppliers. If these
+suppliers are unable or unwilling to supply the required component, we would need to find another source, and perform additional development work and obtain FDA approval for the use of the alternative component for our products. Completing that
+development and obtaining such FDA approval could require significant time to complete and may not occur at all. The availability of critical components from sole supply sources could also reduce our control over pricing, quality and timely
+delivery. These events could either disrupt our ability to manufacture and sell certain of our products, or completely prevent us from doing so or increase our costs. Any such event could have a material adverse effect on our results of operations,
+cash flows and business. 
+The Unavailability of Certain
+Products Distributed by a Third Party Could Adversely Affect Sales of Our OraSure ® Oral Fluid Collection Device. 
+In testing an oral fluid sample collected with an OraSure ® device for HIV-1 in the United States, our customers must use an HIV-1 screening test approved by the FDA for use with our OraSure ® device. Where an oral fluid sample screens positive for HIV-1, our customers must then use our oral fluid Western blot
+HIV-1 confirmatory test, which has also been approved by the FDA for use with our OraSure ® device, to confirm that positive indication. 
+BMX manufactures and sells the only oral fluid HIV-1 screening test that has received FDA approval for use in detecting HIV-1 in an oral fluid specimen collected with our OraSure ® collection device. BMX has developed a new HIV-1 screening test, and has indicated that
+this new test will eventually replace its existing FDA-approved HIV-1 screening test. We are working with BMX to obtain FDA approval for use of the new screening test with our OraSure ® device. BMX also supplies the HIV-1 antigen used to manufacture our oral fluid Western
+blot HIV-1 confirmatory test and is the exclusive world-wide distributor of that product. 
+If BMX ceases to manufacture or sell an HIV-1 screening test approved by the FDA for use with our OraSure ® collection device, or if our oral fluid Western blot HIV-1 confirmatory test is not made available to our customers (because BMX either fails to supply
+the HIV-1 antigen required to make this product or fails to distribute this product), we would need to find alternate suppliers for these products, which would require additional development work and FDA approval. These activities would likely
+require significant time to complete. If our customers cannot obtain an HIV-1 screening test or Western blot HIV-1 confirmatory test that has been approved by the FDA for use in connection with our OraSure ® collection device, these customers would likely stop purchasing our OraSure ® device. Sales of the OraSure ® device were approximately $11.0 million and $12.2
+million, or 20% and 30% of our total revenues, in 2004 and 2003, respectively. 
+We Are Dependent Upon Strategic Partners to Assist in Developing and Commercializing Some of Our Diagnostic Products. 
+Although we intend to pursue some product opportunities independently, opportunities that require a significant level of investment for development and
+commercialization or a distribution network beyond our 
+29 
+Table of Contents 
+existing sales force may necessitate involving one or more strategic partners. Our strategy for development and commercialization of products may entail
+entering into arrangements with distributors or other corporate partners, universities, research laboratories, licensees and others. We may be required to transfer material rights to such strategic partners, licensees and others. While we expect
+that our current and future partners, licensees and others have and will have an economic motivation to succeed in performing their contractual responsibilities, there is no assurance that they will do so and the amount and timing of resources to be
+devoted to these activities will be controlled by others. Consequently, there can be no assurance that any revenues or profits will be derived from such arrangements. 
+Risks Relating to Intellectual Property 
+Our Success Depends on Our Ability to Protect Our Proprietary Technology. 
+The diagnostics industry places considerable importance on obtaining patent,
+trademark, and trade secret protection, as well as other intellectual property rights, for new technologies, products and processes. Our success depends, in part, on our ability to develop and maintain a strong intellectual property portfolio or
+obtain licenses to patents for products and technologies both in the United States and in other countries. 
+As appropriate, we intend to file patent applications and obtain patent protection for our proprietary technology. These patent applications and patents
+will cover, as applicable, compositions of matter for our products, methods of making those products, methods of using those products, and apparatus relating to the use or manufacture of those products. We will also rely on trade secrets, know-how,
+and continuing technological advancements to protect our proprietary technology. 
+We have entered, and will continue to enter, into confidentiality agreements with our employees, consultants, advisors and collaborators. However, these parties may not honor these agreements and we may not be able to
+successfully protect our rights to unpatented trade secrets and know-how. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how. 
+Many of our employees, including scientific and management personnel, were
+previously employed by competing companies. Although we encourage and expect all of our employees to abide by any confidentiality agreement with a prior employer, competing companies may allege trade secret violations and similar claims against us.
+We may collaborate with universities and governmental research
+organizations which, as a result, may acquire part of the rights to any inventions or technical information derived from collaboration with them. 
+To facilitate development and commercialization of a proprietary technology base, we may need to obtain licenses to patents or other proprietary rights
+from other parties. Obtaining and maintaining such licenses may require the payment of substantial amounts. In addition, if we are unable to obtain these types of licenses, our product development and commercialization efforts may be delayed or
+precluded. 
+We may incur substantial costs and be required to
+expend substantial resources in asserting or protecting our intellectual property rights, or in defending suits against us related to intellectual property rights. Disputes regarding intellectual property rights could substantially delay product
+development or commercialization activities. Disputes regarding intellectual property rights might include state, federal or foreign court litigation as well as patent interference, patent reexamination, patent reissue, or trademark opposition
+proceedings in the United States Patent and Trademark Office. Opposition or revocation proceedings could be instituted in a foreign patent office. An adverse decision in any proceeding regarding intellectual property rights could result in the loss
+or limitation of our rights to a patent, an invention or trademark. 
+30 
+Table of Contents 
+We are Involved in Pending, and May Become Involved in Future, Intellectual Property Infringement
+Disputes, Which are Costly and Could Limit or Eliminate Our Ability to Sell Our Products or Use Certain of Our Technologies in the Future. 
+From time to time, we may seek to enforce our patents or other intellectual property rights through litigation. In addition, there are a large number of
+patents and patent applications in our product areas, and additional patents may issue to third parties relating to our product areas. Litigation in our industry regarding patent and other intellectual property rights is prevalent and is expected to
+continue. 
+Our involvement in litigation to enforce our patents
+or other intellectual property or to determine rights in proprietary technology could adversely affect our revenues, market share, results of operations and business because: 
+• 
+As is common with major litigation, it could consume a substantial portion of managerial and financial resources; 
+• 
+Its outcome would be uncertain and a court may find that our patents are invalid or unenforceable in response to claims by another party or that the third-party patent claims are
+valid and infringed by our products; 
+• 
+An adverse outcome could subject us to the loss of the protection of our patents or to liability in the form of past royalty payments, penalties, special and punitive damages, or
+future royalty payments significantly affecting our future earnings; 
+• 
+Failure to obtain a necessary license upon an adverse outcome could prevent us from selling our current products or other products we may develop; and 
+• 
+A court could award a preliminary and/or permanent injunction which would prevent us from selling our current or future products. 
+The Sales Potential for OraQuick ® Could be Affected by Our Ability to Obtain Certain Licenses. 
+Our OraQuick ® test is a lateral flow assay device that tests for specific antibodies or other
+substances. The term “lateral flow” generally refers to a test strip through which a sample flows and which provides a test result on a portion of the strip downstream from where the sample is applied. There are numerous patents in the
+United States and other countries which claim lateral flow assay methods and devices. Some of these patents may broadly cover the technology used in the OraQuick ® test and are in force in the United States and other countries. We may not be able to make or sell the OraQuick ® test in the United States or other countries where
+these patents are in force. 
+We have obtained licenses under
+several lateral flow patents, which we believe should be sufficient to permit the manufacturing and sale of the OraQuick ® device as currently contemplated. However, licenses under additional patents may be required and it is possible that a third party could seek to
+enforce one or more lateral flow patents against us. In the event that we are unable to successfully defend against such litigation or it is determined that a license is required and it is not possible to negotiate or otherwise obtain a license
+agreement on reasonable terms under a necessary patent, our ability to manufacture and sell the OraQuick ® device could be limited. In such case, we may be able to modify the OraQuick ® test such that a license would not be necessary. However, this alternative could delay or limit our ability to sell the OraQuick ® test in the United States and other markets, which
+would adversely affect our results of operations, cash flows and business. 
+Risks Relating to Product Marketing and Sales 
+A Market for Our Products May Not Develop. 
+Our future success will depend, in part, on the market acceptance, and the timing of such acceptance, of new products such as the Intercept ® drug test, the OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test and other new 
+31 
+Table of Contents 
+products or technologies that may be developed or acquired. To achieve market acceptance, we must make substantial marketing efforts and spend significant
+funds to inform potential customers and the public of the perceived benefits of these products. We currently have limited evidence on which to evaluate the market reaction to products that may be developed, and there can be no assurance that any
+products will obtain market acceptance and fill the market need that is perceived to exist. 
+If Acceptance and Adoption of Our Oral Fluid Testing Does Not Continue, Our Future Results May Suffer. 
+We have made significant progress in gaining acceptance of oral fluid testing for HIV in the insurance and public health markets. We have also made
+significant progress in gaining acceptance of oral fluid testing for drugs of abuse in the workplace and criminal justice testing markets. However, the ultimate degree of acceptance in these markets is uncertain, and other markets may resist the
+adoption of oral fluid testing as a replacement for other testing methods in use today. In addition, certain state laws prohibit or restrict the use of oral fluid testing for drugs of abuse in certain markets or the rapid, point-of-care testing for
+HIV. As a result, there can be no assurance that we will be able to expand the use of our oral fluid testing products in these or other markets. 
+Our Increasing International Presence May be Affected by Regulatory, Cultural or Other Restraints. 
+We intend to increase revenue derived from international sales of our
+products. Our international sales accounted for approximately $6.2 million or 11% of total revenues for 2004, approximately $4.6 million or 11% of total revenues for 2003, and approximately $3.9 million or 12% of total revenues for 2002. 
+A number of factors can slow or prevent international sales, or
+substantially increase the cost of international sales, including those set forth below: 
+• 
+Regulatory requirements (including compliance with applicable customs regulations) may slow, limit, or prevent the offering of products in foreign countries;
+• 
+The unavailability of licenses to certain patents in force in a foreign country which cover our products may restrict our ability to sell into that country;
+• 
+Our ability to obtain the CE mark on our products in a timely manner may preclude or delay our ability to sell products to the European Union; 
+• 
+Cultural and political differences may make it difficult to effectively market, sell and gain acceptance of products in foreign countries; 
+• 
+Inexperience in international markets may slow or limit our ability to sell products in foreign countries; 
+• 
+Exchange rates, currency fluctuations, tariffs and other barriers, extended payment terms and dependence on and difficulties in managing international distributors or
+representatives may affect our revenues even when product sales occur; 
+• 
+The creditworthiness of foreign entities may be less certain and foreign accounts receivable collection may be more difficult; 
+• 
+Economic conditions, the absence of available funding sources, terrorism, civil unrest and war may slow or limit our ability to sell our products in foreign countries;
+• 
+International markets often have long sales cycles, especially for sales to foreign governments, quasi-governmental agencies and international public health agencies, thereby
+delaying or limiting our ability to sell our products; and 
+• 
+We may be at a disadvantage if competitors in foreign countries sell competing products at prices at or below such competitors’ or our cost. 
+In addition, we have entered into a contract for the manufacture and supply
+of the OraQuick ® rapid HIV antibody test in
+Thailand, and our Histofreezer ® and Freeze Off ® cryosurgical products are currently 
+32 
+Table of Contents 
+manufactured in The Netherlands. In addition, we may enter into agreements to manufacture other products in foreign countries as well. However, factors such
+as economic and political conditions and foreign regulatory requirements may slow or prevent the manufacture of our products in countries other than the United States. Interruption of the supply of our products could reduce revenues or cause us to
+incur significant additional expenses in finding an alternative source of supply. In addition, foreign currency fluctuations and economic conditions in foreign countries could increase the costs of manufacturing our products in foreign countries.
+The previous discussion of our business should be read in
+conjunction with the Financial Statements and accompanying notes included in Item 15 of this Annual Report on Form 10-K. 
+ITEM 2. 
+Properties. 
+In October 2002, we
+leased an approximate 48,000 square foot facility, which is our primary corporate office and manufacturing facility, on property in Bethlehem, Pennsylvania. The lease has a ten-year initial term ending in October 2012 and base rental rate starting
+at approximately $780,000 and increasing to approximately $858,000 per year over that initial term. The lease also has a five-year renewal option at an annual base rental rate of approximately $975,000 and a ten-year purchase option. 
+In April 1999, we signed a five-year lease to rent 25,845 square feet of
+space at the John M. Cook Technology Center in Bethlehem, Pennsylvania, which we use for our sales and marketing and research and development offices. Annual base rent for the initial five-year term of this lease ending in March 2005 is
+approximately $244,000. The lease also includes a five-year renewal option at an annual base rental rate of $271,000 and a ten-year purchase option. We recently exercised our option to extend this lease for the five-year renewal term, which expires
+in March 2010. 
+We own a 33,500 square foot building in
+Bethlehem, Pennsylvania, which is used for manufacturing, engineering and information systems activities. 
+We leased approximately 30,500 square feet of office, manufacturing, and laboratory space in Beaverton, Oregon, under a lease that expired on January 31,
+2005. During 2004, we transferred the manufacturing operations that were conducted at our Oregon facility to our Bethlehem facilities. We did not renew the lease in January 2005. 
+We rent additional warehouse space on an as-needed basis. We also lease space for small sales offices in Chicago, Illinois
+and Reeuwijk, The Netherlands. 
+We believe that the facilities
+described above are adequate for our current requirements. 
+ITEM
+3. 
+Legal Proceedings. 
+Patent
+Infringement Litigation 
+On July 23, 2004, we filed a
+lawsuit against Schering-Plough Healthcare Products, Inc. for infringement of several of our patents relating to technology for the cryosurgical removal (i.e., freezing) of warts and other benign skin lesions. The suit was commenced in the United
+States District Court for the Eastern District of Pennsylvania, and alleges that Schering-Plough’s manufacture and sale of its Dr. Scholls ® Freeze Away ™ cryosurgical wart removal product in the United States over-the-counter market infringes the following United States patents: Nos. 5,738,682; 6,092,527 and 4,865,028. We are requesting
+permanent injunctive relief and the payment of damages. Schering-Plough has asserted various defenses in this matter, including that its Dr. Scholls ® Freeze Away ™ product does not infringe our patents and that one or more of our patents are invalid and unenforceable. 
+33 
+Table of Contents 
+In August 2004, we filed an application for a preliminary injunction against Schering-Plough. In
+September 2004, the Court scheduled an early trial in this matter for February 2005. Because such a trial would include a final determination of our request for permanent injunctive relief in lieu of our previously-filed request for a preliminary
+injunction, we withdrew our request for a preliminary injunction. 
+In November 2004, a Court held a Markman hearing in order to determine as a matter of law the meaning of certain terms and phrases in the claims in our patents which are relevant to an infringement determination. A Markman hearing is a
+normal part of any patent infringement litigation. However, the Court has not yet issued a decision from the Markman hearing and, as a result, recently vacated the original trial schedule. The period for fact discovery in this matter has closed,
+although the period for discovery from expert witnesses remains open, and it is expected that a new trial schedule will be established after the Court issues its Markman decision. 
+Abbott Arbitration 
+In June 2002, Abbott Laboratories became a co-exclusive distributor of our OraQuick ® rapid HIV-1 antibody test in the United States under a five-year agreement, which required minimum monthly purchases
+totaling approximately $4.0 million during a 15-month period following initial FDA approval of the product. The OraQuick ® test received initial FDA approval in November 2002. 
+Abbott failed to meet its minimum purchase obligations under the agreement, and we asserted that the agreement was therefore terminated. Abbott disputed
+the termination, and in October 2003, it invoked the arbitration procedure for resolution of disputes under the agreement. In February 2004, the arbitrator ruled that the agreement did not terminate and would continue in effect, and that our remedy
+was limited to revoking Abbott’s status as a co-exclusive distributor. We subsequently exercised that remedy by notifying Abbott that, based on the magnitude of its purchases, Abbott’s distribution rights were converted to non-exclusive.
+This agreement with Abbott was eventually terminated in February 2005. 
+ITEM
+4. 
+Submission of Matters to a Vote of Security Holders. 
+No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2004. 
+34 
+Table of Contents 
+PART II 
+ITEM 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 
+Our Common Stock is listed for trading on the National Market tier of The Nasdaq Stock Market (“NASDAQ”) under the symbol OSUR. High and low
+sales prices reported by NASDAQ during the periods indicated are shown below. 
+Year ended December 31, 
+2004 
+2003 
+High 
+Low 
+High 
+Low 
+First Quarter 
+$ 
+12.00 
+$ 
+7.20 
+$ 
+8.62 
+$ 
+5.05 
+Second Quarter 
+10.63 
+6.65 
+8.29 
+5.47 
+Third Quarter 
+9.73 
+5.19 
+10.92 
+7.36 
+Fourth Quarter 
+7.52 
+5.54 
+10.30 
+7.55 
+On March 1, 2005,
+there were 607 holders of record and approximately 14,500 holders in street name of the Common Stock, and the closing price of the Common Stock was $7.05 per share. We have never paid any cash dividends, and our Board of Directors does not
+anticipate paying cash dividends in the foreseeable future. We are generally not permitted to pay dividends or make other distributions to our stockholders under the terms of our credit facilities with Comerica Bank, without first obtaining
+Comerica’s consent. We intend to retain any future earnings to provide funds for the operation and expansion of our business. 
+ITEM 6. 
+Selected Financial Data. 
+The
+following table sets forth selected financial data of the Company. This information should be read in conjunction with the Financial Statements and notes thereto included in Item 15 and the information set forth in Item 7, “Management’s
+Discussion and Analysis of Financial Condition and Results of Operations.” 
+Selected Financial Data 
+(In thousands, except per share data) 
+Year ended December 31, 
+2004 
+2003 
+2002 
+2001 
+2000 
+Operating Results: 
+Revenues 
+$ 
+54,008 
+$ 
+40,451 
+$ 
+32,010 
+$ 
+32,573 
+$ 
+28,788 
+Costs and expenses 
+55,365 
+41,737 
+35,550 
+36,906 
+42,917 
+Other income (expense), net 
+797 
+177 
+198 
+634 
+1,407 
+Net loss 
+(560 
+) 
+(1,136 
+) 
+(3,342 
+) 
+(3,728 
+) 
+(12,747 
+) 
+Basic and diluted net loss per share 
+$ 
+(0.01 
+) 
+$ 
+(0.03 
+) 
+$ 
+(0.09 
+) 
+$ 
+(0.10 
+) 
+$ 
+(0.36 
+) 
+Weighted average number of shares outstanding 
+44,464 
+39,794 
+37,583 
+36,868 
+35,002 
+December 31, 
+2004 
+2003 
+2002 
+2001 
+2000 
+Financial position: 
+Cash, cash equivalents, and short-term investments 
+$ 
+66,723 
+$ 
+64,024 
+$ 
+14,908 
+$ 
+15,191 
+$ 
+20,052 
+Working capital 
+68,910 
+67,171 
+18,931 
+19,764 
+21,440 
+Total assets 
+88,064 
+86,151 
+35,737 
+37,285 
+37,736 
+Long-term debt, excluding current portion 
+1,334 
+2,456 
+3,409 
+3,586 
+4,644 
+Accumulated deficit 
+(131,130 
+) 
+(130,570 
+) 
+(129,435 
+) 
+(126,092 
+) 
+(122,365 
+) 
+Stockholders’ equity 
+75,577 
+73,509 
+26,019 
+26,541 
+26,172 
+35 
+Table of Contents 
+ITEM 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations. 
+Statements below regarding future events or performance are “forward-looking statements” within the meaning of the Private Securities
+Litigation Reform Act of 1995. Our actual results could be quite different from those expressed or implied by the forward-looking statements. Factors that could affect results are discussed more fully under the Sections entitled
+“Forward-Looking Statements” and “Risk Factors,” in Item 1 and elsewhere in this Annual Report. Although forward-looking statements help to provide complete information about us, readers should keep in mind that forward-looking
+statements may not be reliable. Readers are cautioned not to place undue reliance on the forward-looking statements. 
+The following discussion should be read in conjunction with the financial statements contained herein and the notes thereto, along with the Section
+entitled “Critical Accounting Policies and Estimates,” set forth below. 
+Overview 
+Our Company operates primarily in
+the worldwide $22 billion in vitro diagnostics business. We develop, manufacture and market oral fluid specimen collection devices using proprietary oral fluid technologies, diagnostic products including immunoassays, and other in
+vitro diagnostic tests. We also manufacture and sell medical devices for the removal of warts and other benign skin lesions by cryosurgery, or freezing. 
+Our diagnostic product offerings primarily target the infectious disease and substance abuse testing segments of the larger in vitro diagnostic
+market, and are used in both laboratories as well as the emerging, and rapidly growing, point-of-care marketplace. Our OraSure ® and Intercept ® oral fluid collection devices, and their related assays, are processed in a laboratory, while the OraQuick ® rapid HIV antibody tests and the UP link ® oral fluid rapid drug detection system are designed for use at the point-of-care. Our cryosurgical products, which are
+sold under the names Histofreezer ® and Freeze
+Off ™ , are also used at the point-of care.
+In vitro diagnostics have traditionally used blood or
+urine as the bodily fluids upon which tests are conducted. However, we have targeted the use of oral fluid in our products as a differentiating factor, and believe that it provides a significant competitive advantage over blood and urine. Our oral
+fluid tests have sensitivity and specificity comparable to blood and/or urine tests and, when combined with their ease of use, non-invasive and dignified nature, and cost effectiveness, represent a very competitive alternative to the more
+traditional testing methods in the diagnostic space. 
+We have
+made significant progress in increasing our sales and gaining market acceptance for our products. As a result, we reported strong financial results for 2004. Our total revenues were $54.0 million, or an increase of 34% over 2003, and our net loss
+for the year was $0.6 million, representing an improvement of more than $0.5 million over 2003. Our liquidity also improved, as we reported $3.4 million in cash flow from operations in 2004 and we had $66.7 million in cash, cash equivalents and
+short-term investments as of December 31, 2004. 
+Sales into the
+infectious disease testing market segment increased significantly in 2004 due to the continued market acceptance of our OraQuick ® device. This increase resulted largely from sales directly to various public health organizations, sales to the Centers for Disease Control and
+Prevention (“CDC”) for further distribution in the public health market, and sales to Abbott Laboratories for distribution primarily to hospitals. 
+During the period March-June 2004, we received FDA approval of our new OraQuick ® ADVANCE ™ test to detect antibodies to both HIV-1 and HIV-2 in oral fluid, fingerstick whole blood, venous whole blood, and plasma samples, In June 2004, we also
+obtained a CLIA waiver for the OraQuick ® 
+ADVANCE ™ HIV-1/2 test for all specimen types
+except plasma. This new product was officially launched commercially in October 2004. Since that time, the demand for OraQuick ® ADVANCE ™ has grown quickly, and we are working to convert all OraQuick ® customers to this new product and expect eventually to cease selling our original OraQuick ® HIV-1 test. 
+36 
+Table of Contents 
+In June 2004, we received a nonexclusive, worldwide sublicense to certain HIV-2 patents held by Bio-Rad
+Laboratories. We believe that the recently approved OraQuick ® ADVANCE ™ 
+test, together with the sublicense from Bio-Rad, will provide a significant competitive advantage by allowing us to sell a versatile rapid HIV test that is capable of detecting antibodies to both the HIV-1 and HIV-2 strains of the virus in oral
+fluids, finger stick whole blood, venous whole blood and plasma. 
+In 2004, the CDC and SAMHSA placed purchase orders totaling $6.3 million for OraQuick ® devices and related testing materials. Both of these orders were for OraQuick ® ADVANCE ™ . We expect that these agencies, and perhaps other federal governmental agencies, will make future bulk purchases of OraQuick ® ADVANCE ™ for further distribution to the public health and other markets throughout the United States. 
+In February 2005, we entered into a new agreement for the distribution of
+OraQuick ® ADVANCE ™ with Abbott Laboratories. Under this agreement, Abbott
+was appointed as our exclusive distributor in the U.S. hospital market and as a non-exclusive distributor in the U.S. physicians’ office marketplace. As our exclusive distributor to hospitals, Abbott will sell OraQuick ® ADVANCE ™ to federal hospitals under the terms and conditions of our Federal Supply Schedule
+that is filed with the U.S. General Services Administration. We have retained exclusive rights to all other markets, including the public health and criminal justice markets, the military, the CDC, SAMHSA and other government agencies. In 2004, we
+deployed a small sales force that provided direct access to and marketing support for the sales of our OraQuick ® test into the hospital market. This sales force will now support Abbott and will work together with them to maximize the penetration of OraQuick ® ADVANCE ™ in the hospital market. 
+The markets for rapid HIV testing are very competitive and the level of competition is expected to increase, which could affect sales of our OraQuick ® tests. For example, the Ortho Diagnostics division of
+Johnson & Johnson and Bio-Rad Laboratories each sell competing laboratory-based HIV-1 EIAs, and Calypte, Inc. sells an HIV-1 screening test for urine, in the United States. In addition, MedMira and Trinity Biotech have each received FDA approval
+to sell competing rapid HIV-1 blood tests and Bio-Rad recently received FDA approval for a rapid HIV-1/2 blood test. We believe these tests, under their current FDA approvals, will compete with our OraQuick ® tests in the hospital or other laboratory settings. In addition, Trinity Biotech has
+received CLIA waiver for its rapid fingerstick HIV-1 blood test, and we believe that this test will compete with our OraQuick ® tests in the public health and other markets outside of the traditional hospital and laboratory settings. These companies, or others, may continue to
+expand the bodily fluids with which a rapid HIV test may be performed or develop and commercialize new rapid tests, either of which would provide further competition for our OraQuick ® tests. 
+Sales to the substance abuse testing market also increased during 2004, reflecting the growing acceptance of our
+Intercept ® collection device and related oral fluid
+drug assays, as corporate and criminal justice customers continued to shift to oral fluid and away from traditional urine-based drug testing. This increase was partially offset by lower sales of our drug assays to the forensic toxicology market. We
+expect continuing growth in the utilization of our Intercept ® product line, primarily in the United States and United Kingdom. 
+In March 2004, the FDA responded to our application for 510(k) clearance of the UP link ® rapid oral fluid drugs of abuse detection system, by indicating that additional
+performance data would be needed in order to obtain clearance. We are evaluating the FDA’s requirements and whether any modifications to our UP link ® system will be required in order to provide that data. At this time, we cannot predict if or when we will resubmit an
+application for 510(k) clearance of the UP link ® system. However, the absence of 510(k) clearance will not affect our ability to sell the UP link ® system internationally. In April 2004, we launched our UP link ® system in Germany and other European countries, primarily in the roadside testing market, with our partner, Dräger
+Safety. 
+In April 2004, SAMHSA published proposed
+guidelines that would, if adopted, include oral fluid testing as an accepted drug testing method for federal employees. We have responded to SAMHSA’s proposed guidelines with a comment letter and await the final guidelines that will apply to
+both our Intercept ® and UP link ® drugs of abuse test. We are unable to predict at this
+time whether additional modifications may be required to bring our 
+37 
+Table of Contents 
+UP link ® or Intercept ® drug testing systems into compliance with the guidelines when finally adopted or what effect, if any, non-compliance with the final guidelines will have on our product offerings. Compliance with the guidelines will be
+required in order for us to sell our drug testing products to federal employees and possibly other industries that are influenced by the federal guidelines in structuring their drug testing programs. 
+Sales to the cryosurgical systems market during 2004 have grown
+substantially. The cryosurgical systems market represents sales of Histofreezer ® into both the domestic and international physicians’ office markets and sales of the over-the-counter (“OTC”) formulation of this product, called Freeze Off ™ , to our partner, Medtech Holdings, Inc. (“Medtech”), a wholly-owned
+subsidiary of Prestige Brands Holdings, Inc. Medtech distributes Freeze Off ™ to consumers under its Compound W ® trademark in the OTC market in the United States. 
+In July 2004, we filed a lawsuit against Schering-Plough Healthcare Products, Inc. (“Schering-Plough”) for infringement of several of our patents relating to the technology for the cryosurgical removal
+(i.e., freezing) of warts and other benign skin lesions. The suit was commenced in the United States District Court for the Eastern District of Pennsylvania, and alleges that Schering-Plough’s manufacture and sale of its Dr. Scholl’s ® Freeze Away ™ cryosurgical wart removal product in the over-the-counter market infringes three of
+our patents. We are seeking injunctive relief and the payment of damages, and Schering-Plough has raised several defenses, including that their Freeze Away ™ device does not infringe our patents and that one or more of our patents are either invalid or unenforceable. We currently expect that a final
+trial on the merits in this matter will occur in the spring of 2005. 
+Sales to the insurance risk assessment market continued to decline in 2004, primarily as a result of lower device and assay sales to our largest customer, Lab One , Inc. The assays have experienced substantial competitive pressure from
+“home-brew” assays internally developed by this customer. Sales of these products are not expected to recover. We anticipate little growth in the insurance risk assessment market until we are successful in developing new oral fluid based
+diagnostic tests for additional predictive health markers desired by the insurance industry. 
+During 2004, we received all necessary FDA approvals to transfer the manufacture of our Intercept ® and OraSure ® collection devices and our oral fluid Western blot HIV-1 confirmatory test from Oregon to our facilities in Bethlehem, Pennsylvania. This transfer has been completed and is expected to
+reduce our annual operating expenses and improve our ability to control the quality of the transferred products. In January 2005, the lease on our Oregon facility expired and all operations at that location have now ceased. The absence of this lease
+will reduce our operating expenses. 
+Because of the regulatory
+approvals needed for most of our products, we often are required to rely on sole source providers for critical components and materials. This is particularly true for our OraQuick ® tests and oral fluid Western blot HIV-1 confirmatory product. If we are unable to obtain necessary components or
+materials from these sole sources, the time required to develop replacements and obtain the required FDA approvals could disrupt our ability to sell the affected products. In addition, any delay or interruption in our ability to manufacture the oral
+fluid Western blot HIV-1 confirmatory test would adversely affect sales of our OraSure ® oral fluid collection device, as our customers are not expected to purchase OraSure ® devices if an oral fluid Western blot HIV-1 confirmatory test is not readily available. 
+We generated approximately 89% of our 2004 revenues in the U.S. marketplace. Consequently, we are evaluating strategies to
+increase our sales penetration in markets outside the U.S. As our business in foreign countries increases, we will be exposed to additional risks, including economic, political, exchange rate, regulatory and cultural risks. 
+38 
+Table of Contents 
+Results of Operations 
+Twelve Months Ended December 31, 2004 Compared to December 31, 2003 
+Total revenues increased 34% to approximately $54.0 million in 2004 from approximately $40.5 million in 2003, primarily as a result of increased sales of
+our Freeze Off ™ wart removal product,
+OraQuick ® rapid HIV-1 antibody test and
+Intercept ® oral fluid collection device and related
+drug assays, partially offset by a decline in assay revenues in the insurance risk assessment market. Revenues derived from products sold in countries outside the U.S. were approximately $6.2 million and $4.6 million, or 11% and 11% of total
+revenues for the years ended December 31, 2004 and 2003, respectively. 
+The table below shows the amount of our total revenues (in thousands, except %) generated in each of our principal markets and by licensing and product development activities. 
+Years ended December 31, 
+Dollars 
+% 
+Change 
+Percentage 
+of Total 
+Revenues 
+2004 
+2003 
+2004 
+2003 
+Market Revenues 
+Insurance risk assessment 
+$ 
+7,777 
+$ 
+9,708 
+(20 
+)% 
+14 
+% 
+24 
+% 
+Infectious disease testing 
+15,526 
+11,909 
+30 
+29 
+29 
+Substance abuse testing 
+10,108 
+7,295 
+39 
+19 
+18 
+Cryosurgical systems 
+20,193 
+10,828 
+86 
+37 
+27 
+Product revenues 
+53,604 
+39,740 
+35 
+99 
+98 
+Licensing and product development 
+404 
+711 
+(43 
+) 
+1 
+2 
+Total revenues 
+$ 
+54,008 
+$ 
+40,451 
+34 
+% 
+100 
+% 
+100 
+% 
+Sales to the insurance
+risk assessment market declined by 20% to approximately $7.8 million in 2004 from approximately $9.7 million in 2003, primarily as a result of lower insurance testing assay sales. We expect that sales of our urine assays will continue to come under
+competitive pressure because of sluggish sales and competitive conditions in the life insurance testing market. As a result of these conditions, our laboratory customers have eliminated or reduced their purchases of these products and instead use
+lower cost, internally-developed (i.e., “home-brew”) assays or testing products purchased from our competitors. We currently expect that our 2005 revenues in this market segment will remain at approximately the levels attained in 2004.
+Sales to the infectious disease testing market increased 30%
+to approximately $15.5 million in 2004, primarily as a result of higher sales of our OraQuick ® rapid HIV-1 antibody test. OraQuick ® and OraSure ® sales during 2004 totaled approximately $10.2 million and $5.3 million, respectively, as compared to approximately $6.3 million and $5.6 million, respectively, for 2003. 
+During 2004, we recorded approximately $4.1 million in direct sales of
+OraQuick ® to the U.S. public health market and
+approximately $2.3 million to the CDC. We also had OraQuick ® sales of approximately $2.0 million to Abbott, approximately $650,000 directly to hospital customers, and approximately $1.2 million to the international marketplace. During 2003, we recorded approximately $1.9 million
+in direct sales of OraQuick ® to the U.S. public
+health market and approximately $2.0 million to the CDC. We also had OraQuick ® sales of approximately $1.8 million to Abbott and approximately $700,000 to the international marketplace in 2003. 
+As previously indicated, during 2004 we received a total of $6.3 million in purchase orders from the CDC and SAMHSA for OraQuick ® ADVANCE rapid HIV-1/2 antibody tests, of which
+approximately $72,000 were shipped in 2004. We expect to complete shipment of the remaining devices pursuant to these purchase orders in 2005. 
+We believe that our OraQuick ® ADVANCE ™ device, which is approved for detecting antibodies to both HIV-1 and 2 in oral fluid, fingerstick and venous whole blood, and plasma samples, and is CLIA-waived for use 
+39 
+Table of Contents 
+with all sample types except plasma, provides a significant competitive advantage and will allow us to more fully implement a strategy to sell OraQuick ® internationally. This new test was commercially
+launched in late October 2004, and initial shipments of this product began in early November 2004. We are currently pursuing CE marking for our OraQuick ® ADVANCE ™ product which would allow us to sell our product in Europe. Our goal is to obtain a CE mark for OraQuick ® ADVANCE ™ by the summer of 2005, and obtain several country-specific registrations to allow us to launch the product in Europe
+later this year. 
+Although sales of OraQuick ® are expected to increase, such sales may negatively
+impact sales of our OraSure ® oral fluid collection
+device in the infectious disease testing market. Customers who now or in the future may purchase our OraSure ® device for HIV-1 testing may elect instead to purchase our OraQuick ® tests. It is not possible at this time, however, to estimate the timing or extent of such change in purchasing patterns or the financial impact of
+replacing OraSure ® sales with sales of our
+OraQuick ® tests, if it occurs at all. 
+Sales to the substance abuse testing market increased 39% to approximately
+$10.1 million in 2004 as a result of higher sales of our Intercept ® oral fluid collection device and related drug assays in the workplace, criminal justice and international marketplaces. Sales of our Intercept ® device and related drug assays in 2004 increased 53%, or by approximately $2.4 million over the comparable period in
+2003. We expect continued growth in Intercept ® 
+sales in 2005 as customers continue to shift from urine-based to oral-fluid based testing methods. 
+In April 2004, we launched our UP link ® rapid oral fluid drug detection system, including assays for the detection of drugs of abuse commonly identified by the National Institute for Drug
+Abuse (“NIDA”) as the NIDA-5 (i.e., cocaine, opiates, amphetamines/methamphetamines, PCP and marijuana) with our partner, Dräger Safety. This product is being initially sold to the roadside testing market in Europe. Revenues from this
+product were approximately $564,000 in 2004. As part of our recently concluded strategic review of the business, we concluded that the roadside drugs of abuse market may not be as attractive as a number of other opportunities. Consequently, we are
+exploring our options with respect to this product including transitioning the manufacturing of the product to Dräger, which is permitted under our agreement with Dräger. In exchange, we would expect to receive a royalty on future sales by
+Dräger while retaining the right to sell UP link ® in the workplace testing and other markets. 
+Sales of our products in the cryosurgical systems market (which includes both the physicians’ office and OTC markets) increased 86% to approximately $20.2 million in 2004. This increase was primarily the result
+of an increase of $8.3 million in sales of our OTC cryosurgical product, called Freeze Off ™ , to Medtech, the owner of the Compound W ® line of wart removal products. In 2003, we entered into a distribution agreement with Medtech following receipt of FDA 510(k) clearance for the sale of our cryosurgical system in the OTC
+market in the U.S. Medtech launched the Freeze Off ™ product in the third quarter of 2003, and there were $5.0 million of sales to Medtech during 2003. 
+Freeze Off ™ is being sold under Medtech’s Compound W ® trademark. Our five-year distribution agreement requires minimum purchases by Medtech of at least $2.0 million each year over the life of the contract in order for Medtech to maintain
+its exclusive distribution rights to the OTC market in the U.S. However, based on additional purchase orders received to date, we expect sales of product to Medtech to reach at least $4.0 million during the first quarter of 2005. We have concluded a
+review of the market potential for over-the-counter cryosurgical product in the European Union and have entered negotiations with a select number of top-tier distribution partners. We expect to announce a distributor in the near future and intend to
+launch an OTC product in selected European countries later in 2005. 
+Sales of our Histofreezer ® product to
+physicians’ offices in the U.S. and international markets increased 21% and 7% to approximately $5.2 million and $1.7 million, respectively, in 2004, when compared to 2003, primarily as a result of higher distributor purchases. We anticipate
+that U.S. sales of Histofreezer ® in the
+professional market will continue to increase in 2005. Sales in the international market are expected to increase above 2004 levels as we secure additional distributors in countries where the product is currently not sold. 
+40 
+Table of Contents 
+Although not our experience to date in the U.S. professional marketplace, it is possible that sales of
+the Freeze Off ™ product in the U.S. OTC market may
+reduce the number of individuals that will seek to obtain treatment of their warts by a physician, which in turn could negatively affect sales of our Histofreezer ® product in the professional market. However, it is not possible at this time to estimate the timing or financial impact
+of such a change, if it occurs at all. 
+Medtech, our largest
+customer, accounted for approximately 25% and 12% of total revenues for 2004 and 2003, respectively. Lab One accounted for approximately 12% and 17% of total revenues for 2004 and 2003, respectively. 
+Licensing and product development revenues decreased 43% to approximately
+$404,000 in 2004, from approximately $711,000 in the comparable period in 2003. Licensing and product development revenues in 2004 were primarily related to our collaborative UP link ® and oral fluid research project with the University of Pennsylvania, under a grant
+awarded by the National Institutes of Health. The current annual phase of this grant expires in June 2005 and our share of funding is expected to be approximately $308,000 for that period. Further revenues beyond June 2005 will depend on progress
+achieved in the research and future funding awarded by the National Institutes of Health. 
+The Company’s gross margin was 59% in 2004, compared to 60% in 2003. Our 2004 gross margin was positively impacted by more efficient utilization of the Company’s manufacturing capacity, offset by higher
+production costs associated with the Company’s UP link ® rapid oral fluid drug detection system, a less favorable product sales mix, and higher scrap as a result of the transfer of production from Oregon. 
+Research and development expenses decreased 24% to approximately $6.1 million in 2004, from approximately $8.0 million for
+the comparable period in 2003, primarily as a result of lower staffing costs and costs associated with transferring our manufacturing operations from Oregon to Bethlehem. Research and development costs are expected to increase in 2005 primarily as a
+result of costs associated with the development of new product offerings and product enhancements for the infectious disease and substance abuse markets. 
+Sales and marketing expenses increased 41% to approximately $15.2 million in 2004 from approximately $10.8 million in 2003. This increase was primarily
+the result of higher product advertising expenditures, costs associated with our hospital sales force and increased staffing related expenses. Included in advertising expenses was $2.9 million and $1.1 million for 2004 and 2003, respectively, paid
+to Medtech as reimbursement for marketing expenses incurred for the Compound W ® Freeze Off ™ 
+product. We expect that sales and marketing expense will increase in 2005 at a more moderate rate compared to 2004. As we attempt to increase our presence in the international marketplace, we will incur additional expenses related to this effort.
+Promotional expenses are also expected to increase as we continue in our efforts to expand market awareness and acceptance for our OraQuick ® , Intercept ® and Histofreezer ® products. Pursuant to our agreement with Medtech, we will also continue to co-invest in Medtech’s marketing activities for the Compound W ® Freeze Off ™ product, and we will reimburse Medtech, on a declining basis over the next two years of the agreement, for a portion of Medtech’s out-of-pocket
+costs of advertising and promoting this product in the OTC market. 
+General and administrative expenses increased 74% to approximately $12.0 million in 2004 from approximately $6.9 million in 2003. This increase was primarily attributable to legal fees associated with the Schering-Plough litigation,
+transition costs for the retirement of our former Chief Executive Officer and the additional costs of hiring our new Chief Executive Officer, consulting fees for strategic planning, increased staffing related expenses and increased professional fees
+related to compliance with the requirements of the Sarbanes-Oxley Act of 2002. General and administrative expenses are expected to increase further in 2005 versus 2004 as a result of legal fees associated with the Schering-Plough patent litigation.
+Interest expense decreased to approximately $134,000 in 2004
+from approximately $190,000 in 2003, as a result of lower outstanding debt balances. Interest income increased to approximately $984,000 in 2004 from approximately $425,000 in 2003, as a result of substantially larger balances available for
+investment. 
+41 
+Table of Contents 
+Losses on foreign currency transactions of $53,000 and $59,000 were recorded for the years ended December
+31, 2004 and 2003, respectively. 
+During the year ended
+December 31, 2004, no provision for income taxes was recorded, while we had a provision of $27,000 in 2003 related to foreign income taxes. 
+Twelve Months Ended December 31, 2003 Compared to December 31, 2002 
+Total revenues increased 26% to approximately $40.5 million in 2003 from approximately $32.0 million in 2002, primarily as a result of increased sales of
+our OraQuick ® rapid HIV-1 antibody test, the
+successful launch of the Freeze Off ™ wart removal
+product, and higher sales of our Intercept ® oral
+fluid collection device and related drug assays, partially offset by a decline in assay revenues in the insurance risk assessment market and lower sales of Histofreezer ® in the physicians’ office market in the U.S. Revenues derived from products sold in countries outside the U.S.
+were approximately $4.6 million and $3.9 million, or 11% and 12% of total revenues for the years ended December 31, 2003 and 2002, respectively. 
+The table below shows the amount of our total revenues (in thousands, except %) generated in each of our principal markets and by licensing and product
+development activities. 
+Years ended December 31, 
+Dollars 
+Percentage of 
+Total Revenues 
+2003 
+2002 
+% 
+Change 
+2003 
+2002 
+Market Revenues 
+Insurance risk assessment 
+$ 
+9,708 
+$ 
+12,030 
+(19 
+)% 
+24 
+% 
+38 
+% 
+Infectious disease testing 
+11,909 
+6,063 
+96 
+29 
+19 
+Substance abuse testing 
+7,295 
+6,434 
+13 
+18 
+20 
+Cryosurgical systems 
+10,828 
+7,165 
+51 
+27 
+22 
+Product revenues 
+39,740 
+31,692 
+25 
+98 
+99 
+Licensing and product development 
+711 
+318 
+124 
+2 
+1 
+Total revenues 
+$ 
+40,451 
+$ 
+32,010 
+26 
+% 
+100 
+% 
+100 
+% 
+Sales to the insurance
+risk assessment market declined by 19% to approximately $9.7 million in 2003 from approximately $12.0 million in 2002, primarily as a result of lower insurance testing assay sales. Our laboratory customers eliminated or reduced their purchases of
+these products and instead used lower cost, internally-developed (i.e., “home-brew”) assays or testing products purchased from our competitors. 
+Sales to the infectious disease testing market increased 96% to approximately $11.9 million in 2003, primarily as a result of higher sales of our
+OraQuick ® rapid HIV-1 antibody test. OraQuick ® and OraSure ® sales in 2003 totaled approximately $6.3 million and $5.6 million, respectively, as
+compared to approximately $350,000 and $5.7 million, respectively, for the comparable period in 2002. 
+Abbott Laboratories purchased approximately 400,000 OraQuick ® devices in 2003, representing approximately 40% of the total OraQuick ® sales in that year. In addition, we received a total of $4.0 million in purchase orders from the CDC for approximately
+500,000 of our OraQuick ® rapid HIV-1 antibody
+tests. Pursuant to the first such order, we sold 250,000 devices to the CDC in 2003. The second purchase order, for an additional $2.0 million, was received in late 2003, and was completed with the remaining shipment of 250,000 devices to the CDC by
+September 1, 2004. 
+Sales to the substance abuse testing market
+increased 13% to approximately $7.3 million in 2003 as a result of higher sales of our Intercept ® oral fluid collection device and related drug assays in the workplace, criminal 
+42 
+Table of Contents 
+justice and international marketplaces. These increases more than offset the absence of approximately $400,000 in laboratory equipment sales included in our
+substance abuse testing market revenues in 2002. Sales of our Intercept ® device and related drug assays in 2003 increased 37%, or by approximately $1.2 million, over the comparable period in 2002. 
+Sales of our products in the cryosurgical systems market (which included both the physicians’ office and OTC markets) increased 51% to approximately
+$10.8 million in 2003. This increase was primarily the result of $5.0 million of sales of our OTC cryosurgical system to Medtech, partially offset by lower sales of Histofreezer ® in the professional markets in both the U.S. and international markets. Sales of our Histofreezer ® product to physicians’ offices in the U.S. and
+international markets declined 23% and 2% to approximately $4.3 million and $1.5 million, respectively, in 2003, when compared to 2002, as a result of lower distributor purchases. 
+Lab One , our largest customer, accounted for approximately 17% and 26% of total revenues for 2003 and 2002,
+respectively. Medtech accounted for approximately 12% of total revenues for 2003, their first year of business with us. 
+Licensing and product development revenues increased 124% to approximately $711,000 in 2003, from approximately $318,000 in the comparable period in 2002.
+Licensing and product development revenues in 2003 were primarily related to our collaborative UP link ® and oral fluid research project with the University of Pennsylvania, under a grant awarded by the National Institutes of Health. 
+The Company’s gross margin was 60% in 2003, which was unchanged from
+2002. Our gross margin was positively impacted by increased sales of Intercept ® devices and related assays and more efficient utilization of our manufacturing capacity, which resulted in lower scrap and spoilage and better absorption of overhead. Offsetting these items were negative contributions
+realized through lower urine assay and reagent sales in the insurance risk assessment market and the lower sales of Histofreezer ® in the U.S. professional market. 
+Research and development expenses decreased 3% to approximately $8.0 million in 2003, from approximately $8.3 million for the comparable period in 2002,
+primarily as a result of lower staffing costs, partially offset by higher outside consulting fees. 
+Sales and marketing expenses increased 33% to approximately $10.8 million in 2003 from approximately $8.1 million in 2002. This increase was primarily the
+result of higher expenditures for advertising and collateral marketing materials, travel costs, compensation expense, and market research and public relations fees. Included in the advertising expense for 2003 was $1.1 million paid to Medtech as
+reimbursement for marketing expenses incurred for the Compound W ® Freeze Off ™ 
+product. 
+General and administrative expenses increased 9% to
+approximately $6.9 million in 2003 from approximately $6.3 million in 2002. This increase was primarily attributable to higher facility-related expenses, partially offset by the absence of a $500,000 severance charge related to the departure of the
+Company’s former Chief Executive Officer in 2002. 
+Interest expense decreased to approximately $190,000 in 2003 from approximately $285,000 in 2002, as a result of lower effective interest rates. Interest income decreased to approximately $425,000 in 2003 from approximately $483,000 in
+2002, as a result of lower interest rates on investments, partially offset by significantly higher investment balances in the fourth quarter of 2003 as a result of investing approximately $44.8 million in net proceeds from our October 2003 common
+stock offering. 
+During the year ended December 31, 2003, a
+$59,000 loss on foreign currency transactions was recorded. 
+During the year ended December 31, 2003, a provision for foreign income taxes of approximately $27,000 was recorded. 
+43 
+Table of Contents 
+Liquidity and Capital Resources 
+December 31 
+2004 
+December 31, 
+2003 
+(In thousands) 
+Cash and cash equivalents 
+$ 
+10,121 
+$ 
+30,695 
+Short-term investments 
+56,602 
+33,329 
+Working capital 
+68,910 
+67,171 
+Our cash, cash
+equivalents and short-term investments increased approximately $2.7 million during 2004 to approximately $66.7 million at December 31, 2004, primarily as a result of positive cash flow from operations of approximately $3.4 million and proceeds from
+the exercise of stock options of approximately $1.9 million, partially offset by debt repayments of $1.1 million, purchases of approximately $912,000 of property and equipment and our expenditure of $600,000 for patent license rights. At December
+31, 2004, our working capital was approximately $68.9 million. 
+Net cash provided by operating activities was approximately $3.4 million in 2004. This resulted from a decrease of approximately $1.2 million in accounts receivable, primarily related to increased collection efforts, depreciation and
+amortization of approximately $2.5 million, non-cash charges of approximately $874,000 related to stock-based compensation expense, provisions for excess and obsolete inventories of $839,000 and an increase in account payables and accruals of
+$693,000, offset by inventory increases of $1.8 million, an increase in prepaid expenses of $272,000 and the approximate $560,000 loss for the period. 
+Net cash used in investing activities during 2004 was approximately $24.8 million. We purchased a net amount of $23.4 million of short-term investments,
+expended $600,000 for patent license rights and purchased approximately $912,000 of property and equipment. 
+We expect to incur approximately $3.2 million of capital expenditures in 2005. 
+Net cash provided by financing activities was approximately $778,000, reflecting the proceeds of approximately $1.9 million
+received from the sale of Common Stock pursuant to the exercise of stock options, offset by approximately $1.1 million of loan principal repayments. 
+In September 2002, we entered into a $10.9 million credit facility (the “Credit Facility”) with Comerica Bank. The Credit Facility, when
+originally executed, was comprised of an $887,000 mortgage loan, a $3.0 million term loan, a $3.0 million non-revolving equipment line of credit, and a $4.0 million revolving working capital line of credit. 
+In September 2003, we executed an amendment to the Credit Facility. Pursuant
+to this amendment, the $3.0 million non-revolving equipment line of credit (the “Original Non-Revolving Line”) was replaced with a new $4.0 million non-revolving line of credit for the purchase of both capital equipment and software
+(the “New Non-Revolving Line”). As a result, the Original Non-Revolving Line has expired and any new non-revolving borrowings for equipment or software will be made under the New Non-Revolving Line. Borrowings outstanding under the
+Original Non-Revolving Line at the time of the amendment will not be applied against the credit limit for the New Non-Revolving Line and will remain payable in accordance with their original terms. The amendment also extended the maturity date of
+the $4.0 million revolving working capital line of credit by one year, and provided for certain modifications to our financial covenants under the Credit Facility. The term loan and mortgage were not affected by the amendment. In September 2004, the
+Credit Facility was amended further to extend the maturity date of our revolving working capital line of credit to April 30, 2005. 
+The $887,000 mortgage loan matures in September 2012, bears interest at an annual floating rate equal to Comerica’s prime rate (5.25% at December 31,
+2004), and is repayable in fixed monthly principal and interest installments of $7,426 through September 2007, at which time the interest rate and fixed monthly repayment 
+44 
+Table of Contents 
+amount will be reset for the remaining 60 monthly installments. The outstanding balance of the loan at December 31, 2004 was $765,953. 
+The $3.0 million term loan matures in March 2006, bears interest at a fixed
+rate of 4.97% and is repayable in forty-two consecutive equal monthly principal payments of $71,429, plus interest. The outstanding balance of the loan at December 31, 2004 was $1,071,429. 
+Under the New Non-Revolving Line, we could borrow up to $4.0 million to
+finance eligible equipment and software purchases through December 31, 2004. We had no outstanding borrowings under this facility, which expired at December 31, 2004 and was not renewed. 
+As of December 31, 2004, we had an outstanding balance of $331,286 under the Original Non-Revolving Line consisting of four
+individual loans of (i) $83,900 with a fixed annual interest rate of 5.07%, (ii) $121,935 with a floating annual interest rate equal to Comerica’s prime rate of 5.25% at December 31, 2004, (iii) $64,317 with a floating annual interest rate
+equal to Comerica’s prime rate of 5.25% at December 31, 2004, and (iv) $61,134 with a floating annual interest rate equal to Comerica’s prime rate of 5.25% at December 31, 2004. 
+Under the revolving working capital line of credit, we can borrow up to $4.0 million to finance working capital and other
+needs. Interest on outstanding borrowings accrues at a rate, selected at our option, equal to Comerica’s prime rate less 0.25%, or 30-day LIBOR plus 2.55%, determined at the time of the initial borrowing. Borrowings are repayable by April 30,
+2005, with interest payable monthly. We had no outstanding borrowings under this facility at December 31, 2004. 
+All borrowings under the Credit Facility are collateralized by a first priority security interest in all of our assets, including present and future
+accounts receivable, chattel paper, contracts and contract rights, equipment and accessories, general intangibles, investments, instruments, inventories, and a mortgage on our manufacturing facility in Bethlehem, Pennsylvania. Borrowings under the
+equipment and software non-revolving line and the revolving working capital line are limited to commercially standard percentages of equipment and software purchases and accounts receivable, respectively. The Credit Facility contains certain
+covenants that set forth minimum requirements for our quick ratio, liquidity, and tangible net worth. We were in full compliance with all covenants at December 31, 2004 and expect to remain in compliance with all covenants during 2005. The Credit
+Facility also restricts our ability to pay dividends, to make certain investments, to incur additional indebtedness, to sell or otherwise dispose of a substantial portion of assets, and to merge or consolidate operations with an unaffiliated entity,
+without the consent of Comerica. 
+As of December 31, 2004, we
+also have a $288,023 note payable to the Pennsylvania Industrial Development Authority related to the purchase of one of our facilities in Bethlehem, Pennsylvania in 1998. This note is secured by a second lien on our building, bears interest at 2%,
+and requires monthly installments of principal and interest of $4,893 through March 2010. 
+We have entered into a ten-year facility lease with Tech III Partners, LLC (“Tech Partners”), an entity owned and controlled by two of our former executive officers. Under the terms of this operating lease,
+we began leasing a 48,000 square-foot facility in October 2002 at a base rent of $780,000 per year, increasing to $858,240 per year, during the initial ten-year term. The base rental may be increased after the fifth year of the initial term in order
+to reflect changes in the interest rate on debt incurred by Tech Partners to finance construction of the leased facilities. We have not guaranteed any debt incurred by Tech Partners. The lease also provides us with options to renew the lease for an
+additional five years at a rental rate of $975,360 per year, and to purchase the facility at any time during the initial ten-year term based on a formula set forth in the lease. We are evaluating whether to exercise our option under the lease to
+purchase the facility. 
+45 
+Table of Contents 
+The combination of our current cash position, cash flow from operations and available borrowings under
+our Credit Facility is expected to be sufficient to fund our operating and capital needs for at least the next twelve months. However, our cash requirements may vary materially from those now planned due to many factors, including, but not limited
+to, the scope and timing of strategic acquisitions, the cost and timing of the expansion of our manufacturing capacity, the progress of our research and development programs, the scope and results of clinical testing, the magnitude of capital
+expenditures, changes in existing and potential relationships with business partners, the time and cost of obtaining regulatory approvals, the costs involved in obtaining and enforcing patents, proprietary rights and any necessary licenses, the cost
+and timing of expansion of sales and marketing activities, the timing of market launch of new products, market acceptance of new products, competing technological and market developments, the potential exercise of our options to purchase one, or
+both, of our leased facilities in Bethlehem, Pennsylvania, and other factors. 
+Contractual Obligations and Commercial Commitments. The following sets forth our approximate aggregate obligations at December 31, 2004 for future payments under contracts and other
+contingent commitments, for the years 2005 and beyond: 
+Payments due by December 31, 
+Contractual Obligations 
+Total 
+2005 
+2006 
+2007 
+2008 
+2009 
+Thereafter 
+Long-term debt 1 
+$ 
+2,456,691 
+$ 
+1,122,455 
+$ 
+471,427 
+$ 
+130,915 
+$ 
+115,373 
+$ 
+119,672 
+$ 
+496,849 
+Operating leases 2 
+6,418,430 
+874,510 
+780,000 
+783,062 
+798,810 
+814,262 
+2,367,786 
+Employment contracts 3 
+3,138,397 
+1,937,636 
+995,761 
+205,000 
+— 
+— 
+— 
+Purchase obligations 4 
+4,530,899 
+4,530,899 
+— 
+— 
+— 
+— 
+— 
+Minimum commitments under contracts 5 
+8,641,667 
+425,000 
+625,000 
+725,000 
+725,000 
+650,000 
+5,491,667 
+Total contractual obligations 
+$ 
+25,186,084 
+$ 
+8,890,500 
+$ 
+2,872,188 
+$ 
+1,843,977 
+$ 
+1,639,183 
+$ 
+1,583,934 
+$ 
+8,356,302 
+(1) 
+Represents principal repayments required under notes payable to our lenders. See Note 8 to the financial statements included herein. 
+(2) 
+Represents payments required under our operating leases. See Notes 11 and 12 to the financial statements included herein. 
+(3) 
+Represents salary or retention bonus payments payable under the terms of employment agreements executed by us with certain officers and employees. See Note 11 to the financial
+statements included herein. 
+(4) 
+Represents payments required by non-cancelable purchase orders related to inventory, capital expenditures and other goods or services. See Note 11 to the financial statements
+included herein. 
+(5) 
+Represents payments required pursuant to certain research, licensing and royalty agreements executed by the Company. See Note 11 to the financial statements included herein.
+Off-Balance Sheet
+Arrangements . We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended. 
+Critical Accounting Policies and Estimates 
+Management’s Discussion and Analysis of Financial Condition and Results
+of Operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that we make estimates and
+assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an
+on-going basis, we evaluate our judgments and estimates, including those related to bad debts, inventories, investments, intangible assets, income taxes, revenue recognition, restructuring costs, contingencies, and litigation. We base our judgments
+and estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not
+readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 
+46 
+Table of Contents 
+Our significant accounting policies are described in Note 2 to the financial statements included in Item
+15 of this Annual Report. We consider the following accounting estimates, which have been discussed with our Audit Committee, to be most critical in understanding the more complex judgments that are involved in preparing our financial statements and
+the uncertainties that could impact our results of operations, financial condition, and cash flows. 
+Revenue Recognition. We follow U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue
+Recognition” (“SAB No. 104”). This bulletin draws on existing accounting rules and provides specific guidance on revenue recognition for up-front non-refundable licensing and development fees. We license certain products or technology
+to outside third parties, in return for which we receive up-front licensing fees. Some of these fees can be significant. In accordance with SAB No. 104, we recognize this revenue ratably over the related license period. 
+We also enter into research and development contracts with corporate,
+government and/or private entities. These contracts generally provide for payments to us upon achievement of certain research or development milestones. Product development revenues from these contracts are recognized only if the specified milestone
+is achieved and accepted by the customer and payment from the customer is probable. Any amounts received prior to the performance of product development efforts are recorded as deferred revenues. Recognition of revenue under these contracts can be
+sporadic, as it is the result of achieving specific research and development milestones. Furthermore, revenue from future milestone payments will not be recognized if the underlying research and development milestone is not achieved. 
+We recognize product revenues when there is persuasive evidence that an
+arrangement exists, the price is fixed or determinable, title has passed and collection is reasonably assured. Product revenues are net of allowances for any discounts or rebates. We do not grant price protection or product return rights to our
+customers, except for warranty returns. Where a product fails to comply with its limited warranty, we can either replace the product or provide the customer with a refund of the purchase price or credit against future purchases. Historically,
+returns arising from warranty issues have been infrequent and immaterial. Accordingly, we expense warranty returns as incurred. While such returns have been immaterial in the past, we cannot guarantee that we will continue to experience the same
+rate of warranty claims as we have in the past. Any significant increase in product warranty claims could have a material adverse impact on our operating results for the period in which the claims occur. 
+Allowance for Uncollectible Accounts
+Receivable. Accounts receivable are reduced by an estimated allowance for amounts that may become uncollectible in the future. On an ongoing basis, we perform credit evaluations of our customers and adjust credit limits
+based upon the customer’s payment history and creditworthiness, as determined by a review of their current credit information. We also continuously monitor collections and payments from our customers. 
+Based upon historical experience and any specific customer collection issues
+that are identified, we use our judgment to establish and evaluate the adequacy of our allowance for estimated credit losses, which was $345,257 at December 31, 2004. While credit losses have been within our expectations and the allowance provided,
+these losses can vary from period to period ($3,541, $88,659 and $213,188 in 2004, 2003 and 2002, respectively). Furthermore, there is no assurance that we will experience credit losses at the same rates as we have in the past. Also, at December 31,
+2004, approximately $2.2 million, or 31% of our accounts receivable, was due from two major customers. Any significant changes in the liquidity or financial position of these customers, or others, could have a material adverse impact on the
+collectibility of our accounts receivable and future operating results. 
+Inventories. Our inventories are valued at the lower of cost or market, determined on a first-in, first-out basis, and include the cost of raw materials, labor and overhead. The majority of our inventories are
+subject to expiration dating. We continually evaluate the carrying value of our inventories and when, in the opinion of 
+47 
+Table of Contents 
+management, factors indicate that impairment has occurred, either a reserve is established against the inventories’ carrying value or the inventories
+are completely written off. We base these decisions on the level of inventories on hand in relation to our estimated forecast of product demand, production requirements over the next twelve months and the expiration dates of raw materials and
+finished goods. During 2004, 2003 and 2002, we wrote-off inventory which had a cost of approximately $839,000, $540,000, and $1.4 million, respectively, as a result of scrap levels and product expiration issues. Although we make every effort to
+ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact on the carrying value of our inventories and reported operating results. 
+Long-lived and Intangible Assets. Our
+long-lived assets are comprised of property and equipment and an investment in a nonaffiliated entity, and our intangible assets primarily consist of patents and product rights. Together, these assets have a net book value of approximately $8.0
+million or 9% of our total assets at December 31, 2004. Our investment in a privately-held nonaffiliated company is recorded under the cost method of accounting because we do not have a controlling interest in this company nor do we have the
+ability to exert significant influence over the operating and financial policies of this investee company. Property and equipment, patents and product rights are amortized on a straight-line basis over their useful lives, which we determine based
+upon our estimate of the period of time over which each asset will generate revenues. An impairment of long-lived or intangible assets could occur whenever events or changes in circumstances indicate that the net book value of these assets may not
+be recoverable. Events which could trigger an asset impairment include significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of our use of an asset or in our strategy
+for our overall business, significant negative industry or economic trends, shortening of product life-cycles or changes in technology, and negative financial performance of the nonaffiliated investee company. If we believe impairment of an asset
+has occurred, we measure the amount of such impairment by comparing the net book value of the affected assets to the fair value of these assets, which is generally determined based upon the present value of the expected cash flows associated with
+the use of these assets. If the net book value exceeds the fair value of the impaired assets, we would incur an impairment expense equal to this difference. We currently believe the future cash flows to be received from our long-lived and intangible
+assets will exceed their book value and, as such, we have not recognized any impairment losses through December 31, 2004. Any unanticipated significant impairment in the future, however, could have a material adverse impact to our balance sheet and
+future operating results. 
+Deferred Tax
+Assets. At December 31, 2004, we have federal net operating loss (“NOL”) carryforwards of approximately $74.9 million. The net deferred tax asset associated with these NOLs and other temporary differences is
+approximately $31.5 million at December 31, 2004. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate
+realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible or the NOLs and credit carryforwards can be utilized. We consider the scheduled
+reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon our cumulative and recent history of losses and projections for future taxable income over the periods in which
+the deferred tax assets are deductible or the NOLs and credit carryforwards can be utilized, we believe that a full valuation allowance is necessary at December 31, 2004. Our level of future profitability could cause us to conclude that all or a
+portion of the deferred tax asset will be realizable. Upon reaching such a conclusion, we would immediately record the estimated net realizable value of the deferred tax asset and would begin to provide for income taxes at a rate equal to our
+combined federal and state effective rates at that time. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period to period. 
+Contingencies . In the ordinary course of
+business, we have entered into various contractual relationships with strategic corporate partners, customers, distributors, research laboratories and universities, licensors, licensees, suppliers, vendors and other parties. As such, we could be
+subject to litigation, claims or assessments arising from any or all of these relationships. We account for contingencies such as these in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for
+Contingencies.” SFAS No. 5 
+48 
+Table of Contents 
+requires us to record an estimated loss contingency when information available prior to issuance of our financial statements indicates that it is probable
+that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies arising from contractual or legal proceedings requires that
+we use our best judgment when estimating an accrual related to such contingencies. As additional information becomes known, our accrual for a loss contingency could fluctuate, thereby creating variability in our results of operations from period to
+period. Likewise, an actual loss arising from a loss contingency which significantly exceeds the amount accrued for in our financial statements could have a material adverse impact on our operating results for the period in which such actual loss
+becomes known. 
+Certain Relationships and Related Transactions
+In connection with the announcement in March 2004 that
+Mike Gausling, our former President and Chief Executive Officer, intended to retire from the Company by the end of 2004, we entered into a transition agreement with Mr. Gausling, which replaced and terminated his employment agreement. In June 2004,
+Mr. Gausling resigned from his position as President, Chief Executive Officer and a member of the Board, and his successor was named. 
+Pursuant to his transition agreement, Mr. Gausling remained an employee of our Company through December 31, 2004. During 2004, Mr. Gausling received an
+annual base salary of $333,864, received full executive benefits under our group health and other benefit arrangements and earned a cash bonus under our 2004 Self-Funding Annual Bonus Plan. Mr. Gausling was also granted a non-qualified option to
+purchase 100,000 shares of common stock, pursuant to our 2000 Stock Award Plan. 
+During 2005, Mr. Gausling will receive salary continuation payments in an aggregate amount of $333,864, payable in four equal installments at the end of each fiscal quarter during 2005. If Mr. Gausling elects to
+obtain continuing coverage under our health benefit plan pursuant to COBRA beginning January 1, 2005, we will reimburse Mr. Gausling for the cost of his COBRA premiums for the 12-month period ending December 31, 2005. 
+We have entered into a commercial lease (the “Lease”) with Tech III
+Partners, LLC (“Tech Partners”), which provided for the construction of a 48,000 square foot facility on land adjacent to our Bethlehem, Pennsylvania headquarters, and the lease of that facility to us. Tech Partners is owned and controlled
+by Mr. Gausling, the Company’s former President and Chief Executive Officer, and Dr. R. Sam Niedbala, the Company’s former Executive Vice President and Chief Science Officer. The facility houses manufacturing and administrative operations
+required to support the expected growth of our business. Construction of the facility was completed in October 2002. 
+The Lease, as amended, has an initial ten-year term ending in October 2012 and a base rent starting at $780,000 and increasing to $858,240 per year over
+that term. The base rental rate may be increased after the fifth year of the initial term in order to reflect changes in the interest rate on debt incurred by Tech Partners to finance construction of the leased facilities. We have not guaranteed any
+debt incurred by Tech Partners. The Lease also provides us with options to renew the Lease for an additional five years at a rental rate of $975,360 per year, and to purchase the facility at any time during the initial ten-year term based on a
+formula set forth in the Lease. 
+Prior to deciding to enter
+into the Lease and an amendment increasing the base rental to reflect the cost of certain tenant fit-out improvements, our Board of Directors retained Imperial Realty Appraisal LLC, an independent commercial real estate appraisal firm, to evaluate
+the proposed base rental rate. Imperial Realty issued opinions indicating that the annual base rent set forth in the Lease, as amended, is below the market rental rate we could otherwise expect to pay to lease a comparable commercial property in the
+same general geographic market. The terms of the Lease are otherwise substantially similar to a commercial lease we entered into with a third party for our existing Bethlehem, Pennsylvania headquarters. 
+49 
+Table of Contents 
+In January 2002, we terminated the employment agreement with Robert D. Thompson, our former Chief
+Executive Officer, and Mr. Thompson entered into a severance agreement pursuant to which Mr. Thompson received approximately $480,000. We also held a $75,000 note receivable previously made to Mr. Thompson in connection with his relocation from
+Portland, Oregon, which was repaid during 2002. 
+Recent Accounting
+Pronouncements 
+In November 2004, the Financial Accounting
+Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs,” which amends the guidance in Accounting Research Bulletin No. 43. SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight,
+handling costs, and wasted material and requires such costs to be recognized as current-period charges. Additionally, SFAS No. 151 requires that allocation of fixed production overhead costs be based on normal capacity. SFAS No. 151 is effective for
+years beginning after June 15, 2005, with early adoption permitted. The implementation of SFAS No. 151 is not expected to have a material effect on our financial position, results of operations or cash flows. 
+In December 2004, the FASB issued SFAS No. 123 Revised “Share-Based
+Payment” (“SFAS No. 123R”). SFAS No. 123R requires employee stock options to be accounted for in the statement of operations based on their fair values on the date of the grant, and eliminates the ability to account for these
+instruments under the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25. SFAS No. 123R requires the use of an option pricing model for estimating fair value, which is amortized to expense over the service period. The
+requirements of SFAS No. 123R are effective for fiscal periods beginning after June 15, 2005. SFAS No. 123R allows for either prospective recognition of compensation expense or retrospective recognition. The Company is considering the potential
+implementation of different valuation models to determine the fair value of stock-based compensation and, therefore, has not yet completed evaluating the impact of adopting SFAS No. 123R on its results of operations. If the Company had applied the
+provisions of SFAS No. 123R to the financial statements for the period ending December 31, 2004, net loss would have increased by approximately $5.0 million. 
+ITEM 7A. 
+Quantitative and Qualitative Disclosures About Market Risk. 
+We do not hold any amounts of derivative financial instruments or derivative commodity instruments and, accordingly, we have no material derivative risk to report under this Item. 
+Our holdings of financial instruments are comprised of certificates of
+deposit, commercial paper, U.S. government and agency obligations, state and local government agency obligations, and U.S. corporate bonds. All such instruments are classified as available-for-sale securities. Our debt security portfolio represents
+funds held temporarily pending use in our business and operations. We seek reasonable assuredness of the safety of principal and market liquidity by investing in rated fixed income securities while at the same time seeking to achieve a favorable
+rate of return. Market risk exposure consists principally of exposure to changes in interest rates. If changes in interest rates would affect the investments adversely, we could decide to hold the security to maturity or sell the security. Our
+holdings are also exposed to the risks of changes in the credit quality of issuers. We typically invest in the shorter end of the maturity spectrum. 
+We do not currently have any foreign currency exchange contracts or purchase currency options to hedge local currency cash flows. We have operations in
+The Netherlands, which are subject to foreign currency fluctuations. As currency rates change, translation of revenues and expenses for these operations from euros to U.S. dollars affects year-to-year comparability of operating results. Sales
+denominated in a foreign currency represented approximately $1.9 million or 4% of our total revenues for the year ended December 31, 2004. We do not expect the risk of foreign currency fluctuations to be material in the near future. 
+ITEM 8. 
+Financial Statements and Supplementary Data. 
+Information with respect to this Item is contained in our Financial Statements included in Item 15 of this Annual Report on Form 10-K. 
+50 
+Table of Contents 
+ITEM 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 
+Not applicable. 
+ITEM 9A. 
+Controls and Procedures. 
+Evaluation of Disclosure Controls and Procedures. 
+The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31,
+2004. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective in timely alerting them to material information relating to the Company that
+is required to be included in its periodic filings with the Securities and Exchange Commission. 
+Management’s Report on Internal Control Over Financial Reporting. 
+The Company’s management is responsible for establishing and maintaining adequate internal control over financial
+reporting, as such term is defined in Rule 13a(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of the Company’s management, including our principal executive officer and principal
+financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
+the Treadway Commission. Based on our evaluation under the framework, our management concluded that our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the
+preparation of financial statements for external purposes in accordance with generally accepted accounting principles as of December 31, 2004. 
+Our management’s assessment on the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by KPMG
+LLP, an independent registered public accounting firm, as stated in their report, which is included below. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
+evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+Changes in Internal Control Over Financial Reporting. 
+No changes in the Company’s internal control over financial reporting
+were identified as having occurred during the three months ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 
+51 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+OraSure Technologies, Inc.: 
+We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that
+OraSure Technologies, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
+Organizations of the Treadway Commission (COSO). OraSure Technologies, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
+financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit. 
+We conducted our audit in accordance with the standards of the Public Company
+Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
+audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures
+as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 
+A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
+reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
+pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
+preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
+(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 
+Because of its inherent limitations, internal control over financial
+reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
+with the policies or procedures may deteriorate. 
+In our
+opinion, management’s assessment that OraSure Technologies, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal
+Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commision (COSO). Also, in our opinion, OraSure Technologies, Inc. maintained, in all material respects, effective internal control over
+financial reporting as of December 31, 2004, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commision (COSO). 
+We also have audited, in accordance with the standards of the Public Company
+Accounting Oversight Board (United States), the balance sheets of OraSure Technologies, Inc. as of December 31, 2004 and 2003, and the related statements of operations, stockholders’ equity and comprehensive loss and cash flows for each of the
+years in the three-year period ended December 31, 2004, and our report dated March 14, 2005 expressed an unqualified opinion on those financial statements. 
+/s/ KPMG LLP 
+Philadelphia, Pennsylvania 
+March 14, 2005 
+52 
+Table of Contents 
+ITEM 9B. 
+Other Information. 
+Not
+applicable. 
+53 
+Table of Contents 
+PART III 
+We have omitted from Part III the information that will appear in our Definitive Proxy Statement for our 2005 Annual Meeting of Stockholders (the
+“Proxy Statement”), which will be filed within 120 days after the end of our fiscal year pursuant to Regulation 14A. 
+ITEM 10. 
+Directors and Executive Officers of the Registrant. 
+Certain information required by this Item is incorporated by reference to the information under the captions “Election of Directors,” “Executive Officers,” and “Section 16(a) Beneficial
+Ownership Reporting Compliance,” in the Proxy Statement. 
+Our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer and principal accounting officer, as well as to the members of our Board of Directors and
+our other officers and employees. This Code of Business Conduct and Ethics is available on our web site, at www.orasure.com. We intend to satisfy the amendment and waiver disclosure requirements under applicable securities regulations by posting any
+amendments of, or waivers to, the Code of Business Conduct and Ethics on our web site. 
+ITEM 11. 
+Executive Compensation. 
+The
+information required by this Item is incorporated by reference to the information under the caption “Executive Compensation,” in the Proxy Statement. 
+ITEM 12. 
+Security Ownership of Certain Beneficial Owners and Management. 
+The information required by this Item with respect to the securities ownership of certain beneficial owners and management, and equity compensation plan information, is incorporated by reference to the information
+under the captions “Principal Stockholders” and “Equity Compensation Plan Information,” respectively, in the Proxy Statement. 
+ITEM 13. 
+Certain Relationships and Related Transactions. 
+The information required by this Item is incorporated by reference to the information under the captions “Certain Relationships and Related Transactions” and “Employment and Transition Agreements,”
+in the Proxy Statement. 
+ITEM 14. 
+Principal Accountant Fees and Services. 
+The information required by this Item is incorporated by reference to the information under the caption “Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees,” in the Proxy Statement. 
+54 
+Table of Contents 
+PART IV 
+ITEM 15. 
+Exhibits and Financial Statement Schedules. 
+(a)(1) and (a)(2). Financial Statements and Schedules . For a list of the Financial Statements filed herewith, see the Index to Financial Statements following the signature page to this
+Annual Report. No schedules are included with the Financial Statements because the required information is inapplicable or is presented in the Financial Statements or related notes thereto. 
+(a)(3). Exhibits . See Index to Exhibits
+following the Financial Statements in this Annual Report. 
+55 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
+on its behalf by the undersigned, thereunto duly authorized, on March 15, 2005. 
+ORASURE TECHNOLOGIES, INC. 
+By: 
+/ S / D OUGLAS A. M ICHELS 
+Douglas A. Michels 
+President and Chief Executive Officer 
+Pursuant to
+the requirements of the Securities Exchange Act of 1934, this report has been signed on March 15, 2005, by the following persons on behalf of the Registrant and in the capacities indicated. 
+SIGNATURE 
+TITLE 
+/ S / D OUGLAS A. M ICHELS 
+Douglas A. Michels 
+President, Chief Executive Officer and Director (Principal Executive Officer) 
+/ S / R ONALD H. S PAIR 
+Ronald H. Spair 
+Executive Vice President and Chief Financial Officer (Principal Financial Officer) 
+/ S / M ARK L. K UNA 
+Mark L. Kuna 
+Vice President and Controller 
+(Principal Accounting Officer) 
+*C ARTER H. E CKERT 
+Carter H. Eckert 
+Director 
+*F RANK G. H AUSMANN 
+Frank G. Hausmann 
+Director 
+*R ONNY B. L ANCASTER 
+Ronny B. Lancaster 
+Director 
+Gregory B.
+Lawless 
+Director 
+*R OGER L. P RINGLE 
+Roger L. Pringle 
+Director 
+*D OUGLAS G. W ATSON 
+Douglas G. Watson 
+Director 
+*By: 
+/ S / R ONALD H. S PAIR 
+Ronald H. Spair 
+(Attorney-in-Fact) 
+56 
+Table of Contents 
+INDEX TO FINANCIAL STATEMENTS 
+Page 
+Report of Independent Registered Public Accounting Firm 
+F-2 
+Balance Sheets 
+F-3 
+Statements of Operations 
+F-4 
+Statements of Stockholders’ Equity and Comprehensive Loss 
+F-5 
+Statements of Cash Flows 
+F-6 
+Notes to the Financial Statements 
+F-7 
+F-1 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+The Board of Directors and Stockholders 
+OraSure Technologies, Inc.: 
+We have audited the accompanying balance sheets of OraSure Technologies, Inc. as of December 31, 2004 and 2003, and the related statements
+of operations, stockholders’ equity and comprehensive loss and cash flows for each of the years in the three-year period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our
+responsibility is to express an opinion on these financial statements based on our audits. 
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
+about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
+principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 
+In our opinion, the financial statements referred to above present fairly, in all material
+respects, the financial position of OraSure Technologies, Inc. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S.
+generally accepted accounting principles. 
+We also have audited, in accordance
+with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of OraSure Technologies, Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in
+Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 14, 2005 expressed an unqualified opinion on management’s assessment of, and the
+effective operation of, internal control over financial reporting. 
+/s/ KPMG
+LLP 
+Philadelphia, Pennsylvania 
+March 14, 2005 
+F-2 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+BALANCE SHEETS 
+December 31, 
+2004 
+2003 
+ASSETS 
+CURRENT ASSETS: 
+Cash and cash equivalents 
+$ 
+10,121,208 
+$ 
+30,695,177 
+Short-term investments 
+56,602,248 
+33,328,610 
+Accounts receivable, net of allowance for doubtful accounts of $345,257 
+and $359,158 
+7,073,988 
+8,233,869 
+Inventories 
+4,951,979 
+4,003,519 
+Prepaid expenses and other 
+1,195,085 
+922,820 
+Total current assets 
+79,944,508 
+77,183,995 
+PROPERTY AND EQUIPMENT, net 
+5,551,261 
+6,471,209 
+PATENTS AND PRODUCT RIGHTS, net 
+2,080,363 
+1,886,171 
+OTHER ASSETS 
+488,192 
+609,932 
+$ 
+88,064,324 
+$ 
+86,151,307 
+LIABILITIES AND STOCKHOLDERS’ EQUITY 
+CURRENT LIABILITIES: 
+Current portion of long-term debt 
+$ 
+1,122,455 
+$ 
+1,126,423 
+Accounts payable 
+2,360,214 
+3,511,148 
+Accrued expenses 
+7,552,279 
+5,375,851 
+Total current liabilities 
+11,034,948 
+10,013,422 
+LONG-TERM DEBT 
+1,334,236 
+2,456,454 
+OTHER LIABILITIES 
+118,135 
+172,142 
+COMMITMENTS AND CONTINGENCIES (Note 11) 
+STOCKHOLDERS’ EQUITY: 
+Preferred stock, par value $.000001; 25,000,000 shares authorized, 
+none issued 
+— 
+— 
+Common stock, par value $.000001; 120,000,000 shares authorized, 44,631,731 and 44,260,931 shares issued and outstanding 
+45 
+44 
+Additional paid-in capital 
+209,948,075 
+204,867,765 
+Deferred compensation 
+(2,916,503 
+) 
+(614,515 
+) 
+Accumulated other comprehensive loss 
+(324,669 
+) 
+(173,704 
+) 
+Accumulated deficit 
+(131,129,943 
+) 
+(130,570,301 
+) 
+Total stockholders’ equity 
+75,577,005 
+73,509,289 
+$ 
+88,064,324 
+$ 
+86,151,307 
+The accompanying notes are an integral part of these statements. 
+F-3 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+STATEMENTS OF OPERATIONS 
+For the year ended December 31, 
+2004 
+2003 
+2002 
+REVENUES: 
+Product 
+$ 
+53,604,124 
+$ 
+39,740,406 
+$ 
+31,691,495 
+Licensing and product development 
+404,140 
+710,879 
+318,272 
+54,008,264 
+40,451,285 
+32,009,767 
+COST OF PRODUCTS SOLD 
+22,143,190 
+16,061,457 
+12,888,556 
+Gross profit 
+31,865,074 
+24,389,828 
+19,121,211 
+OPERATING EXPENSES: 
+Research and development 
+6,062,275 
+7,999,687 
+8,274,351 
+Sales and marketing 
+15,154,174 
+10,764,642 
+8,068,879 
+General and administrative 
+12,005,309 
+6,911,242 
+6,318,513 
+33,221,758 
+25,675,571 
+22,661,743 
+Operating loss 
+(1,356,684 
+) 
+(1,285,743 
+) 
+(3,540,532 
+) 
+INTEREST EXPENSE 
+(133,652 
+) 
+(189,511 
+) 
+(284,678 
+) 
+INTEREST INCOME 
+983,841 
+425,344 
+483,431 
+FOREIGN CURRENCY LOSS 
+(53,147 
+) 
+(59,037 
+) 
+(694 
+) 
+Loss before income taxes 
+(559,642 
+) 
+(1,108,947 
+) 
+(3,342,473 
+) 
+INCOME TAXES 
+— 
+26,590 
+— 
+NET LOSS 
+$ 
+(559,642 
+) 
+$ 
+(1,135,537 
+) 
+$ 
+(3,342,473 
+) 
+BASIC AND DILUTED NET LOSS PER SHARE 
+$ 
+(0.01 
+) 
+$ 
+(0.03 
+) 
+$ 
+(0.09 
+) 
+WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED SHARES OUTSTANDING 
+44,463,861 
+39,793,919 
+37,582,780 
+The accompanying notes are an integral part of these statements. 
+F-4 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS 
+For the years ended December 31, 2004, 2003 and 2002 
+Common Stock 
+Additional 
+Paid-in 
+Capital 
+Deferred 
+Compensation 
+Accumulated 
+Other 
+Comprehensive 
+Loss 
+Accumulated 
+Deficit 
+Total 
+Shares 
+Amount 
+Balance at January 1, 2002 
+37,403,269 
+$ 
+37 
+$ 
+152,758,591 
+$ 
+— 
+$ 
+(125,664 
+) 
+$ 
+(126,092,291 
+) 
+$ 
+26,540,673 
+Common stock issued upon exercise of options 
+688,454 
+1 
+2,793,742 
+— 
+— 
+— 
+2,793,743 
+Common stock issued under Employee Stock Purchase Plan 
+8,834 
+— 
+35,042 
+— 
+— 
+— 
+35,042 
+Compensation expense for stock option grants 
+— 
+— 
+50,939 
+— 
+— 
+— 
+50,939 
+Comprehensive loss: 
+Net loss 
+— 
+— 
+— 
+— 
+— 
+(3,342,473 
+) 
+(3,342,473 
+) 
+Currency translation adjustment 
+— 
+— 
+— 
+— 
+(6,481 
+) 
+— 
+(6,481 
+) 
+Net unrealized loss on marketable securities 
+— 
+— 
+— 
+— 
+(52,531 
+) 
+— 
+(52,531 
+) 
+Total comprehensive loss 
+(3,401,485 
+) 
+Balance at December 31, 2002 
+38,100,557 
+38 
+155,638,314 
+— 
+(184,676 
+) 
+(129,434,764 
+) 
+26,018,912 
+Common stock issued upon exercise of options 
+849,374 
+1 
+3,716,890 
+— 
+— 
+— 
+3,716,891 
+Common stock issued via public offering, net of expenses 
+5,311,000 
+5 
+44,827,998 
+— 
+— 
+— 
+44,828,003 
+Compensation expense for stock option grants 
+— 
+— 
+33,900 
+— 
+— 
+— 
+33,900 
+Restricted stock grants to employees 
+— 
+— 
+650,663 
+(650,663 
+) 
+— 
+— 
+— 
+Amortization of deferred compensation expense 
+— 
+— 
+— 
+36,148 
+— 
+— 
+36,148 
+Comprehensive loss: 
+Net loss 
+— 
+— 
+— 
+— 
+— 
+(1,135,537 
+) 
+(1,135,537 
+) 
+Currency translation adjustment 
+— 
+— 
+— 
+— 
+16,560 
+— 
+16,560 
+Net unrealized loss on marketable securities 
+— 
+— 
+— 
+— 
+(5,588 
+) 
+— 
+(5,588 
+) 
+Total comprehensive loss 
+(1,124,565 
+) 
+Balance at December 31, 2003 
+44,260,931 
+44 
+204,867,765 
+(614,515 
+) 
+(173,704 
+) 
+(130,570,301 
+) 
+73,509,289 
+Common stock issued upon exercise of options 
+370,800 
+1 
+1,904,160 
+— 
+— 
+— 
+1,904,161 
+Restricted stock grants to employees 
+— 
+— 
+3,176,150 
+(3,176,150 
+) 
+— 
+— 
+— 
+Amortization of deferred compensation expense 
+— 
+— 
+— 
+874,162 
+— 
+— 
+874,162 
+Comprehensive loss: 
+Net loss 
+— 
+— 
+— 
+— 
+— 
+(559,642 
+) 
+(559,642 
+) 
+Currency translation adjustment 
+— 
+— 
+— 
+— 
+(12,983 
+) 
+— 
+(12,983 
+) 
+Net unrealized loss on marketable securities 
+— 
+— 
+— 
+— 
+(137,982 
+) 
+— 
+(137,982 
+) 
+Total comprehensive loss 
+(710,607 
+) 
+Balance at December 31, 2004 
+44,631,731 
+$ 
+45 
+$ 
+209,948,075 
+$ 
+(2,916,503 
+) 
+$ 
+(324,669 
+) 
+$ 
+(131,129,943 
+) 
+$ 
+75,577,005 
+The accompanying notes are an integral part of these statements 
+F-5 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+STATEMENTS OF CASH FLOWS 
+For the year ended December 31, 
+2004 
+2003 
+2002 
+OPERATING ACTIVITIES: 
+Net loss 
+$ 
+(559,642 
+) 
+$ 
+(1,135,537 
+) 
+$ 
+(3,342,473 
+) 
+Adjustments to reconcile net loss to net cash provided by (used in) operating activities: 
+Stock-based compensation expense 
+874,162 
+70,048 
+50,939 
+Amortization of deferred revenue 
+— 
+— 
+(107,500 
+) 
+Depreciation and amortization 
+2,487,121 
+2,576,797 
+2,286,682 
+Loss on disposition of property and equipment, net 
+4,339 
+43,500 
+2,553 
+Provision for excess and obsolete inventories 
+839,130 
+539,647 
+1,373,614 
+Changes in assets and liabilities- 
+Accounts receivable 
+1,159,881 
+(3,036,082 
+) 
+860,140 
+Notes receivable 
+— 
+— 
+75,000 
+Inventories 
+(1,787,590 
+) 
+(454,692 
+) 
+(1,017,316 
+) 
+Prepaid expenses and other 
+(272,265 
+) 
+2,996 
+112,804 
+Accounts payable 
+(1,066,064 
+) 
+1,738,171 
+(884,594 
+) 
+Accrued expenses and other 
+1,759,144 
+2,356,948 
+72,644 
+Net cash provided by (used in) operating activities 
+3,438,216 
+2,701,796 
+(517,507 
+) 
+INVESTING ACTIVITIES: 
+Purchases of property and equipment 
+(912,144 
+) 
+(993,722 
+) 
+(1,649,129 
+) 
+Proceeds from the sale of property and equipment 
+66,427 
+— 
+2,393 
+Purchase of patents, licenses and product rights 
+(600,000 
+) 
+(250,000 
+) 
+(700,000 
+) 
+Purchases of short-term investments 
+(65,638,600 
+) 
+(37,280,182 
+) 
+(9,306,439 
+) 
+Proceeds from maturities and redemptions of short-term investments 
+42,226,980 
+14,489,860 
+11,474,935 
+(Increase) decrease in other assets 
+80,160 
+(5,886 
+) 
+(52,660 
+) 
+Net cash used in investing activities 
+(24,777,177 
+) 
+(24,039,930 
+) 
+(230,900 
+) 
+FINANCING ACTIVITIES: 
+Borrowings of long-term debt 
+— 
+211,590 
+4,322,854 
+Repayment of long-term debt 
+(1,126,186 
+) 
+(1,104,041 
+) 
+(4,491,556 
+) 
+Proceeds from issuances of common stock 
+1,904,161 
+3,716,891 
+2,828,785 
+Proceeds from common stock offering, net of expenses 
+— 
+44,828,003 
+— 
+Net cash provided by financing activities 
+777,975 
+47,652,443 
+2,660,083 
+EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 
+(12,983 
+) 
+16,560 
+26,286 
+NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 
+(20,573,969 
+) 
+26,330,869 
+1,937,962 
+CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 
+30,695,177 
+4,364,308 
+2,426,346 
+CASH AND CASH EQUIVALENTS, END OF YEAR 
+$ 
+10,121,208 
+$ 
+30,695,177 
+$ 
+4,364,308 
+The accompanying notes are an integral part of these statements. 
+F-6 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+NOTES TO THE FINANCIAL STATEMENTS 
+1. 
+BACKGROUND: 
+The Company 
+We develop, manufacture and market oral specimen collection devices using our proprietary oral fluid technologies, diagnostic products including in
+vitro diagnostic tests, and other medical devices. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations,
+distributors, government agencies, physicians’ offices, and commercial and industrial entities. One of our products is also sold in the United States over-the-counter or consumer retail market. 
+2. 
+SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 
+Use of Estimates 
+The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to
+make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
+reporting period. Actual results could differ from those estimates. 
+Cash and Cash Equivalents 
+We consider all
+highly liquid investments with a purchased maturity of ninety days or less to be cash equivalents. As of December 31, 2004 and 2003, cash equivalents consisted of commercial paper, U.S. government agency obligations, state and local government
+agency obligations, and corporate bonds. 
+Short-term
+Investments 
+We consider all short-term investments to be
+available-for-sale securities, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” These securities are comprised of certificates of
+deposits, commercial paper, U.S. government and agency obligations, state and local government agency obligations, corporate bonds, and asset-backed obligations, all with purchased maturities greater than ninety days. Available-for-sale securities
+are carried at fair value, based upon quoted market prices, with unrealized gains and losses reported in stockholders’ equity as a component of accumulated other comprehensive loss. There were no securities as of December 31, 2004 in an
+unrealized loss position for twelve or more months. 
+F-7 
+Table of Contents 
+The following is a summary of our available-for-sale securities at December 31, 2004 and 2003:
+Amortized 
+Cost 
+Gross 
+Unrealized 
+Gains 
+Gross 
+Unrealized 
+Losses 
+Fair Value 
+December 31, 2004 
+Certificates of deposit 
+$ 
+18,702,211 
+$ 
+56 
+$ 
+(29,411 
+) 
+$ 
+18,672,856 
+Commercial paper 
+4,281,910 
+185 
+— 
+4,282,095 
+Government and agency bonds 
+21,112,676 
+113 
+(61,631 
+) 
+21,051,158 
+State and local government agency obligations 
+629,322 
+162 
+(1,059 
+) 
+628,425 
+Asset-backed obligations 
+1,002,116 
+— 
+(866 
+) 
+1,001,250 
+Corporate bonds 
+10,999,750 
+431 
+(33,717 
+) 
+10,966,464 
+Total available-for-sale securities 
+$ 
+56,727,985 
+$ 
+947 
+$ 
+(126,684 
+) 
+$ 
+56,602,248 
+December 31, 2003 
+Certificates of deposit 
+$ 
+14,047,127 
+$ 
+1,167 
+$ 
+(5,586 
+) 
+$ 
+14,042,708 
+Commercial paper 
+1,296,941 
+121 
+— 
+1,297,062 
+Government and agency bonds 
+14,483,893 
+7,667 
+— 
+14,491,560 
+State and local government agency obligations 
+629,999 
+1,118 
+(3 
+) 
+631,114 
+Corporate bonds 
+2,867,261 
+1,641 
+(2,736 
+) 
+2,866,166 
+Total available-for-sale securities 
+$ 
+33,325,221 
+$ 
+11,714 
+$ 
+(8,325 
+) 
+$ 
+33,328,610 
+At December 31, 2004, maturities of investments were 
+as follows: 
+Less than one year 
+$ 
+53,900,919 
+$ 
+516 
+$ 
+(102,342 
+) 
+$ 
+53,799,093 
+1 – 2 years 
+2,827,066 
+431 
+(24,342 
+) 
+2,803,155 
+Total available-for-sale securities 
+$ 
+56,727,985 
+$ 
+947 
+$ 
+(126,684 
+) 
+$ 
+56,602,248 
+Supplemental Cash
+Flow Information 
+For 2004, 2003 and 2002, we paid
+interest of $137,112, $184,906 and $268,340, respectively. 
+For
+2004, 2003 and 2002, we recorded provisions for bad debts of $(10,360), $155,671 and $295,842, respectively. We had deductions of $3,541, $88,659 and $213,188 against the allowance for doubtful accounts in 2004, 2003 and 2002, respectively.
+For 2004, 2003 and 2002, we recorded accruals for purchases of
+property and equipment of $72,394, $93,987, and $122,962, respectively. 
+In 2004, we recorded a $300,000 non-cash accrual related to a new license agreement. 
+Accounts Receivable 
+Accounts receivable have been reduced by an allowance for amounts that may become uncollectible in the future. This estimated allowance is based primarily on management’s evaluation of specific balances as the balances become past due,
+the financial condition of our customers and our historical experience of write-offs. If not reserved through these specific examination procedures, our policy is to reserve for uncollectible accounts by applying fixed percentages to the aging
+categories of accounts receivable. 
+Inventories
+Inventories are stated at the lower of cost or market
+determined on a first-in, first-out basis, and include the cost of raw materials, labor and overhead. The majority of our inventories are subject to expiration dating. We 
+F-8 
+Table of Contents 
+continually evaluate quantities on hand and the carrying value of our inventories to determine the need for reserves for excess and obsolete inventories,
+based primarily on the estimated forecast of product sales. When factors indicate that impairment has occurred, either a reserve is established against the inventories’ carrying value or the inventories are completely written off, as in the
+case of lapsing expiration dates. In addition to reserving for these items identified through specific identification procedures, we also reserve for unidentified scrap or spoilage under a fixed-formula methodology. We currently buy our entire
+cryosurgical product line from a foreign vendor, with such purchases payable in euros. Changes in the exchange rate of the euro could impact our product cost. 
+Property and Equipment 
+Property and equipment are stated at cost. Additions or improvements are capitalized, while repairs and maintenance are charged to expense. Depreciation
+and amortization are provided using the straight-line method over the estimated useful lives of the related assets or the lease term, whichever is shorter. Buildings are depreciated over 20 years, while computer equipment, machinery and equipment,
+and furniture and fixtures are depreciated over three to ten years. Leasehold improvements are amortized over the shorter of the estimated useful lives or the terms of the related leases. When assets are sold or otherwise disposed of, the related
+property amounts are relieved from the accounts, and any gain or loss is recorded in the statement of operations. 
+Patents and Product Rights 
+Patents and product rights consist of costs associated with the acquisition of patents, licenses and product distribution rights. Patents and product
+rights are amortized using the straight-line method over estimated useful lives of three to ten years. Accumulated amortization was $2,868,294 and $2,162,486 at December 31, 2004 and 2003, respectively. Amortization expense for 2004, 2003 and 2002
+was $705,808, $657,348 and $416,247, respectively. Amortization expense for each of the five succeeding fiscal years is estimated at $637,885 for 2005, $387,051 for 2006, $367,052 for 2007, $197,105 for 2008, and $90,000 for 2009. 
+Other Assets 
+Included in other assets is a $337,253 investment, representing a 7.7%
+ownership interest in a privately-held nonaffiliated company. We do not have a controlling interest in this company, nor do we have an ownership or voting interest which allows us to exert significant influence over the operating and financial
+policies of this investee company. Accordingly, we have accounted for this investment using the cost method of accounting. 
+Impairment of Long-Lived Assets 
+In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” if indicators of impairment exist, we assess
+the recoverability of the affected long-lived assets, which include property and equipment and patents and product rights, by determining whether the carrying value of such assets can be recovered through the sum of the undiscounted future operating
+cash flows and eventual disposition of the asset. If impairment is indicated, we measure the amount of such impairment by comparing the carrying value of the assets to the fair value of these assets, which is generally determined based on the
+present value of the expected future cash flows associated with the use of the asset. We believe the future cash flows to be received from our long-lived assets will exceed the assets’ carrying value, and accordingly we have not recognized any
+impairment losses through December 31, 2004. 
+Revenue
+Recognition 
+We recognize product revenues when there is
+persuasive evidence that an arrangement exists, the price is fixed or determinable, title has passed and collection is reasonably assured. Product revenues are net of allowances for any discounts or rebates. We do not grant price protection or
+product return rights to our 
+F-9 
+Table of Contents 
+customers, except for warranty returns. Historically, returns arising from warranty issues have been infrequent and immaterial. Accordingly, we expense
+warranty returns as incurred. 
+Up-front licensing fees are
+deferred and recognized ratably over the related license period. Product development revenues are recognized over the period in which the related product development efforts are performed. Amounts received prior to the performance of product
+development efforts are recorded as deferred revenues. Grant revenue is recognized as the related work is performed and costs are incurred. We record shipping and handling charges billed to our customers as product revenue and the related expense as
+cost of products sold. 
+Significant Customer Concentration
+In 2004, 2003 and 2002, one customer accounted for
+approximately 12 percent, 17 percent and 26 percent, respectively, of our total revenues. This customer accounted for approximately 8 percent of accounts receivable as of both December 31, 2004 and 2003. 
+In 2004 and 2003, another customer accounted for 25 percent and 12 percent,
+respectively, of our total revenues. We had no sales to this customer in 2002. This customer accounted for approximately 23 percent of accounts receivable as of both December 31, 2004 and 2003. 
+Research and Development 
+Research and development costs are charged to expense as incurred.
+Advertising Expenses 
+Advertising costs are charged to expense as incurred. During 2004, 2003 and
+2002, we incurred $3,512,037, $1,774,093 and $53,452, respectively, in advertising expenses. Included in advertising expenses for 2004 and 2003 were $2,883,145 and $1,130,045, respectively, paid as reimbursement for marketing expenses incurred for
+the Compound W ® Freeze Off ™ product. 
+F-10 
+Table of Contents 
+Stock-Based Compensation 
+We account for stock-based compensation to employees and directors using the intrinsic value method in accordance with
+Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. We account for stock-based compensation to nonemployees using the fair value method in accordance with
+SFAS No. 123, “Accounting for Stock-Based Compensation” and Emerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction
+with Selling, Goods or Services.” 
+We have elected to
+adopt the disclosure provisions of SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Under SFAS No. 123, compensation expense related to stock awards granted to employees
+and directors is computed based on the fair value of the award at the date of grant using a valuation methodology, typically the Black-Scholes option pricing model. Pursuant to the disclosure requirements of SFAS No. 123, had compensation expense
+for our common stock awards been determined based upon the fair value of the awards at the date of grant, our net loss for 2004, 2003 and 2002 would have increased as follows: 
+Year ended December 31, 
+2004 
+2003 
+2002 
+Net loss: 
+As reported 
+$ 
+(559,642 
+) 
+$ 
+(1,135,537 
+) 
+$ 
+(3,342,473 
+) 
+Add: stock-based employee compensation expense included in net loss 
+874,162 
+70,048 
+— 
+Deduct: total stock-based employee compensation expense determined under the fair value-based method for all awards 
+(5,921,957 
+) 
+(4,306,587 
+) 
+(3,359,281 
+) 
+Pro forma 
+$ 
+(5,607,437 
+) 
+$ 
+(5,372,076 
+) 
+$ 
+(6,701,754 
+) 
+Basic and diluted net loss per share: 
+As reported 
+$ 
+(0.01 
+) 
+$ 
+(0.03 
+) 
+$ 
+(0.09 
+) 
+Pro forma 
+$ 
+(0.13 
+) 
+$ 
+(0.13 
+) 
+$ 
+(0.18 
+) 
+The weighted average
+fair value of the options granted during 2004, 2003 and 2002 is estimated at $4.60, $4.15 and $3.45 per share, respectively, using the Black-Scholes option pricing model, with the following assumptions: dividend yield of zero; volatility of 65
+percent, 70 percent and 71 percent, respectively; weighted average risk-free interest rate of 3.21 percent, 2.93 percent and 2.89 percent, respectively; and an expected life of 5.0 years for each year’s grants. 
+Income Taxes 
+We follow the asset and liability method for accounting for income taxes.
+Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax basis of
+assets and liabilities, and operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected
+to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 
+Foreign Currency Translation 
+Pursuant to SFAS No. 52, “Foreign Currency Translation,” the assets and liabilities of our foreign operations are
+translated from euros into U.S. dollars at current exchange rates as of the balance sheet date, and 
+F-11 
+Table of Contents 
+revenues and expenses are translated at average exchange rates for the period. Resulting translation adjustments are reflected in accumulated other
+comprehensive loss, which is a separate component of stockholders’ equity. 
+Net Loss Per Common Share 
+We have presented basic and diluted net loss per common share pursuant to SFAS No. 128, “Earnings per Share.” In accordance with SFAS No. 128, basic and diluted net loss per share has been computed by dividing net loss by the
+weighted-average number of shares of common stock outstanding during the period. Diluted loss per share is generally computed in a similar manner, except that the weighted average number of shares outstanding is increased to include incremental
+shares from the assumed conversion or exercise of all dilutive securities, such as common stock options, warrants and unvested restricted stock. As a result of our losses in 2004, 2003 and 2002, outstanding common stock options, warrants and
+unvested restricted stock representing 5,479,504, 4,130,463 and 3,999,608 shares were excluded from the computation of diluted net loss per common share for 2004, 2003 and 2002, respectively, as their inclusion would have been anti-dilutive.
+Other Comprehensive Income (Loss) 
+We follow SFAS No. 130, “Reporting Comprehensive Income.” This
+statement requires the classification of items of other comprehensive income (loss) by their nature and disclosure of the accumulated balance of other comprehensive income (loss), separately from accumulated deficit and additional paid-in capital,
+in the stockholders’ equity section of our balance sheet. 
+Fair Value of Financial Instruments 
+As of
+December 31, 2004, the carrying values of cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate their respective fair values based on their short-term nature. In addition, we believe the carrying
+value of our debt instruments, which do not have readily ascertainable market values, approximates their fair values, given that the interest rates on outstanding borrowings approximate market rates. 
+Recent Accounting Pronouncements 
+In November 2004, the Financial Accounting Standards Board
+(“FASB”) issued SFAS No. 151, “Inventory Costs.” SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material and requires such costs to be recognized as
+current-period charges. Additionally, SFAS No. 151 requires that allocation of fixed production overhead costs be based on normal capacity. SFAS No. 151 is effective for years beginning after June 15, 2005, with early adoption permitted. The
+implementation of SFAS No. 151 is not expected to have a material effect on our financial position, results of operations or cash flows. 
+In December 2004, the FASB issued SFAS No. 123 Revised, “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R requires employee stock
+options to be accounted for in the statement of operations based on their fair values on the date of grant, and eliminates the ability to account for these instruments under the intrinsic value method prescribed by APB Opinion No. 25. SFAS No. 123R
+requires the use of an option pricing model for estimating fair value, which is amortized to expense over the service period. The requirements of SFAS No. 123R are effective for fiscal periods beginning after June 15, 2005. SFAS No. 123R allows for
+either prospective recognition of compensation expense or retrospective recognition. The Company is considering the potential implementation of different valuation models to determine the fair value of stock-based compensation and, therefore, has
+not yet completed evaluating the impact of adopting SFAS No. 123R on its results of operations. If the Company had applied the provisions of SFAS No. 123R to the financial statements for the period ending December 31, 2004, net loss would have been
+increased by $5,048,000. 
+F-12 
+Table of Contents 
+3. 
+INVENTORIES: 
+December 31, 
+2004 
+2003 
+Raw materials 
+$ 
+3,405,578 
+$ 
+2,862,169 
+Work in process 
+659,304 
+486,284 
+Finished goods 
+887,097 
+655,066 
+$ 
+4,951,979 
+$ 
+4,003,519 
+4. 
+PROPERTY AND EQUIPMENT: 
+December 31, 
+2004 
+2003 
+Building and leasehold improvements 
+$ 
+4,780,874 
+$ 
+5,989,170 
+Machinery and equipment 
+7,859,207 
+10,361,701 
+Computer equipment 
+1,809,582 
+2,446,736 
+Furniture and fixtures 
+804,061 
+1,545,562 
+Construction in progress 
+526,030 
+990,115 
+15,779,754 
+21,333,284 
+Less—Accumulated depreciation and amortization 
+(10,228,493 
+) 
+(14,862,075 
+) 
+$ 
+5,551,261 
+$ 
+6,471,209 
+Depreciation expense
+was $1,739,733, $1,879,092 and $1,828,855 for 2004, 2003 and 2002, respectively. In addition, in connection with the transfer of all operations to our Bethlehem facilities in 2004, we retired or disposed of $6,298,345 in fully depreciated assets
+that were previously utilized in our Oregon facility. No gain or loss was recognized on these disposals. Included in construction in progress in both 2004 and 2003 is approximately $448,000 related to a piece of equipment which is not yet completed
+and, therefore, is not yet being used to produce saleable product. 
+5. 
+PATENTS AND PRODUCT RIGHTS: 
+In June 1998, we acquired the patents and exclusive worldwide distribution rights to our cryosurgical product line. The purchase price of $2,548,690,
+including transaction costs, has been recorded as patents and product rights and is being amortized using the straight-line method over an estimated useful life of ten years. In connection with this acquisition, we also entered into a product
+purchase agreement with the manufacturer of the cryosurgical product line, with an initial term extending through December 31, 2006. 
+In October 2002, we entered into new supply and distribution agreements with bioMérieux, Inc. (“BMX”), which replaced existing agreements
+between the parties, for the supply by BMX of HIV-1 antigen required to manufacture our oral fluid Western Blot HIV-1 confirmatory test and for the distribution by BMX of the oral fluid Western Blot product on an exclusive worldwide basis. These
+agreements have an initial term ending December 31, 2005, which may be extended until December 31, 2007 under certain circumstances. As consideration for BMX entering into the new agreements, we paid BMX $750,000, which we recorded as patent and
+product rights on our balance sheet. 
+In June 2004, we entered
+into a sublicense agreement with a third party, pursuant to which we have been granted a limited, worldwide, non-exclusive sublicense to certain HIV-2 patents held by such party. The agreement requires us to pay the third party a one-time
+non-refundable license fee of $900,000, $600,000 of 
+F-13 
+Table of Contents 
+which was paid in August 2004. The remaining $300,000 obligation is payable by June 30, 2005 and is included in accrued expenses in the accompanying balance
+sheet at December 31, 2004. The $900,000 was recorded as patent and product rights on our balance sheet and is being amortized through June 30, 2014. 
+6. 
+ACCRUED EXPENSES: 
+December 31, 
+2004 
+2003 
+Payroll and related benefits 
+$ 
+2,069,309 
+$ 
+1,449,151 
+Deferred revenue 
+1,353,711 
+705,817 
+Professional fees 
+1,227,087 
+222,710 
+Royalties 
+1,069,932 
+1,428,816 
+Advertising 
+603,009 
+474,817 
+License fees 
+300,000 
+— 
+Laboratory testing fees 
+249,041 
+305,647 
+Other 
+680,190 
+788,893 
+$ 
+7,552,279 
+$ 
+5,375,851 
+At December 31, 2004,
+accrued payroll and related benefits increased primarily as a result of the accrual for salary continuation payments to the former Chief Executive Officer and an increase in annual bonuses. Deferred revenue at December 31, 2004 increased as a result
+of additional customer prepayments, totaling $1,041,711 in 2004 versus $304,962 in 2003. Professional fees at December 31, 2004 are primarily comprised of legal and accounting fees related to current litigation and Sarbanes-Oxley Act compliance.
+Accrued royalties and advertising expenses at December 31, 2004 and 2003 are primarily related to our OraQuick ® and Freeze Off ™ products, respectively. License fees at December 31, 2004 are related to the new sublicense agreement, which we entered into in June 2004, as discussed in Note 5. 
+7. 
+CREDIT FACILITIES: 
+In September 2002, we entered into a $10,887,000 credit facility (“Credit Facility”) with Comerica Bank, comprised of an $887,000 mortgage loan,
+a $3,000,000 term loan, a $3,000,000 non-revolving equipment line of credit, and a $4,000,000 revolving working capital line of credit. In September 2003, we executed an amendment to this Credit Facility, pursuant to which the $3,000,000
+non-revolving equipment line of credit (the “Original Non-Revolving Line”) was replaced with a new $4,000,000 non-revolving line of credit (the “New Non-Revolving Line”). The Original Non-Revolving Line expired and borrowings
+under that facility at the time of the amendment were not applied against the credit limit for the New Non-Revolving Line, but rather, remained payable in accordance with their original terms. This amendment also extended the maturity date of the
+$4,000,000 revolving working capital line of credit (the “Revolving Line”) until September 10, 2004, modified certain covenants related to liquidity and tangible net worth, and eliminated the covenant requiring us to achieve positive net
+income for the year ended December 31, 2003 and for each year thereafter. The term loan and mortgage loan were not affected by this amendment (see Note 8). On September 27, 2004, we executed a letter agreement with Comerica Bank extending the
+maturity date of the Revolving Line until April 30, 2005. All other terms of the Revolving Line, as amended, remain in effect. 
+Under the New Non-Revolving Line, we could borrow up to $4,000,000 to finance eligible equipment or software purchases through December 31, 2004. Interest
+on outstanding borrowings accrues at a rate, selected at our option, equal to the bank’s prime rate, 180-day or 360-day LIBOR plus 2.625%, or the 4-year Treasury Note rate plus 2.30%, determined at the time of each borrowing. Borrowings are
+repayable in either 36 or 48 consecutive, equal monthly principal installments, depending upon the type of purchase financed, plus interest. We had no borrowings under this facility and, on December 31, 2004, it expired and was not renewed.
+F-14 
+Table of Contents 
+Under the Revolving Line, we can borrow up to $4,000,000 to finance working capital and other needs.
+Interest on outstanding borrowings accrues at a rate, selected at our option, equal to the bank’s prime rate less 0.25%, or 30-day LIBOR plus 2.55%, determined at the time of the initial borrowing. Borrowings are repayable by April 30, 2005,
+with interest payable monthly. We had no outstanding borrowings under this facility at December 31, 2004. 
+All borrowings under the Credit Facility, as amended, are collateralized by a first priority security interest in all of our assets, including present and
+future accounts receivable, chattel paper, contracts and contract rights, equipment and accessories, general intangibles, investments, instruments, inventories, and a mortgage on our manufacturing facility in Bethlehem, Pennsylvania. Borrowings
+under the Revolving Line are limited to commercially standard percentages of accounts receivable. The Credit Facility, as amended, contains certain covenants that set forth minimum requirements for our quick ratio, liquidity, and tangible net worth
+and also restricts our ability to pay dividends, to make certain investments, to incur additional indebtedness, to sell or otherwise dispose of a substantial portion of assets, and to merge or consolidate operations with an unaffiliated entity,
+without the consent of the bank. 
+8. 
+LONG-TERM DEBT: 
+December 31, 
+2004 
+2003 
+Term loan payable to bank, interest at 4.97%, monthly principal installments of $71,429, plus interest, through March 2006, secured by a first
+priority security interest in all of our assets 
+$ 
+1,071,429 
+$ 
+1,928,571 
+Mortgage loan payable to bank, interest at an annual floating rate equal to the bank’s prime rate (5.25% at December 31, 2004), fixed
+monthly installments of principal and interest of $7,426 through September 2007, at which time the interest rate and fixed monthly repayment amount is reset for the remaining sixty monthly installments, secured by our building 
+765,953 
+820,796 
+Note payable to bank, interest at an annual floating rate equal to the bank’s prime rate (5.25% at December 31, 2004), monthly principal
+installments of $5,081, plus interest, through December 2006, secured by certain equipment 
+121,935 
+182,904 
+Note payable to bank, interest at 5.07%, monthly principal installments of $3,995, plus interest, through September 2006, secured by certain
+equipment 
+83,900 
+131,843 
+Note payable to bank, interest at an annual floating rate equal to the bank’s prime rate (5.25% at December 31, 2004), monthly principal
+installments of $2,144, plus interest, through June 2007, secured by certain equipment 
+64,317 
+90,044 
+Note payable to bank, interest at an annual floating rate equal to the bank’s prime rate (5.25% at December 31, 2004), monthly principal
+installments of $2,264, plus interest, through March 2007, secured by certain equipment 
+61,134 
+88,304 
+Note payable to Pennsylvania Industrial Development Authority, interest at 2%, monthly installments of principal and interest of $4,893
+through March 2010, secured by a second lien on our building 
+288,023 
+340,415 
+2,456,691 
+3,582,877 
+Less—Current portion 
+(1,122,455 
+) 
+(1,126,423 
+) 
+$ 
+1,334,236 
+$ 
+2,456,454 
+F-15 
+Table of Contents 
+Long-term debt maturities as of December 31, 2004 are as follows: 
+2005 
+$ 
+1,122,455 
+2006 
+471,427 
+2007 
+130,915 
+2008 
+115,373 
+2009 
+119,672 
+Thereafter 
+496,849 
+$ 
+2,456,691 
+Certain of these notes
+payable require, among other items, the maintenance of certain financial covenants (see Note 7). We were in compliance with these covenants as of December 31, 2004. 
+9. 
+INCOME TAXES: 
+At December 31, 2004, we have federal net operating loss (“NOL”) carryforwards of approximately $74,900,000. These federal NOL carryforwards
+will expire through 2024. The Tax Reform Act of 1986 contains provisions that may limit the annual amount of NOL carryforwards available to be used in any given year in the event of a significant change in ownership. On September 29, 2000, two
+separate companies, STC Technologies, Inc. and Epitope, Inc. (“Epitope”), merged to form our company. Accordingly, we believe there was a change in ownership in connection with that merger. As such, we are in the process of determining the
+effect of the limitation as to the utilization of NOL carryforwards related to any changes in ownership. 
+The tax effect of temporary differences that give rise to significant portions of deferred income taxes at December 31, 2004 and 2003 are as follows:
+December 31, 
+2004 
+2003 
+Deferred tax asset: 
+Net operating loss carryforwards 
+$ 
+26,056,923 
+$ 
+26,597,884 
+Research and development credit carryforwards 
+2,011,653 
+2,138,080 
+Accruals and reserves currently not deductible 
+787,029 
+568,456 
+Capitalized research and development costs 
+782,557 
+895,085 
+Inventory 
+605,743 
+626,501 
+Patent costs 
+551,480 
+517,827 
+Deferred compensation 
+339,224 
+13,481 
+Depreciation and amortization 
+322,334 
+389,344 
+Valuation allowance on deferred tax asset 
+(31,456,943 
+) 
+(31,746,658 
+) 
+Net deferred tax asset 
+$ 
+— 
+$ 
+— 
+Of the total NOL
+deferred tax asset carryforwards as of December 31, 2004 and 2003, approximately $10,000,000 and $9,600,000, respectively, are related to stock option exercises. Upon recognition of the tax benefit associated with our NOL carryforwards, the amount
+attributable to stock option exercises and not limited by the change in ownership will be recorded as additional paid-in capital in stockholders’ equity. 
+In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax
+assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible or the NOLs and credit carryforwards can
+be utilized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. 
+F-16 
+Table of Contents 
+Based upon our cumulative and recent history of losses and projections for future taxable income over the periods in which the deferred tax assets are
+deductible or the NOLs and credit carryforwards can be utilized, we believe that a full valuation allowance is necessary at December 31, 2004. 
+10. 
+STOCKHOLDERS’ EQUITY: 
+Common stock 
+On October 7, 2003, we successfully completed a public offering in which we sold 5,000,000 shares of our common stock. Upon the exercise of the
+underwriters’ over-allotment option on November 5, 2003, we sold an additional 311,000 shares of common stock. The price to the public of the 5,311,000 shares of common stock was $9.00 per share. We received proceeds of $44,828,003, net of
+expenses, from this offering. 
+Stock-based Awards
+We grant stock-based awards under the OraSure
+Technologies, Inc. 2000 Stock Award Plan (the “2000 Plan”). The 2000 Plan permits stock-based awards to employees, outside directors and consultants or other third-party advisors. Awards which may be granted under the 2000 Plan include
+qualified incentive stock options, nonqualified stock options, stock appreciation rights, restricted awards, performance awards and other stock-based awards. 
+Under the terms of the 2000 Plan, qualified incentive stock options for shares of our common stock may be granted to eligible employees, including our
+officers. To date, options generally have been granted with ten-year exercise periods and an exercise price not less than the fair market value on the date of grant. Options generally vest over four years, with one quarter of the options vesting one
+year after grant and the remainder vesting on a monthly basis over the next three years. The 2000 Plan also provides that nonqualified options may be granted at a price not less than 75 percent of the fair market value of a share of common stock on
+the date of grant. The option term and vesting schedule of such awards may either be unlimited or have a specified period in which to vest and be exercised. 
+We apply APB Opinion No. 25 and related interpretations in accounting for stock awards granted to employees and directors. Accordingly, compensation cost,
+if any, is recognized for the intrinsic value (the difference between the exercise price and the fair value of our common stock) on the date of grant. Compensation cost, if any, is deferred and charged to expense over the respective vesting period.
+We account for stock-based compensation to non-employees using
+the fair value method, in accordance with SFAS No. 123 and EITF Issue No. 96-18. In 2002, we recorded compensation expense of $50,939 related to options to purchase 20,000 shares of our common stock granted to outside consultants. This compensation
+expense was computed based on the estimated fair value of the stock options at the date of grant, using the Black-Scholes option pricing model. No such awards were made in 2004 or 2003. 
+F-17 
+Table of Contents 
+Information with respect to the options granted under the 2000 Plan and predecessor plans is as follows:
+Shares 
+Price per Share 
+Weighted Average 
+Exercise Price 
+per Share 
+Balance, December 31, 2001 
+3,745,233 
+$ 
+0.80–15.03 
+$ 
+5.57 
+Granted 
+1,267,275 
+3.83– 7.42 
+5.74 
+Exercised 
+(688,454 
+) 
+0.80– 7.09 
+4.06 
+Canceled 
+(444,446 
+) 
+0.80–14.84 
+6.14 
+Balance, December 31, 2002 
+3,879,608 
+0.80–15.03 
+5.83 
+Granted 
+1,129,885 
+5.51–10.47 
+6.97 
+Exercised 
+(849,374 
+) 
+0.80– 7.88 
+4.38 
+Canceled 
+(224,656 
+) 
+0.80–13.66 
+6.61 
+Balance, December 31, 2003 
+3,935,463 
+0.80–15.03 
+6.42 
+Granted 
+1,629,891 
+6.63–10.29 
+8.07 
+Exercised 
+(370,800 
+) 
+0.80– 9.92 
+5.14 
+Canceled 
+(320,050 
+) 
+3.83–13.19 
+7.89 
+Balance, December 31, 2004 
+4,874,504 
+$ 
+0.80–15.03 
+$ 
+6.98 
+The following table
+summarizes information about stock options outstanding at December 31, 2004: 
+Options outstanding 
+Options exercisable 
+Range of exercise prices 
+Number 
+outstanding 
+Weighted 
+average 
+remaining 
+life, in 
+years 
+Weighted 
+average 
+exercise 
+price 
+Number 
+exercisable 
+Weighted 
+average 
+exercise 
+price 
+$0.80–$4.06 
+377,378 
+9.23 
+$ 
+2.74 
+322,691 
+$ 
+2.51 
+$4.17–$5.04 
+345,066 
+24.77 
+4.58 
+341,732 
+4.58 
+$5.75–$5.76 
+30,000 
+4.10 
+5.75 
+27,395 
+5.75 
+$5.87 
+608,104 
+7.08 
+5.87 
+466,206 
+5.87 
+$6.10–$6.87 
+166,271 
+7.27 
+6.67 
+137,249 
+6.70 
+$6.96 
+792,086 
+8.08 
+6.96 
+461,680 
+6.96 
+$6.98–$7.09 
+549,737 
+6.11 
+7.09 
+544,737 
+7.09 
+$7.13–$8.03 
+547,583 
+8.43 
+7.74 
+140,708 
+7.68 
+$8.09–$8.20 
+1,061,341 
+9.04 
+8.20 
+114,165 
+8.20 
+$8.25–$15.03 
+396,938 
+6.53 
+10.55 
+325,935 
+10.56 
+4,874,504 
+9.07 
+$ 
+6.98 
+2,882,498 
+$ 
+6.50 
+The 2000 Plan also
+permits us to grant restricted shares of our common stock to eligible employees, including officers. Generally, these shares are nontransferable and are subject to vesting requirements or forfeiture, as determined by the Compensation Committee of
+our Board of Directors. Upon granting of these restricted shares, deferred compensation cost equivalent to the market value at the date of grant is charged to stockholders’ equity and subsequently amortized over the periods during which the
+restrictions lapse, generally three years. During 2004 and 2003, we granted 410,000 and 75,000 restricted shares, respectively, to certain officers and recorded $3,176,150 and $650,663 of deferred compensation, respectively. Amortization of deferred
+compensation related to these grants was $874,162 and $36,148 in 2004 and 2003, respectively. We did not grant any restricted shares in 2002. 
+As of December 31, 2004, 2,509,135 shares were available for future grants under the 2000 Plan. 
+F-18 
+Table of Contents 
+Employee Stock Purchase Plan 
+In 1993, the stockholders of Epitope approved the adoption of the 1993 Employee Stock Purchase Plan (the “1993
+ESPP”). The 1993 ESPP, as subsequently amended by Epitope’s stockholders, covered a maximum of 500,000 shares of common stock for subscription over established offering periods. In September 2000 when Epitope merged to form OraSure
+Technologies, Inc., the 1993 ESPP was adopted and renamed by us. The Compensation Committee of the Board of Directors determines the number of offering periods, the number of shares offered, and the length of each period, provided that no more than
+three offering periods may be set during any given fiscal year. The purchase price for stock purchased under the 1993 ESPP for each subscription period is the lesser of 85 percent of the fair market value of a share of common stock at the
+commencement of the subscription period and the fair market value at the close of the subscription period. An employee may also elect to withdraw at any time during the subscription period and receive the amounts paid plus interest at the rate of 6
+percent. 
+As of December 31, 2004, 2003 and 2002, there were no
+subscriptions for common shares outstanding, and no shares were issued under the 1993 ESPP during the years ended December 31, 2004 and 2003. In 2002, 8,834 shares were issued at $3.96 per share under the 1993 ESPP. 
+Common Stock Warrants 
+As of December 31, 2004, warrants to purchase 120,000 shares of common stock
+at $6.13 per share were outstanding. These warrants were issued on September 30, 1998 and expire on September 30, 2008. 
+11. 
+COMMITMENTS AND CONTINGENCIES: 
+Phosphor Agreements 
+In April 1995, we entered into several research, licensing and royalty agreements (collectively the “Phosphor Agreements”), related to
+development and commercialization of our up-converting phosphor technology (“UPT ™ ”). Under the terms of the Phosphor Agreements, as amended, we are obligated to make an annual license payment of $50,000 and an annual minimum royalty payment of $100,000 for usage of patented technology
+licensed to us. Upon the first commercial sale of a UPT ™ -based product or service, we are obligated to pay royalties based upon a percentage of the net sales of UPT ™ -based products, research and development fees and sublicensing revenues, for a period equal to the longer of ten years from the date of the first
+commercial sale of a UPT ™ -based product or service
+(which occurred in 2001) or the remaining life of the patents underlying the licensed technology, which expire through 2017. Royalties from the commercial sale of products or services can be credited against our minimum royalty obligation of
+$100,000 per year. In connection with the acquisition of certain technology related to UPT ™ , we are also required to pay sponsored research funds and royalty payments. These sponsored research funds were $87,500 in 2004 and decrease to $50,000 per year through 2008. Related
+royalty payments are $25,000 per year until 2008. All of these amounts are expensed as incurred. Future minimum payments under these agreements are as follows: 
+2005 
+$ 
+225,000 
+2006 
+225,000 
+2007 
+225,000 
+2008 
+225,000 
+2009 
+150,000 
+Thereafter 
+1,200,000 
+$ 
+2,250,000 
+F-19 
+Table of Contents 
+Sublicense Agreement 
+In June 2004, we entered into a sublicense agreement with a third party, pursuant to which we have been granted a limited,
+worldwide, non-exclusive sublicense to certain HIV-2 patents held by such party. Under the terms of this sublicense agreement, we are obligated to pay royalties based on a percentage of our net sales of certain products, which incorporate the
+technology covered by the licensed patents. Future minimum payments under this agreement are as follows: 
+2005 
+$ 
+200,000 
+2006 
+400,000 
+2007 
+500,000 
+2008 
+500,000 
+2009 
+500,000 
+Thereafter 
+4,291,667 
+$ 
+6,391,667 
+Royalties from our
+commercial sale of products covered by the sublicense can be credited against these minimum royalty obligations. 
+Leases 
+We lease office, manufacturing, warehouse and laboratory facilities under operating lease agreements. Future payments required under these noncancelable
+leases are as follows: 
+2005 
+$ 
+874,510 
+2006 
+780,000 
+2007 
+783,062 
+2008 
+798,810 
+2009 
+814,262 
+Thereafter 
+2,367,786 
+$ 
+6,418,430 
+Rent expense for 2004,
+2003 and 2002 was $1,690,858, $1,594,240 and $1,070,510, respectively. 
+Purchase Commitments 
+As of December 31, 2004,
+we had outstanding noncancelable purchase commitments in the amount of $4,530,899, of which $3,268,031, $665,827 and $597,041 are related to inventory, capital expenditures, and other goods or services, respectively. 
+Employment Agreements 
+Under terms of employment agreements with certain executive officers and
+other employees, extending through 2007, we are required to pay each individual a base salary for continuing employment with our Company. The agreements require payments of $1,937,636, $995,761 and $205,000 in 2005, 2006 and 2007, respectively.
+Litigation 
+From time-to-time, we are involved in certain legal actions arising in the
+ordinary course of business. In management’s opinion, based upon the advice of counsel, the outcome of such actions are not expected to have a material adverse effect on our future financial position or results of operations. 
+F-20 
+Table of Contents 
+12. 
+RELATED-PARTY FACILITY LEASE: 
+In 2002, we entered into a ten-year facility lease with Tech III Partners, LLC (“Tech Partners”), an entity owned and controlled by two of our
+former executive officers. Under the terms of this operating lease, we began leasing a 48,000 square foot facility in October 2002, at a base rent of $780,000 per year, increasing to $858,240 per year, during the initial ten-year term. The base
+rental rate may be increased after the fifth year of the initial term, in order to reflect changes in the debt incurred by Tech Partners to finance construction of the leased facilities. We have not guaranteed any debt incurred by Tech Partners.
+This lease also provides us with options to renew our lease for an additional five years at a rental rate of $975,360 per year and to purchase the facility at any time during the initial ten year-term, based upon a formula set forth in the lease
+agreement. Neither of these executives were employed by the Company subsequent to December 31, 2004. 
+13. 
+RETIREMENT PLANS: 
+Substantially all employees of the Company are eligible to participate in the OraSure Technologies, Inc. 401(k) Plan (the “401(k) Plan”). The
+401(k) Plan permits voluntary employee contributions to be excluded from an employee’s current taxable income under provisions of Internal Revenue Code Section 401(k) and the regulations thereunder. The 401(k) Plan also provides for us to match
+employee contributions up to the lesser of $4,000 or ten percent of the employee’s salary. Contributions to the 401(k) Plan, net of forfeitures, were $330,552, $330,275 and $394,714 in 2004, 2003 and 2002, respectively. 
+14. 
+GEOGRAPHIC INFORMATION: 
+Under the disclosure requirements of SFAS No.131, “Disclosures about Segments of an Enterprise and Related Information,” we operate within one
+segment. Our products are sold principally in the United States and Europe. Segmentation of operating income and identifiable assets is not applicable since our revenues outside the United States are export sales, and we do not have significant
+operating assets outside the United States. 
+The following
+table represents total revenues by geographic area, based on the location of the customer (amounts in thousands): 
+For the year ended December 31, 
+2004 
+2003 
+2002 
+United States 
+$ 
+47,843 
+$ 
+35,896 
+$ 
+28,124 
+Europe 
+4,318 
+3,062 
+2,726 
+Other regions 
+1,847 
+1,493 
+1,160 
+$ 
+54,008 
+$ 
+40,451 
+$ 
+32,010 
+F-21 
+Table of Contents 
+15. 
+QUARTERLY DATA (Unaudited): 
+The following tables summarize the quarterly results of operations for each of the quarters in 2004 and 2003. These quarterly results are unaudited, but
+in the opinion of management, have been prepared on the same basis as our audited financial information and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information set forth
+herein (all amounts in thousands, except per share amounts). 
+2004 Results 
+Three months ended 
+Year ended 
+December 31, 
+2004 
+March 31, 
+2004 
+June 30, 
+2004 
+September 30, 
+2004 
+December 31, 
+2004 
+Revenues 
+$ 
+12,409 
+$ 
+13,214 
+$ 
+14,176 
+$ 
+14,209 
+$ 
+54,008 
+Costs and expenses 
+12,734 
+13,265 
+14,657 
+14,709 
+55,365 
+Operating loss 
+(325 
+) 
+(51 
+) 
+(481 
+) 
+(500 
+) 
+(1,357 
+) 
+Other income (expense), net 
+168 
+198 
+192 
+239 
+797 
+Income (loss) before income taxes 
+(157 
+) 
+147 
+(289 
+) 
+(261 
+) 
+(560 
+) 
+Income taxes (benefit) 
+5 
+5 
+5 
+(15 
+) 
+— 
+Net income (loss) 
+$ 
+(162 
+) 
+$ 
+142 
+$ 
+(294 
+) 
+$ 
+(246 
+) 
+$ 
+(560 
+) 
+Basic and diluted net income (loss) per share(1) 
+$ 
+(0.00 
+) 
+$ 
+0.00 
+$ 
+(0.01 
+) 
+$ 
+(0.01 
+) 
+$ 
+(0.01 
+) 
+Weighted average number of shares outstanding: 
+Basic 
+44,271 
+44,465 
+44,539 
+44,578 
+44,464 
+Diluted 
+44,271 
+45,334 
+44,539 
+44,578 
+44,464 
+2003 Results 
+Three months ended 
+Year ended 
+December 31, 
+2003 
+March 31, 
+2003 
+June 30, 
+2003 
+September 30, 
+2003 
+December 31, 
+2003 
+Revenues 
+$ 
+8,611 
+$ 
+9,629 
+$ 
+10,331 
+$ 
+11,880 
+$ 
+40,451 
+Costs and expenses 
+9,736 
+10,181 
+10,319 
+11,501 
+41,737 
+Operating income (loss) 
+(1,125 
+) 
+(552 
+) 
+12 
+379 
+(1,286 
+) 
+Other income (expense), net 
+37 
+32 
+43 
+65 
+177 
+Income (loss) before income taxes 
+(1,088 
+) 
+(520 
+) 
+55 
+444 
+(1,109 
+) 
+Income taxes 
+5 
+10 
+2 
+9 
+26 
+Net income (loss) 
+$ 
+(1,093 
+) 
+$ 
+(530 
+) 
+$ 
+53 
+$ 
+435 
+$ 
+(1,135 
+) 
+Basic and diluted net income (loss) per share 
+$ 
+(0.03 
+) 
+$ 
+(0.01 
+) 
+$ 
+0.00 
+$ 
+0.01 
+$ 
+(0.03 
+) 
+Weighted average number of shares outstanding: 
+Basic 
+38,249 
+38,412 
+38,666 
+43,799 
+39,794 
+Diluted 
+38,249 
+38,412 
+39,777 
+44,795 
+39,794 
+(1) 
+The summation of the quarterly amounts does not equal the year-end basic and diluted net loss per share due to rounding. 
+F-22 
+Table of Contents 
+INDEX TO EXHIBITS 
+Exhibit 
+Number 
+Exhibit 
+3.1.1 
+Certificate of Incorporation of OraSure Technologies, Inc. is incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (No. 333-39210), filed June 14,
+2000. 
+3.1.2 
+Certificate of Amendment to Certificate of Incorporation dated May 23, 2000 is incorporated by reference to Exhibit 3.1.1 to the Company’s Registration Statement on Form S-4 (No.
+333-39210), filed June 14, 2000. 
+3.1.3 
+Certificate of Designation of Series A Preferred Stock of OraSure Technologies (filed as Exhibit A to the Rights Agreement referred to in Exhibit 4.1). 
+3.2 
+Amended and Restated Bylaws of OraSure Technologies, effective as of February 4, 2003, are incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the
+year ended December 31, 2002. 
+4.1 
+Rights Agreement, dated as of May 6, 2000, between OraSure Technologies, Inc. and ChaseMellon Shareholder Service, L.L.C. (now called Mellon Investor Services LLC), as Rights Agent, is
+incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 (No. 333-39210), filed August 8, 2000. 
+10.1 
+Form of Indemnification Agreement (and list of parties to such agreement) is incorporated by reference to Exhibit 10.1 to Amendment No. 3 to the Company’s Registration Statement on Form
+S-4 (No. 333-39210), filed August 30, 2000.* 
+10.2 
+Employment Agreement, dated as of June 22, 2004, between OraSure Technologies, Inc. and Douglas A. Michels, is incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report
+on Form 10-Q for the quarter ended June 30, 2004.* 
+10.3 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and Ronald H. Spair, is incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on
+Form 10-Q for the quarter ended June 30, 2004.* 
+10.4 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and P. Michael Formica, is incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report
+on Form 10-Q for the quarter ended June 30, 2004.* 
+10.5 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and Joseph E. Zack, is incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on
+Form 10-Q for the quarter ended June 30, 2004.* 
+10.6 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and Jack E. Jerrett, is incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on
+Form 10-Q for the quarter ended June 30, 2004.* 
+10.7 
+Description of Nonemployee Director Compensation Policy is incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended December 31,
+2003.* 
+10.8 
+Amended and Restated Epitope, Inc. 1991 Stock Award Plan is incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31,
+2002.* 
+10.9 
+OraSure Technologies, Inc. Employee Incentive and Non-Qualified Stock Option Plan, as amended and restated effective September 29, 2000, is incorporated by reference to Exhibit 10.12 to the
+Company’s Annual Report on Form 10-K for the year ended December 31, 2000.* 
+10.10 
+OraSure Technologies, Inc. 2000 Stock Award Plan, as amended effective as of May 18, 2004, is incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for
+the quarter ended June 30, 2004.* 
+Table of Contents 
+Exhibit 
+Number 
+Exhibit 
+10.11 
+Form of Restricted Share Grant Agreement is incorporated by reference to Exhibit 10.2.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
+2004.* 
+10.12 
+Incentive Stock Option General Terms and Conditions (Officers and Employees).* 
+10.13 
+Nonqualified Stock Option Award General Terms and Conditions (Officers and Employees).* 
+10.14 
+Nonqualified Stock Option Award General Terms and Conditions (Non-Employee Directors).* 
+10.15 
+Description of OraSure Technologies, Inc. 2004 Self-Funding Annual Incentive Plan is incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year
+ended December 31, 2003.* 
+10.16 
+Description of OraSure Technologies, Inc. Management Stock Award Guidelines dated January 26, 2005.* 
+10.17 
+Transition Agreement and Release, dated as of March 8, 2004, between Michael J. Gausling and OraSure Technologies, Inc., is incorporated by reference to Exhibit 10 to the Company’s
+Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.* 
+10.18 
+Distribution Agreement, dated as of April 24, 2003, between OraSure Technologies, Inc. and Medtech Holdings, Inc., is incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
+Report on Form 10-Q for the quarter ended June 30, 2004. 
+10.19 
+Production Agreement between STC Technologies, Inc. and Koninklinjke Utermöhlen, N.V., dated June 9, 1998, is incorporated by reference to Exhibit 10.8 to Amendment No. 3 to the
+Company’s Registration Statement on Form S-4 (No. 333-39210), filed August 30, 2000. 
+10.20 
+Amendment No. 1 to Production Agreement, dated as of December 11, 2001, between OraSure Technologies, Inc. and Koninklijke Utermöhlen N.V., is incorporated by reference to Exhibit 10.18
+to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. 
+10.21 
+Amendment No. 2 to Production Agreement, dated as of April 28, 2003, between OraSure Technologies, Inc. and Koninklijke Utermöhlen N.V., is incorporated by reference to Exhibit 10.15 to
+the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. 
+10.22 
+Research and License Agreement with SRI International and David Sarnoff Research Center dated April 26, 1995 is incorporated by reference to Exhibit 10.9 to Amendment No. 4 to the
+Company’s Registration Statement on Form S-4 (No. 333-39210), filed August 31, 2000. 
+10.23 
+First Amendment to Research and License Agreement among SRI International and David Sarnoff Research Center and the Company dated September 1, 1995 is incorporated by reference to Exhibit
+10.10 to Amendment No. 3 to the Company’s Registration Statement on Form S-4 (No. 333-39210), filed August 30, 2000. 
+10.24 
+Third Amendment to Research and License Agreement dated August 30, 2000 among SRI International, Sarnoff Corporation (formerly David Sarnoff Research Center) and the Company is incorporated
+by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000. 
+10.25 
+Commercial Lease between Northampton County New Jobs Corp., as Landlord, and STC Technologies, Inc., as Tenant, dated April 30, 1999, is incorporated by reference to Exhibit 10.11 to
+Amendment No. 1 to the Company’s Registration Statement on Form S-4 (No 333-39210), filed August 8, 2000. 
+10.26 
+Fourth Amendment to Commercial Lease dated as of March 4, 2005, between OraSure Technologies, Inc. and Northampton County New Jobs Corp., is incorporated by reference to Exhibit 10 to the
+Company’s Current Report on Form 8-K filed March 11, 2005. 
+Table of Contents 
+Exhibit 
+Number 
+Exhibit 
+10.27 
+Commercial Lease between Tech III Partners, LLC and OraSure Technologies, Inc., dated March 1, 2002, is incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form
+10-K for the year ended December 31, 2001. 
+10.28 
+Amendment No. 1 to Commercial Lease, dated as of October 21, 2002, between Tech III Partners, LLC and OraSure Technologies, Inc., is incorporated by reference to Exhibit 10.2 to the
+Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002. 
+10.29 
+Loan and Security Agreement, dated as of September 10, 2002, between Comerica Bank – California and OraSure Technologies, Inc., is incorporated by reference to Exhibit 10.1 to the
+Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002. 
+10.30 
+First Amendment to Loan and Security Agreement, dated as of May 23, 2003, between OraSure Technologies, Inc. and Comerica Bank – California, is incorporated by reference to Exhibit 10.24
+to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. 
+10.31 
+Second Amendment to Loan and Security Agreement, dated as of September 12, 2003, between OraSure Technologies, Inc. and Comerica Bank, is incorporated by reference to Exhibit 99.1 to the
+Company’s Current Report on Form 8-K, dated September 17, 2003. 
+10.32 
+Letter Agreement, dated September 8, 2004, between OraSure Technologies, Inc. and Comerica Bank, is incorporated by reference to Exhibit 10 to the Company’s Current Report on Form 8-K,
+dated September 10, 2004. 
+10.33 
+Letter Agreement, executed September 27, 2004, between OraSure Technologies, Inc. and Comerica Bank, is incorporated by reference to Exhibit 10 to the Company’s Current Report on Form
+8-K, dated September 28, 2004. 
+10.34 
+Distribution Agreement, dated as of October 11, 2002, between OraSure Technologies, Inc. and bioMérieux, Inc., is incorporated by reference to Exhibit 10.3 to the Company’s
+Quarterly Report on Form 10-Q for the quarter ended September 30, 2002. 
+10.35 
+Supply Agreement, dated as of October 11, 2002, between OraSure Technologies, Inc. and bioMérieux, Inc., is incorporated by reference to Exhibit 10.4 to the Company’s Quarterly
+Report on Form 10-Q for the quarter ended September 30, 2002. 
+23 
+Consent of KPMG LLP, Independent Registered Public Accounting Firm. 
+24 
+Powers of Attorney. 
+31.1 
+Certification of Douglas A. Michels required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. 
+31.2 
+Certification of Ronald H. Spair required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. 
+32.1 
+Certification of Douglas A. Michels required by Rule 13a-14(b) or Rule 15a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to
+Section 906 of the Sarbanes-Oxley Act of 2002. 
+32.2 
+Certification of Ronald H. Spair required by Rule 13a-14(b) or Rule 15a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section
+906 of the Sarbanes-Oxley Act of 2002. 
+* 
+Management contract or compensatory plan or arrangement.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2004/0001193125-05-051144/filing_metadata.csv b/raw/filings/0001116463/2004/0001193125-05-051144/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..e0c02937773b637d69cf118379228123ec432a8b
--- /dev/null
+++ b/raw/filings/0001116463/2004/0001193125-05-051144/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0001116463,OSUR,ORASURE TECHNOLOGIES INC,10-K,2005-03-15,2004-12-31,2005-03-15T21:45:46.000Z,0001193125-05-051144,d10k.htm,ORASURE TECHNOLOGIES INC.,1255805,0,0,https://www.sec.gov/Archives/edgar/data/1116463/000119312505051144/d10k.htm,https://www.sec.gov/Archives/edgar/data/1116463/000119312505051144/,2004,2004,1
diff --git a/raw/filings/0001116463/2004/0001193125-05-051144/item1.txt b/raw/filings/0001116463/2004/0001193125-05-051144/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b10e33c8fc0a098c861bd02d3b102c27b42c2636
--- /dev/null
+++ b/raw/filings/0001116463/2004/0001193125-05-051144/item1.txt
@@ -0,0 +1,1035 @@
+ITEM 1. 
+Business. 
+Our business
+principally involves the development, manufacture, marketing and sale of oral fluid specimen collection devices using our proprietary oral fluid technologies, as well as other diagnostic products including immunoassays and other in vitro 
+diagnostic tests that are used on other specimen types, and other medical devices. Our diagnostic products include tests which are processed in a laboratory and tests which are performed on a rapid basis at the point of care. These products are sold
+in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and
+industrial entities. One of our products is also sold in the United States over-the-counter or consumer retail market. 
+In vitro diagnostic testing is the process of analyzing oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific
+substances or markers for infectious diseases, drugs of abuse or other conditions. In vitro diagnostic tests are performed outside the body, in contrast to in vivo tests, which are performed directly on or within the body. The
+substance or marker that a diagnostic test is intended to detect is generally referred to as an analyte. 
+Immunodiagnostic testing is the leading method of in vitro testing for antigens and antibodies. When an infectious disease is caused by pathogens,
+such as bacteria, viruses and fungi, or other substances are present, the body responds by producing an antibody. Substances that stimulate production of antibodies are generally referred to as antigens. An antibody binds specifically with an
+antigen in a lock-and-key fashion that initiates a biochemical reaction to attempt to neutralize and, ultimately, eliminate the antigen. The ability of an antibody to bind with a specific antigen provides the basis for immunodiagnostic testing.
+Our Company was formed in May 2000 under Delaware law solely
+for the purposes of combining two companies, STC Technologies, Inc. (“STC” or “STC Technologies”) and Epitope, Inc. (“Epitope”), and changing the state of incorporation of Epitope from Oregon to Delaware. STC
+Technologies and Epitope were merged into our Company on September 29, 2000 (the “Merger”). Our principal offices are located at 220 East First Street, Bethlehem, Pennsylvania 18015, and our telephone number is (610) 882-1820. 
+Additional information about us can be found on our website. Our website
+address is www.orasure.com. We make available free of charge through a link provided at such website our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, as well as any amendments to those Reports.
+These Reports are made available as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange Commission. Our Internet website and the information contained in or connected to that website are not intended to be
+incorporated by reference into this Annual Report. 
+1 
+Table of Contents 
+Products 
+The following is a summary of our principal products and their existing and pending approvals/clearances by the U.S. Food and Drug Administration
+(“FDA”) and commercial status: 
+Product 
+Description 
+FDA Approval Status 
+Commercial 
+Status 
+OraQuick ® 
+ADVANCE ™ 
+A rapid, point-of-care test for antibodies to the Human Immunodeficiency Virus Type 1 and Type 2 (“HIV-1/2”) that can be visually read at the point of care in approximately 20
+minutes. 
+Premarket approval (“PMA”) approved by the FDA (March 2004 – June 2004) for use with oral fluid, fingerstick and venous whole blood
+and plasma. 
+CLIA (Clinical Laboratory Improvement Amendments of 1988) waived for use with oral fluid, fingerstick and venous whole blood (June
+2004). 
+Marketed 
+OraQuick ® 
+HIV-1 
+A rapid, point-of-care test for antibodies to the Human Immunodeficiency Virus Type 1 (“HIV-1”) that can be visually read at the point of care in approximately 20 minutes. 
+PMA approved by the FDA (November 2002 – September 2003) for use with fingerstick and venous whole blood. CLIA waived for use with fingerstick and venous whole blood (January
+2003). 
+Marketed 
+OraSure ® 
+Oral fluid collection device for the detection of antibodies to HIV-1 in an oral fluid sample in a laboratory setting. 
+PMA approved by FDA in December 1994. 
+Also have FDA 510(k) clearance for use of this device in detecting cocaine and cotinine (an indicator of nicotine) in oral fluid. 
+Marketed 
+Marketed 
+Intercept ® 
+Oral fluid collection device, along with nine related immunoassays, for oral fluid drug testing in a laboratory setting. 
+Collection device—FDA 510(k) cleared in 2000. 
+Marketed 
+Used to detect the following drugs in an oral fluid sample: marijuana, cocaine, opiates, amphetamines, methamphetamines, PCP, benzodiazepines, barbiturates and methadone. 
+Nine drug assays—FDA 510(k) cleared during 2000-2001. 
+Marketed 
+Histofreezer ® Rx 
+A cryosurgical (freezing) system for the removal of warts and other benign skin lesions, marketed primarily to the physicians’ office market. 
+Nine indications—FDA 510(k) cleared during 1991 – 1999. 
+Marketed 
+Freeze Off ™ 
+A cryosurgical (freezing) system for the removal of common and plantar warts, sold under the Freeze Off ™ and Compound W ® tradenames in the over-the-counter market
+in the U.S. 
+Two indications—FDA 510(k) cleared in February 2003. 
+Marketed 
+UP link ® 
+A rapid, point-of-care oral fluid drug detection system. 
+510(k) application filed with FDA in September 2003; withdrawn in March 2004 due to need to submit additional performance data. 
+Marketed Internationally 
+2 
+Table of Contents 
+In addition to the above products, we also sell certain immunoassay tests and reagents for insurance risk
+assessment, substance abuse testing and forensic toxicology applications; an oral fluid Western blot HIV-1 confirmatory test approved by the FDA for confirming positive HIV-1 test results obtained from the use of our OraSure ® device; and the FDA 510(k) cleared Q.E.D. ® saliva alcohol test. 
+OraQuick ® Rapid Test 
+OraQuick ® is our rapid test platform designed to test an oral fluid, whole blood (i.e., both fingerstick and venous) or plasma sample for the presence of various
+antibodies or analytes. The device uses a porous flat pad to collect an oral fluid specimen. After collection, the pad is inserted into a vial containing a pre-measured amount of developer solution and allowed to develop. When whole blood or plasma
+is to be tested, a loop collection device is used to collect a drop of blood or plasma and mix it in the developer solution, after which the collection pad is inserted into the solution. In all cases, the specimen and solution then flow through the
+testing device where test results are observable in approximately 20 minutes. The OraQuick ® device is a screening test and requires a confirmation test where an initial positive result is obtained. 
+Our first product utilizing this technology was the OraQuick ® rapid HIV-1 antibody test, a rapid test for the presence of antibodies against HIV-1. In 2002, we received premarket approval of this test
+from the FDA for detecting HIV-1 in finger-stick whole blood samples and in 2003 we received FDA approval for use of the OraQuick ® test with venous whole blood samples. These approvals were based on data from clinical studies we performed, which indicated that the OraQuick ® test has sensitivity of 99.6% and specificity of 100%.
+Sensitivity is a measure of the accuracy for detecting positive specimens, and specificity is a measure of the accuracy for identifying negative specimens. 
+As a result of this FDA approval, the OraQuick ® test has been made available for use by nearly 40,000 locations in the United States certified under the Clinical Laboratory Improvements Amendments of
+1988, or CLIA, to perform moderately complex diagnostic tests. Additionally, in January 2003, we received a waiver under CLIA for OraQuick ® which permits the use of this test by approximately 140,000 additional sites in the United States not certified under CLIA to perform moderately
+complex tests, such as outreach clinics, community-based organizations and physicians’ offices. 
+During the period March to June 2004, we received FDA approval for use of our new OraQuick ® test to detect antibodies to both HIV-1 and a second type of the HIV virus, known as
+HIV-2, in finger-stick and venous whole blood, oral fluid and plasma. In June 2004, we also received a CLIA waiver of this test for oral fluid, fingerstick whole blood and venous whole blood. We named this new test OraQuick ® ADVANCE ™ . 
+In mid-July 2004, we received data from an investigational clinical trial suggesting a higher rate of unconfirmed positive
+results from the use of our OraQuick ® HIV-1/2 test
+in oral fluid samples than was shown in the clinical data that we compiled in support of our FDA approval of an oral fluid claim, including data from Company-sponsored trials and independent Centers for Disease Control and Prevention
+(“CDC”) studies. Similar results were not indicated for blood samples tested with the device. We performed a technical and procedural assessment to understand this situation and delayed the launch of the OraQuick ® ADVANCE ™ HIV-1/2 test, which was originally scheduled for August of 2004, until the assessment
+was completed. Based on the results of this assessment, we determined that the OraQuick ® ADVANCE ™ test performed within specifications, and we commercially launched this product in October 2004. 
+We believe that the OraQuick ® ADVANCE ™ device, because it is approved for detecting antibodies to both HIV-1 and 2 in fingerstick and venous whole blood, oral fluid and plasma samples, will provide a significant competitive
+advantage in the market for rapid HIV testing in the United States. Demand for OraQuick ® ADVANCE ™ has quickly grown since the launch of that product, and it is our intent to convert all customers to this product and ultimately stop manufacturing and selling the OraQuick ® HIV-1 test. 
+3 
+Table of Contents 
+In April 2003, the CDC announced a new four-part initiative for HIV testing and diagnosis, which is
+intended to increase the use of rapid HIV testing as part of routine medical care. Under this program, the CDC purchased 250,000 OraQuick ® devices during 2003, 250,000 devices during 2004, and 209,000 additional devices for delivery in 2005. 
+In August 2004, the Substance Abuse and Mental Health Services Administration
+(“SAMHSA”) placed an order to purchase $4.0 million of our OraQuick ® ADVANCE ™ 
+tests and HIV confirmatory test services. The OraQuick ® tests are expected to be deployed by SAMHSA to over 22,000 substance abuse treatment and prevention sites throughout the United States. We are discussing an amendment to this contract with SAMHSA, which is expected to
+increase the number of OraQuick ® 
+ADVANCE ™ tests purchased and eliminate the
+confirmatory test component of the order. We expect that all tests ordered by SAMHSA will be fully deployed in 2005. 
+The OraQuick ® device is also being used in the CDC’s Mother-Infant Rapid Intervention at Delivery Project (MIRIAD) to test pregnant women in five U.S. metropolitan areas. The goal of this project
+is to identify those individuals who would benefit from the administration of nevirapine, a drug used to reduce mother-to-child HIV transmission. In September 2003, the CDC reported that, based on data from the MIRIAD study, the use of the
+OraQuick ® test at the point of care provided test
+results four times faster than when the OraQuick ® 
+test was used in a laboratory setting. As a result, the study found that rapid HIV testing enables healthcare professionals to determine the HIV status of a mother and administer antiretroviral drugs to both mother and child more quickly than
+traditional laboratory tests, thereby reducing the chances of mother-to-child transmission of HIV. 
+Finally, the OraQuick ® device has been selected for use in the CDC’s LIFE Initiative, an international effort to address the AIDS epidemic in certain African countries.
+This initiative focuses on areas such as preventing mother-to-child transmission, secondary transmitted disease prevention, HIV prevention for youth, and blood safety systems. 
+OraSure ® /Intercept ® Collection Devices 
+Our OraSure ® oral fluid collection device is used in conjunction with screening and confirmatory tests for HIV-1 antibodies and other analytes. This device consists of a small, treated cotton-fiber
+pad on a handle that is placed in a person’s mouth for two to five minutes. The device collects oral mucosal transudate (“OMT”), a serum-derived fluid that contains higher concentrations of certain antibodies and analytes than saliva.
+As a result, OMT testing is a highly accurate method for detecting HIV-1 infection and other analytes. 
+We believe that oral fluid testing has several significant advantages over blood or urine-based systems for infectious disease testing, for both health
+care professionals and the individuals being tested. These advantages include eliminating the risk of needle-stick accidents, providing a noninvasive collection technique, requiring minimal training to administer, providing rapid and efficient
+collection in almost any setting, and reducing the cost of administration by a trained health care professional. 
+We have received premarket approval from the FDA to sell the OraSure ® collection device for use with a laboratory-based enzyme immunoassay (“EIA”) screening test for HIV-1
+antibody detection. This EIA screening test has been approved by the FDA for use with our OraSure ® device and is manufactured and sold by bioMerieux, Inc. (“BMX”). During 2004, we completed clinical trials with BMX as part of an application to obtain FDA approval of the use
+of a new EIA screening test for HIV-1 with an OraSure ® device. The FDA submission is expected to be made by BMX during the first quarter of 2005. 
+HIV-1 antibody detection using the OraSure ® collection device involves three steps: 
+• 
+Collection of an oral fluid specimen using the OraSure ® device; 
+• 
+Screening of the specimen for HIV-1 antibodies at a laboratory with an EIA screening test approved by the FDA for use with the OraSure ® device; and 
+4 
+Table of Contents 
+• 
+Laboratory confirmation of any positive screening test results with our oral fluid Western Blot HIV-1 confirmatory test (described below). 
+A trained health care professional then conveys test results and provides
+appropriate counseling to the individual who was tested. We have also received FDA 510(k) clearance for use of the OraSure ® collection device with EIAs to test for cocaine and cotinine (a metabolite of nicotine) in oral fluid specimens primarily for insurance risk assessment
+purposes. 
+A collection device that is substantially similar to
+the OraSure ® device is sold under the name
+Intercept ® , and is used to collect OMT for oral
+fluid drug testing. We have received FDA 510(k) clearance to use the Intercept ® collection device with laboratory-based EIAs to test for drugs of abuse commonly identified by the National Institute for Drug Abuse (“NIDA”) as the NIDA-5 (i.e., cannabinoids (marijuana), cocaine, opiates,
+amphetamines/methamphetamines, and phencyclidine (“PCP”)), and for barbiturates, methadone and benzodiazepines. Each of these EIA’s is also FDA 510(k) cleared for use with the Intercept ® device. 
+We believe that the Intercept ® device has several advantages over competing urine and other drugs of abuse testing products, including its lower total testing cost, its
+non-invasive nature, safety, mobility and accuracy, the ease of maintaining a chain-of-custody, the treatment of test subjects with greater dignity, no requirement for specially-prepared collection facilities, and difficulty of sample adulteration.
+The availability of an oral fluid test is intended to allow our customers to test for drug impairment on demand, eliminate scheduling costs and inconvenience, and thereby streamline the testing process. 
+Histofreezer ® and Freeze Off ™ 
+The Histofreezer ® cryosurgical removal system is a low-cost alternative to liquid nitrogen and other methods for removal of warts and other benign skin lesions by physicians. The Histofreezer ® product mixes two environmentally friendly cryogenic
+gases in a small aerosol canister. When released, these gases are delivered to a specially designed foam bud, cooling the bud to –50°C. The frozen bud is then applied to the wart or lesion for 15 to 40 seconds (depending on the type of
+lesion) creating localized destruction of the target area by freezing. We have received 510(k) clearance for use of the Histofreezer ® product to remove common warts and eight other types of benign skin lesions. 
+In February 2003, we received FDA 510(k) clearance to market and sell a cryosurgical product similar to Histofreezer ® in the retail or over-the-counter market for the
+removal of common and plantar warts only. This product is being distributed under the name Freeze Off ™ by Medtech Holdings, Inc., the owner of the Compound W ® line of wart removal products. 
+Immunoassay Tests and Reagents 
+We develop and sell immunoassay tests in two formats, known as MICRO-PLATE and AUTO-LYTE ® , to meet the specific needs of our customers. 
+In a MICRO-PLATE kit, the sample to be tested is placed into a small plastic
+receptacle, called a microwell, along with the reagents. The result of the test is determined by the color of the microwell upon completion of the reaction. Controlling the reaction involves the use of a variety of reagents by laboratory personnel.
+Test results are analyzed by any of a variety of commercially available laboratory instruments, which we may also provide to our laboratory customers. MICRO-PLATE tests can be performed on commonly used instruments and can detect drugs in urine,
+serum, and sweat specimens. MICRO-PLATE tests are also used as part of the Intercept ® product line to detect drugs of abuse in oral fluid specimens. 
+AUTO-LYTE ® tests are sold in the form of bottles of liquid reagents. These reagents are run on commercially available laboratory-based automated analytical instruments, which are manufactured by a
+variety 
+5 
+Table of Contents 
+of third parties. AUTO-LYTE ® is typically used in high volume, automated, commercial reference insurance laboratories to detect certain drugs or chemicals in urine. Test results
+are produced quickly, allowing for high throughput. 
+Whenever
+possible, we enter into multi-year sales agreements with our customers. These agreements generally are entered into with a laboratory that has agreed to purchase a minimum number of tests over a two- to-five-year period. We also offer these
+customers the option of a reagent rental agreement under which we sell the tests at an increased price over a fixed period of time, which includes an additional equipment charge in exchange for providing the customer with the required analytical
+laboratory equipment. We obtain this equipment from third party vendors. 
+Western Blot HIV-1 Confirmatory Test 
+We sell an oral fluid Western Blot HIV-1 confirmatory test that received premarket approval from the FDA in 1996. This test uses the original specimen collected with the OraSure ® oral fluid collection device to confirm positive results of initial oral fluid HIV-1
+EIA screening tests. The oral fluid Western Blot HIV-1 confirmatory test is marketed under an exclusive arrangement with BMX. 
+Q.E.D. ® Saliva Alcohol Test 
+Our Q.E.D. ® saliva
+alcohol test is a point-of-care test device that is a cost-effective alternative to breath or blood alcohol testing. The test is a quantitative, saliva-based method for the detection of ethanol, and has been cleared for sale by the FDA and the U.S.
+Department of Transportation (“DOT”). In 1998, the product also received a CLIA waiver. 
+Each Q.E.D. ® test kit contains a collection stick that is used to collect a sample of saliva and a disposable detection device that displays results in a format similar to a thermometer. The
+Q.E.D. ® device is easy to operate and
+instrumentation is not required to read the result. The product has a testing range of 0 to 0.145% blood alcohol, and produces results in approximately two minutes. 
+UPlink ® 
+Based on our proprietary Up-Converting Phosphor Technology (UPT ™ ), UP link ® is a point-of-care system comprised of an oral fluid sample collector, test cassette, and analyzer, which is designed to deliver instrument-read
+results for simultaneously detecting the full NIDA-5 panel of tests – cocaine, methamphetamines/amphetamines, PCP, opiates and marijuana, in a single oral fluid sample. The Company believes the UP link ® point-of-care oral fluid detection system could offer several important advantages over
+traditional lab-based urine drug tests, including reduced costs and turn around time, the ability to perform accurate drug testing for a full NIDA-5 panel virtually anywhere, treatment of test subjects with greater dignity, and reduced risk of
+sample adulteration. 
+In September 2003, we filed an
+application with the FDA for 510(k) clearance of our UP link ® rapid oral fluid drugs of abuse detection system. In March 2004, the FDA responded to our application by indicating that additional performance data would be needed in order to obtain clearance. We are evaluating the
+FDA’s requirements and whether any modifications to our UP link ® system will be required in order to provide that data. At this time, we cannot predict if or when we will be able to resubmit an application for 510(k) clearance of the UP link ® system. However, the absence of 510(k) clearance does not affect our ability
+to sell the UP link ® system internationally.
+In March 2000, we signed a research and development agreement
+with Dräger Safety AG & Co. KGaA (“Dräger”), a European manufacturer and supplier of medical and safety technology products for health care and industrial applications. This agreement provided for the development of the
+UP link ® system for rapid detection of drugs
+of abuse in oral fluid. Under this agreement, Dräger has exercised an option to become our exclusive 
+6 
+Table of Contents 
+distributor of this product in Europe and certain other countries to law enforcement officials for rapidly assessing whether an operator or passenger in a
+motor vehicle is under the influence of one or more drugs of abuse (the “roadside market”) and ultimately to certain military, criminal justice, and workplace testing markets. In April 2004, we commercially launched the UP link ® system with Dräger in the roadside market in
+Europe and other countries. 
+As part of a recent strategic
+review of our business, we concluded that the roadside drugs of abuse testing market may not be as attractive as a number of our other opportunities we can pursue. Consequently, we are exploring our options with respect to the UP link ® system, including transferring the manufacturing of the
+product to Dräger, which is permitted under our agreement. If we enter into such an arrangement with Dräger, we would expect to receive royalties on future sales of the product by Dräger while retaining the rights to the workplace
+testing and possibly other markets. 
+Products Under Development
+OraQuick ® Platform 
+We believe that OraQuick ® has significant potential as a point-of-care testing platform for physicians’ offices, hospitals, and other markets. We believe that
+OraQuick ® provides a platform technology that can
+be modified for detection of a variety of infectious diseases in addition to HIV, such as viral hepatitis and certain sexually transmitted diseases. We are currently in negotiations with Ortho-Clinical Diagnostics and Chiron Corporation to obtain
+patent license rights that would enable us to develop and sell a test for detecting antibodies to the Hepatitis C virus using the OraQuick ® platform. 
+OraSure ® /Intercept ® Applications 
+Oral mucosal
+transudate, or OMT, contains many constituents found in blood and serum, although in lower concentrations. We believe the OraSure ® and Intercept ® devices are a platform technology with a wide variety of potential applications, where laboratory testing is available. For example, the OraSure ® device may be useful for the collection of a variety of antibodies or markers for
+infectious diseases or conditions in addition to HIV-1, such as antibodies to viral hepatitis. 
+In 2004, SAMHSA issued proposed regulations for oral fluid drug testing for federal workers. When issued in final form, these regulations may require certain modifications to our Intercept ® product in order to permit its use by federal workers. As a result, we are
+attempting to develop modifications to the Intercept ® collection device that we anticipate may be required by these regulations or are otherwise likely to be desired by our customers. We are also currently developing additional drugs of abuse assays for use with our
+Intercept ® collection device. 
+UPT ™ Development 
+During 2004 and for several prior years, much of our research and development efforts were focused on UPT ™ and the first UPT ™ application to be commercialized, our UP link ® rapid, point-of-care system for detecting drugs of abuse in oral fluid.
+UPT ™ is a proprietary label detection platform that uses phosphor particles to detect
+minute quantities of various substances. UPT ™ 
+utilizes the same particle shell that is coated onto a television screen, but the internal chemistry of the particle has been changed. These changes result in a particle that is excited by infrared light as compared to an ultraviolet light source
+for television screens. With assistance from our research partners, we have developed phosphorescent particles that up-convert infrared light to visible light, which we believe may be a label technology with broad applications. During 2004, research
+was conducted to decrease particle size and increase the light-emitting efficiency of the particles. 
+7 
+Table of Contents 
+We are participating in the third year of a $4.2 million, four-year grant for research and development of
+saliva/oral fluid-based diagnostic technologies, awarded by the National Institutes of Health (the “NIH”) to the University of Pennsylvania. The grant covers basic research in the following three main areas: 
+• 
+New technologies for collecting bacterial/viral protein and nucleic acid samples from the human mouth; 
+• 
+The combination of the University of Pennsylvania’s microfluidic processing technology with our UPT ™ technology for sample preparation; and 
+• 
+The detection of viral or bacterial markers. 
+The research plan under the grant contemplates achieving these goals through the use of our UP link ® rapid detection system. 
+Our portion of funding under the grant was approximately $400,000 in the first year, $350,000 in the second year, and
+$308,000 in the third year and if the grant is renewed by the NIH as we expect, approximately $300,000 in the last year. Payments under the grant are subject to availability of funding from the NIH and satisfactory progress of the research and
+development project. 
+Although we believe that UPT ™ may have several potential applications for in
+vitro diagnostics, we have not been able to successfully develop potential UPT ™ applications other than the UP link ® application for rapid detection of drugs of abuse in oral fluid. We are evaluating the viability of UPT ™ as a technology platform, and a final decision as to the future of UPT ™ has not been made. Accordingly, there can be no assurance that we will develop additional UPT ™ applications or continue to invest in research and
+development for UPT ™ . 
+Business Strategy 
+During the fourth quarter of 2004, we completed an intensive review and refinement of our strategic business plans. As a
+result, we have adopted a multi-part growth strategy, pursuant to which we intend to leverage our extensive diagnostic experience in order to maximize the available opportunities from our existing products and technologies, and supplement our
+existing product pipeline by accessing other technologies and products. We intend to follow a disciplined approach to maximize the value of our business for the benefit of our stockholders. 
+Our overall vision is to become a recognized global leader focused on
+providing innovative diagnostic solutions that add substantial value to existing and emerging healthcare needs. In order to achieve this vision, our business strategy will include the following key elements: 
+• 
+Extension of Base Businesses . We intend to maximize the sales potential of our existing product lines and technologies in the markets where they are
+currently sold, with a focus on expanding, where possible, the number of our oral fluid product offerings. Under this part of the strategy, we intend to fully capitalize on the potential market reach of our OraQuick ® , OraSure ® , Intercept ® , Histofreezer ® and Freeze Off ™ products by investing in our sales and marketing efforts where appropriate, making product improvements and enhancements, and optimizing our distribution channels. We also intend to expand the reach of our existing
+products and technology platforms into new markets and will focus specifically on expanding into international markets. 
+• 
+Infectious Disease Testing . We will pursue new products and technology platforms in the infectious disease, point-of-care testing business to
+supplement our existing product pipeline. This may include either the development of new infectious disease products or the acquisition of new technologies or products. One new product we are pursuing is the development of a rapid Hepatitis C test
+on our OraQuick ® platform.
+• 
+OTC Opportunities . We intend to identify or develop products that can be sold in the over-the-counter (“OTC”) or retail
+marketplace. One potential opportunity under this part of our strategy is to determine 
+8 
+Table of Contents 
+the feasibility of selling our OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test in the United States OTC market. We are also seeking a partner for distributing our cryosurgical wart removal product in the European OTC market.
+• 
+Operational Improvements . We intend to create a culture focused on the continuous improvement of our operations. These improvements will include, but
+not be limited to, expanding the use of automated manufacturing for our product lines as demand increases, expanding the global sourcing of components and assemblies to achieve efficiencies and cost improvements, making infrastructure and
+information technology investments as needed to improve effectiveness and productivity, and modifying our processes in order to continuously improve quality and the effectiveness of our operations. 
+Research and Development 
+In 2004, our research and development activities focused on the continued
+development of the UP link ® analyzer, test
+cassette and collector, the development of the UP link ® drugs of abuse assays, clinical trials and regulatory efforts related to claims for HIV-2, oral fluid and plasma for our OraQuick ® ADVANCE ™ test, CLIA waiver of our OraQuick ® ADVANCE ™ HIV-1/2 test and improvements to certain of our existing products. 
+We supplement our own research and development activities by funding external research. We have funded research at Leiden University and certain other
+entities, and may continue funding external research. 
+Research
+and development expenses totaled approximately $6.1 million in 2004, $8.0 million in 2003 and $8.3 million in 2002. These expenses include the costs associated with research and development, regulatory affairs and clinical trials. 
+Sales and Marketing 
+We attempt to reach our major target markets through a combination of direct sales, strategic partnerships, and independent
+distributors. Our marketing strategy is to raise awareness through a full array of marketing activities, which include trade shows, print advertising, special programs and distributor promotions, to support sales in each target market. 
+We market our products in the United States and internationally. Revenues
+attributable to customers in the United States amounted to $47.8 million, $35.9 million and $28.1 million in 2004, 2003 and 2002, respectively. Revenues attributable to international customers amounted to $6.2 million, $4.6 million and $3.9 million,
+or 11%, 11% and 12% of our total revenues, in 2004, 2003 and 2002, respectively. 
+Insurance Risk Assessment 
+We currently market the OraSure ® oral
+fluid collection device for use in screening life insurance applicants in the United States and internationally to test for three of the most important underwriting risk factors: HIV-1, cocaine and cotinine (a metabolite of nicotine). Devices are
+sold to insurance testing laboratories, including Lab One , Inc., Heritage Labs and Clinical Reference Laboratory. These laboratories in turn provide the devices to insurance companies, usually in combination with testing services. 
+We also maintain a direct sales force that promotes use of the
+OraSure ® device directly to insurance companies for
+life insurance risk assessment. Insurance companies then make their own decision regarding which laboratory to use to supply their collection devices and testing services. Our OraSure ® Western Blot confirmatory test is distributed through BMX to laboratories and is used
+to confirm oral fluid specimens that initially test positive for HIV-1. 
+Because insurance companies are in various stages of their adoption of the OraSure ® device, there exists a wide range of policy limits where the product is being applied. Some insurance companies have chosen to extend 
+9 
+Table of Contents 
+their testing to lower policy limits where they did not test at all before, while others have used OraSure ® to replace some of their blood and urine-based testing. In general, most of our
+insurance company customers use the OraSure ® device
+in connection with life insurance policies having face amounts of up to $250,000, with some customers using the device for policies of up to $500,000 in amount. One large insurance customer uses the OraSure ® device with policies having face amounts up to $3 million. 
+Our sales force continues to encourage additional insurance companies to use
+OraSure ® and to extend the use of the product by
+existing customers. We believe there are several factors which will help expand the use of our device, including increasing acceptance of the reliability of oral fluid testing, the high quality of test results, the low cost of oral fluid testing
+relative to blood tests, the ease of use of the OraSure ® device, and the development of new oral fluid assays for use with our OraSure ® device for detecting substances or conditions that affect life insurance risk assessment. 
+We also sell our AUTO-LYTE ® and MICRO-PLATE assays and reagents in the insurance testing market directly to laboratories, including Lab One , Heritage Labs and Clinical
+Reference Laboratory. 
+Infectious Disease Testing
+Our sales personnel market the OraSure ® oral fluid collection device, separately and as a kit
+in combination with laboratory testing services (as described below), and both the OraQuick ® ADVANCE ™ HIV-1/2 and OraQuick ® HIV-1 antibody tests directly to customers in the public health market for HIV testing. This market consists of a broad range of clinics and laboratories and includes states, counties, and other governmental agencies,
+the CDC, SAMHSA, colleges and universities, correctional facilities and the military. There are also a number of organizations in the public health market such as AIDS service organizations and various community-based organizations set up primarily
+for the purpose of encouraging and enabling HIV testing. 
+To
+better serve our public health customers, we have entered into agreements with Lab One and Heritage Labs to provide prepackaged OraSure ® test kits, with prepaid laboratory testing and specimen shipping costs included. We also sell the OraSure ® and OraQuick ® devices in the international public health markets. 
+In June 2002, we entered into an agreement under which Abbott Laboratories was appointed as the co-exclusive distributor of
+the OraQuick ® rapid HIV-1 antibody test in the
+United States, focusing primarily on the hospital and physicians’ office markets. This relationship was later converted to a non-exclusive distributorship in early 2004. In February 2005, we entered into a new agreement for the distribution of
+the OraQuick ® ADVANCE ™ HIV-1/2 test, appointing Abbott as our exclusive
+distributor in the U.S. hospital market and as a non-exclusive distributor in the U.S. physicians’ office marketplace. As our exclusive distributor to hospitals, Abbott will sell OraQuick ® ADVANCE ™ to federal hospitals under the terms of our Federal Supply Schedule on file with the General Services Administration.
+Under this new agreement, we have retained exclusive rights for all other markets including sales to the public health and criminal justice markets, the military, the CDC, SAMHSA and other governmental agencies. In February 2005, we terminated the
+distribution agreement with Abbott for the OraQuick ® rapid HIV-1 antibody test and expect Abbott to transition its customers to OraQuick ® ADVANCE ™ . 
+In 2004, we deployed a small sales force that provided direct access to and marketing support for the hospital market for our OraQuick ® test. This sales force successfully sold our OraQuick ® tests into the hospital market and will now support and work with Abbott to maximize the penetration of OraQuick ® ADVANCE ™ in this market. 
+Substance Abuse Testing 
+Our substance abuse testing products are marketed to laboratories serving the workplace testing, forensic toxicology, criminal justice, and drug
+rehabilitation markets. The forensic toxicology market consists of 250 – 
+10 
+Table of Contents 
+300 laboratories including federal, state and county crime laboratories, medical examiner laboratories, and reference laboratories. The criminal justice
+market consists of a wide variety of entities in the criminal justice system that require drug screening, such as pre-trial services, parole and probation officials, police forces, drug courts, prisons, drug treatment programs and community/family
+service programs. 
+We have entered into agreements for the
+distribution of Intercept ® collection devices and
+associated MICRO-PLATE assays for drugs-of-abuse testing in the workplace testing market in the United States and Canada through several laboratory distributors, including Lab One , Quest Diagnostics and Clinical Reference Laboratory, and
+internationally for workplace and forensic toxicology testing through Bio-Rad Laboratories, Altrix HealthCare, plc, and other distributors. We assist our laboratory customers in customizing their testing services by selling them equipment required
+to test oral fluid specimens collected with the Intercept ® device. 
+We also distribute our
+Q.E.D. ® saliva alcohol test primarily through
+various distributors. The markets for alcohol testing are relatively small and fragmented with a broad range of legal and procedural barriers to entry. Markets range from law enforcement testing to workplace testing of employees in safety sensitive
+occupations. The Q.E.D. ® test has been successfully
+adopted by end users in the petroleum, heavy construction, trucking, and retail industries because it is a cost-effective, portable, easy-to-administer and quantitative testing method. Typical usage situations include pre-employment, random,
+post-accident, reasonable-cause, and return-to-duty testing. 
+Cryosurgical Systems 
+We sell Freeze Off ™ , a product similar to Histofreezer ® , in the over-the-counter market in the U.S. pursuant to
+a distribution agreement with Medtech, the owner of the Compound W ® line of wart removal products and a wholly-owned subsidiary of Prestige Brands Holdings, Inc. 
+Most of our Histofreezer ® sales occur in the United States to distributors that, in turn, resell the product to more than 150,000 primary care physicians and podiatrists in the
+United States. Major U.S. distributors include Cardinal Healthcare, McKesson HBOC, Physicians Sales & Service, AmerisourceBergen Corporation, and Henry Schein. Internationally, we established a sales office in Reeuwijk, The Netherlands, and we
+are selling the Histofreezer ® product through a
+dealer network in more than 20 countries worldwide. 
+International Markets 
+We sell a number of our
+products into international markets primarily through distributors with knowledge of their local markets. Principal markets include physicians’ offices, insurance risk assessment, substance abuse, public health, and laboratory testing.
+We assist our international distributors in registering the
+products and obtaining required regulatory approvals in each country, and we provide training and support materials. Our international marketing program includes direct assistance to distributors in arranging for laboratory services, cooperation
+from screening test manufacturers, and performance of Western Blot confirmatory tests when necessary. 
+Significant Products and Customers 
+Several different products have contributed significantly to our financial performance, accounting for 15% or more of total revenues during the past three years. The OraSure ® and Intercept ® oral fluid collection devices, Histofreezer ® and Freeze Off ™ products, immunoassay tests and reagents, and OraQuick ® rapid HIV tests accounted for total revenues of approximately $14.6 million, $20.2 million, $6.4 million and $10.2 million in 2004, $14.5
+million, $10.8 million, $6.6 million and $6.3 million in 2003 and $14.3 million, $7.2 million, $7.6 million and $400,000 in 2002, respectively. As new products are developed and commercialized, we expect to reduce our dependence on these existing
+products. 
+11 
+Table of Contents 
+We currently have two customers, Lab One and Medtech Holdings, Inc., which accounted for 12% and
+25% of our total revenues, respectively, during 2004. 
+Lab One stopped purchasing our AUTO-LYTE ® urine assays as of June 2003, and our oral fluid assays as of June 2004. As a result, our assay revenues in the insurance risk assessment market in 2004 were reduced by approximately $1.2 million when compared to 2003.
+Similarly, our assay revenues in the insurance risk assessment market in 2003 were reduced by approximately $1.8 million when compared to 2002. 
+The loss of Lab One or Medtech, or a significant decrease in the volume of products purchased by either customer, could have a material adverse
+effect on our results. 
+Supply and Manufacturing 
+During 2004, we successfully transferred manufacturing of both the
+OraSure ® and Intercept ® collection devices and the oral fluid Western Blot HIV-1 confirmatory test to
+our Bethlehem, Pennsylvania facility. The transfer of the OraSure ® device and the Western Blot required FDA approval and, in August 2003, we completed the required equivalency and validation studies and filed a submission with the FDA seeking approval of the transfers. The FDA granted
+approval for the transfer of the Western Blot test in January 2004 and for the OraSure ® device in March 2004, after an inspection of our Bethlehem manufacturing facility. The transfer of the manufacturing of our Intercept ® device required only that we notify the FDA of the transfer. We expect the transfer of these products will lower our
+manufacturing costs and help assure that we can maintain our quality control for these products in the future. 
+We manufacture the OraQuick ® test in our Bethlehem, Pennsylvania facility. In addition, we have entered into a supply agreement for the assembly of the OraQuick ® device in Thailand, in order to supply certain
+international markets. This supply agreement had an initial term of one year, and automatically renews for additional annual periods unless either party provides a timely notice of termination prior to the end of an annual period. We believe that
+other firms would be able to manufacture the OraQuick ® test on terms no less favorable than those set forth in the agreement if the Thailand contractor would be unable or unwilling to continue manufacturing this product. 
+We can purchase the HIV antigen and the nitrocellulose required for the
+OraQuick ® test only from a limited number of
+sources. The antigen is currently purchased from a single contract supplier under a long-term agreement with an initial term ending in January 2010 and one-year automatic renewal terms thereafter. The nitrocellulose used in the test is also provided
+by a single contract supplier, under a supply agreement with a five-year term ending in 2009. If for any reason these suppliers are no longer able to supply our antigen or nitrocellulose needs, we believe that alternative supplies could be obtained
+at a competitive cost. However, a change in the antigen or nitrocellulose would require FDA approval and some additional development work. This in turn would require significant time to complete and could disrupt our ability to manufacture and sell
+the OraQuick ® device. 
+The oral fluid Western Blot HIV-1 confirmatory test is currently manufactured
+in our Bethlehem, Pennsylvania facility. The HIV antigen needed to manufacture the Western Blot test is available from only a limited number of sources. For many years, we have purchased the antigen for this product from BMX on an exclusive basis.
+BMX is also the exclusive distributor of the Western Blot test kits. 
+In October 2002, we entered into new agreements with BMX, which replaced existing agreements between our companies. These new agreements provide for the continued supply by BMX of the HIV-1 antigen and distribution of the oral fluid Western
+Blot product by BMX on an exclusive worldwide basis. If for any reason BMX is no longer able to supply our antigen needs, we believe we would be able to obtain alternate supplies at a competitive cost. However, a change in the antigen would require
+FDA approval and some additional development work, which would require significant time to complete and could disrupt our ability to manufacture and sell the Western Blot HIV-1 confirmatory test. 
+12 
+Table of Contents 
+Histofreezer ® is assembled in The Netherlands by Koninklijke, Utermöhlen, N.V. (“Utermöhlen”), the company from which we acquired the
+product in 1998. We purchase the product pursuant to an exclusive production agreement. This agreement provides that Utermöhlen will be the exclusive supplier of the Histofreezer ® product until at least December 31, 2006. Utermöhlen also manufactures Freeze
+Off ™ , the over-the-counter version of
+Histofreezer ® for the U.S. market. We believe that
+additional manufacturers of the Histofreezer ® and
+Freeze Off ™ products are available on terms no
+less favorable than the terms of the production agreement with Utermöhlen, in the event that Utermöhlen would be unable or unwilling to continue manufacturing these products. 
+Our AUTO-LYTE ® and MICRO-PLATE assays are manufactured in our Bethlehem, Pennsylvania facility. These tests require the production of highly specific and sensitive
+antibodies corresponding to the antigen of interest. Substantially all our antibody requirements are provided by contract suppliers. We believe that we have adequate reserves of antibody supplies and that we have access to sufficient raw materials
+for these products. 
+The Q.E.D. ® saliva alcohol test is manufactured and packaged for shipment in our
+Bethlehem, Pennsylvania facility. 
+We assemble analyzers, test
+cassettes and collectors used in our UP link ® 
+oral fluid drugs of abuse rapid detection system and package this product for shipment at our Bethlehem, Pennsylvania facility. 
+Employees 
+As of December 31, 2004, we had 194 full-time employees, including 61 in sales, marketing, and client services; 27 in research and development; 73 in
+operations, manufacturing, quality control, quality assurance, regulatory affairs, clinical trials, information systems, purchasing and shipping; and 33 in administration and finance. This compares to 171 employees as of December 31, 2003. As of
+December 31, 2004, eight of our employees held Ph.D. degrees. Our employees are not currently represented by a collective bargaining agreement. 
+Competition 
+The diagnostic industry is a multi-billion dollar international industry and is intensely competitive. Many of our competitors are substantially larger
+and have greater financial, research, manufacturing, and marketing resources. 
+Important competitive factors for our products include product quality, price, ease of use, customer service, and reputation. Industry competition is based on the following: 
+• 
+Scientific and technological capability; 
+• 
+Proprietary know-how; 
+• 
+The ability to develop and market products and processes; 
+• 
+The ability to obtain FDA or other regulatory approvals; 
+• 
+The ability to manufacture products that meet applicable FDA requirements (i.e., good manufacturing practices); 
+• 
+Access to adequate capital; 
+• 
+The ability to attract and retain qualified personnel; and 
+• 
+The availability of patent protection. 
+A few large corporations produce a wide variety of diagnostic tests and other medical devices and equipment. A larger number of mid-size companies
+generally compete only in the diagnostic industry, and a 
+13 
+Table of Contents 
+significant number of small companies produce only a few diagnostic products. As a result, the diagnostic test industry is highly fragmented and segmented.
+The future market for diagnostic tests is expected to be
+characterized by consolidation, greater cost consciousness, and tighter reimbursement policies. The purchasers of diagnostic products are expected to place increased emphasis on lowering costs, reducing inventory levels, automation, service, and
+volume discounts. The increased complexity of the market is expected to force many competitors to enter into joint ventures or license certain products or technologies. 
+We expect competition to intensify as technological advances are made and become more widely known, and as new products
+reach the market. Furthermore, new testing methodologies could be developed in the future that render our products impractical, uneconomical or obsolete. There can be no assurance that our competitors will not succeed in developing or marketing
+technologies and products that are more effective than those we develop or that would render our technologies and products obsolete or otherwise commercially unattractive. In addition, there can be no assurance that our competitors will not succeed
+in obtaining regulatory approval for these products, or introduce or commercialize them before we can do so. These developments could have a material adverse effect on our business, financial condition and results of operations. 
+Several companies market or have announced plans to market oral specimen
+collection devices and tests outside the United States. We expect the number of devices competing with our Intercept ® and OraSure ® devices to increase as the benefits of oral specimen-based testing become more widely accepted. 
+Competition in the market for HIV testing is intense and is expected to increase. We believe that the principal competition will come from existing
+laboratory-based blood tests, point-of-care rapid blood tests, laboratory-based urine assays, or other oral fluid-based tests that may be developed. Our competitors include specialized biotechnology firms as well as pharmaceutical companies with
+biotechnology divisions and medical diagnostic companies. 
+Significant competitors for our OraQuick ® 
+rapid tests, such as the Ortho Diagnostics division of Johnson & Johnson and Bio-Rad Laboratories, sell laboratory-based HIV-1 EIAs, and Calypte, Inc. sells an HIV-1 screening test for urine, in the United States. Abbott Laboratories sells a
+competing rapid HIV test internationally, but during 2003 terminated the manufacture of a rapid HIV test sold primarily into the United States hospital market. In addition, MedMira and Trinity Biotech have each received FDA approval to sell
+competing rapid HIV-1 blood tests, and Bio-Rad Laboratories has received FDA approval to sell a competing rapid HIV-1/2 blood test in the United States. We believe these tests, under their current FDA approvals, will compete with our OraQuick ® tests in the hospital or other laboratory settings. In
+addition, Trinity Biotech has received CLIA waiver for its rapid HIV test, and we believe that this test will compete with our OraQuick ® tests in the markets outside of the traditional hospital and laboratory settings. These companies, or others, may continue to expand the bodily fluids
+with which a rapid HIV test may be performed, or develop and commercialize new rapid HIV tests, which would provide further competition for our OraQuick ® tests. We believe other companies may also seek FDA approval to sell competing rapid HIV tests in the future. 
+In the insurance risk assessment market, our AUTO-LYTE ® homogeneous assays for cocaine and cotinine compete
+with reagents from Microgenics, Inc. (a subsidiary of Apogent Technologies). Our AUTO-LYTE ® homogeneous assays for beta-blockers and thiazides as well as MICRO-PLATE heterogeneous assays specifically designed for the detection of cocaine, cotinine, and Immunoglobulin G, or IgG, in oral fluid are the
+only assays available in the marketplace. In urine chemistries, our significant competitors include The Diagnostics Systems Group of Olympus America Inc. and Diagnostic Reagents International. However, the most significant competition facing our
+AUTO-LYTE ® assays is from assays developed
+internally by our laboratory customers (i.e., “home brews”), which can be produced at a cost lower than the price typically paid for our products. For example, effective June 30, 2003, Lab One , Inc. ceased purchasing our
+AUTO-LYTE ® urine assays for insurance risk
+assessment testing, in order, we believe, to use internally-developed assays. As a result, revenues from these products were substantially lower in 2004. 
+14 
+Table of Contents 
+Our MICRO-PLATE drugs-of-abuse reagents are targeted to forensic testing laboratories where sensitivity,
+automation, and “system solutions” are important. In the past, these laboratories have typically had to rely on radioimmunoassay test methods to provide an adequate level of sensitivity. Radioimmunoassays require radioactive materials,
+which have a short shelf-life and disposal problems. Our MICRO-PLATE tests meet the laboratories’ sensitivity needs, run on automated equipment, are not radioimmunoassays, and are offered to the laboratory as a complete system solution of
+reagents, instrumentation and software to meet the specific needs of each customer. Options to buy or rent the instrumentation and software, which we purchase from third party vendors, are offered to these customers. 
+In the forensic toxicology market, we compete with both homogeneous and
+heterogeneous tests manufactured by many companies. Significant competitors in the market for these assays include Microgenics, Inc., Roche Diagnostics, and Immunalysis. 
+The Intercept ® drug testing system competes with laboratory-based drug testing products and services using testing matrices such as urine, hair, sweat and oral fluid.
+Major competitors include Ansys Technologies, Inc., Dade Behring, Psychemedics, and Immunalysis. 
+Our MICRO-PLATE oral fluid drug assays, which are sold for use with the Intercept ® and OraSure ® collection devices, are expected to come under increasing competitive pressure from “home-brew” assays developed internally by our laboratory
+customers. In fact, on June 30, 2004 Lab One , Inc. ceased purchasing our MICRO-PLATE oral fluid assays for use with our OraSure ® collection device in the insurance risk assessment testing market and is now, we believe, using internally-developed home-brew assays instead.
+The Histofreezer ® product’s delivery system and warmer operating temperature than liquid nitrogen
+provide us with the opportunity to target sales to primary care physicians, such as family practitioners, pediatricians, and podiatrists. We do not generally target sales to dermatologists because they have the volume of patients required to support
+the capital costs associated with a liquid nitrogen delivery system, which is also used to remove warts and other benign skin lesions. There is limited competition for convenient cryosurgical products for wart removal in the primary care physician
+market. Major competitors for the Histofreezer ® 
+product include Cryosurgery, Inc. in the United States and Wartner in Europe. Wartner may also eventually compete with Histofreezer ® in the physician market in the United States. 
+The Freeze Off ™ product, sold by Medtech under its Compound W ® tradename, competes with other over-the-counter wart removal products in the United States. Wartner currently sells a competing cryosurgical wart removal product in the over-the-counter
+market, and Schering-Plough began selling a competing cryosurgical wart removal product under its Dr. Scholl’s brand in 2004. In July 2004, we filed a lawsuit against Schering-Plough alleging that Schering-Plough’s manufacture and sale of
+its Dr. Scholl’s ® Freeze Away ™ cryosurgical wart removal product in the
+over-the-counter market infringes three patents relating to our cryosurgical products. For a further discussion of this dispute with Schering-Plough, see the Section of this Annual Report entitled “Legal Proceedings.” 
+Q.E.D. ® has two direct competitors, Ansys Technologies, Inc. and Chematics. These companies offer semi-quantitative
+saliva-based alcohol tests and have received DOT approval. Indirect competitors who offer breath testing equipment include Intoximeters, Dräger, and CMI. Although there are lower priced tests on the market that use oral fluid or breath as a
+test medium, these tests are qualitative tests that are believed to be substantially lower in quality and provide fewer benefits than our Q.E.D. ® test. 
+Our UP link ® product also is expected to compete with other on-site, rapid drug assays and instrument-read tests. Major competitors in this area include American Biomedica, Biosite Diagnostics,
+Avitar, Inc., Ansys Technologies, Inc., and eScreen. Another potential competitor, LifePoint, Inc., has announced plans to sell a reader-based saliva test panel that will include alcohol testing. 
+15 
+Table of Contents 
+Patents and Proprietary Information 
+We seek patent and other intellectual property rights to protect and preserve our proprietary technology and our right to
+capitalize on the results of our research and development activities. We also rely on trade secrets, know-how, continuing technological innovations, and licensing opportunities to provide competitive advantages for our products in our markets and to
+accelerate new product introductions. We regularly search for third-party patents in fields related to our business to shape our own patent and product commercialization strategies as effectively as possible and to identify licensing opportunities.
+United States patents generally have a maximum term of 20 years from the date an application is filed. 
+We have 16 United States patents and numerous foreign patents for the OraSure ® and Intercept ® collection devices and technology relating to oral fluid collection, containers for oral fluids, methods to test oral fluid, formulations for the
+manufacture of synthetic oral fluid, and methods to control the volume of oral fluid collected and dispersed. We have also applied for additional patents, in both the United States and certain foreign countries, on such products and technology.
+We have one patent for lateral flow diagnostic tests that
+covers our OraQuick ® rapid HIV antibody tests in
+the United States, and we intend to apply for additional patents for this product. We have obtained licenses to certain lateral flow patents and to certain HIV-1 patents held by other parties in order to market the OraQuick ® tests. In June 2004, we received a worldwide,
+non-exclusive sublicense from Bio-Rad Laboratories under patents relating to the HIV-2 virus. Bio-Rad is the exclusive licensee of these patents, which are held by the Institute Pasteur of Paris, France. The non-exclusive rights to the HIV-2 patents
+obtained from Bio-Rad will permit us to sell a rapid test for both HIV-1 and HIV-2 using our OraQuick ® technology platform on a worldwide basis. We obtained these licenses through the payment of certain upfront fees and an agreement to pay ongoing royalties. We believe these fees and
+royalties are comparable to those generally paid by other companies under similar arrangements. 
+We may need to obtain licenses or other rights under, or enter into distribution or other business arrangements in connection with certain other
+intellectual property patents, in order to manufacture and sell the OraQuick ® HIV tests. See the Section entitled “Risk Factors,” for a further discussion of these issues. 
+In April 1995, we received exclusive worldwide rights under patents and know-how owned by SRI International to develop and market products that involve
+the use of UPT ™ . We also received non-exclusive
+worldwide rights under patents and know-how owned by the Sarnoff Corporation (a subsidiary of SRI International formerly called the David Sarnoff Research Center) to develop and market products that involve the use of UPT ™ . We have the right to sublicense these rights, subject to consent from SRI
+and Sarnoff. 
+Under the agreement with SRI, we are required to
+make license, maintenance and royalty payments to SRI. We must also make royalty payments for a period equal to the longer of ten years from the date of the first commercial sale of the products or the term during which the manufacture, use, or sale
+of a product would infringe licensed patents, but for our license with SRI. We believe that the royalty rates payable to SRI are comparable to the rates generally payable by other companies under similar arrangements. Our agreement with SRI
+terminates upon the expiration of our obligation to pay royalties. 
+In 1999, we paid $1.5 million to TPM Europe Holding B.V., our sublicensor, for the termination of an existing license agreement between the sublicensor and the Company with respect to the sublicense of UPT ™ patents owned by Leiden University, The Netherlands, and to secure a direct
+research, development, and license arrangement with Leiden University. 
+We have five United States patents and numerous foreign patents issued for apparatuses and methods for the topical removal of skin lesions relating to our Histofreezer ® and Freeze Off ™ products. We have also licensed another patent relating to apparatuses and methods for the topical removal of skin lesions relating to our
+Histofreezer ® and Freeze Off ™ products. 
+16 
+Table of Contents 
+We have or have licensed rights under 16 United States patents and numerous foreign patents for methods,
+compositions, and apparatuses relating to our UPT ™ 
+and UP link ® technologies. Several additional
+UPT ™ and UP link ® patent applications remain pending in the United States and abroad.
+We have one United States patent relating to the method for
+detecting blood in urine specimens using our AUTO-LYTE ® products. 
+We have four United
+States patents and numerous foreign patents and patent applications for the technology used in the Q.E.D. ® test. These patents are related to the analog-to-digital technology color control systems and methods, systems and devices for the test, and detection of biochemical molecules.
+We require our employees, consultants, outside collaborators,
+and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed by or made known to the individual during the
+course of the individual’s relationship with us, is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual
+during his or her tenure with us will be our exclusive property. 
+We own rights to trademarks and service marks that we believe are necessary to conduct our business as currently operated. In the United States, we own the UPT ™ , UP link ® , OraSure ® , Intercept ® , OraQuick ® ,
+OraQuick ® ADVANCE ™ , Histofreezer ® , Q.E.D. ® and AUTO-LYTE ® trademarks. We also own many of these marks and others in several foreign countries. The tradename, Freeze Off ™ , is owned by Medtech Holdings, Inc., in the U.S. and Canada. 
+Although important, the issuance of a patent or existence of trademark or
+trade secret protection does not in itself ensure the success of our business. Competitors may be able to produce products competing with our patented products without infringing our patent rights. Issuance of a patent in one country generally does
+not prevent manufacture or sale of the patented product in other countries. The issuance of a patent is not conclusive as to validity or as to the enforceable scope of the patent. The validity or enforceability of a patent can be challenged by
+litigation after its issuance. If the outcome of such litigation is adverse to the owner of the patent, the owner’s rights could be diminished or withdrawn. Trade secret protection does not prevent independent discovery and exploitation of the
+secret product or technique. 
+Government Regulation 
+General 
+Most of our products are regulated by the FDA, certain state and local
+agencies, and comparable regulatory bodies in other countries. This regulated environment governs almost all aspects of development, production, and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing,
+and recordkeeping. 
+All of our FDA-regulated products require
+some form of action by the FDA before they can be marketed in the United States. After approval or clearance by the FDA, we must continue to comply with other FDA requirements applicable to marketed products. Both before and after approval or
+clearance, failure to comply with the FDA’s requirements can lead to significant penalties or could disrupt our ability to sell these products. In addition, the FDA could refuse permission to obtain certificates needed to export our products if
+the agency determines that we are not in compliance. 
+Domestic Regulation 
+Most of our products are
+regulated in the United States as medical devices. 
+17 
+Table of Contents 
+There are two mechanisms by which regulated medical devices can be placed on the market in the United
+States. Some products may qualify for clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act. To obtain this clearance from the FDA, the manufacturer must provide a premarket notification that it intends to begin marketing the
+product, and show that the product is substantially equivalent to another legally marketed product (i.e., that it has the same intended use and is as safe and effective as a legally marketed device and does not raise different questions of safety
+and effectiveness). In some cases, the submission must include data from human clinical studies. Marketing may commence when the FDA issues a clearance letter finding substantial equivalence. An applicant must submit a 510(k) application at least 90
+days before marketing of the affected product commences. Although FDA clearance may be granted within that 90-day period, in some cases as much as a year or more may be required before clearance is obtained, if at all. 
+If the medical device does not qualify for the 510(k) procedure (either
+because it is not substantially equivalent to a legally marketed device or because it is required by statute and the FDA’s regulations to have an approved premarket application), the FDA must approve a premarket application, or PMA, before
+marketing can begin. PMAs must demonstrate, among other matters, that the medical device provides a reasonable assurance of safety and effectiveness. A PMA is typically a complex submission, including the results of preclinical and clinical studies.
+Preparing a PMA is a detailed and time-consuming process. Once a PMA has been submitted, the FDA is required to review the submission within 180 days. However, the FDA’s review may, and often is, much longer, often requiring one year or more,
+and may include requests for additional data before approval is granted, if at all. 
+Some of our products are used for non-medical purposes and many of our drugs-of-abuse products sold to state crime labs are for forensic use. The FDA does not currently regulate products used for these purposes.
+Every company that manufactures medical devices distributed in
+the United States must comply with the FDA’s Quality System Regulations (“QSRs”). These regulations govern the manufacturing process, including design, manufacture, testing, release, packaging, distribution, documentation and
+purchasing. In complying with QSRs, manufacturers must continue to expend time, money, and effort in the area of production and quality assurance to ensure full technical compliance. Companies are also subject to other post-market and general
+requirements, including restrictions imposed on marketed products, promotional standards, and requirements for recordkeeping and reporting of certain adverse reactions. If there are any modifications made to our marketed devices, a premarket
+notification or premarket approval application may be required to be submitted to, and cleared or approved by, the FDA, before the modified device may be marketed. The FDA regularly inspects companies to determine compliance with QSRs and other
+post-market requirements. Failure to comply with statutory requirements and the FDA’s regulations can result in warning letters, monetary penalties, suspension or withdrawal of regulatory approvals, operating restrictions, total or partial
+suspension of production, injunctions, product recalls, seizure of products, and criminal prosecution. 
+Products that include electrical or light emitting equipment must also comply with the FDA’s safety and performance standards applicable to such
+equipment. Our UP link ® analyzer is a piece
+of electrical equipment that uses a laser to read the test results and is, therefore, subject to these requirements. In addition, there is an industry safety and performance standard for electrical equipment established by Underwriters Laboratories,
+Inc., known as UL3101-1. Although a voluntary standard, compliance with UL3101-1 supported our 510(k) submission for the UP link ® analyzer. Underwriters Laboratories Inc. was retained to examine and test the UP link ® analyzer and has certified that this product meets the FDA requirements and UL3101-1
+(i.e., UL approval). 
+The Clinical Laboratory Improvements
+Amendments of 1988, or CLIA, prohibit laboratories from performing tests for the purpose of providing information for the diagnosis, prevention or treatment of any disease or impairment of, or the assessment of, the health of human beings, unless
+there is in effect for such laboratories a certificate issued by the U.S. Department of Health and Human Services applicable to the category of examination or procedure performed. We consider the applicability of the requirements of CLIA in the
+design and development of our products. We have obtained a waiver of the CLIA requirements for both our OraQuick ® 
+18 
+Table of Contents 
+rapid HIV-1 and OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody tests and our Q.E.D. ® alcohol saliva test, and may seek similar waivers for certain other products. A CLIA waiver allows certain customers to use the waived products that may not have been able to use them
+without complying with certain quality control and other requirements. 
+Certain of our products may also be affected by state regulations in the United States. For example, there are several states that restrict or do not currently permit oral fluid drug testing in the workplace or other markets. In addition,
+several states prohibit or limit the use of rapid, point-of-care HIV testing. We are presently working with legislators or regulators in certain of these states in an effort to modify or remove any restrictions affecting our ability to sell
+products. 
+International 
+We are also subject to regulations in foreign countries governing products,
+human clinical trials and marketing, and may need to obtain approval from international public health agencies, such as the World Health Organization, in order to sell products in certain countries. Approval processes vary from country to country,
+and the length of time required for approval or to obtain other clearances may in some cases be longer than that required for U.S. governmental approvals. We generally pursue approval only in those countries that we believe have a significant market
+opportunity. 
+The International Organization for
+Standardization (“ISO”) is a worldwide federation of national standards bodies from some 130 countries, established in 1947. The mission of the ISO is to promote the development of standardization and related activities in the world with a
+view to facilitating the international exchange of goods and services. ISO certification is a pre-requisite to use of the CE mark and indicates that our quality system complies with standards applicable to activities ranging from initial product
+design and development through production and distribution. The CE mark is a European Union (“EU”) requirement to sell products that fall under the scope of the Medical Devices Directive (“MDD”) and the In Vitro Diagnostic Device
+Directive (“IVDD”). The CE mark is evidence that the manufacturer meets the requirements of all applicable directives, including the MDD and IVDD. 
+On June 14, 1998, compliance with the MDD became mandatory for all manufacturers selling medical devices in the EU. In the first quarter of 1999, we
+received authorization to use the CE mark for the OraSure ® and Intercept ® 
+collection devices based on meeting ISO standards at our former Beaverton, Oregon facility, and we subsequently transferred this authorization to our Bethlehem, Pennsylvania facility in November 2003. In December 2000, our Bethlehem facility
+received final certification under the MDD and various ISO standards, enabling use of the CE mark for our Histofreezer ® product line. In November 2003, we updated our certification to the MDD and ISO standards, and obtained additional certification under the Canadian
+Medical Devices Conformity Assessment System (“CMDCAS”), as discussed below. 
+In addition, we are currently in the process of preparing the information to demonstrate that we meet the essential requirements of the IVDD in order to receive authorization to affix a CE mark to our OraQuick ® HIV products. A CE mark indicates compliance with this
+directive and is required for distribution of in vitro diagnostic products in the EU. 
+Prior to international sale of a product containing electrical and light-emitting equipment, the safety and performance of such a product must be demonstrated. We retained Underwriters Laboratories, Inc. and Laird
+Technologies to examine and test the UP link ® 
+analyzer, and they certified that this product meets various international standards and directives applicable to such equipment. 
+We must also comply with certain registration requirements as dictated by Health Canada, prior to commencing sales in Canada. We have completed this
+process for several of our current products and may do so with respect to other products in the future. In addition, Canadian law requires manufacturers of medical devices 
+19 
+Table of Contents 
+to have a quality management system that meets various ISO requirements in order to obtain a license to sell their devices in Canada. The CMDCAS was
+developed by Health Canada in collaboration with the Standards Council of Canada (“SCC”) to support the Canadian Medical Devices Regulations. 
+In July 2003, Canada adopted a new ISO standard and will require all ISO certificate holders to transition to the new standard by March 14, 2006. The EU
+has a similar requirement with a compliance date of July 2006. We will need to do additional work and receive an updated certification in order to meet these deadlines. 
+Anti-Kickback Laws 
+The Federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation, or receipt of any form of remuneration in return for, or
+to induce: 
+• 
+The referral of a person; 
+• 
+The furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental programs; or 
+• 
+The purchase, lease, or order of, or the arrangement or recommendation of the purchasing, leasing, or ordering of any item or service reimbursable under Medicare, Medicaid, or other
+governmental programs. 
+Our products are or may
+be purchased by customers that will seek or receive reimbursement under Medicare, Medicaid or other governmental programs. Noncompliance with the federal anti-kickback legislation can result in exclusion from Medicare, Medicaid, or other
+governmental programs, restrictions on our ability to operate in certain jurisdictions, as well as civil and criminal penalties, any of which could have an adverse effect on our business and results of operations. 
+The Federal Civil Monetary Penalties Law prohibits the offering or
+transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable items or services. Noncompliance
+can result in civil money penalties of up to $10,000 for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the Federal healthcare programs. 
+Many states have also adopted some form of anti-kickback laws. A
+determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions. 
+We believe that we are operating in compliance with these laws. 
+Environmental Regulation 
+Because of the nature of our current and proposed research, development, and manufacturing processes, we are subject to stringent federal, state and local
+laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge and handling and disposal of materials and wastes. We believe that we have complied with these laws and regulations in all
+material respects. We have not been required to take any action to correct any environmental noncompliance. 
+Forward-Looking Statements 
+This Report contains certain “forward-looking statements,” within the meaning of the Federal securities laws. These may include statements about our expected revenues, earnings, expenses or other financial performance, future
+product performance or development, expected regulatory filings and approvals, planned business transactions, views of future industry, competitive or market conditions, and other factors that could affect our future operations, results of
+operations or financial position. These statements often include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “may,” “will,”
+“should,” “could,” or similar expressions. 
+20 
+Table of Contents 
+Forward-looking statements are not guarantees of future performance or results. Known and unknown factors
+could cause actual performance or results to be materially different from those expressed or implied in these statements. Some of these factors are: ability to market products; impact of competitors, competing products and technology changes;
+ability to develop, commercialize and market new products; market acceptance of oral fluid testing products and other new products or technology; ability to fund research and development and other projects and operations; ability to obtain or
+maintain new or existing product distribution channels; reliance on sole supply sources for critical product components; availability of related products produced by third parties; ability to obtain and timing of obtaining necessary regulatory
+approvals; ability to comply with applicable regulatory requirements; history of losses and ability to achieve sustained profitability; volatility of our stock price; uncertainty relating to patent protection and potential patent infringement
+claims; uncertainty and costs of litigation relating to our patents or other intellectual property; availability of licenses to patents or other technology; ability to enter into international manufacturing agreements; obstacles to international
+marketing and manufacturing of products; ability to sell products internationally; loss or impairment of sources of capital; ability to meet financial covenants in our agreements with financial institutions; ability to retain qualified personnel;
+exposure to product liability, patent infringement and other types of litigation; changes in international, federal or state laws and regulations; changes in relationships with strategic partners and reliance on strategic partners for the
+performance of critical activities under collaborative arrangements; customer consolidations and inventory practices; equipment failures and ability to obtain needed raw materials and components; the impact of terrorist attacks, war and civil
+unrest; ability to identify, complete and realize the full benefits of potential acquisitions; and general political, business and economic conditions. These and other factors that could cause the forward-looking statements to be materially
+different are described in greater detail in the Section entitled, “Risk Factors,” and elsewhere in this Report. 
+Although forward-looking statements help to provide complete information about future prospects, they may not be reliable. The forward-looking statements
+are made as of the date of this Report and we undertake no duty to update these statements. 
+Risk Factors 
+The
+following is a discussion of certain significant risk factors that could potentially negatively impact our financial condition, performance and prospects. 
+Regulatory Risks 
+The Need to Obtain Regulatory Approvals and Respond to Changes in Regulatory Requirements Could Adversely Affect Our Business. 
+Many of our proposed and existing products are subject to regulation by the
+FDA and other governmental or public health agencies. In particular, we are subject to strict governmental controls on the development, manufacture, labeling, distribution and marketing of our products. In addition, we are often required to obtain
+approval or registration with foreign governments or regulatory bodies before we can import and sell our products in foreign countries. 
+The process of obtaining required approvals or clearances from governmental or public health agencies can involve lengthy and detailed laboratory testing,
+human clinical trials, sampling activities and other costly, time-consuming procedures. For example, during 2004, we received several FDA approvals for our new OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test, including approval for use of the test on oral fluid samples. These approvals required the submission of clinical data and
+required significant time to obtain. The submission of an application to the FDA or other regulatory authority does not guarantee that an approval or clearance to market the product will be received. Each authority may impose its own requirements
+and delay or refuse to grant approval or clearance, even though a product has been approved in another country or by another agency. 
+21 
+Table of Contents 
+Moreover, the approval or clearance process for a new product can be complex and lengthy. This time span
+increases our costs to develop new products as well as the risk that we will not succeed in introducing or selling them in the United States or other countries. 
+Newly promulgated or changed regulations could also require us to undergo additional trials or procedures, or could make it impractical or impossible
+for us to market our products for certain uses, in certain markets, or at all. For example, during 2004 the Substance Abuse and Mental Health Services Administration (“SAMHSA”), which is part of the U.S. Department of Health and Human
+Services, issued proposed regulations for the use of oral fluid drug testing for federal workers. The SAMHSA regulations, when issued in final form, could permit us to market and sell our oral fluid drug tests for use with federal workers only if
+certain modifications are made to our products. If we are unable to make these modifications, or if the modifications require significant time to develop, our ability to sell our oral fluid drug testing products in that market could be limited. In
+addition, the extent to which the final SAMHSA regulations permit the sale of our oral fluid drug tests for use with federal workers may influence whether customers in the workplace, criminal justice or other unregulated markets use our products.
+The regulations in some states may restrict our ability to
+sell products in those states. For example, certain states restrict or do not allow the testing of oral fluid for drugs of abuse or the rapid, point-of-care testing for HIV. While we intend to work with state legislators and regulators to remove or
+modify any applicable restrictions, there is no guarantee we will be successful in these efforts. 
+In addition, all in vitro diagnostic products that are to be sold in the European Union (“EU”) must bear the CE mark indicating
+conformance with the essential requirements of the In Vitro Diagnostic Directive, or IVDD. We are not permitted to sell our products in the EU without a CE mark, which could lead to the termination of strategic alliances and agreements for sales of
+those products in the EU. We have obtained the CE mark for many of our existing products, and we intend to CE mark certain of our future products and are not aware of any material reason why we will be unable to do so. However, there can be no
+assurance that compliance with all provisions of the IVDD will be demonstrated and the CE mark obtained for all products that we desire to sell in the EU. 
+Failure to Comply With FDA or Other Requirements May Require Us to Suspend Production of Our Products or Institute a Recall Which Could Result in
+Higher Costs and a Loss of Revenues. 
+We can manufacture
+and sell many of our products, both in the United States and in some cases abroad, only if we comply with regulations of government agencies such as the FDA. We have implemented quality assurance and other systems that are intended to comply with
+applicable regulations. 
+Although we believe that we have
+adequate processes in place to ensure compliance with these requirements, the FDA could force us to stop manufacturing our products if it concludes that we are out of compliance with applicable regulations. The FDA could also require us to recall
+products if we fail to comply with applicable regulations, which could force us to stop manufacturing such products. See the Section entitled “Government Regulation” for a further discussion of applicable regulatory requirements. 
+Risks Relating to Our Financial Results, Structure and Need
+for Financing 
+We Have a History of Losses.
+We have not achieved full-year profitability. We incurred
+net losses of approximately $0.6 million, $1.1 million and $3.3 million, in 2004, 2003 and 2002, respectively. As of December 31, 2004, the Company had an accumulated deficit of approximately $131.1 million. 
+22 
+Table of Contents 
+In order to achieve sustainable profitability, our revenues will have to continue to grow at a
+significant rate. Our ability to achieve revenue growth, and therefore profitability, will be dependent upon a number of factors including, without limitation, the following: 
+• 
+Creating market acceptance for and selling increasing volumes of the OraSure ® collection device, the Intercept ® drug testing product, and the OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test; 
+• 
+The degree to which certain of our new products may replace sales of our existing products and the financial impact of that change, including the degree to which our OraQuick ® test will replace our OraSure ® collection device for HIV-1 testing or sales of the
+Freeze Off ® wart removal product in the
+over-the-counter market will replace sales of our Histofreezer ® product to physicians’ offices or other professional markets; 
+• 
+Achieving growth in sales of the Freeze Off ® wart removal product in the over-the-counter market; 
+• 
+Achieving growth in international markets with our OraQuick ® test, Freeze Off ™ product and other products; 
+• 
+Changes in the level of competition, such as would occur if any larger and financially stronger competitors introduced new or lower priced products to compete with our products;
+• 
+Changes in economic conditions in domestic or international markets, such as economic downturns, reduced demand, inflation and currency fluctuations; 
+• 
+Failure to achieve our targets for growth in revenues; 
+• 
+Changes in distributor buying patterns or a buildup of significant quantities in our distributors’ inventories or distribution channels; and 
+• 
+Commercially developing, and obtaining regulatory approvals and creating market acceptance for new products in a time frame consistent with our objectives. 
+We have not yet fully achieved our financial and business objectives and
+there can be no assurance that we will be able to do so. Moreover, even if we achieve our objectives and become profitable, there can be no assurance that we will be able to sustain such profitability in the future. 
+We May Require Future Additional Capital to Fund Our Operations.
+Although we have made significant progress in the past
+toward controlling expenses and increasing product revenue, we have historically depended, to a substantial degree, on capital raised through the sale of equity securities and bank borrowings to fund our operations. 
+Our future liquidity and capital requirements will depend on numerous
+factors, including, but not limited to, the following: 
+• 
+The costs and timing of the expansion of our manufacturing capacity; 
+• 
+The success of our research and product development efforts; 
+• 
+The magnitude of capital expenditures; 
+• 
+Changes in existing and potential relationships with business partners; 
+• 
+The time and cost of obtaining regulatory approvals; 
+• 
+The costs involved in obtaining and enforcing patents, proprietary rights and necessary licenses; 
+• 
+The costs and timing of expansion of sales and marketing activities; 
+• 
+The timing of the commercial launch of new products; 
+23 
+Table of Contents 
+• 
+The extent to which existing and new products gain market acceptance; 
+• 
+The scope and results of clinical testing; 
+• 
+Competing technological and market developments; and 
+• 
+The scope and timing of strategic acquisitions. 
+If additional financing is needed, we may seek to raise funds through the sale of equity or other securities or through bank borrowings. There can be no
+assurance that financing through the sale of securities, bank borrowings or otherwise, will be available to us on satisfactory terms, if at all. 
+An Economic Downturn or Terrorist Attacks May Adversely Affect Our Business. 
+Changes in economic conditions could adversely affect our business. For example, in a difficult economic environment,
+customers may be unwilling or unable to invest in new diagnostic products, may elect to reduce the amount of their purchases or may perform less drug testing because of declining employment levels or the issuance of fewer life insurance policies. A
+weakening business climate could also cause longer sales cycles and slower growth, and could expose us to increased business or credit risk in dealing with customers adversely affected by economic conditions. 
+Terrorist attacks and subsequent governmental responses to these attacks
+could cause further economic instability or lead to further acts of terrorism in the United States and elsewhere. These actions could adversely affect economic conditions outside the United States and reduce demand for our products internationally.
+Terrorist attacks could also cause regulatory agencies, such as the FDA or agencies that perform similar functions outside the United States, to focus their resources on vaccines or other products intended to address the threat of biological or
+chemical warfare. This diversion of resources could delay our ability to obtain regulatory approvals required to manufacture, market or sell our products in the United States and other countries. 
+Our Stock Price Could Continue to be Volatile. 
+Our stock price has been volatile, has fluctuated substantially in the past
+and may be volatile in the future and could experience substantial declines. The following factors, among others, could have a significant impact on the market for our Common Stock: 
+• 
+Future announcements concerning us; 
+• 
+Future announcements concerning our competitors or industry; 
+• 
+Governmental regulation; 
+• 
+Clinical results with respect to our products in development or those of our competitors; 
+• 
+Developments in patent or other proprietary rights; 
+• 
+Litigation or threatened litigation; 
+• 
+Public concern as to the safety of products that we or others have developed; 
+• 
+Changes in the level of competition; 
+• 
+Loss of or declines in sales to major distributors or customers; 
+• 
+The relatively low trading volume for our Common Stock; 
+• 
+Period to period fluctuations in our operating results; 
+• 
+Failure to achieve, or changes in, financial estimates by securities analysts and comments or opinions about us by securities analysts or major stockholders;
+24 
+Table of Contents 
+• 
+General market and economic conditions; and 
+• 
+Terrorist attacks, civil unrest and war. 
+Future Sales by Existing Stockholders Could Depress the Market Price of Our Common Stock and Make It More Difficult For Us to Sell Stock in the Future.
+Sales of our Common Stock in the public market, or the
+perception that such sales could occur, could negatively impact the market price of our Common Stock. We are unable to estimate the number of shares of our Common Stock that may actually be resold in the public market since this will depend on the
+market price for our Common Stock, the individual circumstances of the sellers and other factors. We also have a number of institutional stockholders that own significant blocks of our Common Stock. If one or more of these stockholders sell large
+portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price of our Common Stock could be negatively affected. 
+Our Reported Financial Results May be Adversely Affected by Changes in Accounting Principles Generally Accepted in the
+United States. 
+We prepare our financial statements
+in conformity with accounting principles generally accepted in the United States. These accounting principles are subject to creation or interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public
+Accountants, the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial
+results, and could affect the reporting of transactions completed before the announcement of a change. 
+Risks Relating to Our Industry, Business and Strategy 
+Our Ability to Sell Products Could be Affected by Competition From New and Existing Diagnostic Products and by Treatment or Other Non-Diagnostic
+Products Which May be Developed. 
+The diagnostic industry
+is focused on the testing of biological specimens in a laboratory or at the point of care and is highly competitive and rapidly changing. Many of our principal competitors have considerably greater financial, technical and marketing resources. As
+new products enter the market, our products may become obsolete or a competitor’s products may be more effective or more effectively marketed and sold than ours. If we fail to maintain and enhance our competitive position, our customers may
+decide to use products developed by competitors which could result in a loss of revenues. 
+We also face competition from products which may be sold at a lower price. To the extent this competition arises, customers may choose to buy lower cost products from third parties or we may be forced to sell our
+products at a lower price, both of which could result in a loss of revenues or a lower gross margin contribution from the sale of our products. In addition, the development and commercialization of products outside of the diagnostics industry could
+adversely affect sales of our product. For example, the development of a safe and effective vaccine to HIV or treatments for other diseases or conditions that our products are designed to detect, could reduce, or eventually eliminate, the demand for
+our HIV or other diagnostic products and thereby result in a loss of revenues. 
+Our Research, Development and Commercialization Efforts May Not Succeed or Our Competitors May Develop and Commercialize More Effective or Successful Diagnostic Products. 
+In order to remain competitive, we must regularly commit substantial
+resources to research and development and the commercialization of new products. 
+25 
+Table of Contents 
+The research and development process generally takes a significant amount of time from inception to
+commercial product launch. This process is conducted in various stages. During each stage there is a substantial risk that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a product in which we have invested
+substantial amounts. 
+During 2004, 2003 and 2002, we incurred
+$6.1 million, $8.0 million and $8.3 million, respectively, in research and development expenses. We expect to continue to incur significant costs from our research and development activities. 
+A primary focus of our research and development efforts in recent years has
+been our UPT ™ technology and the related
+UP link ® rapid detection system; however, we
+are reevaluating the feasibility and market potential of this technology, and there can be no assurance that we will succeed or continue in our research and development efforts with respect to UPT ™ , UP link ® or other technologies or products. 
+Successful products require significant development and investment, including testing, to demonstrate their
+cost-effectiveness or other benefits prior to commercialization. In addition, regulatory approval must be obtained before most products may be sold. Additional development efforts on these products will be required before any regulatory authority
+will review them. Regulatory authorities may not approve these products for commercial sale. In addition, even if a product is developed and all applicable regulatory approvals are obtained, there may be little or no market for the product.
+Accordingly, if we fail to develop commercially successful products, or if competitors develop more effective products or a greater number of successful new products, customers may decide to use products developed by our competitors. This would
+result in a loss of revenues and adversely affect our results of operations, cash flows and business. 
+If We Lose Our Key Personnel or Are Unable to Attract and Retain Qualified Personnel as Necessary, Our Business Could be Harmed. 
+Our success will depend to a large extent upon the contributions of our
+executive officers, management, and sales, marketing, operations and scientific staff. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among medical products
+businesses. 
+If we are not able to attract and retain the
+necessary personnel to accomplish our business objectives, we may experience constraints that will adversely affect our ability to effectively manufacture, sell and market our products, to meet the demands of our strategic partners in a timely
+fashion, or to support internal research and development programs. Although we believe we will be successful in attracting and retaining qualified personnel, competition for experienced scientists and other personnel from numerous companies and
+academic and other research institutions may limit our ability to do so on acceptable terms. 
+We May be Sued for Product Liabilities for Injuries Resulting From the Use of Our Products. 
+We may be held liable if any of our products, or any product which is made with the use or incorporation of any of our technologies, causes injury of any
+type or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or usage. Although we have obtained product liability insurance, this insurance may not fully cover potential liabilities. As we bring new products to
+market, we may need to increase our product liability coverage. 
+We have obtained the required regulatory approvals to sell a cryosurgical wart removal product, called Freeze Off ™ , in the consumer or over-the-counter market. We believe the sale of this or other products in the over-the-counter market could increase the risk of
+potential product liability exposure and the required level of insurance coverage that we will need to maintain. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability
+claims could affect our decision to commercialize new products and our results of operations. 
+26 
+Table of Contents 
+Efforts to Consolidate or Restructure Could Adversely Affect Our Business. 
+We may from time to time restructure and consolidate various aspects of our
+operations in order to achieve cost savings and other efficiencies. For example, during 2004 we completed the restructuring of our manufacturing operations, which included the transfer of the manufacturing of our Intercept ® , OraSure ® and oral fluid Western Blot products from our Beaverton, Oregon facility and a contract
+manufacturer in Oregon to Bethlehem, Pennsylvania. We obtained FDA approval to transfer the operations to Pennsylvania. This type of transfer and the need to obtain FDA approval could interfere with or delay our manufacturing processes and disrupt
+continued operations. Any delay in or disruption of operations, and in particular manufacturing operations, could result in increased costs or could delay or prevent us from selling certain products and thereby result in a loss of revenue.
+Future Acquisitions or Investments Could Disrupt Our
+Ongoing Business, Distract Our Management, Increase Our Expenses and Adversely Affect Our Business. 
+We may consider strategic acquisitions or investments as a way to expand our business in the future. These activities, and their impact on our business,
+are subject to the following risk factors: 
+• 
+Suitable acquisitions or investments may not be found or consummated on terms that are satisfactory to us; 
+• 
+We may be unable to successfully integrate an acquired company’s personnel, assets, management systems and technology into our business; 
+• 
+Acquisitions may require substantial expense and management time and could disrupt our business; 
+• 
+An acquisition and subsequent integration activities may require greater capital resources than originally anticipated at the time of acquisition; 
+• 
+An acquisition may result in the incurrence of unexpected expenses, the dilution of our earnings or our existing stockholders’ percentage ownership, or potential losses from
+undiscovered liabilities not covered by an indemnification from the seller(s) of the acquired business; 
+• 
+An acquisition may result in the loss of existing key personnel or customers or the loss of the acquired company’s key personnel or customers; 
+• 
+The benefits to be derived from an acquisition could be affected by other factors, such as regulatory developments, general economic conditions and increased competition; and
+• 
+An acquisition of a foreign business may involve additional risks, including, but not limited to, foreign currency exposure, liability under foreign laws or regulations, and not
+being able to successfully assimilate differences in foreign business practices or overcome language or cultural barriers. 
+The occurrence of one or more of the above or other factors may prevent us from achieving all or a significant part of the benefits expected from an
+acquisition or investment. This may adversely affect our financial condition, results of operations and ability to grow our business or otherwise achieve our financial or strategic objectives. 
+Our Net Sales Could be Affected by Third-Party Reimbursement Policies and
+Potential Cost Constraints. 
+The end-users of our products
+are expected to increasingly include hospitals, physicians and other healthcare providers. Use of our products could be adversely impacted if these end-users do not receive reimbursement for the cost of our products by their patients’
+healthcare insurers or payors. Our net sales could also be adversely affected by changes in reimbursement policies of these governmental or private healthcare payors, including in particular the level of reimbursement for our products. In the United
+States, healthcare providers such as hospitals and physicians who purchase diagnostic products generally rely on third-party payors, principally private health insurance plans, Medicare and Medicaid, to reimburse all or part of the cost of the
+product and 
+27 
+Table of Contents 
+procedure. We believe that the overall escalating cost of medical products and services has led to, and will continue to lead to, increased pressures on the
+healthcare industry, both foreign and domestic, to reduce the cost of products and services. Given the efforts to control and reduce healthcare costs in the United States in recent years, currently available levels of reimbursement may not continue
+to be available in the future for our existing products or products under development. Third-party reimbursement and coverage may not be available or adequate in either the United States or foreign markets, current reimbursement amounts may be
+decreased in the future and future legislation, regulation or reimbursement policies of third-party payors may reduce the demand for our products or our ability to sell our products on a profitable basis. 
+Unexpected Increases in Demand for Our Products Could Require Us to Spend
+Considerable Resources to Meet the Demand or Harm Our Customer Relationships if We are Unable to Meet Demand. 
+If we experience unexpected increases in the demand for our products, we may be required to expend additional capital resources to meet these demands.
+These capital resources could involve the cost of new machinery or even the cost of new manufacturing facilities. This would increase our capital costs, which could adversely affect our earnings. If we are unable to develop necessary manufacturing
+capabilities in a timely manner, our net sales could be adversely affected. Failure to cost-effectively increase production volumes, if required, or lower than anticipated yields or production problems encountered as a result of changes that we make
+in our manufacturing processes to meet increased demand, could result in shipment delays and increased manufacturing costs, which could also have a material adverse effect on our revenues and profitability. 
+Our inability to meet customer demand for our products could also harm our
+customer relationships and impair our reputation within the industry. This, in turn, could have a material adverse effect on our business and prospects. 
+Risks Relating to Collaborators 
+Our Failure to Maintain Existing Distribution Channels, or Develop New Distribution Channels, May Result in Lower Revenues. 
+We have marketed many of our products by collaborating with laboratories,
+diagnostic companies and distributors. For example, our OraSure ® oral fluid collection device is distributed to the insurance industry through major insurance testing laboratories. Our sales depend to a substantial degree on our ability to sell products to these customers and
+develop new product distribution channels, and on the marketing abilities of the companies with which we collaborate. 
+Some of our distributors have consolidated in recent years, and such consolidation has had, and may continue to have, an adverse impact on the level of
+orders for our products. One of these laboratories, Lab One , Inc., acquired another large insurance laboratory customer, Osborne Group, Inc., in 2001 and our revenues decreased because of efficiencies resulting from that acquisition.
+In addition, some distributors have experienced, and may
+continue to experience, pressure from their customers to reduce the price of their products and testing services. For example, Lab One and our other insurance testing laboratories are facing this pressure and are using lower cost “home
+brew” insurance testing assays that they have developed internally or purchased from our competitors. As a result, Lab One has stopped purchasing our urine assays and certain of our MICRO-PLATE oral fluid assays. This has reduced our
+sales and is expected to lower sales of these products in 2005 and beyond. 
+In addition, during the fourth quarter of 2003, Lab One acquired the Insurance Testing Laboratory of MetLife, which was another large purchaser of our urine assays and in early 2004 acquired NWT, Inc., a
+laboratory that distributed the Company’s Intercept ® drug test into the workplace testing market. These acquisitions could further reduce sales of our products. 
+28 
+Table of Contents 
+Finally, some of our distributors may not fulfill their contractual obligations. Although we will try to
+maintain and expand our business with our distributors and require that they fulfill their contractual obligations, there can be no assurance that such companies will continue to purchase or distribute our products, maintain historic order volumes
+or otherwise meet their purchase or other obligations, or that new distribution channels will be available on satisfactory terms. 
+The Use of Sole Supply Sources For Critical Components of Our Products Could Adversely Affect Our Business. 
+We currently purchase certain critical components of our products from sole
+supply sources. For example, all of the HIV-1 antigen used to make our oral fluid Western blot HIV-1 confirmatory test is purchased from BMX, and all of the HIV antigen and nitrocellulose required to make our OraQuick ® rapid HIV-1 antibody test is purchased from sole source suppliers. If these
+suppliers are unable or unwilling to supply the required component, we would need to find another source, and perform additional development work and obtain FDA approval for the use of the alternative component for our products. Completing that
+development and obtaining such FDA approval could require significant time to complete and may not occur at all. The availability of critical components from sole supply sources could also reduce our control over pricing, quality and timely
+delivery. These events could either disrupt our ability to manufacture and sell certain of our products, or completely prevent us from doing so or increase our costs. Any such event could have a material adverse effect on our results of operations,
+cash flows and business. 
+The Unavailability of Certain
+Products Distributed by a Third Party Could Adversely Affect Sales of Our OraSure ® Oral Fluid Collection Device. 
+In testing an oral fluid sample collected with an OraSure ® device for HIV-1 in the United States, our customers must use an HIV-1 screening test approved by the FDA for use with our OraSure ® device. Where an oral fluid sample screens positive for HIV-1, our customers must then use our oral fluid Western blot
+HIV-1 confirmatory test, which has also been approved by the FDA for use with our OraSure ® device, to confirm that positive indication. 
+BMX manufactures and sells the only oral fluid HIV-1 screening test that has received FDA approval for use in detecting HIV-1 in an oral fluid specimen collected with our OraSure ® collection device. BMX has developed a new HIV-1 screening test, and has indicated that
+this new test will eventually replace its existing FDA-approved HIV-1 screening test. We are working with BMX to obtain FDA approval for use of the new screening test with our OraSure ® device. BMX also supplies the HIV-1 antigen used to manufacture our oral fluid Western
+blot HIV-1 confirmatory test and is the exclusive world-wide distributor of that product. 
+If BMX ceases to manufacture or sell an HIV-1 screening test approved by the FDA for use with our OraSure ® collection device, or if our oral fluid Western blot HIV-1 confirmatory test is not made available to our customers (because BMX either fails to supply
+the HIV-1 antigen required to make this product or fails to distribute this product), we would need to find alternate suppliers for these products, which would require additional development work and FDA approval. These activities would likely
+require significant time to complete. If our customers cannot obtain an HIV-1 screening test or Western blot HIV-1 confirmatory test that has been approved by the FDA for use in connection with our OraSure ® collection device, these customers would likely stop purchasing our OraSure ® device. Sales of the OraSure ® device were approximately $11.0 million and $12.2
+million, or 20% and 30% of our total revenues, in 2004 and 2003, respectively. 
+We Are Dependent Upon Strategic Partners to Assist in Developing and Commercializing Some of Our Diagnostic Products. 
+Although we intend to pursue some product opportunities independently, opportunities that require a significant level of investment for development and
+commercialization or a distribution network beyond our 
+29 
+Table of Contents 
+existing sales force may necessitate involving one or more strategic partners. Our strategy for development and commercialization of products may entail
+entering into arrangements with distributors or other corporate partners, universities, research laboratories, licensees and others. We may be required to transfer material rights to such strategic partners, licensees and others. While we expect
+that our current and future partners, licensees and others have and will have an economic motivation to succeed in performing their contractual responsibilities, there is no assurance that they will do so and the amount and timing of resources to be
+devoted to these activities will be controlled by others. Consequently, there can be no assurance that any revenues or profits will be derived from such arrangements. 
+Risks Relating to Intellectual Property 
+Our Success Depends on Our Ability to Protect Our Proprietary Technology. 
+The diagnostics industry places considerable importance on obtaining patent,
+trademark, and trade secret protection, as well as other intellectual property rights, for new technologies, products and processes. Our success depends, in part, on our ability to develop and maintain a strong intellectual property portfolio or
+obtain licenses to patents for products and technologies both in the United States and in other countries. 
+As appropriate, we intend to file patent applications and obtain patent protection for our proprietary technology. These patent applications and patents
+will cover, as applicable, compositions of matter for our products, methods of making those products, methods of using those products, and apparatus relating to the use or manufacture of those products. We will also rely on trade secrets, know-how,
+and continuing technological advancements to protect our proprietary technology. 
+We have entered, and will continue to enter, into confidentiality agreements with our employees, consultants, advisors and collaborators. However, these parties may not honor these agreements and we may not be able to
+successfully protect our rights to unpatented trade secrets and know-how. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how. 
+Many of our employees, including scientific and management personnel, were
+previously employed by competing companies. Although we encourage and expect all of our employees to abide by any confidentiality agreement with a prior employer, competing companies may allege trade secret violations and similar claims against us.
+We may collaborate with universities and governmental research
+organizations which, as a result, may acquire part of the rights to any inventions or technical information derived from collaboration with them. 
+To facilitate development and commercialization of a proprietary technology base, we may need to obtain licenses to patents or other proprietary rights
+from other parties. Obtaining and maintaining such licenses may require the payment of substantial amounts. In addition, if we are unable to obtain these types of licenses, our product development and commercialization efforts may be delayed or
+precluded. 
+We may incur substantial costs and be required to
+expend substantial resources in asserting or protecting our intellectual property rights, or in defending suits against us related to intellectual property rights. Disputes regarding intellectual property rights could substantially delay product
+development or commercialization activities. Disputes regarding intellectual property rights might include state, federal or foreign court litigation as well as patent interference, patent reexamination, patent reissue, or trademark opposition
+proceedings in the United States Patent and Trademark Office. Opposition or revocation proceedings could be instituted in a foreign patent office. An adverse decision in any proceeding regarding intellectual property rights could result in the loss
+or limitation of our rights to a patent, an invention or trademark. 
+30 
+Table of Contents 
+We are Involved in Pending, and May Become Involved in Future, Intellectual Property Infringement
+Disputes, Which are Costly and Could Limit or Eliminate Our Ability to Sell Our Products or Use Certain of Our Technologies in the Future. 
+From time to time, we may seek to enforce our patents or other intellectual property rights through litigation. In addition, there are a large number of
+patents and patent applications in our product areas, and additional patents may issue to third parties relating to our product areas. Litigation in our industry regarding patent and other intellectual property rights is prevalent and is expected to
+continue. 
+Our involvement in litigation to enforce our patents
+or other intellectual property or to determine rights in proprietary technology could adversely affect our revenues, market share, results of operations and business because: 
+• 
+As is common with major litigation, it could consume a substantial portion of managerial and financial resources; 
+• 
+Its outcome would be uncertain and a court may find that our patents are invalid or unenforceable in response to claims by another party or that the third-party patent claims are
+valid and infringed by our products; 
+• 
+An adverse outcome could subject us to the loss of the protection of our patents or to liability in the form of past royalty payments, penalties, special and punitive damages, or
+future royalty payments significantly affecting our future earnings; 
+• 
+Failure to obtain a necessary license upon an adverse outcome could prevent us from selling our current products or other products we may develop; and 
+• 
+A court could award a preliminary and/or permanent injunction which would prevent us from selling our current or future products. 
+The Sales Potential for OraQuick ® Could be Affected by Our Ability to Obtain Certain Licenses. 
+Our OraQuick ® test is a lateral flow assay device that tests for specific antibodies or other
+substances. The term “lateral flow” generally refers to a test strip through which a sample flows and which provides a test result on a portion of the strip downstream from where the sample is applied. There are numerous patents in the
+United States and other countries which claim lateral flow assay methods and devices. Some of these patents may broadly cover the technology used in the OraQuick ® test and are in force in the United States and other countries. We may not be able to make or sell the OraQuick ® test in the United States or other countries where
+these patents are in force. 
+We have obtained licenses under
+several lateral flow patents, which we believe should be sufficient to permit the manufacturing and sale of the OraQuick ® device as currently contemplated. However, licenses under additional patents may be required and it is possible that a third party could seek to
+enforce one or more lateral flow patents against us. In the event that we are unable to successfully defend against such litigation or it is determined that a license is required and it is not possible to negotiate or otherwise obtain a license
+agreement on reasonable terms under a necessary patent, our ability to manufacture and sell the OraQuick ® device could be limited. In such case, we may be able to modify the OraQuick ® test such that a license would not be necessary. However, this alternative could delay or limit our ability to sell the OraQuick ® test in the United States and other markets, which
+would adversely affect our results of operations, cash flows and business. 
+Risks Relating to Product Marketing and Sales 
+A Market for Our Products May Not Develop. 
+Our future success will depend, in part, on the market acceptance, and the timing of such acceptance, of new products such as the Intercept ® drug test, the OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test and other new 
+31 
+Table of Contents 
+products or technologies that may be developed or acquired. To achieve market acceptance, we must make substantial marketing efforts and spend significant
+funds to inform potential customers and the public of the perceived benefits of these products. We currently have limited evidence on which to evaluate the market reaction to products that may be developed, and there can be no assurance that any
+products will obtain market acceptance and fill the market need that is perceived to exist. 
+If Acceptance and Adoption of Our Oral Fluid Testing Does Not Continue, Our Future Results May Suffer. 
+We have made significant progress in gaining acceptance of oral fluid testing for HIV in the insurance and public health markets. We have also made
+significant progress in gaining acceptance of oral fluid testing for drugs of abuse in the workplace and criminal justice testing markets. However, the ultimate degree of acceptance in these markets is uncertain, and other markets may resist the
+adoption of oral fluid testing as a replacement for other testing methods in use today. In addition, certain state laws prohibit or restrict the use of oral fluid testing for drugs of abuse in certain markets or the rapid, point-of-care testing for
+HIV. As a result, there can be no assurance that we will be able to expand the use of our oral fluid testing products in these or other markets. 
+Our Increasing International Presence May be Affected by Regulatory, Cultural or Other Restraints. 
+We intend to increase revenue derived from international sales of our
+products. Our international sales accounted for approximately $6.2 million or 11% of total revenues for 2004, approximately $4.6 million or 11% of total revenues for 2003, and approximately $3.9 million or 12% of total revenues for 2002. 
+A number of factors can slow or prevent international sales, or
+substantially increase the cost of international sales, including those set forth below: 
+• 
+Regulatory requirements (including compliance with applicable customs regulations) may slow, limit, or prevent the offering of products in foreign countries;
+• 
+The unavailability of licenses to certain patents in force in a foreign country which cover our products may restrict our ability to sell into that country;
+• 
+Our ability to obtain the CE mark on our products in a timely manner may preclude or delay our ability to sell products to the European Union; 
+• 
+Cultural and political differences may make it difficult to effectively market, sell and gain acceptance of products in foreign countries; 
+• 
+Inexperience in international markets may slow or limit our ability to sell products in foreign countries; 
+• 
+Exchange rates, currency fluctuations, tariffs and other barriers, extended payment terms and dependence on and difficulties in managing international distributors or
+representatives may affect our revenues even when product sales occur; 
+• 
+The creditworthiness of foreign entities may be less certain and foreign accounts receivable collection may be more difficult; 
+• 
+Economic conditions, the absence of available funding sources, terrorism, civil unrest and war may slow or limit our ability to sell our products in foreign countries;
+• 
+International markets often have long sales cycles, especially for sales to foreign governments, quasi-governmental agencies and international public health agencies, thereby
+delaying or limiting our ability to sell our products; and 
+• 
+We may be at a disadvantage if competitors in foreign countries sell competing products at prices at or below such competitors’ or our cost. 
+In addition, we have entered into a contract for the manufacture and supply
+of the OraQuick ® rapid HIV antibody test in
+Thailand, and our Histofreezer ® and Freeze Off ® cryosurgical products are currently 
+32 
+Table of Contents 
+manufactured in The Netherlands. In addition, we may enter into agreements to manufacture other products in foreign countries as well. However, factors such
+as economic and political conditions and foreign regulatory requirements may slow or prevent the manufacture of our products in countries other than the United States. Interruption of the supply of our products could reduce revenues or cause us to
+incur significant additional expenses in finding an alternative source of supply. In addition, foreign currency fluctuations and economic conditions in foreign countries could increase the costs of manufacturing our products in foreign countries.
+The previous discussion of our business should be read in
+conjunction with the Financial Statements and accompanying notes included in Item 15 of this Annual Report on Form 10-K.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2004/0001193125-05-051144/item13.txt b/raw/filings/0001116463/2004/0001193125-05-051144/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..864e6e9c17f8bb2bbdcb2eae482646a96a60af2f
--- /dev/null
+++ b/raw/filings/0001116463/2004/0001193125-05-051144/item13.txt
@@ -0,0 +1,4 @@
+ITEM 13. 
+Certain Relationships and Related Transactions. 
+The information required by this Item is incorporated by reference to the information under the captions “Certain Relationships and Related Transactions” and “Employment and Transition Agreements,”
+in the Proxy Statement.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2004/0001193125-05-051144/item9a.txt b/raw/filings/0001116463/2004/0001193125-05-051144/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..891e050dac2a2766fb63d86278dbe78cea7116a9
--- /dev/null
+++ b/raw/filings/0001116463/2004/0001193125-05-051144/item9a.txt
@@ -0,0 +1,52 @@
+ITEM 9A. 
+Controls and Procedures. 
+Evaluation of Disclosure Controls and Procedures. 
+The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31,
+2004. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective in timely alerting them to material information relating to the Company that
+is required to be included in its periodic filings with the Securities and Exchange Commission. 
+Management’s Report on Internal Control Over Financial Reporting. 
+The Company’s management is responsible for establishing and maintaining adequate internal control over financial
+reporting, as such term is defined in Rule 13a(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of the Company’s management, including our principal executive officer and principal
+financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
+the Treadway Commission. Based on our evaluation under the framework, our management concluded that our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the
+preparation of financial statements for external purposes in accordance with generally accepted accounting principles as of December 31, 2004. 
+Our management’s assessment on the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by KPMG
+LLP, an independent registered public accounting firm, as stated in their report, which is included below. 
+Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
+evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+Changes in Internal Control Over Financial Reporting. 
+No changes in the Company’s internal control over financial reporting
+were identified as having occurred during the three months ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 
+51 
+Table of Contents 
+Report of Independent Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+OraSure Technologies, Inc.: 
+We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that
+OraSure Technologies, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
+Organizations of the Treadway Commission (COSO). OraSure Technologies, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
+financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit. 
+We conducted our audit in accordance with the standards of the Public Company
+Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
+audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures
+as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 
+A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
+reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
+pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
+preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
+(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 
+Because of its inherent limitations, internal control over financial
+reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
+with the policies or procedures may deteriorate. 
+In our
+opinion, management’s assessment that OraSure Technologies, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal
+Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commision (COSO). Also, in our opinion, OraSure Technologies, Inc. maintained, in all material respects, effective internal control over
+financial reporting as of December 31, 2004, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commision (COSO). 
+We also have audited, in accordance with the standards of the Public Company
+Accounting Oversight Board (United States), the balance sheets of OraSure Technologies, Inc. as of December 31, 2004 and 2003, and the related statements of operations, stockholders’ equity and comprehensive loss and cash flows for each of the
+years in the three-year period ended December 31, 2004, and our report dated March 14, 2005 expressed an unqualified opinion on those financial statements. 
+/s/ KPMG LLP 
+Philadelphia, Pennsylvania 
+March 14, 2005 
+52 
+Table of Contents
\ No newline at end of file
diff --git a/raw/filings/0001116463/2004/0001193125-05-051144/rp_note.txt b/raw/filings/0001116463/2004/0001193125-05-051144/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001116463/2004/0001193125-05-051144/rpt_disclosure.txt b/raw/filings/0001116463/2004/0001193125-05-051144/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3266f3fb775bd6658f8221e6c319d3848982196e
--- /dev/null
+++ b/raw/filings/0001116463/2004/0001193125-05-051144/rpt_disclosure.txt
@@ -0,0 +1,16 @@
+Certain Relationships and Related Transactions 
+In October 2002, we entered into a commercial lease (the “Lease”)
+with Tech III Partners, LLC (“Tech Partners”), for a 48,000 square foot facility on land adjacent to our Bethlehem, Pennsylvania facilities, and the lease of that facility to us. Tech Partners is owned and controlled by Michael J.
+Gausling, the Company’s former President and Chief Executive Officer, and Dr. R. Sam Niedbala, the Company’s former Executive Vice President and Chief Science Officer. Mr. Gausling and Dr. Niedbala both resigned from the Company in 2004.
+The facility is currently our corporate headquarters and houses manufacturing and administrative operations. 
+The Lease, as amended, has an initial ten-year term ending in October 2012 and a base rent starting at $780,000 per year and increasing to $858,240 per
+year over that term. The base rental rate may be increased after the fifth year of the initial term in order to reflect changes in the interest rate on debt incurred by Tech Partners to finance construction of the leased facilities. We have not
+guaranteed any debt incurred by Tech Partners. We also have an option to renew the Lease for an additional five years at a rental rate of $975,360 per year, and to purchase the facility at any time during the initial ten-year term based on a formula
+set forth in the Lease. 
+Prior to deciding to enter into the
+Lease and an amendment increasing the base rent to reflect certain tenant fit-out costs, our Board of Directors retained Imperial Realty Appraisal LLC, an independent commercial real estate appraisal firm, to evaluate the proposed base rental rate.
+Imperial Realty issued opinions indicating that the annual base rent set forth in the Lease, as amended, is below the market rental rate we could otherwise expect to pay to lease a comparable commercial property in the same general geographic
+market. The terms of the Lease are otherwise substantially similar to a commercial lease we entered into with a third party for our other Bethlehem, Pennsylvania facilities. 
+Information regarding employment and severance agreements between the named executive officers and the Company is set forth
+in the Section entitled, “Employment and Transition Agreements,” in this Proxy Statement. 
+11
\ No newline at end of file
diff --git a/raw/filings/0001116463/2005/0001193125-06-053910/filing.txt b/raw/filings/0001116463/2005/0001193125-06-053910/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c03c139c86e41027884a8d69b24e1c0d515e6d1e
--- /dev/null
+++ b/raw/filings/0001116463/2005/0001193125-06-053910/filing.txt
@@ -0,0 +1,4584 @@
+10-K
+1
+d10k.htm
+FORM 10-K
+Form 10-K 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+FORM 10-K 
+ANNUAL REPORT PURSUANT 
+TO SECTIONS
+13 OR 15(d) OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+(Mark One) 
+x 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31, 2005 
+OR 
+¨ 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the transition period from to
+Commission File No. 001-16537 
+ORASURE TECHNOLOGIES, INC.
+(Exact Name of Registrant as Specified in Its Charter) 
+Delaware 
+36-4370966 
+(State or Other Jurisdiction of 
+Incorporation or Organization) 
+(I.R.S. Employer Identification No.) 
+220 East First Street 
+Bethlehem, Pennsylvania 
+18015 
+(Address of Principal Executive Offices) 
+(Zip Code) 
+(610) 882-1820 
+(Registrant’s Telephone Number, Including Area Code) 
+Securities registered pursuant to
+Section 12(b) of the Act: None 
+Securities registered pursuant to Section 12(g) of the Act: 
+Common Stock, $.000001 par value per share 
+(Title of Class) 
+Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the
+Securities Act. Yes ¨ No x 
+Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
+¨ No x 
+Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
+period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ 
+Indicate by check mark if disclosure of delinquent filers pursuant to
+Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
+this Form 10-K. x 
+Indicate by check mark whether the Registrant is a large accelerated filer, an
+accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. 
+Large accelerated filer ¨ 
+Accelerated filer x 
+Non-accelerated filer ¨ 
+Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
+Exchange Act). Yes ¨ No x 
+State the aggregate market value of the voting and non-voting common equity held by nonaffiliates, computed by reference to the price at which the common
+equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter (June 30, 2005): $448,190,024 
+Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of March 1, 2006: 45,862,788 shares.
+Documents Incorporated by Reference: 
+Portions of the Registrant’s Definitive Proxy Statement for the 2006
+Annual Meeting of Stockholders are incorporated by reference into Part III of this Report. 
+Table of Contents 
+Table of Contents 
+Page 
+PART I 
+ITEM 1. 
+Business 
+1 
+ITEM 1A. 
+Risk Factors 
+18 
+ITEM 1B. 
+Unresolved Staff Comments 
+31 
+ITEM 2. 
+Properties 
+31 
+ITEM 3. 
+Legal Proceedings 
+31 
+ITEM 4. 
+Submission of Matters to a Vote of Security Holders 
+31 
+PART II 
+ITEM 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+32 
+ITEM 6. 
+Selected Financial Data 
+32 
+ITEM 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+34 
+ITEM 7A. 
+Quantitative and Qualitative Disclosures About Market Risk 
+50 
+ITEM 8. 
+Financial Statements and Supplementary Data 
+51 
+ITEM 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+51 
+ITEM 9A. 
+Controls and Procedures 
+51 
+ITEM 9B. 
+Other Information 
+53 
+PART III 
+ITEM 10. 
+Directors and Executive Officers of the Registrant 
+54 
+ITEM 11. 
+Executive Compensation 
+54 
+ITEM 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+54 
+ITEM 13. 
+Certain Relationships and Related Transactions 
+54 
+ITEM 14. 
+Principal Accountant Fees and Services 
+54 
+PART IV 
+ITEM 15. 
+Exhibits and Financial Statement Schedules 
+55 
+Table of Contents 
+This Report contains certain “forward-looking statements,” within the meaning of the Federal
+securities laws. These may include statements about our expected revenues, earnings, expenses or other financial performance, future product performance or development, expected regulatory filings and approvals, planned business transactions, views
+of future industry, competitive or market conditions, and other factors that could affect our future operations, results of operations or financial position. These statements often include the words “believes,” “expects,”
+“anticipates,” “intends,” “plans,” “estimates,” “may,” “will,” “should,” “could,” or similar expressions. 
+Forward-looking statements are not guarantees of future performance or
+results. Known and unknown factors could cause actual performance or results to be materially different from those expressed or implied in these statements. Factors that could affect our results are discussed more fully under Item 1A., entitled
+“Risk Factors,” and elsewhere in this Annual Report. Although forward-looking statements help to provide complete information about us, readers should keep in mind that forward-looking statements may not be reliable. Readers are cautioned
+not to place undue reliance on the forward-looking statements. The forward-looking statements are made as of the date of this Report and we undertake no duty to update these statements. 
+PART I 
+ITEM 1. Business. 
+Our business principally involves the development, manufacture, marketing and sale of oral fluid specimen collection devices using our proprietary oral fluid technologies, as well as other diagnostic products
+including immunoassays and other in vitro diagnostic tests that are used on other specimen types, and other medical devices. Our diagnostic products include tests which are processed in a laboratory and tests which are performed on a rapid
+basis at the point of care. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government
+agencies, physicians’ offices, and commercial and industrial entities. One of our products is also sold in the over-the-counter (“OTC”) or consumer retail market in the United States, Canada and certain other foreign countries.
+In vitro diagnostic testing is the process of analyzing
+oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific substances or markers for infectious diseases, drugs of abuse or other conditions. In vitro diagnostic tests are performed outside the body, in contrast
+to in vivo tests, which are performed directly on or within the body. The substance or marker that a diagnostic test is intended to detect is generally referred to as an analyte. 
+Immunodiagnostic testing is the leading method of in vitro testing for antigens and antibodies. When an infectious
+disease is caused by pathogens, such as bacteria, viruses and fungi, or other substances are present, the body responds by producing an antibody. Substances that stimulate production of antibodies are generally referred to as antigens. An antibody
+binds specifically with an antigen in a lock-and-key fashion that initiates a biochemical reaction to attempt to neutralize and, ultimately, eliminate the antigen. The ability of an antibody to bind with a specific antigen provides the basis for
+immunodiagnostic testing. 
+Our Company was formed in May 2000
+under Delaware law solely for the purposes of combining two companies, STC Technologies, Inc. (“STC” or “STC Technologies”) and Epitope, Inc. (“Epitope”), and changing the state of incorporation of Epitope from Oregon
+to Delaware. STC Technologies and Epitope were merged into our Company on September 29, 2000 (the “Merger”). Our principal offices are located at 220 East First Street, Bethlehem, Pennsylvania 18015, and our telephone number is
+(610) 882-1820. 
+Additional information about us can be
+found on our website. Our website address is www.orasure.com. We make available free of charge through a link provided at such website our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, as well
+as any amendments to those 
+1 
+Table of Contents 
+Reports. These Reports are made available as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange Commission. Our
+Internet website and the information contained in or connected to that website are not intended to be incorporated by reference into this Annual Report. 
+Products 
+The following is a summary of our principal products and their regulatory and commercial status: 
+Product 
+Description 
+FDA Approval Status 
+Commercial 
+Status 
+OraQuick ® 
+ADVANCE ™ 
+A rapid, point-of-care test for antibodies to the Human Immunodeficiency Virus Type 1 and Type 2 (“HIV-1/2”) that can be visually read at the point of care in approximately 20
+minutes. 
+Premarket approval (“PMA”) approved by the U.S. Food and Drug Administration (“FDA”) (March 2004 – June 2004) for use with oral fluid, finger-stick and venous whole
+blood and plasma. CLIA (Clinical Laboratory Improvement Amendments of 1988) waived for use with oral fluid, finger-stick and venous whole blood (June 2004). 
+Marketed 
+CE mark application filed. 
+Pending 
+Registered in Mexico. 
+Marketed 
+OraSure ® 
+Oral fluid collection device for the detection of antibodies to HIV-1 in an oral fluid sample in a laboratory setting. 
+PMA approved by FDA in December 1994. 
+Marketed 
+Also FDA 510(k) cleared for use of device in detecting cocaine and cotinine (an indicator of nicotine) in oral fluid. 
+Marketed 
+CE marked and registered in the United Kingdom. Also Registered in Mexico, Canada, Columbia, South Africa, Afghanistan, Argentina, Brazil, and Trinidad. 
+Marketed 
+Intercept ® 
+Oral fluid collection device, along with nine related immunoassays, for oral fluid drug testing in a laboratory setting. Used to detect the following drugs in an oral fluid sample:
+marijuana, cocaine, opiates, amphetamines, methamphetamines, PCP, benzodiazepines, barbiturates and methadone. 
+Collection device—FDA 510(k) cleared in 2000. 
+Marketed 
+Nine drug assays—FDA 510(k) cleared during 2000-2001. 
+Marketed 
+Intercept ® device CE marked and registered in the United Kingdom. Various assays are CE marked and registered in the United Kingdom, Austria, Belgium, Denmark, Finland, France,
+Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, Korea, Canada, Afghanistan and Brazil. 
+Marketed 
+Cryosurgical 
+Systems (Wart 
+Removal Products) 
+Cryosurgical (freezing) system for the removal of warts and other benign skin lesions, marketed under the Histofreezer ® tradename primarily to the physicians’
+office market. 
+Nine indications—FDA 510(k) cleared during 1991—1999. 
+Marketed 
+CE marked and registered in Europe, Venezuela, Thailand, New Zealand, Hong Kong, Brazil, Mexico, Canada, and Afghanistan. 
+Marketed 
+2 
+Table of Contents 
+Product 
+Description 
+FDA Approval Status 
+Commercial 
+Status 
+Cryosurgical (freezing) system for the removal of common and plantar warts, sold in the over-the-counter markets in the United States and Canada under the Compound W ® 
+Freeze Off ™ tradenames by Prestige Brands Holdings, Inc., and in Europe, Australia and New Zealand under the Scholl and Dr. Scholl Freeze Spray tradenames by SSL International plc. 
+FDA 510(k) cleared for two indications in February 2003. 
+Marketed 
+Freeze Off ™ registered in Canada. 
+Marketed 
+Scholl Freeze Spray CE marked and registered in several European countries. 
+Marketed 
+In addition to the
+above products, we also sell certain immunoassay tests and reagents for insurance risk assessment, substance abuse testing and forensic toxicology applications; an oral fluid Western blot HIV-1 confirmatory test approved by the FDA for confirming
+positive HIV-1 test results obtained from the use of our OraSure ® collection device; and the FDA 510(k) cleared Q.E.D. ® saliva alcohol test. 
+OraQuick ® Rapid Test Platform
+OraQuick ® is our rapid test platform designed to test an oral fluid, whole blood (i.e., both
+finger-stick and venous) or plasma sample for the presence of various antibodies or analytes. The device uses a porous flat pad to collect an oral fluid specimen. After collection, the pad is inserted into a vial containing a pre-measured amount of
+developer solution and allowed to develop. When whole blood or plasma is to be tested, a loop collection device is used to collect a drop of blood or plasma and mix it in the developer solution, after which the collection pad is inserted into the
+solution. In all cases, the specimen and solution then flow through the testing device where test results are observable in approximately 20 minutes. The OraQuick ® device is a screening test and requires a confirmation test where an initial positive result is obtained. 
+Our first product utilizing this technology was the OraQuick ® rapid HIV-1 antibody test, a rapid test for the
+presence of antibodies against HIV-1. In 2002, we received premarket approval of this test from the FDA for detecting HIV-1 in finger-stick whole blood samples and in 2003 we received FDA approval for use of the OraQuick ® test with venous whole blood samples. 
+As a result of this FDA approval, the OraQuick ® test was made available for use by nearly 40,000 locations in the United
+States certified under the Clinical Laboratory Improvements Amendments of 1988, or CLIA, to perform moderately complex diagnostic tests. Additionally, in January 2003, we received a waiver under CLIA for OraQuick ® which permitted the use of this test by approximately 140,000 additional sites in the
+United States not certified under CLIA to perform moderately complex tests, such as outreach clinics, community-based organizations and physicians’ offices. 
+During the period March to June 2004, we received FDA approval for use of a new OraQuick ® test to detect antibodies to both HIV-1 and a second type of the HIV virus,
+known as HIV-2, in finger-stick and venous whole blood, oral fluid and plasma. In June 2004, we also received a CLIA waiver of this test for oral fluid, finger-stick whole blood and venous whole blood. We named this new test OraQuick ® ADVANCE ™ . 
+We believe that the OraQuick ® ADVANCE ™ device, because it is approved for detecting antibodies to both HIV-1 and 2 in finger-stick and venous whole blood, oral fluid and plasma samples,
+provides a significant competitive advantage in the market for rapid HIV testing in the United States. Demand for OraQuick ® ADVANCE ™ has quickly grown since the launch of that product and, as a result, we have stopped manufacturing and selling the OraQuick ® HIV-1 test. 
+3 
+Table of Contents 
+In April 2003, the Centers for Disease Control and Prevention (“CDC”) announced a new four-part
+initiative for HIV testing and diagnosis, which is intended to increase the use of rapid HIV testing as part of routine medical care. Under this program, the CDC purchased 250,000 OraQuick ® devices during 2003, 250,000 devices during 2004, and 217,000 devices in 2005.
+In August 2004, the Substance Abuse and Mental Health Services
+Administration (“SAMHSA”) placed an order to purchase $4.0 million of our OraQuick ® ADVANCE ™ tests and HIV confirmatory test services. The OraQuick ® tests have been deployed by SAMHSA to substance abuse treatment and prevention sites throughout the United States. We expect that all tests ordered by SAMHSA will be fully deployed in early 2006. 
+In late 2005, we received reports that specific clinical sites had
+experienced increased levels of false positive results using our OraQuick ® ADVANCE ™ 
+test with oral fluid. Immediately after receiving the reports, we commenced a scientific and systematic evaluation of each situation and have worked closely with the affected customers, healthcare officials and government agencies, including the CDC
+and FDA. The evaluation includes the collection of test data, an assessment of test procedures, specimen collection and other clinical variables that could affect test results at the sites. We have also conducted a thorough review of our
+manufacturing processes and all related variables that may affect product performance and quality, and have been contacting our customers throughout the country to determine if they are experiencing any unexpected results or issues with regard to
+the performance and procedures associated with the test. Based on the data and information collected to date, we believe that the OraQuick ® ADVANCE ™ test, when used with oral fluid, continues to perform overall as expected and in a manner consistent with its FDA-approved label claims. 
+OraSure ® /Intercept ® Collection Devices 
+Our OraSure ® oral fluid collection device is used in conjunction with screening and confirmatory tests for HIV-1 antibodies and other analytes. This device consists of a small, treated cotton-fiber
+pad on a handle that is placed in a person’s mouth for two to five minutes. The device collects oral mucosal transudate (“OMT”), a serum-derived fluid that contains higher concentrations of certain antibodies and analytes than saliva.
+As a result, OMT testing is a highly accurate method for detecting HIV-1 infection and other analytes. 
+We believe that oral fluid testing has several significant advantages over blood or urine-based systems for infectious disease testing, for both health
+care professionals and the individuals being tested. These advantages include eliminating the risk of needle-stick accidents, providing a non-invasive collection technique, requiring minimal training to administer, providing rapid and efficient
+collection in almost any setting, and reducing the cost of administration by a trained health care professional. 
+We have received premarket approval from the FDA to sell the OraSure ® collection device for use with a laboratory-based enzyme immunoassay (“EIA”) screening test for HIV-1
+antibody detection. This EIA screening test has been approved by the FDA for use with our OraSure ® device and is manufactured and sold by bioMerieux, Inc. (“BMX”). We have completed clinical trials with BMX as part of an application to obtain FDA approval of the use of a new
+EIA screening test for HIV-1 with an OraSure ® 
+device. The FDA submission is expected to be made by BMX during 2006. 
+HIV-1 antibody detection using the OraSure ® collection device involves three steps: 
+• 
+Collection of an oral fluid specimen using the OraSure ® device; 
+• 
+Screening of the specimen for HIV-1 antibodies at a laboratory with an EIA screening test approved by the FDA for use with the OraSure ® device; and 
+• 
+Laboratory confirmation of any positive screening test results with our oral fluid Western blot HIV-1 confirmatory test (described below). 
+4 
+Table of Contents 
+A trained health care professional then conveys test results and provides appropriate counseling to the
+individual who was tested. We have also received FDA 510(k) clearance for use of the OraSure ® collection device with EIAs to test for cocaine and cotinine (a metabolite of nicotine) in oral fluid specimens primarily for insurance risk assessment purposes. 
+A collection device that is substantially similar to the OraSure ® device is sold under the name Intercept ® , and is used to collect OMT for oral fluid drug
+testing. We have received FDA 510(k) clearance to use the Intercept ® collection device with laboratory-based EIAs to test for drugs of abuse commonly identified by the National Institute for Drug Abuse (“NIDA”) as the NIDA-5 (i.e., cannabinoids (marijuana), cocaine, opiates,
+amphetamines/methamphetamines, and phencyclidine (“PCP”)), and for barbiturates, methadone and benzodiazepines. Each of these EIA’s is also FDA 510(k) cleared for use with the Intercept ® device. 
+We believe that the Intercept ® device has several advantages over competing urine and other drugs-of-abuse testing products, including its lower total testing cost, its
+non-invasive nature, mobility and accuracy, the ease of maintaining a chain-of-custody, the treatment of test subjects with greater dignity, no requirement for specially-prepared collection facilities, and difficulty of sample adulteration. The
+availability of an oral fluid test is intended to allow our customers to test for drug impairment, eliminate scheduling costs and inconvenience, and thereby streamline the testing process. 
+Cryosurgical Systems (Wart Removal Products) 
+The Histofreezer ® cryosurgical removal system is a low-cost alternative to liquid nitrogen and other
+methods for removal of warts and other benign skin lesions by physicians. The Histofreezer ® product mixes two environmentally friendly cryogenic gases in a small aerosol canister. When released, these gases are delivered to a specially designed foam bud, cooling the bud to –50°C. The frozen
+bud is then applied to the wart or lesion for 15 to 40 seconds (depending on the type of lesion) creating localized destruction of the target area by freezing. We have received 510(k) clearance for use of the Histofreezer ® product to remove common warts and eight other types of benign skin lesions,
+and this product has been CE marked and registered for distribution throughout Europe. 
+In February 2003, we received FDA 510(k) clearance to market and sell a cryosurgical product similar to the Histofreezer ® product in the OTC or retail market for the removal of common and plantar warts only. This product is being distributed in the United States
+and Canada OTC markets under the name Freeze Off ™ 
+by a subsidiary of Prestige Brands Holdings, Inc. (“Prestige”), the owner of the Compound W ® line of wart removal products. Prestige is the owner of both the Freeze Off ™ and Compound W ® tradenames. 
+In June 2005, we entered into an agreement with SSL International plc (“SSL”) to distribute a similar cryosurgical wart removal product into the OTC footcare market in Europe, Australia and New Zealand. This
+product is CE marked and is being distributed under SSL’s Scholl and Dr. Scholl trademarks. SSL is the owner of the Scholl and Dr. Scholl trademarks in countries outside North and South America. 
+Immunoassay Tests and Reagents 
+We develop and sell immunoassay tests in two formats, known as MICRO-PLATE
+and AUTO-LYTE ® , to meet the specific needs of our
+customers. 
+In a MICRO-PLATE kit, the sample to be tested is
+placed into a small plastic receptacle, called a microwell, along with the reagents. The result of the test is determined by the color of the microwell upon completion of the reaction. Controlling the reaction involves the use of a variety of
+reagents by laboratory personnel. Test results are analyzed by any of a variety of commercially available laboratory instruments, which we may also provide to our laboratory customers. MICRO-PLATE tests can be performed on commonly used instruments
+and can detect drugs in urine, serum, and sweat specimens. MICRO-PLATE tests are also used as part of the Intercept ® product line to detect drugs of abuse in oral fluid specimens. 
+5 
+Table of Contents 
+AUTO-LYTE ® tests are sold in the form of bottles of liquid reagents. These reagents are run on commercially available laboratory-based automated
+analytical instruments, which are manufactured by a variety of third parties. AUTO-LYTE ® is typically used in high volume, automated, commercial reference insurance laboratories to detect certain drugs or chemicals in urine. Test results are produced quickly, allowing for high throughput.
+Whenever possible, we enter into multi-year sales agreements
+with our customers. These agreements generally are entered into with a laboratory that has agreed to purchase a minimum number of tests over a two-to-five-year period. We also offer these customers the option of a reagent rental agreement under
+which we sell the tests at an increased price over a fixed period of time, which includes an additional equipment charge in exchange for providing the customer with the required analytical laboratory equipment. We obtain this equipment from third
+party vendors. 
+Western blot HIV-1 Confirmatory Test
+We sell an oral fluid Western blot HIV-1 confirmatory
+test that received premarket approval from the FDA in 1996. This test uses the original specimen collected with the OraSure ® oral fluid collection device to confirm positive results of initial oral fluid HIV-1 EIA screening tests. The oral fluid Western blot HIV-1
+confirmatory test is marketed under an exclusive arrangement with BMX. 
+Q.E.D. ® Saliva Alcohol Test
+Our Q.E.D. ® saliva alcohol test is a point-of-care test device that is a cost-effective alternative
+to breath or blood alcohol testing. The test is a quantitative, saliva-based method for the detection of ethanol, and has been cleared for sale by the FDA and the U.S. Department of Transportation (“DOT”). In 1998, the product also
+received a CLIA waiver. 
+Each Q.E.D. ® test kit contains a collection stick that is used to
+collect a sample of saliva and a disposable detection device that displays results in a format similar to a thermometer. The Q.E.D. ® device is easy to operate and instrumentation is not required to read the result. The product has a testing range of 0 to 0.145% blood alcohol, and
+produces results in approximately two minutes. 
+Products Under Development
+OraQuick ® Platform 
+We believe that OraQuick ® has significant potential as a point-of-care testing platform for clinics and other public health entities, hospitals, physicians’
+offices and other markets. We believe that OraQuick ® provides a platform technology that can be modified for detection of a variety of infectious diseases in addition to HIV, such as viral hepatitis and certain sexually transmitted diseases. During 2005, we obtained a
+license from Ortho-Clinical Diagnostics and Chiron Corporation to patents relating to the Hepatitis C virus (“HCV”), and we are currently developing a rapid HCV test using the OraQuick ® platform. 
+OraSure ® /Intercept ® Applications 
+Oral mucosal transudate, or OMT, contains many constituents found in blood and serum, although in lower concentrations. We believe the OraSure ® and Intercept ® devices are a platform technology with a wide variety of potential applications, where laboratory testing is available. For example, the OraSure ® device may be useful for the collection of a variety of
+antibodies or markers for infectious diseases or conditions in addition to HIV-1, such as antibodies to viral hepatitis. 
+In 2004, SAMHSA issued proposed regulations for oral fluid drug testing for federal workers. When issued in final form, these regulations may require
+certain modifications to our Intercept ® product in
+order to permit its 
+6 
+Table of Contents 
+use by federal workers. As a result, we are developing modifications to the Intercept ® collection device that we anticipate will be required by these regulations or are otherwise likely to be desired by our
+customers. We are also currently developing additional drugs of abuse assays for use with our Intercept ® collection device. 
+UPT ™ and
+UPlink ® 
+For several prior years, we devoted significant research and development
+efforts on our Up-Converting Phosphor Technology (“UPT ™ ”) and our first application of UPT ™ , the UP link ® 
+rapid, point-of-care system for detecting drugs of abuse in oral fluid. 
+To date, we have not been able to successfully develop potential UPT ™ applications other than the UP link ® application for rapid detection of drugs of abuse in oral fluid. The UP link ® product was developed pursuant to agreements with Dräger Safety AG & Co. KGaA (“Dräger”). Dräger had agreed to distribute UP link ® on an exclusive basis to law enforcement officials for
+determining if an operator or passenger of a motor vehicle is under the influence of one or more drugs of abuse (“roadside testing market”) and to certain military, criminal justice and workplace testing markets. 
+As part of a strategic review of our business completed in late 2004, we
+concluded that the roadside testing market was not as attractive an opportunity for the UP link ® product as we initially believed. We therefore explored other options with respect to UP link ® during the first half of 2005, including possibly transitioning the manufacturing of the product to Dräger. We
+were not able to reach any agreement on this matter with Dräger, and Dräger eventually informed us that they would no longer promote the sale of the UP link ® product. In light of slower than expected sales, difficult channel economics and higher than expected manufacturing
+costs for this product, both we and Dräger decided to stop further investment in the UP link ® product, and our agreements with Dräger were terminated. 
+As a result, during 2005 we recorded a reserve against the carrying value of assets related to the UP link ® product. We have also been evaluating the technical and commercial viability of
+UPT ™ as a technology platform. 
+Business Strategy 
+We have adopted a multi-part growth strategy, pursuant to which we intend to leverage our extensive diagnostic experience in
+order to maximize the available opportunities from our existing products and technologies, and supplement our existing product pipeline by accessing other technologies and products. We intend to follow a disciplined approach to maximize the value of
+our business for the benefit of our stockholders. 
+Our overall
+vision is to become a recognized global leader focused on providing innovative diagnostic solutions that add substantial value to existing and emerging healthcare needs. In order to achieve this vision, our business strategy includes the following
+key elements: 
+• 
+Extension of Base Businesses . We intend to maximize the sales potential of our existing product lines and technologies in the markets where they are
+currently sold, with a focus on expanding, where possible, the number of our oral fluid product offerings. Under this part of the strategy, we intend to fully capitalize on the potential market reach of our OraQuick ® , OraSure ® , Intercept ® , Histofreezer ® and Freeze Off ™ products by investing in our sales and marketing efforts where appropriate, making product improvements and enhancements, and optimizing our distribution channels. We also intend to expand the reach of our existing
+products and technology platforms into new markets and will focus specifically on expanding into international markets. 
+• 
+Infectious Disease Testing . We will pursue new products and technology platforms in the infectious disease, point-of-care testing business to
+supplement our existing product pipeline. This may include either the development of new infectious disease products or the acquisition of new technologies or products. One new product we are pursuing is the development of a rapid HCV test on our
+OraQuick ® platform. 
+7 
+Table of Contents 
+• 
+OTC Opportunities . We intend to identify or develop products that can be sold in the OTC or retail marketplace. We made significant progress during
+2005 under this part of our strategy when we entered into an agreement with SSL to distribute our cryosurgical wart removal product in the OTC market in Europe and other countries. Another opportunity that we are pursuing under this part of our
+strategy is to seek FDA approval to sell our OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test in the United States OTC market. 
+• 
+Operational Improvements . We intend to create a culture focused on the continuous improvement of our operations. These improvements will include, but
+not be limited to, expanding the use of automated manufacturing for our product lines as demand increases, expanding the global sourcing of components and assemblies to achieve efficiencies and cost improvements, making infrastructure and
+information technology investments as needed to improve effectiveness and productivity, and modifying our processes in order to continuously improve quality and the effectiveness of our operations. 
+Research and Development 
+In 2005, our research and development activities focused primarily on the
+development of a rapid HCV test using our OraQuick ® 
+technology platform, clinical and regulatory activities related to obtaining a CE mark for the OraQuick ® ADVANCE ™ test, preliminary work to obtain approval for use of OraQuick ® ADVANCE ™ in the United States OTC market, and development of certain improvements to existing products in both the Intercept ® and cryosurgical wart removal product lines. 
+We supplement our own research and development activities by funding external research. We have funded research at Leiden University and certain other
+entities, and may continue funding external research. 
+Research
+and development expenses totaled $5.3 million in 2005, $6.1 million in 2004 and $8.0 million in 2003. These expenses include the costs associated with research and development, regulatory affairs and clinical trials. 
+Sales and Marketing 
+We attempt to reach our major target markets through a combination of direct sales, strategic partnerships, and independent
+distributors. Our marketing strategy is to raise awareness through a full array of marketing activities, which include trade shows, print advertising, special programs and distributor promotions, to support sales in each target market. 
+We market our products in the United States and internationally. Revenues
+attributable to customers in the United States were $59.9 million, $47.8 million and $35.9 million in 2005, 2004 and 2003, respectively. Revenues attributable to international customers amounted to $9.5 million, $6.2 million and $4.6 million, or
+14%, 11% and 11% of our total revenues, in 2005, 2004 and 2003, respectively. 
+Infectious Disease Testing 
+We market the OraQuick ® 
+ADVANCE ™ rapid HIV-1/2 antibody test
+directly to customers in the public health market for HIV testing. This market consists of a broad range of clinics and laboratories and includes states, counties, and other governmental agencies, the CDC, SAMHSA, colleges and universities,
+correctional facilities and the military. There are also a number of organizations in the public health market such as AIDS service organizations and various community-based organizations set up primarily for the purpose of encouraging and enabling
+HIV testing. 
+In February 2005, we entered into an agreement
+with Abbott Laboratories for the distribution of the OraQuick ® ADVANCE ™ 
+test, appointing Abbott as our exclusive distributor in the U.S. hospital market and as a non-exclusive distributor in the U.S. physicians’ office marketplace. As our exclusive distributor to hospitals, 
+8 
+Table of Contents 
+Abbott sells OraQuick ® ADVANCE ™ to federal hospitals under the terms of our Federal Supply Schedule on file with the General Services Administration. Under our agreement with Abbott, we have retained exclusive rights for all other markets including
+sales to the public health and criminal justice markets, the military, the CDC, SAMHSA and other governmental agencies. We have a small sales force that supports Abbott in order to maximize the penetration of OraQuick ® ADVANCE ™ in the hospital market. 
+We also market the OraSure ® oral fluid collection device for HIV-1 testing, separately and as a kit in combination with laboratory testing services. To better serve our
+public health customers, we have entered into agreements with two commercial laboratories to provide prepackaged OraSure ® test kits, with prepaid laboratory testing and specimen shipping costs included. We also sell the OraSure ® and OraQuick ® devices in the international public health markets. 
+Substance Abuse Testing 
+Our substance abuse testing products are marketed to laboratories serving the workplace testing, forensic toxicology, criminal justice, and drug
+rehabilitation markets. 
+We have entered into agreements for
+the distribution of Intercept ® collection devices
+and associated MICRO-PLATE assays for drugs-of-abuse testing in the workplace testing market in the United States and Canada through several laboratory distributors, including Lab One , Quest Diagnostics and Clinical Reference Laboratory, and
+internationally for workplace, criminal justice and forensic toxicology testing through Bio-Rad Laboratories, Altrix HealthCare, plc, and other distributors. In some cases, we assist our laboratory customers in customizing their testing services by
+selling them equipment required to test oral fluid specimens collected with the Intercept ® device. Lab One was recently acquired by Quest Diagnostics. 
+The forensic toxicology market in the United States for our substance abuse testing products consists of 250 – 300 laboratories including federal,
+state and county crime laboratories, medical examiner laboratories, and reference laboratories. The criminal justice market consists of a wide variety of entities in the criminal justice system that require drug screening, such as pre-trial
+services, parole and probation officials, police forces, drug courts, prisons, drug treatment programs and community/family service programs. 
+We also distribute our Q.E.D. ® saliva alcohol test primarily through various distributors in the United States and internationally. The markets for alcohol testing are relatively
+small and fragmented with a broad range of legal and procedural barriers to entry. Markets range from law enforcement testing to workplace testing of employees in safety sensitive occupations. Typical usage situations include pre-employment, random,
+post-accident, reasonable-cause, and return-to-duty testing. 
+Cryosurgical Systems 
+Most of our
+Histofreezer ® sales occur in the United States to
+distributors that, in turn, resell the product to primary care physicians and podiatrists in the United States. Major U.S. distributors include Cardinal Healthcare, McKesson HBOC, Physicians Sales & Service, AmerisourceBergen Corporation,
+and Henry Schein. Internationally, we established a sales office in Reeuwijk, The Netherlands, and we are selling the Histofreezer ® product through a network of distributors in more than 20 countries worldwide. 
+We sell Freeze Off ™ , a product similar to Histofreezer ® , in the OTC market in the U.S. and Canada pursuant to a distribution agreement with Prestige, the owner of the Compound W ® line of wart removal products. Additionally, in June 2005, we entered into an
+agreement under which SSL distributes a cryosurgical wart removal product in the OTC footcare market in Europe, Australia and New Zealand. SSL sells this product under its Scholl and Dr. Scholl tradenames and began initial sales of this product
+during the fourth quarter of 2005. 
+9 
+Table of Contents 
+Insurance Risk Assessment 
+We currently market the OraSure ® oral fluid collection device for use in screening life insurance applicants in the United States and internationally to test for three of the
+most important underwriting risk factors: HIV-1, cocaine and cotinine (a metabolite of nicotine). Devices are sold to insurance testing laboratories, including Quest Diagnostics, Heritage Labs and Clinical Reference Laboratory. These laboratories in
+turn provide the devices to insurance companies, usually in combination with testing services. 
+We also maintain a direct sales force that promotes use of the OraSure ® device directly to insurance companies for life insurance risk assessment. Insurance companies then make their own decision regarding which laboratory to use to supply their collection
+devices and testing services. Our OraSure ® Western
+blot confirmatory test is distributed through BMX to laboratories and is used to confirm oral fluid specimens collected with our OraSure ® device that initially test positive for HIV-1. 
+Because insurance companies are in various stages of their adoption of the OraSure ® device, there exists a wide range of policy limits where the product is being applied. Some insurance companies have
+chosen to extend their testing to lower policy limits where they did not test at all before, while others have used OraSure ® to replace some of their blood and urine-based testing. In general, most of our insurance company customers use the OraSure ® device in connection with life insurance policies having face amounts of up to
+$250,000, with some customers using the device for policies of up to $500,000 in amount. One large insurance customer uses the OraSure ® device with policies having face amounts up to $3 million. 
+During 2005, we experienced a decline in sales of OraSure ® and related assays for insurance testing, primarily due to a reduction in the number of applications for life insurance policies and changes
+in underwriting requirements. However, our sales force continues to encourage additional insurance companies to use OraSure ® and to extend the use of the product by existing customers. We believe there are several factors which could help expand the use of our device,
+including increasing acceptance of the reliability of oral fluid testing, the high quality of test results, the low cost of oral fluid testing relative to blood tests, the ease of use of the OraSure ® device, and the development of new oral fluid assays for use with our OraSure ® device for detecting substances or conditions that
+affect life insurance risk assessment. 
+We also sell our
+AUTO-LYTE ® and MICRO-PLATE assays and reagents in
+the insurance testing market directly to laboratories, including Quest Diagnostics, Heritage Labs and Clinical Reference Laboratory. 
+International Markets 
+We sell most of our products into international markets primarily through distributors with knowledge of their local markets. Principal markets include
+physicians’ offices, insurance risk assessment, substance abuse, public health, and laboratory testing. 
+We assist our international distributors in registering the products and obtaining required regulatory approvals in each country, and we provide training
+and support materials. Our international marketing program includes direct assistance to distributors in arranging for laboratory services, cooperation from screening test manufacturers, and performance of Western blot confirmatory tests when
+necessary. 
+Significant Products and Customers 
+Several different products have contributed significantly to our financial
+performance, accounting for 15% or more of total revenues during the past three years. The OraSure ® and Intercept ® oral fluid collection devices, cryosurgical systems products, and OraQuick ® rapid HIV test accounted for total revenues of $16.1 million, $22.7 million, and $21.6 million in 2005, $14.6 million, $20.2 million, and $10.2 million in 2004, and $14.5 million, $10.8
+million and $6.3 million in 2003, respectively. As new products are developed and commercialized, we expect to receive a greater portion of our revenues from these new products. 
+10 
+Table of Contents 
+We currently have two customers, Prestige and Quest Diagnostics (including its wholly-owned subsidiary,
+Lab One , Inc.), which accounted for 17% and 13% of our total revenues, respectively, during 2005. 
+The loss of Prestige or Quest, or a significant decrease in the volume of products purchased by either customer, could have a material adverse effect on
+our results. 
+Supply and Manufacturing 
+We manufacture our OraQuick ® ADVANCE ™ test in our Bethlehem, Pennsylvania facility. In addition, we have entered into a
+supply agreement for the assembly of the OraQuick ® 
+device in Thailand, in order to supply certain international markets. This supply agreement had an initial term of one year, and automatically renews for additional annual periods unless either party provides a timely notice of termination prior to
+the end of an annual period. We believe that other firms would be able to manufacture the OraQuick ® test on terms no less favorable than those set forth in the agreement if the Thailand contractor would be unable or unwilling to continue manufacturing this product. 
+We can purchase the HIV antigen and the nitrocellulose required for the
+OraQuick ® test only from a limited number of
+sources. The antigen is currently purchased from a single contract supplier under a long-term agreement with an initial term ending in January 2010 and one-year automatic renewal terms thereafter. The nitrocellulose used in the test is also provided
+by a single contract supplier, under a supply agreement with a five-year term ending in 2009. If for any reason these suppliers are no longer able to supply our antigen or nitrocellulose needs, we believe that alternative supplies could be obtained
+at a competitive cost. However, a change in the antigen or nitrocellulose would require FDA approval and some additional development work. This in turn would require significant time to complete and could disrupt our ability to manufacture and sell
+the OraQuick ® device. 
+We manufacture both the OraSure ® and Intercept ® collection devices in our Bethlehem, Pennsylvania facilities. During 2003 and 2004, we successfully transferred the
+manufacturing of these products from a contract manufacturer in Oregon to Bethlehem, and we believe this transfer will lower our manufacturing costs and help us maintain our quality control for these products in the future. 
+The oral fluid Western blot HIV-1 confirmatory test is currently manufactured
+in our Bethlehem, Pennsylvania facility. The HIV antigen needed to manufacture the Western blot test is available from only a limited number of sources. For many years, we have purchased the antigen for this product from BMX on an exclusive basis.
+BMX is also the exclusive distributor of the Western blot test kits. 
+Our agreements with BMX provide for the supply by BMX of the HIV-1 antigen and distribution of the oral fluid Western blot product by BMX on an exclusive worldwide basis. If for any reason BMX is no longer able to supply our antigen needs,
+we believe we would be able to obtain alternate supplies at a competitive cost. However, a change in the antigen would require FDA approval and some additional development work, which would require significant time to complete and could disrupt our
+ability to manufacture and sell the Western blot HIV-1 confirmatory test. 
+Histofreezer ® is
+assembled in The Netherlands by Koninklijke, Utermöhlen, N.V. (“Utermöhlen”), the company from which we acquired the product in 1998. We purchase the product pursuant to an exclusive production agreement. Utermöhlen also
+supplies Freeze Off ™ , the OTC cryosurgical product
+for the U.S. and Canadian markets. Assuming minimum purchase requirements are met, our agreement with Utermöhlen will terminate at the end of 2006 with respect to the Freeze Off ™ product and at the end of 2008 with respect to the Histofreezer ® product. The cryosurgical wart removal products
+distributed in international markets by SSL are supplied by vendors located in the United States. We believe that additional suppliers of our cryosurgical products are available on terms no less favorable than the terms of our existing supply
+agreements in the event that our current suppliers would be unable or unwilling to continue manufacturing these products. 
+11 
+Table of Contents 
+Our AUTO-LYTE ® and MICRO-PLATE assays are manufactured in our Bethlehem, Pennsylvania facility. These tests require the production of highly specific and
+sensitive antibodies corresponding to the antigen of interest. Substantially all our antibody requirements are provided by contract suppliers. We believe that we have adequate reserves of antibody supplies and that we have access to sufficient raw
+materials for these products. 
+The Q.E.D. ® saliva alcohol test is manufactured and packaged for
+shipment in our Bethlehem, Pennsylvania facility. 
+Employees 
+As of December 31, 2005, we had 233 full-time employees, including
+61 in sales, marketing, and client services; 22 in research and development; 118 in operations, manufacturing, quality control, information systems, purchasing and shipping; 12 in regulatory affairs and quality assurance, and 20 in administration
+and finance. This compares to 194 employees as of December 31, 2004. Our employees are not currently represented by a collective bargaining agreement. 
+Competition 
+The diagnostic industry is a multi-billion dollar international industry and is intensely competitive. Many of our competitors are substantially larger
+than we are, and they have greater financial, research, manufacturing, and marketing resources. 
+Important competitive factors for our products include product quality, price, ease of use, customer service, and reputation. Industry competition is
+based on the following: 
+• 
+Scientific and technological capability; 
+• 
+Proprietary know-how; 
+• 
+The ability to develop and market products and processes; 
+• 
+The ability to obtain FDA or other regulatory approvals; 
+• 
+The ability to manufacture products that meet applicable FDA requirements (i.e., good manufacturing practices); 
+• 
+Access to adequate capital; 
+• 
+The ability to attract and retain qualified personnel; and 
+• 
+The availability of patent protection. 
+A few large corporations produce a wide variety of diagnostic tests and other medical devices and equipment. A larger number of mid-size companies
+generally compete only in the diagnostic industry, and a significant number of small companies produce only a few diagnostic products. As a result, the diagnostic test industry is highly fragmented and segmented. 
+The future market for diagnostic tests is expected to be characterized by
+consolidation, greater cost consciousness, and tighter reimbursement policies. The purchasers of diagnostic products are expected to place increased emphasis on lowering costs, reducing inventory levels, automation, service, and volume discounts.
+The increased complexity of the market is expected to force many competitors to enter into joint ventures or license certain products or technologies. 
+We expect competition to intensify as technological advances are made and become more widely known, and as new products reach the market. Furthermore, new
+testing methodologies could be developed in the future that render our products impractical, uneconomical or obsolete. There can be no assurance that our competitors 
+12 
+Table of Contents 
+will not succeed in developing or marketing technologies and products that are more effective than those we develop or that would render our technologies and
+products obsolete or otherwise commercially unattractive. In addition, there can be no assurance that our competitors will not succeed in obtaining regulatory approval for these products, or introduce or commercialize them before we can do so. These
+developments could have a material adverse effect on our business, financial condition and results of operations. 
+Several companies market or have announced plans to market oral specimen collection devices and tests both within and outside the United States. We expect
+the number of devices competing with our Intercept ® 
+and OraSure ® devices to increase as the benefits of
+oral specimen-based testing become more widely accepted. 
+Competition in the market for HIV testing is intense and is expected to increase. We believe that the principal competition will come from existing laboratory-based blood tests, point-of-care rapid blood tests, laboratory-based urine
+assays, or other oral fluid-based tests that may be developed. Our competitors include specialized biotechnology firms as well as pharmaceutical companies with biotechnology divisions and medical diagnostic companies. 
+Significant competitors for our OraQuick ® ADVANCE ™ rapid test, such as the Ortho Diagnostics division of Johnson & Johnson, Bio-Rad Laboratories, Abbott Laboratories and BMX, sell laboratory-based HIV-1/2 EIAs, and Maximum Biomedical (formerly
+Calypte, Inc.) sells an HIV-1 screening test for urine, in the United States. In addition, MedMira and Trinity Biotech have each received FDA approval to sell competing rapid HIV-1 blood tests, and Bio-Rad Laboratories has received FDA approval to
+sell a competing rapid HIV-1/2 blood test in the United States. Under their current FDA approvals, these tests compete with our OraQuick ® ADVANCE ™ test in hospitals or other
+laboratory settings. In addition, Trinity Biotech has received CLIA waiver for its rapid HIV test, and this test competes with our OraQuick ® ADVANCE ™ test in the markets outside of the traditional hospital and laboratory settings. These companies, or others, may continue to expand the bodily fluids
+with which a rapid HIV test may be performed, or develop and commercialize new rapid HIV tests, which would provide further competition for our OraQuick ® ADVANCE ™ test. We believe other companies
+may also seek FDA approval to sell competing rapid HIV tests in the future. 
+Internationally, our OraQuick ® ADVANCE ™ test competes against rapid HIV
+tests sold by a number of other entities, including Inverness Medical, and often these competing tests are sold at prices substantially below the prices we charge for our OraQuick ® ADVANCE ™ 
+test. Maximum Biomedical has recently developed a rapid oral fluid HIV test which we believe is now being sold in certain foreign countries. 
+The Intercept ® drug testing system competes with laboratory-based drug testing products and services
+using testing matrices such as urine, hair, sweat and oral fluid. Major competitors include Ansys Technologies, Inc., Dade Behring, Psychemedics, and Immunalysis. 
+Our MICRO-PLATE oral fluid drug assays, which are sold for use with the Intercept ® and OraSure ® collection devices, are expected to come under increasing competitive pressure from “home-brew” assays
+developed internally by our laboratory customers. In fact, on June 30, 2004 Lab One , Inc. ceased purchasing our MICRO-PLATE oral fluid assays for use with our OraSure ® collection device in the insurance risk assessment testing market and is now, we believe, using internally-developed
+home-brew assays instead. 
+Our oral fluid MICRO-PLATE assays
+also compete with urine-based homogeneous assays that are run on fully-automated, random access analyzers. These tests provide strong competitive pressure because they provide the benefits of automation, including lower costs and short turn-around
+times. In addition, we believe our competitors are developing oral fluid tests suitable for use on these fully automated homogeneous assay systems and these assays, if and when they are developed and commercialized, will represent a significant
+competitive threat to our oral fluid MICRO-PLATE business. 
+Our
+MICRO-PLATE drugs-of-abuse reagents sold in the forensic toxicology market are targeted to forensic testing laboratories where sensitivity, automation, and “system solutions” are important. In the past, these 
+13 
+Table of Contents 
+laboratories have typically had to rely on radioimmunoassay test methods to provide an adequate level of sensitivity. Radioimmunoassays require radioactive
+materials, which have a short shelf-life and disposal problems. Our MICRO-PLATE tests meet the laboratories’ sensitivity needs, run on automated equipment, are not radioimmunoassays, and are offered to the laboratory as a complete system
+solution of reagents, instrumentation and software to meet the specific needs of each customer. Options to buy or rent the instrumentation and software, which we purchase from third party vendors, are offered to these customers. We compete with both
+homogeneous and heterogeneous tests manufactured by many companies. Significant competitors in the market for these assays include Microgenics, Inc., Roche Diagnostics, and Immunalysis. 
+Sales of our AUTO-LYTE ® urine assays have declined substantially during the past several years, primarily due to competition from assays developed internally by our laboratory
+customers (i.e., “home brews”), which can be produced at a cost lower than the price typically paid for our products. Many of our customers no longer purchase our AUTO-LYTE ® assays, and we eventually expect to stop selling this product line. 
+The Histofreezer ® product’s delivery system and operating temperature, which is warmer than liquid
+nitrogen, provide us with the opportunity to target sales to primary care physicians, such as family practitioners, pediatricians, and podiatrists. We do not generally target sales to dermatologists because they have the volume of patients required
+to support the capital costs associated with a liquid nitrogen delivery system, which is also used to remove warts and other benign skin lesions. There is limited competition for convenient cryosurgical products for wart removal in the primary care
+physician market. Major competitors for the Histofreezer ® product include Cryosurgery, Inc. in the United States and Wartner in Europe. Wartner may also eventually compete with Histofreezer ® in the physician market in the United States. 
+The Freeze Off ™ product, sold by Prestige under its Compound W ® tradename, competes with other OTC wart removal products in the United States. Schering-Plough sells a competing cryosurgical wart removal product
+under its Dr. Scholl’s brand and Wartner currently sells a competing cryosurgical wart removal product in the OTC market. Wartner also sells a product that competes with our cryosurgical product in the European OTC footcare market.
+Q.E.D. ® has two direct competitors, Ansys Technologies, Inc. and Chematics. These companies
+offer semi-quantitative saliva-based alcohol tests and have received DOT approval. Indirect competitors who offer breath testing equipment include Intoximeters, Dräger, and CMI. Although there are lower priced tests on the market that use oral
+fluid or breath as a test medium, these tests are qualitative tests that are believed to be substantially lower in quality and provide fewer benefits than our Q.E.D. ® test. 
+Patents and Proprietary Information 
+We seek patent and other intellectual property rights to protect and preserve our proprietary technology and our right to capitalize on the results of our
+research and development activities. We also rely on trade secrets, know-how, continuing technological innovations, and licensing opportunities to provide competitive advantages for our products in our markets and to accelerate new product
+introductions. We regularly search for third-party patents in fields related to our business to shape our own patent and product commercialization strategies as effectively as possible and to identify licensing opportunities. United States patents
+generally have a maximum term of 20 years from the date an application is filed. 
+We have 16 United States patents and numerous foreign patents for the OraSure ® and Intercept ® collection devices and technology relating to oral fluid collection, containers for oral fluids, methods to test oral fluid, formulations for the manufacture of synthetic oral fluid, and methods to control the volume
+of oral fluid collected and dispersed. We have also applied for additional patents, in both the United States and certain foreign countries, on such products and technology. 
+We have one issued patent for our OraQuick ® ADVANCE ™ 
+rapid HIV-1/2 antibody test in the United States, and we have several related patent applications pending for this product in the United States and 
+14 
+Table of Contents 
+internationally. We have obtained licenses to certain lateral flow patents and to certain HIV-1 and HIV-2 patents held by other parties. We also have
+obtained a license to certain HCV patents which we intend to use to manufacture and sell a rapid HCV test on the OraQuick ® or other technology platform. We obtained these licenses through the payment of certain upfront fees and an agreement to pay ongoing royalties. We
+believe these fees and royalties are comparable to those generally paid by other companies under similar arrangements. 
+We may need to obtain licenses or other rights under, or enter into distribution or other business arrangements in connection with, certain other
+intellectual property patents in order to manufacture and sell the OraQuick ® ADVANCE ™ test. See Section 1A, entitled “Risk Factors,” for a further discussion of these issues. 
+We have five United States patents and numerous foreign patents issued for
+apparatuses and methods for the topical removal of skin lesions relating to our cryosurgical wart removal products, and we have a pending patent application related to these products. We have also licensed another patent relating to apparatuses and
+methods for the topical removal of skin lesions relating to our cryosurgical wart removal products. 
+We have four United States patents and numerous foreign patents and patent applications for the technology used in the Q.E.D. ® test. These patents are related to the analog-to-digital technology color
+control systems and methods, systems and devices for the test, and detection of biochemical molecules. 
+We have one United States patent relating to the method for detecting blood in urine specimens using our AUTO-LYTE ® products. 
+We have or have licensed rights under 16 United States patents and numerous foreign patents for methods, compositions, and
+apparatuses relating to our UPT ™ and UP link ® technologies. Several additional UPT ™ and UP link ® patent applications remain pending in the United States
+and abroad. 
+We require our employees, consultants, outside
+collaborators, and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed by or made known to the individual
+during the course of the individual’s relationship with us, is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the
+individual during his or her tenure with us will be our exclusive property. 
+We own rights to trademarks and service marks that we believe are necessary to conduct our business as currently operated. In the United States, we own the OraSure ® , Intercept ® , OraQuick ® , OraQuick ® ADVANCE ™ , Histofreezer ® , Q.E.D. ® , AUTO-LYTE ® , UPT ™ and UP link ® trademarks. We also own many of these marks and others in several foreign countries. The Compound W ® and Freeze Off ™ trademarks are owned by Prestige Brands Holdings, Inc. or its affiliates, in the United States and Canada, and the Scholl and Dr. Scholl tradenames are owned by SSL International in
+Europe, Australia, New Zealand and other countries outside North and South America. 
+Although important, the issuance of a patent or existence of trademark or trade secret protection does not in itself ensure the success of our business. Competitors may be able to produce products competing with our
+patented products without infringing our patent rights. Issuance of a patent in one country generally does not prevent manufacture or sale of the patented product in other countries. The issuance of a patent is not conclusive as to validity or as to
+the enforceable scope of the patent. The validity or enforceability of a patent can be challenged by litigation after its issuance. If the outcome of such litigation is adverse to the owner of the patent, the owner’s rights could be diminished
+or withdrawn. Trade secret protection does not prevent independent discovery and exploitation of the secret product or technique. 
+15 
+Table of Contents 
+Government Regulation 
+General 
+Most of our products are regulated by the FDA, certain state and local agencies, and comparable regulatory bodies in other countries. This regulated
+environment governs almost all aspects of development, production, and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing, and recordkeeping. 
+All of our FDA-regulated products require some form of action by the FDA
+before they can be marketed in the United States. After approval or clearance by the FDA, we must continue to comply with other FDA requirements applicable to marketed products. Both before and after approval or clearance, failure to comply with the
+FDA’s requirements can lead to significant penalties or could disrupt our ability to sell these products. In addition, the FDA could refuse permission to obtain certificates needed to export our products if the agency determines that we are not
+in compliance. 
+Domestic Regulation 
+Most of our products are regulated in the United States as medical devices.
+There are two mechanisms by which regulated medical devices
+can be placed on the market in the United States. Some products may qualify for clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act. To obtain this clearance from the FDA, the manufacturer must provide a premarket
+notification that it intends to begin marketing the product, and show that the product is substantially equivalent to another legally marketed product (i.e., that it has the same intended use and is as safe and effective as a legally marketed device
+and does not raise different questions of safety and effectiveness). In some cases, the submission must include data from human clinical studies. Marketing may commence when the FDA issues a clearance letter finding substantial equivalence. An
+applicant must submit a 510(k) application at least 90 days before marketing of the affected product commences. Although FDA clearance may be granted within that 90-day period, in some cases as much as a year or more may be required before clearance
+is obtained, if at all. 
+If the medical device does not qualify
+for the 510(k) procedure (either because it is not substantially equivalent to a legally marketed device or because it is required by statute and the FDA’s regulations to have an approved premarket application), the FDA must approve a premarket
+application, or PMA, before marketing can begin. PMAs must demonstrate, among other matters, that the medical device provides a reasonable assurance of safety and effectiveness. A PMA is typically a complex submission, including the results of
+preclinical and clinical studies. Preparing a PMA is a detailed and time-consuming process. Once a PMA has been submitted, the FDA is required to review the submission within 180 days. However, the FDA’s review may, and often is, much longer,
+often requiring one year or more, and may include requests for additional data before approval is granted, if at all. 
+Some of our products are used for non-medical purposes and many of our drugs-of-abuse products sold to state crime labs are for forensic use. The FDA does
+not currently regulate products used for these purposes. 
+Every
+company that manufactures medical devices distributed in the United States must comply with the FDA’s Quality System Regulations (“QSRs”). These regulations govern the manufacturing process, including design, manufacture, testing,
+release, packaging, distribution, documentation and purchasing. In complying with QSRs, manufacturers must continue to expend time, money, and effort in the area of production and quality assurance to ensure full technical compliance. Companies are
+also subject to other post-market and general requirements, including restrictions imposed on marketed products, promotional standards, and requirements for recordkeeping and reporting of certain adverse reactions. If there are any modifications
+made to our marketed devices, a premarket notification or premarket approval application may be required to be submitted to, and cleared or approved by, the FDA, before the modified device may be marketed. The FDA regularly inspects companies to
+determine compliance with QSRs and other post-market requirements. Failure to comply with 
+16 
+Table of Contents 
+statutory requirements and the FDA’s regulations can result in warning letters, monetary penalties, suspension or withdrawal of regulatory approvals,
+operating restrictions, total or partial suspension of production, injunctions, product recalls, seizure of products, and criminal prosecution. 
+The Clinical Laboratory Improvements Amendments of 1988, or CLIA, prohibit laboratories from performing tests for the purpose of providing information for
+the diagnosis, prevention or treatment of any disease or impairment of, or the assessment of, the health of human beings, unless there is in effect for such laboratories a certificate issued by the U.S. Department of Health and Human Services
+applicable to the category of examination or procedure performed. We consider the applicability of the requirements of CLIA in the design and development of our products. We have obtained a waiver of the CLIA requirements for both our OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test and our Q.E.D. ® alcohol saliva test, and may seek similar waivers for certain other products.
+A CLIA waiver allows certain customers to use the waived products that may not have been able to use them without complying with certain quality control and other requirements. 
+Certain of our products may also be affected by state regulations in the United States. For example, there are several
+states that restrict or do not currently permit oral fluid drug testing in the workplace or other markets. In addition, several states prohibit or limit the use of rapid, point-of-care HIV testing. We are presently working with legislators or
+regulators in certain of these states in an effort to modify or remove any restrictions affecting our ability to sell products. 
+International 
+We are also subject to regulations in foreign countries governing products, human clinical trials and marketing, and may need to obtain approval from
+international public health agencies, such as the World Health Organization, in order to sell products in certain countries. Approval processes vary from country to country, and the length of time required for approval or to obtain other clearances
+may in some cases be longer than that required for U.S. governmental approvals. We generally pursue approval only in those countries that we believe have a significant market opportunity. 
+The International Organization for Standardization (“ISO”) is a worldwide federation of national standards bodies
+from some 130 countries, established in 1947. The mission of the ISO is to promote the development of standardization and related activities in the world with a view to facilitating the international exchange of goods and services. ISO certification
+is a pre-requisite to use of the CE mark and indicates that our quality system complies with standards applicable to activities ranging from initial product design and development through production and distribution. The CE mark is a European Union
+(“EU”) requirement to sell products that fall under the scope of the Medical Devices Directive (“MDD”) and the In Vitro Diagnostic Directive (“IVDD”). The CE mark is evidence that the manufacturer meets the requirements
+of all applicable directives, including the MDD and IVDD. 
+We
+received authorization to use the CE mark for the OraSure ® and Intercept ® 
+collection devices and our Histofreezer ® product
+line, and SSL International has obtained authorization to use the CE mark for our cryosurgical wart removal product in the OTC European footcare market. In addition, we are currently in the process of obtaining authorization to affix a CE mark to
+our OraQuick ® ADVANCE ™ HIV-1/2 test. 
+We must also comply with certain registration requirements as dictated by
+Health Canada, prior to commencing sales in Canada. We have completed this process for several of our current products and may do so with respect to other products in the future. In addition, Canadian law requires manufacturers of medical devices to
+have a quality management system that meets various ISO requirements in order to obtain a license to sell their devices in Canada. 
+17 
+Table of Contents 
+Anti-Kickback Laws 
+The Federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation, or receipt of any form of
+remuneration in return for, or to induce: 
+• 
+The referral of a person; 
+• 
+The furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental programs; or 
+• 
+The purchase, lease, or order of, or the arrangement or recommendation of the purchasing, leasing, or ordering of any item or service reimbursable under Medicare, Medicaid, or other
+governmental programs. 
+Our products are or may
+be purchased by customers that will seek or receive reimbursement under Medicare, Medicaid or other governmental programs. Noncompliance with the federal anti-kickback legislation can result in exclusion from Medicare, Medicaid, or other
+governmental programs, restrictions on our ability to operate in certain jurisdictions, as well as civil and criminal penalties, any of which could have an adverse effect on our business and results of operations. 
+The Federal Civil Monetary Penalties Law prohibits the offering or
+transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable items or services. Noncompliance
+can result in civil money penalties of up to $10,000 for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the Federal healthcare programs. 
+Many states have also adopted some form of anti-kickback laws. A
+determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions. 
+We believe that we are operating in compliance with these laws. 
+Environmental Regulation 
+Because of the nature of our current and proposed research, development, and manufacturing processes, we are subject to stringent federal, state and local
+laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge and handling and disposal of materials and wastes. We believe that we have complied with these laws and regulations in all
+material respects. We have not been required to take any action to correct any environmental noncompliance. 
+The foregoing discussion of our business should be read in conjunction with the Financial Statements and accompanying notes included in Item 15 of
+this Annual Report on Form 10-K. 
+ITEM 1A. Risk Factors 
+The following is a discussion of certain significant risk factors that could potentially negatively impact our financial condition, performance and prospects. 
+Regulatory Risks 
+The Need to Obtain Regulatory Approvals and Respond to Changes in
+Regulatory Requirements Could Adversely Affect Our Business. 
+Many of our proposed and existing products are subject to regulation by the FDA and other governmental or public health agencies. In particular, we are subject to strict governmental controls on the development, 
+18 
+Table of Contents 
+manufacture, labeling, distribution and marketing of our products. In addition, we are often required to obtain approval or registration with foreign
+governments or regulatory bodies before we can import and sell our products in foreign countries. 
+The process of obtaining required approvals or clearances from governmental or public health agencies can involve lengthy and detailed laboratory testing,
+human clinical trials, sampling activities and other costly, time-consuming procedures. For example, during 2004, we received several FDA approvals for our OraQuick ® ADVANCE ™ 
+rapid HIV-1/2 antibody test, including approval for use of the test on oral fluid samples. These approvals required the submission of clinical data and required significant time to obtain. The submission of an application to the FDA or other
+regulatory authority does not guarantee that an approval or clearance to market the product will be received. Each authority may impose its own requirements and delay or refuse to grant approval or clearance, even though a product has been approved
+in another country or by another agency. 
+Moreover, the
+approval or clearance process for a new product can be complex and lengthy. This time span increases our costs to develop new products as well as the risk that we will not succeed in introducing or selling them in the United States or other
+countries. 
+Newly promulgated or changed regulations could also
+require us to undergo additional trials or procedures, or could make it impractical or impossible for us to market our products for certain uses, in certain markets, or at all. For example, during 2004 the Substance Abuse and Mental Health Services
+Administration (“SAMHSA”), which is part of the U.S. Department of Health and Human Services, issued proposed regulations for the use of oral fluid drug testing for federal workers. The SAMHSA regulations, when issued in final form, could
+permit us to market and sell our oral fluid drug tests for use with federal workers only if certain modifications are made to our products. If we are unable to make these modifications, or if the modifications require significant time to develop,
+our ability to sell our oral fluid drug testing products in that market could be limited. In addition, the extent to which the final SAMHSA regulations permit the sale of our oral fluid drug tests for use with federal workers may influence whether
+customers in the workplace, criminal justice or other unregulated markets use our products. 
+The regulations in some states may restrict our ability to sell products in those states. For example, certain states restrict or do not allow the testing of oral fluid for drugs of abuse or the rapid, point-of-care
+testing for HIV. While we intend to work with state legislators and regulators to remove or modify any applicable restrictions, there is no guarantee we will be successful in these efforts. 
+In addition, all in vitro diagnostic products that are to be sold in
+the European Union (“EU”) must bear the CE mark indicating conformance with the essential requirements of the In Vitro Diagnostic Directive, or IVDD. We are not permitted to sell our products in the EU without a CE mark, which could lead
+to the termination of strategic alliances and agreements for sales of those products in the EU. We have obtained the CE mark for several of our existing products, and we intend to CE mark certain of our future products and are not aware of any
+material reason why we will be unable to do so. However, there can be no assurance that compliance with all provisions of the IVDD will be demonstrated and the CE mark will be obtained for all products that we desire to sell in the EU. 
+Failure to Comply With FDA or Other Regulatory Requirements May Require
+Us to Suspend Production of Our Products or Institute a Recall Which Could Result in Higher Costs and a Loss of Revenues. 
+We can manufacture and sell many of our products, both in the United States and internationally, only if we comply with regulations of government agencies
+such as the FDA. We have implemented quality assurance and other systems that are intended to comply with applicable regulations. 
+Although we believe that we have adequate processes in place to ensure compliance with these requirements, the FDA or other regulatory bodies could force
+us to stop manufacturing or selling our products if 
+19 
+Table of Contents 
+it concludes that we are out of compliance with applicable regulations. The FDA and other regulatory bodies could also require us to recall products if we
+fail to comply with applicable regulations, which could force us to stop manufacturing such products. See the Section entitled “Government Regulation” in Item 1 of this Annual Report for a further discussion of applicable regulatory
+requirements. 
+Risks Relating to Our Industry, Business and
+Strategy 
+Our Ability to Sell Products Could be Affected
+by Competition From New and Existing Diagnostic Products and by Treatment or Other Non-Diagnostic Products Which May be Developed. 
+The diagnostic industry is focused on the testing of biological specimens in a laboratory or at the point of care and is highly competitive and rapidly
+changing. Many of our principal competitors have considerably greater financial, technical and marketing resources. As new products enter the market, our products may become obsolete or a competitor’s products may be more effective or more
+effectively marketed and sold than ours. If we fail to maintain and enhance our competitive position, our customers may decide to use products developed by competitors which could result in a loss of revenues. 
+We also face competition from products which may be sold at a lower price. To
+the extent this competition arises, customers may choose to buy lower cost products from third parties or we may be forced to sell our products at a lower price, both of which could result in a loss of revenues or a lower gross margin contribution
+from the sale of our products. In addition, the development and commercialization of products outside of the diagnostics industry could adversely affect sales of our product. For example, the development of a safe and effective vaccine to HIV or
+treatments for other diseases or conditions that our products are designed to detect, could reduce, or eventually eliminate, the demand for our HIV or other diagnostic products and thereby result in a loss of revenues. 
+Our Research, Development and Commercialization Efforts May Not Succeed
+and Our Competitors May Develop and Commercialize More Effective or Successful Diagnostic Products. 
+In order to remain competitive, we must regularly commit substantial resources to research and development and the commercialization of new products.
+The research and development process generally takes a
+significant amount of time from inception to commercial product launch. This process is conducted in various stages. During each stage there is a substantial risk that we will not achieve our goals on a timely basis, or at all, and we may have to
+abandon a product in which we have invested substantial amounts. 
+During 2005, 2004 and 2003, we incurred $5.3 million, $6.1 million and $8.0 million, respectively, in research and development expenses. We expect to continue to incur significant costs from our research and development activities.
+Successful products require significant development and
+investment, including testing, to demonstrate their cost-effectiveness or other benefits prior to commercialization. In addition, regulatory approval must be obtained before most products may be sold. Additional development efforts on these products
+will be required before any regulatory authority will review them. Regulatory authorities may not approve these products for commercial sale. In addition, even if a product is developed and all applicable regulatory approvals are obtained, there may
+be little or no market for the product. Accordingly, if we fail to develop commercially successful products, or if competitors develop more effective products or a greater number of successful new products, customers may decide to use products
+developed by our competitors. This would result in a loss of revenues and adversely affect our results of operations, cash flows and business. 
+20 
+Table of Contents 
+If We Lose Our Key Personnel or Are Unable to Attract and Retain Qualified Personnel as Necessary, Our
+Business Could be Harmed. 
+Our success will depend to a
+large extent upon the contributions of our executive officers, management, and sales, marketing, operations and scientific staff. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified
+personnel among medical products businesses. 
+If we are not
+able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will adversely affect our ability to effectively manufacture, sell and market our products, to meet the demands of our
+strategic partners in a timely fashion, or to support internal research and development programs. Although we believe we will be successful in attracting and retaining qualified personnel, competition for experienced scientists and other personnel
+from numerous companies and academic and other research institutions may limit our ability to do so on acceptable terms. 
+Efforts to Consolidate or Restructure Could Adversely Affect Our Business. 
+We may from time to time restructure and consolidate various aspects of our operations in order to achieve cost savings and
+other efficiencies. For example, during 2004 we completed the restructuring of our manufacturing operations, which included the transfer of the manufacturing of our Intercept ® , OraSure ® and oral fluid Western blot products from our Beaverton, Oregon facility and a contract manufacturer in Oregon to Bethlehem, Pennsylvania. We obtained
+FDA approval to transfer the operations to Pennsylvania, and our Pennsylvania facilities are ISO certified. This type of transfer and the need to obtain FDA approval and ISO certification could interfere with or delay our manufacturing processes and
+disrupt continued operations. Any delay in or disruption of operations, and in particular manufacturing operations, could result in increased costs or could delay or prevent us from selling certain products and thereby result in a loss of revenue.
+Future Acquisitions or Investments Could Disrupt Our
+Ongoing Business, Distract Our Management, Increase Our Expenses and Adversely Affect Our Business. 
+We may consider strategic acquisitions or investments as a way to expand our business in the future. These activities, and their impact on our business,
+are subject to the following risk factors: 
+• 
+Suitable acquisitions or investments may not be found or consummated on terms that are satisfactory to us; 
+• 
+We may be unable to successfully integrate an acquired company’s personnel, assets, management systems and technology into our business; 
+• 
+Acquisitions may require substantial expense and management time and could disrupt our business; 
+• 
+An acquisition and subsequent integration activities may require greater capital resources than originally anticipated at the time of acquisition; 
+• 
+An acquisition may result in the incurrence of unexpected expenses, the dilution of our earnings or our existing stockholders’ percentage ownership, or potential losses from
+undiscovered liabilities not covered by an indemnification from the seller(s) of the acquired business; 
+• 
+An acquisition may result in the loss of existing key personnel or customers or the loss of the acquired company’s key personnel or customers; 
+• 
+The benefits expected to be derived from an acquisition may not materialize and could be affected by numerous factors, such as regulatory developments, general economic conditions
+and increased competition; and 
+• 
+An acquisition of a foreign business may involve additional risks, including, but not limited to, foreign currency exposure, liability under foreign laws or regulations, and not
+being able to successfully assimilate differences in foreign business practices or overcome language or cultural barriers. 
+21 
+Table of Contents 
+The occurrence of one or more of the above or other factors may prevent us from achieving all or a
+significant part of the benefits expected from an acquisition or investment. This may adversely affect our financial condition, results of operations and ability to grow our business or otherwise achieve our financial or strategic objectives.
+Our Net Sales Could be Affected by Third-Party
+Reimbursement Policies and Potential Cost Constraints. 
+The end-users of our products are expected to increasingly include hospitals, physicians and other healthcare providers. Use of our products could be adversely impacted if these end-users do not receive reimbursement for the cost of our
+products by their patients’ healthcare insurers or payors. Our net sales could also be adversely affected by changes in reimbursement policies of governmental or private healthcare payors, including in particular the level of reimbursement for
+our products. In the United States, healthcare providers such as hospitals and physicians who purchase diagnostic products generally rely on third-party payors, principally private health insurance plans, Medicare and Medicaid, to reimburse all or
+part of the cost of the product and procedure. We believe that the overall escalating cost of medical products and services has led to, and will continue to lead to, increased pressures on the healthcare industry, both foreign and domestic, to
+reduce the cost of products and services. Given the efforts to control and reduce healthcare costs in the United States in recent years, currently available levels of reimbursement may not continue to be available in the future for our existing
+products or products under development. Third-party reimbursement and coverage may not be available or adequate in either the United States or foreign markets, current reimbursement amounts may be decreased in the future and future legislation, and
+regulation or reimbursement policies of third-party payors may reduce the demand for our products or our ability to sell our products on a profitable basis. 
+Increases in Demand for Our Products Could Require Us to Spend Considerable Resources to Meet the Demand or Harm Our Customer Relationships if We are
+Unable to Meet Demand. 
+If we experience significant or
+unexpected increases in the demand for our products, we and our suppliers may not be able to meet that demand without expending additional capital resources. These capital resources could involve the cost of new machinery or even the cost of new
+manufacturing facilities. This would increase our capital costs, which could adversely affect our earnings. Our suppliers may be unable or unwilling to expend the necessary capital resources or otherwise expand their capacity. If we or our suppliers
+are unable to develop necessary manufacturing capabilities in a timely manner, our net sales could be adversely affected. Failure to cost-effectively increase production volumes, if required, or lower than anticipated yields or production problems
+encountered as a result of changes that we or our suppliers make in our manufacturing processes to meet increased demand, could result in shipment delays or interruptions and increased manufacturing costs, which could also have a material adverse
+effect on our revenues and profitability. 
+Our inability to
+meet customer demand for our products could also harm our customer relationships and impair our reputation within the industry. This, in turn, could have a material adverse effect on our business and prospects. 
+Risks Relating to Collaborators 
+Our Failure to Maintain Existing Distribution Channels, or Develop New
+Distribution Channels, May Result in Lower Revenues. 
+We
+have marketed many of our products by collaborating with laboratories, diagnostic companies and distributors. For example, our OraSure ® oral fluid collection device is distributed to the insurance industry through major insurance testing laboratories, and Abbott Laboratories has
+exclusive rights to distribute our OraQuick ® 
+ADVANCE ™ HIV-1/2 test in the U.S. hospital market and non-exclusive rights to the U.S. physicians’ office market. Our sales depend to a
+substantial degree on our ability to sell products to these customers and develop new product distribution channels, and on the marketing abilities of the companies with which we collaborate. 
+22 
+Table of Contents 
+Some of our distributors have consolidated in recent years, and such consolidation has had, and may
+continue to have, an adverse impact on the level of orders for our products. One of these laboratories, Lab One , Inc., acquired another large insurance laboratory customer, Osborne Group, Inc., in 2001 and our revenues decreased because of
+efficiencies resulting from that acquisition. More recently, Lab One was acquired by another of our laboratory distributors, Quest Diagnostics, and this acquisition could also affect the level of our revenues. 
+In addition, some distributors have experienced, and may continue to
+experience, pressure from their customers to reduce the price of their products and testing services. For example, several of our insurance testing laboratories are facing this pressure and are using lower cost “home brew” insurance
+testing assays that they have developed internally or purchased from our competitors. This has reduced our assay sales and is expected to lower sales of these products in 2006 and beyond. 
+Finally, some of our distributors may not fulfill their contractual obligations. Although we will try to maintain and expand
+our business with our distributors and require that they fulfill their contractual obligations, there can be no assurance that such companies will continue to purchase or distribute our products, maintain historic order volumes or otherwise meet
+their purchase or other obligations, or that new distribution channels will be available on satisfactory terms. 
+The Use of Sole Supply Sources For Critical Components of Our Products Could Adversely Affect Our Business. 
+We currently purchase certain critical components of our products from sole
+supply sources. For example, all of the HIV-1 antigen used to make our oral fluid Western blot HIV-1 confirmatory test is purchased from BMX, and all of the HIV antigen and nitrocellulose required to make our OraQuick ® rapid HIV-1 antibody test is purchased from sole source suppliers. If these
+suppliers are unable or unwilling to supply the required component, we would need to find another source, and perform additional development work and obtain FDA or other regulatory approvals for the use of the alternative component for our products.
+Completing that development and obtaining such approvals could require significant time to complete and may not occur at all. The availability of critical components from sole supply sources could also reduce our control over pricing, quality and
+timely delivery. These events could either disrupt our ability to manufacture and sell certain of our products, or completely prevent us from doing so or increase our costs. Any such event could have a material adverse effect on our results of
+operations, cash flows and business. 
+The Unavailability of
+Certain Products Distributed by a Third Party Could Adversely Affect Sales of Our OraSure ® Oral Fluid Collection Device. 
+In testing an oral fluid sample collected with an OraSure ® device for HIV-1 in the United States, our customers must use an HIV-1 screening test approved by the FDA for use with our OraSure ® device. Where an oral fluid sample screens positive for HIV-1, our customers must then use our oral fluid Western blot
+HIV-1 confirmatory test, which has also been approved by the FDA for use with our OraSure ® device, to confirm that positive indication. 
+BMX manufactures and sells the only oral fluid HIV-1 screening test that has received FDA approval for use in detecting HIV-1 in an oral fluid specimen collected with our OraSure ® collection device. BMX has developed a new HIV-1 screening test, and has indicated that
+this new test will eventually replace its existing FDA-approved HIV-1 screening test. We are working with BMX to obtain FDA approval for use of the new screening test with our OraSure ® device and expect BMX to file a submission for approval with the FDA during 2006. BMX
+also supplies the HIV-1 antigen used to manufacture our oral fluid Western blot HIV-1 confirmatory test and is the exclusive world-wide distributor of that product. 
+If BMX ceases to manufacture or sell an HIV-1 screening test approved by the FDA for use with our OraSure ® collection device, or if our oral fluid Western blot
+HIV-1 confirmatory test is not made available to our 
+23 
+Table of Contents 
+customers (because BMX either fails to supply the HIV-1 antigen required to make this product or fails to distribute this product), we would need to find
+alternate suppliers for these products, which would require additional development work and FDA approval. These activities would likely require significant time to complete. If our customers cannot obtain an HIV-1 screening test or Western blot
+HIV-1 confirmatory test that has been approved by the FDA for use in connection with our OraSure ® collection device, these customers would likely stop purchasing our OraSure ® device. Sales of the OraSure ® device were $10.0 million and $11.0 million, or 14% and 20% of our total revenues, in 2005 and 2004, respectively. 
+We May Need Strategic Partners to Assist in Developing and Commercializing
+Some of Our Diagnostic Products. 
+Although we intend to
+pursue some product opportunities independently, opportunities that require a significant level of investment for development and commercialization or a distribution network beyond our existing sales force may necessitate involving one or more
+strategic partners. Our strategy for development and commercialization of products may entail entering into arrangements with distributors or other corporate partners, universities, research laboratories, licensees and others. We may be required to
+transfer material rights to such strategic partners, licensees and others. While we expect that our current and future partners, licensees and others have and will have an economic motivation to succeed in performing their contractual
+responsibilities, there is no assurance that they will do so and the amount and timing of resources to be devoted to these activities will be controlled by others. Consequently, there can be no assurance that any revenues or profits will be derived
+from such arrangements. 
+Risks Relating to Our Financial
+Results, Structure and Need for Financing 
+We Have a
+History of Losses Prior to 2005. 
+We achieved our first
+full year of profitability in 2005, when we recorded net income of $27.4 million, which includes a $17.7 million net income tax benefit. As of December 31, 2005, the Company had an accumulated deficit of $103.7 million. 
+Our ability to achieve continued profitability in the future will be
+dependent upon a number of factors including, without limitation, the following: 
+• 
+Creating market acceptance for and selling increasing volumes of our OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test, Intercept ® drug testing product, and OraSure ® collection device; 
+• 
+The degree to which certain of our new products may replace sales of our existing products and the financial impact of that change, including the degree to which our OraQuick ® ADVANCE ™ test will replace our OraSure ® collection device for HIV-1 testing or sales of our cryosurgical wart removal products
+in the OTC market will replace sales of our Histofreezer ® product to physicians’ offices or other professional markets; 
+• 
+Achieving growth in sales of our wart removal products in the OTC market and selling other products, such as our OraQuick ® ADVANCE ™ test, in the OTC market; 
+• 
+Achieving growth in international markets with our OraQuick ® ADVANCE ™ test, cryosurgical wart removal products and other products; 
+• 
+Changes in the level of competition, such as would occur if larger and financially stronger competitors introduced new or lower priced products to compete with our products;
+• 
+Changes in economic conditions in domestic or international markets, such as economic downturns, reduced demand, inflation and currency fluctuations; 
+• 
+Failure to achieve our targets for growth in revenues; 
+24 
+Table of Contents 
+• 
+Changes in distributor buying patterns or a buildup of significant quantities in our distributors’ inventories or distribution channels; and 
+• 
+Commercially developing, and obtaining regulatory approvals and creating market acceptance for new products in a time frame consistent with our objectives. 
+Even though we achieved profitability for 2005, there can be no assurance
+that we will be able to sustain such profitability in the future. 
+Utilization of Our Deferred Tax Assets May Be Limited and is Dependent on Future Taxable Income. 
+As of December 31, 2005, we had federal net operating loss (“NOL”) carryforwards of $66.6 million for federal income tax purposes. The Tax
+Reform Act of 1986 contains provisions under Section 382 of the Internal Revenue Code that limit the NOLs that may be used in any given year in the event of specified occurrences, including significant ownership changes. If these specified
+events occur, we may lose some or all of the tax benefits of these carryforwards. 
+During 2005, we determined, based on our assessment of both positive and negative evidence, which takes into consideration our forecasted taxable income, that it was more likely than not that we will benefit from the
+use of a significant portion of our deferred tax assets, and therefore we reduced our valuation allowance on our deferred tax assets related to these NOLs. Upon reducing the valuation allowance, we recognized $26.7 million of deferred tax assets of
+which $18.2 million was recognized as a non-cash tax benefit and $8.5 million was recorded directly as an increase in stockholders’ equity. The favorable impact of the tax benefit distorts the trends in our operating results and impacts the
+comparability of our current period results of operations with other periods. If in the future we determine, based on our assessment of both positive and negative evidence, that it is more likely than not that we will not realize all or a portion of
+the deferred tax assets, we will record a valuation allowance on the deferred tax assets which would result in recognition of income tax expense. 
+We May Require Future Additional Capital. 
+Our future liquidity and ability to meet our future capital requirements will depend on numerous factors, including, but not limited to, the following:
+• 
+The costs and timing of the expansion of our manufacturing capacity; 
+• 
+The success of our research and product development efforts; 
+• 
+The magnitude of capital expenditures; 
+• 
+Changes in existing and potential relationships with business partners; 
+• 
+The time and cost of obtaining regulatory approvals; 
+• 
+The costs involved in obtaining and enforcing patents, proprietary rights and necessary licenses; 
+• 
+The costs and liability associated with patent infringement or other types of litigation; 
+• 
+The costs and timing of expansion of sales and marketing activities; 
+• 
+The timing of the commercial launch of new products; 
+• 
+The extent to which existing and new products gain market acceptance; 
+• 
+The scope and results of clinical testing; 
+• 
+Competing technological and market developments; and 
+• 
+The scope and timing of strategic acquisitions. 
+If additional financing is needed, we may seek to raise funds through the sale of equity or other securities or through bank borrowings. There can be no
+assurance that financing through the sale of securities, bank borrowings or otherwise, will be available to us on satisfactory terms, if at all. 
+25 
+Table of Contents 
+An Economic Downturn, Terrorist Attacks or National Disasters May Adversely Affect Our Business.
+Changes in economic conditions could adversely affect our
+business. For example, in a difficult economic environment, customers may be unwilling or unable to invest in new diagnostic products, may elect to reduce the amount of their purchases or may perform less drug testing because of declining employment
+levels or the issuance of fewer life insurance policies. A weakening business climate could also cause longer sales cycles and slower growth, and could expose us to increased business or credit risk in dealing with customers or suppliers adversely
+affected by economic conditions. 
+Terrorist attacks such as
+those occurring on September 11, 2001, or national disasters such as Hurricane Katrina, and subsequent governmental responses to these events could cause economic instability. These actions could adversely affect economic conditions both within
+and outside the United States and reduce demand for our products. Terrorist attacks and natural disasters could cause governments and regulatory agencies, such as the FDA or agencies that perform similar functions outside the United States, to focus
+their resources on other matters, such as relief efforts or vaccines or other products intended to address the threat of biological or chemical warfare. This diversion of resources could eliminate or delay the bulk procurement of our products by
+government agencies or delay our ability to obtain regulatory approvals required to manufacture, market or sell our products in the United States and other countries. These events could also disrupt the operations of our customers and suppliers and
+eliminate, reduce or delay our customers’ ability to purchase and use our products and our suppliers’ ability to provide raw materials and finished products. 
+Our Stock Price Could Continue to be Volatile. 
+Our stock price has been volatile, has fluctuated substantially in the past and may be volatile in the future and could
+experience substantial declines. The following factors, among others, could have a significant impact on the market for our Common Stock: 
+• 
+Future announcements concerning us or our products; 
+• 
+Future announcements concerning our competitors or industry; 
+• 
+Developments in patent or other proprietary rights; 
+• 
+Litigation or threatened litigation; 
+• 
+Public concern as to the performance or safety of products that we or others have developed or sold; 
+• 
+Failure to achieve, or changes in, financial estimates by securities analysts and comments or opinions about us by securities analysts or major stockholders;
+• 
+Governmental regulation; 
+• 
+Clinical results with respect to our products in development or those of our competitors; 
+• 
+Changes in the level of competition; 
+• 
+Loss of or declines in sales to major distributors or customers; 
+• 
+The relatively low trading volume for our Common Stock; 
+• 
+Period to period fluctuations in our operating results; 
+• 
+General market and economic conditions; and 
+• 
+Terrorist attacks, civil unrest, war and national disasters. 
+Future Sales by Existing Stockholders, Executive Officers or Directors Could Depress the Market Price of Our Common Stock and Make It More Difficult
+For Us to Sell Stock in the Future. 
+Sales of our Common
+Stock in the public market, or the perception that such sales could occur, could negatively impact the market price of our Common Stock. We are unable to estimate the number of shares of our 
+26 
+Table of Contents 
+Common Stock that may actually be resold in the public market since this will depend on the market price for our Common Stock, the individual circumstances
+of the sellers and other factors. 
+We have a number of
+institutional stockholders that own significant blocks of our Common Stock. If one or more of these stockholders sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price of our
+Common Stock could be negatively affected. In addition, it is possible that one or more of our executive officers or members of our Board of Directors could sell shares of our Common Stock during an open trading window under our Insider Trading
+Policy. These transactions and the perceived reasons for these transactions could have a negative effect on the prevailing market price of our Common Stock. 
+Our Reported Financial Results May be Adversely Affected by Changes in Accounting Principles Generally Accepted in the United States. 
+We prepare our financial statements in conformity with accounting
+principles generally accepted in the United States. These accounting principles are subject to creation or interpretation by the Financial Accounting Standards Board, the Securities and Exchange Commission and various bodies formed to interpret and
+create appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a
+change. 
+Risks Relating to Intellectual Property
+Our Success Depends on Our Ability to Protect Our
+Proprietary Technology. 
+The diagnostics industry places
+considerable importance on obtaining patent, trademark, and trade secret protection, as well as other intellectual property rights, for new technologies, products and processes. Our success depends, in part, on our ability to develop and maintain a
+strong intellectual property portfolio or obtain licenses to patents for products and technologies both in the United States and in other countries. 
+As appropriate, we intend to file patent applications and obtain patent protection for our proprietary technology. These patent applications and patents
+will cover, as applicable, compositions of matter for our products, methods of making those products, methods of using those products, and apparatus relating to the use or manufacture of those products. We will also rely on trade secrets, know-how,
+and continuing technological advancements to protect our proprietary technology. 
+We have entered, and will continue to enter, into confidentiality agreements with our employees, consultants, advisors and collaborators. However, these parties may not honor these agreements and we may not be able to
+successfully protect our rights to unpatented trade secrets and know-how. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how. 
+Many of our employees, including scientific and management personnel, were
+previously employed by competing companies. Although we encourage and expect all of our employees to abide by any confidentiality agreement with a prior employer, competing companies may allege trade secret violations and similar claims against us.
+We may collaborate with universities and governmental research
+organizations which, as a result, may acquire part of the rights to any inventions or technical information derived from collaboration with them. 
+To facilitate development and commercialization of a proprietary technology base, we may need to obtain licenses to patents or other proprietary rights
+from other parties. Obtaining and maintaining such licenses may 
+27 
+Table of Contents 
+require the payment of substantial amounts. In addition, if we are unable to obtain these types of licenses, our product development and commercialization
+efforts may be delayed or precluded. 
+We may incur substantial
+costs and be required to expend substantial resources in asserting or protecting our intellectual property rights, or in defending suits against us related to intellectual property rights. Disputes regarding intellectual property rights could
+substantially delay product development or commercialization activities. Disputes regarding intellectual property rights might include state, federal or foreign court litigation as well as patent interference, patent reexamination, patent reissue,
+or trademark opposition proceedings in the United States Patent and Trademark Office. Opposition or revocation proceedings could be instituted in a foreign patent office. An adverse decision in any proceeding regarding intellectual property rights
+could result in the loss or limitation of our rights to a patent, an invention or trademark. 
+We are Involved in Pending, and May Become Involved in Future, Intellectual Property Infringement Disputes, Which are Costly and Could Limit or Eliminate Our Ability to Sell Our Products or Use Certain of Our
+Technologies in the Future. 
+From time to time, we may
+seek to enforce our patents or other intellectual property rights through litigation. In addition, there are a large number of patents and patent applications in our product areas, and additional patents may be issued to third parties relating to
+our product areas. We may be sued for infringement of patents or misappropriation of other intellectual property rights with respect to one or more of our products. Litigation in our industry regarding patent and other intellectual property rights
+is prevalent and is expected to continue. 
+Our involvement in
+litigation with respect to patents or other intellectual property or to determine rights in proprietary technology, either as a plaintiff or defendant, could adversely affect our revenues, market share, results of operations and business because:
+• 
+As is common with major litigation, it could consume a substantial portion of managerial and financial resources; 
+• 
+Its outcome would be uncertain and a court may find that our patents are invalid or unenforceable in response to claims by another party or that the third-party patent claims are
+valid and infringed by our products; 
+• 
+An adverse outcome could subject us to the loss of the protection of our patents or to liability in the form of past royalty payments, penalties, special and punitive damages, or
+future royalty payments significantly affecting our future earnings; 
+• 
+Failure to obtain a necessary license upon an adverse outcome could prevent us from selling our current products or other products we may develop; and 
+• 
+A court could award a preliminary and/or permanent injunction which would prevent us from selling our current or future products. 
+The Sales Potential for OraQuick ® Could be Affected by Our Ability to Obtain Certain Licenses. 
+Our OraQuick ® test is a lateral flow assay device that tests for specific antibodies or other
+substances. The term “lateral flow” generally refers to a test strip through which a sample flows and which provides a test result on a portion of the strip downstream from where the sample is applied. There are numerous patents in the
+United States and other countries which claim lateral flow assay methods and devices. Some of these patents may broadly cover the technology used in the OraQuick ® test and are in force in the United States and other countries. We may not be able to make or sell the OraQuick ® test in the United States or other countries where
+these patents are in force. 
+We have obtained licenses under
+several lateral flow patents, which we believe should be sufficient to permit the manufacturing and sale of the OraQuick ® device as currently contemplated. However, licenses under 
+28 
+Table of Contents 
+additional patents may be required and it is possible that a third party could seek to enforce one or more lateral flow patents against us. In the event that
+we are unable to successfully defend against such litigation or it is determined that a license is required and it is not possible to negotiate or otherwise obtain a license agreement on reasonable terms under a necessary patent, our ability to
+manufacture and sell the OraQuick ® device could be
+limited. In such case, we may be able to modify the OraQuick ® test such that a license would not be necessary. However, this alternative could delay or limit our ability to sell the OraQuick ® test in the United States and other markets, which would adversely affect our results of operations, cash flows and
+business. 
+Risks Relating to Products, Marketing and Sales
+A Market for Our Products May Not Develop.
+Our future success will depend, in part, on the market
+acceptance, and the timing of such acceptance, of our products such as the OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test, the Intercept ® drug test, and other new products or technologies that may be developed or acquired. To achieve market acceptance, we must make substantial marketing efforts and spend significant funds to inform potential customers
+and the public of the perceived benefits of these products. There may be limited evidence on which to evaluate the market reaction to products that may be developed, and there can be no assurance that any products will obtain market acceptance and
+fill the market need that is perceived to exist. 
+If
+Acceptance and Adoption of Our Oral Fluid Testing Does Not Continue, Our Future Results May Suffer. 
+We have made significant progress in gaining acceptance of oral fluid testing for HIV in the insurance and public health markets. We have also made
+significant progress in gaining acceptance of oral fluid testing for drugs of abuse in the workplace and criminal justice testing markets. However, the ultimate degree of acceptance in these markets is uncertain, and other markets may resist the
+adoption of oral fluid testing as a replacement for other testing methods in use today. In addition, certain state laws prohibit or restrict the use of oral fluid testing for drugs of abuse in certain markets or the rapid, point-of-care testing for
+HIV. As a result, there can be no assurance that we will be able to expand the use of our oral fluid testing products in these or other markets. 
+We May be Sued for Product Liabilities for Injuries Resulting From the Use of Our Products. 
+We may be held liable if any of our products, or any product which is made
+with the use or incorporation of any of our technologies, causes injury of any type or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or usage. Although we have obtained product liability insurance, this
+insurance may not fully cover potential liabilities. As we bring new products to market, we may need to increase our product liability coverage. 
+We are selling cryosurgical wart removal products in the consumer or OTC market in the United States, Canada, and Europe. We expect to expand the OTC
+sales of these products to other countries and to eventually distribute other types of products, such as our OraQuick ® ADVANCE ™ HIV-1/2 test. We believe the sale of products in the OTC market increases the risk of potential product liability exposure and the required level of insurance coverage that we will need
+to maintain. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could affect our decision to commercialize new products and our results of operations.
+Performance of Our Products May Affect Our Revenues and
+Stock Price. 
+Our products are generally sold with
+labeling that contains performance claims approved or cleared by the FDA or other regulators. If our products fail to perform in accordance with the applicable label claims or otherwise in accordance with the expectations or needs of our customers,
+customers may switch to a competing 
+29 
+Table of Contents 
+product or otherwise stop using our products, and our revenues could be adversely affected. In addition, poor performance by one or more of our products and
+publicity surrounding such performance could have an adverse effect on our reputation, our continuing ability to sell products and the prevailing market price of our Common Stock. 
+Our Increasing International Presence May be Affected by Regulatory, Cultural or Other Restraints. 
+We intend to increase revenue derived from international sales of our
+products. Our international sales accounted for $9.5 million or 14% of total revenues for 2005, $6.2 million or 11% of total revenues for 2004, and $4.6 million or 11% of total revenues for 2003. 
+A number of factors can slow or prevent international sales, or substantially
+increase the cost of international sales, including those set forth below: 
+• 
+Regulatory requirements (including compliance with applicable customs regulations) may slow, limit, or prevent the offering of products in foreign countries;
+• 
+The unavailability of licenses to certain patents in force in a foreign country which cover our products may restrict our ability to sell into that country;
+• 
+The inability to maintain ISO certification for our or our suppliers’ manufacturing facilities could preclude, interrupt or delay our ability to manufacture products for sale
+in Europe or other international territories; 
+• 
+Our ability to obtain the CE mark on our products in a timely manner may preclude or delay our ability to sell products in the European Union; 
+• 
+Cultural and political differences may make it difficult to effectively market, sell and gain acceptance of products in foreign countries; 
+• 
+Inexperience in international markets may slow or limit our ability to sell products in foreign countries; 
+• 
+Exchange rates, currency fluctuations, tariffs and other barriers, extended payment terms and dependence on and difficulties in managing international distributors or
+representatives may affect our revenues even when product sales occur; 
+• 
+The creditworthiness of foreign entities may be less certain and foreign accounts receivable collection may be more difficult; 
+• 
+Economic conditions, the absence of available funding sources, terrorism, civil unrest, war and natural disasters may slow or limit our ability to sell our products in foreign
+countries; 
+• 
+International markets often have long sales cycles, especially for sales to foreign governments, quasi-governmental agencies and international public health agencies, thereby
+delaying or limiting our ability to sell our products; and 
+• 
+We may be at a disadvantage if competitors in foreign countries sell competing products at prices at or below such competitors’ or our cost. 
+In addition, we have entered into a contract for the manufacture and supply
+of the OraQuick ® test in Thailand, and the
+Histofreezer ® and Freeze Off ® cryosurgical products are currently manufactured in The
+Netherlands. We may enter into agreements to manufacture other products in foreign countries as well. However, factors such as economic and political conditions and foreign regulatory requirements may slow or prevent the manufacture of our products
+in countries other than the United States. Interruption of the supply of our products could reduce revenues or cause us to incur significant additional expenses in finding an alternative source of supply. In addition, foreign currency fluctuations
+and economic conditions in foreign countries could increase the costs of manufacturing our products in foreign countries. 
+30 
+Table of Contents 
+ITEM 1B. Unresolved Staff Comments. 
+Not Applicable. 
+ITEM 2. Properties. 
+We lease an approximate 48,000 square foot facility, which is our primary corporate office and manufacturing facility, in Bethlehem, Pennsylvania. The lease has a ten-year initial term ending in October 2012 and base
+rental rate starting at $780,000 and increasing to $858,000 per year over that initial term. The lease also has a five-year renewal option at an annual base rental rate of $975,000 and a ten-year purchase option. We currently intend to exercise our
+option to purchase this facility. 
+We also lease 21,430 square
+feet of space at the John M. Cook Technology Center in Bethlehem, Pennsylvania, which we use for our sales and marketing and research and development offices. Annual base rent for this lease, which ends in March 2010, is $271,000. The lease also has
+a ten-year purchase option. We currently intend to exercise our option to purchase this facility. 
+We own a 33,500 square foot building in Bethlehem, Pennsylvania, which is used for manufacturing, engineering and information systems activities.
+We rent additional warehouse space on an as-needed basis. We
+also lease space for small sales offices in Chicago, Illinois and Reeuwijk, The Netherlands. 
+We believe that the facilities described above are adequate for our current requirements. 
+ITEM 3. Legal Proceedings. 
+On July 23, 2004, we filed a lawsuit against Schering-Plough Healthcare Products, Inc. for infringement of several of our patents relating to technology for the cryosurgical removal (i.e., freezing) of warts and
+other benign skin lesions. The suit was commenced in the United States District Court for the Eastern District of Pennsylvania, and alleges that Schering-Plough’s manufacture and sale of its Dr. Scholls ® Freeze Away ™ cryosurgical wart removal product in the United States OTC market infringes the following United States patents: Nos.
+5,738,682; 6,092,527 and 4,865,028. We are requesting permanent injunctive relief and the payment of damages. Schering-Plough has asserted various defenses in this matter, including that its Dr. Scholls ® Freeze Away ™ product does not infringe our patents and that one or more of our patents are invalid and unenforceable. 
+In November 2004, a Court held a Markman hearing in order to determine as a
+matter of law the meaning of certain terms and phrases in the claims in our patents which are relevant to an infringement determination. The Court issued a final decision from the Markman hearing in August 2005. Since that time, the period for fact
+discovery and discovery from expert witnesses has closed. 
+On
+November 2, 2005, an initial pretrial conference was held on this matter, at which the Court heard oral argument on motions for summary judgment and certain evidentiary and other motions filed by the parties. We expect the Court to rule on
+these motions and to set a final trial schedule in the near future. 
+ITEM 4. Submission of Matters to a Vote of Security Holders. 
+No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2005. 
+31 
+Table of Contents 
+PART II 
+ITEM 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 
+Our Common Stock is listed for trading on the National Market tier of The
+Nasdaq Stock Market (“NASDAQ”) under the symbol OSUR. High and low sales prices reported by NASDAQ during the periods indicated are shown below. 
+Year ended December 31, 
+2005 
+2004 
+High 
+Low 
+High 
+Low 
+First Quarter 
+$ 
+7.45 
+$ 
+5.35 
+$ 
+12.00 
+$ 
+7.20 
+Second Quarter 
+10.23 
+6.91 
+10.63 
+6.65 
+Third Quarter 
+11.83 
+8.42 
+9.73 
+5.19 
+Fourth Quarter 
+14.14 
+7.74 
+7.52 
+5.54 
+On March 1, 2006,
+there were 589 holders of record and approximately 16,000 holders in street name of the Common Stock, and the closing price of the Common Stock was $9.73 per share. We have never paid any cash dividends, and our Board of Directors does not
+anticipate paying cash dividends in the foreseeable future. We are generally not permitted to pay dividends or make other distributions to our stockholders under the terms of our credit facilities with Comerica Bank, without first obtaining
+Comerica’s consent. We intend to retain any future earnings to provide funds for the operation and expansion of our business. 
+ITEM 6. Selected Financial Data. 
+The following table sets forth selected financial data of the Company. This information should be read in conjunction with the Financial Statements and notes thereto included in Item 15 and the information set
+forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 
+Selected Financial Data 
+(In
+thousands, except per share data) 
+Year ended December 31, 
+2005 
+2004 
+2003 
+2002 
+2001 
+Operating Results: 
+Revenues 
+$ 
+69,366 
+$ 
+54,008 
+$ 
+40,451 
+$ 
+32,010 
+$ 
+32,573 
+Costs and expenses 
+61,793 
+55,365 
+41,737 
+35,550 
+36,906 
+Operating income (loss) 
+7,573 
+(1,357 
+) 
+(1,286 
+) 
+(3,540 
+) 
+(4,333 
+) 
+Other income (expense), net 
+2,146 
+797 
+177 
+198 
+634 
+Income tax (benefit) provision 
+(17,729 
+) 1 
+— 
+27 
+— 
+29 
+Net income (loss) 
+27,448 1 
+(560 
+) 
+(1,136 
+) 
+(3,342 
+) 
+(3,728 
+) 
+Earnings (loss) per share 
+Basic 
+$ 
+0.61 
+$ 
+(0.01 
+) 
+$ 
+(0.03 
+) 
+$ 
+(0.09 
+) 
+$ 
+(0.10 
+) 
+Diluted 
+$ 
+0.59 
+$ 
+(0.01 
+) 
+$ 
+(0.03 
+) 
+$ 
+(0.09 
+) 
+$ 
+(0.10 
+) 
+Shares used in computing earnings (loss) per share 
+Basic 
+45,110 
+44,464 
+39,794 
+37,583 
+36,868 
+Diluted 
+46,147 
+44,464 
+39,794 
+37,583 
+36,868 
+Cash Flow: 
+Cash flow from operating activities 
+$ 
+10,392 
+$ 
+3,438 
+$ 
+2,702 
+$ 
+(518 
+) 
+$ 
+(5,256 
+) 
+32 
+Table of Contents 
+December 31, 
+2005 
+2004 
+2003 
+2002 
+2001 
+Financial Position: 
+Cash, cash equivalents, and short-term investments 
+$ 
+77,620 
+$ 
+66,723 
+$ 
+64,024 
+$ 
+14,908 
+$ 
+15,191 
+Working capital 
+90,670 
+68,910 
+67,171 
+18,931 
+19,764 
+Deferred tax asset 
+26,708 
+— 
+— 
+— 
+— 
+Total assets 
+130,747 
+88,064 
+86,151 
+35,737 
+37,285 
+Long-term debt, excluding current portion 
+884 
+1,334 
+2,456 
+3,409 
+3,586 
+Accumulated deficit 
+(103,682 
+) 
+(131,130 
+) 
+(130,570 
+) 
+(129,435 
+) 
+(126,092 
+) 
+Stockholders’ equity 
+118,919 
+75,577 
+73,509 
+26,019 
+26,541 
+1 
+Includes an income tax benefit of $18.2 million resulting from the elimination of a significant portion of the valuation allowance on our deferred tax assets (see
+Note 9 to the Notes to Financial Statements). 
+33 
+Table of Contents 
+ITEM 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations. 
+Statements below regarding future events or performance are “forward-looking statements” within the meaning of
+the Private Securities Litigation Reform Act of 1995. Our actual results could be quite different from those expressed or implied by the forward-looking statements. Factors that could affect results are discussed more fully under the Item 1A,
+entitled “Risk Factors,” and elsewhere in this Annual Report. Although forward-looking statements help to provide complete information about us, readers should keep in mind that forward-looking statements may not be reliable. Readers are
+cautioned not to place undue reliance on the forward-looking statements. 
+The following discussion should be read in conjunction with the financial statements contained herein and the notes thereto, along with the Section entitled “Critical Accounting Policies and Estimates,” set
+forth below. 
+Overview 
+Our Company operates primarily in the worldwide $22 billion in vitro 
+diagnostics business. We develop, manufacture and market oral fluid specimen collection devices using proprietary oral fluid technologies, diagnostic products including immunoassays, and other in vitro diagnostic tests. We also manufacture
+and sell medical devices for the removal of warts and other benign skin lesions by cryosurgery, or freezing. 
+Our diagnostic product offerings primarily target the infectious disease and substance abuse testing segments of the larger in vitro diagnostic
+market, and are used in both laboratories as well as the emerging, and rapidly growing, point-of-care marketplace. Our OraSure ® and Intercept ® oral fluid collection devices, and their related assays, are processed in a laboratory, while the OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test is designed for use at the point-of-care. Our cryosurgical products are also used at the point-of-care. 
+In vitro diagnostics have traditionally used blood or urine as the
+bodily fluids upon which tests are conducted. However, we have targeted the use of oral fluid in our products as a differentiating factor, and believe that it provides a significant competitive advantage over blood and urine. Our oral fluid tests
+have sensitivity and specificity comparable to blood and/or urine tests and, when combined with their ease of use, non-invasive and dignified nature, and cost effectiveness, represent a very competitive alternative to the more traditional testing
+methods in the diagnostic space. 
+We have made significant
+progress in increasing our sales and gaining market acceptance for our products. As a result, we reported strong financial results for 2005, our first profitable year. Our total revenues were $69.4 million, or an increase of 28% over 2004, and our
+net income for the year was $27.4 million. Net income includes $18.2 million associated with a deferred tax benefit recorded in the fourth quarter, partially offset by a $436,000 current tax provision. Our liquidity also improved, as we reported
+$10.4 million in cash flow from operating activities in 2005 and we had $77.6 million in cash, cash equivalents and short-term investments as of December 31, 2005. 
+Sales into the infectious disease testing market segment increased significantly in 2005 due to the continued market
+acceptance of our OraQuick ® test. This increase
+resulted largely from sales directly to various public health organizations, sales to Abbott Laboratories for distribution primarily to hospitals, sales to the Substance Abuse and Mental Health Services Administration (“SAMHSA”) and
+Centers for Disease Control and Prevention (“CDC”) for further distribution in the public health market, and sales into the international marketplace. 
+During the period March—June 2004, we received FDA approval of our OraQuick ® ADVANCE ™ test to detect antibodies to both HIV-1 and HIV-2 in oral fluid, finger-stick whole blood, venous whole blood, and plasma samples. In June 2004, we
+also obtained a CLIA waiver for the OraQuick ® 
+ADVANCE ™ HIV-1/2 test for all specimen
+types except plasma. This new product was officially launched commercially in October 2004. Since that time, the demand for OraQuick ® ADVANCE ™ has grown quickly, and in 2005 we converted all OraQuick ® customers to this new product and have recently ceased selling our original OraQuick ® HIV-1 test. 
+34 
+Table of Contents 
+In June 2004, we received a nonexclusive, worldwide sublicense to certain HIV-2 patents held by Bio-Rad
+Laboratories. We believe that the OraQuick ® 
+ADVANCE ™ test, provides a significant
+competitive advantage by allowing us to sell a versatile rapid HIV test that is capable of detecting antibodies to both the HIV-1 and HIV-2 strains of the virus in oral fluids, finger-stick whole blood, venous whole blood and plasma. 
+In 2004, the CDC and SAMHSA ordered a total of $6.3 million of OraQuick ® ADVANCE ™ devices and related testing materials. We expect that these agencies, and perhaps
+other federal governmental agencies, may make future bulk purchases of OraQuick ® ADVANCE ™ for
+further distribution to the public health and other markets throughout the United States. Failure to receive, or any delays in receiving, additional bulk orders for OraQuick ® ADVANCE ™ from these government agencies could adversely affect our financial performance. 
+In February 2005, we entered into an agreement for the distribution of OraQuick ® ADVANCE ™ with Abbott Laboratories. Under this agreement, Abbott was appointed as our exclusive distributor in the U.S. hospital
+market and as a non-exclusive distributor in the U.S. physicians’ office marketplace. As our exclusive distributor to hospitals, Abbott sells OraQuick ® ADVANCE ™ to federal hospitals under the terms and conditions of our Federal Supply Schedule that is filed with the U.S. General Services Administration. We have
+retained exclusive rights to all other markets, including the public health and criminal justice markets, the military, the CDC, SAMHSA and other government agencies. We utilize a small internal sales force to support Abbott and work together with
+them to maximize the penetration of OraQuick ® 
+ADVANCE ™ in the hospital market.
+The markets for rapid HIV testing are very competitive and the
+level of competition is expected to increase, which could affect sales of our OraQuick ® tests. For example, the Ortho Diagnostics division of Johnson & Johnson, Bio-Rad Laboratories, Abbott and bioMerieux, Inc. each sell competing laboratory-based HIV-1 enzyme immunoassays
+(“EIAs”), and Maximum Biomedical (formerly Calypte, Inc.) sells an HIV-1 screening test for urine, in the United States. In addition, MedMira and Trinity Biotech have each received FDA approval to sell competing rapid HIV-1 blood tests,
+and Bio-Rad Laboratories received FDA approval for a rapid HIV-1/2 blood test. Under their current FDA approvals, these tests compete with our OraQuick ® ADVANCE ™ test in the hospital or other laboratory settings. In addition, Trinity Biotech has received CLIA waiver for its rapid finger-stick HIV-1 blood test,
+and this test competes with our OraQuick ® 
+ADVANCE ™ test in markets outside of the
+traditional hospital and laboratory settings. These companies, or others, may continue to expand the bodily fluids with which a rapid HIV test may be performed or develop and commercialize new rapid tests, either of which would provide further
+competition for our OraQuick ® ADVANCE ™ test. 
+Sales to the substance abuse testing market also increased during 2005,
+reflecting the growing acceptance of our Intercept ® 
+collection device and related oral fluid drug assays, as corporate and criminal justice customers continued to shift to oral fluid and away from traditional urine-based drug testing. This increase was partially offset by lower sales of our drug
+assays to the forensic toxicology market and lower sales of our UP link ® product. We expect continuing growth in the utilization of our Intercept ® product line, primarily in the United States and United Kingdom. 
+In April 2004, SAMHSA published proposed guidelines that would, if adopted, include oral fluid testing as an accepted drug testing method for federal
+employees. We have responded to SAMHSA’s proposed guidelines with a comment letter and await the final guidelines that will apply to our Intercept ® drugs of abuse testing product. We are unable to predict at this time whether additional modifications may be required to bring our
+Intercept ® product into compliance with the
+guidelines when finally adopted or what affect, if any, non-compliance with the final guidelines will have on our product offerings. Compliance with the guidelines will be required in order for us to sell our drug testing products to federal
+employees and possibly other industries that are influenced by the federal guidelines in structuring their drug testing programs. 
+As part of the strategic business review we completed in late 2004, we concluded that the roadside drugs-of-abuse testing market for UP link ® may not be as attractive as a number of other
+opportunities we are pursuing. During the first six months of 2005, we explored our options with respect to the UP link ® product, 
+35 
+Table of Contents 
+including transitioning the manufacturing of the product to our distribution partner, Dräger Safety. Throughout this period, we were not able to reach
+an agreement with Dräger Safety or determine an alternative outlet for this product. In addition, we were advised that Dräger would no longer promote the sale of the UP link ® product. As a result, we recorded a $1.5 million charge in June 2005 to reflect a
+provision on inventory and fixed assets related to our UP link ® product. We subsequently terminated our existing research, development and distribution agreements with Dräger for the UP link ® product. 
+Sales to the cryosurgical systems market during 2005 have also grown, primarily as a result of our launch into the international over-the-counter
+(“OTC”) market. The cryosurgical systems market represents sales of Histofreezer ® into both the domestic and international physicians’ office markets and sales of the OTC formulation of this product to both our domestic distributor, a subsidiary of Prestige Brands Holdings, Inc.
+(“Prestige”), and our international distributor, SSL International plc (“SSL”). Prestige distributes Freeze Off ™ to consumers under its Compound W ® trademark in the OTC market in the United States and Canada, and is the owner of both tradenames. In June 2005, we entered into an agreement with SSL
+under which we manufacture and supply, and SSL distributes on an exclusive basis, the Company’s cryosurgical wart removal product in the OTC market in Europe, Australia and New Zealand. The product is manufactured and sold under SSL’s
+Scholl and Dr. Scholl trademarks, and was initially available for retail purchase in pharmacies and retail outlets in several European countries in the fourth quarter of 2005. The product is also expected to be made available for retail
+purchase in other countries during 2006. 
+In July 2004, we
+filed a lawsuit against Schering-Plough Healthcare Products, Inc. (“Schering-Plough”) for infringement of several of our patents relating to the technology for the cryosurgical removal (i.e., freezing) of warts and other benign skin
+lesions. The suit was commenced in the United States District Court for the Eastern District of Pennsylvania, and alleges that Schering-Plough’s manufacture and sale of its Dr. Scholl’s ® Freeze Away ™ cryosurgical wart removal product in the over-the-counter market infringes three of our patents. We are seeking
+injunctive relief and the payment of damages, and Schering-Plough has raised several defenses, including that their Freeze Away ™ device does not infringe our patents and that one or more of our patents are either invalid or unenforceable. On November 2, 2005, a pretrial
+conference was held in this matter, at which the Court heard oral argument on motions for summary judgment filed by the parties. We expect the Court to rule on these and other motions and to set a new trial schedule in the near future. 
+Sales to the insurance risk assessment market continued to decline in
+2005, primarily because of a reduction in the number of applications for life insurance and changes in underwriting requirements. In addition, our insurance testing assays have experienced substantial competitive pressure from “home-brew”
+assays internally developed by our customers. Revenues to this market are expected to continue to decline or at best remain at approximately the levels attained in 2005 unless we are successful in developing and commercializing new oral fluid based
+diagnostic tests for additional predictive health markers desired by the insurance industry. 
+During 2004, we received all necessary FDA approvals to transfer the manufacture of our Intercept ® and OraSure ® collection devices and our oral fluid Western blot HIV-1 confirmatory test from Oregon to our facilities in Bethlehem, Pennsylvania. This transfer was completed and has reduced our
+annual operating expenses and improved our ability to control the quality of the transferred products. In January 2005, the lease on our Oregon facility expired and all operations at that location ceased. The absence of this lease also reduced our
+operating expenses in 2005. 
+Because of the regulatory
+approvals needed for most of our products, we often are required to rely on sole source providers for critical components and materials and on related products supplied by third parties. This is particularly true for our OraQuick ® ADVANCE ™ test, our OraSure ® oral fluid collection device and our oral fluid Western blot HIV-1 confirmatory product. If we are unable to obtain
+necessary components or materials from these sole sources, the time required to develop replacements and obtain the required FDA approvals could disrupt our ability to sell the affected products. Any delay or interruption in our ability to
+manufacture the oral fluid Western blot HIV-1 confirmatory test would adversely affect sales of our OraSure ® oral fluid collection device, as our customers are not expected to purchase OraSure ® devices if an oral fluid Western blot HIV-1 
+36 
+Table of Contents 
+confirmatory test is not readily available. In addition, if the HIV-1 EIA approved by the FDA for use with our OraSure ® collection device, which is manufactured by a third party, is either unavailable or
+experiences quality or performance problems, sales of our OraSure ® device could be adversely affected. 
+We generated 86% of our 2005 revenues in the U.S. marketplace. Consequently, we are evaluating strategies to increase our sales penetration in markets outside the U.S. As our business in foreign countries increases, we will be exposed to
+additional risks, including economic, political, exchange rate, regulatory and cultural risks. 
+Results of Operations 
+Twelve Months
+Ended December 31, 2005 Compared to December 31, 2004 
+Total revenues increased 28% to $69.4 million in 2005 from $54.0 million in 2004, primarily as a result of increased sales of our OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test, our Intercept ® oral fluid collection device and related drug assays, and our international OTC cryosurgical product, partially offset by declines in domestic OTC cryosurgical product revenues and assay
+revenues in the insurance risk assessment market. Revenues derived from products sold in countries outside the U.S. were $9.5 million and $6.2 million, or 14% and 11% of total revenues for the years ended December 31, 2005 and 2004,
+respectively. 
+The table below shows the amount of our total
+revenues (in thousands, except %) generated in each of our principal markets and by licensing and product development activities. 
+Years ended December 31, 
+Dollars 
+% 
+Change 
+Percentage of 
+Total Revenues 
+Market 
+2005 
+2004 
+2005 
+2004 
+Infectious disease testing 
+$ 
+25,988 
+$ 
+15,526 
+67 
+% 
+37 
+% 
+29 
+% 
+Substance abuse testing 
+13,519 
+10,108 
+34 
+19 
+19 
+Cryosurgical systems 
+22,744 
+20,193 
+13 
+33 
+37 
+Insurance risk assessment 
+6,815 
+7,777 
+(12 
+) 
+10 
+14 
+Product revenues 
+69,066 
+53,604 
+29 
+99 
+99 
+Licensing and product development 
+300 
+404 
+(26 
+) 
+1 
+1 
+Total revenues 
+$ 
+69,366 
+$ 
+54,008 
+28 
+% 
+100 
+% 
+100 
+% 
+Sales to the
+infectious disease testing market increased 67% to $26.0 million in 2005, primarily as a result of higher sales of our OraQuick ® rapid HIV-1/2 antibody test. OraQuick ® and OraSure ® sales during 2005 totaled $21.6 million and $4.4 million, respectively, as compared to $10.2 million and $5.3 million, respectively, for 2004. 
+The table below shows a breakdown of our total OraQuick ® revenues (in thousands, except %) during 2005 and 2004.
+Years ended 
+December 31, 
+% 
+Change 
+Customers 
+2005 
+2004 
+Direct to U.S. Public Health 
+$ 
+8,292 
+$ 
+4,093 
+103 
+% 
+Abbott 
+4,928 
+1,983 
+149 
+SAMHSA 
+3,742 
+— 
+N/A 
+CDC 
+2,322 
+2,327 
+— 
+International 
+1,528 
+1,178 
+30 
+Direct to Hospitals 
+741 
+649 
+14 
+Total OraQuick ® revenues 
+$ 
+21,553 
+$ 
+10,230 
+111 
+% 
+37 
+Table of Contents 
+During 2004, we received a total of $6.3 million in purchase orders from the CDC and SAMHSA for
+OraQuick ® ADVANCE rapid HIV-1/2 antibody
+tests, of which $6.1 million and $72,000 were shipped in 2005 and 2004, respectively. As of December 31, 2005, all shipments have been completed under the CDC purchase order and $242,000 remains to be shipped under the SAMHSA purchase order. We
+expect to complete shipment of the remaining devices pursuant to the SAMHSA purchase order in early 2006. 
+We believe that our OraQuick ® ADVANCE ™ device, which is FDA-approved for detecting antibodies to both HIV-1 and 2 in oral fluid, finger-stick and venous whole blood, and plasma samples, and is CLIA-waived for use with all
+sample types except plasma, provides a significant competitive advantage and will allow us to more fully implement a strategy to sell OraQuick ® internationally. We are currently pursuing CE marking for our OraQuick ® ADVANCE ™ product which would allow us to sell our product in Europe. Our goal is to obtain a CE mark for OraQuick ® ADVANCE ™ in the next several months, and then obtain several country-specific registrations in order to permit the launch of
+this product in Europe in the second half of 2006. 
+Although
+sales of OraQuick ® ADVANCE ™ are expected to increase, such sales may negatively
+impact sales of our OraSure ® oral fluid collection
+device in the infectious disease testing market. Customers who now or in the future may purchase our OraSure ® device for HIV-1 testing may elect instead to purchase our OraQuick ® ADVANCE ™ tests. It is not possible at this time, however, to estimate the extent of such change in purchasing patterns or the financial impact of replacing OraSure ® sales with sales of our OraQuick ® ADVANCE ™ test. 
+Sales to the substance abuse testing market increased 34% to $13.5 million in 2005, as a result of higher sales of our Intercept ® oral fluid collection device and related drug assays in
+all marketplaces. 
+The table below shows a breakdown of our
+total Intercept ® revenues (in thousands, except %)
+generated in each market during 2005 and 2004. 
+Market 
+Years ended 
+December 31, 
+% 
+Change 
+2005 
+2004 
+Workplace testing 
+$ 
+5,664 
+$ 
+3,030 
+87 
+% 
+Criminal Justice 
+2,545 
+1,566 
+63 
+International 
+1,918 
+1,684 
+14 
+Direct 
+562 
+378 
+49 
+Total Intercept ® revenues 
+$ 
+10,689 
+$ 
+6,658 
+61 
+% 
+We expect continued
+growth in Intercept ® sales in 2006 as customers
+continue to shift from urine-based to oral-fluid based testing methods. 
+Revenues from our UP link ® rapid
+point-of-care oral fluid drug detection system were $286,000 and $564,000 in 2005 and 2004, respectively. As part of a strategic business review we completed in late 2004, we concluded that the roadside drugs-of-abuse testing market for
+UP link ® may not be as attractive as a number
+of other opportunities we are pursuing. During the first half of 2005, we explored our options with respect to the UP link ® product, including transitioning the manufacturing of the product to our distribution partner, Dräger Safety. Throughout this period, we were not
+able to reach an agreement with Dräger Safety or determine an alternative outlet for this product. In addition, we were advised that Dräger will no longer promote the sale of the UP link ® product. As a result, we recorded a $1.5 million charge in June 2005 to reflect a
+provision on inventory and fixed assets related to our UP link ® product. We subsequently terminated our existing research, development and distribution agreements with Dräger for the UP link ® product. 
+Sales of our products in the cryosurgical systems market (which includes both the physicians’ office and OTC markets) increased 13% to $22.7 million
+in 2005. This increase was primarily due to the international 
+38 
+Table of Contents 
+launch of our OTC cryosurgical product pursuant to our agreement with SSL, the launch of the Freeze Off ™ product by Prestige in Canada, and an increase in sales of Histofreezer ® to United States physicians’ offices. This
+increase was partially offset by a reduction in sales of the Freeze Off ™ product to Prestige for distribution in the United States, to $10.6 million in 2005, compared to $13.3 million during 2004. 
+The Freeze Off ™ product is being sold under Prestige’s Compound W ® trademark. The five-year distribution agreement with Prestige, which was initiated in 2003, requires minimum purchases of at least $2.0 million each
+year over the life of the contract in order for Prestige to maintain its exclusive distribution rights to the OTC market in the United States. During the second half of 2005, Prestige also launched our OTC cryosurgical product in Canada. Sales of
+our cryosurgical product to Prestige for distribution in Canada were $1.0 million in 2005. 
+In June 2005, we entered into an agreement with SSL under which we manufacture and supply, and SSL distributes on an exclusive basis, the Company’s cryosurgical wart removal product in the OTC footcare market in
+Europe, Australia and New Zealand. The product is manufactured and sold under SSL’s Scholl and Dr. Scholl trademarks, and was made initially available for retail purchase in pharmacies and retail outlets in several European countries
+during the fourth quarter of 2005. Sales to SSL under the distribution agreement were $3.2 million in 2005. SSL continues to build distribution networks in pharmacies and mass merchandisers throughout Europe and expects to launch the OTC product in
+several other countries during 2006. We expect revenues from SSL to increase significantly in 2006. We expect domestic and international sales of OTC cryosurgical products to our distributors to approximate $3.3 million in the first quarter of 2006.
+Sales of our Histofreezer ® product to physicians’ offices in the U.S. and international markets increased 13%
+and 28% to $5.9 million and $2.1 million, respectively, in 2005, when compared to 2004, primarily as a result of higher distributor purchases. We anticipate that U.S. sales of Histofreezer ® in the professional market will continue to increase in 2006. Revenues in the
+international market are expected to increase above 2005 levels as we increase prices in certain countries and secure additional distributors in countries where the product is currently not sold. 
+We are beginning to see some evidence that sales of our OTC cryosurgical
+products may reduce the number of individuals that will seek to obtain treatment of their warts by a physician, which in turn could negatively affect sales of our Histofreezer ® product in the professional market. However, it is not possible at this time to estimate the magnitude of the financial
+impact of this change. 
+Sales to the insurance risk assessment
+market declined by 12% to $6.8 million in 2005 from $7.8 million in 2004, primarily as a result of decreased OraSure ® device purchases by our insurance lab testing partners. We believe this decrease is a result of an overall reduction in life insurance application
+activity in the United States and changes in underwriting requirements. As a result, we currently expect that our 2006 revenues in this market segment will decline or at best remain at approximately the levels attained in 2005. 
+We currently have two customers, Prestige and Quest Diagnostics (including
+its wholly-owned subsidiary, Lab One , Inc.), which accounted for 17% and 13% of total revenues for 2005, respectively. 
+Licensing and product development revenues decreased 26% to $300,000 in 2005, from $404,000 in the comparable period in 2004. Licensing and product
+development revenues in both years were primarily related to our collaborative UPT ™ and oral fluid research project with the University of Pennsylvania and New York University, under a grant awarded by the National Institutes of Health. The current annual phase of this grant expires in June
+2006. Our share of funding under the current annual phase is expected to be $250,000, of which $35,000 was recorded in 2005. Further revenues beyond June 2006 will depend on progress achieved in the research, the level of future funding awarded by
+the National Institutes of Health, and the Company’s decisions regarding the future of UPT ™ . 
+39 
+Table of Contents 
+The Company’s gross margin was 60% in 2005, compared to 59% in 2004. Our 2005 gross margin was
+positively impacted by more efficient utilization of the Company’s manufacturing capacity and renegotiated terms for the assembly and supply of the U.S. OTC cryosurgical product, offset by a less favorable product sales mix and the $1.5 million
+charge related to the Company’s UP link ® 
+assets. Gross margin is expected to increase in 2006 as a result of increased manufacturing efficiencies, increased prices on certain products, and continued efforts to reduce costs, partially offset by stock option and other non-cash stock
+compensation expense. 
+Research and development expenses
+decreased 13% to $5.3 million in 2005, from $6.1 million in 2004, primarily as a result of lower overall staffing costs and lower expenses for clinical trials, partially offset by fees paid and restricted stock granted to recruit and relocate the
+Company’s new Chief Science Officer and Senior Vice President, Regulatory Affairs/Quality Assurance. Research and development costs are expected to increase in 2006 primarily as a result of costs associated with the development of new product
+offerings and product enhancements for the infectious disease and substance abuse markets and the expensing of stock options. 
+Sales and marketing expenses increased 6% to $16.1 million in 2005 from $15.2 million in 2004. This increase was primarily the result of increased levels
+of staffing, market research, travel and commissions, partially offset by lower advertising expenses. Included in advertising expenses was $1.8 million and $2.9 million for 2005 and 2004, respectively, paid to Prestige as reimbursement for marketing
+expenses incurred for the Compound W ® Freeze
+Off ™ product. We expect that sales and marketing
+expense will increase in 2006 as we attempt to increase our presence in the international marketplace and expand market awareness and acceptance for our OraQuick ® , Intercept ® and Histofreezer ® products. Pursuant to our agreement with Prestige, we will continue to co-invest in Prestige’s marketing activities for the Compound W ® Freeze Off ™ product, and we will reimburse Prestige, through 2006, for a portion of
+Prestige’s out-of-pocket costs of advertising and promoting this product in the OTC market. 
+General and administrative expenses increased 4% to $12.5 million in 2005 from $12.0 million in 2004. This increase was primarily attributable to legal
+fees associated with the Schering-Plough litigation, increased amortization of restricted stock grants to management, and increased staffing related expenses. This increase was partially offset by a reduction in consulting expenses, a reduction in
+transition expenses related to the Company’s former Chief Executive Officer, and a reduction in rent expense due to the expiration of the lease for our Oregon facilities in January 2005. Legal fees associated with the Schering-Plough patent
+infringement litigation were $2.4 million and $1.2 million in 2005 and 2004, respectively. General and administrative expenses are expected to increase further in 2006 compared to 2005 as a result of the adoption of stock option expensing, increased
+non-cash stock compensation expense, and expenses related to the implementation of a new enterprise resource planning system. 
+Interest expense decreased to $97,000 in 2005 from $134,000 in 2004, as a result of lower outstanding debt balances. Interest income increased to $2.2
+million in 2005 from $984,000 in 2004, as a result of higher yields on our investment portfolio and larger balances available for investment. 
+A gain on foreign currency transactions of $57,000 was recorded for the year ended December 31, 2005, versus a loss on foreign currency transactions
+of $53,000 recorded for the year ended December 31, 2004. 
+During the year ended December 31, 2005, a net income tax benefit of $17.7 million was recorded, while no provision or benefit was recorded in 2004. The tax benefit recorded during 2005 reflects the release of a significant portion of
+the valuation allowance on our deferred tax asset. At December 31, 2005, the Company had federal net operating loss (“NOL”) carryforwards of $66.6 million. Our ability to use the NOLs and tax credit carryforwards to offset future
+income tax obligations could be limited by changes in the ownership of the Company’s capital stock. Internal Revenue Code Section 382 (“Section 382”) contains provisions that limit the amount of NOLs and tax credit carryforwards
+that can be used in any given year, in the event of a significant ownership change. In the fourth quarter of 2005, the Company engaged in an analysis, with the assistance of independent tax specialists, to determine if any Section 382 ownership
+changes have occurred that would limit 
+40 
+Table of Contents 
+the amount of NOLs that could be utilized to offset future taxable income. As a result of this analysis, the Company concluded that prior period ownership
+changes may impose a limitation on the amount of NOLs that can be utilized in a given year. The Company does not believe, however, that this limitation will impair our future ability to utilize NOLs to offset our forecasted taxable income or to
+realize the related deferred tax asset. 
+Prior to
+December 31, 2005, a valuation allowance had been established for the full amount of the deferred tax asset created by these carryforwards and other items. Based on current year and forecasted taxable earnings, a significant portion of the
+valuation allowance was released in the fourth quarter of 2005, resulting in the recognition of $26.7 million of the deferred tax asset of which $18.2 million was recorded as an income tax benefit in the statement of operations and $8.5 million was
+recorded directly as an increase in stockholders’ equity. Partially offsetting this benefit was an income tax provision of $436,000 that was recorded for the year ended December 31, 2005 related to certain state income taxes and federal
+alternative minimum tax. We expect our effective tax rate will be 39% for the year ending December 31, 2006. 
+Twelve Months Ended December 31, 2004 Compared to December 31, 2003 
+Total revenues increased 34% to $54.0 million in 2004 from $40.5 million in 2003, primarily as a result of increased sales
+of our Freeze Off ™ cryosurgical wart removal
+product, OraQuick ® rapid HIV-1 antibody test and
+Intercept ® oral fluid collection device and related
+drug assays, partially offset by a decline in assay revenues in the insurance risk assessment market. Revenues derived from products sold in countries outside the U.S. were $6.2 million and $4.6 million, or 11% and 11% of total revenues for the
+years ended December 31, 2004 and 2003, respectively. 
+The
+table below shows the amount of our total revenues (in thousands, except %) generated in each of our principal markets and by licensing and product development activities. 
+Years ended December 31, 
+Dollars 
+% 
+Change 
+Percentage of 
+Total Revenues 
+Market 
+2004 
+2003 
+2004 
+2003 
+Infectious disease testing 
+$ 
+15,526 
+$ 
+11,909 
+30 
+% 
+29 
+% 
+29 
+% 
+Substance abuse testing 
+10,108 
+7,295 
+39 
+19 
+18 
+Cryosurgical systems 
+20,193 
+10,828 
+86 
+37 
+27 
+Insurance risk assessment 
+7,777 
+9,708 
+(20 
+) 
+14 
+24 
+Product revenues 
+53,604 
+39,740 
+35 
+99 
+98 
+Licensing and product development 
+404 
+711 
+(43 
+) 
+1 
+2 
+Total revenues 
+$ 
+54,008 
+$ 
+40,451 
+34 
+% 
+100 
+% 
+100 
+% 
+Sales to the
+infectious disease testing market increased 30% to $15.5 million in 2004, primarily as a result of higher sales of our OraQuick ® rapid HIV-1 antibody test. OraQuick ® and OraSure ® sales during 2004 totaled $10.2 million and $5.3 million, respectively, as compared to $6.3 million and $5.6 million, respectively, for 2003. 
+41 
+Table of Contents 
+The table below shows a breakdown of our total OraQuick ® revenues (in thousands, except %) during 2004 and 2003. 
+Years ended 
+December 31, 
+% 
+Change 
+Customers 
+2004 
+2003 
+Direct to U.S. Public Health 
+$ 
+4,093 
+$ 
+3,965 
+3 
+% 
+CDC 
+2,327 
+— 
+N/A 
+Abbott 
+1,983 
+1,653 
+20 
+International Marketplace 
+1,178 
+680 
+73 
+Direct to Hospitals 
+649 
+— 
+N/A 
+Total OraQuick ® revenues 
+$ 
+10,230 
+$ 
+6,298 
+62 
+% 
+Sales to the substance
+abuse testing market increased 39% to $10.1 million in 2004 as a result of higher sales of our Intercept ® oral fluid collection device and related drug assays. 
+The table below shows a breakdown of our total Intercept ® revenues (in thousands, except %) generated in each market during 2004 and 2003. 
+Years ended 
+December 31, 
+% 
+Change 
+Market 
+2004 
+2003 
+Workplace testing 
+$ 
+3,030 
+$ 
+1,783 
+70 
+% 
+Criminal Justice 
+1,566 
+1,133 
+38 
+International 
+1,684 
+1,246 
+35 
+Direct 
+378 
+333 
+14 
+Total Intercept ® revenues 
+$ 
+6,658 
+$ 
+4,495 
+48 
+% 
+In April 2004, we
+launched our UP link ® rapid oral fluid drug
+detection system, including assays for the detection of drugs of abuse commonly identified by the National Institute for Drug Abuse (“NIDA”) as the NIDA-5 (i.e., cocaine, opiates, amphetamines/methamphetamines, PCP and marijuana) with our
+partner, Dräger Safety. This product was initially sold to the roadside testing market in Europe. Revenues from this product were $564,000 in 2004. 
+Sales of our products in the cryosurgical systems market (which includes both the physicians’ office and OTC markets) increased 86% to $20.2 million
+in 2004. This increase was primarily the result of an increase of $8.3 million in sales of our domestic OTC cryosurgical product, called Freeze Off ™ , to Prestige, the owner of the Compound W ® line of wart removal products. In 2003, we entered into a distribution agreement with Prestige following receipt of FDA 510(k) clearance for the sale
+of our cryosurgical system in the OTC market in the U.S. and Canada. Prestige launched the Freeze Off ™ product in the third quarter of 2003, and there were $5.0 million of sales to Prestige during 2003. 
+Freeze Off ™ is being sold under Prestige’s Compound W ® trademark. Our five-year distribution agreement requires minimum purchases by Prestige of at least $2.0 million each year over the life of the contract
+in order for Prestige to maintain its exclusive distribution rights to the OTC market in the U.S. 
+Sales of our Histofreezer ® product to physicians’ offices in the U.S. and international markets increased 21% and 7% to $5.2 million and $1.7 million, respectively, in 2004,
+when compared to 2003, primarily as a result of higher distributor purchases. 
+42 
+Table of Contents 
+Sales to the insurance risk assessment market declined by 20% to $7.8 million in 2004 from $9.7 million
+in 2003, primarily as a result of lower insurance testing assay sales. Sales of our urine assays have come under competitive pressure because of sluggish sales and competitive conditions in the life insurance testing market. As a result of these
+conditions, our laboratory customers eliminated or reduced their purchases of these products and instead use lower cost, internally-developed (i.e., “home-brew”) assays or testing products purchased from our competitors. 
+Prestige accounted for approximately 25% and 12% of total revenues for 2004
+and 2003, respectively. Lab One , Inc. accounted for approximately 12% and 17% of total revenues for 2004 and 2003, respectively. 
+Licensing and product development revenues decreased 43% to $404,000 in 2004, from $711,000 in the comparable period in 2003. Licensing and product
+development revenues in 2004 were primarily related to our collaborative UPT ™ and oral fluid research project with the University of Pennsylvania, under a grant awarded by the National Institutes of Health. 
+The Company’s gross margin was 59% in 2004, compared to 60% in 2003. Our 2004 gross margin was positively impacted by more efficient utilization
+of the Company’s manufacturing capacity, offset by higher production costs associated with the Company’s UP link ® rapid oral fluid drug detection system, a less favorable product sales mix, and higher scrap as a result of the transfer of manufacturing operations
+from Oregon to Pennsylvania. 
+Research and development expenses
+decreased 24% to $6.1 million in 2004, from $8.0 million in 2003, primarily as a result of lower staffing costs and costs associated with transferring our manufacturing operations from Oregon to Pennsylvania. 
+Sales and marketing expenses increased 41% to $15.2 million in 2004 from
+$10.8 million in 2003. This increase was primarily the result of higher product advertising expenditures, costs associated with our hospital sales force and increased staffing related expenses. Included in advertising expenses was $2.9 million and
+$1.1 million for 2004 and 2003, respectively, paid to Prestige as reimbursement for marketing expenses incurred for the Compound W ® Freeze Off ™ product. 
+General and administrative expenses increased 74% to $12.0 million in 2004 from $6.9 million in 2003. This increase was primarily attributable to legal fees associated with the Schering-Plough litigation, transition costs related to the
+retirement of our former Chief Executive Officer and the additional costs of hiring our new Chief Executive Officer, consulting fees for strategic planning, increased staffing related expenses and increased professional fees related to compliance
+with the requirements of the Sarbanes-Oxley Act of 2002. 
+Interest expense decreased to $134,000 in 2004 from $190,000 in 2003, as a result of lower outstanding debt balances. Interest income increased to $984,000 in 2004 from $425,000 in 2003, as a result of substantially larger balances
+available for investment. 
+Losses on foreign currency
+transactions of $53,000 and $59,000 were recorded for the years ended December 31, 2004 and 2003, respectively. 
+During the year ended December 31, 2004, no provision for income taxes was recorded, while we had a provision of $27,000 in 2003 related to foreign
+income taxes. 
+43 
+Table of Contents 
+Liquidity and Capital Resources 
+December 31, 
+2005 
+December 31, 
+2004 
+(In thousands) 
+Cash and cash equivalents 
+$ 
+32,827 
+$ 
+10,121 
+Short-term investments 
+44,793 
+56,602 
+Working capital 
+90,670 
+68,910 
+Our cash, cash
+equivalents and short-term investments increased $10.9 million during 2005 to $77.6 million at December 31, 2005, primarily as a result of positive cash flow from operating activities of $10.4 million and proceeds from the exercise of stock
+options of $6.1 million, partially offset by debt repayments of $1.1 million, purchases of $2.0 million of property and equipment, $601,000 of payments related to the purchase and retirement of common stock, and our expenditure of $1.8 million for
+patent license rights. At December 31, 2005, our working capital was $90.7 million. 
+Net cash provided by operating activities was $10.4 million in 2005. This resulted from net income of $27.4 million for the year, depreciation and amortization of $2.3 million, non-cash charges of $1.6 million related
+to stock-based compensation expense, provisions for excess and obsolete inventories and property of $2.3 million, and an increase of $1.0 million in accounts payable and accrued expenses, offset by a non-cash deferred income tax benefit of $18.2
+million, an increase in accounts receivable of $4.6 million, an increase in inventory of $1.2 million, and an increase in prepaid expenses of $361,000. 
+Net cash used in investing activities during 2005 was $8.0 million. We redeemed a net amount of $11.9 million of short-term investments, expended $1.8
+million for patent license rights and purchased $2.0 million of property and equipment. 
+We expect to incur $8.2 million of capital expenditures in 2006. We expect to incur these expenditures to purchase additional information systems equipment and to upgrade certain older equipment in 2006. In addition
+to these expenditures, we intend to exercise our options to purchase two currently leased facilities which will require $9.2 million of added expenditures. 
+Net cash provided by financing activities was $4.4 million, reflecting the proceeds of $6.1 million received from the issuance of common stock pursuant to
+stock options exercises, partially offset by $1.1 million of loan principal repayments and $601,000 of payments related to the purchase and retirement of common stock. 
+We have in place an $11.9 million credit facility (the “Credit Facility”) with Comerica Bank, which is comprised
+of an $887,000 mortgage loan, a $3.0 million term loan, a $4.0 million non-revolving line of credit for the purchase of both capital equipment and software, and a $4.0 million revolving working capital line of credit. Interest on outstanding
+borrowings under the non-revolving line of credit accrues at a rate, selected at our option, equal to the bank’s prime rate, 180-day or 360-day LIBOR plus 2.625%, or the 4-year Treasury Note rate plus 2.30%, determined at the time of initial
+borrowing. Interest on outstanding borrowings under the revolving working capital line of credit accrues at a rate, selected at our option, equal to the bank’s prime rate less 0.25%, or 30-day LIBOR plus 2.55%, determined at the time of initial
+borrowing. 
+The $887,000 mortgage loan matures in September
+2012, bears interest at an annual floating rate equal to Comerica’s prime rate (7.25% at December 31, 2005), and is repayable in fixed monthly principal and interest installments of $7,426 through September 2007, at which time the interest
+rate and fixed monthly repayment amount will be reset for the remaining 60 monthly installments. The outstanding balance of the loan at December 31, 2005 was $722,233. 
+The $3.0 million term loan matures in March 2006, bears interest at a fixed rate of 4.97% and is repayable in forty-two
+consecutive equal monthly principal payments of $71,429, plus interest. The outstanding balance of the loan at December 31, 2005 was $214,286. 
+44 
+Table of Contents 
+As of December 31, 2005, we had no outstanding borrowings under the $4.0 million non-revolving line
+of credit or the $4.0 million revolving working capital line of credit. 
+As of December 31, 2005, we also had an outstanding balance of $169,477 under a non-revolving line of credit with Comerica Bank. This line of credit expired in 2003, however, outstanding borrowings under this line remained payable upon
+expiration in accordance with their original terms. The outstanding balance at December 31, 2005 consisted of four individual loans of (i) $35,957 with a fixed annual interest rate of 5.07%, (ii) $60,967 with a floating annual
+interest rate equal to Comerica’s prime rate of 7.25% at December 31, 2005, (iii) $38,590 with a floating annual interest rate equal to Comerica’s prime rate of 7.25% at December 31, 2005, and (iv) $33,963 with a
+floating annual interest rate equal to Comerica’s prime rate of 7.25% at December 31, 2005. 
+All borrowings under the Credit Facility are collateralized by a first priority security interest in all of our assets, including present and future
+accounts receivable, chattel paper, contracts and contract rights, equipment and accessories, general intangibles, investments, instruments, inventories, and a mortgage on our manufacturing facility in Bethlehem, Pennsylvania. Borrowings under the
+equipment and software non-revolving line and the revolving working capital line are limited to commercially standard percentages of equipment and software purchases and accounts receivable, respectively. The Credit Facility contains certain
+covenants that set forth minimum requirements for our quick ratio, liquidity, and tangible net worth. We were in full compliance with all covenants at December 31, 2005 and expect to remain in compliance with all covenants during 2006. The
+Credit Facility also restricts our ability to pay dividends, to make certain investments, to incur additional indebtedness, to sell or otherwise dispose of a substantial portion of assets, and to merge or consolidate operations with an unaffiliated
+entity, without the consent of Comerica. 
+As of
+December 31, 2005, we also had a $234,566 note payable to the Pennsylvania Industrial Development Authority related to the purchase of one of our facilities in Bethlehem, Pennsylvania in 1998. This note is secured by a second lien on our
+building, bears interest at 2%, and requires monthly installments of principal and interest of $4,893 through March 2010. 
+In 2002, we entered into a ten-year facility lease with Tech III Partners, LLC (“Tech Partners”), an entity owned and controlled by two of our
+former executive officers. Under the terms of this operating lease, we began leasing a 48,000 square-foot facility in October 2002 at a base rent of $780,000 per year, increasing to $858,240 per year, during the initial ten-year term. The base
+rental may be increased after the fifth year of the initial term in order to reflect changes in the interest rate on debt incurred by Tech Partners to finance construction of the leased facilities. We have not guaranteed any debt incurred by Tech
+Partners. The lease also provides us with options to renew the lease for an additional five years at a rental rate of $975,360 per year, and to purchase the facility at any time during the initial ten-year term based on a formula set forth in the
+lease. We intend to exercise our option under the lease to purchase the facility. 
+At December 31, 2005, we had net operating loss carryforwards of $66.6 million for federal income tax purposes. The Tax Reform Act of 1986 contains provisions that limit the amount of federal net operating loss
+carryforwards that can be used in any given year in the event of specified occurrences, including significant ownership changes. We retained independent tax specialists to perform an analysis to determine the applicable annual limitation applied to
+the utilization of the net operating loss carryforwards due to ownership changes as defined in Section 382 that may have occurred. The Section 382 study and analysis was completed in the fourth quarter 2005, and as a result of this study,
+we do not believe that the ownership change limitations would impair our ability to use our net operating losses against our current forecasted taxable income. Prior to December 31, 2005, a valuation allowance had been established for the full
+amount of the deferred tax asset created by these carryforwards and other items. Based on current year and forecasted taxable earnings, a significant portion of the valuation allowance was released in the fourth quarter of 2005, resulting in the
+recognition of $26.7 million of the deferred tax asset. 
+45 
+Table of Contents 
+The combination of our current cash position, cash flow from operations and available borrowings under
+our Credit Facility is expected to be sufficient to fund our operating and capital needs for at least the next twelve months. However, our cash requirements may vary materially from those now planned due to many factors, including, but not limited
+to, the scope and timing of strategic acquisitions, the cost and timing of the expansion of our manufacturing capacity, the progress of our research and development programs, the scope and results of clinical testing, the magnitude of capital
+expenditures, changes in existing and potential relationships with business partners, the time and cost of obtaining regulatory approvals, the costs involved in obtaining and enforcing patents, the costs of defending against patent infringement or
+other types of litigation, proprietary rights and any necessary licenses, the cost and timing of expansion of sales and marketing activities, the timing of market launch of new products, market acceptance of new products, competing technological and
+market developments, the potential exercise of our options to purchase one, or both, of our leased facilities in Bethlehem, Pennsylvania, and other factors. 
+Recent Accounting Pronouncements 
+In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”)
+No. 151, “Inventory Costs” (“SFAS No. 151”), which amends the guidance in Accounting Research Bulletin No. 43. SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight,
+handling costs, and wasted material and requires such costs to be recognized as current-period charges. Additionally, SFAS No. 151 requires that allocation of fixed production overhead costs be based on normal capacity. SFAS No. 151 is
+effective for years beginning after June 15, 2005, with early adoption permitted. We adopted SFAS No. 151 on January 1, 2006, and the implementation did not have a material effect on our financial position, results of operations or
+cash flows. 
+In December 2004, the FASB issued SFAS
+No. 123 Revised, “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R requires employee stock options to be accounted for in the statement of operations based on their fair values on the date of the grant, and
+eliminates the ability to account for these instruments under the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25. SFAS No. 123R requires the use of an option pricing model for estimating fair value, which
+is amortized to expense over the service period. The requirements of SFAS No. 123R are effective for annual periods beginning after June 15, 2005. The Company adopted SFAS No. 123R on January 1, 2006, using the modified
+prospective method and will calculate fair value of stock options using the Black-Scholes option pricing model. The adoption of SFAS No. 123R is expected to result in a material reduction of our operating income for 2006 by an amount that is
+not expected to exceed the pro forma amount shown in the notes to the financial statements included in Item 15. This estimate assumes that the number of employee stock options granted in 2006 will not exceed the number granted in 2005 and is
+subject to change based on the actual number of stock options granted in 2006, the dates on which the grants are made, and the share price on the date of each grant. 
+In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections-a replacement of APB Opinion
+No. 20 and FASB Statement No. 3” (“SFAS No. 154”). SFAS No. 154 requires retrospective application of a voluntary change in accounting principle such that all prior period financial statements are presented in
+accordance with the new accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that (1) correction of errors in previously issued
+financial statements should be termed a “restatement”; and (2) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in
+accounting principle. SFAS No. 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption of SFAS No. 154 to have a material effect on our
+financial position, results of operations or cash flows. 
+46 
+Table of Contents 
+Contractual Obligations and Commercial Commitments . The following sets
+forth our approximate aggregate obligations at December 31, 2005 for future payments under contracts and other contingent commitments, for the years 2006 and beyond: 
+Contractual Obligations 
+Total 
+Payments due by December 31, 
+2006 
+2007 
+2008 
+2009 
+2010 
+Thereafter 
+Long-term debt 1 
+$ 
+1,340,562 
+$ 
+456,541 
+$ 
+116,123 
+$ 
+100,650 
+$ 
+105,086 
+$ 
+60,567 
+$ 
+501,595 
+Operating leases 2 
+7,221,334 
+1,256,673 
+1,158,156 
+1,165,764 
+1,181,217 
+921,748 
+1,537,776 
+Employment contracts 3 
+1,881,850 
+1,471,400 
+410,450 
+— 
+— 
+— 
+— 
+Purchase obligations 4 
+2,424,672 
+2,424,672 
+— 
+— 
+— 
+— 
+— 
+Minimum commitments under contracts 5 
+11,216,667 
+3,625,000 
+725,000 
+725,000 
+650,000 
+650,000 
+4,841,667 
+Total contractual obligations 
+$ 
+24,085,085 
+$ 
+9,234,286 
+$ 
+2,409,729 
+$ 
+1,991,414 
+$ 
+1,936,303 
+$ 
+1,632,315 
+$ 
+6,881,038 
+1 
+Represents principal repayments required under notes payable to our lenders. See Note 8 to the financial statements included herein. 
+2 
+Represents payments required under our operating leases. We currently intend to exercise our options to purchase two of the leased facilities. Upon purchase of either facility, we
+would no longer be required to pay the contractual lease payments related to the given facility. The future lease payments included above that are related to these two facilities are $1,146,954 in 2006, $1,150,017 in 2007, $1,165,764 in 2008,
+$1,181,217 in 2009, $921,748 in 2010, and $1,537,776 thereafter. See Note 11 to the financial statements included herein. 
+3 
+Represents salary or retention bonus payments payable under the terms of employment agreements executed by us with certain officers and employees. See Note 11 to the financial
+statements included herein. 
+4 
+Represents payments required by non-cancelable purchase orders related to inventory, capital expenditures and other goods or services. See Note 11 to the financial statements
+included herein. 
+5 
+Represents payments required pursuant to certain research, licensing and royalty agreements executed by the Company. These agreements are cancellable within a specified number of
+days of communication by the Company to terminate the agreement. See Note 11 to the financial statements included herein. Additional payments of up to $5,500,000 may be required for the achievement of specific development and/or commercial
+milestones, pursuant to one of the licensing agreements. 
+Off-Balance Sheet Arrangements . We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended. 
+Critical Accounting Policies and Estimates 
+This Management’s Discussion and Analysis of Financial Condition and
+Results of Operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that we make
+estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
+period. On an on-going basis, we evaluate our judgments and estimates, including those related to bad debts, inventories, investments, intangible assets, income taxes, revenue recognition, restructuring costs, contingencies, and litigation. We base
+our judgments and estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities
+that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 
+47 
+Table of Contents 
+Our significant accounting policies are described in Note 2 to the financial statements included in
+Item 15 of this Annual Report. We consider the following accounting estimates, which have been discussed with our Audit Committee, to be most critical in understanding the more complex judgments that are involved in preparing our financial
+statements and the uncertainties that could impact our results of operations, financial condition, and cash flows. 
+Revenue Recognition . We follow U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue
+Recognition” (“SAB No. 104”). This bulletin draws on existing accounting rules and provides specific guidance on revenue recognition for up-front non-refundable licensing and development fees. We license certain products or
+technology to outside third parties, in return for which we receive up-front licensing fees. Some of these fees can be significant. In accordance with SAB No. 104, we recognize this revenue ratably over the related license period. 
+We also enter into research and development contracts with corporate,
+government and/or private entities. These contracts generally provide for payments to us upon achievement of certain research or development milestones. Product development revenues from these contracts are recognized only if the specified milestone
+is achieved and accepted by the customer and payment from the customer is probable. Any amounts received prior to the performance of product development efforts are recorded as deferred revenues. Recognition of revenue under these contracts can be
+sporadic, as it is the result of achieving specific research and development milestones. Furthermore, revenue from future milestone payments will not be recognized if the underlying research and development milestone is not achieved. 
+We recognize product revenues when there is persuasive evidence that an
+arrangement exists, the price is fixed or determinable, title has passed and collection is reasonably assured. Product revenues are net of allowances for any discounts or rebates. We do not grant price protection or product return rights to our
+customers, except for warranty returns. Where a product fails to comply with its limited warranty, we can either replace the product or provide the customer with a refund of the purchase price or credit against future purchases. Historically,
+returns arising from warranty issues have been infrequent and immaterial. Accordingly, we expense warranty returns as incurred. While such returns have been immaterial in the past, we cannot guarantee that we will continue to experience the same
+rate of warranty claims as we have in the past. Any significant increase in product warranty claims could have a material adverse impact on our operating results for the period in which the claims occur. 
+Allowance for Uncollectible Accounts
+Receivable . Accounts receivable are reduced by an estimated allowance for amounts that may become uncollectible in the future. On an ongoing basis, we perform credit evaluations of our customers and adjust credit limits
+based upon the customer’s payment history and creditworthiness, as determined by a review of their current credit information. We also continuously monitor collections and payments from our customers. 
+Based upon historical experience and any specific customer collection issues
+that are identified, we use our judgment to establish and evaluate the adequacy of our allowance for estimated credit losses, which was $278,066 at December 31, 2005. While credit losses have been within our expectations and the allowance
+provided, these losses can vary from period to period (($4,771), $3,541, and $88,659 in 2005, 2004, and 2003, respectively). Furthermore, there is no assurance that we will experience credit losses at the same rates as we have in the past. Also, at
+December 31, 2005, $4.1 million, or 35% of our accounts receivable, was due from two major customers. Any significant changes in the liquidity or financial position of these customers, or others, could have a material adverse impact on the
+collectibility of our accounts receivable and future operating results. 
+Inventories . Our inventories are valued at the lower of cost or market, determined on a first-in, first-out basis, and include the cost of raw materials, labor and overhead. The majority of our inventories are
+subject to expiration dating. We continually evaluate the carrying value of our inventories and when, in the opinion of management, factors indicate that impairment has occurred, either a reserve is established against the inventories’ 
+48 
+Table of Contents 
+carrying value or the inventories are completely written off. We base these decisions on the level of inventories on hand in relation to our estimated
+forecast of product demand, production requirements over the next twelve months and the expiration dates of raw materials and finished goods. During 2005, 2004, and 2003, we wrote-off inventory which had a cost of $2.1 million, $839,000, and
+$540,000, respectively, as a result of a provision for loss on our UP link ® product in 2005, scrap levels and product expiration issues. During the first half of 2005, we explored options with respect to the UP link ® product, however, we were not able to determine an outlet for this product. As a result, we recorded a $1.3 million
+charge in June 2005 to reflect a provision on the UP link ® inventory. Although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact on the carrying value of our
+inventories and reported operating results. 
+Long-lived and
+Intangible Assets. Our long-lived assets are comprised of property and equipment and an investment in a nonaffiliated entity, and our intangible assets primarily consist of patents and product rights. Together, these
+assets have a net book value of $9.0 million or 7% of our total assets at December 31, 2005. Our investment in a privately-held nonaffiliated company is recorded under the cost method of accounting because we do not have a controlling interest
+in this company nor do we have the ability to exert significant influence over the operating and financial policies of this investee company. Property and equipment, patents and product rights are depreciated or amortized on a straight-line basis
+over their useful lives, which we determine based upon our estimate of the period of time over which each asset will generate revenues. In August 2005, we recorded a $1.5 million intangible asset related to a payment under a license agreement to
+certain patents related to the Hepatitis C Virus. Management’s intent in executing this license is to provide for various alternatives for use, including uses in the international market that would not require additional research and
+development expense or regulatory approvals. This $1.5 million asset was capitalized based on management’s estimate of the cash flows to be received from future product sales in these international markets. A similar analysis of estimated
+future cash flows will be prepared upon payment of additional license fees under this agreement, or upon changes in circumstances, to determine the appropriate accounting treatment for payments under this license agreement. An impairment of
+long-lived or intangible assets could occur whenever events or changes in circumstances indicate that the net book value of these assets may not be recoverable. Events which could trigger an asset impairment include significant underperformance
+relative to expected historical or projected future operating results, significant changes in the manner of our use of an asset or in our overall business strategy, significant negative industry or economic trends, shortening of product life-cycles
+or changes in technology, and negative financial performance of the nonaffiliated investee company. If we believe impairment of an asset has occurred, we measure the amount of such impairment by comparing the net book value of the affected assets to
+the fair value of these assets, which is generally determined based upon the present value of the expected cash flows associated with the use of these assets. If the net book value exceeds the fair value of the impaired assets, we would incur an
+impairment expense equal to this difference. In June 2005, we recorded a $196,000 provision for loss on our UP link ® fixed assets as a result of our inability to reach an agreement to transfer these assets to our distribution partner or determine an alternative outlet
+for these assets. We currently believe the future cash flows to be received from all other long-lived and intangible assets will exceed their book value and, as such, we have not recognized any additional impairment losses through December 31,
+2005. Any unanticipated significant impairment in the future, however, could have a material adverse impact to our balance sheet and future operating results. 
+Deferred Tax Assets. At December 31, 2005, we had federal net operating losses (“NOL”) of $66.6 million.
+The net deferred tax asset associated with these NOLs and other temporary differences was $26.7 million at December 31, 2005. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some
+portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible or the
+NOLs and credit carryforwards can be utilized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. 
+49 
+Table of Contents 
+Our ability to use our net operating loss carryforwards to offset future federal income tax obligations,
+could be limited by changes in the ownership of our stock. Internal Revenue Code (“IRC”) Section 382 contains provisions that limit the amount of federal net operating loss carryforwards that can be used in any given year in the event
+of specified occurrences, including significant ownership changes. In the fourth quarter of 2005, the Company completed an analysis, with the assistance of independent tax specialists, to determine if any IRC Section 382 ownership changes have
+occurred that would limit the amount of NOLs that could be utilized to offset future taxable income. As a result of this analysis, the Company concluded that prior period ownership changes may impose a limitation on the amount of NOLs that can be
+utilized in a given year. The Company does not believe, however, that this limitation will impair our future ability to utilize NOLs to offset our forecasted taxable income or to realize the related deferred tax asset. 
+Prior to December 31, 2005, a valuation allowance had been established
+for the full amount of the deferred tax asset created by these carryforwards and other items. Based on our 2005 results and our projections for future taxable income over the periods in which the deferred tax assets are deductible or the NOLs and
+credit carryforwards can be utilized, we believe a significant portion of the deferred tax asset was realizable at December 31, 2005. As such, we recorded the estimated net realizable value of the deferred tax asset at December 31, 2005
+and have begun providing for income taxes at a rate equal to our combined federal and state effective rates. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary
+significantly from period to period. 
+Contingencies. In the ordinary course of business, we have entered into various contractual relationships with strategic corporate partners, customers, distributors, research laboratories and universities,
+licensors, licensees, suppliers, vendors and other parties. As such, we could be subject to litigation, claims or assessments arising from any or all of these relationships. We account for contingencies such as these in accordance with Statement of
+Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies.” SFAS No. 5 requires us to record an estimated loss contingency when information available prior to issuance of our financial statements
+indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies arising from contractual or
+legal proceedings requires that we use our best judgment when estimating an accrual related to such contingencies. As additional information becomes known, our accrual for a loss contingency could fluctuate, thereby creating variability in our
+results of operations from period to period. Likewise, an actual loss arising from a loss contingency which significantly exceeds the amount accrued for in our financial statements could have a material adverse impact on our operating results for
+the period in which such actual loss becomes known. 
+ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk. 
+We do not hold any amounts of derivative financial instruments or derivative commodity instruments and, accordingly, we have no material derivative risk
+to report under this Item. 
+Our holdings of financial
+instruments are comprised of certificates of deposit, commercial paper, U.S. government and agency obligations, state and local government agency obligations, asset-backed obligations, and U.S. corporate bonds. All such instruments are classified as
+available-for-sale securities. Our debt security portfolio represents funds held temporarily pending use in our business and operations. We seek reasonable assuredness of the safety of principal and market liquidity by investing in rated fixed
+income securities while at the same time seeking to achieve a favorable rate of return. Market risk exposure consists principally of exposure to changes in interest rates. If changes in interest rates would affect the investments adversely, we could
+decide to hold the security to maturity or sell the security. Our holdings are also exposed to the risks of changes in the credit quality of issuers. We typically invest in the shorter end of the maturity spectrum. 
+As of December 31, 2005, we did not have any foreign currency exchange
+contracts or purchase currency options to hedge local currency cash flows. We have operations in The Netherlands, which are subject to foreign 
+50 
+Table of Contents 
+currency fluctuations. As currency rates change, translation of revenues and expenses for these operations from euros to U.S. dollars affects year-to-year
+comparability of operating results. Sales denominated in a foreign currency represented $2.3 million or 3% of our total revenues for the year ended December 31, 2005. We do not expect the risk of foreign currency fluctuations to be material in
+the near future. 
+ITEM 8. Financial Statements and Supplementary Data. 
+Information with respect to this Item is contained in our Financial Statements included in Item 15 of this Annual Report on Form 10-K. 
+ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 
+Not applicable. 
+ITEM 9A. Controls and Procedures. 
+(a) Evaluation of Disclosure Controls and Procedures. 
+The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures
+(as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of December 31, 2005. Based on that evaluation, the Company’s management, including such officers, concluded that the Company’s disclosure
+controls and procedures are adequate and effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to the
+Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported within the time periods specified in the rules
+and forms of the Securities and Exchange Commission. 
+(b)
+Management’s Report on Internal Control Over Financial Reporting. 
+The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a(f) and 15d-15(f) under the Securities Exchange Act
+of 1934. Under the supervision and with the participation of the Company’s management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over
+financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework, our management concluded
+that our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
+accounting principles as of December 31, 2005. 
+Our
+management’s assessment on the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is
+included below. 
+Because of its inherent limitations, internal
+control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
+the degree of compliance with the policies or procedures may deteriorate. 
+(c) Changes in Internal Control Over Financial Reporting. 
+There was no change in the Company’s internal control over financial reporting identified in connection with the evaluation referred to in paragraph
+(a) above that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. 
+51 
+Table of Contents 
+(d) Report of Independent Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+OraSure Technologies, Inc.: 
+We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that
+OraSure Technologies, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
+Organizations of the Treadway Commission (COSO). OraSure Technologies, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
+financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit. 
+We conducted our audit in accordance with the standards of the Public Company
+Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
+audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures
+as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 
+A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
+reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
+(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
+of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
+Because of its inherent limitations, internal control over
+financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
+compliance with the policies or procedures may deteriorate. 
+In
+our opinion, management’s assessment that OraSure Technologies, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in
+Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, OraSure Technologies, Inc. maintained, in all material respects, effective internal
+control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 
+52 
+Table of Contents 
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
+(United States), the balance sheets of OraSure Technologies, Inc. as of December 31, 2005 and 2004, and the related statements of operations, stockholders’ equity and comprehensive income (loss) and cash flows for each of the years in the
+three-year period ended December 31, 2005, and our report dated March 13, 2006 expressed an unqualified opinion on those financial statements. 
+/s/ KPMG LLP 
+Philadelphia, Pennsylvania 
+March 13, 2006 
+ITEM 9B. Other Information. 
+Not applicable. 
+53 
+Table of Contents 
+PART III 
+We have omitted from
+Part III the information that will appear in our Definitive Proxy Statement for our 2006 Annual Meeting of Stockholders (the “Proxy Statement”), which will be filed within 120 days after the end of our fiscal year pursuant to Regulation
+14A. 
+ITEM 10. Directors and Executive Officers of the Registrant. 
+Certain information required by this Item is incorporated by reference to the information under the captions, “Election of Directors,”
+“Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” in the Proxy Statement. 
+Our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer and
+principal accounting officer, as well as to the members of our Board of Directors and our other officers and employees. This Code of Business Conduct and Ethics is available on our website at www.orasure.com. We intend to satisfy the amendment and
+waiver disclosure requirements under applicable securities regulations by posting any amendments of, or waivers to, the Code of Business Conduct and Ethics on our website. 
+ITEM 11. Executive Compensation. 
+The information required by this Item is incorporated by reference to the information under the caption, “Executive Compensation,” in the Proxy Statement. 
+ITEM 12. Security 
+Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 
+The information required by this Item with respect to the securities ownership of certain beneficial owners and management,
+and equity compensation plan information, is incorporated by reference to the information under the captions, “Principal Stockholders” and “Equity Compensation Plan Information,” respectively, in the Proxy Statement. 
+ITEM 13. Certain Relationships and Related Transactions. 
+The information required by this Item is incorporated by reference to the information under the caption, “Certain Relationships and Related
+Transactions,” in the Proxy Statement. 
+ITEM 14. Principal Accountant Fees and Services. 
+The information required by this Item is incorporated by reference to the information under the caption, “Audit Fees; Audit-Related Fees; Tax Fees;
+All Other Fees,” in the Proxy Statement. 
+54 
+Table of Contents 
+PART IV 
+ITEM 15. Exhibits and Financial Statement Schedules. 
+(a)(1) and (a)(2). Financial Statements and Schedules . For a list of the Financial Statements filed herewith, see the Index
+to Financial Statements following the signature page to this Annual Report. No schedules are included with the Financial Statements because the required information is inapplicable or is presented in the Financial Statements or related notes
+thereto. 
+(a)(3). Exhibits . See
+Index to Exhibits following the Financial Statements in this Annual Report. 
+55 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be
+signed on its behalf by the undersigned, thereunto duly authorized, on March 15, 2006. 
+ORASURE TECHNOLOGIES, INC. 
+By: 
+/ S / D OUGLAS A. M ICHELS 
+Douglas A. Michels 
+President and Chief Executive Officer 
+Pursuant to
+the requirements of the Securities Exchange Act of 1934, this report has been signed on March 15, 2006, by the following persons on behalf of the Registrant and in the capacities indicated. 
+SIGNATURE 
+TITLE 
+/ S / D OUGLAS A. M ICHELS 
+Douglas A. Michels 
+President, Chief Executive Officer and Director (Principal Executive Officer) 
+/ S / R ONALD H. S PAIR 
+Ronald H. Spair 
+Executive Vice President and Chief Financial Officer (Principal Financial Officer) 
+/ S / M ARK L. K UNA 
+Mark L. Kuna 
+Vice President and Controller 
+(Principal Accounting Officer) 
+*F RANK G. H AUSMANN 
+Frank G. Hausmann 
+Director 
+*R ONNY B. L ANCASTER 
+Ronny B. Lancaster 
+Director 
+*C HARLES W. P ATRICK 
+Charles W. Patrick 
+Director 
+*R OGER L. P RINGLE 
+Roger L. Pringle 
+Director 
+*D OUGLAS G. W ATSON 
+Douglas G. Watson 
+Director 
+*By: 
+/ S / R ONALD H. S PAIR 
+Ronald H. Spair 
+(Attorney-in-Fact) 
+56 
+Table of Contents 
+INDEX TO FINANCIAL STATEMENTS 
+Page 
+Report of Independent Registered Public Accounting Firm 
+F-2 
+Balance Sheets 
+F-3 
+Statements of Operations 
+F-4 
+Statements of Stockholders’ Equity and Comprehensive Income (Loss) 
+F-5 
+Statements of Cash Flows 
+F-6 
+Notes to the Financial Statements 
+F-7 
+F-1 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+The Board of Directors and Stockholders 
+OraSure Technologies, Inc.: 
+We have audited
+the accompanying balance sheets of OraSure Technologies, Inc. as of December 31, 2005 and 2004, and the related statements of operations, stockholders’ equity and comprehensive income (loss) and cash flows for each of the years in the
+three-year period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. 
+We conducted our audits in accordance with the standards of the Public Company Accounting
+Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
+evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
+presentation. We believe that our audits provide a reasonable basis for our opinion. 
+In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of OraSure Technologies, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash
+flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. 
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of OraSure Technologies,
+Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
+(COSO), and our report dated March 13, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting. 
+/s/ KPMG LLP 
+Philadelphia, Pennsylvania 
+March 13, 2006
+F-2 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+BALANCE SHEETS 
+December 31, 
+2005 
+2004 
+ASSETS 
+CURRENT ASSETS: 
+Cash and cash equivalents 
+$ 
+32,826,740 
+$ 
+10,121,208 
+Short-term investments 
+44,793,046 
+56,602,248 
+Accounts receivable, net of allowance for doubtful accounts of $278,066 
+and $345,257 
+11,602,127 
+7,073,988 
+Inventories 
+4,128,029 
+4,951,979 
+Deferred income taxes 
+6,503,946 
+— 
+Prepaid expenses and other 
+1,553,545 
+1,195,085 
+Total current assets 
+101,407,433 
+79,944,508 
+PROPERTY AND EQUIPMENT, net 
+5,815,233 
+5,551,261 
+PATENTS AND PRODUCT RIGHTS, net 
+2,879,958 
+2,080,363 
+DEFERRED INCOME TAXES 
+20,204,352 
+— 
+OTHER ASSETS 
+440,227 
+488,192 
+$ 
+130,747,203 
+$ 
+88,064,324 
+LIABILITIES AND STOCKHOLDERS’ EQUITY 
+CURRENT LIABILITIES: 
+Current portion of long-term debt 
+$ 
+456,541 
+$ 
+1,122,455 
+Accounts payable 
+2,546,621 
+2,360,214 
+Accrued expenses and other 
+7,733,941 
+7,552,279 
+Total current liabilities 
+10,737,103 
+11,034,948 
+LONG-TERM DEBT 
+884,021 
+1,334,236 
+OTHER LIABILITIES 
+207,037 
+118,135 
+COMMITMENTS AND CONTINGENCIES (Note 11) 
+STOCKHOLDERS’ EQUITY: 
+Preferred stock, par value $.000001; 25,000,000 shares authorized, 
+none issued 
+— 
+— 
+Common stock, par value $.000001; 120,000,000 shares authorized, 45,775,625 and 44,631,731 shares issued and outstanding 
+46 
+45 
+Additional paid-in capital 
+226,218,469 
+209,948,075 
+Deferred compensation 
+(3,334,792 
+) 
+(2,916,503 
+) 
+Accumulated other comprehensive loss 
+(282,825 
+) 
+(324,669 
+) 
+Accumulated deficit 
+(103,681,856 
+) 
+(131,129,943 
+) 
+Total stockholders’ equity 
+118,919,042 
+75,577,005 
+$ 
+130,747,203 
+$ 
+88,064,324 
+The accompanying notes
+are an integral part of these statements. 
+F-3 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+STATEMENTS OF OPERATIONS 
+For the year ended December 31, 
+2005 
+2004 
+2003 
+REVENUES: 
+Product 
+$ 
+69,066,152 
+$ 
+53,604,124 
+$ 
+39,740,406 
+Licensing and product development 
+300,040 
+404,140 
+710,879 
+69,366,192 
+54,008,264 
+40,451,285 
+COST OF PRODUCTS SOLD 
+27,973,907 
+22,143,190 
+16,061,457 
+Gross profit 
+41,392,285 
+31,865,074 
+24,389,828 
+OPERATING EXPENSES: 
+Research and development 
+5,269,083 
+6,062,275 
+7,999,687 
+Sales and marketing 
+16,060,413 
+15,154,174 
+10,764,642 
+General and administrative 
+12,490,074 
+12,005,309 
+6,911,242 
+33,819,570 
+33,221,758 
+25,675,571 
+Operating income (loss) 
+7,572,715 
+(1,356,684 
+) 
+(1,285,743 
+) 
+INTEREST EXPENSE 
+(96,632 
+) 
+(133,652 
+) 
+(189,511 
+) 
+INTEREST INCOME 
+2,185,486 
+983,841 
+425,344 
+FOREIGN CURRENCY GAIN (LOSS) 
+57,329 
+(53,147 
+) 
+(59,037 
+) 
+Income (loss) before income taxes 
+9,718,898 
+(559,642 
+) 
+(1,108,947 
+) 
+INCOME TAX (BENEFIT) PROVISION 
+(17,729,189 
+) 
+— 
+26,590 
+NET INCOME (LOSS) 
+$ 
+27,448,087 
+$ 
+(559,642 
+) 
+$ 
+(1,135,537 
+) 
+EARNINGS (LOSS) PER SHARE 
+BASIC 
+$ 
+0.61 
+$ 
+(0.01 
+) 
+$ 
+(0.03 
+) 
+DILUTED 
+$ 
+0.59 
+$ 
+(0.01 
+) 
+$ 
+(0.03 
+) 
+SHARES USED IN COMPUTING EARNINGS (LOSS) PER SHARE 
+BASIC 
+45,109,580 
+44,463,861 
+39,793,919 
+DILUTED 
+46,146,612 
+44,463,861 
+39,793,919 
+The accompanying notes
+are an integral part of these statements. 
+F-4 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS) 
+For the years ended December 31, 2005, 2004 and 2003 
+Common Stock 
+Additional 
+Paid-in 
+Capital 
+Deferred 
+Compensation 
+Accumulated 
+Other 
+Comprehensive 
+Loss 
+Accumulated 
+Deficit 
+Total 
+Shares 
+Amount 
+Balance at January 1, 2003 
+38,100,557 
+$ 
+38 
+$ 
+155,638,314 
+$ 
+— 
+$ 
+(184,676 
+) 
+$ 
+(129,434,764 
+) 
+$ 
+26,018,912 
+Common stock issued upon exercise of options 
+849,374 
+1 
+3,716,890 
+— 
+— 
+— 
+3,716,891 
+Common stock issued via public offering, net of expenses 
+5,311,000 
+5 
+44,827,998 
+— 
+— 
+— 
+44,828,003 
+Compensation expense for stock option grants 
+— 
+— 
+33,900 
+— 
+— 
+— 
+33,900 
+Restricted stock grants to employees 
+— 
+— 
+650,663 
+(650,663 
+) 
+— 
+— 
+— 
+Amortization of deferred compensation expense 
+— 
+— 
+— 
+36,148 
+— 
+— 
+36,148 
+Comprehensive loss: 
+Net loss 
+— 
+— 
+— 
+— 
+— 
+(1,135,537 
+) 
+(1,135,537 
+) 
+Currency translation adjustment 
+— 
+— 
+— 
+— 
+16,560 
+— 
+16,560 
+Net unrealized loss on marketable securities 
+— 
+— 
+— 
+— 
+(5,588 
+) 
+— 
+(5,588 
+) 
+Total comprehensive loss 
+(1,124,565 
+) 
+Balance at December 31, 2003 
+44,260,931 
+44 
+204,867,765 
+(614,515 
+) 
+(173,704 
+) 
+(130,570,301 
+) 
+73,509,289 
+Common stock issued upon exercise of options 
+370,800 
+1 
+1,904,160 
+— 
+— 
+— 
+1,904,161 
+Restricted stock grants to employees 
+— 
+— 
+3,176,150 
+(3,176,150 
+) 
+— 
+— 
+— 
+Amortization of deferred compensation expense 
+— 
+— 
+— 
+874,162 
+— 
+— 
+874,162 
+Comprehensive loss: 
+Net loss 
+— 
+— 
+— 
+— 
+— 
+(559,642 
+) 
+(559,642 
+) 
+Currency translation adjustment 
+— 
+— 
+— 
+— 
+(12,983 
+) 
+— 
+(12,983 
+) 
+Net unrealized loss on marketable securities 
+— 
+— 
+— 
+— 
+(137,982 
+) 
+— 
+(137,982 
+) 
+Total comprehensive loss 
+(710,607 
+) 
+Balance at December 31, 2004 
+44,631,731 
+45 
+209,948,075 
+(2,916,503 
+) 
+(324,669 
+) 
+(131,129,943 
+) 
+75,577,005 
+Common stock issued upon exercise of options 
+1,009,794 
+1 
+6,067,868 
+— 
+— 
+— 
+6,067,869 
+Compensation expense for stock option grants 
+— 
+— 
+123,916 
+— 
+— 
+— 
+123,916 
+Vesting of restricted stock 
+197,180 
+— 
+— 
+— 
+— 
+— 
+— 
+Restricted stock grants to employees 
+— 
+— 
+1,918,343 
+(1,918,343 
+) 
+— 
+— 
+— 
+Purchase and retirement of treasury shares 
+(63,080 
+) 
+— 
+(601,347 
+) 
+— 
+— 
+— 
+(601,347 
+) 
+Amortization of deferred compensation expense 
+— 
+— 
+— 
+1,500,054 
+— 
+— 
+1,500,054 
+Deferred taxes related to stock options 
+— 
+— 
+8,761,614 
+— 
+— 
+— 
+8,761,614 
+Comprehensive income: 
+Net income 
+— 
+— 
+— 
+— 
+— 
+27,448,087 
+27,448,087 
+Currency translation adjustment 
+— 
+— 
+— 
+— 
+(39,095 
+) 
+— 
+(39,095 
+) 
+Net unrealized gain on marketable securities, net of tax benefit of $26,268 
+— 
+— 
+— 
+— 
+80,939 
+— 
+80,939 
+Total comprehensive income 
+27,489,931 
+Balance at December 31, 2005 
+45,775,625 
+$ 
+46 
+$ 
+226,218,469 
+$ 
+(3,334,792 
+) 
+$ 
+(282,825 
+) 
+$ 
+(103,681,856 
+) 
+$ 
+118,919,042 
+The accompanying notes
+are an integral part of these statements 
+F-5 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+STATEMENTS OF CASH FLOWS 
+For the year ended December 31, 
+2005 
+2004 
+2003 
+OPERATING ACTIVITIES: 
+Net income (loss) 
+$ 
+27,448,087 
+$ 
+(559,642 
+) 
+$ 
+(1,135,537 
+) 
+Adjustments to reconcile net income (loss) to net cash provided 
+by operating activities: 
+Deferred income tax benefit 
+(18,165,068 
+) 
+— 
+— 
+Stock-based compensation expense 
+1,623,970 
+874,162 
+70,048 
+Depreciation and amortization 
+2,346,861 
+2,487,121 
+2,576,797 
+Provision for loss on property and equipment, net 
+196,011 
+4,339 
+43,500 
+Provision for excess and obsolete inventories 
+2,062,855 
+839,130 
+539,647 
+Changes in assets and liabilities: 
+Accounts receivable 
+(4,553,469 
+) 
+1,159,881 
+(3,036,082 
+) 
+Inventories 
+(1,240,049 
+) 
+(1,787,590 
+) 
+(454,692 
+) 
+Prepaid expenses and other 
+(360,945 
+) 
+(272,265 
+) 
+2,996 
+Accounts payable 
+457,543 
+(1,066,064 
+) 
+1,738,171 
+Accrued expenses and other liabilities 
+576,540 
+1,759,144 
+2,356,948 
+Net cash provided by operating activities 
+10,392,336 
+3,438,216 
+2,701,796 
+INVESTING ACTIVITIES: 
+Purchases of property and equipment 
+(2,048,167 
+) 
+(912,144 
+) 
+(993,722 
+) 
+Proceeds from the sale of property and equipment 
+— 
+66,427 
+— 
+Purchase of patents and product rights 
+(1,800,000 
+) 
+(600,000 
+) 
+(250,000 
+) 
+Purchases of short-term investments 
+(54,071,801 
+) 
+(65,638,600 
+) 
+(37,280,182 
+) 
+Proceeds from maturities and redemptions of short-term investments 
+65,935,674 
+42,226,980 
+14,489,860 
+(Increase) decrease in other assets 
+(24,801 
+) 
+80,160 
+(5,886 
+) 
+Net cash provided by (used in) investing activities 
+7,990,905 
+(24,777,177 
+) 
+(24,039,930 
+) 
+FINANCING ACTIVITIES: 
+Borrowings of long-term debt 
+— 
+— 
+211,590 
+Repayments of long-term debt 
+(1,116,129 
+) 
+(1,126,186 
+) 
+(1,104,041 
+) 
+Proceeds from issuance of common stock 
+6,067,869 
+1,904,161 
+3,716,891 
+Purchase and retirement of common stock 
+(601,347 
+) 
+— 
+— 
+Proceeds from common stock offering, net of expenses 
+— 
+— 
+44,828,003 
+Net cash provided by financing activities 
+4,350,393 
+777,975 
+47,652,443 
+EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 
+(28,102 
+) 
+(12,983 
+) 
+16,560 
+NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 
+22,705,532 
+(20,573,969 
+) 
+26,330,869 
+CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 
+10,121,208 
+30,695,177 
+4,364,308 
+CASH AND CASH EQUIVALENTS, END OF YEAR 
+$ 
+32,826,740 
+$ 
+10,121,208 
+$ 
+30,695,177 
+The accompanying notes
+are an integral part of these statements. 
+F-6 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+NOTES TO THE FINANCIAL STATEMENTS 
+1. 
+THE COMPANY: 
+We develop, manufacture and market oral specimen collection devices using our proprietary oral fluid technologies, diagnostic products including in
+vitro diagnostic tests, and other medical devices. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations,
+distributors, government agencies, physicians’ offices, and commercial and industrial entities. One of our products is also sold in the over-the-counter or consumer retail markets in the United States, Canada, and Europe . 
+2. 
+SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 
+Use of Estimates 
+The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to
+make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
+reporting period. Actual results could differ from those estimates. 
+Cash and Cash Equivalents 
+We consider all
+highly liquid investments with a purchased maturity of ninety days or less to be cash equivalents. As of December 31, 2005 and 2004, cash equivalents consisted of commercial paper, U.S. government agency obligations, state and local government
+agency obligations, and corporate bonds. 
+Short-term
+Investments 
+We consider all short-term investments to be
+available-for-sale securities, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” These securities are comprised of
+certificates of deposits, commercial paper, U.S. government and agency obligations, state and local government agency obligations, asset-backed obligations, and corporate bonds, all with purchased maturities greater than ninety days.
+Available-for-sale securities are carried at fair value, based upon quoted market prices, with unrealized gains and losses reported in stockholders’ equity as a component of accumulated other comprehensive loss. There were no securities as of
+December 31, 2005 in a continuous unrealized loss position for twelve or more months. 
+F-7 
+Table of Contents 
+The following is a summary of our available-for-sale securities at December 31, 2005 and 2004:
+Amortized 
+Cost 
+Gross 
+Unrealized 
+Gains 
+Gross 
+Unrealized 
+Losses 
+Fair Value 
+December 31, 2005 
+Certificates of deposit 
+$ 
+10,385,000 
+$ 
+— 
+$ 
+(464 
+) 
+$ 
+10,384,536 
+Commercial paper 
+1,984,999 
+— 
+(1,059 
+) 
+1,983,940 
+Government and agency bonds 
+18,544,871 
+— 
+(43,851 
+) 
+18,501,020 
+State and local government agency obligations 
+75,000 
+— 
+— 
+75,000 
+Corporate bonds 
+13,874,242 
+1,261 
+(26,953 
+) 
+13,848,550 
+Total available-for-sale securities 
+$ 
+44,864,112 
+$ 
+1,261 
+$ 
+(72,327 
+) 
+$ 
+44,793,046 
+December 31, 2004 
+Certificates of deposit 
+$ 
+18,702,211 
+$ 
+56 
+$ 
+(29,411 
+) 
+$ 
+18,672,856 
+Commercial paper 
+4,281,910 
+185 
+— 
+4,282,095 
+Government and agency bonds 
+21,112,676 
+113 
+(61,631 
+) 
+21,051,158 
+State and local government agency obligations 
+629,322 
+162 
+(1,059 
+) 
+628,425 
+Asset-backed obligations 
+1,002,116 
+— 
+(866 
+) 
+1,001,250 
+Corporate bonds 
+10,999,750 
+431 
+(33,717 
+) 
+10,966,464 
+Total available-for-sale securities 
+$ 
+56,727,985 
+$ 
+947 
+$ 
+(126,684 
+) 
+$ 
+56,602,248 
+At December 31, 2005, maturities of investments were as follows: 
+Less than one year 
+$ 
+38,635,227 
+$ 
+424 
+$ 
+(64,480 
+) 
+$ 
+38,571,171 
+1 – 2 years 
+6,228,885 
+837 
+(7,847 
+) 
+6,221,875 
+Total available-for-sale securities 
+$ 
+44,864,112 
+$ 
+1,261 
+$ 
+(72,327 
+) 
+$ 
+44,793,046 
+Supplemental Cash
+Flow Information 
+In 2005, 2004, and 2003, we paid
+interest of $99,728, $137,112, and $184,906, respectively. 
+In
+2005, we paid income taxes of $170,000. No income tax payments were made in 2004 or 2003. 
+For 2005, 2004, and 2003, we recorded a provision (reduction) for bad debts of $(71,962), $(10,360), and $155,671, respectively. We had (credits)/deductions of $(4,771), $3,541, and $88,659 against the allowance for
+doubtful accounts in 2005, 2004, and 2003, respectively. 
+For
+2005, 2004, and 2003, we recorded accruals for purchases of property and equipment of $57,923, $72,394, and $93,987, respectively. 
+In 2004, we recorded a $300,000 accrual related to a new license agreement. 
+Accounts Receivable 
+Accounts receivable have been reduced by an allowance for amounts that may become uncollectible in the future. This estimated allowance is based primarily
+on management’s evaluation of specific balances as the balances become past due, the financial condition of our customers and our historical experience related to write-offs. If not reserved through these specific examination procedures, our
+policy is to reserve for uncollectible accounts by applying fixed percentages to the aging categories of accounts receivable. 
+F-8 
+Table of Contents 
+Inventories 
+Inventories are stated at the lower of cost or market determined on a first-in, first-out basis, and include the cost of raw
+materials, labor and overhead. The majority of our inventories are subject to expiration dating. We continually evaluate quantities on hand and the carrying value of our inventories to determine the need for reserves for excess and obsolete
+inventories, based primarily on the estimated forecast of product sales. When factors indicate that impairment has occurred, either a reserve is established against the inventories’ carrying value or the inventories are completely written off,
+as in the case of lapsing expiration dates. In addition to reserving for these items identified through specific identification procedures, we also reserve for unidentified scrap or spoilage under a fixed-formula methodology. We currently buy a
+portion of our cryosurgical product line from a foreign vendor, with such purchases payable in euros. Changes in the exchange rate of the euro will impact our product cost. 
+Property and Equipment 
+Property and equipment are stated at cost. Additions or improvements are capitalized, while repairs and maintenance are charged to expense. Depreciation
+and amortization are provided using the straight-line method over the estimated useful lives of the related assets or the lease term, whichever is shorter. Buildings are depreciated over 20 years, while computer equipment, machinery and equipment,
+and furniture and fixtures are depreciated over three to ten years. Leasehold improvements are amortized over the shorter of the estimated useful lives or the terms of the related leases. When assets are sold or otherwise disposed of, the related
+property amounts are relieved from the accounts, and any gain or loss is recorded in the statement of operations. 
+Patents and Product Rights 
+Patents and product rights consist of costs associated with the acquisition of patents, licenses and product distribution rights. Patents and product
+rights are amortized using the straight-line method over estimated useful lives of three to ten years. Accumulated amortization was $3,568,671 and $2,868,294 at December 31, 2005 and 2004, respectively. Amortization expense for 2005, 2004, and
+2003 was $700,377, $705,808, and $657,348, respectively. Amortization expense for each of the five succeeding fiscal years is estimated at $537,051 for 2006, $517,052 for 2007, $347,105 for 2008, $240,000 for 2009, and $240,000 for 2010. 
+Other Assets 
+Included in other assets is a $337,253 investment, representing a 7.7%
+ownership interest in a privately-held nonaffiliated company. We do not have a controlling interest in this company, nor do we have an ownership or voting interest which allows us to exert significant influence over the operating and financial
+policies of this investee company. Accordingly, we have accounted for this investment using the cost method of accounting. 
+Impairment of Long-Lived Assets 
+In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” if indicators of impairment exist, we
+assess the recoverability of the affected long-lived assets, which include property and equipment and patents and product rights, by determining whether the carrying value of such assets can be recovered through the sum of the undiscounted future
+operating cash flows and eventual disposition of the asset. If impairment is indicated, we measure the amount of such impairment by comparing the carrying value of the assets to the fair value of these assets, which is generally determined based on
+the present value of the expected future cash flows associated with the use of the asset. During 2005, we recorded a $196,011 impairment on certain property and equipment because the assets’ carrying value exceeds the future cash flows to be
+received from these assets. We believe the future cash flows to be received from all other long-lived assets will exceed the assets’ carrying value, and accordingly we have not recognized any additional impairment losses through
+December 31, 2005. 
+F-9 
+Table of Contents 
+Revenue Recognition 
+We recognize product revenues when there is persuasive evidence that an arrangement exists, the price is fixed or
+determinable, title has passed and collection is reasonably assured. Product revenues are net of allowances for any discounts or rebates. We do not grant price protection or product return rights to our customers, except for warranty returns.
+Historically, returns arising from warranty issues have been infrequent and immaterial. Accordingly, we expense warranty returns as incurred. 
+Up-front licensing fees are deferred and recognized ratably over the related license period. Product development revenues are recognized over the period
+in which the related product development efforts are performed. Amounts received prior to the performance of product development efforts are recorded as deferred revenues. Grant revenue is recognized as the related work is performed and costs are
+incurred. We record shipping and handling charges billed to our customers as product revenue and the related expense as cost of products sold. 
+Significant Customer Concentration 
+During 2005, two of our customers each accounted for more than 10 percent of our total revenues. Prestige Brands Holdings, Inc. and Quest Diagnostics
+(including its wholly-owned subsidiary, Lab One , Inc.) accounted for 17 percent and 13 percent, respectively, of our total revenues in 2005. 
+Additionally, two customers each accounted for more than 10 percent of our accounts receivable at December 31, 2005. SSL International plc and
+Prestige Brands Holdings, Inc. accounted for 20 percent and 15 percent, respectively, of our accounts receivable at December 31, 2005. 
+During 2004 and 2003, two of our customers accounted for more than 10 percent of our total revenues. Prestige Brands Holdings, Inc. accounted for 25% and
+12% of total revenues for 2004 and 2003, respectively. Lab One , Inc. accounted for 12% and 17% of total revenues for 2004 and 2003, respectively. 
+At December 31, 2004, Prestige Brands Holdings, Inc. accounted for 23% of our accounts receivable. 
+Research and Development 
+Research and development costs are charged to expense as incurred.
+Advertising Expenses 
+Advertising costs are charged to expense as incurred. During 2005, 2004, and
+2003, we incurred $2,232,945, $3,512,037, and $1,774,093, respectively, in advertising expenses. Included in advertising expenses for 2005, 2004 and 2003 were $1,820,022, $2,883,145 and $1,130,045, respectively, paid as reimbursement for marketing
+expenses incurred for the Compound W ® Freeze
+Off ™ product. 
+Stock-Based Compensation 
+We account for stock-based compensation to employees and directors using the
+intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. We account for stock-based compensation to nonemployees using
+the fair value method in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation” and Emerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other
+Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” 
+We have elected to adopt the disclosure provisions of SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Under SFAS No. 123,
+compensation 
+F-10 
+Table of Contents 
+expense related to stock awards granted to employees and directors is computed based on the fair value of the award at the date of grant using a valuation
+methodology, typically the Black-Scholes option pricing model. Pursuant to the disclosure requirements of SFAS No. 123, had compensation expense for our common stock awards been determined based upon the fair value of the awards at the date of
+grant, our net income (loss) for 2005, 2004, and 2003 would have changed as follows: 
+Year ended December 31, 
+2005 
+2004 
+2003 
+Net income (loss): 
+As reported 
+$ 
+27,448,087 
+$ 
+(559,642 
+) 
+$ 
+(1,135,537 
+) 
+Add: stock-based employee compensation expense included in net income (loss)—net of tax 
+945,634 
+874,162 
+70,048 
+Deduct: total stock-based employee compensation expense determined under the fair value-based method for all awards—net of
+tax 
+(3,004,813 
+) 
+(5,921,957 
+) 
+(4,306,587 
+) 
+Pro forma 
+$ 
+25,388,908 
+$ 
+(5,607,437 
+) 
+$ 
+(5,372,076 
+) 
+Earnings (loss) per share: 
+Basic 
+As reported 
+$ 
+0.61 
+$ 
+(0.01 
+) 
+$ 
+(0.03 
+) 
+Pro forma 
+$ 
+0.56 
+$ 
+(0.13 
+) 
+$ 
+(0.13 
+) 
+Diluted 
+As reported 
+$ 
+0.59 
+$ 
+(0.01 
+) 
+$ 
+(0.03 
+) 
+Pro forma 
+$ 
+0.55 
+$ 
+(0.13 
+) 
+$ 
+(0.13 
+) 
+The weighted average
+fair value of the options granted during 2005, 2004, and 2003 is estimated at $3.17, $4.60, and $4.15 per share, respectively, using the Black-Scholes option pricing model, with the following assumptions: dividend yield of zero; volatility of 58
+percent, 65 percent, and 70 percent, respectively; weighted average risk-free interest rate of 3.72 percent, 3.21 percent, and 2.93 percent, respectively; and an expected life of 4.0, 5.0 and 5.0 years, respectively, for each year’s grants.
+In May 2005, we modified the term of two individual stock
+option grants. As a result, compensation expense of $123,916 was recorded in 2005. 
+Income Taxes 
+We follow
+the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
+existing assets and liabilities and the respective tax basis of assets and liabilities, and operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable
+income in the years in which those temporary differences and operating loss and credit carryforwards are expected to be recovered, settled or utilized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
+income in the period that includes the enactment date. 
+Foreign Currency Translation 
+Pursuant to SFAS
+No. 52, “Foreign Currency Translation,” the assets and liabilities of our foreign operations are translated from euros into U.S. dollars at current exchange rates as of the balance sheet date, and revenues and expenses are translated
+at average exchange rates for the period. Resulting translation adjustments are reflected in accumulated other comprehensive loss, which is a separate component of stockholders’ equity. 
+F-11 
+Table of Contents 
+Earnings (Loss) Per Share 
+We have presented basic and diluted earnings (loss) per share pursuant to SFAS No. 128, “Earnings per Share.”
+In accordance with SFAS No. 128, basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed in manner
+similar to basic earnings per share except that the weighted average number of shares outstanding is increased to include incremental shares from the assumed vesting or exercise of dilutive securities, such as common stock options, warrants and
+unvested restricted stock. The number of incremental shares is calculated by assuming that outstanding stock options and warrants were exercised and unvested restricted shares were vested, and the proceeds from such exercises or vesting were used to
+acquire shares of common stock at the average market prices during the reporting period. 
+The computations of basic and diluted earnings (loss) per share are as follows: 
+Year ended December 31, 
+2005 
+2004 
+2003 
+Net income (loss) 
+$ 
+27,448,087 
+$ 
+(559,642 
+) 
+$ 
+(1,135,537 
+) 
+Weighted average shares of common stock outstanding: 
+Basic 
+45,109,580 
+44,463,861 
+39,793,919 
+Dilutive effect of stock options, warrants and restricted shares 
+1,037,032 
+— 
+— 
+Diluted 
+46,146,612 
+44,463,861 
+39,793,919 
+Earnings (loss) per share: 
+Basic 
+$ 
+0.61 
+$ 
+(0.01 
+) 
+$ 
+(0.03 
+) 
+Diluted 
+$ 
+0.59 
+$ 
+(0.01 
+) 
+$ 
+(0.03 
+) 
+For the years ended
+December 31, 2005, 2004, and 2003, outstanding common stock options, warrants and unvested restricted stock representing 1,069,181, 5,479,504, and 4,130,463 shares, respectively, were excluded from the computation of diluted earnings (loss) per
+share as their inclusion would have been anti-dilutive. 
+Other Comprehensive Income (Loss) 
+We follow
+SFAS No. 130, “Reporting Comprehensive Income.” This statement requires the classification of items of other comprehensive income (loss) by their nature and disclosure of the accumulated balance of other comprehensive income (loss),
+separately from accumulated deficit and additional paid-in capital, in the stockholders’ equity section of our balance sheet. 
+Fair Value of Financial Instruments 
+As of December 31, 2005, the carrying values of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and accrued
+expenses approximate their respective fair values based on their short-term nature. In addition, we believe the carrying value of our debt instruments, which do not have readily ascertainable market values, approximate their fair values, given that
+the interest rates on outstanding borrowings approximate market rates. 
+Recent Accounting Pronouncements 
+In November
+2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs.” SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted
+material and requires such costs to be recognized as current-period charges. Additionally, SFAS No. 151 requires that allocation of fixed production overhead costs be based on normal capacity. SFAS No. 151 is 
+F-12 
+Table of Contents 
+effective for years beginning after June 15, 2005, with early adoption permitted. We adopted SFAS No. 151 on January 1, 2006 and the
+implementation did not have a material effect on our financial position, results of operations or cash flows. 
+In December 2004, the FASB issued SFAS No. 123 Revised, “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R requires
+employee stock options to be accounted for in the statement of operations based on their fair values on the date of grant, and eliminates the ability to account for these instruments under the intrinsic value method prescribed by APB Opinion
+No. 25. SFAS No. 123R requires the use of an option pricing model for estimating fair value, which is amortized to expense over the service period. The requirements of SFAS No. 123R are effective for fiscal years beginning after
+June 15, 2005. We adopted SFAS No. 123R on January 1, 2006 using the modified prospective method and will estimate the fair value of stock options using the Black-Scholes option pricing model. The adoption of SFAS No. 123R is
+expected to result in a material reduction of our operating income for 2006 by an amount that is not expected to exceed the pro forma amount shown in the table above. This estimate assumes that the number of employee stock options granted in 2006
+will not exceed the number granted in 2005 and is subject to change based on the actual number of stock options granted in 2006, the dates on which the grants are made, and the share price on the date of each grant. 
+In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and
+Error Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3”, (“SFAS No. 154”). SFAS No. 154 requires retrospective application of a voluntary change in accounting principle such that all prior
+period financial statements are presented in accordance with the new accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that
+(1) correction of errors in previously issued financial statements should be termed a “restatement”; and (2) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in
+estimate (prospectively) that was effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption
+of SFAS No. 154 to have a material effect on our financial position, results of operations or cash flows. 
+3. 
+INVENTORIES: 
+December 31, 
+2005 
+2004 
+Raw materials 
+$ 
+2,625,889 
+$ 
+3,405,578 
+Work in process 
+718,804 
+659,304 
+Finished goods 
+783,336 
+887,097 
+$ 
+4,128,029 
+$ 
+4,951,979 
+In 2005, we recorded a
+$1,288,655 provision on our UP link ® 
+inventory as a result of the inability to determine an alternative use for this product and termination of the agreement with our distribution partner. 
+4. 
+PROPERTY AND EQUIPMENT: 
+December 31, 
+2005 
+2004 
+Building and leasehold improvements 
+$ 
+4,895,253 
+$ 
+4,780,874 
+Machinery and equipment 
+7,855,947 
+7,859,207 
+Computer equipment 
+2,052,741 
+1,809,582 
+Furniture and fixtures 
+847,512 
+804,061 
+Construction in progress 
+1,966,125 
+526,030 
+17,617,578 
+15,779,754 
+Less—Accumulated depreciation 
+(11,802,345 
+) 
+(10,228,493 
+) 
+$ 
+5,815,233 
+$ 
+5,551,261 
+F-13 
+Table of Contents 
+Depreciation expense was $1,573,852, $1,739,733, and $1,879,092 for 2005, 2004, and 2003, respectively.
+In addition, in connection with the transfer of all operations to our Bethlehem facilities in 2004, we retired or disposed of $6,298,345 in fully depreciated assets that were previously utilized in our Oregon facility. No gain or loss was recognized
+on these disposals. 
+5. 
+PATENTS AND PRODUCT RIGHTS: 
+In June 1998, we acquired the patents and exclusive worldwide distribution rights to our cryosurgical product line. The purchase price of $2,548,690,
+including transaction costs, has been recorded as patents and product rights and is being amortized using the straight-line method over an estimated useful life of ten years. In connection with this acquisition, we also entered into a product
+purchase agreement with the manufacturer of the cryosurgical product line, with a current term extending through 2008. 
+In October 2002, we entered into new supply and distribution agreements with bioMérieux, Inc. (“BMX”), which replaced existing agreements
+between the parties, for the supply by BMX of HIV-1 antigen required to manufacture our oral fluid Western blot HIV-1 confirmatory test and for the distribution by BMX of the oral fluid Western blot product on an exclusive worldwide basis. These
+agreements had an initial term ending December 31, 2005, and renew annually for one-year periods. As consideration for BMX entering into the new agreements, we paid BMX $750,000, which we recorded as patent and product rights on our balance
+sheet. This amount is fully amortized as of December 31, 2005. 
+In June 2004, we entered into a sublicense agreement with a third party, pursuant to which we have been granted a limited, worldwide, non-exclusive sublicense to certain HIV-2 patents held by such party. The agreement requires us to pay the
+third party a one-time non-refundable license fee of $900,000, $600,000 of which was paid in August 2004 and $300,000 of which was paid in June 2005. The $900,000 was recorded as patent and product rights on our balance sheet and is being amortized
+through June 30, 2014. 
+In August 2005, we entered into a
+license agreement with third parties, pursuant to which we have been granted a limited, personal, non-transferrable, non-exclusive license to certain patents related to the Hepatitis C Virus (“HCV”) held by such parties. The agreement
+required us to pay the third parties a one-time non-refundable license fee of $1,500,000, which was paid in August 2005. We may also be required to pay additional license fees up to $8,500,000, upon the achievement of specific development and/or
+commercial milestones. 
+Management’s intent in executing
+the HCV license agreement is to provide for various alternatives for use of the licensed patents. Some of these uses require additional research and development expense and regulatory approvals, while others, specifically in the international
+market, do not require additional research and development expense or regulatory approvals. Based on management’s estimate of the cash flows to be received from future product sales in these international markets, we capitalized the $1,500,000
+license fee in the accompanying balance sheet. We are amortizing this amount to cost of products sold on a straight-line basis over a ten-year period, which represents management’s estimate of the useful life of the licensed patents.
+Under the terms of the HCV license agreement, we are also
+obligated to pay royalties based on our net sales of certain products, which incorporate the technology covered by the licensed patents. Royalties under the license agreement vary based upon the geographical territory where the product is sold. No
+sales have been made under the terms of this license agreement through December 31, 2005. 
+F-14 
+Table of Contents 
+6. 
+ACCRUED EXPENSES AND OTHER: 
+December 31, 
+2005 
+2004 
+Payroll and related benefits 
+$ 
+2,510,240 
+$ 
+2,069,309 
+Deferred revenue 
+1,302,791 
+1,353,711 
+Professional fees 
+487,712 
+1,227,087 
+Royalties 
+1,925,679 
+1,069,932 
+Advertising 
+757,906 
+603,009 
+License fees 
+— 
+300,000 
+Laboratory testing fees 
+210,604 
+249,041 
+Other 
+539,009 
+680,190 
+$ 
+7,733,941 
+$ 
+7,552,279 
+At December 31,
+2005, accrued payroll and related benefits increased primarily as a result of an increase in annual bonuses. Deferred revenue includes customer prepayments of $1,012,891 and $1,041,711 at December 31, 2005 and 2004, respectively. Professional
+fees at December 31, 2005 decreased primarily as a result of the payment of legal fees related to current litigation. Accrued royalties and advertising expenses at December 31, 2005 and 2004 are primarily related to our OraQuick ® and Freeze Off ™ products, respectively. License fees at December 31, 2004 are related to the
+sublicense agreement, which we entered into in June 2004, as discussed in Note 5. 
+7. 
+CREDIT FACILITIES: 
+As of December 31, 2005, we had an $11,887,000 credit facility (“Credit Facility”) with Comerica Bank, comprised of an $887,000 mortgage
+loan, a $3,000,000 term loan, a $4,000,000 non-revolving equipment line of credit, and a $4,000,000 revolving working capital line of credit. Interest on outstanding borrowings under the non-revolving line of credit accrues at a rate, selected at
+our option, equal to the bank’s prime rate, 180-day or 360-day LIBOR plus 2.625%, or the 4-year Treasury Note rate plus 2.30%, determined at the time of initial borrowing. Interest on outstanding borrowings under the revolving working capital
+line of credit accrues at a rate, selected at our option, equal to the bank’s prime rate less 0.25%, or 30-day LIBOR plus 2.55%, determined at the time of initial borrowing. We also had outstanding payments under a non-revolving line with
+Comerica Bank that was initially borrowed under the Credit Facility, but expired (see Note 8). The Credit Facility was initially entered into in September 2002, and was most recently amended in April 2005 to extend the maturity date of the revolving
+line until April 29, 2006. We had no outstanding borrowings under the revolving line at December 31, 2005. 
+All borrowings under the Credit Facility, as amended, are collateralized by a first priority security interest in all of our assets, including present and
+future accounts receivable, chattel paper, contracts and contract rights, equipment and accessories, general intangibles, investments, instruments, inventories, and a mortgage on our manufacturing facility in Bethlehem, Pennsylvania. Borrowings
+under the revolving line are limited to commercially standard percentages of accounts receivable. The Credit Facility, as amended, contains certain covenants that set forth minimum requirements for our quick ratio, liquidity, and tangible net worth
+and also restricts our ability to pay dividends, to make certain investments, to incur additional indebtedness, to sell or otherwise dispose of a substantial portion of assets, and to merge or consolidate operations with an unaffiliated entity,
+without the consent of the bank. 
+F-15 
+Table of Contents 
+8. 
+LONG-TERM DEBT: 
+December 31, 
+2005 
+2004 
+Term loan payable to bank, interest at 4.97%, monthly principal installments of $71,429, plus interest, through March 2006, secured by a first
+priority security interest in all of our assets. 
+$ 
+214,286 
+$ 
+1,071,429 
+Mortgage loan payable to bank, interest at an annual floating rate equal to the bank’s prime rate (7.25% at December 31, 2005),
+fixed monthly installments of principal and interest of $7,426 through September 2007, at which time the interest rate and fixed monthly repayment amount is reset for the remaining sixty monthly installments, secured by our building. 
+722,233 
+765,953 
+Note payable to bank, interest at an annual floating rate equal to the bank’s prime rate (7.25% at December 31, 2005), monthly
+principal installments of $5,081, plus interest, through December 2006, secured by certain equipment. 
+60,967 
+121,935 
+Note payable to bank, interest at 5.07%, monthly principal installments of $3,995, plus interest, through September 2006, secured by certain
+equipment. 
+35,957 
+83,900 
+Note payable to bank, interest at an annual floating rate equal to the bank’s prime rate (7.25% at December 31, 2005), monthly
+principal installments of $2,144, plus interest, through June 2007, secured by certain equipment 
+38,590 
+64,317 
+Note payable to bank, interest at an annual floating rate equal to the bank’s prime rate (7.25% at December 31, 2005), monthly
+principal installments of $2,264, plus interest, through March 2007, secured by certain equipment. 
+33,963 
+61,134 
+Note payable to Pennsylvania Industrial Development Authority, interest at 2%, monthly installments of principal and interest of $4,893
+through March 2010, secured by a second lien on our building. 
+234,566 
+288,023 
+1,340,562 
+2,456,691 
+Less—Current portion 
+(456,541 
+) 
+(1,122,455 
+) 
+$ 
+884,021 
+$ 
+1,334,236 
+Long-term debt
+maturities as of December 31, 2005 are as follows: 
+2006 
+$ 
+456,541 
+2007 
+116,123 
+2008 
+100,650 
+2009 
+105,086 
+2010 
+60,567 
+Thereafter 
+501,595 
+$ 
+1,340,562 
+Certain of these notes
+payable require, among other items, the maintenance of certain financial covenants. We were in compliance with these covenants as of December 31, 2005. 
+F-16 
+Table of Contents 
+9. 
+INCOME TAXES: 
+The components of the (benefit) provision for income taxes for the years ended December 31, are as follows: 
+2005 
+2004 
+2003 
+Current 
+Federal 
+$ 
+224,153 
+$ 
+— 
+$ 
+— 
+State 
+211,726 
+— 
+— 
+Foreign 
+— 
+— 
+26,590 
+435,879 
+— 
+26,590 
+Deferred 
+Federal 
+3,285,740 
+(123,009 
+) 
+(316,156 
+) 
+State 
+495,298 
+(18,823 
+) 
+(48,924 
+) 
+Foreign 
+— 
+— 
+— 
+3,781,038 
+(141,832 
+) 
+(365,080 
+) 
+Change in valuation allowance 
+(21,946,106 
+) 
+141,832 
+365,080 
+(18,165,068 
+) 
+— 
+— 
+Total (benefit) provision 
+$ 
+(17,729,189 
+) 
+$ 
+— 
+$ 
+26,590 
+A reconciliation of
+the statutory United States federal tax rate to our effective tax rate for the year ended December 31, is as follows: 
+2005 
+2004 
+2003 
+Statutory U.S. federal tax rate-expense (benefit) 
+34.0 
+% 
+(34.0 
+)% 
+(34.0 
+)% 
+State income taxes, net of federal 
+4.8 
+(2.2 
+) 
+(2.9 
+) 
+Tax rate differential on foreign income 
+— 
+— 
+2.4 
+Nondeductible expenses and other 
+4.6 
+10.9 
+4.0 
+Net change in valuation allowance, federal and state 
+(225.8 
+) 
+25.3 
+32.9 
+Effective tax rate 
+(182.4 
+)% 
+— 
+% 
+2.4 
+% 
+Deferred income taxes
+reflect the tax effects of temporary differences between the basis of assets and liabilities recognized for financial reporting purposes and tax purposes, and net operating loss and tax credit carryforwards. Significant components of our total
+deferred tax asset, net of valuation allowance, as of December 31, are as follows: 
+2005 
+2004 
+Net operating loss carryforwards 
+$ 
+22,827,988 
+$ 
+25,307,329 
+Research and development credit carryforwards 
+1,641,012 
+1,770,898 
+Inventory 
+1,165,890 
+605,743 
+Capitalized research and development costs 
+665,353 
+782,557 
+Accruals and reserves currently not deductible 
+579,584 
+787,029 
+Patent costs 
+579,347 
+551,480 
+Depreciation and amortization 
+391,677 
+622,752 
+Deferred compensation 
+359,573 
+339,224 
+Alternative minimum tax credit carryforwards 
+138,886 
+— 
+Total deferred tax asset before valuation allowance 
+28,349,310 
+30,767,012 
+Valuation allowance on deferred tax asset 
+(1,641,012 
+) 
+(30,767,012 
+) 
+Total deferred tax asset, net of valuation allowance 
+$ 
+26,708,298 
+$ 
+— 
+F-17 
+Table of Contents 
+In assessing the realizability of our deferred tax asset, we follow the guidance contained within SFAS
+No. 109, “Accounting for Income Taxes,” which requires that deferred income tax assets be reduced by a valuation allowance, if after considering all relevant positive and negative evidence, it is more likely than not that some portion
+or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the loss carry
+forwards. In order to realize the benefit associated with our federal net operating loss (NOL) carryforwards, the Company must earn cumulative taxable income of $66,573,636 prior to the expiration of those NOLs. Our federal NOL carryforwards expire
+as follows: 
+Year of Expiration 
+NOLs 
+2006 
+$ 
+5,533,711 
+2007 
+5,370,000 
+2008 
+3,459,000 
+2009 
+7,053,000 
+2010 
+795,394 
+2011 
+7,731,587 
+2017-2021 
+30,396,051 
+2022-2024 
+6,234,893 
+Total 
+$ 
+66,573,636 
+The Tax Reform Act of
+1986 contains provisions that limit the annual amount of NOLs available to be used in any given year in the event of a significant change in ownership. On September 29, 2000, two separate companies, STC Technologies, Inc. and Epitope, Inc.
+merged to form our company. A significant change in ownership, as defined by Section 382 of the Internal Revenue Code, occurred in connection with this merger. As such, the utilization of NOLs generated prior to September 29, 2000 is
+limited to approximately $13,700,000 per year. We do not believe that this limitation will have a material adverse impact on the utilization of our NOL carryforwards. 
+At the end of 2005, we concluded that it was more likely than not that the majority of our deferred tax asset would be
+recovered. Accordingly, we reduced our valuation allowance by approximately $26,700,000. The remaining valuation allowance of approximately $1,600,000 at December 31, 2005 relates to certain federal research and development tax credits that we
+believe are not likely to be recovered. 
+Included in the 2005
+reduction of the valuation allowance is approximately $8,500,000 related to prior years’ tax benefits associated with the exercise of employee stock options. This amount was recognized as an increase to additional paid-in capital in the current
+period. A current tax benefit of approximately $245,000 associated with employee exercises of non-qualified stock options and disqualifying dispositions of stock acquired with incentive stock options during the year ended December 31, 2005 was
+also recorded as additional paid-in capital during 2005. 
+10. 
+STOCKHOLDERS’ EQUITY: 
+Common stock 
+On October 7, 2003, we successfully completed a public offering in which we sold 5,000,000 shares of our common stock. Upon the exercise of the
+underwriters’ over-allotment option on November 5, 2003, we sold an additional 311,000 shares of common stock. The price to the public of the 5,311,000 shares of common stock was $9.00 per share. We received proceeds of $44,828,003, net of
+expenses, from this offering. 
+Stock-based Awards
+We grant stock-based awards under the OraSure
+Technologies, Inc. 2000 Stock Award Plan (the “2000 Plan”). The 2000 Plan permits stock-based awards to employees, outside directors and consultants or other third- 
+F-18 
+Table of Contents 
+party advisors. Awards which may be granted under the 2000 Plan include qualified incentive stock options, nonqualified stock options, stock appreciation
+rights, restricted awards, performance awards and other stock-based awards. 
+Under the terms of the 2000 Plan, qualified incentive stock options for shares of our common stock may be granted to eligible employees, including our officers. To date, options generally have been granted with
+ten-year exercise periods and an exercise price not less than the fair market value on the date of grant. Options generally vest over four years, with one quarter of the options vesting one year after grant and the remainder vesting on a monthly
+basis over the next three years. The 2000 Plan also provides that nonqualified options may be granted at a price not less than 75 percent of the fair market value of a share of common stock on the date of grant. The option term and vesting schedule
+of such awards may either be unlimited or have a specified period in which to vest and be exercised. 
+We apply APB Opinion No. 25 and related interpretations in accounting for stock awards granted to employees and directors. Accordingly, compensation
+cost, if any, is recognized for the intrinsic value (the difference between the exercise price and the fair value of our common stock) on the date of grant. Compensation cost, if any, is deferred and charged to expense over the respective vesting
+period. 
+We account for stock-based compensation to
+non-employees using the fair value method, in accordance with SFAS No. 123 and EITF Issue No. 96-18. In May 2005, we modified the term of two individual non-employee stock option grants. As a result, compensation expense of $123,916 was
+recorded during 2005, based on the estimated fair value of such awards using the Black-Scholes option pricing model. No such expense was recorded in 2004 or 2003. 
+Information with respect to the options granted under the 2000 Plan and predecessor plans is as follows: 
+Shares 
+Price per Share 
+Weighted Average 
+Exercise Price 
+per Share 
+Balance, January 1, 2003 
+3,879,608 
+$ 
+0.80–15.03 
+$ 
+5.83 
+Granted 
+1,129,885 
+5.51–10.47 
+6.97 
+Exercised 
+(849,374 
+) 
+0.80– 7.88 
+4.38 
+Canceled 
+(224,656 
+) 
+0.80–13.66 
+6.61 
+Balance, December 31, 2003 
+3,935,463 
+0.80–15.03 
+6.42 
+Granted 
+1,629,891 
+6.63–10.29 
+8.07 
+Exercised 
+(370,800 
+) 
+0.80– 9.92 
+5.14 
+Canceled 
+(320,050 
+) 
+3.83–13.19 
+7.89 
+Balance, December 31, 2004 
+4,874,504 
+0.80–15.03 
+6.98 
+Granted 
+778,572 
+5.60–10.99 
+6.60 
+Exercised 
+(1,009,794 
+) 
+0.80–11.98 
+6.01 
+Canceled 
+(426,497 
+) 
+4.40–15.03 
+7.55 
+Balance, December 31, 2005 
+4,216,785 
+$ 
+0.80–12.69 
+$ 
+7.08 
+F-19 
+Table of Contents 
+The following table summarizes information about stock options outstanding at December 31, 2005:
+Options outstanding 
+Options exercisable 
+Range of exercise prices 
+Number 
+outstanding 
+Weighted 
+average 
+remaining 
+life, in 
+years 
+Weighted 
+average 
+exercise 
+price 
+Number 
+exercisable 
+Weighted 
+average 
+exercise 
+price 
+$0.80–$5.04 
+411,489 
+16.65 
+$ 
+3.64 
+387,218 
+$ 
+3.62 
+$5.60 
+512,462 
+9.07 
+5.60 
+104,165 
+5.60 
+$5.76 
+1,459 
+7.04 
+5.76 
+104 
+5.76 
+$5.87 
+439,728 
+6.08 
+5.87 
+430,899 
+5.87 
+$6.10–$6.87 
+139,279 
+6.60 
+6.68 
+127,653 
+6.69 
+$6.96 
+526,313 
+7.08 
+6.96 
+404,481 
+6.96 
+$6.98–$7.64 
+442,135 
+5.18 
+7.21 
+417,135 
+7.21 
+$7.77–$8.03 
+429,000 
+8.27 
+7.78 
+176,500 
+7.80 
+$8.09–$8.20 
+766,377 
+8.04 
+8.20 
+406,285 
+8.20 
+$8.36–$12.69 
+548,543 
+7.12 
+10.00 
+331,288 
+10.44 
+4,216,785 
+8.24 
+$ 
+7.08 
+2,785,728 
+$ 
+6.95 
+The 2000 Plan also
+permits us to grant restricted shares of our common stock to eligible employees, including officers. Generally, these shares are nontransferable and are subject to vesting requirements or forfeiture, as determined by the Compensation Committee of
+our Board of Directors. Upon granting of these restricted shares, deferred compensation cost equivalent to the market value of such shares at the date of grant is recorded in stockholders’ equity and subsequently amortized to compensation
+expense over the periods during which the restrictions lapse, which is generally three years. During 2005, 2004, and 2003, we recorded $1,918,343, $3,176,150, and $650,663 of deferred compensation, respectively, related to restricted stock grants to
+certain members of management. Amortization of deferred compensation related to these grants was $1,500,054, $874,162, and $36,148 in 2005, 2004, and 2003, respectively. 
+The following table summarizes restricted stock award activity for the years ended December 31: 
+2005 
+2004 
+2003 
+Issued and unvested, January 1, 
+485,000 
+75,000 
+— 
+Granted 
+332,188 
+410,000 
+75,000 
+Vested 
+(197,180 
+) 
+— 
+— 
+Cancelled 
+(13,563 
+) 
+— 
+— 
+Issued and unvested, December 31, 
+606,445 
+485,000 
+75,000 
+In connection with the
+vesting of restricted shares during the year ended December 31, 2005, we repurchased and immediately retired 63,080 shares with an aggregate value of $601,347 to satisfy minimum statutory tax withholding requirements. 
+As of December 31, 2005, 1,838,435 shares were available for future
+grants under the 2000 Plan. 
+Common Stock Warrants
+As of December 31, 2005, warrants to purchase
+120,000 shares of common stock at $6.13 per share were outstanding. These warrants were issued on September 30, 1998 and expire on September 30, 2008. 
+F-20 
+Table of Contents 
+11. 
+COMMITMENTS AND CONTINGENCIES: 
+Phosphor Agreements 
+In April 1995, we entered into several research, licensing and royalty agreements (collectively the “Phosphor Agreements”), related to
+development and commercialization of our up-converting phosphor technology (“UPT ™ ”). Under the terms of the Phosphor Agreements, as amended, we are obligated to make an annual license payment of $50,000 and an annual minimum royalty payment of $100,000 for usage of patented technology
+licensed to us. Upon the first commercial sale of a UPT ™ -based product or service, we are obligated to pay royalties based upon a percentage of the net sales of UPT ™ -based products, research and development fees and sublicensing revenues, for a period equal to the longer of ten years from the date of the first
+commercial sale of a UPT ™ -based product or service
+(which occurred in 2001) or the remaining life of the patents underlying the licensed technology, which expire through 2017. Royalties from the commercial sale of products or services can be credited against our minimum royalty obligation of
+$100,000 per year. In connection with the acquisition of certain technology related to UPT ™ , we are also required to pay sponsored research funds and royalty payments. Under the terms of the Phosphor Agreements, these payments are cancellable within 90 days of communication by
+either party to terminate the agreements. These sponsored research funds were $50,000 in 2005 and will continue to be $50,000 per year through 2008. Related royalty payments are $25,000 per year until 2008. All of these amounts are expensed as
+incurred. Future minimum payments under these agreements are as follows: 
+2006 
+$ 
+225,000 
+2007 
+225,000 
+2008 
+225,000 
+2009 
+150,000 
+2010 
+150,000 
+Thereafter 
+1,050,000 
+$ 
+2,025,000 
+Sublicense
+Agreement 
+In June 2004, we entered into a sublicense
+agreement with a third party, pursuant to which we have been granted a limited, worldwide, non-exclusive sublicense to certain HIV-2 patents held by such party. Under the terms of this sublicense agreement, we are obligated to pay royalties based on
+a percentage of our net sales of certain products, which incorporate the technology covered by the licensed patents. Future minimum payments under this agreement are as follows: 
+2006 
+$ 
+400,000 
+2007 
+500,000 
+2008 
+500,000 
+2009 
+500,000 
+2010 
+500,000 
+Thereafter 
+3,791,667 
+$ 
+6,191,667 
+Royalties from our
+commercial sale of products covered by the sublicense can be credited against these minimum royalty obligations. 
+License Agreement 
+In August 2005, we entered into a license agreement with third parties, pursuant to which we have been granted a limited, personal, non-transferrable,
+non-exclusive license to certain patents related to HCV held by such parties. Under the terms of the HCV license agreement, we are also obligated to pay royalties based on our 
+F-21 
+Table of Contents 
+net sales of certain products which incorporate the technology covered by the licensed patents. Royalties under the license agreement vary based upon the
+geographical territory where the product is sold. Future minimum payments under this agreement are $3,000,000 in 2006. No minimum payments are required in 2007 or thereafter. We may, however, be required to pay additional license fees, up to an
+additional $5,500,000, upon the achievement of specific development and/or commercial milestones. 
+Leases 
+We lease office, manufacturing, warehouse and laboratory facilities under operating lease agreements. Future payments required under these noncancelable
+leases are as follows: 
+2006 
+$ 
+1,256,673 
+2007 
+1,158,156 
+2008 
+1,165,764 
+2009 
+1,181,217 
+2010 
+921,748 
+Thereafter 
+1,537,776 
+$ 
+7,221,334 
+We currently intend to
+exercise our option to purchase two of the leased facilities. Upon purchase of either facility, we would no longer be required to pay the contractual lease payments related to the given facility. The future lease payments included in the table above
+related to these two facilities are $1,146,954 in 2006, $1,150,017 in 2007, $1,165,764 in 2008, $1,181,217 in 2009, $921,748 in 2010, and $1,537,776 thereafter. 
+Rent expense for 2005, 2004 and 2003 was $1,146,697, $1,690,858, and $1,594,240, respectively. 
+Purchase Commitments 
+As of December 31, 2005, we had outstanding noncancelable purchase
+commitments in the amount of $2,424,672, of which $1,412,707, $171,811 and $840,154 are related to inventory, capital expenditures, and other goods or services, respectively. 
+Employment Agreements 
+Under terms of employment agreements with certain executive officers and other employees, extending through 2007, we are required to pay each individual a
+base salary for continuing employment with our Company. The agreements require payments of $1,471,400 and $410,450 in 2006 and 2007, respectively. 
+Litigation 
+From time-to-time, we are involved in certain legal actions arising in the ordinary course of business. In management’s opinion, based upon the
+advice of counsel, the outcome of such actions are not expected to have a material adverse effect on our future financial position or results of operations. 
+12. 
+RETIREMENT PLANS: 
+Substantially all employees of the Company are eligible to participate in the OraSure Technologies, Inc. 401(k) Plan (the “401(k) Plan”). The
+401(k) Plan permits voluntary employee contributions to be excluded from an employee’s current taxable income under provisions of Internal Revenue Code Section 401(k) and the regulations thereunder. The 401(k) Plan also provides for us to
+match employee contributions up to $4,000 per year. Contributions to the 401(k) Plan, net of forfeitures, were $361,629, $330,552, and $330,275 in 2005, 2004, and 2003, respectively. 
+F-22 
+Table of Contents 
+13. 
+GEOGRAPHIC INFORMATION: 
+Based on guidance in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” we believe we operate within one
+reportable segment. Our products are sold principally in the United States and Europe. Segmentation of operating income and identifiable assets is not applicable since our revenues outside the United States are export sales, and we do not have
+significant operating assets outside the United States. 
+The
+following table represents total revenues by geographic area, based on the location of the customer (amounts in thousands): 
+For the year ended December 31, 
+2005 
+2004 
+2003 
+United States 
+$ 
+59,859 
+$ 
+47,843 
+$ 
+35,896 
+Europe 
+7,868 
+4,318 
+3,062 
+Other regions 
+1,639 
+1,847 
+1,493 
+$ 
+69,366 
+$ 
+54,008 
+$ 
+40,451 
+14. 
+QUARTERLY DATA (Unaudited): 
+The following tables summarize the quarterly results of operations for each of the quarters in 2005 and 2004. These quarterly results are unaudited, but
+in the opinion of management, have been prepared on the same basis as our audited financial information and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information set forth
+herein (all amounts in thousands, except per share amounts). 
+2005 Results 
+Three months ended 
+Year ended 
+December 31, 
+2005 
+March 31, 
+2005 
+June 30, 
+2005 
+September 30, 
+2005 
+December 31, 
+2005 
+Revenues 
+$ 
+15,828 
+$ 
+17,430 
+$ 
+18,077 
+$ 
+18,031 
+$ 
+69,366 
+Costs and expenses 
+14,613 
+16,468 
+14,863 
+15,849 
+61,793 
+Operating income 
+1,215 
+962 
+3,214 
+2,182 
+7,573 
+Other income (expense), net 
+346 
+481 
+594 
+725 
+2,146 
+Income before income taxes 
+1,561 
+1,443 
+3,808 
+2,907 
+9,719 
+Income tax benefit 
+— 
+— 
+— 
+(17,729 
+) 
+(17,729 
+) 
+Net income 
+$ 
+1,561 
+$ 
+1,443 
+$ 
+3,808 
+$ 
+20,636 
+$ 
+27,448 
+Earnings per share(1) 
+Basic 
+$ 
+0.03 
+$ 
+0.03 
+$ 
+0.08 
+$ 
+0.45 
+$ 
+0.61 
+Diluted 
+$ 
+0.03 
+$ 
+0.03 
+$ 
+0.08 
+$ 
+0.44 
+$ 
+0.59 
+Shares used in computing earnings (loss) per share: 
+Basic 
+44,645 
+44,784 
+45,372 
+45,624 
+45,110 
+Diluted 
+45,046 
+45,872 
+46,676 
+47,030 
+46,147 
+F-23 
+Table of Contents 
+2004 Results 
+Three months ended 
+Year ended 
+December 31, 
+2004 
+March 31, 
+2004 
+June 30, 
+2004 
+September 30, 
+2004 
+December 31, 
+2004 
+Revenues 
+$ 
+12,409 
+$ 
+13,214 
+$ 
+14,176 
+$ 
+14,209 
+$ 
+54,008 
+Costs and expenses 
+12,734 
+13,265 
+14,657 
+14,709 
+55,365 
+Operating loss 
+(325 
+) 
+(51 
+) 
+(481 
+) 
+(500 
+) 
+(1,357 
+) 
+Other income (expense), net 
+168 
+198 
+192 
+239 
+797 
+Income (loss) before income taxes 
+(157 
+) 
+147 
+(289 
+) 
+(261 
+) 
+(560 
+) 
+Income taxes (benefit) 
+5 
+5 
+5 
+(15 
+) 
+— 
+Net income (loss) 
+$ 
+(162 
+) 
+$ 
+142 
+$ 
+(294 
+) 
+$ 
+(246 
+) 
+$ 
+(560 
+) 
+Earnings (loss) per share—basic and diluted(1) 
+$ 
+(0.00 
+) 
+$ 
+0.00 
+$ 
+(0.01 
+) 
+$ 
+(0.01 
+) 
+$ 
+(0.01 
+) 
+Shares used in computing earnings (loss) per share: 
+Basic 
+44,271 
+44,465 
+44,539 
+44,578 
+44,464 
+Diluted 
+44,271 
+45,334 
+44,539 
+44,578 
+44,464 
+(1) 
+The summation of the quarterly amounts does not equal the year-end basic and diluted earnings (loss) per share due to rounding. 
+F-24 
+Table of Contents 
+INDEX TO EXHIBITS 
+Exhibit 
+Number 
+Exhibit 
+3.1.1 
+Certificate of Incorporation of OraSure Technologies, Inc. is incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (No. 333-39210), filed June 14,
+2000. 
+3.1.2 
+Certificate of Amendment to Certificate of Incorporation dated May 23, 2000 is incorporated by reference to Exhibit 3.1.1 to the Company’s Registration Statement on Form S-4 (No.
+333-39210), filed June 14, 2000. 
+3.1.3 
+Certificate of Designation of Series A Preferred Stock of OraSure Technologies (filed as Exhibit A to the Rights Agreement referred to in Exhibit 4.1). 
+3.2 
+Amended and Restated Bylaws of OraSure Technologies, effective as of February 4, 2003, are incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the
+year ended December 31, 2002. 
+4.1 
+Rights Agreement, dated as of May 6, 2000, between OraSure Technologies, Inc. and ChaseMellon Shareholder Service, L.L.C. (now called Mellon Investor Services LLC), as Rights Agent, is
+incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 (No. 333-39210), filed August 8, 2000. 
+10.1 
+Form of Indemnification Agreement (and list of parties to such agreement) is incorporated by reference to Exhibit 10.1 to Amendment No. 3 to the Company’s Registration Statement on Form
+S-4 (No. 333-39210), filed August 30, 2000.* 
+10.2 
+Employment Agreement, dated as of June 22, 2004, between OraSure Technologies, Inc. and Douglas A. Michels, is incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report
+on Form 10-Q for the quarter ended June 30, 2004.* 
+10.3 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and Ronald H. Spair, is incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on
+Form 10-Q for the quarter ended June 30, 2004.* 
+10.4 
+Employment Agreement, dated September 23, 2005, between OraSure Technologies, Inc. and Stephen R. Lee, Ph.D., is incorporated herein by reference to Exhibit 99 to the Company’s Current
+Report on Form 8-K filed September 28, 2005.* 
+10.5 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and P. Michael Formica, is incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report
+on Form 10-Q for the quarter ended June 30, 2004.* 
+10.6 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and Joseph E. Zack, is incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on
+Form 10-Q for the quarter ended June 30, 2004.* 
+10.7 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and Jack E. Jerrett, is incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on
+Form 10-Q for the quarter ended June 30, 2004.* 
+10.8 
+Description of Nonemployee Director Compensation Policy, as amended as of November 15, 2005.* 
+10.9 
+Amended and Restated Epitope, Inc. 1991 Stock Award Plan is incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31,
+2002.* 
+10.10 
+OraSure Technologies, Inc. Employee Incentive and Non-Qualified Stock Option Plan, as amended and restated effective September 29, 2000, is incorporated by reference to Exhibit 10.12 to
+the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.* 
+Table of Contents 
+Exhibit 
+Number 
+Exhibit 
+10.11 
+OraSure Technologies, Inc. 2000 Stock Award Plan, as amended effective as of May 18, 2004, is incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for
+the quarter ended June 30, 2004.* 
+10.12 
+Form of Restricted Share Grant Agreement is incorporated by reference to Exhibit 10.2.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
+2004.* 
+10.13 
+Incentive Stock Option General Terms and Conditions (Officers and Employees) is incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended
+December 31, 2004.* 
+10.14 
+Nonqualified Stock Option Award General Terms and Conditions (Officers and Employees) is incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the
+year ended December 31, 2004.* 
+10.15 
+Nonqualified Stock Option Award General Terms and Conditions (Non-Employee Directors) is incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the
+year ended December 31, 2004.* 
+10.16 
+Description of OraSure Technologies, Inc. 2005 Self-Funding Management Incentive Plan is incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
+quarter ended June 30, 2005.* 
+10.17 
+Description of OraSure Technologies, Inc. 2006 Self-Funding Management Incentive Plan.* 
+10.18 
+Description of OraSure Technologies, Inc. Management Stock Award Guidelines dated January 26, 2005 is incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form
+10-K for the year ended December 31, 2004.* 
+10.19 
+Distribution Agreement, dated as of April 24, 2003, between OraSure Technologies, Inc. and Medtech Holdings, Inc., is incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
+Report on Form 10-Q for the quarter ended June 30, 2004. 
+10.20 
+Distribution Agreement, dated as of June 1, 2005, between OraSure Technologies, Inc. and SSL International plc, is incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
+Report on Form 10-Q for the quarter ended June 30, 2005. 
+10.21 
+Production Agreement between STC Technologies, Inc. and Koninklinjke Utermöhlen, N.V., dated June 9, 1998, is incorporated by reference to Exhibit 10.8 to Amendment No. 3 to the
+Company’s Registration Statement on Form S-4 (No. 333-39210), filed August 30, 2000. 
+10.22 
+Amendment No. 1 to Production Agreement, dated as of December 11, 2001, between OraSure Technologies, Inc. and Koninklijke Utermöhlen N.V., is incorporated by reference to Exhibit 10.18
+to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. 
+10.23 
+Amendment No. 2 to Production Agreement, dated as of April 28, 2003, between OraSure Technologies, Inc. and Koninklijke Utermöhlen N.V., is incorporated by reference to Exhibit 10.15 to
+the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. 
+10.24 
+Amendment No. 3 to Production Agreement, dated as of March 9, 2005, between OraSure Technologies, Inc. and Koninklijke Utermöhlen N.V., is incorporated by reference to Exhibit 10.2 to
+the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. 
+10.25 
+Commercial Lease between Northampton County New Jobs Corp., as Landlord, and STC Technologies, Inc., as Tenant, dated April 30, 1999, is incorporated by reference to Exhibit 10.11 to
+Amendment No. 1 to the Company’s Registration Statement on Form S-4 (No. 333-39210), filed August 8, 2000. 
+Table of Contents 
+Exhibit 
+Number 
+Exhibit 
+10.26 
+Fourth Amendment to Commercial Lease dated as of March 4, 2005, between OraSure Technologies, Inc. and Northampton County New Jobs Corp., is incorporated by reference to Exhibit 10 to the
+Company’s Current Report on Form 8-K filed March 11, 2005. 
+10.27 
+Commercial Lease between Tech III Partners, LLC and OraSure Technologies, Inc., dated March 1, 2002, is incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form
+10-K for the year ended December 31, 2001. 
+10.28 
+Amendment No. 1 to Commercial Lease, dated as of October 21, 2002, between Tech III Partners, LLC and OraSure Technologies, Inc., is incorporated by reference to Exhibit 10.2 to the
+Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002. 
+10.29 
+Loan and Security Agreement, dated as of September 10, 2002, between Comerica Bank – California and OraSure Technologies, Inc., is incorporated by reference to Exhibit 10.1 to the
+Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002. 
+10.30 
+First Amendment to Loan and Security Agreement, dated as of May 23, 2003, between OraSure Technologies, Inc. and Comerica Bank – California, is incorporated by reference to Exhibit 10.24
+to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. 
+10.31 
+Second Amendment to Loan and Security Agreement, dated as of September 12, 2003, between OraSure Technologies, Inc. and Comerica Bank, is incorporated by reference to Exhibit 99.1 to the
+Company’s Current Report on Form 8-K, dated September 17, 2003. 
+10.32 
+Letter Agreement, dated September 8, 2004, between OraSure Technologies, Inc. and Comerica Bank, is incorporated by reference to Exhibit 10 to the Company’s Current Report on Form 8-K,
+dated September 10, 2004. 
+10.33 
+Letter Agreement, executed September 27, 2004, between OraSure Technologies, Inc. and Comerica Bank, is incorporated by reference to Exhibit 10 to the Company’s Current Report on Form
+8-K, dated September 28, 2004. 
+10.34 
+Third Amendment to Loan and Security Agreement, dated as of April 21, 2005, between OraSure Technologies, Inc. and Comerica Bank, is incorporated by reference to Exhibit 10 to the
+Company’s Current Report on Form 8-K filed April 27, 2005. 
+10.35 
+Distribution Agreement, dated as of October 11, 2002, between OraSure Technologies, Inc. and bioMérieux, Inc., is incorporated by reference to Exhibit 10.3 to the Company’s
+Quarterly Report on Form 10-Q for the quarter ended September 30, 2002. 
+10.36 
+Supply Agreement, dated as of October 11, 2002, between OraSure Technologies, Inc. and bioMérieux, Inc., is incorporated by reference to Exhibit 10.4 to the Company’s Quarterly
+Report on Form 10-Q for the quarter ended September 30, 2002. 
+23 
+Consent of KPMG LLP, Independent Registered Public Accounting Firm. 
+24 
+Powers of Attorney. 
+31.1 
+Certification of Douglas A. Michels required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. 
+31.2 
+Certification of Ronald H. Spair required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. 
+32.1 
+Certification of Douglas A. Michels required by Rule 13a-14(b) or Rule 15a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to
+Section 906 of the Sarbanes-Oxley Act of 2002. 
+32.2 
+Certification of Ronald H. Spair required by Rule 13a-14(b) or Rule 15a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section
+906 of the Sarbanes-Oxley Act of 2002. 
+* 
+Management contract or compensatory plan or arrangement.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2005/0001193125-06-053910/filing_metadata.csv b/raw/filings/0001116463/2005/0001193125-06-053910/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..070f4b3e0fdca9875b4f0278479604fe6c17d27a
--- /dev/null
+++ b/raw/filings/0001116463/2005/0001193125-06-053910/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0001116463,OSUR,ORASURE TECHNOLOGIES INC,10-K,2006-03-15,2005-12-31,2006-03-14T23:46:05.000Z,0001193125-06-053910,d10k.htm,FORM 10-K,1236368,0,0,https://www.sec.gov/Archives/edgar/data/1116463/000119312506053910/d10k.htm,https://www.sec.gov/Archives/edgar/data/1116463/000119312506053910/,2005,2005,1
diff --git a/raw/filings/0001116463/2005/0001193125-06-053910/item1.txt b/raw/filings/0001116463/2005/0001193125-06-053910/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5502960f40a38c39662893422eb6700227bfcf6d
--- /dev/null
+++ b/raw/filings/0001116463/2005/0001193125-06-053910/item1.txt
@@ -0,0 +1,549 @@
+ITEM 1. Business. 
+Our business principally involves the development, manufacture, marketing and sale of oral fluid specimen collection devices using our proprietary oral fluid technologies, as well as other diagnostic products
+including immunoassays and other in vitro diagnostic tests that are used on other specimen types, and other medical devices. Our diagnostic products include tests which are processed in a laboratory and tests which are performed on a rapid
+basis at the point of care. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government
+agencies, physicians’ offices, and commercial and industrial entities. One of our products is also sold in the over-the-counter (“OTC”) or consumer retail market in the United States, Canada and certain other foreign countries.
+In vitro diagnostic testing is the process of analyzing
+oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific substances or markers for infectious diseases, drugs of abuse or other conditions. In vitro diagnostic tests are performed outside the body, in contrast
+to in vivo tests, which are performed directly on or within the body. The substance or marker that a diagnostic test is intended to detect is generally referred to as an analyte. 
+Immunodiagnostic testing is the leading method of in vitro testing for antigens and antibodies. When an infectious
+disease is caused by pathogens, such as bacteria, viruses and fungi, or other substances are present, the body responds by producing an antibody. Substances that stimulate production of antibodies are generally referred to as antigens. An antibody
+binds specifically with an antigen in a lock-and-key fashion that initiates a biochemical reaction to attempt to neutralize and, ultimately, eliminate the antigen. The ability of an antibody to bind with a specific antigen provides the basis for
+immunodiagnostic testing. 
+Our Company was formed in May 2000
+under Delaware law solely for the purposes of combining two companies, STC Technologies, Inc. (“STC” or “STC Technologies”) and Epitope, Inc. (“Epitope”), and changing the state of incorporation of Epitope from Oregon
+to Delaware. STC Technologies and Epitope were merged into our Company on September 29, 2000 (the “Merger”). Our principal offices are located at 220 East First Street, Bethlehem, Pennsylvania 18015, and our telephone number is
+(610) 882-1820. 
+Additional information about us can be
+found on our website. Our website address is www.orasure.com. We make available free of charge through a link provided at such website our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, as well
+as any amendments to those 
+1 
+Table of Contents 
+Reports. These Reports are made available as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange Commission. Our
+Internet website and the information contained in or connected to that website are not intended to be incorporated by reference into this Annual Report. 
+Products 
+The following is a summary of our principal products and their regulatory and commercial status: 
+Product 
+Description 
+FDA Approval Status 
+Commercial 
+Status 
+OraQuick ® 
+ADVANCE ™ 
+A rapid, point-of-care test for antibodies to the Human Immunodeficiency Virus Type 1 and Type 2 (“HIV-1/2”) that can be visually read at the point of care in approximately 20
+minutes. 
+Premarket approval (“PMA”) approved by the U.S. Food and Drug Administration (“FDA”) (March 2004 – June 2004) for use with oral fluid, finger-stick and venous whole
+blood and plasma. CLIA (Clinical Laboratory Improvement Amendments of 1988) waived for use with oral fluid, finger-stick and venous whole blood (June 2004). 
+Marketed 
+CE mark application filed. 
+Pending 
+Registered in Mexico. 
+Marketed 
+OraSure ® 
+Oral fluid collection device for the detection of antibodies to HIV-1 in an oral fluid sample in a laboratory setting. 
+PMA approved by FDA in December 1994. 
+Marketed 
+Also FDA 510(k) cleared for use of device in detecting cocaine and cotinine (an indicator of nicotine) in oral fluid. 
+Marketed 
+CE marked and registered in the United Kingdom. Also Registered in Mexico, Canada, Columbia, South Africa, Afghanistan, Argentina, Brazil, and Trinidad. 
+Marketed 
+Intercept ® 
+Oral fluid collection device, along with nine related immunoassays, for oral fluid drug testing in a laboratory setting. Used to detect the following drugs in an oral fluid sample:
+marijuana, cocaine, opiates, amphetamines, methamphetamines, PCP, benzodiazepines, barbiturates and methadone. 
+Collection device—FDA 510(k) cleared in 2000. 
+Marketed 
+Nine drug assays—FDA 510(k) cleared during 2000-2001. 
+Marketed 
+Intercept ® device CE marked and registered in the United Kingdom. Various assays are CE marked and registered in the United Kingdom, Austria, Belgium, Denmark, Finland, France,
+Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, Korea, Canada, Afghanistan and Brazil. 
+Marketed 
+Cryosurgical 
+Systems (Wart 
+Removal Products) 
+Cryosurgical (freezing) system for the removal of warts and other benign skin lesions, marketed under the Histofreezer ® tradename primarily to the physicians’
+office market. 
+Nine indications—FDA 510(k) cleared during 1991—1999. 
+Marketed 
+CE marked and registered in Europe, Venezuela, Thailand, New Zealand, Hong Kong, Brazil, Mexico, Canada, and Afghanistan. 
+Marketed 
+2 
+Table of Contents 
+Product 
+Description 
+FDA Approval Status 
+Commercial 
+Status 
+Cryosurgical (freezing) system for the removal of common and plantar warts, sold in the over-the-counter markets in the United States and Canada under the Compound W ® 
+Freeze Off ™ tradenames by Prestige Brands Holdings, Inc., and in Europe, Australia and New Zealand under the Scholl and Dr. Scholl Freeze Spray tradenames by SSL International plc. 
+FDA 510(k) cleared for two indications in February 2003. 
+Marketed 
+Freeze Off ™ registered in Canada. 
+Marketed 
+Scholl Freeze Spray CE marked and registered in several European countries. 
+Marketed 
+In addition to the
+above products, we also sell certain immunoassay tests and reagents for insurance risk assessment, substance abuse testing and forensic toxicology applications; an oral fluid Western blot HIV-1 confirmatory test approved by the FDA for confirming
+positive HIV-1 test results obtained from the use of our OraSure ® collection device; and the FDA 510(k) cleared Q.E.D. ® saliva alcohol test. 
+OraQuick ® Rapid Test Platform
+OraQuick ® is our rapid test platform designed to test an oral fluid, whole blood (i.e., both
+finger-stick and venous) or plasma sample for the presence of various antibodies or analytes. The device uses a porous flat pad to collect an oral fluid specimen. After collection, the pad is inserted into a vial containing a pre-measured amount of
+developer solution and allowed to develop. When whole blood or plasma is to be tested, a loop collection device is used to collect a drop of blood or plasma and mix it in the developer solution, after which the collection pad is inserted into the
+solution. In all cases, the specimen and solution then flow through the testing device where test results are observable in approximately 20 minutes. The OraQuick ® device is a screening test and requires a confirmation test where an initial positive result is obtained. 
+Our first product utilizing this technology was the OraQuick ® rapid HIV-1 antibody test, a rapid test for the
+presence of antibodies against HIV-1. In 2002, we received premarket approval of this test from the FDA for detecting HIV-1 in finger-stick whole blood samples and in 2003 we received FDA approval for use of the OraQuick ® test with venous whole blood samples. 
+As a result of this FDA approval, the OraQuick ® test was made available for use by nearly 40,000 locations in the United
+States certified under the Clinical Laboratory Improvements Amendments of 1988, or CLIA, to perform moderately complex diagnostic tests. Additionally, in January 2003, we received a waiver under CLIA for OraQuick ® which permitted the use of this test by approximately 140,000 additional sites in the
+United States not certified under CLIA to perform moderately complex tests, such as outreach clinics, community-based organizations and physicians’ offices. 
+During the period March to June 2004, we received FDA approval for use of a new OraQuick ® test to detect antibodies to both HIV-1 and a second type of the HIV virus,
+known as HIV-2, in finger-stick and venous whole blood, oral fluid and plasma. In June 2004, we also received a CLIA waiver of this test for oral fluid, finger-stick whole blood and venous whole blood. We named this new test OraQuick ® ADVANCE ™ . 
+We believe that the OraQuick ® ADVANCE ™ device, because it is approved for detecting antibodies to both HIV-1 and 2 in finger-stick and venous whole blood, oral fluid and plasma samples,
+provides a significant competitive advantage in the market for rapid HIV testing in the United States. Demand for OraQuick ® ADVANCE ™ has quickly grown since the launch of that product and, as a result, we have stopped manufacturing and selling the OraQuick ® HIV-1 test. 
+3 
+Table of Contents 
+In April 2003, the Centers for Disease Control and Prevention (“CDC”) announced a new four-part
+initiative for HIV testing and diagnosis, which is intended to increase the use of rapid HIV testing as part of routine medical care. Under this program, the CDC purchased 250,000 OraQuick ® devices during 2003, 250,000 devices during 2004, and 217,000 devices in 2005.
+In August 2004, the Substance Abuse and Mental Health Services
+Administration (“SAMHSA”) placed an order to purchase $4.0 million of our OraQuick ® ADVANCE ™ tests and HIV confirmatory test services. The OraQuick ® tests have been deployed by SAMHSA to substance abuse treatment and prevention sites throughout the United States. We expect that all tests ordered by SAMHSA will be fully deployed in early 2006. 
+In late 2005, we received reports that specific clinical sites had
+experienced increased levels of false positive results using our OraQuick ® ADVANCE ™ 
+test with oral fluid. Immediately after receiving the reports, we commenced a scientific and systematic evaluation of each situation and have worked closely with the affected customers, healthcare officials and government agencies, including the CDC
+and FDA. The evaluation includes the collection of test data, an assessment of test procedures, specimen collection and other clinical variables that could affect test results at the sites. We have also conducted a thorough review of our
+manufacturing processes and all related variables that may affect product performance and quality, and have been contacting our customers throughout the country to determine if they are experiencing any unexpected results or issues with regard to
+the performance and procedures associated with the test. Based on the data and information collected to date, we believe that the OraQuick ® ADVANCE ™ test, when used with oral fluid, continues to perform overall as expected and in a manner consistent with its FDA-approved label claims. 
+OraSure ® /Intercept ® Collection Devices 
+Our OraSure ® oral fluid collection device is used in conjunction with screening and confirmatory tests for HIV-1 antibodies and other analytes. This device consists of a small, treated cotton-fiber
+pad on a handle that is placed in a person’s mouth for two to five minutes. The device collects oral mucosal transudate (“OMT”), a serum-derived fluid that contains higher concentrations of certain antibodies and analytes than saliva.
+As a result, OMT testing is a highly accurate method for detecting HIV-1 infection and other analytes. 
+We believe that oral fluid testing has several significant advantages over blood or urine-based systems for infectious disease testing, for both health
+care professionals and the individuals being tested. These advantages include eliminating the risk of needle-stick accidents, providing a non-invasive collection technique, requiring minimal training to administer, providing rapid and efficient
+collection in almost any setting, and reducing the cost of administration by a trained health care professional. 
+We have received premarket approval from the FDA to sell the OraSure ® collection device for use with a laboratory-based enzyme immunoassay (“EIA”) screening test for HIV-1
+antibody detection. This EIA screening test has been approved by the FDA for use with our OraSure ® device and is manufactured and sold by bioMerieux, Inc. (“BMX”). We have completed clinical trials with BMX as part of an application to obtain FDA approval of the use of a new
+EIA screening test for HIV-1 with an OraSure ® 
+device. The FDA submission is expected to be made by BMX during 2006. 
+HIV-1 antibody detection using the OraSure ® collection device involves three steps: 
+• 
+Collection of an oral fluid specimen using the OraSure ® device; 
+• 
+Screening of the specimen for HIV-1 antibodies at a laboratory with an EIA screening test approved by the FDA for use with the OraSure ® device; and 
+• 
+Laboratory confirmation of any positive screening test results with our oral fluid Western blot HIV-1 confirmatory test (described below). 
+4 
+Table of Contents 
+A trained health care professional then conveys test results and provides appropriate counseling to the
+individual who was tested. We have also received FDA 510(k) clearance for use of the OraSure ® collection device with EIAs to test for cocaine and cotinine (a metabolite of nicotine) in oral fluid specimens primarily for insurance risk assessment purposes. 
+A collection device that is substantially similar to the OraSure ® device is sold under the name Intercept ® , and is used to collect OMT for oral fluid drug
+testing. We have received FDA 510(k) clearance to use the Intercept ® collection device with laboratory-based EIAs to test for drugs of abuse commonly identified by the National Institute for Drug Abuse (“NIDA”) as the NIDA-5 (i.e., cannabinoids (marijuana), cocaine, opiates,
+amphetamines/methamphetamines, and phencyclidine (“PCP”)), and for barbiturates, methadone and benzodiazepines. Each of these EIA’s is also FDA 510(k) cleared for use with the Intercept ® device. 
+We believe that the Intercept ® device has several advantages over competing urine and other drugs-of-abuse testing products, including its lower total testing cost, its
+non-invasive nature, mobility and accuracy, the ease of maintaining a chain-of-custody, the treatment of test subjects with greater dignity, no requirement for specially-prepared collection facilities, and difficulty of sample adulteration. The
+availability of an oral fluid test is intended to allow our customers to test for drug impairment, eliminate scheduling costs and inconvenience, and thereby streamline the testing process. 
+Cryosurgical Systems (Wart Removal Products) 
+The Histofreezer ® cryosurgical removal system is a low-cost alternative to liquid nitrogen and other
+methods for removal of warts and other benign skin lesions by physicians. The Histofreezer ® product mixes two environmentally friendly cryogenic gases in a small aerosol canister. When released, these gases are delivered to a specially designed foam bud, cooling the bud to –50°C. The frozen
+bud is then applied to the wart or lesion for 15 to 40 seconds (depending on the type of lesion) creating localized destruction of the target area by freezing. We have received 510(k) clearance for use of the Histofreezer ® product to remove common warts and eight other types of benign skin lesions,
+and this product has been CE marked and registered for distribution throughout Europe. 
+In February 2003, we received FDA 510(k) clearance to market and sell a cryosurgical product similar to the Histofreezer ® product in the OTC or retail market for the removal of common and plantar warts only. This product is being distributed in the United States
+and Canada OTC markets under the name Freeze Off ™ 
+by a subsidiary of Prestige Brands Holdings, Inc. (“Prestige”), the owner of the Compound W ® line of wart removal products. Prestige is the owner of both the Freeze Off ™ and Compound W ® tradenames. 
+In June 2005, we entered into an agreement with SSL International plc (“SSL”) to distribute a similar cryosurgical wart removal product into the OTC footcare market in Europe, Australia and New Zealand. This
+product is CE marked and is being distributed under SSL’s Scholl and Dr. Scholl trademarks. SSL is the owner of the Scholl and Dr. Scholl trademarks in countries outside North and South America. 
+Immunoassay Tests and Reagents 
+We develop and sell immunoassay tests in two formats, known as MICRO-PLATE
+and AUTO-LYTE ® , to meet the specific needs of our
+customers. 
+In a MICRO-PLATE kit, the sample to be tested is
+placed into a small plastic receptacle, called a microwell, along with the reagents. The result of the test is determined by the color of the microwell upon completion of the reaction. Controlling the reaction involves the use of a variety of
+reagents by laboratory personnel. Test results are analyzed by any of a variety of commercially available laboratory instruments, which we may also provide to our laboratory customers. MICRO-PLATE tests can be performed on commonly used instruments
+and can detect drugs in urine, serum, and sweat specimens. MICRO-PLATE tests are also used as part of the Intercept ® product line to detect drugs of abuse in oral fluid specimens. 
+5 
+Table of Contents 
+AUTO-LYTE ® tests are sold in the form of bottles of liquid reagents. These reagents are run on commercially available laboratory-based automated
+analytical instruments, which are manufactured by a variety of third parties. AUTO-LYTE ® is typically used in high volume, automated, commercial reference insurance laboratories to detect certain drugs or chemicals in urine. Test results are produced quickly, allowing for high throughput.
+Whenever possible, we enter into multi-year sales agreements
+with our customers. These agreements generally are entered into with a laboratory that has agreed to purchase a minimum number of tests over a two-to-five-year period. We also offer these customers the option of a reagent rental agreement under
+which we sell the tests at an increased price over a fixed period of time, which includes an additional equipment charge in exchange for providing the customer with the required analytical laboratory equipment. We obtain this equipment from third
+party vendors. 
+Western blot HIV-1 Confirmatory Test
+We sell an oral fluid Western blot HIV-1 confirmatory
+test that received premarket approval from the FDA in 1996. This test uses the original specimen collected with the OraSure ® oral fluid collection device to confirm positive results of initial oral fluid HIV-1 EIA screening tests. The oral fluid Western blot HIV-1
+confirmatory test is marketed under an exclusive arrangement with BMX. 
+Q.E.D. ® Saliva Alcohol Test
+Our Q.E.D. ® saliva alcohol test is a point-of-care test device that is a cost-effective alternative
+to breath or blood alcohol testing. The test is a quantitative, saliva-based method for the detection of ethanol, and has been cleared for sale by the FDA and the U.S. Department of Transportation (“DOT”). In 1998, the product also
+received a CLIA waiver. 
+Each Q.E.D. ® test kit contains a collection stick that is used to
+collect a sample of saliva and a disposable detection device that displays results in a format similar to a thermometer. The Q.E.D. ® device is easy to operate and instrumentation is not required to read the result. The product has a testing range of 0 to 0.145% blood alcohol, and
+produces results in approximately two minutes. 
+Products Under Development
+OraQuick ® Platform 
+We believe that OraQuick ® has significant potential as a point-of-care testing platform for clinics and other public health entities, hospitals, physicians’
+offices and other markets. We believe that OraQuick ® provides a platform technology that can be modified for detection of a variety of infectious diseases in addition to HIV, such as viral hepatitis and certain sexually transmitted diseases. During 2005, we obtained a
+license from Ortho-Clinical Diagnostics and Chiron Corporation to patents relating to the Hepatitis C virus (“HCV”), and we are currently developing a rapid HCV test using the OraQuick ® platform. 
+OraSure ® /Intercept ® Applications 
+Oral mucosal transudate, or OMT, contains many constituents found in blood and serum, although in lower concentrations. We believe the OraSure ® and Intercept ® devices are a platform technology with a wide variety of potential applications, where laboratory testing is available. For example, the OraSure ® device may be useful for the collection of a variety of
+antibodies or markers for infectious diseases or conditions in addition to HIV-1, such as antibodies to viral hepatitis. 
+In 2004, SAMHSA issued proposed regulations for oral fluid drug testing for federal workers. When issued in final form, these regulations may require
+certain modifications to our Intercept ® product in
+order to permit its 
+6 
+Table of Contents 
+use by federal workers. As a result, we are developing modifications to the Intercept ® collection device that we anticipate will be required by these regulations or are otherwise likely to be desired by our
+customers. We are also currently developing additional drugs of abuse assays for use with our Intercept ® collection device. 
+UPT ™ and
+UPlink ® 
+For several prior years, we devoted significant research and development
+efforts on our Up-Converting Phosphor Technology (“UPT ™ ”) and our first application of UPT ™ , the UP link ® 
+rapid, point-of-care system for detecting drugs of abuse in oral fluid. 
+To date, we have not been able to successfully develop potential UPT ™ applications other than the UP link ® application for rapid detection of drugs of abuse in oral fluid. The UP link ® product was developed pursuant to agreements with Dräger Safety AG & Co. KGaA (“Dräger”). Dräger had agreed to distribute UP link ® on an exclusive basis to law enforcement officials for
+determining if an operator or passenger of a motor vehicle is under the influence of one or more drugs of abuse (“roadside testing market”) and to certain military, criminal justice and workplace testing markets. 
+As part of a strategic review of our business completed in late 2004, we
+concluded that the roadside testing market was not as attractive an opportunity for the UP link ® product as we initially believed. We therefore explored other options with respect to UP link ® during the first half of 2005, including possibly transitioning the manufacturing of the product to Dräger. We
+were not able to reach any agreement on this matter with Dräger, and Dräger eventually informed us that they would no longer promote the sale of the UP link ® product. In light of slower than expected sales, difficult channel economics and higher than expected manufacturing
+costs for this product, both we and Dräger decided to stop further investment in the UP link ® product, and our agreements with Dräger were terminated. 
+As a result, during 2005 we recorded a reserve against the carrying value of assets related to the UP link ® product. We have also been evaluating the technical and commercial viability of
+UPT ™ as a technology platform. 
+Business Strategy 
+We have adopted a multi-part growth strategy, pursuant to which we intend to leverage our extensive diagnostic experience in
+order to maximize the available opportunities from our existing products and technologies, and supplement our existing product pipeline by accessing other technologies and products. We intend to follow a disciplined approach to maximize the value of
+our business for the benefit of our stockholders. 
+Our overall
+vision is to become a recognized global leader focused on providing innovative diagnostic solutions that add substantial value to existing and emerging healthcare needs. In order to achieve this vision, our business strategy includes the following
+key elements: 
+• 
+Extension of Base Businesses . We intend to maximize the sales potential of our existing product lines and technologies in the markets where they are
+currently sold, with a focus on expanding, where possible, the number of our oral fluid product offerings. Under this part of the strategy, we intend to fully capitalize on the potential market reach of our OraQuick ® , OraSure ® , Intercept ® , Histofreezer ® and Freeze Off ™ products by investing in our sales and marketing efforts where appropriate, making product improvements and enhancements, and optimizing our distribution channels. We also intend to expand the reach of our existing
+products and technology platforms into new markets and will focus specifically on expanding into international markets. 
+• 
+Infectious Disease Testing . We will pursue new products and technology platforms in the infectious disease, point-of-care testing business to
+supplement our existing product pipeline. This may include either the development of new infectious disease products or the acquisition of new technologies or products. One new product we are pursuing is the development of a rapid HCV test on our
+OraQuick ® platform. 
+7 
+Table of Contents 
+• 
+OTC Opportunities . We intend to identify or develop products that can be sold in the OTC or retail marketplace. We made significant progress during
+2005 under this part of our strategy when we entered into an agreement with SSL to distribute our cryosurgical wart removal product in the OTC market in Europe and other countries. Another opportunity that we are pursuing under this part of our
+strategy is to seek FDA approval to sell our OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test in the United States OTC market. 
+• 
+Operational Improvements . We intend to create a culture focused on the continuous improvement of our operations. These improvements will include, but
+not be limited to, expanding the use of automated manufacturing for our product lines as demand increases, expanding the global sourcing of components and assemblies to achieve efficiencies and cost improvements, making infrastructure and
+information technology investments as needed to improve effectiveness and productivity, and modifying our processes in order to continuously improve quality and the effectiveness of our operations. 
+Research and Development 
+In 2005, our research and development activities focused primarily on the
+development of a rapid HCV test using our OraQuick ® 
+technology platform, clinical and regulatory activities related to obtaining a CE mark for the OraQuick ® ADVANCE ™ test, preliminary work to obtain approval for use of OraQuick ® ADVANCE ™ in the United States OTC market, and development of certain improvements to existing products in both the Intercept ® and cryosurgical wart removal product lines. 
+We supplement our own research and development activities by funding external research. We have funded research at Leiden University and certain other
+entities, and may continue funding external research. 
+Research
+and development expenses totaled $5.3 million in 2005, $6.1 million in 2004 and $8.0 million in 2003. These expenses include the costs associated with research and development, regulatory affairs and clinical trials. 
+Sales and Marketing 
+We attempt to reach our major target markets through a combination of direct sales, strategic partnerships, and independent
+distributors. Our marketing strategy is to raise awareness through a full array of marketing activities, which include trade shows, print advertising, special programs and distributor promotions, to support sales in each target market. 
+We market our products in the United States and internationally. Revenues
+attributable to customers in the United States were $59.9 million, $47.8 million and $35.9 million in 2005, 2004 and 2003, respectively. Revenues attributable to international customers amounted to $9.5 million, $6.2 million and $4.6 million, or
+14%, 11% and 11% of our total revenues, in 2005, 2004 and 2003, respectively. 
+Infectious Disease Testing 
+We market the OraQuick ® 
+ADVANCE ™ rapid HIV-1/2 antibody test
+directly to customers in the public health market for HIV testing. This market consists of a broad range of clinics and laboratories and includes states, counties, and other governmental agencies, the CDC, SAMHSA, colleges and universities,
+correctional facilities and the military. There are also a number of organizations in the public health market such as AIDS service organizations and various community-based organizations set up primarily for the purpose of encouraging and enabling
+HIV testing. 
+In February 2005, we entered into an agreement
+with Abbott Laboratories for the distribution of the OraQuick ® ADVANCE ™ 
+test, appointing Abbott as our exclusive distributor in the U.S. hospital market and as a non-exclusive distributor in the U.S. physicians’ office marketplace. As our exclusive distributor to hospitals, 
+8 
+Table of Contents 
+Abbott sells OraQuick ® ADVANCE ™ to federal hospitals under the terms of our Federal Supply Schedule on file with the General Services Administration. Under our agreement with Abbott, we have retained exclusive rights for all other markets including
+sales to the public health and criminal justice markets, the military, the CDC, SAMHSA and other governmental agencies. We have a small sales force that supports Abbott in order to maximize the penetration of OraQuick ® ADVANCE ™ in the hospital market. 
+We also market the OraSure ® oral fluid collection device for HIV-1 testing, separately and as a kit in combination with laboratory testing services. To better serve our
+public health customers, we have entered into agreements with two commercial laboratories to provide prepackaged OraSure ® test kits, with prepaid laboratory testing and specimen shipping costs included. We also sell the OraSure ® and OraQuick ® devices in the international public health markets. 
+Substance Abuse Testing 
+Our substance abuse testing products are marketed to laboratories serving the workplace testing, forensic toxicology, criminal justice, and drug
+rehabilitation markets. 
+We have entered into agreements for
+the distribution of Intercept ® collection devices
+and associated MICRO-PLATE assays for drugs-of-abuse testing in the workplace testing market in the United States and Canada through several laboratory distributors, including Lab One , Quest Diagnostics and Clinical Reference Laboratory, and
+internationally for workplace, criminal justice and forensic toxicology testing through Bio-Rad Laboratories, Altrix HealthCare, plc, and other distributors. In some cases, we assist our laboratory customers in customizing their testing services by
+selling them equipment required to test oral fluid specimens collected with the Intercept ® device. Lab One was recently acquired by Quest Diagnostics. 
+The forensic toxicology market in the United States for our substance abuse testing products consists of 250 – 300 laboratories including federal,
+state and county crime laboratories, medical examiner laboratories, and reference laboratories. The criminal justice market consists of a wide variety of entities in the criminal justice system that require drug screening, such as pre-trial
+services, parole and probation officials, police forces, drug courts, prisons, drug treatment programs and community/family service programs. 
+We also distribute our Q.E.D. ® saliva alcohol test primarily through various distributors in the United States and internationally. The markets for alcohol testing are relatively
+small and fragmented with a broad range of legal and procedural barriers to entry. Markets range from law enforcement testing to workplace testing of employees in safety sensitive occupations. Typical usage situations include pre-employment, random,
+post-accident, reasonable-cause, and return-to-duty testing. 
+Cryosurgical Systems 
+Most of our
+Histofreezer ® sales occur in the United States to
+distributors that, in turn, resell the product to primary care physicians and podiatrists in the United States. Major U.S. distributors include Cardinal Healthcare, McKesson HBOC, Physicians Sales & Service, AmerisourceBergen Corporation,
+and Henry Schein. Internationally, we established a sales office in Reeuwijk, The Netherlands, and we are selling the Histofreezer ® product through a network of distributors in more than 20 countries worldwide. 
+We sell Freeze Off ™ , a product similar to Histofreezer ® , in the OTC market in the U.S. and Canada pursuant to a distribution agreement with Prestige, the owner of the Compound W ® line of wart removal products. Additionally, in June 2005, we entered into an
+agreement under which SSL distributes a cryosurgical wart removal product in the OTC footcare market in Europe, Australia and New Zealand. SSL sells this product under its Scholl and Dr. Scholl tradenames and began initial sales of this product
+during the fourth quarter of 2005. 
+9 
+Table of Contents 
+Insurance Risk Assessment 
+We currently market the OraSure ® oral fluid collection device for use in screening life insurance applicants in the United States and internationally to test for three of the
+most important underwriting risk factors: HIV-1, cocaine and cotinine (a metabolite of nicotine). Devices are sold to insurance testing laboratories, including Quest Diagnostics, Heritage Labs and Clinical Reference Laboratory. These laboratories in
+turn provide the devices to insurance companies, usually in combination with testing services. 
+We also maintain a direct sales force that promotes use of the OraSure ® device directly to insurance companies for life insurance risk assessment. Insurance companies then make their own decision regarding which laboratory to use to supply their collection
+devices and testing services. Our OraSure ® Western
+blot confirmatory test is distributed through BMX to laboratories and is used to confirm oral fluid specimens collected with our OraSure ® device that initially test positive for HIV-1. 
+Because insurance companies are in various stages of their adoption of the OraSure ® device, there exists a wide range of policy limits where the product is being applied. Some insurance companies have
+chosen to extend their testing to lower policy limits where they did not test at all before, while others have used OraSure ® to replace some of their blood and urine-based testing. In general, most of our insurance company customers use the OraSure ® device in connection with life insurance policies having face amounts of up to
+$250,000, with some customers using the device for policies of up to $500,000 in amount. One large insurance customer uses the OraSure ® device with policies having face amounts up to $3 million. 
+During 2005, we experienced a decline in sales of OraSure ® and related assays for insurance testing, primarily due to a reduction in the number of applications for life insurance policies and changes
+in underwriting requirements. However, our sales force continues to encourage additional insurance companies to use OraSure ® and to extend the use of the product by existing customers. We believe there are several factors which could help expand the use of our device,
+including increasing acceptance of the reliability of oral fluid testing, the high quality of test results, the low cost of oral fluid testing relative to blood tests, the ease of use of the OraSure ® device, and the development of new oral fluid assays for use with our OraSure ® device for detecting substances or conditions that
+affect life insurance risk assessment. 
+We also sell our
+AUTO-LYTE ® and MICRO-PLATE assays and reagents in
+the insurance testing market directly to laboratories, including Quest Diagnostics, Heritage Labs and Clinical Reference Laboratory. 
+International Markets 
+We sell most of our products into international markets primarily through distributors with knowledge of their local markets. Principal markets include
+physicians’ offices, insurance risk assessment, substance abuse, public health, and laboratory testing. 
+We assist our international distributors in registering the products and obtaining required regulatory approvals in each country, and we provide training
+and support materials. Our international marketing program includes direct assistance to distributors in arranging for laboratory services, cooperation from screening test manufacturers, and performance of Western blot confirmatory tests when
+necessary. 
+Significant Products and Customers 
+Several different products have contributed significantly to our financial
+performance, accounting for 15% or more of total revenues during the past three years. The OraSure ® and Intercept ® oral fluid collection devices, cryosurgical systems products, and OraQuick ® rapid HIV test accounted for total revenues of $16.1 million, $22.7 million, and $21.6 million in 2005, $14.6 million, $20.2 million, and $10.2 million in 2004, and $14.5 million, $10.8
+million and $6.3 million in 2003, respectively. As new products are developed and commercialized, we expect to receive a greater portion of our revenues from these new products. 
+10 
+Table of Contents 
+We currently have two customers, Prestige and Quest Diagnostics (including its wholly-owned subsidiary,
+Lab One , Inc.), which accounted for 17% and 13% of our total revenues, respectively, during 2005. 
+The loss of Prestige or Quest, or a significant decrease in the volume of products purchased by either customer, could have a material adverse effect on
+our results. 
+Supply and Manufacturing 
+We manufacture our OraQuick ® ADVANCE ™ test in our Bethlehem, Pennsylvania facility. In addition, we have entered into a
+supply agreement for the assembly of the OraQuick ® 
+device in Thailand, in order to supply certain international markets. This supply agreement had an initial term of one year, and automatically renews for additional annual periods unless either party provides a timely notice of termination prior to
+the end of an annual period. We believe that other firms would be able to manufacture the OraQuick ® test on terms no less favorable than those set forth in the agreement if the Thailand contractor would be unable or unwilling to continue manufacturing this product. 
+We can purchase the HIV antigen and the nitrocellulose required for the
+OraQuick ® test only from a limited number of
+sources. The antigen is currently purchased from a single contract supplier under a long-term agreement with an initial term ending in January 2010 and one-year automatic renewal terms thereafter. The nitrocellulose used in the test is also provided
+by a single contract supplier, under a supply agreement with a five-year term ending in 2009. If for any reason these suppliers are no longer able to supply our antigen or nitrocellulose needs, we believe that alternative supplies could be obtained
+at a competitive cost. However, a change in the antigen or nitrocellulose would require FDA approval and some additional development work. This in turn would require significant time to complete and could disrupt our ability to manufacture and sell
+the OraQuick ® device. 
+We manufacture both the OraSure ® and Intercept ® collection devices in our Bethlehem, Pennsylvania facilities. During 2003 and 2004, we successfully transferred the
+manufacturing of these products from a contract manufacturer in Oregon to Bethlehem, and we believe this transfer will lower our manufacturing costs and help us maintain our quality control for these products in the future. 
+The oral fluid Western blot HIV-1 confirmatory test is currently manufactured
+in our Bethlehem, Pennsylvania facility. The HIV antigen needed to manufacture the Western blot test is available from only a limited number of sources. For many years, we have purchased the antigen for this product from BMX on an exclusive basis.
+BMX is also the exclusive distributor of the Western blot test kits. 
+Our agreements with BMX provide for the supply by BMX of the HIV-1 antigen and distribution of the oral fluid Western blot product by BMX on an exclusive worldwide basis. If for any reason BMX is no longer able to supply our antigen needs,
+we believe we would be able to obtain alternate supplies at a competitive cost. However, a change in the antigen would require FDA approval and some additional development work, which would require significant time to complete and could disrupt our
+ability to manufacture and sell the Western blot HIV-1 confirmatory test. 
+Histofreezer ® is
+assembled in The Netherlands by Koninklijke, Utermöhlen, N.V. (“Utermöhlen”), the company from which we acquired the product in 1998. We purchase the product pursuant to an exclusive production agreement. Utermöhlen also
+supplies Freeze Off ™ , the OTC cryosurgical product
+for the U.S. and Canadian markets. Assuming minimum purchase requirements are met, our agreement with Utermöhlen will terminate at the end of 2006 with respect to the Freeze Off ™ product and at the end of 2008 with respect to the Histofreezer ® product. The cryosurgical wart removal products
+distributed in international markets by SSL are supplied by vendors located in the United States. We believe that additional suppliers of our cryosurgical products are available on terms no less favorable than the terms of our existing supply
+agreements in the event that our current suppliers would be unable or unwilling to continue manufacturing these products. 
+11 
+Table of Contents 
+Our AUTO-LYTE ® and MICRO-PLATE assays are manufactured in our Bethlehem, Pennsylvania facility. These tests require the production of highly specific and
+sensitive antibodies corresponding to the antigen of interest. Substantially all our antibody requirements are provided by contract suppliers. We believe that we have adequate reserves of antibody supplies and that we have access to sufficient raw
+materials for these products. 
+The Q.E.D. ® saliva alcohol test is manufactured and packaged for
+shipment in our Bethlehem, Pennsylvania facility. 
+Employees 
+As of December 31, 2005, we had 233 full-time employees, including
+61 in sales, marketing, and client services; 22 in research and development; 118 in operations, manufacturing, quality control, information systems, purchasing and shipping; 12 in regulatory affairs and quality assurance, and 20 in administration
+and finance. This compares to 194 employees as of December 31, 2004. Our employees are not currently represented by a collective bargaining agreement. 
+Competition 
+The diagnostic industry is a multi-billion dollar international industry and is intensely competitive. Many of our competitors are substantially larger
+than we are, and they have greater financial, research, manufacturing, and marketing resources. 
+Important competitive factors for our products include product quality, price, ease of use, customer service, and reputation. Industry competition is
+based on the following: 
+• 
+Scientific and technological capability; 
+• 
+Proprietary know-how; 
+• 
+The ability to develop and market products and processes; 
+• 
+The ability to obtain FDA or other regulatory approvals; 
+• 
+The ability to manufacture products that meet applicable FDA requirements (i.e., good manufacturing practices); 
+• 
+Access to adequate capital; 
+• 
+The ability to attract and retain qualified personnel; and 
+• 
+The availability of patent protection. 
+A few large corporations produce a wide variety of diagnostic tests and other medical devices and equipment. A larger number of mid-size companies
+generally compete only in the diagnostic industry, and a significant number of small companies produce only a few diagnostic products. As a result, the diagnostic test industry is highly fragmented and segmented. 
+The future market for diagnostic tests is expected to be characterized by
+consolidation, greater cost consciousness, and tighter reimbursement policies. The purchasers of diagnostic products are expected to place increased emphasis on lowering costs, reducing inventory levels, automation, service, and volume discounts.
+The increased complexity of the market is expected to force many competitors to enter into joint ventures or license certain products or technologies. 
+We expect competition to intensify as technological advances are made and become more widely known, and as new products reach the market. Furthermore, new
+testing methodologies could be developed in the future that render our products impractical, uneconomical or obsolete. There can be no assurance that our competitors 
+12 
+Table of Contents 
+will not succeed in developing or marketing technologies and products that are more effective than those we develop or that would render our technologies and
+products obsolete or otherwise commercially unattractive. In addition, there can be no assurance that our competitors will not succeed in obtaining regulatory approval for these products, or introduce or commercialize them before we can do so. These
+developments could have a material adverse effect on our business, financial condition and results of operations. 
+Several companies market or have announced plans to market oral specimen collection devices and tests both within and outside the United States. We expect
+the number of devices competing with our Intercept ® 
+and OraSure ® devices to increase as the benefits of
+oral specimen-based testing become more widely accepted. 
+Competition in the market for HIV testing is intense and is expected to increase. We believe that the principal competition will come from existing laboratory-based blood tests, point-of-care rapid blood tests, laboratory-based urine
+assays, or other oral fluid-based tests that may be developed. Our competitors include specialized biotechnology firms as well as pharmaceutical companies with biotechnology divisions and medical diagnostic companies. 
+Significant competitors for our OraQuick ® ADVANCE ™ rapid test, such as the Ortho Diagnostics division of Johnson & Johnson, Bio-Rad Laboratories, Abbott Laboratories and BMX, sell laboratory-based HIV-1/2 EIAs, and Maximum Biomedical (formerly
+Calypte, Inc.) sells an HIV-1 screening test for urine, in the United States. In addition, MedMira and Trinity Biotech have each received FDA approval to sell competing rapid HIV-1 blood tests, and Bio-Rad Laboratories has received FDA approval to
+sell a competing rapid HIV-1/2 blood test in the United States. Under their current FDA approvals, these tests compete with our OraQuick ® ADVANCE ™ test in hospitals or other
+laboratory settings. In addition, Trinity Biotech has received CLIA waiver for its rapid HIV test, and this test competes with our OraQuick ® ADVANCE ™ test in the markets outside of the traditional hospital and laboratory settings. These companies, or others, may continue to expand the bodily fluids
+with which a rapid HIV test may be performed, or develop and commercialize new rapid HIV tests, which would provide further competition for our OraQuick ® ADVANCE ™ test. We believe other companies
+may also seek FDA approval to sell competing rapid HIV tests in the future. 
+Internationally, our OraQuick ® ADVANCE ™ test competes against rapid HIV
+tests sold by a number of other entities, including Inverness Medical, and often these competing tests are sold at prices substantially below the prices we charge for our OraQuick ® ADVANCE ™ 
+test. Maximum Biomedical has recently developed a rapid oral fluid HIV test which we believe is now being sold in certain foreign countries. 
+The Intercept ® drug testing system competes with laboratory-based drug testing products and services
+using testing matrices such as urine, hair, sweat and oral fluid. Major competitors include Ansys Technologies, Inc., Dade Behring, Psychemedics, and Immunalysis. 
+Our MICRO-PLATE oral fluid drug assays, which are sold for use with the Intercept ® and OraSure ® collection devices, are expected to come under increasing competitive pressure from “home-brew” assays
+developed internally by our laboratory customers. In fact, on June 30, 2004 Lab One , Inc. ceased purchasing our MICRO-PLATE oral fluid assays for use with our OraSure ® collection device in the insurance risk assessment testing market and is now, we believe, using internally-developed
+home-brew assays instead. 
+Our oral fluid MICRO-PLATE assays
+also compete with urine-based homogeneous assays that are run on fully-automated, random access analyzers. These tests provide strong competitive pressure because they provide the benefits of automation, including lower costs and short turn-around
+times. In addition, we believe our competitors are developing oral fluid tests suitable for use on these fully automated homogeneous assay systems and these assays, if and when they are developed and commercialized, will represent a significant
+competitive threat to our oral fluid MICRO-PLATE business. 
+Our
+MICRO-PLATE drugs-of-abuse reagents sold in the forensic toxicology market are targeted to forensic testing laboratories where sensitivity, automation, and “system solutions” are important. In the past, these 
+13 
+Table of Contents 
+laboratories have typically had to rely on radioimmunoassay test methods to provide an adequate level of sensitivity. Radioimmunoassays require radioactive
+materials, which have a short shelf-life and disposal problems. Our MICRO-PLATE tests meet the laboratories’ sensitivity needs, run on automated equipment, are not radioimmunoassays, and are offered to the laboratory as a complete system
+solution of reagents, instrumentation and software to meet the specific needs of each customer. Options to buy or rent the instrumentation and software, which we purchase from third party vendors, are offered to these customers. We compete with both
+homogeneous and heterogeneous tests manufactured by many companies. Significant competitors in the market for these assays include Microgenics, Inc., Roche Diagnostics, and Immunalysis. 
+Sales of our AUTO-LYTE ® urine assays have declined substantially during the past several years, primarily due to competition from assays developed internally by our laboratory
+customers (i.e., “home brews”), which can be produced at a cost lower than the price typically paid for our products. Many of our customers no longer purchase our AUTO-LYTE ® assays, and we eventually expect to stop selling this product line. 
+The Histofreezer ® product’s delivery system and operating temperature, which is warmer than liquid
+nitrogen, provide us with the opportunity to target sales to primary care physicians, such as family practitioners, pediatricians, and podiatrists. We do not generally target sales to dermatologists because they have the volume of patients required
+to support the capital costs associated with a liquid nitrogen delivery system, which is also used to remove warts and other benign skin lesions. There is limited competition for convenient cryosurgical products for wart removal in the primary care
+physician market. Major competitors for the Histofreezer ® product include Cryosurgery, Inc. in the United States and Wartner in Europe. Wartner may also eventually compete with Histofreezer ® in the physician market in the United States. 
+The Freeze Off ™ product, sold by Prestige under its Compound W ® tradename, competes with other OTC wart removal products in the United States. Schering-Plough sells a competing cryosurgical wart removal product
+under its Dr. Scholl’s brand and Wartner currently sells a competing cryosurgical wart removal product in the OTC market. Wartner also sells a product that competes with our cryosurgical product in the European OTC footcare market.
+Q.E.D. ® has two direct competitors, Ansys Technologies, Inc. and Chematics. These companies
+offer semi-quantitative saliva-based alcohol tests and have received DOT approval. Indirect competitors who offer breath testing equipment include Intoximeters, Dräger, and CMI. Although there are lower priced tests on the market that use oral
+fluid or breath as a test medium, these tests are qualitative tests that are believed to be substantially lower in quality and provide fewer benefits than our Q.E.D. ® test. 
+Patents and Proprietary Information 
+We seek patent and other intellectual property rights to protect and preserve our proprietary technology and our right to capitalize on the results of our
+research and development activities. We also rely on trade secrets, know-how, continuing technological innovations, and licensing opportunities to provide competitive advantages for our products in our markets and to accelerate new product
+introductions. We regularly search for third-party patents in fields related to our business to shape our own patent and product commercialization strategies as effectively as possible and to identify licensing opportunities. United States patents
+generally have a maximum term of 20 years from the date an application is filed. 
+We have 16 United States patents and numerous foreign patents for the OraSure ® and Intercept ® collection devices and technology relating to oral fluid collection, containers for oral fluids, methods to test oral fluid, formulations for the manufacture of synthetic oral fluid, and methods to control the volume
+of oral fluid collected and dispersed. We have also applied for additional patents, in both the United States and certain foreign countries, on such products and technology. 
+We have one issued patent for our OraQuick ® ADVANCE ™ 
+rapid HIV-1/2 antibody test in the United States, and we have several related patent applications pending for this product in the United States and 
+14 
+Table of Contents 
+internationally. We have obtained licenses to certain lateral flow patents and to certain HIV-1 and HIV-2 patents held by other parties. We also have
+obtained a license to certain HCV patents which we intend to use to manufacture and sell a rapid HCV test on the OraQuick ® or other technology platform. We obtained these licenses through the payment of certain upfront fees and an agreement to pay ongoing royalties. We
+believe these fees and royalties are comparable to those generally paid by other companies under similar arrangements. 
+We may need to obtain licenses or other rights under, or enter into distribution or other business arrangements in connection with, certain other
+intellectual property patents in order to manufacture and sell the OraQuick ® ADVANCE ™ test. See Section 1A, entitled “Risk Factors,” for a further discussion of these issues. 
+We have five United States patents and numerous foreign patents issued for
+apparatuses and methods for the topical removal of skin lesions relating to our cryosurgical wart removal products, and we have a pending patent application related to these products. We have also licensed another patent relating to apparatuses and
+methods for the topical removal of skin lesions relating to our cryosurgical wart removal products. 
+We have four United States patents and numerous foreign patents and patent applications for the technology used in the Q.E.D. ® test. These patents are related to the analog-to-digital technology color
+control systems and methods, systems and devices for the test, and detection of biochemical molecules. 
+We have one United States patent relating to the method for detecting blood in urine specimens using our AUTO-LYTE ® products. 
+We have or have licensed rights under 16 United States patents and numerous foreign patents for methods, compositions, and
+apparatuses relating to our UPT ™ and UP link ® technologies. Several additional UPT ™ and UP link ® patent applications remain pending in the United States
+and abroad. 
+We require our employees, consultants, outside
+collaborators, and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed by or made known to the individual
+during the course of the individual’s relationship with us, is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the
+individual during his or her tenure with us will be our exclusive property. 
+We own rights to trademarks and service marks that we believe are necessary to conduct our business as currently operated. In the United States, we own the OraSure ® , Intercept ® , OraQuick ® , OraQuick ® ADVANCE ™ , Histofreezer ® , Q.E.D. ® , AUTO-LYTE ® , UPT ™ and UP link ® trademarks. We also own many of these marks and others in several foreign countries. The Compound W ® and Freeze Off ™ trademarks are owned by Prestige Brands Holdings, Inc. or its affiliates, in the United States and Canada, and the Scholl and Dr. Scholl tradenames are owned by SSL International in
+Europe, Australia, New Zealand and other countries outside North and South America. 
+Although important, the issuance of a patent or existence of trademark or trade secret protection does not in itself ensure the success of our business. Competitors may be able to produce products competing with our
+patented products without infringing our patent rights. Issuance of a patent in one country generally does not prevent manufacture or sale of the patented product in other countries. The issuance of a patent is not conclusive as to validity or as to
+the enforceable scope of the patent. The validity or enforceability of a patent can be challenged by litigation after its issuance. If the outcome of such litigation is adverse to the owner of the patent, the owner’s rights could be diminished
+or withdrawn. Trade secret protection does not prevent independent discovery and exploitation of the secret product or technique. 
+15 
+Table of Contents 
+Government Regulation 
+General 
+Most of our products are regulated by the FDA, certain state and local agencies, and comparable regulatory bodies in other countries. This regulated
+environment governs almost all aspects of development, production, and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing, and recordkeeping. 
+All of our FDA-regulated products require some form of action by the FDA
+before they can be marketed in the United States. After approval or clearance by the FDA, we must continue to comply with other FDA requirements applicable to marketed products. Both before and after approval or clearance, failure to comply with the
+FDA’s requirements can lead to significant penalties or could disrupt our ability to sell these products. In addition, the FDA could refuse permission to obtain certificates needed to export our products if the agency determines that we are not
+in compliance. 
+Domestic Regulation 
+Most of our products are regulated in the United States as medical devices.
+There are two mechanisms by which regulated medical devices
+can be placed on the market in the United States. Some products may qualify for clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act. To obtain this clearance from the FDA, the manufacturer must provide a premarket
+notification that it intends to begin marketing the product, and show that the product is substantially equivalent to another legally marketed product (i.e., that it has the same intended use and is as safe and effective as a legally marketed device
+and does not raise different questions of safety and effectiveness). In some cases, the submission must include data from human clinical studies. Marketing may commence when the FDA issues a clearance letter finding substantial equivalence. An
+applicant must submit a 510(k) application at least 90 days before marketing of the affected product commences. Although FDA clearance may be granted within that 90-day period, in some cases as much as a year or more may be required before clearance
+is obtained, if at all. 
+If the medical device does not qualify
+for the 510(k) procedure (either because it is not substantially equivalent to a legally marketed device or because it is required by statute and the FDA’s regulations to have an approved premarket application), the FDA must approve a premarket
+application, or PMA, before marketing can begin. PMAs must demonstrate, among other matters, that the medical device provides a reasonable assurance of safety and effectiveness. A PMA is typically a complex submission, including the results of
+preclinical and clinical studies. Preparing a PMA is a detailed and time-consuming process. Once a PMA has been submitted, the FDA is required to review the submission within 180 days. However, the FDA’s review may, and often is, much longer,
+often requiring one year or more, and may include requests for additional data before approval is granted, if at all. 
+Some of our products are used for non-medical purposes and many of our drugs-of-abuse products sold to state crime labs are for forensic use. The FDA does
+not currently regulate products used for these purposes. 
+Every
+company that manufactures medical devices distributed in the United States must comply with the FDA’s Quality System Regulations (“QSRs”). These regulations govern the manufacturing process, including design, manufacture, testing,
+release, packaging, distribution, documentation and purchasing. In complying with QSRs, manufacturers must continue to expend time, money, and effort in the area of production and quality assurance to ensure full technical compliance. Companies are
+also subject to other post-market and general requirements, including restrictions imposed on marketed products, promotional standards, and requirements for recordkeeping and reporting of certain adverse reactions. If there are any modifications
+made to our marketed devices, a premarket notification or premarket approval application may be required to be submitted to, and cleared or approved by, the FDA, before the modified device may be marketed. The FDA regularly inspects companies to
+determine compliance with QSRs and other post-market requirements. Failure to comply with 
+16 
+Table of Contents 
+statutory requirements and the FDA’s regulations can result in warning letters, monetary penalties, suspension or withdrawal of regulatory approvals,
+operating restrictions, total or partial suspension of production, injunctions, product recalls, seizure of products, and criminal prosecution. 
+The Clinical Laboratory Improvements Amendments of 1988, or CLIA, prohibit laboratories from performing tests for the purpose of providing information for
+the diagnosis, prevention or treatment of any disease or impairment of, or the assessment of, the health of human beings, unless there is in effect for such laboratories a certificate issued by the U.S. Department of Health and Human Services
+applicable to the category of examination or procedure performed. We consider the applicability of the requirements of CLIA in the design and development of our products. We have obtained a waiver of the CLIA requirements for both our OraQuick ® ADVANCE ™ rapid HIV-1/2 antibody test and our Q.E.D. ® alcohol saliva test, and may seek similar waivers for certain other products.
+A CLIA waiver allows certain customers to use the waived products that may not have been able to use them without complying with certain quality control and other requirements. 
+Certain of our products may also be affected by state regulations in the United States. For example, there are several
+states that restrict or do not currently permit oral fluid drug testing in the workplace or other markets. In addition, several states prohibit or limit the use of rapid, point-of-care HIV testing. We are presently working with legislators or
+regulators in certain of these states in an effort to modify or remove any restrictions affecting our ability to sell products. 
+International 
+We are also subject to regulations in foreign countries governing products, human clinical trials and marketing, and may need to obtain approval from
+international public health agencies, such as the World Health Organization, in order to sell products in certain countries. Approval processes vary from country to country, and the length of time required for approval or to obtain other clearances
+may in some cases be longer than that required for U.S. governmental approvals. We generally pursue approval only in those countries that we believe have a significant market opportunity. 
+The International Organization for Standardization (“ISO”) is a worldwide federation of national standards bodies
+from some 130 countries, established in 1947. The mission of the ISO is to promote the development of standardization and related activities in the world with a view to facilitating the international exchange of goods and services. ISO certification
+is a pre-requisite to use of the CE mark and indicates that our quality system complies with standards applicable to activities ranging from initial product design and development through production and distribution. The CE mark is a European Union
+(“EU”) requirement to sell products that fall under the scope of the Medical Devices Directive (“MDD”) and the In Vitro Diagnostic Directive (“IVDD”). The CE mark is evidence that the manufacturer meets the requirements
+of all applicable directives, including the MDD and IVDD. 
+We
+received authorization to use the CE mark for the OraSure ® and Intercept ® 
+collection devices and our Histofreezer ® product
+line, and SSL International has obtained authorization to use the CE mark for our cryosurgical wart removal product in the OTC European footcare market. In addition, we are currently in the process of obtaining authorization to affix a CE mark to
+our OraQuick ® ADVANCE ™ HIV-1/2 test. 
+We must also comply with certain registration requirements as dictated by
+Health Canada, prior to commencing sales in Canada. We have completed this process for several of our current products and may do so with respect to other products in the future. In addition, Canadian law requires manufacturers of medical devices to
+have a quality management system that meets various ISO requirements in order to obtain a license to sell their devices in Canada. 
+17 
+Table of Contents 
+Anti-Kickback Laws 
+The Federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation, or receipt of any form of
+remuneration in return for, or to induce: 
+• 
+The referral of a person; 
+• 
+The furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental programs; or 
+• 
+The purchase, lease, or order of, or the arrangement or recommendation of the purchasing, leasing, or ordering of any item or service reimbursable under Medicare, Medicaid, or other
+governmental programs. 
+Our products are or may
+be purchased by customers that will seek or receive reimbursement under Medicare, Medicaid or other governmental programs. Noncompliance with the federal anti-kickback legislation can result in exclusion from Medicare, Medicaid, or other
+governmental programs, restrictions on our ability to operate in certain jurisdictions, as well as civil and criminal penalties, any of which could have an adverse effect on our business and results of operations. 
+The Federal Civil Monetary Penalties Law prohibits the offering or
+transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable items or services. Noncompliance
+can result in civil money penalties of up to $10,000 for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the Federal healthcare programs. 
+Many states have also adopted some form of anti-kickback laws. A
+determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions. 
+We believe that we are operating in compliance with these laws. 
+Environmental Regulation 
+Because of the nature of our current and proposed research, development, and manufacturing processes, we are subject to stringent federal, state and local
+laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge and handling and disposal of materials and wastes. We believe that we have complied with these laws and regulations in all
+material respects. We have not been required to take any action to correct any environmental noncompliance. 
+The foregoing discussion of our business should be read in conjunction with the Financial Statements and accompanying notes included in Item 15 of
+this Annual Report on Form 10-K.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2005/0001193125-06-053910/item13.txt b/raw/filings/0001116463/2005/0001193125-06-053910/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..90184372e99e4c1cbc320233364fe2d5851c804d
--- /dev/null
+++ b/raw/filings/0001116463/2005/0001193125-06-053910/item13.txt
@@ -0,0 +1,3 @@
+ITEM 13. Certain Relationships and Related Transactions. 
+The information required by this Item is incorporated by reference to the information under the caption, “Certain Relationships and Related
+Transactions,” in the Proxy Statement.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2005/0001193125-06-053910/item9a.txt b/raw/filings/0001116463/2005/0001193125-06-053910/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..80055f31cb16233c0fdcba0863b1ba0889bb0ea6
--- /dev/null
+++ b/raw/filings/0001116463/2005/0001193125-06-053910/item9a.txt
@@ -0,0 +1,56 @@
+ITEM 9A. Controls and Procedures. 
+(a) Evaluation of Disclosure Controls and Procedures. 
+The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures
+(as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of December 31, 2005. Based on that evaluation, the Company’s management, including such officers, concluded that the Company’s disclosure
+controls and procedures are adequate and effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to the
+Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported within the time periods specified in the rules
+and forms of the Securities and Exchange Commission. 
+(b)
+Management’s Report on Internal Control Over Financial Reporting. 
+The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a(f) and 15d-15(f) under the Securities Exchange Act
+of 1934. Under the supervision and with the participation of the Company’s management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over
+financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework, our management concluded
+that our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
+accounting principles as of December 31, 2005. 
+Our
+management’s assessment on the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is
+included below. 
+Because of its inherent limitations, internal
+control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
+the degree of compliance with the policies or procedures may deteriorate. 
+(c) Changes in Internal Control Over Financial Reporting. 
+There was no change in the Company’s internal control over financial reporting identified in connection with the evaluation referred to in paragraph
+(a) above that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. 
+51 
+Table of Contents 
+(d) Report of Independent Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+OraSure Technologies, Inc.: 
+We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that
+OraSure Technologies, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
+Organizations of the Treadway Commission (COSO). OraSure Technologies, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
+financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit. 
+We conducted our audit in accordance with the standards of the Public Company
+Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
+audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures
+as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 
+A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
+reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
+(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
+necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
+of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
+Because of its inherent limitations, internal control over
+financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
+compliance with the policies or procedures may deteriorate. 
+In
+our opinion, management’s assessment that OraSure Technologies, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in
+Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, OraSure Technologies, Inc. maintained, in all material respects, effective internal
+control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 
+52 
+Table of Contents 
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
+(United States), the balance sheets of OraSure Technologies, Inc. as of December 31, 2005 and 2004, and the related statements of operations, stockholders’ equity and comprehensive income (loss) and cash flows for each of the years in the
+three-year period ended December 31, 2005, and our report dated March 13, 2006 expressed an unqualified opinion on those financial statements. 
+/s/ KPMG LLP 
+Philadelphia, Pennsylvania 
+March 13, 2006
\ No newline at end of file
diff --git a/raw/filings/0001116463/2005/0001193125-06-053910/rp_note.txt b/raw/filings/0001116463/2005/0001193125-06-053910/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001116463/2005/0001193125-06-053910/rpt_disclosure.txt b/raw/filings/0001116463/2005/0001193125-06-053910/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8a1b6f64f29abf4f2fb41175c200fd17ed26c946
--- /dev/null
+++ b/raw/filings/0001116463/2005/0001193125-06-053910/rpt_disclosure.txt
@@ -0,0 +1,6 @@
+Transactions With Related Persons 
+Since January 1, 2006, there have been no transactions with related
+persons which would require disclosure in this Proxy Statement. The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. This responsibility is described in the Audit
+Committee’s charter, a copy of which is available on our website at www.orasure.com . 
+Information regarding employment and severance agreements between our executive officers and the Company is set forth in the Section entitled,
+“Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2007/0001193125-08-054266/filing.txt b/raw/filings/0001116463/2007/0001193125-08-054266/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..61c99d952aa212e72d9f2c6f2ef2a669d10f063b
--- /dev/null
+++ b/raw/filings/0001116463/2007/0001193125-08-054266/filing.txt
@@ -0,0 +1,4920 @@
+10-K
+1
+d10k.htm
+FORM 10-K
+Form 10-K 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549 
+FORM 10-K 
+ANNUAL REPORT PURSUANT
+TO SECTION 13 OR 15(d) OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+(Mark One) 
+x 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31, 2007 
+OR 
+¨ 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the transition period from to
+Commission File No. 001-16537 
+ORASURE TECHNOLOGIES, INC.
+(Exact Name of Registrant as Specified in Its Charter) 
+Delaware 
+36-4370966 
+(State or Other Jurisdiction of 
+Incorporation or Organization) 
+(I.R.S. Employer Identification No.) 
+220 East First Street 
+Bethlehem, Pennsylvania 
+18015 
+(Address of Principal Executive Offices) 
+(Zip Code) 
+(610) 882-1820 
+(Registrant’s Telephone Number, Including Area Code) 
+Securities registered pursuant to
+Section 12(b) of the Act: 
+Title of Each Class 
+Name of Each Exchange on Which Registered 
+Common Stock $0.000001 par value per share 
+The NASDAQ Stock Market LLC 
+Securities registered pursuant to Section 12(g) of the Act: None 
+Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨
+No x 
+Indicate by check mark if the Registrant is not required to file
+reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x 
+Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
+Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ 
+Indicate by check mark if disclosure of
+delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
+Form 10-K or any amendment to this Form 10-K. x 
+Indicate by check mark whether the Registrant is a large
+accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
+Exchange Act. (Check one): 
+Large accelerated filer ¨ 
+Accelerated filer x 
+Non-accelerated filer ¨ 
+Smaller reporting company ¨ 
+(Do not check if a smaller reporting company) 
+Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
+Exchange Act). Yes ¨ No x 
+State the
+aggregate market value of the voting and non-voting common equity held by nonaffiliates, computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business
+day of the Registrant’s most recently completed second fiscal quarter (June 30, 2007): $375,625,477 
+Indicate the number of shares
+outstanding of each of the Registrant’s classes of common stock, as of March 5, 2008: 46,838,669 shares. 
+Documents Incorporated
+by Reference: 
+Portions of the Registrant’s Definitive Proxy Statement for the 2008 Annual Meeting of Stockholders are incorporated
+by reference into Part III of this Report. 
+Table of Contents 
+Table of Contents 
+Page 
+PART I 
+ITEM 1. 
+Business 
+1 
+ITEM 1A. 
+Risk Factors 
+19 
+ITEM 1B. 
+Unresolved Staff Comments 
+35 
+ITEM 2. 
+Properties 
+35 
+ITEM 3. 
+Legal Proceedings 
+35 
+ITEM 4. 
+Submission of Matters to a Vote of Security Holders 
+36 
+PART II 
+ITEM 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
+37 
+ITEM 6. 
+Selected Financial Data 
+39 
+ITEM 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+40 
+ITEM 7A. 
+Quantitative and Qualitative Disclosures About Market Risk 
+55 
+ITEM 8. 
+Financial Statements and Supplementary Data 
+56 
+ITEM 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+56 
+ITEM 9A. 
+Controls and Procedures 
+56 
+ITEM 9B. 
+Other Information 
+58 
+PART III 
+ITEM 10. 
+Directors, Executive Officers and Corporate Governance 
+59 
+ITEM 11. 
+Executive Compensation 
+59 
+ITEM 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
+59 
+ITEM 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+59 
+ITEM 14. 
+Principal Accountant Fees and Services 
+59 
+PART IV 
+ITEM 15. 
+Exhibits and Financial Statement Schedules 
+60 
+Table of Contents 
+This Report contains certain “forward-looking statements,” within the meaning of the Federal
+securities laws. These may include statements about our expected revenues, earnings, expenses or other financial performance, future product performance or development, expected regulatory filings and approvals, planned business transactions,
+expected manufacturing performance, views of future industry, competitive or market conditions, and other factors that could affect our future operations, results of operations or financial position. These statements often include words, such as
+“believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “may,” “will,” “should,” “could,” or similar expressions. 
+Forward-looking statements are not guarantees of future performance or results. Known and unknown factors could cause actual performance or results to
+be materially different from those expressed or implied in these statements. Factors that could affect our results are discussed more fully under Item 1A., entitled “Risk Factors,” and elsewhere in this Annual Report. Although
+forward-looking statements help to provide complete information about us, readers should keep in mind that forward-looking statements may not be reliable. Readers are cautioned not to place undue reliance on the forward-looking statements. The
+forward-looking statements are made as of the date of this Annual Report and we undertake no duty to update these statements. 
+PART I
+ITEM 1. Business. 
+Our business principally involves the development, manufacture,
+marketing and sale of oral fluid diagnostic products and specimen collection devices using our proprietary oral fluid technologies, as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used
+on other specimen types, and other medical devices. Our diagnostic products include tests which are performed on a rapid basis at the point of care and tests which are processed in a laboratory. These products are sold in the United States and
+internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. One of
+our products has been sold in the over-the-counter (“OTC”) or consumer retail market in the United States, Canada, Europe, Mexico and Australia. 
+In vitro diagnostic testing is the process of analyzing oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific substances or markers for infectious diseases, drugs of abuse or
+other conditions. In vitro diagnostic tests are performed outside the body, in contrast to in vivo tests, which are performed directly on or within the body. The substance or marker that a diagnostic test is intended to detect is
+generally referred to as an analyte. 
+Immunodiagnostic testing is the leading method of in vitro testing for antigens and
+antibodies. When an infectious disease is caused by pathogens, such as bacteria, viruses and fungi, or other substances are present, the body responds by producing an antibody. Substances that stimulate production of antibodies are generally
+referred to as antigens. An antibody binds specifically with an antigen in a lock-and-key fashion that initiates a biochemical reaction to attempt to neutralize and, ultimately, eliminate the antigen. The ability of an antibody to bind with a
+specific antigen provides the basis for immunodiagnostic testing. 
+Our Company was formed in May 2000 under Delaware law solely for the
+purposes of combining two companies, STC Technologies, Inc. (“STC” or “STC Technologies”) and Epitope, Inc. (“Epitope”), and changing the state of incorporation of Epitope from Oregon to Delaware. STC Technologies and
+Epitope were merged into our Company on September 29, 2000. Our principal offices are located at 220 East First Street, Bethlehem, Pennsylvania 18015, and our telephone number is (610) 882-1820. 
+Additional information about us can be found on our website. Our website address is www.orasure.com. We make available free of charge through a link
+provided at such website our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and our other filings with the Securities and 
+1 
+Table of Contents 
+Exchange Commission (“SEC”), as well as any amendments to those Reports and filings. These Reports and filings are made available as soon as
+reasonably practicable after they are filed or furnished to the SEC. Our Internet website and the information contained in or connected to that website are not intended to be incorporated by reference into this Annual Report. 
+Products 
+The following is a summary of our principal
+products and their regulatory and commercial status: 
+Product 
+Description 
+Regulatory Status 
+Commercial 
+Status 
+OraQuick 
+ADVANCE ® HIV-1/2 
+A rapid, point-of-care test for antibodies to the Human Immunodeficiency Virus Type 1 (“HIV-1”) and Type 2 (“HIV-2” and together with HIV-1, “HIV-1/2”) that can be
+visually read at the point of care in approximately 20 minutes. 
+Premarket approval (“PMA”) approved by the U.S. Food and Drug Administration (“FDA”) for use with oral fluid, finger-stick and venous whole blood, and plasma. CLIA (Clinical
+Laboratory Improvement Amendments of 1988) waived for use with oral fluid, finger-stick and venous whole blood. 
+Marketed 
+CE mark approved. 
+Marketed 
+Registered in Mexico, Brazil and Peru. 
+Marketed 
+OraQuick ® HIV-1/2 OTC 
+Clinical trials initiated. 
+Pending 
+OraQuick ® HCV 
+A rapid, point-of-care test for antibodies to the hepatitis C virus (“HCV”) 
+Clinical trials initiated. 
+Pending 
+OraSure ® 
+Oral fluid collection device for the detection of antibodies to HIV-1 in an oral fluid sample in a laboratory setting. 
+PMA approved by FDA. 
+Marketed 
+Also FDA 510(k) cleared for use in detecting cocaine and cotinine (an indicator of nicotine) in oral fluid. 
+Marketed 
+CE marked and registered in the United Kingdom. Also registered in Mexico, Canada, Columbia, South Africa, Afghanistan, Argentina, Brazil and Trinidad. 
+Marketed 
+Intercept ® 
+Oral fluid collection device, along with nine related immunoassays, for oral fluid drugs of abuse (“DOA”) testing in a laboratory setting. 
+Collection device—FDA 510(k) cleared. 
+Marketed 
+MICRO-PLATE DOA Assays 
+Used to detect the following drugs in an oral fluid sample: marijuana, cocaine, opiates, amphetamines, methamphetamines, PCP, benzodiazepines, barbiturates and methadone. 
+Nine drug assays—FDA 510(k) cleared. 
+Marketed 
+Intercept ® device CE marked and registered in the United Kingdom. Various assays are CE marked and registered in the United Kingdom, Austria, Belgium, Denmark, Finland, France,
+Germany, Ireland, Italy, Luxembourg, Mexico, Netherlands, Portugal, Spain, Sweden, Korea, Canada, Afghanistan and Brazil. 
+Marketed 
+2 
+Table of Contents 
+Product 
+Description 
+Regulatory Status 
+Commercial 
+Status 
+Homogeneous DOA Assays 
+Homogeneous fully-automated oral fluid DOA assays. 
+In development. 
+Pending 
+Cryosurgical Systems—Professional 
+Cryosurgical system for the removal of warts and other benign skin lesions, marketed under the Histofreezer ® tradename primarily to the physicians’ office market.
+Nine indications—FDA 510(k) cleared. 
+Marketed 
+CE marked and registered in Europe, Venezuela, Thailand, New Zealand, Hong Kong, Brazil, Mexico, Canada and Afghanistan. 
+Marketed 
+Cryosurgical Systems—OTC 
+Cryosurgical (freezing) system for the removal of common and plantar warts, sold in various OTC markets. 
+FDA 510(k) cleared. 
+Registered in Canada. 
+CE marked and registered in several European countries under Scholl Freeze Spray name. 
+Marketed 
+Registered in Mexico under POINTTS name. 
+Marketed 
+Registrations applied for under POINTTS name in certain South and Central American countries and South Africa. 
+Pending 
+Cryosurgical Systems—OTC Product Line Extensions 
+Cryosurgical system for an indication other than common warts or plantar warts. 
+FDA 510(k) filed. 
+Pending 
+In addition to the above products, we also
+sell certain immunoassay tests and reagents for insurance risk assessment, substance abuse testing and forensic toxicology applications; an oral fluid Western blot HIV-1 confirmatory test approved by the FDA for confirming positive HIV-1 test
+results obtained from the use of our OraSure ® collection device; and the FDA 510(k) cleared Q.E.D. ® point-of-care saliva alcohol
+test. 
+OraQuick ® 
+Rapid Test Platform 
+OraQuick ® is our rapid test platform designed to test oral fluid, whole blood (i.e., both finger-stick and venous) and plasma samples for the presence of various antibodies or analytes. The device uses a porous flat pad to
+collect an oral fluid specimen. After collection, the pad is inserted into a vial containing a pre-measured amount of developer solution and allowed to develop. When whole blood or plasma is to be tested, a loop collection device is used to collect
+a drop of blood or plasma and mix it in the developer solution, after which the collection pad is inserted into the solution and allowed to develop. In all cases, the specimen and developer solution then flow through the testing device where test
+results are observable in approximately 20 minutes. The OraQuick ® device is a screening test and requires a confirmation test where an initial positive result is obtained. 
+We have commercialized this technology in the form of our OraQuick ADVANCE ® rapid HIV-1/2 antibody test. This is a rapid, point-of-care test which has received FDA approval for the detection of antibodies to both HIV-1 and HIV-2 in oral fluid, finger-stick and venous
+whole blood and plasma. This test is available for use by the nearly 40,000 locations in the United States certified under the Clinical Laboratory Improvements Amendment of 1988 (“CLIA”) to perform moderately complex tests. We have also
+received a CLIA waiver for use of the OraQuick ADVANCE ® test with oral fluid and finger-stick and venous whole blood. As a result, the test can be used by approximately 140,000
+additional sites in the United States not certified under CLIA to perform moderately complex tests, such as outreach clinics, community-based organizations and physicians’ offices. 
+On the international front, we have obtained a CE mark for our OraQuick ADVANCE ® test so that we can sell this product in Europe and other countries accepting the CE mark for commercialization. We have 
+3 
+Table of Contents 
+distributors in place for the United Kingdom, Ireland and Spain and are pursuing distribution arrangements in several additional European countries. We are
+selling OraQuick ® in Mexico and Africa and are completing registrations of our OraQuick ® test in several countries in Latin
+America, Asia, the Middle East and Russia. We are aggressively seeking to expand our distribution network for this product throughout the world. 
+We believe that the OraQuick ADVANCE ® 
+device, because it is approved for detecting antibodies to both HIV-1 and HIV-2 in finger-stick and venous whole blood, oral fluid and plasma samples, provides a significant competitive advantage in the market for rapid HIV testing in the
+United States and elsewhere around the world. Demand for OraQuick ADVANCE ® has grown since the launch of that product in late 2004. 
+OraSure ® /Intercept ® Collection Devices 
+Our OraSure ® oral fluid collection device is used in conjunction with screening and confirmatory tests for HIV-1 antibodies and other analytes. This device consists of a small,
+treated cotton-fiber pad on a handle that is placed in a person’s mouth for two to five minutes. The device collects oral mucosal transudate (“OMT”), a serum-derived fluid that contains higher concentrations of certain antibodies and
+analytes than saliva. As a result, OMT testing is a highly accurate method for detecting HIV-1 infection and other analytes. 
+We believe
+that oral fluid testing has several significant advantages over blood or urine-based systems for infectious disease testing, for both health care professionals and the individuals being tested. These advantages include eliminating the risk of
+needle-stick accidents, providing a non-invasive collection technique, requiring minimal training to administer, providing rapid and efficient collection in almost any setting, and reducing the cost of administration by a trained health care
+professional. 
+HIV-1 antibody detection using the OraSure ® collection device involves three steps: 
+• 
+Collection of an oral fluid specimen using the OraSure ® 
+device; 
+• 
+Screening of the specimen for HIV-1 antibodies at a laboratory with an enzyme immunoassay (“EIA”) screening
+test approved by the FDA for use with the OraSure ® device; and 
+• 
+Laboratory confirmation of any positive screening test results with our oral fluid Western blot HIV-1 confirmatory test (described below).
+A trained health care professional then conveys test results and provides appropriate counseling to the individual who
+was tested. 
+We have received premarket approval from the FDA to sell the
+OraSure ® collection device for use with a laboratory-based EIA screening test for HIV-1 antibody detection. This EIA screening test was manufactured and sold by bioMerieux, Inc.
+(“BMX”). We have also received FDA 510(k) clearance for use of the OraSure ® collection device with EIAs to test for cocaine and cotinine (a metabolite of nicotine) in oral fluid
+specimens primarily for insurance risk assessment purposes. 
+In 2007, BMX
+discontinued manufacturing the HIV-1 EIA screening test. As a result, we intend to seek FDA approval of an alternative HIV-1 EIA screening test for use with oral fluid samples collected with our OraSure ® device. 
+A collection device that is substantially
+similar to the OraSure ® device is sold under the name Intercept ® , and is used to collect OMT for oral fluid drug testing. We have
+received FDA 510(k) clearance to use the Intercept ® collection device with laboratory-based EIAs to test for drugs of abuse commonly identified by the National Institute for Drug Abuse
+(“NIDA”) as the NIDA-5 (i.e., cannabinoids (marijuana), cocaine, opiates, amphetamines/methamphetamines and phencyclidine (“PCP”)), and for barbiturates, methadone and benzodiazepines. Each of these EIAs is also FDA 510(k)
+cleared for use with the Intercept ® device. 
+4 
+Table of Contents 
+We have received a CE mark for the Intercept ® and OraSure ® devices and both are distributed in Canada, the United Kingdom and Mexico. The OraSure ® device and our oral fluid drugs of abuse assays are also sold in several other foreign countries. 
+We believe that the Intercept ® device
+has several advantages over competing urine and other drugs-of-abuse testing products, including its lower total testing cost, its non-invasive nature, mobility and accuracy, the ease of maintaining a chain-of-custody, the treatment of test subjects
+with greater dignity, no requirement for specially-prepared collection facilities and difficulty of sample adulteration. The availability of an oral fluid test is intended to allow our customers to test for drug impairment, eliminate scheduling
+costs and inconvenience, and thereby streamline the testing process. 
+Cryosurgical Systems (Skin Lesion Removal Products)
+The Histofreezer ® 
+cryosurgical removal system is a low-cost alternative to liquid nitrogen and other methods for removal of warts and other benign skin lesions by physicians. The Histofreezer ® product mixes
+three environmentally friendly cryogenic gases in a small aerosol canister. When released, these gases are delivered to a specially designed foam bud, cooling the bud to a maximum of –50°C to –55°C. The frozen bud is then applied
+to the wart or lesion for 15 to 40 seconds (depending on the type of lesion) creating localized destruction of the target area by freezing. We have received 510(k) clearance for use of the Histofreezer ® product to remove common warts and eight other types of benign skin lesions, and this product has been CE marked and registered for distribution in Canada, throughout Europe and in certain other foreign countries.
+We have also received FDA 510(k) clearance to market and sell a cryosurgical
+product similar to the Histofreezer ® product in the OTC or retail market for the removal of common and plantar warts only. This product was previously distributed in the United States and
+Canadian OTC markets under the name Freeze Off ® by Prestige Brands Holdings, Inc. (“Prestige”), the owner of the Compound W ® 
+line of wart removal products. As a result of the decision in the arbitration proceedings with respect to Prestige’s acquisition of the competing Wartner ® cryosurgical product
+line, our agreement with Prestige terminated on December 31, 2007. We are currently evaluating alternative strategies for the distribution of this product in the United States and Canada. 
+Internationally, we distribute a CE marked cryosurgical wart removal product into the OTC footcare market in Europe, Australia and New Zealand through
+our distributor, SSL International plc (“SSL”), under the Scholl and Dr. Scholl trademarks. SSL is the owner of the Scholl and Dr. Scholl trademarks in countries outside North and South America. We also distribute an OTC
+cryosurgical product in Mexico through our distributor Genomma Labs, under the POINTTS tradename, and have entered into new distribution agreements under which Genomma will distribute our product in a number of South and Central American countries
+and South Africa. 
+Immunoassay Tests and Reagents 
+We develop and sell immunoassay tests in two formats, known as MICRO-PLATE and AUTO-LYTE ® , to meet the specific needs of our customers. 
+In a MICRO-PLATE kit, the sample to be tested is placed into a small plastic receptacle, called a microwell, along with the reagents. The result of the test is determined by the color of the microwell upon completion
+of the reaction. Controlling the reaction involves the use of reagents by laboratory personnel. Test results are analyzed by any of a variety of commercially available laboratory instruments, which we may also provide to our laboratory customers.
+MICRO-PLATE tests can be performed on commonly used instruments and can detect drugs in urine, serum and sweat specimens. MICRO-PLATE tests are also used as part of the Intercept ® product
+line to detect drugs of abuse in oral fluid specimens. 
+AUTO-LYTE ® tests are sold in the form of bottles of liquid reagents. These reagents are run on commercially available laboratory-based automated analytical instruments, which are manufactured by a variety
+5 
+Table of Contents 
+of third parties. AUTO-LYTE ® is typically used in high volume, automated, commercial reference
+insurance laboratories to detect certain drugs or chemicals in urine. Test results are produced quickly, allowing for high throughput. In recent years, sales of our AUTO-LYTE ® tests have
+been substantially reduced largely because of competition from cheaper “home-brew” tests used by our laboratory customers. As a result, we expect to eventually stop selling our AUTO-LYTE ® tests. 
+Western blot HIV-1 Confirmatory Test 
+We sell an oral fluid Western blot HIV-1 confirmatory test that received premarket approval from
+the FDA in 1996. This test uses the original specimen collected with the OraSure ® oral fluid collection device to confirm positive results of initial oral fluid HIV-1 EIA screening tests.
+The oral fluid Western blot HIV-1 confirmatory test was previously marketed under an exclusive arrangement with BMX. 
+In March 2007, BMX
+notified us that it would not renew the agreement under which it supplies the HIV-1 antigen used to manufacture our oral fluid Western blot HIV-1 confirmatory test or the agreement under which it distributed that product on an exclusive, world-wide
+basis. As a result, these agreements terminated on December 31, 2007 and we are now supplying this test directly to our laboratory customers. Pursuant to the terms of the antigen supply agreement, we have purchased an additional two-year supply
+of the antigen from BMX so that we can continue to manufacture and sell our oral fluid Western blot test. When this additional two-year supply is combined with our existing inventory of the HIV-1 antigen, we believe we have a sufficient supply of
+HIV-1 antigen to meet the demand for our Western blot test for at least the next three to four years. 
+Q.E.D. ® Saliva Alcohol Test 
+Our Q.E.D. ® saliva alcohol test is a
+point-of-care test device that is a cost-effective alternative to breath or blood alcohol testing. The test is a quantitative, saliva-based method for the detection of ethanol, has been cleared for sale by the FDA and has received a CLIA waiver. The
+U.S. Department of Transportation (“DOT”) has also approved the test for purchase. 
+Each Q.E.D. ® test kit contains a collection stick that is used to collect a sample of saliva and a disposable detection device that displays results in a format similar to a
+thermometer. The Q.E.D. ® device is easy to operate and instrumentation is not required to read the result. The product has a testing range of 0 to 0.145% blood alcohol and produces results
+in approximately two minutes. 
+Products Under Development 
+OraQuick ® Platform 
+We believe that OraQuick ® has
+significant potential as a point-of-care testing platform for clinics and other public health entities, hospitals, physicians’ offices and other markets. Because the OraQuick ® platform
+is simple to use and can operate in a non-invasive manner with oral fluid, we believe it will be suitable for use by consumers without the assistance of a doctor or other medical professional. We also believe that OraQuick ® provides a platform technology that can be modified for detection of a variety of infectious diseases in addition to HIV, such as viral hepatitis and certain sexually transmitted diseases.
+We are currently devoting significant resources to obtaining FDA approval to sell
+our OraQuick ® HIV-1/2 test in the United States OTC market. We have completed several laboratory-based operational and label comprehension studies and will continue to perform additional
+clinical studies in support of our application for FDA approval. We have developed an information and referral system and product packaging and labeling suitable for the OTC market, all of which will be key components of our clinical studies. We
+expect this clinical work to continue through 2008, and we intend to submit an application for FDA approval after our clinical studies are completed. 
+6 
+Table of Contents 
+We have developed a rapid test on the
+OraQuick ® platform which can detect antibodies to the Hepatitis C virus, or HCV, in oral fluid, blood, serum and plasma samples. Clinical trials have commenced to obtain pre-market approval
+of this test from the FDA. These trials are expected be completed in 2008, after which we intend to file submissions for FDA approval and a CE mark and seek CLIA waiver for this product. We are also in negotiations to obtain rights to a rapid HCV
+test manufactured by a third party for distribution into certain developing foreign countries, which we intend to secure by mid 2008. 
+We have entered into agreements with Schering-Plough Corporation (“Schering-Plough”) to
+collaborate on the development and promotion of our OraQuick ® HCV test for use with oral fluid. Under the terms of these agreements, we have been and will be reimbursed by Schering-Plough
+for a portion of our costs to develop the test and obtain regulatory approvals, and Schering-Plough will provide detailing and other promotional support for the test in the physicians’ office market in the United States and internationally.
+OraSure ® /Intercept ® Applications 
+Oral mucosal transudate, or OMT, contains many constituents found in blood and serum, although in
+lower concentrations. We believe the OraSure ® and Intercept ® devices are a platform technology with a wide variety of potential
+applications, where laboratory testing is available. For example, the OraSure ® device may be useful for the collection of a variety of antibodies or markers for infectious diseases or
+conditions in addition to HIV-1, such as antibodies to viral hepatitis. 
+In 2004,
+the Substance Abuse and Mental Health Services Administration (“SAMHSA”) issued proposed regulations for oral fluid drug testing for federal workers. These proposed regulations have since been withdrawn. If and when reissued in final form,
+these regulations may require certain modifications to our Intercept ® product in order to permit its use by federal workers. As a result, we are developing modifications to the
+Intercept ® collection device that we anticipate will be required by these regulations or are otherwise likely to be desired by our customers. 
+We are also currently developing additional drugs of abuse assays for use with our Intercept ® collection device. In October 2006, we signed a letter of intent with Roche Diagnostics to negotiate a joint development and commercialization agreement for homogeneous fully-automated oral
+fluid drugs of abuse assays that can be run on random access chemistry analyzers. The oral fluid assays are being developed for use with our Intercept ® collection device and Roche’s
+KIMS (kinetic information of microparticles in solution) technology. The assays will run on various automated analyzers to allow oral fluid samples to be processed with the same efficiency currently achieved with urine-based drug tests. Prototype
+assays for cocaine, opiates, methamphetamine and amphetamine have been developed and the development of assays for PCP and cannabinoids (marijuana) continues to progress. 
+OTC Cryosurgical Systems Products 
+We
+currently sell our Histofreezer ® cryosurgical systems product in the physicians’ office or professional market. This product has been approved by the FDA for the treatment of a total
+of nine different types of benign skin lesions. Our OTC cryosurgical product has been approved by the FDA for two types of skin lesions – common warts and plantar warts. 
+We believe that one or more of the seven remaining Histofreezer ® indications may be attractive to the OTC market. We have completed clinical trials of an OTC cryosurgical product for one of these indications, and have submitted an application for FDA 510(k) clearance of that
+product. 
+Business Strategy 
+We have
+adopted a multi-part growth strategy, pursuant to which we intend to leverage our extensive diagnostic experience in order to maximize the available opportunities from our existing products and 
+7 
+Table of Contents 
+technologies, and supplement our existing product pipeline by accessing other technologies and products. We intend to follow a disciplined approach to
+maximize the value of our business for the benefit of our stockholders. 
+Our overall vision is to become a recognized global leader focused
+on providing innovative diagnostic solutions that add substantial value to existing and emerging healthcare needs. In order to achieve this vision, our business strategy includes the following key elements: 
+• 
+Extension of Base Businesses . We intend to maximize the sales potential of our existing
+product lines and technologies in the markets where they are currently sold, with a focus on expanding, where possible, the number of our oral fluid product offerings. Under this part of the strategy, we intend to fully capitalize on the potential
+market reach of our OraQuick ® , OraSure ® , Intercept ® ,
+Histofreezer ® and OTC cryosurgical products by investing in our sales and marketing efforts where appropriate, making product improvements and enhancements, and optimizing our distribution
+channels. We also intend to expand the reach of our existing products and technology platforms into new markets and will focus specifically on expanding into international markets. 
+• 
+Infectious Disease Testing . We will pursue new products and technology platforms in the
+infectious disease, point-of-care testing business to supplement our existing product pipeline. This may include either the development of new infectious disease products or the acquisition of new technologies or products. An important new product
+under clinical development is a rapid HCV test on our OraQuick ® platform. 
+• 
+OTC Opportunities . We intend to identify or develop products that can be sold in the OTC
+or retail marketplace. A significant opportunity that we are pursuing under this part of our strategy is to seek FDA approval to sell our OraQuick ® rapid HIV-1/2 antibody test in the United
+States OTC market. We are also working to expand the international distribution of our OTC cryosurgical product. 
+• 
+Operational Improvements . We intend to remain focused on the continuous improvement of our operations. These improvements will
+include, but not be limited to, expanding the use of automated manufacturing for our product lines as demand increases, expanding the global sourcing of components and assemblies to achieve efficiencies and cost improvements, making infrastructure
+and information technology investments as needed to improve effectiveness and productivity, and modifying our processes in order to continuously improve quality and the effectiveness of our operations. 
+Research and Development 
+In 2007, our research and development activities focused primarily on the development of a rapid HCV test using our OraQuick ® technology platform, clinical
+and regulatory activities related to obtaining a CE mark for the OraQuick ADVANCE ® test, clinical work to obtain FDA approval for use of OraQuick ® in the United States OTC market, and development of certain improvements to existing products in the OraQuick ® , Intercept ® and cryosurgical wart removal product lines. 
+From time to time, we supplement our own research and
+development activities by funding external research at universities and certain other entities. We may continue to fund external research. 
+Research and development expenses totaled $14.1 million in 2007, $8.6 million in 2006 and $5.3 million in 2005. These expenses include the costs associated with research and development, regulatory affairs, clinical trials and product
+support. 
+Sales and Marketing 
+We
+attempt to reach our major target markets through a combination of direct sales, strategic partnerships and independent distributors. Our marketing strategy is to raise awareness through a full array of marketing activities, which include trade
+shows, print advertising, special programs and distributor promotions, to support sales in each target market. 
+8 
+Table of Contents 
+We market our products in the United States and internationally. Revenues attributable to customers in
+the United States were $64.6 million, $56.8 million and $59.9 million in 2007, 2006 and 2005, respectively. Revenues attributable to international customers amounted to $18.1 million, $11.4 million and $9.5 million, or 22%, 17% and 14% of our total
+revenues, in 2007, 2006 and 2005, respectively. 
+Infectious Disease Testing 
+We market the OraQuick ADVANCE ® 
+rapid HIV-1/2 antibody test directly to customers in the public health market for HIV testing. This market consists of a broad range of clinics and laboratories and includes states, counties, the Centers for Disease Control and Prevention
+(“CDC”), SAMHSA and other governmental agencies, family planning clinics, colleges and universities, correctional facilities and the military. There are also a number of organizations in the public health market, such as AIDS service
+organizations and various community-based organizations set up primarily for the purpose of encouraging and enabling HIV testing. 
+Abbott Laboratories (“Abbott”) is our exclusive distributor of OraQuick
+ADVANCE ® in the U.S. hospital market and non-exclusive distributor in the U.S. physicians’ office marketplace. As our exclusive distributor to hospitals, Abbott sells OraQuick
+ADVANCE ® to federal hospitals under the terms of our Federal Supply Schedule on file with the General Services Administration. Under our agreement with Abbott, we have retained
+exclusive rights for all other markets, including sales to the public health and criminal justice markets, the military, the CDC, SAMHSA and other governmental agencies. We have a small sales force that supports Abbott in order to maximize the
+penetration of OraQuick ADVANCE ® in the hospital market. The initial term of our agreement with Abbott expired at the end of 2007, and the agreement has been extended for 2008
+pursuant to its annual renewal terms. 
+We currently distribute our OraQuick ® test in several foreign countries. During 2007, we obtained a CE mark for this product and launched sales in the United Kingdom. We expect to increase the number of countries where this product
+is sold as we find new distributors and complete registrations in additional countries. 
+We also market the OraSure ® oral fluid collection device for HIV-1 testing, separately and as a kit in combination with laboratory testing services. To better serve our public
+health customers, we have entered into agreements with two commercial laboratories to provide prepackaged OraSure ® test kits, with prepaid laboratory testing and specimen shipping costs
+included. We also sell the OraSure ® device in the international public health market. 
+We are currently conducting clinical trials for FDA approval of a rapid HCV test using the
+OraQuick ® platform, and plan to apply for CLIA waiver, a CE mark and other international registrations. We intend to sell this product on a worldwide basis. We have entered into agreements
+with Schering-Plough to collaborate on the development and promotion of our OraQuick ® HCV test for use with oral fluid. Under the terms of these agreements, we have been and will be
+reimbursed by Schering-Plough for a portion of our costs to develop the test and obtain regulatory approvals, and Schering-Plough will provide detailing and other promotional support for the test in the physicians’ office market in the United
+States and internationally. 
+Substance Abuse Testing 
+Our substance abuse testing products are marketed to laboratories serving the workplace testing, forensic toxicology, criminal justice and drug rehabilitation markets. 
+We have entered into agreements for the distribution of Intercept ® collection devices and associated MICRO-PLATE assays for drugs-of-abuse testing in the workplace testing market in the United States and Canada through several laboratory distributors, including Quest Diagnostics
+(“Quest”) and Clinical Reference Laboratory, and internationally for workplace, criminal justice and forensic toxicology testing through Bio-Rad Laboratories, Concateno (which acquired our prior distributor, Altrix HealthCare, plc) and
+other distributors. In 
+9 
+Table of Contents 
+some cases, we assist our laboratory customers in customizing their testing services by selling them equipment required to test oral fluid specimens
+collected with the Intercept ® device. 
+The forensic toxicology market in the
+United States for our substance abuse testing products consists of several hundred laboratories including federal, state and county crime laboratories, medical examiner laboratories and reference laboratories. The criminal justice market consists of
+a wide variety of entities in the criminal justice system that require drug screening, such as pre-trial services, parole and probation officials, police forces, drug courts, prisons, drug treatment programs and community/family service programs.
+We also distribute our Q.E.D. ® 
+saliva alcohol test primarily through various distributors in the United States and internationally. The markets for alcohol testing are relatively small and fragmented with a broad range of legal and procedural barriers to entry. Markets
+range from law enforcement testing to workplace testing of employees in safety sensitive occupations. Typical usage situations include pre-employment, random, post-accident, reasonable-cause and return-to-duty testing. 
+Cryosurgical Systems 
+Most of our Histofreezer ® sales occur
+in the United States to distributors that, in turn, resell the product to primary care physicians and podiatrists in the United States. Major U.S. distributors include Cardinal Healthcare, McKesson HBOC, Physicians Sales & Service,
+AmerisourceBergen Corporation, and Henry Schein. Internationally, we have a sales office in Reeuwijk, The Netherlands, and sell the Histofreezer ® product through a network of distributors
+in more than 20 countries worldwide. 
+In past years, we sold a cryosurgical wart
+removal product similar to Histofreezer ® in the OTC market in the United States and Canada pursuant to a distribution agreement with Prestige, the owner of the Compound W ® line of wart removal products. That distribution agreement terminated at the end of 2007, and we are currently evaluating alternative strategies for the distribution of this product in the
+United States and Canada. Additionally, we distribute cryosurgical wart removal products in the OTC footcare market in Europe, Australia and New Zealand through our distributor, SSL, under its Scholl and Dr. Scholl tradenames, and in the OTC
+market in Mexico under the POINTTS tradename through our distributor, Genomma Labs. We have also entered into new agreements with Genomma Labs for distribution of our OTC cryosurgical wart product in several Central and South American countries and
+in South Africa. 
+Insurance Risk Assessment 
+We currently market the OraSure ® oral
+fluid collection device for use in screening life insurance applicants in the United States and internationally to test for three of the most important underwriting risk factors: HIV-1, cocaine and cotinine (a metabolite of nicotine). Devices are
+sold to insurance testing laboratories, including Quest, Heritage Labs and Clinical Reference Laboratory. These laboratories in turn provide the devices to insurance companies, usually in combination with testing services. 
+We also maintain a direct sales force that promotes use of the OraSure ® device directly to insurance companies for life insurance risk assessment. Insurance companies then make their own decision regarding which laboratory to use to supply their collection devices and testing services.
+Our OraSure ® Western blot confirmatory test was previously distributed through BMX to laboratories and is used to confirm oral fluid specimens
+collected with our OraSure ® device that initially test positive for HIV-1. Because BMX elected not to renew the Western blot agreements after December 31, 2007, we now distribute the
+Western blot test directly to our laboratory customers. 
+Because insurance companies
+are in various stages of their adoption of the OraSure ® device, there exists a wide range of policy limits where the product is being applied. Some insurance companies have chosen to extend
+their testing to lower policy limits where they did not test at all before, while others have used OraSure ® to 
+10 
+Table of Contents 
+replace some of their blood and urine-based testing. In general, most of our insurance company customers use the OraSure ® device in connection with life insurance policies having face amounts of up to $250,000, with some customers using the device for policies of up to $500,000 in amount. 
+In recent years, we have experienced a decline in sales of OraSure ® and related assays for insurance testing, primarily due to a reduction in the number of applications for life insurance policies and changes in underwriting requirements, as well as some consolidation in the industry
+leading to a reevaluation of testing methods. 
+We also sell our AUTO-LYTE ® assays and reagents in the insurance testing market directly to laboratories, including Heritage Labs and Clinical Reference Laboratory. 
+International Markets 
+We sell most
+of our products into international markets primarily through distributors with knowledge of their local markets. Principal markets include foreign governments, physicians’ offices, insurance risk assessment, substance abuse, public health and
+laboratory testing. 
+We assist our international distributors in registering the products and obtaining required regulatory approvals in
+each country, and we provide training and support materials. Our international marketing program includes direct assistance to distributors in arranging for laboratory services, cooperation from screening test manufacturers and performance of
+Western blot confirmatory tests when necessary. 
+Significant Products and Customers 
+Several different products have contributed significantly to our financial performance, accounting
+for 10% or more of total revenues during the past three years. The OraQuick ® rapid HIV testing products, the cryosurgical systems products, and the OraSure ® and Intercept ® oral fluid collection devices accounted for total revenues of $32.7 million, $23.5 million and $15.5 million in 2007, $25.6 million, $17.3
+million and $15.1 million in 2006, and $21.6 million, $22.7 million and $15.9 million in 2005, respectively. As new products are developed and commercialized, we expect to receive a greater portion of our revenues from these products. 
+We currently have two customers, Quest and Abbott, which accounted for 11% and 10% of our total revenues, respectively, during 2007. The loss of Quest or
+Abbott, or a significant decrease in the volume of products purchased by either customer, could have a material adverse effect on our results. 
+Revenue
+by Segment 
+We operate our business within one reportable segment and all of our revenues are generated from this one segment. Our net
+revenue is generated by our product sales and licensing and product development activities. For more information about our revenues from external customers, income and total assets, please see the sections entitled “Selected Financial
+Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report. 
+Supply and Manufacturing 
+We manufacture our OraQuick
+ADVANCE ® test in our Bethlehem, Pennsylvania facility. In addition, we have entered into a supply agreement for the assembly of the OraQuick ® device in Thailand, in order to supply certain international markets. This supply agreement had an initial term of one year, and automatically renews for additional annual periods unless either party provides a
+timely notice of termination prior to the end of an annual period. We believe that other firms would be able to manufacture the OraQuick ® test on terms no less favorable than those set
+forth in the agreement if the Thailand contractor would be unable or unwilling to continue manufacturing this product. 
+11 
+Table of Contents 
+We can purchase the HIV antigen and the
+nitrocellulose required for the OraQuick ® test only from a limited number of sources. The antigen is currently purchased from a single contract supplier under a long-term agreement with an
+initial term ending in January 2010 and one-year automatic renewal terms thereafter. The nitrocellulose used in the test is also provided by a single contract supplier, under a supply agreement with a five-year term ending in 2009. If for any reason
+these suppliers are unwilling or no longer able to supply our antigen or nitrocellulose needs, we believe that alternative supplies could be obtained at a competitive cost. However, a change in the antigen or nitrocellulose would require FDA
+approval and some additional development work. This in turn would require significant time to complete and could disrupt our ability to manufacture and sell the OraQuick ® device.
+We manufacture both the OraSure ® and Intercept ® collection devices in our Bethlehem, Pennsylvania facility, and we expect to continue to do so for the foreseeable future. 
+The oral fluid Western blot HIV-1 confirmatory test is currently manufactured in our Bethlehem, Pennsylvania facility. The HIV antigen needed to
+manufacture the Western blot test is currently available from only a limited number of sources. For many years, we purchased the antigen for this product from BMX on an exclusive basis. Our agreement with BMX for the supply of HIV-1 antigen
+terminated on December 31, 2007. As a result, we purchased an additional two-year supply of the antigen from BMX as permitted under the agreement. When this additional supply is combined with our existing inventory of the HIV-1 antigen, we
+believe we have a sufficient supply of the HIV-1 antigen to meet the demand for our Western blot test for at least the next three to four years. 
+Histofreezer ® is assembled in The
+Netherlands by Koninklijke, Utermöhlen, N.V. (“Utermöhlen”), the company from which we acquired the product in 1998. We purchase the product pursuant to an exclusive production agreement. The cryosurgical wart removal products
+distributed in OTC markets are supplied by vendors located in the United States. We believe that additional suppliers of all of our cryosurgical products are available on terms no less favorable than the terms of our existing supply agreements in
+the event that our current suppliers would be unable or unwilling to continue manufacturing these products. 
+Our AUTO-LYTE ® and MICRO-PLATE assays are manufactured in our Bethlehem, Pennsylvania facility. These tests require the production of highly specific and
+sensitive antibodies corresponding to the antigen of interest. Substantially all our antibody requirements are provided by contract suppliers. We believe that we have adequate reserves of antibody supplies and that we have access to sufficient raw
+materials for these products. 
+The Q.E.D. ® saliva alcohol test is manufactured and packaged for shipment in our Bethlehem, Pennsylvania facility. 
+Employees 
+As of December 31, 2007, we had 282 full-time employees, including 70 in sales, marketing and client services; 24 in research and
+development; 134 in operations, manufacturing, quality control, information systems, purchasing and shipping; 28 in regulatory affairs; and 26 in administration and finance. This compares to 250 employees as of December 31, 2006. Our employees
+are not currently represented by a collective bargaining agreement. 
+Competition 
+The diagnostic industry is a multi-billion dollar international industry and is intensely competitive. Many of our competitors are substantially larger
+than we are, and they have greater financial, research, manufacturing and marketing resources. 
+12 
+Table of Contents 
+Important competitive factors for our products include product quality, performance, price, ease of use,
+customer service and reputation. Industry competition is based on the following: 
+• 
+Scientific and technological capability; 
+• 
+Proprietary know-how; 
+• 
+The ability to develop and market products and processes; 
+• 
+The ability to obtain FDA or other regulatory approvals; 
+• 
+The ability to manufacture products that meet applicable FDA requirements (i.e., good manufacturing practices); 
+• 
+Access to adequate capital; 
+• 
+The ability to attract and retain qualified personnel; and 
+• 
+The availability of patent protection. 
+A few large corporations produce a wide variety of diagnostic tests and other medical devices and equipment. A larger number of mid-size companies generally compete only in the diagnostic industry and a significant number of small companies
+produce only a few diagnostic products. As a result, the diagnostic test industry is highly fragmented and segmented. 
+The future market
+for diagnostic tests is expected to be characterized by consolidation, greater cost consciousness and tighter reimbursement policies. The purchasers of diagnostic products are expected to place increased emphasis on lowering costs, reducing
+inventory levels, automation, service and volume discounts. The increased complexity of the market is expected to force many competitors to enter into joint ventures or license certain products or technologies. 
+We expect competition to intensify as technological advances are made and become more widely known, and as new products reach the market. Furthermore,
+new testing methodologies could be developed in the future that render our products impractical, uneconomical or obsolete. There can be no assurance that our competitors will not succeed in developing or marketing technologies and products that are
+more effective than those we develop or that would render our technologies and products obsolete or otherwise commercially unattractive. In addition, there can be no assurance that our competitors will not succeed in obtaining regulatory approval
+for these products, or introduce or commercialize them before we can do so. These developments could have a material adverse effect on our business, financial condition and results of operations. 
+Several companies market or have announced plans to market oral specimen collection devices and
+tests both within and outside the United States. We expect the number of devices competing with our Intercept ® , OraQuick ® and
+OraSure ® devices to increase as the benefits of oral specimen-based testing become more widely accepted. 
+Competition in the market for HIV testing is intense and is expected to increase. We believe that the principal competition will come from existing laboratory-based blood tests, point-of-care rapid blood tests,
+laboratory-based urine assays or other oral fluid-based tests that may be developed. Our competitors include specialized biotechnology firms, as well as pharmaceutical companies with biotechnology divisions and medical diagnostic companies.
+Significant competitors for our OraQuick ADVANCE ® rapid test, such as the Ortho Diagnostics division of Johnson & Johnson, Bio-Rad Laboratories and Abbott, sell laboratory-based HIV-1/2 EIAs, and Maxim Biomedical (formerly Calypte, Inc.) sells an HIV-1
+screening test for urine, in the United States. MedMira and Trinity Biotech each sell competing rapid HIV-1 blood tests, and Bio-Rad Laboratories and Inverness Medical/Chembio sell competing rapid HIV-1/2 blood tests in the United States. These
+tests compete with our OraQuick ADVANCE ® test in hospitals or other laboratory settings. In addition, Trinity Biotech and Inverness Medical/Chembio have received CLIA waivers for
+their rapid HIV tests, and these tests compete with our OraQuick ADVANCE ® test in the markets outside of the traditional hospital and laboratory settings. These companies, or 
+13 
+Table of Contents 
+others, may continue to expand the bodily fluids with which a rapid HIV test may be performed, or develop and commercialize new rapid HIV tests, which would
+provide further competition for our OraQuick ADVANCE ® test. We believe other companies may also seek FDA approval to sell competing rapid HIV tests in the future. 
+Internationally, our OraQuick ADVANCE ® 
+test competes against rapid HIV tests sold by a number of other entities, and often these competing tests are sold at prices substantially below the prices we charge for our OraQuick ADVANCE ® test. Inverness Medical sells a rapid HIV-1/2 blood test outside the United States and Calypte has developed a rapid oral fluid HIV test which is now being sold in certain foreign countries. 
+The Intercept ® drug testing system
+competes with laboratory-based drug testing products and services using testing matrices such as urine, hair, sweat and oral fluid. Major competitors include Ansys Technologies, Inc., Dade Behring, Psychemedics and Immunalysis. 
+Our MICRO-PLATE oral fluid drug assays, which are sold for use with the Intercept ® and OraSure ® collection devices, are expected to come under increasing competitive pressure from “home-brew” assays
+developed internally by our laboratory customers. Our oral fluid MICRO-PLATE assays also compete with urine-based homogeneous assays that are run on fully-automated, random access analyzers. These tests provide strong competitive pressure because
+they provide the benefits of automation, including lower costs and short turn-around times. In addition, we believe our competitors are developing oral fluid tests suitable for use on these fully automated homogeneous assay systems and these assays,
+if and when they are developed and commercialized, will represent a significant competitive threat to our oral fluid MICRO-PLATE business. In order to meet this competition, we are developing fully-automated homogeneous oral fluid drugs of abuse
+assays with Roche Diagnostics for use with our Intercept ® device. 
+Our
+MICRO-PLATE drugs-of-abuse reagents sold in the forensic toxicology market are targeted to forensic testing laboratories where sensitivity, automation and “system solutions” are important. In the past, these laboratories have typically had
+to rely on radioimmunoassay test methods to provide an adequate level of sensitivity. Radioimmunoassays require radioactive materials, which have a short shelf-life and disposal problems. Our MICRO-PLATE tests meet the laboratories’ sensitivity
+needs, run on automated equipment, are not radioimmunoassays, and are offered to the laboratory as a complete system solution of reagents, instrumentation and software to meet the specific needs of each customer. We compete with both homogeneous and
+heterogeneous tests manufactured by many companies. Significant competitors in the market for these assays include Microgenics, Inc., Roche Diagnostics and Immunalysis. 
+Sales of our AUTO-LYTE ® urine assays
+have declined substantially during the past several years, primarily due to competition from “home-brew” assays developed internally by our laboratory customers, which can be produced at a cost lower than the price typically paid for our
+products. Many of our customers no longer purchase our AUTO-LYTE ® assays, and we eventually expect to stop selling this product line. 
+The Histofreezer ® product’s
+delivery system and operating temperature, which is warmer than liquid nitrogen, provide us with the opportunity to target sales to primary care physicians, such as family practitioners, pediatricians and podiatrists. We do not generally target
+sales to dermatologists because they have the volume of patients required to support the capital costs associated with a liquid nitrogen delivery system, which is also used to remove warts and other benign skin lesions. Major competitors for the
+Histofreezer ® product include Cryosurgery, Inc. in the United States and Wartner in Europe. 
+Competition in the United States and Canada OTC markets comes primarily from cryosurgical products
+sold by Prestige under the Compound W ® and Wartner ® tradenames and by Schering-Plough under the Dr. Scholl’s ® brand. Salicylic acid wart removal products also compete against our OTC cryosurgical product. Internationally, our OTC products compete against a cryosurgical product sold by Wartner ® . 
+Q.E.D. ® has two direct competitors, Ansys Technologies, Inc. and Chematics. These companies offer semi-quantitative saliva-based alcohol tests and have received DOT approval. Indirect competitors who
+offer breath 
+14 
+Table of Contents 
+testing equipment include Intoximeters, Dräger and CMI. Although there are lower priced tests on the market that use oral fluid or breath as a test
+medium, these tests are qualitative tests that are believed to be substantially lower in quality and provide fewer benefits than our Q.E.D. ® test. 
+Patents and Proprietary Information 
+We seek patent
+and other intellectual property rights to protect and preserve our proprietary technology and our right to capitalize on the results of our research and development activities. We also rely on trade secrets, know-how, continuing technological
+innovations and licensing opportunities to provide competitive advantages for our products in our markets and to accelerate new product introductions. We regularly search for third-party patents in fields related to our business to shape our own
+patent and product commercialization strategies as effectively as possible and to identify licensing opportunities. United States patents generally have a maximum term of 20 years from the date an application is filed. 
+We have ten United States patents and numerous foreign patents for the OraSure ® and Intercept ® collection devices and technology relating to oral fluid collection, containers for oral fluids, methods to test oral
+fluid, formulations for the manufacture of synthetic oral fluid, and methods to control the volume of oral fluid collected and dispersed. The patents expire from April 2009 to March 2018. We have also applied for additional patents, in both the
+United States and certain foreign countries, on such products and technology. 
+We
+have two United States patents for our OraQuick ADVANCE ® rapid HIV-1/2 antibody test, and we have several related patent applications pending for this product in the United States
+and internationally. The patents expire from March to April 2019. We have obtained licenses to certain lateral flow patents and to certain HIV-1 and HIV-2 patents held by other parties. We also have obtained a license to certain HCV patents which we
+intend to use to manufacture and sell a rapid HCV test on the OraQuick ® or other technology platform. We obtained these licenses through the payment of certain upfront fees and an agreement
+to pay ongoing royalties. We believe these fees and royalties are comparable to those generally paid by other companies under similar arrangements. 
+We may need to obtain licenses or other rights under, or enter into distribution or other business
+arrangements in connection with, certain other intellectual property patents in order to manufacture and sell the OraQuick ADVANCE ® test or other tests that use the same or similar
+technology platform. See Section 1A, entitled “Risk Factors,” for a further discussion of these issues. 
+We have five United
+States patents and numerous foreign patents issued for apparatuses and methods for the topical removal of skin lesions relating to our cryosurgical wart removal products, and we have a pending patent application related to these products in the
+United States and in certain foreign countries. The patents expire from March 2008 to August 2013. We have also licensed another patent relating to apparatuses and methods for the topical removal of skin lesions relating to our cryosurgical wart
+removal products. 
+We have four United States patents and numerous foreign patents
+and patent applications for the technology used in the Q.E.D. ® test. These patents expire from July 2008 to August 2009. These patents are related to the analog-to-digital technology color
+control systems and methods, systems and devices for the test, and detection of biochemical molecules. 
+We require our employees,
+consultants, outside collaborators and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed by or made
+known to the individual during the course of the individual’s relationship with us, is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all
+inventions conceived by the individual during his or her tenure with us will be our exclusive property. 
+We own rights to trademarks and service marks that we believe are necessary to conduct our business as currently operated. In the United States, we own the OraSure ® 
+, Intercept ® , OraQuick ® , OraQuick ADVANCE ® , 
+15 
+Table of Contents 
+Histofreezer ® , Q.E.D. ® and
+AUTO-LYTE ® trademarks. We also own many of these marks and others in several foreign countries. With respect to our international OTC cryosurgical products, the Scholl and Dr. Scholl
+tradenames are owned by SSL in Europe, Australia, New Zealand and other countries outside North and South America, and the POINTTS tradename is owned by Genomma Labs. 
+Although important, the issuance of a patent or existence of trademark or trade secret protection does not in itself ensure the success of our business. Competitors may be able to produce products competing with our
+patented products without infringing our patent rights. Issuance of a patent in one country generally does not prevent manufacture or sale of the patented product in other countries. The issuance of a patent is not conclusive as to validity or as to
+the enforceable scope of the patent. The validity or enforceability of a patent can be challenged by litigation after its issuance. If the outcome of such litigation is adverse to the owner of the patent, the owner’s rights could be diminished
+or withdrawn. Trade secret protection does not prevent independent discovery and exploitation of the secret product or technique. 
+Government Regulation
+General 
+Most of
+our products are regulated by the FDA, certain state and local agencies and comparable regulatory bodies in other countries. This regulated environment governs almost all aspects of development, production and marketing, including product testing,
+authorizations to market, labeling, promotion, manufacturing and recordkeeping. 
+All of our FDA-regulated products require some form of
+action by the FDA before they can be marketed in the United States. After approval or clearance by the FDA, we must continue to comply with other FDA requirements applicable to marketed products. Both before and after approval or clearance, failure
+to comply with the FDA’s requirements can lead to significant penalties or could disrupt our ability to manufacture and sell these products. In addition, the FDA could refuse permission to obtain certificates needed to export our products if
+the agency determines that we are not in compliance. 
+Domestic Regulation 
+Most of our products are regulated in the United States as medical devices. 
+There are two mechanisms by which regulated medical devices can be placed on the market in the United States. Some products may qualify for clearance under Section 510(k) of the Federal Food, Drug and Cosmetic
+Act. To obtain this clearance from the FDA, the manufacturer must provide a premarket notification that it intends to begin marketing the product, and show that the product is substantially equivalent to another legally marketed product (i.e., that
+it has the same intended use and is as safe and effective as a legally marketed device and does not raise different questions of safety and effectiveness). In some cases, the submission must include data from human clinical studies. Marketing may
+commence when the FDA issues a clearance letter finding substantial equivalence. An applicant must submit a 510(k) application at least 90 days before marketing of the affected product commences. Although FDA clearance may be granted within that
+90-day period, in some cases as much as a year or more may be required before clearance is obtained, if at all. 
+If the medical device does
+not qualify for the 510(k) procedure (either because it is not substantially equivalent to a legally marketed device or because it is required by statute and the FDA’s regulations to have an approved premarket application), the FDA must approve
+a premarket application, or PMA, before marketing can begin. PMAs must demonstrate, among other matters, that the medical device provides a reasonable assurance of safety and effectiveness. A PMA is typically a complex submission, including the
+results of preclinical and clinical studies. Preparing a PMA is a detailed and time-consuming process. Once a PMA has been submitted, the FDA is required to review the submission within 180 days. However, the FDA’s review may, and often is,
+much longer, often requiring one year or more, and may include requests for additional data and facility inspections before approval is granted, if at all. 
+16 
+Table of Contents 
+Some of our products are used for non-medical purposes and many of our drugs-of-abuse products sold to
+state crime laboratories are for forensic use. The FDA does not currently regulate products used for these purposes. 
+Every company that
+manufactures medical devices distributed in the United States must comply with the FDA’s Quality System Regulations (“QSRs”). These regulations govern the manufacturing process, including design, manufacture, testing, release,
+packaging, distribution, documentation and purchasing. In complying with the QSRs, manufacturers must continue to expend time, money and effort in the area of production and quality to ensure full technical compliance. Companies are also subject to
+other post-market and general requirements, including restrictions imposed on marketed products, promotional standards and requirements for recordkeeping and reporting of certain adverse reactions. If there are any modifications made to our marketed
+devices, a premarket notification or PMA may be required to be submitted to, and cleared or approved by, the FDA, before the modified device may be marketed. The FDA regularly inspects companies to determine compliance with the QSRs and other
+post-market requirements. Failure to comply with statutory requirements and the FDA’s regulations can result in warning letters, monetary penalties, suspension or withdrawal of regulatory approvals, operating restrictions, total or partial
+suspension of production, injunctions, product recalls, seizure of products and criminal prosecution. 
+The Clinical Laboratory Improvements Amendments of 1988, or CLIA, prohibit laboratories from performing tests for the purpose of providing information for the diagnosis, prevention or treatment of any disease or
+impairment of, or the assessment of, the health of human beings, unless there is in effect for such laboratories a certificate issued by the U.S. Department of Health and Human Services applicable to the category of examination or procedure
+performed. We consider the applicability of the requirements of CLIA in the design and development of our products. We have obtained a waiver of the CLIA requirements for both our OraQuick ADVANCE ® rapid HIV-1/2 antibody test and our Q.E.D. ® alcohol saliva test and may seek similar waivers for certain other products. A CLIA waiver allows certain
+customers to use the waived products that may not have been able to use them without complying with certain quality control and other requirements. 
+Certain of our products may also be affected by state regulations in the United States. For example, there are several states that restrict or do not currently permit oral fluid drug testing in the workplace or other markets. In addition,
+several states prohibit or limit the use of rapid, point-of-care HIV testing. We are presently working with legislators or regulators in certain of these states in an effort to modify or remove any restrictions affecting our ability to sell
+products. 
+International 
+We are also subject to regulations in foreign countries governing products, human clinical trials and marketing, and may need to obtain approval from international public health agencies, such as the World Health Organization, in order to
+sell products in certain countries. Approval processes vary from country to country, and the length of time required for approval or to obtain other clearances may in some cases be longer than that required for U.S. governmental approvals. We
+generally pursue approval only in those countries that we believe have a significant market opportunity. 
+The International Organization
+for Standardization (“ISO”) is a worldwide federation of national standards bodies from some 130 countries, established in 1947. The mission of the ISO is to promote the development of standardization and related activities in the world
+with a view to facilitating the international exchange of goods and services. ISO certification is a pre-requisite to use of the CE mark and indicates that our quality system complies with standards applicable to activities ranging from initial
+product design and development through production and distribution. The CE mark is a European Union (“EU”) requirement to sell products that fall under the scope of the Medical Devices Directive (“MDD”) and the In Vitro
+Diagnostic Directive (“IVDD”). The CE mark is evidence that the manufacturer and the product meet the requirements of all applicable directives, including the MDD and IVDD. 
+17 
+Table of Contents 
+We received authorization to use the CE mark for
+the OraQuick ADVANCE ® rapid HIV-1/2 test, the OraSure ® and Intercept ® 
+collection devices and our Histofreezer ® product line, and SSL International has obtained authorization to use the CE mark for our cryosurgical wart removal product in the OTC
+European footcare market. 
+We must also comply with certain registration requirements as dictated by Health Canada, prior to commencing
+sales in Canada. We have completed this process for several of our current products and may do so with respect to other products in the future. In addition, Canadian law requires manufacturers of medical devices to have a quality management system
+that meets various ISO requirements in order to obtain a license to sell their devices in Canada. 
+Anti-Kickback Laws 
+The Federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation, or receipt of any form of remuneration in return for, or
+to induce: 
+• 
+The referral of a person; 
+• 
+The furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental programs; or
+• 
+The purchase, lease, or order of, or the arrangement or recommendation of the purchasing, leasing, or ordering of any item or service reimbursable under Medicare,
+Medicaid, or other governmental programs. 
+Our products are or may be purchased by customers that will seek or receive
+reimbursement under Medicare, Medicaid or other governmental programs. Noncompliance with the federal anti-kickback legislation can result in exclusion from Medicare, Medicaid or other governmental programs, and/or restrictions on our ability to
+operate in certain jurisdictions, as well as civil and criminal penalties, any of which could have an adverse effect on our business and results of operations. 
+The Federal Civil Monetary Penalties Law prohibits the offering or transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s
+selection of a particular supplier of Medicare or Medicaid payable items or services. Noncompliance can result in civil money penalties of up to $10,000 for each wrongful act, assessment of three times the amount claimed for each item or service and
+exclusion from the Federal healthcare programs. 
+Many states have also adopted some form of anti-kickback laws. A determination of
+liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions. 
+Foreign Corrupt Practices Act 
+The U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits corporations and
+individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government
+official, government staff member, political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. Our present and future business has and will continue to be
+subject to the FCPA and various other laws, rules and/or regulations applicable to us as a result of our international sales. 
+Environmental Regulation 
+Because of the nature of our current and proposed research, development, and manufacturing
+processes, we are subject to stringent federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge and handling and disposal of materials and wastes.
+18 
+Table of Contents 
+The foregoing discussion of our business should be read in conjunction with the Financial Statements and
+accompanying notes included in Item 15 of this Annual Report. 
+ITEM 1A. Risk Factors 
+You should carefully consider the risks and uncertainties
+described below, together with all of the other information included in this Annual Report and our other SEC filings in considering our business and prospects. The risks and uncertainties described below are not the only ones facing us. Additional
+risks and uncertainties not disclosed or not presently known to us or that we currently deem immaterial also may impair our business operations. The occurrence of any of the following risks could harm our business, financial condition or results of
+operations. 
+Regulatory Risks 
+The Need to Obtain Regulatory Approvals and Respond to Changes in Regulatory Requirements Could Adversely Affect Our Business. 
+Many of our proposed and existing products are subject to regulation by the FDA and other governmental or public health agencies. In particular, we are subject to strict governmental controls on the development,
+manufacture, labeling, distribution and marketing of our products. In addition, we are often required to obtain approval or registration with foreign governments or regulatory bodies before we can import and sell our products in foreign countries.
+The process of obtaining required approvals or clearances from governmental or public health agencies can involve lengthy and detailed
+laboratory testing, human clinical trials, sampling activities and other costly, time-consuming procedures. These approvals can require the submission of a large amount of clinical data which may require significant time to obtain. It is also
+possible that a product will not perform at a level needed to generate the clinical data required to obtain an approval or clearance. The submission of an application to the FDA or other international regulatory authority does not guarantee that an
+approval or clearance to market the product will be received. Each authority may impose its own requirements and delay or refuse to grant approval or clearance, even though a product has been approved in another country or by another agency.
+Moreover, the approval or clearance process for a new product can be complex and lengthy. This time span increases our costs to develop
+new products as well as the risk that we will not succeed in introducing or selling them in the United States or other countries. 
+We are in the process of conducting clinical studies to support an application for FDA approval of
+our OraQuick ® HIV-1/2 test for sale in the United States OTC market and our OraQuick ® HCV test for professional use. There can be
+no assurance that these clinical trials will generate sufficient data to support FDA approval of either product or that FDA approval will be obtained. Failure to obtain or any delay in obtaining FDA approval for either product could significantly
+reduce future revenues, increase our costs and adversely affect our financial performance. 
+Newly promulgated or changed regulations could
+also require us to undergo additional trials or procedures, or could make it impractical or impossible for us to market our products for certain uses, in certain markets, or at all. For example, during 2004 SAMHSA, which is part of the U.S.
+Department of Health and Human Services, issued proposed regulations for the use of oral fluid drug testing for federal workers. Although the SAMHSA regulations have been withdrawn, if and when they are issued in final form, they could permit us to
+market and sell our oral fluid drug tests for use with federal workers only if certain modifications are made to our products. If we are unable to make these modifications, or if the modifications require significant time to develop, our ability to
+sell our oral fluid drug testing products in that market could be limited. In addition, the extent to which 
+19 
+Table of Contents 
+the final SAMHSA regulations permit the sale of our oral fluid drug tests for use with federal workers may influence whether customers in the workplace,
+criminal justice or other unregulated markets use our products. 
+The regulations in some states may restrict our ability to sell products
+in those states. For example, certain states restrict or do not allow the testing of oral fluid for drugs of abuse or the rapid, point-of-care testing for HIV. While we intend to work with state legislators and regulators to remove or modify any
+applicable restrictions, there is no guarantee we will be successful in these efforts. 
+In addition, all in vitro diagnostic
+products that are to be sold in the EU must bear the CE mark indicating conformance with the essential requirements of the IVDD. We are not permitted to sell our products in the EU without a CE mark, which could lead to the termination of strategic
+alliances and agreements for sales of those products in the EU. We have obtained the CE mark for several of our existing products. We also intend to CE mark certain of our future products and are not aware of any material reason why we will be
+unable to do so. However, there can be no assurance that compliance with all provisions of the IVDD will be demonstrated and the CE mark will be obtained or maintained for all products that we desire to sell in the EU. 
+The Inability to Extend the Shelf Life of Our OraQuick ADVANCE ® HIV-1/2 Test Could Adversely Affect Our Business. 
+The shelf life of a product is the period of time
+from the date of manufacture during which the product is expected to perform in accordance with its specifications and labeling. In order to successfully sell our products, they need to have a shelf life that is long enough to cover the time
+required to distribute the product to a customer and provide the customer with a reasonable period to use that product. 
+Where a product
+has a short shelf life, our ability to sell that product may be adversely affected. In order to extend the shelf life, we may be required to submit real time stability data supporting such an extension to the FDA for approval. 
+Our OraQuick ADVANCE ® HIV-1/2
+test currently has a shelf life of six months. While this shelf life has not prevented us from selling into the public health and hospital markets in the United States, it has limited our ability to sell that test internationally. We also believe a
+shelf life of at least 12 months will be required to sell the OraQuick ® HIV-1/2 test successfully into the United States OTC market. 
+We are working to extend the shelf life of our OraQuick ADVANCE ® test. However, there can be no assurance that we will be successful in obtaining such an extension or its approval by the FDA or regulatory authorities in foreign countries, or that such extension will occur within a
+time frame consistent with our objectives. If we are unsuccessful or delayed in obtaining a shelf life extension, our ability to sell the OraQuick ® test may be adversely affected and we may
+not be able to sell it successfully into the United States OTC market. 
+Failure to Comply With FDA or Other Regulatory Requirements May
+Require Us to Suspend Production of Our Products or Institute a Recall Which Could Result in Higher Costs and a Loss of Revenues. 
+We
+can manufacture and sell many of our products, both in the United States and internationally, only if we comply with regulations of government agencies such as the FDA. We have implemented quality and other systems that are intended to comply with
+applicable regulations. 
+Although we believe that we have adequate processes in place to ensure compliance with these requirements, the FDA
+or other regulatory bodies could force us to stop manufacturing, selling or exporting our products if it concludes that we are out of compliance with applicable regulations. The FDA and other regulatory bodies could also require us to recall
+products if we fail to comply with applicable regulations, which could force us to stop manufacturing such products. Such actions by the FDA could adversely affect our revenues. See the Section entitled “Government Regulation” in
+Item 1 of this Annual Report for a further discussion of applicable regulatory requirements. 
+20 
+Table of Contents 
+We Are Subject to Numerous Government Regulations in Addition to FDA Requirements, Which Could
+Increase Our Costs or Affect Our Operations. 
+In addition to FDA and other regulations described previously, numerous laws relating to
+such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, disposal of hazardous substances and labor or employment practices impact our business operations. Compliance with these laws or any new
+or changed laws regulating our business could result in substantial costs. Because of the number and extent of the laws and regulations affecting our industry, and the number of governmental agencies whose actions could affect our operations, it is
+impossible to reliably predict the full nature and impact of these requirements. To the extent the costs and procedures associated with complying with these laws and requirements are substantial or it is determined that we do not comply, our
+business and results of operations could be adversely affected. 
+Risks Relating to Our Industry, Business and Strategy 
+Our Ability to Sell Products Could be Affected by Competition From New and Existing Diagnostic Products and by Treatments or Other Non-Diagnostic
+Products Which May be Developed. 
+The diagnostic industry is focused on the testing of biological specimens in a laboratory or at the
+point of care and is highly competitive and rapidly changing. Many of our principal competitors have considerably greater financial, technical and marketing resources. As new products enter the market, our products may become obsolete or a
+competitor’s products may be more effective or more effectively marketed and sold than ours. If we fail to maintain and enhance our competitive position, our customers may decide to use products developed by competitors which could result in a
+loss of revenues. 
+We also face competition from products which may be sold at a lower price. To the extent this competition arises,
+customers may choose to buy lower cost products from third parties or we may be forced to sell our products at a lower price, both of which could result in a loss of revenues or a lower gross margin contribution from the sale of our products.
+In addition, the development and commercialization of products outside of the diagnostics industry could adversely affect sales of our
+product. For example, the development of a safe and effective vaccine to prevent HIV or preventative treatments for other diseases or conditions that our products are designed to detect, could reduce, or eventually eliminate, the demand for our HIV
+or other diagnostic products and thereby result in a loss of revenues. 
+Our Research, Development and Commercialization Efforts May Not
+Succeed and Our Competitors May Develop and Commercialize More Effective or Successful Diagnostic Products. 
+In order to remain
+competitive, we must regularly commit substantial resources to research and development and the commercialization of new products. 
+The
+research and development process generally takes a significant amount of time from inception to commercial product launch. This process is conducted in various stages. During each stage there is a substantial risk that we will not achieve our goals
+on a timely basis, or at all, and we may have to abandon a product in which we have invested substantial amounts. 
+During 2007, 2006 and
+2005, we incurred $14.1 million, $8.6 million and $5.3 million, respectively, in research and development expenses. We expect to continue to incur significant costs from our research and development activities. 
+Successful products require significant development and investment, including testing, to demonstrate their cost-effectiveness or other benefits prior to
+commercialization. In addition, regulatory approval must be obtained 
+21 
+Table of Contents 
+before most products may be sold. Additional development efforts on these products will be required before any regulatory authority will review them.
+Regulatory authorities may not approve these products for commercial sale. In addition, even if a product is developed and all applicable regulatory approvals are obtained, there may be little or no market for the product. Accordingly, if we fail to
+develop or gain commercial acceptance for our products, or if competitors develop more effective products or a greater number of successful new products, customers may decide to use products developed by our competitors. This would result in a loss
+of revenues and adversely affect our results of operations, cash flows and business. 
+If We Lose Our Key Personnel or Are Unable to
+Attract and Retain Qualified Personnel as Necessary, Our Business Could be Harmed. 
+Our success will depend to a large extent upon the
+contributions of our executive officers, management and sales, marketing, operations and scientific staff. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among medical
+products businesses. 
+If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may
+experience constraints that will adversely affect our ability to effectively manufacture, sell and market our products, to meet the demands of our strategic partners in a timely fashion, or to support internal research and development programs.
+Although we believe we will be successful in attracting and retaining qualified personnel, competition for experienced scientists and other personnel from numerous companies and academic and other research institutions may limit our ability to do so
+on acceptable terms. 
+Future Acquisitions or Investments Could Disrupt Our Ongoing Business, Distract Our Management, Increase Our
+Expenses and Adversely Affect Our Business. 
+We may consider strategic acquisitions or investments as a way to expand our business in
+the future. These activities, and their impact on our business, are subject to the following risk factors: 
+• 
+Suitable acquisitions or investments may not be found or consummated on terms or schedules that are satisfactory to us; 
+• 
+We may be unable to successfully integrate an acquired company’s personnel, assets, management systems and technology into our business;
+• 
+Acquisitions may require substantial expense and management time and could disrupt our business; 
+• 
+An acquisition and subsequent integration activities may require greater capital resources than originally anticipated at the time of acquisition;
+• 
+An acquisition may result in the incurrence of unexpected expenses, the dilution of our earnings or our existing stockholders’ percentage ownership, or
+potential losses from undiscovered liabilities not covered by an indemnification from the seller(s) of the acquired business; 
+• 
+An acquisition may result in the loss of existing key personnel or customers or the loss of the acquired company’s key personnel or customers;
+• 
+The benefits expected to be derived from an acquisition may not materialize and could be affected by numerous factors, such as regulatory developments, general
+economic conditions and increased competition; and 
+• 
+An acquisition of a foreign business may involve additional risks, including, but not limited to, foreign currency exposure, liability under foreign laws or
+regulations and not being able to successfully assimilate differences in foreign business practices or overcome language or cultural barriers. 
+The occurrence of one or more of the above or other factors may prevent us from achieving all or a significant part of the benefits expected from an acquisition or investment. This may adversely affect our financial
+condition, results of operations and ability to grow our business or otherwise achieve our financial or strategic objectives. 
+22 
+Table of Contents 
+Our Revenues Could be Affected by Third-Party Reimbursement Policies and Potential Cost Constraints.
+The end-users of our products are expected to increasingly include hospitals, physicians and other healthcare providers. Use of our
+products could be adversely impacted if these end-users do not receive reimbursement for the cost of our products by their patients’ healthcare insurers or payors. Our net sales could also be adversely affected by changes in reimbursement
+policies of governmental or private healthcare payors, including in particular the level of reimbursement for our products. In the United States, healthcare providers such as hospitals and physicians who purchase diagnostic products generally rely
+on third-party payors, principally private health insurance plans, Medicare and Medicaid, to reimburse all or part of the cost of the product and procedure. We believe that the overall escalating cost of medical products and services has led to, and
+will continue to lead to, increased pressures on the healthcare industry, both foreign and domestic, to reduce the cost of products and services. Given the efforts to control and reduce healthcare costs in the United States in recent years,
+currently available levels of reimbursement may not continue to be available in the future for our existing products or products under development. Third-party reimbursement and coverage may not be available or adequate in either the United States
+or foreign markets, current reimbursement amounts may be decreased in the future and future legislation, and regulation or reimbursement policies of third-party payors may reduce the demand for our products or our ability to sell our products on a
+profitable basis. 
+Increases in Demand for Our Products Could Require Us to Expend Considerable Resources to Meet the Demand or Harm Our
+Customer Relationships if We are Unable to Meet That Demand. 
+If we experience significant or unexpected increases in the demand for our
+products, we and our suppliers may not be able to meet that demand without expending additional capital resources. These capital resources could involve the cost of new machinery or even the cost of new manufacturing facilities. This would increase
+our capital costs, which could adversely affect our earnings. Our suppliers may be unable or unwilling to expend the necessary capital resources or otherwise expand their capacity. In addition, new manufacturing equipment or facilities may require
+FDA approval before they can be used to manufacture our products. To the extent we are unable to obtain or are delayed in obtaining such approvals, our ability to meet the demand for our products could be adversely affected. 
+If we or our suppliers are unable to develop necessary manufacturing capabilities in a timely manner, our sales could be adversely affected. Failure to
+cost-effectively increase production volumes, if required, or lower than anticipated yields or production problems encountered as a result of changes that we or our suppliers make in our manufacturing processes to meet increased demand, could result
+in shipment delays or interruptions and increased manufacturing costs, which could also have a material adverse effect on our revenues and profitability. 
+Our inability to meet customer demand for our products could also harm our customer relationships and impair our reputation within the industry. This, in turn, could have a material adverse effect on our business and
+prospects. 
+Risks Relating to Collaborators 
+Our Failure to Maintain Existing Distribution Channels, or Develop New Distribution Channels, May Result in Lower Revenues. 
+We have marketed many of our products by collaborating with laboratories, diagnostic companies and distributors. Our sales depend to a substantial degree on our ability to sell products to these customers and on the
+marketing abilities of the companies with which we collaborate. 
+Some of our distributors or other customers may not fulfill their
+contractual obligations to us. Although we will try to maintain and expand our business with distributors and customers and require that they fulfill their 
+23 
+Table of Contents 
+contractual obligations, there can be no assurance that such companies will continue to purchase or distribute our products, maintain historic order volumes
+or otherwise meet their purchase or other obligations, or that new distribution channels will be available on satisfactory terms. The failure of these distributors or other customers to purchase our products could adversely affect our revenues.
+We previously distributed a cryosurgical wart removal product in the United States OTC market under a distribution agreement with Prestige
+Brands. As a result of a dispute with Prestige during 2007, this agreement has terminated and we are currently evaluating alternative strategies for the OTC distribution of this product in the United States and Canada. Sales of our cryosurgical
+product in the United States OTC market totaled $6.2 million during 2007. Failure or delay in finding a new distributor for this product will adversely affect our ability to replace the revenues previously generated from sales to Prestige.
+Some of our distributors have also consolidated in recent years and such consolidation has had, and may continue to have, an adverse
+impact on the level of orders for our products. In addition, some distributors have experienced, and may continue to experience, pressure from their customers to reduce the price of their products and testing services. For example, several of our
+insurance testing laboratories are facing this pressure and are using lower cost “home brew” insurance testing assays that they have developed internally or purchased from our competitors. This has reduced our assay sales and is expected
+to lower sales of these products in 2008 and beyond. 
+The Use of Sole Supply Sources or Third Party Suppliers For Critical Components of
+Our Products Could Adversely Affect Our Business. 
+We currently purchase certain
+critical components of our products from sole supply sources or other third party suppliers. For example, all of the HIV antigen and nitrocellulose required to make our OraQuick ADVANCE ® 
+rapid HIV-1/2 antibody test is purchased from sole source suppliers. In addition, the conjugates used in our MICROPLATE oral fluid drugs of abuse assays are obtained from third party suppliers. 
+If these suppliers are unable or unwilling to supply the required component or if they make changes in the component or do not supply materials meeting
+our specifications, we may need to find another source and perform additional development work. We may also need to obtain FDA or other regulatory approvals for the use of the alternative component for our products. Completing that development and
+obtaining such approvals could require significant time and may not occur at all. The availability of critical components from sole supply sources or other third parties could also reduce our control over pricing, quality and timely delivery. These
+events could either disrupt our ability to manufacture and sell certain of our products, or completely prevent us from doing so or increase our costs. Any such event could have a material adverse effect on our results of operations, cash flows and
+business. 
+The Unavailability of Certain Products Distributed by a Third Party
+Could Adversely Affect Sales of Our OraSure ® Oral Fluid Collection Device. 
+In testing an oral fluid sample collected with an OraSure ® device for HIV-1 in the United States, our customers must use an HIV-1 EIA screening test approved by the FDA for use with our OraSure ® device. Where an
+oral fluid sample screens positive for HIV-1, our customers must then use our oral fluid Western blot HIV-1 confirmatory test, which has also been approved by the FDA for use with our OraSure ® 
+device, to confirm that positive indication. 
+Historically, BMX manufactured
+and sold the only oral fluid HIV-1 EIA screening test that has received FDA approval for use in detecting HIV-1 in an oral fluid specimen collected with our OraSure ® collection device. BMX
+also supplied the HIV-1 antigen used to manufacture our oral fluid Western blot HIV-1 confirmatory test and was the exclusive world-wide distributor of that product. 
+24 
+Table of Contents 
+BMX discontinued manufacturing the HIV-1 EIA
+screening test in 2007. As a result, we intend to seek FDA approval of an alternative HIV-1 EIA screening test for use with oral fluid samples collected with our OraSure ® device.
+On December 31, 2007, the agreements under which BMX supplies the HIV-1 antigen used to manufacture our oral fluid Western blot HIV-1
+confirmatory test and distributed that product on an exclusive, world-wide basis, terminated. As a result, we are now supplying this confirmatory test directly to our laboratory customers. Pursuant to the terms of the antigen supply agreement with
+BMX, we purchased an additional two-year supply of the antigen from BMX so that we can continue to manufacture and sell our oral fluid Western blot test. When this additional two-year supply is combined with our existing inventory of the HIV-1
+antigen, we believe we have a sufficient supply of HIV-1 antigen to meet the demand for our Western blot test for the next three to four years. 
+If at some point in the future our customers cannot obtain either an HIV-1 EIA screening test or a
+Western blot or other HIV-1 confirmatory test that has been approved by the FDA for use with our OraSure ® collection device, sales of our
+OraSure ® device could be negatively affected. 
+We May Need Strategic
+Partners to Assist in Developing and Commercializing Some of Our Diagnostic Products. 
+Although we intend to pursue some product
+opportunities independently, opportunities that require a significant level of investment for development and commercialization or a distribution network beyond our existing sales force may necessitate involving one or more strategic partners. Our
+strategy for development and commercialization of products may entail entering into arrangements with distributors or other corporate partners, universities, research laboratories, licensees and others. We may be required to transfer material rights
+to such strategic partners, licensees and others. While we expect that our current and future partners, licensees and others have and will have an economic motivation to succeed in performing their contractual responsibilities, there is no assurance
+that they will do so and the amount and timing of resources to be devoted to these activities will be controlled by others. Consequently, there can be no assurance that any revenues or profits will be derived from such arrangements. 
+We may need to collaborate with one or more third parties or find new product distribution
+channels in order to commercialize our OraQuick ® HIV-1/2 test in the United States OTC market should we receive approval from the FDA. In order to successfully commercialize our
+OraQuick ® test in the OTC market, we and/or our distributors may need to invest significantly in advertising and promotion and obtain distribution channels to the OTC market. If we are
+unable to collaborate with a third party having sufficient resources to assist in these efforts or find alternative distribution channels to access the OTC market, we may need to incur significant costs for advertising and promotion, and our ability
+to maximize our future revenues for this opportunity could be adversely affected. 
+Risks Relating to Our Financial Results, Investments,
+Stock Price, Credit Facilities and Need for Financing 
+We Have a History of Losses Prior to 2005. 
+We achieved our first full years of profitability in 2005, 2006 and 2007. However, as of December 31, 2007, the Company had an accumulated deficit of
+$96.0 million. Even though we achieved profitability in the past, there can be no assurance that we will be able to sustain such profitability in the future. 
+Our ability to achieve continued profitability in the future will be dependent upon a number of factors including, without limitation, the following: 
+• 
+Creating market acceptance for and selling increasing volumes of our OraQuick ADVANCE ® rapid HIV-1/2 antibody test, Intercept ® drug testing product, cryosurgical products and OraSure ® 
+collection device; 
+25 
+Table of Contents 
+• 
+The degree to which certain of our new products may replace sales of our existing products and the financial impact of
+that change, including the degree to which our OraQuick ADVANCE ® test will replace our OraSure ® collection device for
+HIV-1 testing or sales of our cryosurgical wart removal products in the OTC market will replace sales of our Histofreezer ® product to physicians’ offices or other professional markets;
+• 
+The degree to which our major distributors comply with their contractual obligations, including minimum purchase commitments; 
+• 
+Whether we are able to extend the shelf life of our OraQuick ADVANCE ® HIV-1/2 test; 
+• 
+Our ability to successfully resolve claims or litigation, including patent infringement litigation; 
+• 
+The level of expenditures we are required to make in order to develop and obtain regulatory approvals for our new
+products, including our OraQuick ® HIV-1/2 test for use in the OTC market and an OraQuick ® HCV test for professional use;
+• 
+Whether we are successful in obtaining and maintaining required regulatory approvals and registrations for our new products; 
+• 
+Achieving growth in sales of our wart removal products in the OTC market and selling other products, such as our
+OraQuick ® HIV-1/2 test, in the OTC market; 
+• 
+Whether we are able to find and obtain FDA approval of a replacement for the BMX HIV-1 EIA screening test for use in
+connection with oral fluid samples collected with our OraSure ® device; 
+• 
+Achieving growth in international markets with our OraQuick ADVANCE ® HIV-1/2 test, cryosurgical wart removal products and other products; 
+• 
+Changes in the level of competition, such as would occur if larger and financially stronger competitors introduced new or lower priced products to compete with our
+products; 
+• 
+Changes in economic conditions in domestic or international markets, such as economic downturns, reduced demand, inflation and currency fluctuations;
+• 
+Failure to achieve our targets for growth in revenues; 
+• 
+Changes in distributor buying patterns or a buildup of significant quantities in our distributors’ inventories or distribution channels; and
+• 
+Commercially developing, and obtaining regulatory approvals and creating market acceptance for new products in a time frame consistent with our objectives.
+We May Experience Fluctuations in Our Financial Results or Fail to Meet Our Financial Projections. 
+Our operating results can fluctuate from quarter to quarter and year to year, which could cause our growth or financial performance to fall below the
+expectations of investors and securities analysts. Our financial projections for future periods are based on estimated demand for our products. However, sales to our distributors and other customers may fall short of expectations because of less
+than estimated customer demand or other factors, including those described elsewhere in this Annual Report. Infrequent, unusual or unexpected revenues or costs could also contribute to the variability of our financial results. In addition, our
+products provide different contributions to our gross margin and our operating results could also fluctuate and be affected depending on the mix of products sold and the relative prices and gross margin contribution of those products. Failure to
+achieve operating results consistent with the expectations of investors and securities analysts could adversely affect our reputation and the price of our common stock. 
+26 
+Table of Contents 
+Our Portfolio Investments May Be Subject to Volatility and Uncertainty in the Financial Markets and
+Other Risks. 
+At December 31, 2007, we had $95.6 million in cash, cash equivalents and short-term investments. We invest our cash
+in a variety of financial instruments, consisting principally of investments in certificates of deposit, commercial paper, U.S. government and agency obligations, and U.S. corporate bonds. These investments are denominated in U.S. dollars.
+We account for our investment instruments in accordance with Statement of Financial Accounting Standards No. 115 (“SFAS
+No. 115”), Accounting for Certain Investments in Debt and Equity Securities . All of the cash equivalents and marketable securities are treated as “available-for-sale” under SFAS No. 115. Investments in both fixed rate
+and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate debt securities may have their market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income
+than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates. We may also suffer losses in principal if we are forced to sell securities that decline
+in market value due to changes in interest rates. However, because any debt securities we hold are classified as “available-for-sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior
+to maturity. 
+Recent U.S. sub-prime mortgage defaults have had a significant impact across various sectors of the financial markets,
+causing global credit and liquidity issues. The short-term funding markets have experienced instability during 2007, leading to liquidity disruption in asset-backed commercial paper and failed auctions of auction rate securities. Further
+deterioration of the global credit market could adversely impact certain financial institutions that may have invested in or offered such securities. To the extent that we hold corporate bonds issued by those financial institutions in our portfolio,
+we could be adversely impacted and we could determine that some of our investments are impaired, which could adversely impact our financial results. As of December 31, 2007, we had not been adversely affected by these credit and liquidity
+issues. 
+Utilization of Our Deferred Tax Assets May Be Limited and is Dependent on Future Taxable Income. 
+As of December 31, 2007, we had federal net operating loss (“NOL”) carryforwards of $45.5 million for federal income tax purposes. The Tax
+Reform Act of 1986 contains provisions under Section 382 of the Internal Revenue Code that limit the NOLs that may be used in any given year in the event of specified occurrences, including significant ownership changes. If these specified
+events occur, we may lose some or all of the tax benefits of these carryforwards. 
+During 2005, we determined, based on our assessment of
+both positive and negative evidence, which takes into consideration our forecasted taxable income, that it was more likely than not that we will benefit from the use of a significant portion of our deferred tax assets, and therefore we reduced our
+valuation allowance on our deferred tax assets related to these NOLs and other items. If in the future we determine, based on our assessment of both positive and negative evidence, that it is more likely than not that we will not realize all or a
+portion of the deferred tax assets, we will record a valuation allowance on the deferred tax assets which would result in recognition of income tax expense. 
+If Our Estimates or Judgments Relating to Our Critical Accounting Policies Are Based on Assumptions That Change or Prove to be Incorrect, Our Operating Results Could Fall Below Expectations of Securities Analysts
+and Investors, Resulting in a Decline in Our Stock Price. 
+Our discussion and analysis of financial condition and results of operations
+is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting principles
+requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate significant estimates used in preparing our financial statements, including
+those related to: 
+• 
+Revenue recognition; 
+27 
+Table of Contents 
+• 
+Allowance for uncollectible accounts receivable; 
+• 
+Reserve for inventory write-downs; 
+• 
+Stock-based compensation; 
+• 
+Potential impairment of long-lived and intangible assets; 
+• 
+Realization of deferred tax assets; 
+• 
+Clinical trial accruals; and 
+• 
+Contingencies. 
+We base our
+estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in our discussion and analysis of financial condition and results of operations, the results of which form the
+basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these and other estimates if our assumptions change or if actual circumstances differ
+from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price. 
+Our Credit Facilities Contain Certain Financial Covenants Which, if Not Satisfied, Could Result in the Acceleration of the Amounts Due Under These
+Facilities and Limit Our Ability to Borrow in the Future. 
+Our credit facility with Comerica Bank contains various financial and other
+covenants with which we must comply on an ongoing or periodic basis. Although we do not expect to violate these covenants and obligations, if such a violation were to occur, the outstanding debt under our credit facility could become immediately due
+and payable, our lender could proceed against any collateral securing such indebtedness and our ability to borrow additional funds in the future may be adversely affected. 
+We May Require Future Additional Capital. 
+Our future liquidity and ability to meet our future capital requirements will depend on numerous factors, including, but not limited to, the following: 
+• 
+The costs and timing of the expansion of our manufacturing capacity; 
+• 
+The success of our research and product development efforts; 
+• 
+The magnitude of capital expenditures; 
+• 
+Changes in existing and potential relationships with distributors and other business partners; 
+• 
+The time and cost of conducting clinical trials and obtaining regulatory approvals; 
+• 
+The costs involved in obtaining and enforcing patents, proprietary rights and necessary licenses; 
+• 
+The costs and liability associated with patent infringement or other types of litigation; 
+• 
+The costs and timing of expansion of sales and marketing activities; 
+• 
+The timing of the commercial launch of new products; 
+• 
+The extent to which existing and new products gain market acceptance; 
+• 
+The scope and results of clinical testing; 
+• 
+Competing technological and market developments; and 
+• 
+The scope and timing of strategic acquisitions. 
+28 
+Table of Contents 
+If additional financing is needed, we may seek to raise funds through the sale of equity or other
+securities or through bank borrowings. There can be no assurance that financing through the sale of securities, bank borrowings or otherwise, will be available to us on satisfactory terms, if at all. 
+An Economic Downturn, Terrorist Attacks or National Disasters May Adversely Affect Our Business. 
+Changes in economic conditions could adversely affect our business. A weakening business climate could cause longer sales cycles and slower growth, and
+could expose us to increased business or credit risk in dealing with customers or suppliers adversely affected by economic conditions. 
+Terrorist attacks or natural disasters, and subsequent governmental responses to these events, could cause economic instability. These actions could adversely affect economic conditions both within and outside the United States and reduce
+demand for our products. These events could disrupt the operations of our customers and suppliers and eliminate, reduce or delay our customers’ ability to purchase and use our products and our suppliers’ ability to provide raw materials
+and finished products. 
+Risks Relating to Our Common Stock 
+Our Stock Price Could Continue to be Volatile. 
+Our stock price has been volatile, has fluctuated substantially in the past and may be volatile in the future and could experience substantial declines. The following factors, among others, could have a significant
+impact on the market for our Common Stock: 
+• 
+Future announcements concerning us or our products; 
+• 
+Future announcements concerning our competitors or industry; 
+• 
+Developments in patent or other proprietary rights; 
+• 
+Litigation or threatened litigation; 
+• 
+Public concern as to the performance or safety of products that we or others have developed or sold; 
+• 
+Failure to achieve, or changes in, financial estimates by securities analysts and comments or opinions about us by securities analysts or major stockholders;
+• 
+Governmental regulation; 
+• 
+Clinical results with respect to our products in development or those of our competitors; 
+• 
+Timing of completion of clinical studies and receipt of required regulatory approvals; 
+• 
+Changes in the level of competition; 
+• 
+Loss of or declines in sales to major distributors or customers or changes in the mix of products sold; 
+• 
+The relatively low trading volume for our Common Stock; 
+• 
+Period to period fluctuations in our operating results; 
+• 
+Additions or departures of key personnel; 
+• 
+General market and economic conditions; and 
+• 
+Terrorist attacks, civil unrest, war and national disasters. 
+29 
+Table of Contents 
+Future Sales of Our Common Stock by Existing Stockholders, Executive Officers or Directors Could
+Depress the Market Price of Our Common Stock and Make It More Difficult For Us to Sell Stock in the Future. 
+Sales of our Common Stock
+in the public market, or the perception that such sales could occur, could negatively impact the market price of our Common Stock. We are unable to estimate the number of shares of our Common Stock that may actually be resold in the public market
+since this will depend on the market price for our Common Stock, the individual circumstances of the sellers and other factors. 
+We have a
+number of institutional stockholders that own significant blocks of our Common Stock. If one or more of these stockholders sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price
+of our Common Stock could be negatively affected. In addition, it is possible that one or more of our executive officers or non-employee members of our Board of Directors could sell shares of our Common Stock during an open trading window under our
+Insider Trading Policy. These transactions and the perceived reasons for these transactions could have a negative effect on the prevailing market price of our Common Stock. 
+Investor Confidence and Share Value May be Adversely Impacted if We and/or Our Independent Registered Public Accounting Firm Conclude That Our
+Internal Control Over Financial Reporting is Not Effective. 
+As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC
+adopted rules requiring us, as a public company, to include a report of management in our Annual Reports on Form 10-K that contains an assessment by management of the effectiveness of our internal control over financial reporting. In addition, our
+independent registered public accounting firm must report on the effectiveness of these internal controls. 
+We expect that our internal
+controls will continue to evolve as our business activities change. Although we seek to diligently and vigorously review our internal control over financial reporting in an effort to ensure compliance with the Section 404 requirements, any
+control system, regardless of how well designed, operated and evaluated, can provide only reasonable, not absolute, assurance that its objectives will be met. If, during any year, our independent registered public accounting firm is not satisfied
+with our internal control over financial reporting or the level at which our controls are documented, designed, operated, tested or assessed, or if the independent registered public accounting firm interprets the requirements, rules or regulations
+differently than we do, then it may issue a report that is qualified. This could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements and effectiveness of our
+internal controls, which ultimately could negatively impact the market price of our Common Stock. 
+Anti-Takeover Provisions in Our
+Certificate of Incorporation, Bylaws and Stockholder Rights Plan and Under Delaware Law Could Make a Third Party Acquisition of Us Difficult. 
+Our Certificate of Incorporation, Bylaws and Stockholder Rights Plan contain provisions that could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. We are also subject to
+certain provisions of Delaware law that could delay, deter or prevent a change in control of us. These provisions could limit the price investors might be willing to pay in the future for shares of our Common Stock. 
+Risks Relating to Intellectual Property 
+Our Success Depends on Our Ability to Protect Our Proprietary Technology. 
+The diagnostics industry places considerable
+importance on obtaining patent, trademark and trade secret protection, as well as other intellectual property rights, for new technologies, products and processes. Our success depends, in part, on our ability to develop and maintain a strong
+intellectual property portfolio or obtain licenses to patents for products and technologies both in the United States and in other countries. 
+30 
+Table of Contents 
+As appropriate, we intend to file patent applications and obtain patent protection for our proprietary
+technology. These patent applications and patents will cover, as applicable, compositions of matter for our products, methods of making those products, methods of using those products and apparatus relating to the use or manufacture of those
+products. We will also rely on trade secrets, know-how and continuing technological advancements to protect our proprietary technology. 
+We
+have entered, and will continue to enter, into confidentiality agreements with our employees, consultants, advisors and collaborators. However, these parties may not honor these agreements and we may not be able to successfully protect our rights to
+unpatented trade secrets and know-how. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how. 
+Many of our employees, including scientific and management personnel, were previously employed by competing companies. Although we encourage and expect
+all of our employees to abide by any confidentiality agreement with a prior employer, competing companies may allege trade secret violations and similar claims against us. 
+We may collaborate with universities and governmental research organizations which, as a result, may acquire part of the rights to any inventions or
+technical information derived from collaboration with them. 
+To facilitate development and commercialization of a proprietary technology
+base, we may need to obtain licenses to patents or other proprietary rights from other parties. Obtaining and maintaining such licenses may require the payment of substantial amounts. In addition, if we are unable to obtain these types of licenses,
+our product development and commercialization efforts may be delayed or precluded. 
+We may incur substantial costs and be required to
+expend substantial resources in asserting or protecting our intellectual property rights, or in defending suits against us related to intellectual property rights. Disputes regarding intellectual property rights could substantially delay product
+development or commercialization activities. Disputes regarding intellectual property rights might include state, federal or foreign court litigation, as well as patent interference, patent reexamination, patent reissue, or trademark opposition
+proceedings in the United States Patent and Trademark Office. Opposition or revocation proceedings could be instituted in a foreign patent office. An adverse decision in any proceeding regarding intellectual property rights could result in the loss
+or limitation of our rights to a patent, an invention or trademark. 
+We May Become Involved in Intellectual Property Infringement
+Disputes, Which are Costly and Could Limit or Eliminate Our Ability to Sell Our Products or Use Certain of Our Technologies in the Future. 
+From time to time, we may seek to enforce our patents or other intellectual property rights through litigation. In addition, there are a large number of patents and patent applications in our product areas, and additional patents may be
+issued to third parties relating to our product areas. We may be sued for infringement of patents or misappropriation of other intellectual property rights with respect to one or more of our products. Litigation in our industry regarding patent and
+other intellectual property rights is prevalent and is expected to continue. 
+Our involvement in litigation with respect to patents or
+other intellectual property or to determine rights in proprietary technology, either as a plaintiff or defendant, could adversely affect our revenues, market share, results of operations and business because: 
+• 
+As is common with major litigation, it could consume a substantial portion of managerial and financial resources; 
+• 
+Its outcome would be uncertain and a court may find that our patents are invalid or unenforceable in response to claims by another party or that the third-party
+patent claims are valid and infringed by our products; 
+31 
+Table of Contents 
+• 
+An adverse outcome could subject us to the loss of the protection of our patents or to liability in the form of past royalty payments, penalties, special and
+punitive damages, or future royalty payments significantly affecting our future earnings; 
+• 
+Failure to obtain a necessary license upon an adverse outcome could prevent us from selling our current products or other products we may develop or acquire;
+• 
+The pendency of any litigation may in and of itself cause our distributors and customers to reduce purchases of our products; and 
+• 
+A court could award a preliminary and/or permanent injunction, which would prevent us from selling our current or future products. 
+In addition to the foregoing, we may also indemnify some customers and strategic partners under our agreements with such parties if our products or
+activities have actually or allegedly infringed upon, misappropriated or misused another party’s proprietary rights. Further, our products may contain technology provided to us by other parties, such as contractors, suppliers or customers, and
+we may have little or no ability to determine in advance whether such technology infringes the intellectual property rights of a third party. 
+The Sales Potential for Our OraQuick ® Products Could be Affected by Our Ability to Obtain Certain Licenses. 
+Our OraQuick ® test platform is a lateral flow assay that tests for specific antibodies or other substances. The term “lateral flow” generally
+refers to a test strip through which a sample flows and which provides a test result on a portion of the strip downstream from where the sample is applied. There are numerous patents in the United States and other countries which claim lateral flow
+assay methods and devices. Some of these patents may broadly cover the technology used in the OraQuick ® test and are in force in the United States and other countries. We may not be able to
+make or sell the OraQuick ® test in the United States or other countries where these patents are in force. 
+We have obtained licenses under several lateral flow patents, which we believe should be
+sufficient to permit the manufacturing and sale of the OraQuick ® device as currently contemplated. However, licenses under additional patents may be required and it is possible that a third
+party could seek to enforce one or more lateral flow patents against us. In the event that we are unable to successfully defend against such litigation or it is determined that a license is required and it is not possible to negotiate or otherwise
+obtain a license agreement on reasonable terms under a necessary patent, our ability to manufacture and sell OraQuick ® devices could be limited. In such case, we may be able to modify the
+OraQuick ® test such that a license would not be necessary. However, this alternative could delay or limit our ability to sell the OraQuick ® test in the United States and other markets, which would adversely affect our results of operations, cash flows and business. 
+Risks Relating to Products, Marketing and Sales 
+A Market for Our Products May Not Develop. 
+Our future success will depend, in part, on the market acceptance, and the timing of
+such acceptance, of new products such as an OraQuick ® rapid HIV-1/2 antibody test for home use, an OraQuick ® HCV test for
+professional use, and other new products or technologies that may be developed or acquired. To achieve market acceptance, we and/or our distributors will likely be required to undertake substantial marketing efforts and spend significant funds to
+inform potential customers and the public of the perceived benefits of these products. There may be limited evidence on which to evaluate the market reaction to products that may be developed. There can be no assurance that any products will obtain
+market acceptance and fill the market need that is perceived to exist. 
+32 
+Table of Contents 
+If Acceptance and Adoption of Our Oral Fluid Testing Does Not Continue, Our Future Results May Suffer.
+We have made significant progress in gaining acceptance of oral fluid testing for HIV in the insurance, public health and other
+markets. We have also made significant progress in gaining acceptance of oral fluid testing for drugs of abuse in the workplace and criminal justice testing markets. However, the ultimate degree of acceptance in these markets is uncertain, and other
+markets may resist the adoption of oral fluid testing as a replacement for other testing methods in use today. In addition, certain state laws prohibit or restrict the use of oral fluid testing for drugs of abuse in certain markets or the rapid,
+point-of-care testing for HIV. As a result, there can be no assurance that we will be able to expand the use of our oral fluid testing products in these or other markets. 
+Our Customers May Resist Adoption of Rapid Point-of-Care Diagnostic Testing. 
+We expect sales of our rapid point-of-care diagnostic products, such as our OraQuick ADVANCE ® HIV-1/2 test, to become an increasingly important part
+of our business. Hospitals, clinical reference laboratories, physicians and other customers may resist the adoption of rapid point-of-care tests and instead may choose to use or continue to use competing laboratory tests. Our failure to achieve
+initial or additional market acceptance of our rapid point-of-care diagnostic tests with customers would have a negative effect on our future sales growth. 
+Our Sales Cycles Can be Lengthy and May Depend on Public Funding, Which Can Cause Variability and Unpredictability in Our Operating Results. 
+The sales cycles for certain of our products can be lengthy and unpredictable, which makes it more
+difficult to accurately forecast revenues in a given period and may cause revenues and operating results to vary from period to period. Sales of our products often involve purchasing decisions by large public and private institutions, may require
+many levels of approval and may be dependent on the availability of grants or other funding from governmental agencies which can vary from period to period in both amount and timing. For example, in past years our OraQuick ADVANCE ® HIV-1/2 test has been purchased through bulk procurement or other funding provided by the CDC, SAMHSA, city or state governments and other governmental agencies. On an international basis, our
+OraQuick ® test has been purchased with funds provided by the President’s Energy Plan for AIDS Relief and other international agencies. There can be no assurance that purchases or
+funding from these agencies will continue at the same or higher levels or at all. As a result, we may expend considerable resources on unsuccessful sales efforts or we may not be able to complete transactions at all or on a schedule and in an amount
+consistent with our objectives. 
+We May be Sued for Product Liabilities for Injuries Resulting From the Use of Our Products.
+We may be held liable if any of our products, or any product which is made with the use or incorporation of any of our technologies,
+causes injury of any type or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or usage. Although we have obtained product liability insurance, this insurance may not fully cover potential liabilities. As we bring
+new products to market, we may need to increase our product liability coverage. 
+We
+are selling cryosurgical wart removal products in the consumer or OTC market in various countries. We expect to expand the OTC sales of these products to other countries and to eventually distribute other types of products in the domestic and
+international OTC markets, such as our OraQuick ® HIV-1/2 test. We believe the sale of products in the OTC market increases the risk of potential product liability exposure and possibly the
+required level of insurance coverage that we will need to maintain. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could affect our decision to commercialize
+new products and our results of operations. 
+Performance of Our Products May Affect Our Revenues, Stock Price and Reputation.
+Our products are generally sold with labeling that contains performance claims approved or cleared by the FDA or other regulators. If
+our products fail to perform in accordance with the applicable label claims or 
+33 
+Table of Contents 
+otherwise in accordance with the expectations or needs of our customers, customers may switch to a competing product or otherwise stop using our products,
+and our revenues could be adversely affected. In addition, poor performance by one or more of our products and publicity surrounding such performance could have an adverse effect on our reputation, our continuing ability to sell products and the
+prevailing market price of our Common Stock. 
+Our Inability to Manufacture Products in Accordance With Applicable Specifications,
+Performance Standards or Quality Requirements Could Adversely Affect Our Business. 
+The materials and processes used to manufacture our
+products must meet detailed specifications, performance standards and quality requirements to ensure our products will perform in accordance with their label claims, our customers’ expectations and applicable regulatory requirements. As a
+result, our products and the materials used in their manufacture or assembly undergo regular inspections and quality testing. Factors such as defective materials or processes, mechanical failures, human errors, environmental conditions, changes in
+materials or production methods by our vendors, and other events or conditions could cause our products or the materials used to produce or assemble our products to fail our inspections and quality testing. Any failure or delay in our ability to
+meet the applicable specifications, performance standards or quality requirements could adversely affect our ability to manufacture and sell our products or comply with regulatory requirements. These events could, in turn, adversely affect our
+business and financial performance. 
+Our Increasing International Presence May be Affected by Regulatory, Cultural or Other Restraints.
+We intend to increase revenue derived from international sales of our products. Our international sales accounted for $18.1 million or
+22% of total revenues for 2007, $11.4 million or 17% of total revenues for 2006 and $9.5 million or 14% of total revenues for 2005. 
+A
+number of factors can slow or prevent international sales, or substantially increase the cost of international sales, including those set forth below: 
+• 
+Regulatory requirements (including compliance with applicable customs regulations) may slow, limit, or prevent the offering of products in foreign countries;
+• 
+The unavailability of licenses to certain patents in force in a foreign country which cover our products may restrict our ability to sell into that country;
+• 
+Reduced protection for, or enforcement of, our patents and other intellectual property rights in foreign countries; 
+• 
+The inability to maintain ISO certification for our or our suppliers’ manufacturing facilities could preclude, interrupt or delay our ability to manufacture
+products for sale in Europe or other international territories; 
+• 
+Our inability to obtain or maintain the CE mark on our products may preclude or delay our ability to sell products in the European Union;
+• 
+Our inability to identify international distributors and negotiate acceptable terms for distribution agreements may delay or reduce our sales;
+• 
+Cultural and political differences may make it difficult to effectively market, sell and gain acceptance of products in foreign countries;
+• 
+Inexperience in international markets may slow or limit our ability to sell products in foreign countries; 
+• 
+Our inability to extend the shelf life of our OraQuick ® 
+HIV-1/2 test; 
+• 
+Exchange rates, currency fluctuations, tariffs and other barriers, extended payment terms and dependence on and difficulties in managing international distributors
+or representatives may affect our revenues even when product shipments occur; 
+34 
+Table of Contents 
+• 
+The creditworthiness of foreign distributors may be less certain and foreign accounts receivable collection may be more difficult; 
+• 
+Economic conditions, the absence of available funding sources, terrorism, civil unrest, war and natural disasters may slow or limit our ability to sell our products
+in foreign countries; 
+• 
+Our exposure to liability under the Foreign Corrupt Practices Act and various other laws, rules and/or regulations applicable to us as a result of our international
+sales may affect our ability to sell into international markets; 
+• 
+International markets often have long sales cycles, especially for sales to foreign governments, quasi-governmental agencies and international public health
+agencies, thereby delaying or limiting our ability to sell our products; and 
+• 
+We may be at a disadvantage if competitors in foreign countries sell competing products at prices at or below such competitors’ or our cost.
+Currently, most of our international sales are negotiated for and paid in U.S. dollars. Nevertheless, these sales are
+subject to currency risks since the changes in the values of foreign currencies relative to the value of the U.S. dollar can render our products comparatively more expensive. These exchange rate fluctuations could negatively impact international
+sales of our products, as could changes in the general economic conditions in those markets. 
+In addition, we have entered into a contract for the manufacture and supply of our OraQuick ® HIV-1/2 test in Thailand, and the Histofreezer ® cryosurgical product is currently manufactured in The Netherlands. We may enter into agreements to manufacture other products in foreign countries as well. However, factors such as economic and political conditions
+and foreign regulatory requirements may slow or prevent the manufacture of our products in countries other than the United States. Interruption of the supply of our products could reduce revenues or cause us to incur significant additional expenses
+in finding an alternative source of supply. In addition, foreign currency fluctuations and economic conditions in foreign countries could increase the costs of manufacturing our products in foreign countries. 
+ITEM 1B. Unresolved Staff Comments. 
+Not Applicable. 
+ITEM 2. Properties. 
+We own a 48,000 square foot facility which is our primary
+corporate office and manufacturing facility, a 31,700 square foot facility that houses our sales and marketing and research and development offices, and a 33,500 square foot facility which is used for manufacturing activities. Each of these
+facilities is located in Bethlehem, Pennsylvania and is subject to a mortgage in favor of Comerica Bank. 
+We rent additional warehouse
+space on an as-needed basis. We also lease space for a small sales office in Reeuwijk, The Netherlands. 
+We believe that the facilities
+described above are adequate for our current requirements. 
+ITEM 3. Legal Proceedings. 
+Schering-Plough Patent Infringement Litigation 
+On July 23, 2004, we filed a lawsuit against Schering-Plough for infringement of several of our patents relating to technology for the cryosurgical
+removal (i.e., freezing) of warts and other benign skin lesions. The suit was commenced in the United States District Court for the Eastern District of Pennsylvania, and alleged that 
+35 
+Table of Contents 
+Schering-Plough’s manufacture and sale of its Dr. Scholls ® Freeze Away ® cryosurgical wart removal product in the United States OTC market infringed certain of our United States patents. We requested permanent injunctive relief and the payment of damages.
+Schering-Plough asserted various defenses in this matter, including that its Dr. Scholls ® Freeze Away ® product did not
+infringe our patents and that one or more of our patents are invalid and unenforceable. 
+In November 2007, the parties reached agreement on
+the principal terms to settle this litigation and a final settlement agreement was executed in January 2008. Under the terms of the settlement, Schering-Plough has received a license to certain of our patents in the United States OTC market and we
+received payment for past sales and will receive royalties on future sales under the license. 
+Prestige Brands Dispute 
+Prestige, through an affiliate, was the exclusive distributor of our cryosurgical wart removal
+product in the OTC market in the United States and Canada. Prestige distributed this product under its Compound W Freeze Off ® trade name. In September 2006, Prestige announced that it had
+acquired the Wartner ® cryosurgical wart removal product line, which directly competed with the Freeze Off ® product in the OTC
+market. 
+Our distribution agreement with Prestige contained a covenant not to
+compete which precluded Prestige from acquiring, manufacturing, distributing or selling a cryosurgical product that directly competes with the Freeze Off ® product. We notified Prestige that
+its acquisition of the Wartner ® product constituted a material breach of the distribution agreement and that certain of its other actions constituted additional breaches under the
+agreement. As a result, an arbitration was commenced pursuant to the alternative dispute resolution provisions of the agreement. During the arbitration, Prestige asserted various counterclaims against us. 
+On October 22, 2007, we received a decision in the arbitration concluding, among other
+things, that (1) the acquisition of Wartner ® by Prestige was a breach of the distribution agreement, (2) we were entitled to an award of legal fees and our share of the
+compensation paid to the arbitrators, (3) all of Prestige’s counterclaims were rejected, (4) our request for specific performance of the agreement was denied and we were not entitled to additional compensatory damages, and
+(5) the distribution agreement would terminate on December 31, 2007. The arbitration decision is final and binding and not subject to direct appeal by either party. We submitted proof of the incurrence of our legal fees and
+arbitrators’ compensation for approval by the arbitrators and received an award for a portion of those fees and expenses in late 2007. 
+ITEM 4. Submission of Matters to a Vote of Security Holders. 
+No matters were
+submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2007. 
+36 
+Table of Contents 
+PART II 
+ITEM 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 
+Market Information 
+Our Common Stock is listed for
+trading on the Global Market tier of The Nasdaq Stock Market LLC (“NASDAQ”) under the symbol OSUR. High and low sales prices reported by NASDAQ during the periods indicated are shown below. 
+Year ended December 31, 
+2007 
+2006 
+High 
+Low 
+High 
+Low 
+First Quarter 
+$ 
+9.00 
+$ 
+6.50 
+$ 
+11.67 
+$ 
+8.80 
+Second Quarter 
+8.49 
+6.92 
+10.89 
+7.89 
+Third Quarter 
+10.20 
+7.89 
+10.16 
+6.15 
+Fourth Quarter 
+10.57 
+8.13 
+8.70 
+7.27 
+On March 3, 2008, there were 561 holders of record and approximately 10,200 holders in street
+name of the Common Stock, and the closing price of the Common Stock was $6.97 per share. 
+Dividends 
+We have never paid any cash dividends and our Board of Directors does not anticipate paying cash dividends in the foreseeable future. We are generally not
+permitted to pay dividends or make other distributions to our stockholders under the terms of our credit facilities with Comerica Bank, without first obtaining Comerica’s consent. We intend to retain any future earnings to provide funds for the
+operation and expansion of our business. 
+37 
+Table of Contents 
+Performance Graph 
+The following graph compares the cumulative total returns to investors in the Company’s Common Stock, the NASDAQ Composite Index and the NASDAQ Biotechnology Index for the period from December 31, 2002
+through December 31, 2007. The graph assumes that $100 was invested on December 31, 2002 in the Company’s Common Stock and in each of the above-mentioned indices, and that all dividends were reinvested. 
+The NASDAQ Composite Index was chosen because it is a broad index of companies whose equity securities are traded on the NASDAQ Stock Market. The NASDAQ
+Biotechnology Index was chosen because it includes a number of our competitors. Stockholders are cautioned that the graph shows the returns to investors only as of the dates noted and may not be representative of the returns for any other past or
+future period. 
+* 
+$100 invested on 12/31/02 in stock or index-including reinvestment of dividends. 
+12/2002 
+12/2003 
+12/2004 
+12/2005 
+12/2006 
+12/2007 
+OraSure Technologies, Inc. 
+100.00 
+146.06 
+123.30 
+161.83 
+151.56 
+163.12 
+NASDAQ Composite 
+100.00 
+149.75 
+164.64 
+168.60 
+187.83 
+205.22 
+NASDAQ Biotechnology 
+100.00 
+146.95 
+164.05 
+185.29 
+183.09 
+186.22 
+The performance graph set forth above shall not be deemed “soliciting material” or
+“filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability under that Section. This graph will not be deemed “incorporated by
+reference” into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether such filing occurs before or after the date hereof, regardless of any general incorporation language in such filing. 
+38 
+Table of Contents 
+ITEM 6. Selected Financial Data 
+The following table sets forth selected financial
+data of the Company. This information should be read in conjunction with the Financial Statements and notes thereto included in Item 15 and the information set forth in Item 7, “Management’s Discussion and Analysis of Financial
+Condition and Results of Operations.” 
+Selected Financial Data 
+(In thousands, except per share data) 
+Year ended December 31, 
+2007 
+2006 
+2005 
+2004 
+2003 
+Operating Results: 
+Revenues 
+$ 
+82,686 
+$ 
+68,155 
+$ 
+69,366 
+$ 
+54,008 
+$ 
+40,451 
+Costs and expenses 
+83,905 
+62,692 
+61,793 
+55,365 
+41,737 
+Operating income (loss) 
+(1,219 
+) 
+5,463 
+7,573 
+(1,357 
+) 
+(1,286 
+) 
+Other income (expense), net 
+5,513 
+3,599 
+2,146 
+797 
+177 
+Income tax provision (benefit) 
+1,821 
+3,794 
+(17,729 
+)¹ 
+— 
+27 
+Net income (loss) 
+2,472 
+5,268 
+27,448 
+¹ 
+(560 
+) 
+(1,136 
+) 
+Earnings (loss) per share 
+Basic 
+$ 
+0.05 
+$ 
+0.11 
+$ 
+0.61 
+$ 
+(0.01 
+) 
+$ 
+(0.03 
+) 
+Diluted 
+$ 
+0.05 
+$ 
+0.11 
+$ 
+0.59 
+$ 
+(0.01 
+) 
+$ 
+(0.03 
+) 
+Shares used in computing earnings (loss) per share 
+Basic 
+46,325 
+45,910 
+45,110 
+44,464 
+39,794 
+Diluted 
+46,878 
+46,580 
+46,147 
+44,464 
+39,794 
+Cash Flow: 
+Cash flows provided by operating activities 
+$ 
+11,584 
+$ 
+16,886 
+$ 
+10,392 
+$ 
+3,438 
+$ 
+2,702 
+December 31, 
+2007 
+2006 
+2005 
+2004 
+2003 
+Financial Position: 
+Cash, cash equivalents, and short-term investments 
+$ 
+95,566 
+$ 
+91,001 
+$ 
+77,620 
+$ 
+66,723 
+$ 
+64,024 
+Working capital 
+105,620 
+95,979 
+90,670 
+68,910 
+67,171 
+Deferred tax assets 
+22,327 
+23,522 
+26,708 
+— 
+— 
+Total assets 
+167,353 
+156,565 
+130,747 
+88,064 
+86,151 
+Long-term debt, excluding current portion 
+8,818 
+10,031 
+884 
+1,334 
+2,456 
+Accumulated deficit 
+(96,000 
+) 
+(98,414 
+) 
+(103,682 
+) 
+(131,130 
+) 
+(130,570 
+) 
+Stockholders’ equity 
+140,055 
+129,504 
+118,919 
+75,577 
+73,509 
+¹ 
+Includes an income tax benefit of $18,165 resulting from the elimination of a significant portion of the valuation allowance on our deferred tax assets (see Note 9 to the financial
+statements). 
+39 
+Table of Contents 
+ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 
+Statements below regarding future events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results could be quite
+different from those expressed or implied by the forward-looking statements. Factors that could affect results are discussed more fully under the Item 1A, entitled “Risk Factors,” and elsewhere in this Annual Report. Although
+forward-looking statements help to provide complete information about us, readers should keep in mind that forward-looking statements may not be reliable. Readers are cautioned not to place undue reliance on the forward-looking statements.
+The following discussion should be read in conjunction with the financial statements contained herein and the notes thereto, along
+with the Section entitled “Critical Accounting Policies and Estimates,” set forth below. 
+Overview 
+We operate primarily in the in vitro diagnostic business. Our business principally involves the development, manufacture, marketing and sale of
+oral fluid diagnostic products and specimen collection devices using our proprietary oral fluid technologies, as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen
+types, and other medical devices used for the removal of warts and other benign skin lesions by cryosurgery, or freezing. Our diagnostic products include tests which are performed on a rapid basis at the point of care and tests which are processed
+in a laboratory. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government agencies,
+physicians’ offices, and commercial and industrial entities. One of our products has been sold in the over-the-counter (“OTC”) or consumer retail market in the United States, Canada, Europe, Mexico and Australia. 
+In vitro diagnostic testing is the process of analyzing oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific
+substances or markers for infectious diseases, drugs of abuse or other conditions. However, we have targeted the use of oral fluid in our products as a differentiating factor and believe that it provides a significant competitive advantage over
+blood and urine. Our oral fluid tests have sensitivity and specificity comparable to blood and/or urine tests. In vitro diagnostic tests are performed outside the body, in contrast to in vivo tests, which are performed directly on or
+within the body. When combined with their ease of use, non-invasive and dignified nature, and cost effectiveness, our oral fluid tests represent a very competitive alternative to the more traditional testing methods in the diagnostic space.
+During the year ended December 31, 2007, our total revenues were $82.7
+million, which represents a 21% increase from 2006. Net income for 2007 decreased to $2.5 million compared to $5.3 million for 2006 as we invested in our research and development efforts to obtain FDA approval to sell our OraQuick ® HIV test over the counter and to develop our rapid HCV test. Research and development expenses increased $5.5 million. Our 2007 diluted earnings per share was $0.05 compared to $0.11 in 2006.
+Our liquidity continues to be strong, as we reported $11.6 million in cash flows from operating activities in 2007 and $95.6 million in cash, cash equivalents and short-term investments as of December 31, 2007. 
+Sales into the infectious disease testing market continued to grow in 2007 as result of continued
+market acceptance of our OraQuick ADVANCE ® HIV-1/2 test. This increase resulted largely from sales directly to various domestic and international public health organizations and
+sales through Abbott into the United States hospital market. In September 2007, the CDC awarded incremental funding to expand HIV testing and prevention programs. City-wide testing programs also contributed to the 28% increase in sales of our
+OraQuick ADVANCE ® HIV-1/2 test in 2007 compared to the prior year. 
+We have an agreement for the distribution of OraQuick ADVANCE ® with Abbott, which was renewed for 2008. Under this agreement, Abbott is our exclusive distributor in the U.S. hospital market and a non-exclusive 
+40 
+Table of Contents 
+distributor in the U.S. physicians’ office marketplace. As our exclusive distributor to hospitals, Abbott sells OraQuick ADVANCE ® to federal hospitals under the terms and conditions of our Federal Supply Schedule that is on file with the U.S. General Services Administration. We have retained exclusive rights to all other
+markets, including the public health and criminal justice markets, the military, the CDC, SAMHSA and other government agencies. We utilize a small internal sales force to support Abbott and work together with them to maximize the penetration of
+OraQuick ADVANCE ® in the hospital market. 
+Competition in the market for
+HIV testing is intense and is expected to increase. We believe that the principal competition will come from existing laboratory-based blood tests, point-of-care rapid blood tests, laboratory-based urine assays or other oral fluid-based tests that
+may be developed. Our competitors include specialized biotechnology firms, as well as pharmaceutical companies with biotechnology divisions and medical diagnostic companies. 
+Sales of our cryosurgical products increased significantly in 2007 as we expanded into
+international OTC markets. The cryosurgical systems market represents sales of Histofreezer ® into both the domestic and international physicians’ office markets and sales of the OTC
+formulation of this product to our former domestic distributor, Prestige, and our international distributors, SSL and Genomma Labs. Prestige distributed our cryosurgical wart removal product under its Compound W Freeze Off ® tradenames in the OTC market in the United States and Canada. Our distribution agreement with Prestige terminated on December 31, 2007 as a result of the arbitration related to our claim
+that Prestige’s acquisition of the Wartner ® cryosurgical wart removal product line violated the covenant not to compete provisions of the distribution agreement with Prestige. As a
+result, we are currently evaluating alternative strategies for the OTC distribution of this product in the United States and Canada. However, it is not possible to predict at this time what the terms of such an arrangement might be or if such an
+arrangement will be successful. 
+SSL distributes a similar product under its Scholl’s and Dr. Scholl trademarks in the OTC
+footcare market in several European countries. Genomma Labs also distributes a similar product to the OTC footcare market in Mexico. Sales through Genomma Lab resulted in approximately $4.4 million in new revenues in 2007. Overall, our international
+OTC cryosurgical sales increased 115% in 2007 compared to the prior year. 
+Sales to
+the substance abuse testing market remained flat during 2007, due primarily to economic conditions in the United States and reduced funding internationally. Our workplace testing business has been impacted by the decline in employment rates in some
+of the markets which buy our Intercept ® collection device. The international market has experienced a decrease in public sector funding which has slowed the implementation of criminal
+justice testing. We expect renewed growth in the utilization of our Intercept ® product line as both domestic and international corporate customers continue to adopt oral fluid-based drug
+testing and shift away from traditional urine-based drug testing. 
+Sales to the insurance risk assessment market decreased slightly in
+2007, primarily because of a reduction in the number of applications for life insurance and changes in underwriting requirements. For higher face-value policies, insurance companies are more likely to use a blood test for multiple risk factors,
+rather than an oral-fluid test. 
+Because of the regulatory approvals needed for most
+of our products, we often are required to rely on sole source providers for critical components and materials and on related products supplied by third parties. This is particularly true for our OraQuick ADVANCE ® test, our OraSure ® oral fluid collection device and our oral fluid Western blot HIV-1 confirmatory product. If we are unable to obtain necessary components
+or materials from these sole sources, the time required to develop replacements and obtain the required FDA approvals could disrupt our ability to sell the affected products. 
+In past years, BMX manufactured and sold the only oral fluid HIV-1 screening test that had
+received FDA approval for use in detecting HIV-1 in an oral fluid specimen collected with our OraSure ® collection device. 
+41 
+Table of Contents 
+BMX also supplied the HIV-1 antigen used to manufacture our oral fluid Western blot HIV-1 confirmatory test and was the exclusive world-wide distributor of
+that product. BMX discontinued manufacturing their HIV-1 EIA screening test during 2007. As a result, we intend to seek FDA approval of an alternative HIV-1 EIA screening test for use with our OraSure ® collection device. BMX also elected not to renew our Western blot agreements beyond December 31, 2007, and we are now selling the Western blot test directly to our laboratory customers. 
+We also rely heavily on distributors to purchase and resell many of our products. For example, SSL
+has exclusive rights to our wart removal product in the OTC footcare market in Europe, Australia and New Zealand. Similarly, Abbott has exclusive rights to distribute our OraQuick ADVANCE ® 
+test to hospitals in the U.S. In 2007, we also renewed our agreement with Genomma Labs in which they have exclusive rights to distribute our wart removal product in the OTC market in Mexico, and in January 2008, we granted Genomma similar
+rights in Argentina, Brazil, various other Latin American countries and South Africa. 
+We expect to enter into additional distribution
+agreements for new and future products, for distribution in the U.S. and internationally. If our distributors are unable or unwilling to meet the minimum purchase commitments set forth in their agreements or otherwise substantially reduce the volume
+of their purchases, our revenues and results of operations could be adversely affected. 
+We generated 78% of our 2007 revenues in the U.S.
+marketplace compared to 83% in 2006. We are continuously evaluating strategies to increase our sales penetration in markets outside the U.S. As our business in foreign countries increases, we could be exposed to other economic, political, exchange
+rate, regulatory and cultural risks. 
+Results of Operations 
+Year Ended December 31, 2007 Compared to December 31, 2006 
+Total revenues increased by 21% to $82.7 million in 2007 from $68.2 million in 2006, primarily as a result of increased sales of our OraQuick ADVANCE ® rapid HIV-1/2 antibody
+test and our OTC cryosurgical products, together with an increase in funded research and development related to our rapid HCV test. 
+The
+table below shows the amount of our total revenues (in thousands, except %) generated in each of our principal markets and by licensing and product development activities. 
+Year Ended December 31, 
+Dollars 
+% 
+Change 
+Percentage of 
+Total Revenues 
+2007 
+2006 
+2007 
+2006 
+Infectious disease testing 
+$ 
+35,791 
+$ 
+29,180 
+23 
+% 
+43 
+% 
+43 
+% 
+Substance abuse testing 
+15,789 
+15,752 
+— 
+19 
+23 
+Cryosurgical systems 
+23,533 
+17,333 
+36 
+28 
+25 
+Insurance risk assessment 
+5,464 
+5,565 
+(2 
+) 
+7 
+8 
+Product revenues 
+80,577 
+67,830 
+19 
+97 
+99 
+Licensing and product development 
+2,109 
+325 
+549 
+3 
+1 
+Total revenues 
+$ 
+82,686 
+$ 
+68,155 
+21 
+% 
+100 
+% 
+100 
+% 
+Sales to the infectious disease testing
+market increased 23% to $35.8 million in 2007, primarily as a result of the increasing strength of our OraQuick ADVANCE ® rapid HIV-1/2 antibody test. OraQuick ® and OraSure ® sales during 2007 totaled $32.7 million and $3.1 million, respectively, as compared to $25.6 million and $3.6 million in
+2006, respectively. 
+42 
+Table of Contents 
+The table below shows a breakdown of our total
+OraQuick ® revenues (in thousands, except %) during 2007 and 2006. 
+Year ended 
+December 31, 
+% 
+Change 
+Customers 
+2007 
+2006 
+Direct to U.S. Public Health 
+$ 
+19,799 
+$ 
+15,268 
+30 
+% 
+Abbott 
+8,103 
+6,897 
+17 
+SAMHSA 
+339 
+406 
+(17 
+) 
+CDC 
+1,125 
+1,291 
+(13 
+) 
+International 
+3,291 
+1,694 
+94 
+Total OraQuick ® revenues 
+$32,657 
+$25,556 
+28% 
+During 2007, OraQuick ® revenue derived from direct sales to the U.S. public health market increased by 30% as compared to 2006. This increase is the result of continued growth in usage of the OraQuick
+ADVANCE ® rapid HIV-1/2 antibody test in public health settings, including city-wide testing programs. Revenue in 2007 from HIV testing initiatives in various cities around the
+country more than doubled from 2006, increasing to over $1.7 million. In September 2007, the CDC awarded incremental funding to expand HIV testing and prevention programs in populations disproportionately affected by HIV, primarily African
+Americans. These funds were allocated to targeted state and public health agencies, for utilization during 2008. Twenty-three jurisdictions received funding under this program and thus far we have shipped product to 9 in support of their CDC-funded
+testing campaigns. 
+For the year ended December 31, 2007, sales to our hospital distributor, Abbott, grew 17% to $8.1 million, as
+compared to $6.9 million in 2006. This increase is a result of continued penetration of the hospital market by Abbott in collaboration with our hospital sales team. There has also been an expansion of HIV testing within hospitals, specifically
+through the deployment of testing in emergency departments driven by the CDC recommendations for routine HIV screening in healthcare settings. 
+In previous periods, the CDC and SAMHSA have placed bulk purchases orders for OraQuick
+ADVANCE ® devices and related testing materials directly with the Company. It is not likely that comparable-sized bulk purchase orders from these governmental entities or others will
+be received in the future. 
+We believe that our OraQuick ADVANCE ® device, which is FDA-approved for detecting antibodies to both HIV-1 and HIV-2 in oral fluid, finger-stick and venous whole blood, and plasma samples, and is CLIA-waived for use with all sample
+types except plasma, provides a significant competitive advantage, thereby enabling us to fully implement a strategy for selling OraQuick ® internationally. We have received final CE mark
+approval for our OraQuick ADVANCE ® test, thereby enabling us to sell this product in Europe. We have established distribution channels in several European countries and are pursuing
+other distributors elsewhere in the European Union. 
+International sales of our
+OraQuick ® test increased 94% to $3.3 million in 2007 compared to $1.7 million in 2006. The largest contributor of growth was our African business which experienced a 76% increase in sales
+to almost $2.5 million. Our African business reflects the impact of large testing initiatives primarily in Madagascar and Ghana as well as continued growth in private sector demand in South Africa. 
+We have continued to see evidence that sales of OraQuick ADVANCE ® are negatively impacting sales of our OraSure ® oral fluid collection device in the infectious disease testing market in the U.S.
+During 2007, our sales of OraSure ® declined $500,000 from $3.6 million in 2006 to $3.1 million in 2007. Some customers who have purchased our OraSure ® device for laboratory HIV-1 testing in the past are now electing instead to purchase our OraQuick ADVANCE ® test. It is not possible at this time to
+estimate the extent of such change in purchasing patterns or the future financial impact of replacing OraSure ® sales with sales of our OraQuick ADVANCE ® test. 
+43 
+Table of Contents 
+Sales to the substance abuse testing market
+remained flat in 2007 at $15.8 million, as sales of our Intercept ® device for workplace testing were impacted by a decrease in employment rates domestically and a decrease in funding
+internationally. The international market experienced a decrease in public sector funding which has slowed the implementation of criminal justice testing. 
+The table below shows a breakdown of our total Intercept ® revenues (in thousands, except %) generated in each market during 2007 and 2006. 
+Year ended 
+December 31, 
+% 
+Change 
+Market 
+2007 
+2006 
+Workplace testing 
+$ 
+6,650 
+$ 
+6,616 
+1 
+% 
+Criminal justice 
+2,570 
+2,398 
+7 
+International 
+2,188 
+2,314 
+(5 
+) 
+Direct 
+1,003 
+728 
+38 
+Total Intercept ® revenues 
+$ 
+12,411 
+$ 
+12,056 
+3 
+% 
+We expect Intercept ® sales in 2008 to increase over 2007 as customers continue to shift from urine-based to oral-fluid based testing methods. However, our microplate oral fluid drug assays, which are sold for use
+with the Intercept ® collection device, are expected to come under increasing competitive pressure in the future from “home-brew” assays developed internally by our laboratory
+customers. In addition, our oral fluid microplate assays compete with urine-based homogeneous assays that are run on fully-automated, random access analyzers. We believe our competitors are developing oral fluid tests suitable for use on these fully
+automated homogeneous assay systems and these assays, if and when they are developed and commercialized, could represent a significant competitive threat to our oral fluid microplate business. In order to meet this competition, we are jointly
+developing and intend to commercialize fully-automated homogeneous oral fluid drugs of abuse assays with Roche Diagnostics for use with our Intercept ® device. 
+Sales of our products in the cryosurgical systems market (which includes both the physicians’ office and OTC markets) increased 36% to $23.5 million
+in 2007 from $17.3 million in 2006. This increase was primarily the result of increased sales of our international and domestic OTC cryosurgical products when compared to 2006. 
+The table below shows a breakdown of our total cryosurgery revenues (in thousands, except %) generated in each market during 2007 and 2006. 
+Year ended 
+December 31, 
+% 
+Change 
+Market 
+2007 
+2006 
+Professional domestic 
+$ 
+5,247 
+$ 
+5,360 
+(2 
+)% 
+Professional international 
+2,349 
+2,284 
+3 
+OTC domestic 
+6,237 
+5,174 
+21 
+OTC international 
+9,700 
+4,515 
+115 
+Total cryosurgical systems revenues 
+$ 
+23,533 
+$ 
+17,333 
+36 
+% 
+Our domestic OTC cryosurgical product,
+called Freeze Off ® , was distributed in the United States and Canada by Prestige, owner of the Compound W ® line of wart removal
+products. In September 2006, Prestige announced that it had acquired the Wartner ® cryosurgical wart removal product line, which directly competed with the Freeze Off ® product in the OTC market. Our distribution agreement with Prestige contained a covenant not to compete which precluded Prestige from acquiring, manufacturing, distributing or selling a
+cryosurgical product that directly competed with the Freeze Off ® product. We notified Prestige that its acquisition of the 
+44 
+Table of Contents 
+Wartner ® product constituted a material breach of the distribution agreement and that certain of
+its other actions constituted additional breaches under the agreement. Efforts to resolve this matter through mediation were not successful and arbitration commenced. Our distribution agreement with Prestige terminated on December 31, 2007 as a
+result of the arbitration proceeding. Sales to Prestige were $6.2 million and $5.2 million, in 2007 and 2006, respectively. No sales will be made to Prestige in the future. We are currently evaluating alternative arrangements for the OTC
+distribution of our product in the United States and Canada. However, it is not possible to predict at this time what the terms of such an arrangement might be or if such an arrangement will be successful. 
+We have an agreement with SSL under which we manufacture and supply, and SSL distributes on an exclusive basis, the Company’s cryosurgical wart
+removal product in the OTC footcare market in Europe, Australia and New Zealand. The product is manufactured and sold under SSL’s Scholl and Dr. Scholl trademarks. Sales to SSL under the distribution agreement were $5.3 million and $4.5
+million in 2007 and 2006, respectively. SSL continues to build distribution networks in pharmacies and mass merchandisers throughout Europe and expects to launch the OTC product in additional countries during 2008. 
+Early in 2007, we entered into an agreement with Genomma Labs pursuant to which Genomma distributes on an exclusive basis our cryosurgical wart removal
+product in the OTC market in Mexico. Sales to Genomma under this new distribution agreement were approximately $4.4 million in 2007. Recently, we renewed our Mexico agreement and additional rights were given to Genomma in Argentina, Brazil, various
+other Latin American countries, and South Africa. We expect international sales of our cryosurgical wart removal product to continue to increase as we expand into these new markets. 
+Sales of our Histofreezer ® product to
+physicians’ offices in the United States decreased 2% to $5.2 million in 2007, as compared to $5.4 million in 2006. Sales of Histofreezer ® in the international market remained relatively flat at $2.3 million. 
+We
+are beginning to see some evidence that sales of our OTC cryosurgical products may reduce the number of individuals that will seek to obtain treatment of their warts by a physician, which in turn could negatively affect sales of our
+Histofreezer ® product in the professional market. However, it is not possible at this time to estimate the magnitude of the financial impact of this change. 
+Sales to the insurance risk assessment market declined by 2% to $5.5 million in 2007 from $5.6 million in 2006, primarily because of a reduction in the
+number of applications for life insurance and changes in underwriting requirements. For higher face-value policies, it appears insurance companies are more likely to use a blood test for multiple risk factors, rather than an oral fluid test. We
+currently expect that our 2008 revenues in this market will remain at approximately the levels attained in 2007. 
+Licensing and product
+development revenues increased to $2.1 million in 2007, from $325,000 in 2006. In December 2006, we entered into a collaboration agreement with Schering-Plough, for the development and promotion of a rapid oral fluid test for the detection of
+antibodies to HCV. During 2007, we recognized $2.0 million in revenues associated with funded research and development under this agreement. We do not expect to recognize any additional licensing and product development revenues pursuant to this
+agreement. However, in early 2008, we entered into a new collaboration agreement with Schering-Plough for the development and promotion of our rapid oral fluid HCV test on a worldwide basis. Under the terms of the new agreement, we will retain the
+rights to market and sell the HCV test throughout the world, and Schering-Plough will reimburse us for certain development and regulatory costs based on the achievement of certain milestones. Schering will also provide promotional support for the
+product in international markets. Revenues from this agreement are not expected to be material in 2008. 
+The Company’s gross margin
+was 61% in 2007, compared to 64% in 2006. Our 2007 gross margin was negatively impacted primarily from increased scrap expense, higher product support costs and a less favorable product mix. Scrap expense increased from $762,000 in 2006 to $1.3
+million in 2007. 
+45 
+Table of Contents 
+Research and development expenses increased 63% to
+$14.1 million in 2007, from $8.6 million in 2006, primarily as a result of product and clinical development costs for our OraQuick ® HCV test, costs associated with OTC clinical trials for
+our OraQuick ® HIV-1/2 test, and a clinical study to gain FDA approval for a product line extension in our OTC cryosurgery business. Research and development costs are expected to increase
+by approximately $7.0 million in 2008, primarily due to clinical trial work associated with the development of our OraQuick ® HIV OTC test and our OraQuick ® HCV test, as well as costs expected to be incurred for the qualification of a new HIV microplate assay for use with our OraSure ® oral fluid collection device. 
+Sales and marketing expenses increased 26% to $20.1 million in 2007 from
+$15.9 million in 2006. This increase was primarily the result of higher salaries and commissions, incremental salaries, benefits, recruiting and relocation expenses associated with additional sales personnel, increases in reimbursable distributor
+advertising and promotion costs, and increased travel, consulting, and advertising expenses. 
+General and administrative expenses increased
+29% to $17.3 million in 2007 from $13.4 million in 2006. This increase was primarily attributable to higher staffing costs associated with new personnel and increased charges for stock-based compensation. This increase was also attributable to
+increased legal expenses associated with the Prestige and Schering-Plough legal proceedings. In 2008, we expect general and administrative costs to increase slightly as increased staffing costs are offset by a decrease in legal expenses. 
+Interest expense increased to $520,000 in 2007 from $405,000 in 2006, as a result of higher outstanding debt balances during the current period,
+resulting from financing the purchase of our Bethlehem facilities in June 2006, partially offset by interest capitalized for construction in progress during 2007. Interest income increased to $4.7 million in 2007 from $4.1 million in 2006, as a
+result of higher yields on our investment portfolio and larger balances available for investment. 
+In January 2007, we sold our ownership
+interest in a privately-held nonaffiliated company and recorded a $1.4 million pre-tax gain on the sale of this investment. 
+We purchase
+some of our cryosurgical products from, or utilize the services of, vendors located in The Netherlands. As a result of the decline in the exchange rate between the United States dollar and the Euro, we recorded a $105,000 loss on foreign currency
+transactions for the year ended December 31, 2007, and a $94,000 loss for the year ended December 31, 2006. 
+During 2007 and
+2006, we recorded provisions for federal and state income taxes of $1.8 million and $3.8 million, respectively, which reflect a 42% effective tax rate in each period. Our effective rate reflects the impact of permanent differences, generated by
+items which are not deductible on our income tax returns. In addition, during the fourth quarter of 2007, we recorded an income tax benefit of $289,000 related to the inclusion of a federal research and development tax credit. 
+Year Ended December 31, 2006 Compared to December 31, 2005 
+Total revenues decreased by 2% to $68.2 million in 2006 from $69.4 million in 2005, primarily as a
+result of declines in domestic OTC cryosurgical product revenues and insurance risk assessment revenues, partially offset by increased sales of our OraQuick ADVANCE ® rapid HIV-1/2
+antibody test, our Intercept ® oral fluid collection device and related drug assays, and our international cryosurgical products. Revenues derived from products sold in countries outside the
+U.S. were $11.4 million and $9.5 million, or 17% and 14% of total revenues, for the years ended December 31, 2006 and 2005, respectively. 
+46 
+Table of Contents 
+The table below shows the amount of our total revenues (in thousands, except %) generated in each of our
+principal markets and by licensing and product development activities. 
+Year ended December 31, 
+Dollars 
+% 
+Change 
+Percentage of 
+Total Revenues 
+Market 
+2006 
+2005 
+2006 
+2005 
+Infectious disease testing 
+$ 
+29,180 
+$ 
+25,988 
+12 
+% 
+43 
+% 
+37 
+% 
+Substance abuse testing 
+15,752 
+13,519 
+17 
+23 
+19 
+Cryosurgical systems 
+17,333 
+22,744 
+(24 
+) 
+25 
+33 
+Insurance risk assessment 
+5,565 
+6,815 
+(18 
+) 
+8 
+10 
+Product revenues 
+67,830 
+69,066 
+(2 
+) 
+99 
+99 
+Licensing and product development 
+325 
+300 
+8 
+1 
+1 
+Total revenues 
+$ 
+68,155 
+$ 
+69,366 
+(2 
+)% 
+100 
+% 
+100 
+% 
+Sales to the infectious disease testing
+market increased 12% to $29.2 million in 2006, primarily as a result of higher sales of our OraQuick ® HIV-1/2 test in both the public health and hospital markets through our distributor,
+Abbott. OraQuick ® and OraSure ® sales during 2006 totaled $25.6 million and $3.6 million, as compared to $21.6 million and $4.4
+million in 2005, respectively. 
+The table below shows a breakdown of our total
+OraQuick ® revenues (in thousands, except %) during 2006 and 2005. 
+Years ended 
+December 31, 
+% 
+Change 
+Customers 
+2006 
+2005 
+Direct to U.S. Public Health 
+$ 
+15,268 
+$ 
+8,292 
+84 
+% 
+Abbott 
+6,897 
+4,929 
+40 
+SAMHSA 
+406 
+3,741 
+(89 
+) 
+CDC 
+1,291 
+2,322 
+(44 
+) 
+International 
+1,694 
+1,530 
+11 
+Direct to Hospitals 
+— 
+740 
+— 
+Total OraQuick ® revenues 
+$ 
+25,556 
+$ 
+21,554 
+19 
+% 
+During 2006, OraQuick ® revenue derived from direct sales to the U.S. public health market increased by 84% as compared to 2005. This increase was the result of continued growth in usage of the OraQuick
+ADVANCE ® rapid HIV-1/2 antibody test in public health settings, and the initiation of certain city-wide HIV testing programs. 
+For the year ended December 31, 2006, sales to our hospital distributor, Abbott, grew 40% to $6.9 million, as compared to $4.9 million in 2005. This
+increase was a result of continued penetration of the hospital market by Abbott. 
+During 2006, we sold a total of $1.7 million in OraQuick ADVANCE ® HIV-1/2 tests to the CDC and SAMHSA, as compared to $6.1 million in 2005. 
+Sales to the substance abuse testing market increased 17% to $15.8 million in 2006, as a result of
+increased sales of both our Intercept ® oral fluid drug testing service and our Q.E.D. ® rapid oral fluid alcohol test.
+Intercept ® sales increased as a result of continued growth for this product, especially in the workplace and international markets. Increased sales of our Q.E.D. ® test were attributed to a change in government regulations, which increased demand for this product. 
+47 
+Table of Contents 
+The table below shows a breakdown of our total
+Intercept ® revenues (in thousands, except %) generated in each market during 2006 and 2005. 
+Years ended 
+December 31, 
+% 
+Change 
+Market 
+2006 
+2005 
+Workplace testing 
+$ 
+6,616 
+$ 
+5,661 
+17 
+% 
+Criminal Justice 
+2,398 
+2,269 
+6 
+International 
+2,314 
+1,956 
+18 
+Direct 
+728 
+563 
+29 
+Total Intercept ® revenues 
+$ 
+12,056 
+$ 
+10,449 
+15 
+% 
+Sales of our products in the cryosurgical systems market (which includes both the physicians’
+office and OTC markets) decreased 24% to $17.3 million in 2006. This decrease was primarily the result of lower sales of our domestic OTC and professional cryosurgical products when compared to 2005. 
+The table below shows a breakdown of our total cryosurgery revenues (in thousands, except %) generated in each market during 2006 and 2005. 
+Years ended 
+December 31, 
+% 
+Change 
+Market 
+2006 
+2005 
+Professional domestic 
+$ 
+5,360 
+$ 
+5,888 
+(9 
+)% 
+Professional international 
+2,284 
+2,018 
+13 
+OTC domestic 
+5,174 
+10,560 
+(51 
+) 
+OTC international 
+4,515 
+4,278 
+6 
+Total cryosurgery revenues 
+$ 
+17,333 
+$ 
+22,744 
+(24 
+)% 
+Our domestic OTC cryosurgical product,
+called Freeze Off ® , was distributed in the United States and Canada by Prestige, owner of the Compound W ® line of wart removal
+products. Sales to Prestige were $5.2 million and $11.6 million, in 2006 and 2005, respectively. 
+In June 2005, we entered into an
+agreement with SSL under which we manufacture and supply, and SSL distributes on an exclusive basis, the Company’s cryosurgical wart removal product in the OTC footcare market in Europe, Australia and New Zealand. The product is manufactured
+and sold under SSL’s Scholl and Dr. Scholl trademarks and initially was made available for retail purchase in pharmacies and other outlets in several European countries during the fourth quarter of 2005. Sales to SSL under the distribution
+agreement were $4.5 million and $3.2 million in 2006 and 2005, respectively. 
+Sales
+of our Histofreezer ® product to physicians’ offices in the United States decreased 9% to $5.4 million in 2006, as compared to $5.9 million in 2005. Sales of Histofreezer ® in the international market increased 13% to $2.3 million in 2006, as compared to $2.0 million in 2005. We believe these changes were due to fluctuations
+in distributor ordering patterns and inventory levels during 2006 and, in the case of domestic Histofreezer ® sales, increased competition. 
+Sales to the insurance risk assessment market declined by 18% to $5.6 million in 2006 from $6.8 million in 2005, primarily because of a reduction in the
+number of applications for life insurance and changes in underwriting requirements. For higher face-value policies, it appears insurance companies are more likely to use a blood test for multiple risk factors, rather than an oral fluid test.
+48 
+Table of Contents 
+Licensing and product development revenues increased 8% to $325,000 in 2006, from $300,000 in 2005.
+Licensing and product development revenues in both years were primarily related to our collaborative oral fluid research project with the University of Pennsylvania and New York University, under a grant awarded by the National Institutes of Health.
+This grant expired in June 2006. 
+Quest and Abbott accounted for 14% and 10% of total revenues for 2006, respectively. 
+The Company’s gross margin was 64% in 2006, compared to 60% in 2005. Our 2006 gross margin
+was positively impacted by the absence of a $1.5 million charge related to the Company’s UP link ® assets, which was recorded in 2005, and increased efficiencies in manufacturing
+operations. 
+Research and development expenses increased 64% to $8.6 million in
+2006, from $5.3 million in 2005, primarily as a result of costs associated with the development of an OraQuick ® HCV test, preparation for OTC clinical trials for our OraQuick ® HIV-1/2 test, a $1.0 million charge for acquired in-process research and development related to future HIV-related products, costs related to additional research personnel hired during 2006 and
+charges for stock-based compensation. 
+Sales and marketing expenses decreased 1% to
+$15.9 million in 2006 from $16.1 million in 2005. This decrease was primarily the result of lower market research, commission, consulting and advertising expenses, partially offset by higher staffing costs and charges for stock-based compensation.
+Included in advertising expense was $540,000 and $1.8 million for 2006 and 2005, respectively, paid to Prestige as reimbursement for marketing expenses incurred for the Compound W ® Freeze
+Off ® product. 
+General and administrative expenses increased 7% to $13.4
+million in 2006 from $12.5 million in 2005. This increase was primarily attributable to charges for stock-based compensation, higher staffing costs and certain consulting costs related to implementation of a new enterprise resource planning system.
+This increase was partially offset by a reduction in legal fees associated with delays in the Schering-Plough litigation and a reduction in rent expense due to the purchase of two of our Bethlehem, PA facilities in June 2006. 
+Interest expense increased to $405,000 in 2006 from $97,000 in 2005, as a result of higher outstanding debt balances during the second half of the year,
+resulting from the financing for our purchase of two previously leased facilities in Bethlehem, PA in June 2006. Interest income increased to $4.1 million in 2006 from $2.2 million in 2005, as a result of higher yields on our investment portfolio
+and larger balances available for investment. 
+We purchase some of our cryosurgical products from, or utilize the services of, vendors
+located in The Netherlands. As a result of the decline in the exchange rate between the United States dollar and the Euro, we recorded a $94,000 loss on foreign currency transactions for the year ended December 31, 2006, versus a $57,000 gain
+on foreign currency transactions recorded for the year ended December 31, 2005. 
+During 2006, we provided for income taxes at a rate
+equivalent to our estimated combined federal and state effective rates. As such, we recorded a $3.8 million provision for income taxes in 2006, which represents a 41.9% effective tax rate. During 2005, a net income tax benefit of $17.7 million was
+recorded, which reflected the release of a significant portion of the previous valuation allowance on our deferred tax asset. At December 31, 2005, the Company had federal net operating loss (“NOL”) carryforwards of $66.6 million.
+Prior to December 31, 2005, a valuation allowance had been established for the full amount of the deferred tax asset created by these carryforwards and other items. Based on taxable income in 2005 and future forecasted taxable earnings, a
+significant portion of the valuation allowance was released in the fourth quarter of 2005. This resulted in the recognition of $26.7 million of the deferred tax asset, of which $18.2 million was recorded as an income tax benefit in the statement of
+operations and $8.5 million was recorded directly as an increase in stockholders’ equity. Partially offsetting this benefit was an income tax provision of $436,000 that was recorded for the year ended December 31, 2005. 
+49 
+Table of Contents 
+Liquidity and Capital Resources 
+December 31, 
+2007 
+December 31, 
+2006 
+(In thousands) 
+Cash and cash equivalents 
+$ 
+32,230 
+$ 
+19,950 
+Short-term investments 
+63,336 
+71,051 
+Working capital 
+105,620 
+95,979 
+Our cash, cash equivalents and short-term investments increased $4.6 million to $95.6 million at
+December 31, 2007, primarily as a result of $11.6 million in positive cash flow from operating activities, $3.1 million in proceeds from the exercise of stock options, and $1.8 million of proceeds from the sale of our investment in a
+nonaffiliated company. These increases in cash were partially offset by $1.3 million of debt repayments, $5.5 million of property and equipment purchases, $4.2 million of payments for patents and product rights, and $786,000 associated with the
+retirement of common stock to pay minimum tax withholding obligations on the vesting of restricted shares. 
+Net cash provided by operating activities was $11.6 million in 2007, primarily generated by our net income of $2.5 million for the year, non-cash charges for depreciation and amortization of $2.7 million, stock-based
+compensation expense of $5.8 million, and a deferred income tax provision of $1.3 million resulting from utilization of our NOL carryforwards. Other factors which contributed to the $11.6 million in net cash provided by operating activities at
+December 31, 2007, included a non-cash provision for excess and obsolete inventories of $922,000, a $1.4 million gain on the sale of our investment in a nonaffiliated company, an increase of $5.9 million in accounts payable and accrued expenses
+primarily related to increased inventory levels, and increased accruals for payroll, commissions, customer prepayments, and professional fees, partially offset by a decrease in license fees accruals. Offsetting these sources of operating cash was a
+$4.8 million increase in inventories, related to our decision to increase finished goods inventory levels in our cryosurgical and OraQuick ® product lines. Accounts receivable increased
+$938,000 due to increased sales, and prepaid expenses increased $464,000 largely as a result of prepayments to third parties for clinical study work. 
+Net cash used in investing activities during 2007 was $364,000. Payments of $4.2 million for certain patent and product right agreements and $5.5 million for additions to property and equipment, were offset by $7.6
+million of net proceeds from maturities and redemptions of short-term investments and $1.8 million of proceeds from the sale of our investment in a nonaffiliated company. 
+During the year ending December 31, 2008, we expect to invest between $4 and $5 million in capital expenditures, primarily to purchase additional equipment, upgrade certain older equipment and make improvements
+to our facilities. 
+Net cash provided by financing activities was $1.0 million for the year ended December 31 2007, reflecting $3.1
+million received from the exercise of stock options offset by $1.3 million of loan principal repayments and $786,000 used for the purchase and retirement of common stock. 
+At December 31, 2007, we had in place a $14,000,000 credit facility (the “Credit Facility”) with Comerica Bank (“Comerica”) which is comprised of a $10,000,000 facilities advance and a
+$4,000,000 revolving working capital line of credit. At our option, interest on the facilities advance is payable monthly at either a fixed rate equal to the five-year U.S. Treasury Note rate plus 1.03% to 1.73%, or a variable rate equal to the 30,
+180, or 360-day LIBOR plus 0.55% to 1.25%. In each case, the interest rate is determined at the date of the advance and is based upon the amount of cash and cash equivalents we invest and retain at Comerica Securities, Inc. We also can choose the
+fixed rate option, without penalty, at the expiration of a previously elected LIBOR period. Principal is repayable in periodic installments, based upon the rate option that we elect, with the remaining balance of unpaid principal due on
+June 27, 2011. Interest on any advances under the revolving working capital line of credit is payable at either the U.S. prime rate less 0.25% or 30-day LIBOR pus 2.55%, in each case determined at the time of funding. 
+50 
+Table of Contents 
+In June 2007, we executed an amendment to our Credit Facility, pursuant to which the maturity date of our
+$4,000,000 revolving working capital line of credit was extended to June 29, 2009. We also had the ability to borrow $5,000,000 in additional advances to fund the future expansion of our facilities in Bethlehem, Pennsylvania. We allowed this
+$5,000,000 of availability under our Credit Facility to expire unused on June 30, 2007. All other terms of our Credit Facility, as previously amended, remain in effect. 
+As of December 31, 2007, we had $9,250,0000 in outstanding borrowings under the facilities advance and no outstanding borrowings under the
+$4,000,000 revolving working capital line of credit. 
+At December 31, 2007, interest on borrowings under the facilities advance was
+payable monthly, at 30-day LIBOR plus 0.9%, or 5.755%. Principal is repayable in installments, due at the end of each LIBOR period, based upon a twenty-year amortization schedule and the number of months in the expiring LIBOR period. In January
+2008, we elected to fix the interest rate on the facilities advance at 4.15% until its maturity in June 2011, with principal and interest payable on a monthly basis. 
+All borrowings under the Credit Facility are collateralized by a first priority security interest in all of our assets, including present and future accounts receivable, chattel paper, contracts and contract rights,
+equipment and accessories, general intangibles, investments, instruments, inventories, and a mortgage on our three facilities in Bethlehem, Pennsylvania. Borrowings under the revolving working capital line of credit are limited to commercially
+standard percentages of accounts receivable. The Credit Facility contains certain covenants that set forth minimum requirements for our quick ratio, liquidity, and tangible net worth. We were in full compliance with all covenants at
+December 31, 2007. The Credit Facility also restricts our ability to pay dividends, to make certain investments, to incur additional indebtedness, to sell or otherwise dispose of a substantial portion of assets, and to merge or consolidate
+operations with an unaffiliated entity, without the consent of Comerica. 
+At December 31, 2007, we had NOL carryforwards of $45.5
+million for federal income tax purposes. During the fourth quarter of 2005, the Company retained independent tax specialists to perform an ownership change study and analysis to determine the annual limitation amount applicable to utilization of the
+NOL carryforwards due to past ownership changes, as defined in Section 382 of the Internal Revenue Code. We continue to review ownership changes on a quarterly basis. We do not believe that the ownership change limitations would impair our
+ability to use our NOLs against our current forecasted taxable income. 
+The combination of our current cash and short-term investments,
+anticipated cash flow from operations and available borrowings under our Credit Facility is expected to be sufficient to fund our operating and capital needs for the foreseeable future. However, our cash requirements may vary materially from those
+now planned due to many factors, including, but not limited to, the scope and timing of strategic acquisitions, the cost and timing of the expansion of our manufacturing capacity, the progress of our research and development programs, the scope and
+results of clinical testing, the magnitude of capital expenditures, changes in existing and potential relationships with business partners, the time and cost of obtaining regulatory approvals, the costs involved in obtaining and enforcing patents,
+proprietary rights and any necessary licenses, the cost and timing of expansion of sales and marketing activities, the timing of market launch of new products, market acceptance of new products, competing technological and market developments and
+other factors. 
+51 
+Table of Contents 
+Contractual Obligations and Commercial Commitments 
+The following sets forth our approximate aggregate obligations at December 31, 2007 for future payments under contracts and other contingent
+commitments, for the years 2008 and beyond: 
+Contractual Obligations 
+Total 
+Payments due by December 31, 
+2008 
+2009 
+2010 
+2011 
+2012 
+Thereafter 
+Long-term debt 1 
+$ 
+9,374,420 
+$ 
+556,751 
+$ 
+557,897 
+$ 
+509,760 
+$ 
+7,750,012 
+$ 
+— 
+$ 
+— 
+Operating leases 2 
+106,034 
+94,621 
+11,413 
+— 
+— 
+— 
+— 
+Employment contracts 3 
+2,531,000 
+1,565,375 
+727,875 
+237,750 
+— 
+— 
+— 
+Purchase obligations 4 
+11,187,294 
+11,142,441 
+44,853 
+— 
+— 
+— 
+— 
+Minimum commitments under contracts 5 
+5,291,667 
+500,000 
+500,000 
+500,000 
+500,000 
+500,000 
+2,791,667 
+Total contractual obligations 
+$ 
+28,490,415 
+$ 
+13,859,188 
+$ 
+1,842,038 
+$ 
+1,247,510 
+$ 
+8,250,012 
+$ 
+500,000 
+$ 
+2,791,667 
+1 
+Represents principal repayments required under notes payable to our lenders. See Note 8 to the financial statements included herein. 
+2 
+Represents payments required under our operating leases. 
+3 
+Represents salary payments payable under the terms of employment agreements executed by us with certain executives. See Note 11 to the financial statements included herein.
+4 
+Represents payments required by non-cancellable purchase orders related to inventory, capital expenditures and other goods or services. See Note 11 to the financial statements
+included herein. 
+5 
+Represents payments required pursuant to certain, licensing agreements executed by the Company. These agreements are cancellable within a specified number of days after
+communication by the Company of its intent to terminate. See Note 11 to the financial statements included herein. Additional payments of up to $5,500,000 may be required pursuant to one of these licensing agreements for the achievement of specific
+development and/or commercial milestones. 
+Off-Balance Sheet Arrangements . We do not have any
+off-balance sheet arrangements, as defined in Item 303(a) (4) (ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended. 
+Critical Accounting Policies and Estimates 
+This Management’s Discussion and Analysis of Financial Condition and
+Results of Operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that we make
+estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
+period. On an on-going basis, we evaluate our judgments and estimates, including those related to bad debts, inventories, investments, intangible assets, income taxes, revenue recognition, clinical trial accruals, contingencies and litigation. We
+base our judgments and estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and
+liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 
+Our significant accounting policies are described in Note 2 to the financial statements included in Item 15 of this Annual Report. We consider the following accounting estimates, which have been discussed with
+our Audit Committee, to be most critical in understanding the more complex judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial condition and cash flows.
+52 
+Table of Contents 
+Revenue Recognition . We follow SAB No. 104, “Revenue
+Recognition.” This bulletin draws on existing accounting rules and provides specific guidance on revenue recognition for up-front non-refundable licensing and development fees. We license certain products or technology to outside third parties,
+in return for which we receive up-front licensing fees. Some of these fees can be significant. In accordance with SAB No. 104, we recognize this revenue ratably over the related license period. 
+We also enter into research and development contracts with corporate, government and/or private entities. These contracts generally provide for payments
+to us upon achievement of certain research or development milestones. Product development revenues from these contracts are recognized only if the specified milestone is achieved and accepted by the customer and payment from the customer is
+probable. Any amounts received prior to the performance of product development efforts are recorded as deferred revenues. Recognition of revenue under these contracts can be sporadic, as it is the result of achieving specific research and
+development milestones. Furthermore, revenue from future milestone payments will not be recognized if the underlying research and development milestone is not achieved. 
+We recognize product revenues when there is persuasive evidence that an arrangement exists, the price is fixed or determinable, title has passed and collection is reasonably assured. Product revenues are net of
+allowances for any discounts or rebates. We do not grant price protection or product return rights to our customers, except for warranty returns. Where a product fails to comply with its limited warranty, we can either replace the product or provide
+the customer with a refund of the purchase price or credit against future purchases. Historically, returns arising from warranty issues have been infrequent and immaterial. Accordingly, we expense warranty returns as incurred. While such returns
+have been immaterial in the past, we cannot guarantee that we will continue to experience the same rate of warranty claims as we have in the past. 
+Allowance for Uncollectible Accounts Receivable . Accounts receivable are reduced by an estimated allowance for amounts that may become uncollectible in the future. On an ongoing basis, we perform credit
+evaluations of our customers and adjust credit limits based upon the customer’s payment history and creditworthiness, as determined by a review of their current credit information. We also continuously monitor collections and payments from our
+customers. 
+Based upon historical experience and any specific customer collection issues that are identified, we use our judgment to
+establish and evaluate the adequacy of our allowance for estimated credit losses, which was $186,468 at December 31, 2007. While credit losses have been within our expectations and the allowance provided, these losses can vary from period to
+period ($40,914, $16,022, and ($4,771) in 2007, 2006 and 2005, respectively). Furthermore, there is no assurance that we will experience credit losses at the same rates as we have in the past. Also, at December 31, 2007, $3.7 million, or 33% of
+our accounts receivable, was due from three major customers. Any significant changes in the liquidity or financial position of these customers, or others, could have a material adverse impact on the collectibility of our accounts receivable and
+future operating results. 
+Inventories . Our
+inventories are valued at the lower of cost or market, determined on a first-in, first-out basis, and include the cost of raw materials, labor and overhead. The majority of our inventories are subject to expiration dating. We continually evaluate
+the carrying value of our inventories and when, in the opinion of management, factors indicate that impairment has occurred, either a reserve is established against the inventories’ carrying value or the inventories are completely written off.
+We base these decisions on the level of inventories on hand in relation to our estimated forecast of product demand, production requirements over the next twelve months and the expiration dates of raw materials and finished goods. During 2007, 2006
+and 2005, we wrote-off inventory which had a cost of $922,000, $751,000 and $2.1 million, respectively, as a result of scrap and product expiration issues and recorded a $1.3 million provision for loss on our UP link ® product in 2005. Although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact
+on the carrying value of our inventories and reported operating results. 
+53 
+Table of Contents 
+Stock-based Compensation . Commencing January 1, 2006, we adopted SFAS
+No. 123 (revised 2004), “Share-Based Payment,” which requires us to recognize the fair value of equity-based awards as compensation expense in our statement of operations. The fair value of our stock option awards was estimated using
+a Black-Scholes option valuation model. This valuation model’s computations incorporate highly subjective assumptions, such as the expected stock price volatility and the estimated life of each award. The fair value of awards, after considering
+the effect of expected forfeitures, is then amortized, generally on a straight-line basis, over the related vesting period of the award. 
+Long-lived and Intangible Assets . Our long-lived assets are
+comprised of property and equipment and our intangible assets primarily consist of patents and product rights. Together, these assets had a net book value of $26.2 million, or 16% of our total assets, at December 31, 2007. Property and
+equipment, and patents and product rights are depreciated or amortized on a straight-line basis over their useful lives, which we determine based upon our estimate of the period of time over which each asset will generate revenues. In August 2005,
+we recorded a $1.5 million intangible asset related to a payment under a license agreement to certain patents related to the Hepatitis C Virus. We recorded an additional $3.0 million related to this license in 2006. Management’s intent in
+executing this license is to provide for various alternatives for use, including uses in the international market that would not require additional research and development efforts or regulatory approvals. This $4.5 million asset was capitalized
+based on management’s estimate of the cash flows to be received from future product sales in these international markets. A similar analysis of estimated future cash flows will be prepared upon payment of additional license fees under this
+agreement, or upon changes in circumstances, to determine the appropriate accounting treatment for payments under this license agreement. An impairment of long-lived or intangible assets could occur whenever events or changes in circumstances
+indicate that the net book value of these assets may not be recoverable. Events which could trigger an asset impairment include significant underperformance relative to expected historical or projected future operating results, significant changes
+in the manner of our use of an asset or in our overall business strategy, significant negative industry or economic trends, and shortening of product life-cycles or changes in technology. If we believe impairment of an asset has occurred, we measure
+the amount of such impairment by comparing the net book value of the affected assets to the fair value of these assets, which is generally determined based upon the present value of the expected cash flows associated with the use of these assets. If
+the net book value exceeds the fair value of the impaired assets, we would incur an impairment expense equal to this difference. In June 2005, we recorded a $196,000 provision for loss on our UP link ® fixed assets as a result of our inability to reach an agreement to transfer these assets to our distribution partner or determine an alternative outlet for these assets. We currently believe the future cash flows to
+be received from all other long-lived and intangible assets will exceed their book value and, as such, we have not recognized any additional impairment losses through December 31, 2007. Any unanticipated significant impairment in the future,
+however, could have a material adverse impact to our balance sheet and future operating results. 
+Deferred Tax
+Assets . At December 31, 2007, we had federal NOL carryforwards of $45.5 million. The deferred tax asset associated with these NOLs and other temporary differences was $22.3 million at December 31, 2007. In
+assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
+generation of future taxable income during the period in which those temporary differences become deductible or the NOLs and credit carryforwards can be utilized. We consider the scheduled reversal of deferred tax liabilities, projected future
+taxable income and tax planning strategies in making this assessment. 
+Our ability to use our NOL carryforwards to offset future federal
+income tax obligations, could be limited by changes in the ownership of our stock. Internal Revenue Code (“IRC”) Section 382 contains provisions that limit the amount of federal NOL carryforwards that can be used in any given year in
+the event of specified occurrences, including significant ownership changes. During the fourth quarter of 2005, the Company completed an analysis, with the assistance of independent tax specialists, to determine if any IRC Section 382 ownership
+changes have occurred that would limit the amount of NOLs that could be utilized to offset future 
+54 
+Table of Contents 
+taxable income. As a result of these analyses, the Company concluded that prior period ownership changes may impose a limitation on the amount of NOLs that
+can be utilized in a given year. The Company does not believe, however, that this limitation will impair our future ability to utilize NOLs to offset our forecasted taxable income or to realize the related deferred tax asset. The Company continues
+to review ownership changes on a quarterly basis. 
+Prior to December 31, 2005, a valuation allowance had been established for the full
+amount of the deferred tax asset created by these carryforwards and other items. Based on our 2005 results and our projections for future taxable income over the periods in which the deferred tax assets are deductible or the NOLs and credit
+carryforwards can be utilized, we believe a significant portion of the deferred tax asset was realizable at December 31, 2005. As such, we recorded the estimated net realizable value of the deferred tax asset at December 31, 2005 and have
+begun providing for income taxes at a rate equal to our combined federal and state effective rates. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly
+from period to period. 
+Clinical Trial Accruals . Some of our research and development is conducted by third
+parties, including contract research and development service providers. All such costs are charged to research and development expense systematically as incurred, which may be measured by patient enrollment or the passage of time. At the end of each
+quarter, we compare the payments made to each service provider to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the
+timing of payments to the service providers and the estimated service provided, we record net prepaid or accrued expense relating to these costs. 
+Contingencies . In the ordinary course of business, we have entered into various contractual relationships with strategic corporate partners, customers, distributors, research laboratories and universities,
+licensors, licensees, suppliers, vendors and other parties. As such, we could be subject to litigation, claims or assessments arising from any or all of these relationships. We account for contingencies such as these in accordance with SFAS
+No. 5, “Accounting for Contingencies.” SFAS No. 5 requires us to record an estimated loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been
+impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies arising from contractual or legal proceedings requires that we use our best
+judgment when estimating an accrual related to such contingencies. As additional information becomes known, our accrual for a loss contingency could fluctuate, thereby creating variability in our results of operations from period to period.
+Likewise, an actual loss arising from a loss contingency which significantly exceeds the amount accrued for in our financial statements could have a material adverse impact on our operating results for the period in which such actual loss becomes
+known. 
+ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk. 
+We do not
+hold any amounts of derivative financial instruments or derivative commodity instruments and, accordingly, we have no material derivative risk to report under this Item. 
+A significant portion of our assets is comprised of certificates of deposit, commercial paper, U.S. government and agency obligations, and U.S. corporate bonds. All such instruments are classified as
+available-for-sale securities. The primary objective of our investment activities is to preserve principal while maximizing the related income without significantly increasing risk. Even so, some of the securities in which we invest may be subject
+to market risk. Market risk is the risk that a change in prevailing interest rates may cause the fair value of an investment to fluctuate. As interest rates increase, the fair value of a debt instrument would be expected to decrease.
+Correspondingly, if interest rates decrease the fair value of a debt instrument would be expected to increase. To minimize market risk, we have the ability to hold such debt instruments to maturity, at which time the debt instrument would be
+redeemed at its stated or face value. We also typically invest in the shorter end of the maturity spectrum. As such, we do not believe that we have a material exposure to market risk. 
+55 
+Table of Contents 
+At December 31, 2007, approximately $9.3 million of the Company’s long-term debt bore interest
+at a variable rate tied to the London Interbank Offered Rate. However, in January 2008 we elected to fix the interest rate at 4.15% until the debt’s maturity in June 2011. As a result, we have no exposure to interest rate changes. 
+As of December 31, 2007, we did not have any foreign currency exchange contracts or purchase currency options to hedge local currency cash flows.
+We have operations in The Netherlands, which are subject to foreign currency fluctuations. As currency rates change, translation of revenues and expenses for these operations from Euros to U.S. dollars affects year-to-year comparability of operating
+results. Sales denominated in a foreign currency represented approximately $142,000 of our total revenues for the year ended December 31, 2007. We do not expect the risk of foreign currency fluctuations to be material in the near future.
+ITEM 8. Financial Statements and Supplementary Data. 
+Information with respect to
+this Item is contained in our Financial Statements included in Item 15 of this Annual Report on Form 10-K. 
+ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 
+Not applicable. 
+ITEM 9A. Controls and Procedures. 
+(a) Evaluation of Disclosure Controls and
+Procedures. 
+The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial
+Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of December 31, 2007. Based on that evaluation, the
+Company’s management, including such officers, concluded that the Company’s disclosure controls and procedures are adequate and effective to ensure that information required to be disclosed by the Company in the reports that we file or
+submit under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and is
+recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. 
+(b) Management’s Report on Internal Control Over Financial Reporting. 
+The Company’s management is responsible for
+establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of the Company’s
+management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated
+Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework, our management concluded that our internal control over financial reporting was effective to provide
+reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles as of December 31, 2007. 
+The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by KPMG LLP, an independent registered
+public accounting firm, as stated in their report, which is included below. 
+Because of its inherent limitations, internal control over
+financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
+compliance with the policies or procedures may deteriorate. 
+56 
+Table of Contents 
+(c) Changes in Internal Control Over Financial Reporting. 
+During 2006, the Company purchased and installed a new Enterprise Resource Planning System (“ERP”), which became fully operational on
+January 1, 2007. An ERP is a fully-automated set of programs and databases that incorporate order processing, production planning and scheduling, purchasing, accounts receivable and inventory management and accounting. During the three months
+ended December 31, 2007, the Company updated certain of its internal controls over financial reporting to reflect changes to its business processes resulting from the ERP implementation. The Company is continuing to evaluate the impact of the
+ERP on certain of its internal controls and expects the ERP to further improve its control environment by automating manual functions and standardizing the Company’s business processes. Except as described above, there was no change in the
+Company’s internal control over financial reporting during the three months ended December 31, 2007 that was identified in connection with the evaluation referred to in paragraph (b) above that has materially affected, or is
+reasonably likely to materially affect, the Company’s internal control over financial reporting. 
+(d) Report of Independent
+Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+OraSure Technologies, Inc.: 
+We have audited OraSure Technologies, Inc.’s internal control over
+financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). OraSure Technologies,
+Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
+on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 
+We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
+plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
+reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
+considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 
+A company’s
+internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
+accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
+and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
+receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
+acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 
+Because of
+its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
+of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+In our opinion, OraSure
+Technologies, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
+Sponsoring Organizations of the Treadway Commission (COSO). 
+57 
+Table of Contents 
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
+(United States), the balance sheets of OraSure Technologies, Inc. as of December 31, 2007 and 2006, and the related statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the
+three-year period ended December 31, 2007, and our report dated March 11, 2008 expressed an unqualified opinion on those financial statements. 
+/s/ KPMG LLP 
+Philadelphia, Pennsylvania 
+March 11, 2008 
+ITEM 9B. Other Information. 
+Not applicable. 
+58 
+Table of Contents 
+PART III 
+We have omitted from Part III the information that will appear in our Definitive Proxy Statement for our 2008 Annual Meeting of Stockholders (the “Proxy Statement”), which will be filed within 120 days after
+the end of our fiscal year pursuant to Regulation 14A. 
+ITEM 10. Directors, Executive Officers and Corporate Governance. 
+Certain
+information required by this Item is incorporated by reference to the information under the captions, “Corporate Governance—Committees of the Board—Audit Committee,” “Election of Directors,” “Executive
+Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” in the Proxy Statement. 
+Our Board of Directors
+has adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer and principal accounting officer, as well as to the members of our Board of Directors and our other officers and
+employees. This Code of Business Conduct and Ethics is available on our website at www.orasure.com. We intend to satisfy the amendment and waiver disclosure requirements under applicable securities regulations by posting any amendments of, or
+waivers to, the Code of Business Conduct and Ethics on our website. 
+ITEM 11. Executive Compensation. 
+The information required by this Item is
+incorporated by reference to the information under the caption, “Executive Compensation,” in the Proxy Statement. 
+ITEM 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 
+The information required by this Item with respect to the securities ownership of certain beneficial owners and management, and equity compensation plan
+information, is incorporated by reference to the information under the captions, “Principal Stockholders” and “Equity Compensation Plan Information,” respectively, in the Proxy Statement. 
+ITEM 13. Certain Relationships and Related Transactions, and Director Independence. 
+The information required by this Item is incorporated by reference to the information under the captions, “Transactions with Related Persons” and “Corporate Governance—Director Independence,” in the Proxy Statement.
+ITEM 14. Principal Accountant Fees and Services. 
+The information required by this
+Item is incorporated by reference to the information under the caption, “Audit Fees; Audit-Related Fees; Tax Fees; All Other Fees,” in the Proxy Statement. 
+59 
+Table of Contents 
+PART IV 
+ITEM 15. Exhibits and Financial Statement Schedules. 
+(a)(1) and
+(a)(2). Financial Statements and Schedules . For a list of the Financial Statements filed herewith, see the Index to Financial Statements following the signature page to this Annual Report. No schedules are included with
+the Financial Statements because the required information is inapplicable or is presented in the Financial Statements or related notes thereto. 
+(a)(3). Exhibits . See Index to Exhibits following the Financial Statements in this Annual Report. 
+60 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized,
+on March 12, 2008. 
+ORASURE TECHNOLOGIES, INC. 
+By: 
+/s/ D OUGLAS A. M ICHELS 
+Douglas A. Michels 
+President and Chief Executive Officer 
+Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
+signed on March 12, 2008, by the following persons on behalf of the Registrant and in the capacities indicated. 
+SIGNATURE 
+TITLE 
+/s/ D OUGLAS A. M ICHELS 
+Douglas A. Michels 
+President, Chief Executive Officer and Director 
+(Principal Executive Officer) 
+/s/ R ONALD H. S PAIR 
+Ronald H. Spair 
+Chief Operating Officer, Chief Financial Officer and 
+Director (Principal Financial Officer) 
+/s/ M ARK L. K UNA 
+Mark L. Kuna 
+Senior Vice President, Finance and Controller 
+(Principal Accounting Officer) 
+*M ICHAEL C ELANO 
+Michael Celano 
+Director 
+*J ACK G OLDSTEIN , P H .D. 
+Jack Goldstein, Ph.D. 
+Director 
+*R ONNY B. L ANCASTER 
+Ronny B. Lancaster 
+Director 
+*C HARLES W. P ATRICK 
+Charles W. Patrick 
+Director 
+*R OGER L. P RINGLE 
+Roger L. Pringle 
+Director 
+*D OUGLAS G. W ATSON 
+Douglas G. Watson 
+Director 
+*By: 
+/s/ J ACK E. J ERRETT 
+Jack E. Jerrett 
+(Attorney-in-Fact) 
+61 
+Table of Contents 
+INDEX TO FINANCIAL STATEMENTS 
+Page 
+Report of Independent Registered Public Accounting Firm 
+F-2 
+Balance Sheets 
+F-3 
+Statements of Operations 
+F-4 
+Statements of Stockholders’ Equity and Comprehensive Income (Loss) 
+F-5 
+Statements of Cash Flows 
+F-6 
+Notes to the Financial Statements 
+F-7 
+F-1 
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+The Board of Directors and Stockholders 
+OraSure Technologies, Inc.: 
+We have audited the accompanying balance sheets
+of OraSure Technologies, Inc. as of December 31, 2007 and 2006, and the related statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended
+December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. 
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
+perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
+audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
+In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of OraSure Technologies, Inc.
+as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. 
+As discussed in Note 2 to the financial statements, effective January 1, 2006, the Company adopted the fair value method of accounting for stock-based compensation
+as required by Statement of Financial Accounting Standards No. 123R, Share-Based Payment . 
+We also have audited, in accordance with the
+standards of the Public Company Accounting Oversight Board (United States), OraSure Technologies, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal
+Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 11, 2008 expressed an unqualified opinion on the effectiveness of the Company’s
+internal control over financial reporting. 
+/s/ KPMG LLP 
+Philadelphia, Pennsylvania 
+March 11, 2008 
+F-2 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+BALANCE SHEETS 
+December 31, 
+2007 
+2006 
+ASSETS 
+CURRENT ASSETS: 
+Cash and cash equivalents 
+$ 
+32,229,697 
+$ 
+19,949,821 
+Short-term investments 
+63,336,408 
+71,051,482 
+Accounts receivable, net of allowance for doubtful accounts of $186,468 
+and $200,094 
+11,296,355 
+10,357,287 
+Inventories 
+9,409,743 
+5,534,567 
+Deferred income taxes 
+5,060,974 
+3,675,785 
+Prepaid expenses and other 
+2,455,534 
+1,989,882 
+Total current assets 
+123,788,711 
+112,558,824 
+PROPERTY AND EQUIPMENT, net 
+20,911,157 
+17,374,718 
+PATENTS AND PRODUCT RIGHTS, net 
+5,279,471 
+6,328,344 
+DEFERRED INCOME TAXES 
+17,265,591 
+19,845,789 
+OTHER ASSETS 
+107,586 
+457,788 
+$ 
+167,352,516 
+$ 
+156,565,463 
+LIABILITIES AND STOCKHOLDERS’ EQUITY 
+CURRENT LIABILITIES: 
+Current portion of long-term debt 
+$ 
+556,751 
+$ 
+608,595 
+Accounts payable 
+5,615,998 
+3,311,968 
+Accrued expenses and other 
+11,995,710 
+12,659,149 
+Total current liabilities 
+18,168,459 
+16,579,712 
+LONG-TERM DEBT 
+8,817,669 
+10,030,541 
+OTHER LIABILITIES 
+311,799 
+451,235 
+COMMITMENTS AND CONTINGENCIES (Note 11) 
+STOCKHOLDERS’ EQUITY: 
+Preferred stock, par value $.000001, 25,000,000 shares authorized, none issued 
+— 
+— 
+Common stock, par value $.000001, 120,000,000 shares authorized, 46,644,046 and 45,994,752 shares issued and outstanding 
+47 
+46 
+Additional paid-in capital 
+236,293,489 
+228,069,433 
+Accumulated other comprehensive loss 
+(238,896 
+) 
+(151,197 
+) 
+Accumulated deficit 
+(96,000,051 
+) 
+(98,414,307 
+) 
+Total stockholders’ equity 
+140,054,589 
+129,503,975 
+$ 
+167,352,516 
+$ 
+156,565,463 
+The accompanying notes are an integral part of these statements. 
+F-3 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+STATEMENTS OF OPERATIONS 
+For the year ended December 31, 
+2007 
+2006 
+2005 
+REVENUES: 
+Product 
+$ 
+80,576,622 
+$ 
+67,830,561 
+$ 
+69,066,152 
+Licensing and product development 
+2,109,254 
+324,359 
+300,040 
+82,685,876 
+68,154,920 
+69,366,192 
+COST OF PRODUCTS SOLD 
+32,402,794 
+24,756,195 
+27,973,907 
+Gross profit 
+50,283,082 
+43,398,725 
+41,392,285 
+OPERATING EXPENSES: 
+Research and development 
+14,136,019 
+8,647,484 
+5,269,083 
+Sales and marketing 
+20,061,685 
+15,921,467 
+16,060,413 
+General and administrative 
+17,304,615 
+13,367,111 
+12,490,074 
+51,502,319 
+37,936,062 
+33,819,570 
+Operating income (loss) 
+(1,219,237 
+) 
+5,462,663 
+7,572,715 
+INTEREST EXPENSE 
+(520,002 
+) 
+(404,680 
+) 
+(96,632 
+) 
+INTEREST INCOME 
+4,709,771 
+4,097,860 
+2,185,486 
+GAIN ON SALE OF INVESTMENT 
+1,428,691 
+— 
+— 
+FOREIGN CURRENCY GAIN (LOSS) 
+(105,448 
+) 
+(94,390 
+) 
+57,329 
+Income before income taxes 
+4,293,775 
+9,061,453 
+9,718,898 
+INCOME TAX PROVISION (BENEFIT) 
+1,821,336 
+3,793,904 
+(17,729,189 
+) 
+NET INCOME 
+$ 
+2,472,439 
+$ 
+5,267,549 
+$ 
+27,448,087 
+EARNINGS PER SHARE: 
+BASIC 
+$ 
+0.05 
+$ 
+0.11 
+$ 
+0.61 
+DILUTED 
+$ 
+0.05 
+$ 
+0.11 
+$ 
+0.59 
+SHARES USED IN COMPUTING EARNINGS PER SHARE: 
+BASIC 
+46,325,338 
+45,909,990 
+45,109,580 
+DILUTED 
+46,878,143 
+46,580,266 
+46,146,612 
+The accompanying notes are an integral part of these statements. 
+F-4 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
+For the years ended December 31, 2007, 2006 and 2005 
+Common Stock 
+Additional 
+Paid-in 
+Capital 
+Deferred 
+Compensation 
+Accumulated 
+Other 
+Comprehensive 
+Loss 
+Accumulated 
+Deficit 
+Total 
+Shares 
+Amount 
+Balance at January 1, 2005 
+44,631,731 
+$ 
+45 
+$ 
+209,948,075 
+$ 
+(2,916,503 
+) 
+$ 
+(324,669 
+) 
+$ 
+(131,129,943 
+) 
+$ 
+75,577,005 
+Common stock issued upon exercise of options 
+1,009,794 
+1 
+6,067,868 
+— 
+— 
+— 
+6,067,869 
+Compensation expense for stock option grants 
+— 
+— 
+123,916 
+— 
+— 
+— 
+123,916 
+Vesting of restricted stock 
+197,180 
+— 
+— 
+— 
+— 
+— 
+— 
+Restricted stock grants to employees 
+— 
+— 
+1,918,343 
+(1,918,343 
+) 
+— 
+— 
+— 
+Purchase and retirement of treasury shares 
+(63,080 
+) 
+— 
+(601,347 
+) 
+— 
+— 
+— 
+(601,347 
+) 
+Amortization of deferred compensation expense 
+— 
+— 
+— 
+1,500,054 
+— 
+— 
+1,500,054 
+Deferred taxes related to stock options 
+— 
+— 
+8,761,614 
+— 
+— 
+— 
+8,761,614 
+Comprehensive income: 
+Net income 
+— 
+— 
+— 
+— 
+— 
+27,448,087 
+27,448,087 
+Currency translation adjustment 
+— 
+— 
+— 
+— 
+(39,095 
+) 
+— 
+(39,095 
+) 
+Unrealized gain on marketable securities, net of tax provision of $26,268 
+— 
+— 
+— 
+— 
+80,939 
+— 
+80,939 
+Total comprehensive income 
+27,489,931 
+Balance at December 31, 2005 
+45,775,625 
+46 
+226,218,469 
+(3,334,792 
+) 
+(282,825 
+) 
+(103,681,856 
+) 
+118,919,042 
+Reclassification of deferred compensation 
+— 
+— 
+(3,334,792 
+) 
+3,334,792 
+— 
+— 
+— 
+Reclassification of liability-classified awards 
+— 
+— 
+(230,659 
+) 
+— 
+— 
+— 
+(230,659 
+) 
+Common stock issued upon exercise of options 
+85,013 
+— 
+457,334 
+— 
+— 
+— 
+457,334 
+Vesting of restricted stock 
+199,633 
+— 
+— 
+— 
+— 
+— 
+— 
+Purchase and retirement of treasury shares 
+(65,519 
+) 
+— 
+(631,509 
+) 
+— 
+— 
+— 
+(631,509 
+) 
+Compensation cost for restricted stock 
+— 
+— 
+1,969,178 
+— 
+— 
+— 
+1,969,178 
+Compensation cost for stock option grants 
+— 
+— 
+3,621,412 
+— 
+— 
+— 
+3,621,412 
+Comprehensive income: 
+Net income 
+— 
+— 
+— 
+— 
+— 
+5,267,549 
+5,267,549 
+Currency translation adjustment 
+— 
+— 
+— 
+— 
+6,787 
+— 
+6,787 
+Unrealized gain on marketable securities, net of tax provision of $72,979 
+— 
+— 
+— 
+— 
+124,841 
+— 
+124,841 
+Total comprehensive income 
+5,399,177 
+Balance at December 31, 2006 
+45,994,752 
+46 
+228,069,433 
+— 
+(151,197 
+) 
+(98,414,307 
+) 
+129,503,975 
+Adoption of FIN 48 
+— 
+— 
+— 
+— 
+— 
+(58,183 
+) 
+(58,183 
+) 
+Reclassification of liability-classified awards 
+— 
+— 
+51,550 
+— 
+— 
+— 
+51,550 
+Common stock issued upon exercise of options 
+481,647 
+1 
+3,100,036 
+— 
+— 
+— 
+3,100,037 
+Vesting of restricted stock 
+258,093 
+— 
+— 
+— 
+— 
+— 
+— 
+Purchase and retirement of treasury shares 
+(90,446 
+) 
+— 
+(785,908 
+) 
+— 
+— 
+— 
+(785,908 
+) 
+Compensation cost for restricted stock 
+— 
+— 
+2,877,463 
+— 
+— 
+— 
+2,877,463 
+Compensation cost for stock option grants 
+— 
+— 
+2,980,915 
+— 
+— 
+— 
+2,980,915 
+Comprehensive income: 
+Net income 
+— 
+— 
+— 
+— 
+— 
+2,472,439 
+2,472,439 
+Currency translation adjustment 
+— 
+— 
+— 
+— 
+1,650 
+— 
+1,650 
+Unrealized loss on marketable securities, net of tax benefit of $52,287 
+— 
+— 
+— 
+— 
+(89,349 
+) 
+— 
+(89,349 
+) 
+Total comprehensive income 
+2,384,740 
+Balance at December 31, 2007 
+46,644,046 
+$ 
+47 
+$ 
+236,293,489 
+$ 
+— 
+$ 
+(238,896 
+) 
+$ 
+(96,000,051 
+) 
+$ 
+140,054,589 
+The accompanying notes are an integral part of these statements. 
+F-5 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+STATEMENTS OF CASH FLOWS 
+For the year ended December 31, 
+2007 
+2006 
+2005 
+OPERATING ACTIVITIES: 
+Net income 
+$ 
+2,472,439 
+$ 
+5,267,549 
+$ 
+27,448,087 
+Adjustments to reconcile net income to net cash provided by operating activities: 
+Gain on sale of investment in nonaffiliated company 
+(1,428,691 
+) 
+— 
+— 
+Deferred income taxes 
+1,313,839 
+3,113,745 
+(18,165,068 
+) 
+Stock-based compensation 
+5,830,770 
+5,590,590 
+1,623,970 
+Depreciation and amortization 
+2,735,999 
+1,923,275 
+2,346,861 
+Acquired in-process technology 
+— 
+1,000,000 
+— 
+Provision for loss on property and equipment, net 
+— 
+— 
+196,011 
+Provision for excess and obsolete inventories 
+922,433 
+750,542 
+2,062,855 
+Changes in assets and liabilities: 
+Accounts receivable 
+(937,622 
+) 
+1,250,552 
+(4,553,469 
+) 
+Inventories 
+(4,797,609 
+) 
+(2,156,302 
+) 
+(1,240,049 
+) 
+Prepaid expenses and other 
+(463,674 
+) 
+(452,502 
+) 
+(360,945 
+) 
+Accounts payable 
+2,584,439 
+465,344 
+457,543 
+Accrued expenses and other liabilities 
+3,351,556 
+133,011 
+576,540 
+Net cash provided by operating activities 
+11,583,879 
+16,885,804 
+10,392,336 
+INVESTING ACTIVITIES: 
+Purchase of property and equipment 
+(5,503,770 
+) 
+(12,643,266 
+) 
+(2,048,167 
+) 
+Proceeds from sale of investment in nonaffiliated company 
+1,765,943 
+— 
+— 
+Purchase of patents, product rights, or acquired in-process technology 
+(4,200,000 
+) 
+(200,000 
+) 
+(1,800,000 
+) 
+Purchase of short-term investments 
+(93,953,103 
+) 
+(91,494,215 
+) 
+(54,071,801 
+) 
+Proceeds from maturities and redemptions of short-term investments 
+101,526,541 
+65,433,600 
+65,935,674 
+Increase in other assets 
+— 
+— 
+(24,801 
+) 
+Net cash (used in) provided by investing activities 
+(364,389 
+) 
+(38,903,881 
+) 
+7,990,905 
+FINANCING ACTIVITIES: 
+Proceeds from long-term debt 
+— 
+10,000,000 
+— 
+Repayments of long-term debt 
+(1,264,716 
+) 
+(701,426 
+) 
+(1,116,129 
+) 
+Proceeds from issuance of common stock 
+3,100,037 
+457,334 
+6,067,869 
+Purchase and retirement of common stock 
+(785,908 
+) 
+(631,509 
+) 
+(601,347 
+) 
+Net cash provided by financing activities 
+1,049,413 
+9,124,399 
+4,350,393 
+EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 
+10,973 
+16,759 
+(28,102 
+) 
+NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 
+12,279,876 
+(12,876,919 
+) 
+22,705,532 
+CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 
+19,949,821 
+32,826,740 
+10,121,208 
+CASH AND CASH EQUIVALENTS, END OF YEAR 
+$ 
+32,229,697 
+$ 
+19,949,821 
+$ 
+32,826,740 
+The accompanying notes are an integral part of these statements. 
+F-6 
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. 
+NOTES TO THE FINANCIAL STATEMENTS 
+1. 
+THE COMPANY: 
+We develop, manufacture and market
+oral specimen collection devices using our proprietary oral fluid technologies, diagnostic products including in vitro diagnostic tests, and other medical devices. These products are sold in the United States and internationally to various
+clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. One of our products is also sold in
+the over-the-counter or consumer retail markets in Europe and Mexico. 
+2. 
+SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 
+Use
+of Estimates 
+The preparation of financial statements in conformity with accounting principles generally accepted in the United States
+of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
+revenues and expenses during the reporting period. Actual results could differ from those estimates. 
+Cash and Cash Equivalents 
+We consider all highly liquid investments with a purchased maturity of ninety days or less to be cash equivalents. As of December 31,
+2007 and 2006, cash equivalents consisted of commercial paper, U.S. government agency obligations, corporate bonds, and certificates of deposit. 
+Short-term Investments 
+We consider all short-term investments to be available-for-sale securities, in accordance with
+Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” These securities are comprised of certificates of deposits, commercial paper, U.S. government
+and agency obligations, and corporate bonds, all with purchased maturities greater than ninety days. Available-for-sale securities are carried at fair value, based upon quoted market prices, with unrealized gains and losses reported in
+stockholders’ equity as a component of accumulated other comprehensive income (loss). There were no securities held as of December 31, 2007 in a continuous unrealized loss position for twelve or more months. 
+F-7 
+Table of Contents 
+The following is a summary of our available-for-sale securities at December 31, 2007 and 2006:
+Amortized 
+Cost 
+Gross 
+Unrealized 
+Gains 
+Gross 
+Unrealized 
+Losses 
+Fair Value 
+December 31, 2007 
+Certificates of deposit 
+$ 
+2,721,321 
+$ 
+3,759 
+$ 
+(6,925 
+) 
+$ 
+2,718,155 
+Commercial paper 
+4,383,327 
+1,158 
+(92 
+) 
+4,384,393 
+Government and agency bonds 
+5,541,885 
+15,681 
+— 
+5,557,566 
+Corporate bonds 
+50,704,757 
+24,104 
+(52,567 
+) 
+50,676,294 
+Total available-for-sale securities 
+$ 
+63,351,290 
+$ 
+44,702 
+$ 
+(59,584 
+) 
+$ 
+63,336,408 
+December 31, 2006 
+Certificates of deposit 
+$ 
+800,000 
+$ 
+— 
+$ 
+— 
+$ 
+800,000 
+Commercial paper 
+28,079,352 
+165,064 
+— 
+28,244,416 
+Government and agency bonds 
+3,331,455 
+— 
+(4,618 
+) 
+3,326,837 
+Corporate bonds 
+38,713,921 
+2,264 
+(35,956 
+) 
+38,680,229 
+Total available-for-sale securities 
+$ 
+70,924,728 
+$ 
+167,328 
+$ 
+(40,574 
+) 
+$ 
+71,051,482 
+At December 31, 2007, maturities of our available-for-sale securities were as follows: 
+Less than one year 
+$ 
+60,347,000 
+$ 
+44,702 
+$ 
+(46,736 
+) 
+$ 
+60,344,966 
+One to two years 
+3,004,290 
+— 
+(12,848 
+) 
+2,991,442 
+Total available-for-sale securities 
+$ 
+63,351,290 
+$ 
+44,702 
+$ 
+(59,584 
+) 
+$ 
+63,336,408 
+Supplemental Cash Flow Information 
+In 2007, 2006, and 2005, we paid interest of $663,127, $350,535, and $99,728, respectively. In 2007, we capitalized interest of $131,738. 
+In 2007, 2006 and 2005, we paid federal and state income taxes of $500,529, $695,765, and $170,000, respectively. 
+In 2007, we recorded through the statement of operations an increase in our allowance for doubtful accounts of $27,288. In 2006 and 2005, we recorded a
+reduction in our allowance for doubtful accounts of $61,950 and $71,962, respectively. We had write-offs/(recoveries) of $40,914, $16,022, and $(4,771) against the allowance for doubtful accounts in 2007, 2006, and 2005, respectively. 
+In 2007, 2006, and 2005, we recorded accruals for purchases of property and equipment of $66,053, $346,258, and $57,923, respectively. 
+In 2006, we recorded a $4,000,000 accrual related to two licensing agreements. 
+Accounts Receivable 
+Accounts
+receivable have been reduced by an allowance for amounts that may become uncollectible in the future. This estimated allowance is based primarily on management’s evaluation of specific balances as the balances become past due, the financial
+condition of our customers and our historical experience related to write-offs. If not reserved through these specific examination procedures, our policy is to reserve 100% of accounts receivable in aging categories greater than 120 days.
+F-8 
+Table of Contents 
+Inventories 
+Inventories are stated at the lower of cost or market determined on a first-in, first-out basis, and include the cost of raw materials, labor and overhead. The majority of our inventories are subject to expiration
+dating. We continually evaluate quantities on hand and the carrying value of our inventories to determine the need for reserves for excess and obsolete inventories, based primarily on the estimated forecast of product sales. When factors indicate
+that impairment has occurred, either a reserve is established against the inventories’ carrying value or the inventories are completely written off, as in the case of lapsing expiration dates. In addition to reserving for these items identified
+through specific identification procedures, we also reserve for unidentified scrap or spoilage under a fixed-formula methodology. We currently buy a portion of our cryosurgical product line from a foreign vendor, and pay for such purchases in Euros.
+Changes in the exchange rate of the Euro will impact our product cost. 
+Property and Equipment 
+Property and equipment are stated at cost. Additions or improvements are capitalized, while repairs and maintenance are charged to expense. Depreciation
+and amortization are provided using the straight-line method over the estimated useful lives of the related assets. Buildings are depreciated over 20-40 years, while computer equipment, machinery and equipment, and furniture and fixtures are
+depreciated over three to ten years. Building improvements are amortized over their estimated useful lives. When assets are sold or otherwise disposed of, the related property amounts are relieved from the accounts, and any gain or loss is recorded
+in the statement of operations. 
+Patents and Product Rights 
+Patents and product rights consist of costs associated with the acquisition of patents, licenses and product distribution rights. Patents and product
+rights are amortized using the straight-line method over their estimated useful lives of three to ten years. 
+Other Assets
+Included in other assets at December 31, 2006, was a $337,253 investment, which represented a 7.7% ownership interest in a
+privately-held nonaffiliated company that was accounted for using the cost method of accounting. In January 2007, this privately-held nonaffiliated company was sold, and we received $1,765,943 for our ownership interest. Accordingly, we recorded a
+$1,428,691 pre-tax gain on the sale of this investment. 
+Impairment of Long-Lived Assets 
+In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” if indicators of impairment exist, we
+assess the recoverability of the affected long-lived assets, which include property and equipment and patents and product rights, by determining whether the carrying value of such assets can be recovered through the sum of the undiscounted future
+cash flows from the use and eventual disposition of the asset. If impairment is indicated, we measure the amount of such impairment by comparing the carrying value of the assets to the fair value of these assets, which is generally determined based
+on the present value of the expected future cash flows associated with the use of the asset. During 2005, we recorded a $196,011 impairment on certain equipment because its carrying value exceeded the future cash flows to be received from those
+assets. We believe the future cash flows to be received from our long-lived assets will exceed the assets’ carrying value, and accordingly we have not recognized any additional impairment losses through December 31, 2007. 
+Revenue Recognition 
+We recognize
+product revenues when there is persuasive evidence that an arrangement exists, the price is fixed or determinable, title has passed and collection is reasonably assured. Product revenues are recorded net of allowances for any discounts or rebates.
+We do not grant price protection or product return rights to our 
+F-9 
+Table of Contents 
+customers, except for warranty returns. Historically, returns arising from warranty issues have been infrequent and immaterial. Accordingly, we expense
+warranty returns as incurred. 
+Up-front licensing fees are deferred and recognized ratably over the related license period. Product
+development revenues are recognized over the period in which the related product development efforts are performed. Amounts received prior to the performance of product development efforts are recorded as deferred revenues. Grant revenue is
+recognized as the related work is performed and costs are incurred. We record shipping and handling charges billed to our customers as product revenue and the related expense as cost of products sold. Taxes assessed by governmental authorities, such
+as sales or value-added taxes, are excluded from product revenues. 
+Significant Customer Concentration 
+The Company had the following significant concentrations in revenue and accounts receivable: 
+Percentage of Total Revenues 
+For the years ended December 31, 
+Customer 
+2007 
+2006 
+2005 
+Quest Diagnostics, Incorporated 
+11 
+% 
+14 
+% 
+13 
+% 
+Abbott Laboratories 
+10 
+10 
+7 
+Prestige Brands Holdings, Inc. 
+8 
+8 
+17 
+SSL International plc 
+6 
+7 
+5 
+Percentage of 
+Accounts Receivable 
+at December 31, 
+2007 
+2006 
+Quest Diagnostics, Incorporated 
+11 
+% 
+11 
+% 
+Abbott Laboratories 
+9 
+11 
+Prestige Brands Holdings, Inc. 
+— 
+12 
+SSL International plc 
+13 
+10 
+As a result of the decision in the
+arbitration proceedings with respect to Prestige’s acquisition of the competing Wartner ® cryosurgical product line, our distribution agreement with Prestige terminated on
+December 31, 2007. 
+Research and Development 
+Research and development expenses consist of expenses incurred in performing research and development activities including salaries and benefits, facilities expenses, overhead expenses, clinical trial and related
+clinical manufacturing expenses, contract services and other outside expenses. Research and development costs are charged to expense as incurred. Clinical trial expenses include expenses associated with contract research organizations, or CROs. The
+invoicing from CROs for services can precede the services provided or can lag several months. Invoices paid prior to services being provided are recorded as a prepaid expense and expensed appropriately as services are provided. We accrue the cost of
+services rendered in connection with CRO activities based on purchase order estimates provided by the CRO. Differences between actual and estimated clinical trial expenses recorded are generally not material and would be adjusted for in the period
+in which they become known. 
+Advertising Expenses 
+Advertising costs are charged to expense as incurred. During 2007, 2006, and 2005, we incurred $1,261,356, $805,936, and $2,232,945, respectively, in advertising expenses. Included in advertising expenses for 2007,
+2006 and 2005 were $1,164,294, $539,856 and $1,820,022, respectively, in reimbursement for marketing expenses incurred for our OTC cryosurgical products. 
+F-10 
+Table of Contents 
+Stock-Based Compensation 
+Prior to 2006, we accounted for stock-based compensation to employees and directors using the intrinsic value method in accordance with Accounting
+Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Under APB Opinion No. 25, no stock-based compensation expense was recognized for stock options granted to
+employees or directors, as the exercise price was equal to the market price of our common stock on the date of grant. We account for stock-based compensation to nonemployees using the fair value method in accordance with SFAS No. 123 (revised
+2004), (“SFAS No. 123R”), “Share-Based Payment,” and Emerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
+Conjunction with Selling, Goods or Services.” 
+Effective January 1, 2006, we adopted SFAS No. 123R, which eliminated the
+ability to account for stock-based compensation under APB Opinion No. 25 and requires us to recognize compensation expense based on the fair value of our stock-based awards. We elected the modified prospective transition method as permitted by
+SFAS No. 123R. Accordingly, results from prior periods have not been restated. Under this transition method, stock-based compensation expense for the years ended December 31, 2007 and 2006 includes: 
+(a) 
+compensation expense for all stock-based awards granted prior to January 1, 2006, but not yet vested, based on the grant date fair value previously estimated in accordance with
+the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” and 
+(b) 
+compensation expense for all stock-based awards granted, modified or settled subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the
+provisions of SFAS No. 123R. 
+Upon the adoption of SFAS No. 123R, our deferred compensation balance of $3,334,792
+was reclassified against additional paid-in capital. Consistent with our past practice under the disclosure requirements of SFAS No. 123, we have elected to recognize compensation expense for stock option awards issued to employees and
+directors on a straight-line basis over the requisite service period of the award. To satisfy the exercise of options or to issue new restricted stock, we normally issue new shares rather than purchase shares on the open market. 
+Pursuant to the disclosure requirements of SFAS No. 123, the table below illustrates the effect on net income and earnings per share had
+compensation expense for our stock-based awards been determined based upon the fair value of the awards at the date of grant for the year ended December 31, 2005: 
+Net income: 
+As reported 
+$ 
+27,448,087 
+Add: stock-based employee compensation expense included in net income, net of tax 
+945,634 
+Deduct: total stock-based employee compensation expense determined under the fair value-based method for all awards, net of
+tax 
+(3,004,813 
+) 
+Pro forma 
+$ 
+25,388,908 
+Earnings per share: 
+Basic 
+As reported 
+$ 
+0.61 
+Pro forma 
+$ 
+0.56 
+Diluted 
+As reported 
+$ 
+0.59 
+Pro forma 
+$ 
+0.55 
+F-11 
+Table of Contents 
+Income Taxes 
+We follow the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
+financial statement carrying amounts of existing assets and liabilities and the respective tax basis of assets and liabilities, and operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
+that are expected to apply to taxable income in the years in which those temporary differences and operating loss and credit carryforwards are expected to be recovered, settled or utilized. The effect on deferred tax assets and liabilities of a
+change in tax rates is recognized in income in the period that includes the enactment date. 
+Foreign Currency Translation
+Pursuant to SFAS No. 52, “Foreign Currency Translation,” the assets and liabilities of our foreign operations are
+translated from Euros into U.S. dollars at current exchange rates as of the balance sheet date, and revenues and expenses are translated at average exchange rates for the period. Resulting translation adjustments are reflected in accumulated other
+comprehensive loss, which is a separate component of stockholders’ equity. 
+Earnings Per Share 
+We have presented basic and diluted earnings per share pursuant to SFAS No. 128, “Earnings per Share.” In accordance with SFAS
+No. 128, basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed in a manner similar to basic earnings per share
+except that the weighted average number of shares outstanding is increased to include incremental shares from the assumed vesting or exercise of dilutive securities, such as common stock options, warrants and unvested restricted stock. The number of
+incremental shares is calculated by assuming that outstanding stock options and warrants were exercised and unvested restricted shares were vested, and the proceeds from such exercises or vesting were used to acquire shares of common stock at the
+average market prices during the reporting period. 
+The computations of basic and diluted earnings per share are as follows: 
+Year ended December 31, 
+2007 
+2006 
+2005 
+Net income 
+$ 
+2,472,439 
+$ 
+5,267,549 
+$ 
+27,448,087 
+Weighted average shares of common stock outstanding: 
+Basic 
+46,325,338 
+45,909,990 
+45,109,580 
+Dilutive effect of stock options, warrants and restricted stock 
+552,805 
+670,276 
+1,037,032 
+Diluted 
+46,878,143 
+46,580,266 
+46,146,612 
+Earnings per share: 
+Basic 
+$ 
+0.05 
+$ 
+0.11 
+$ 
+0.61 
+Diluted 
+$ 
+0.05 
+$ 
+0.11 
+$ 
+0.59 
+For the years ended December 31, 2007, 2006, and 2005, outstanding common stock options,
+warrants and unvested restricted stock representing 1,827,712, 1,308,809, and 1,069,181 shares, respectively, were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive. 
+Other Comprehensive Income (Loss) 
+We
+follow SFAS No. 130, “Reporting Comprehensive Income.” This statement requires the classification of items of other comprehensive income (loss) by their nature and disclosure of the accumulated balance of other comprehensive income
+(loss), separately from accumulated deficit and additional paid-in capital, in the stockholders’ equity section of our balance sheet. 
+F-12 
+Table of Contents 
+Fair Value of Financial Instruments 
+As of December 31, 2007, the carrying values of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and accrued
+expenses approximate their respective fair values based on their short-term nature. In addition, we believe the carrying value of our debt instruments, which do not have readily ascertainable market values, approximate their fair values, given that
+the interest rates on outstanding borrowings approximate market rates. 
+Recent Accounting Pronouncements 
+In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements.” This
+Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for
+fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We do not believe adoption of SFAS No. 157 will have a material impact on our financial statements. 
+In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an
+amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to elect to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been
+elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We do not believe the adoption of SFAS No. 159 will have a material impact on our
+financial statements. 
+3. 
+INVENTORIES: 
+December 31, 
+2007 
+2006 
+Raw materials 
+$ 
+4,924,139 
+$ 
+3,868,301 
+Work in process 
+386,535 
+533,470 
+Finished goods 
+4,099,069 
+1,132,796 
+$ 
+9,409,743 
+$ 
+5,534,567 
+4. 
+PROPERTY AND EQUIPMENT: 
+December 31, 
+2007 
+2006 
+Land 
+$ 
+1,117,788 
+$ 
+1,117,788 
+Buildings and improvements 
+14,550,060 
+13,454,065 
+Machinery and equipment 
+10,501,812 
+8,623,415 
+Computer equipment and software 
+3,331,647 
+1,577,073 
+Furniture and fixtures 
+1,227,152 
+781,103 
+Construction in progress 
+3,674,054 
+3,672,005 
+34,402,513 
+29,225,449 
+Less accumulated depreciation 
+(13,491,356 
+) 
+(11,850,731 
+) 
+$ 
+20,911,157 
+$ 
+17,374,718 
+As of December 31, 2007, $131,738 of capitalized interest is included in construction in
+progress. 
+On June 30, 2006, we exercised purchase options contained in the commercial leases for two of our facilities located in
+Bethlehem, Pennsylvania and acquired both facilities for an aggregate purchase price of approximately 
+F-13 
+Table of Contents 
+$9,100,000, including settlement costs. As a result of these purchases, the leases for these facilities, which required minimum annual rental payments of
+$1,051,000, were terminated. 
+Depreciation expense was $1,687,126, $1,371,400, and $1,573,852 for 2007, 2006, and 2005, respectively. In
+addition, we retired or disposed of $1,323,014 of fully depreciated assets during 2006. No gain or loss was recognized on these disposals. 
+5. 
+PATENTS, PRODUCT RIGHTS AND ACQUIRED IN-PROCESS TECHNOLOGY: 
+Patents product rights and licenses were as follows: 
+December 31, 
+2007 
+2006 
+HIV-related 
+$ 
+1,900,000 
+$ 
+1,900,000 
+HCV-related 
+4,500,000 
+4,500,000 
+Lateral flow-related 
+1,500,000 
+1,500,000 
+Cryosurgery-related 
+2,548,620 
+2,548,620 
+10,448,620 
+10,448,620 
+Less accumulated amortization 
+(5,169,149 
+) 
+(4,120,276 
+) 
+$ 
+5,279,471 
+$ 
+6,328,344 
+Amortization expense for 2007, 2006, and 2005 was $1,048,873, $551,614, and $700,377,
+respectively. 
+Amortization expense for each of the five succeeding fiscal years is estimated as follows: 
+2008 
+$ 
+898,930 
+2009 
+791,826 
+2010 
+791,826 
+2011 
+791,826 
+2012 
+719,077 
+In June 1998, we acquired the patents and exclusive worldwide distribution rights to our
+cryosurgical product line. The purchase price of $2,548,620, including transaction costs, has been recorded as patents and product rights and is being amortized using the straight-line method over an estimated useful life of ten years. In connection
+with this acquisition, we also entered into a product purchase agreement with the manufacturer of the cryosurgical product line, with a current term extending through 2009. 
+In June 2004, we entered into a sublicense agreement with a third party, pursuant to which we have
+been granted a limited, worldwide, non-exclusive sublicense to certain HIV-2 patents held by such party. The agreement required us to pay the third party a one-time non-refundable license fee of $900,000, which was recorded as patent and product
+rights on our balance sheet and is being amortized through June 30, 2014. This agreement also contained an option to expand the application of this sublicense to other immunoassay platforms, in addition to our OraQuick ® platform. In June 2006, we exercised this option, which requires us to pay the third party a non-refundable license fee of $600,000, of which $200,000 was paid in July 2006 and July 2007. The
+remaining contractually obligated payment of $200,000 due in July 2008 is included in accrued expenses on our balance sheet as of December 31, 2007. We recognized this $600,000 license fee as acquired in-process technology, which was included
+in research and development expense in our 2006 statement of operations, because other immunoassay platforms for the detection of HIV-2 will require additional research and development efforts and subsequent regulatory approvals. 
+In August 2005, we entered into a license agreement with third parties, pursuant to which we have been granted a limited, personal, non-transferable,
+non-exclusive license related to certain Hepatitis C Virus (“HCV”) 
+F-14 
+Table of Contents 
+patents held by such parties. The agreement required us to pay the third parties a one-time non-refundable license fee of $1,500,000, which was paid in
+August 2005. In December 2006, an additional milestone payment of $3,000,000 was due and was included in accrued expenses as of December 31, 2006. This milestone payment was paid in 2007. Under the terms of this agreement, we may also be
+required to pay additional license fees of up to $5,500,000, upon the achievement of specific development and/or commercial milestones. 
+Management’s intent in executing the HCV license agreement is to provide for various alternatives for use of the licensed patents. Some of these uses require additional research and development efforts and regulatory approvals, while
+others, specifically in the international market, do not require additional research and development efforts or regulatory approvals. Based on management’s estimate of the cash flows to be received from future product sales in international
+markets, we capitalized both the $1,500,000 and $3,000,000 license fees in the accompanying balance sheet. We are amortizing these amounts to cost of products sold on a straight-line basis over ten years, which represents management’s estimate
+of the remaining useful life of the licensed patents. 
+Under the terms of the HCV license agreement, we are also obligated to pay royalties
+based on our net sales of certain products, which incorporate the technology covered by the licensed patents. Royalties under the license agreement vary based upon the geographical territory where the product is sold. No sales have been made under
+the terms of this license agreement through December 31, 2007. 
+In December 2006, we amended a license agreement with third parties,
+pursuant to which we have been granted a limited, non-exclusive license to certain lateral flow technology patents held by such parties. The amendment provided for the renewal of our license to certain lateral flow patents held by these parties, the
+expansion of these patents to future product applications to be developed by our Company, and the settlement of prior royalty obligations arising prior to the amendment date. It required us to pay the third parties a one-time non-refundable fee of
+$1,750,000. We allocated the $1,750,000 fee based upon the relative fair values of the items contained in the agreement. Accordingly, at December 31, 2006, we capitalized $1,000,000 as patent and product rights and are amortizing this amount to
+cost of products sold through December 2011. Of the remaining $750,000, we recognized $400,000 as acquired in-process technology in our 2006 statement of operations as such amount was allocated to royalties for future product applications that will
+require additional research and development efforts and regulatory approvals. The remaining $350,000 was recorded as a reduction of the accrued prior royalty obligations, which resulted in the reversal of $738,983 of royalty expense during 2006. The
+$1,750,000 fee was included in accrued expenses at December 31, 2006 and subsequently paid in 2007. 
+6. 
+ACCRUED EXPENSES AND OTHER: 
+December 31, 
+2007 
+2006 
+Payroll and related benefits 
+$ 
+3,771,489 
+$ 
+2,117,630 
+Deferred revenue 
+2,841,640 
+1,877,546 
+Professional fees 
+1,371,850 
+681,850 
+Royalties 
+2,485,869 
+2,813,102 
+License fees 
+200,000 
+4,200,000 
+Other 
+1,324,862 
+969,021 
+$ 
+11,995,710 
+$ 
+12,659,149 
+Deferred revenue includes customer prepayments of $2,726,440 and $1,727,546 at December 31,
+2007 and 2006, respectively. 
+F-15 
+Table of Contents 
+7. 
+CREDIT FACILITIES: 
+At December 31, 2007, we
+had in place a $14,000,000 credit facility (the “Credit Facility”) with Comerica Bank (“Comerica”) which is comprised of a $10,000,000 facility advance and a $4,000,000 revolving working capital line of credit. At our option,
+interest on the facility advance is payable monthly at either a fixed rate equal to the five-year U.S. Treasury Note rate plus 1.03% to 1.73%, or a variable rate equal to the 30, 180, or 360-day London Interbank Offered Rate (“LIBOR”),
+plus 0.55% to 1.25%. In each case, the interest rate is determined at the date of the advance and is based upon the amount of cash and cash equivalents we invest and retain at Comerica Securities, Inc. We also can choose the fixed rate option,
+without penalty, at the expiration of a previously elected LIBOR period. Principal is repayable in periodic installments, based upon the rate option that we elect, with the remaining balance of unpaid principal due on June 27, 2011. 
+In June 2007, we executed an amendment to this Credit Facility, pursuant to which the maturity date of our $4,000,000 revolving working capital line
+of credit was extended to June 29, 2009. We also had the ability to borrow $5,000,000 in additional advances to fund the future expansion of our facilities in Bethlehem, Pennsylvania. We allowed this $5,000,000 of availability to expire unused
+on June 30, 2007. All other terms of our Credit Facility, as previously amended, remain in effect. 
+As of December 31, 2007, we
+had $9,250,000 in outstanding borrowings under the facility advance and we had no outstanding borrowings under the $4,000,000 revolving working capital line of credit. 
+At December 31, 2007, interest on the borrowings under the facility advance was payable monthly, at 30-day LIBOR plus 0.9%, or 5.755%. Principal is repayable in installments, due at the end of each LIBOR period,
+based upon a twenty-year amortization schedule and the number of months in the expiring LIBOR period. In January 2008, we elected to fix the interest rate on the facilities advance at 4.15% until its maturity in June 2011, with principal and
+interest payable on a monthly basis. 
+All borrowings under the Credit Facility are collateralized by a first priority security interest in
+all of our assets, including present and future accounts receivable, chattel paper, contracts and contract rights, equipment and accessories, general intangibles, investments, instruments, inventories, and a mortgage on our three facilities in
+Bethlehem, Pennsylvania. Borrowings under the revolving working capital line of credit are limited to commercially standard percentages of accounts receivable. The Credit Facility contains certain covenants that set forth minimum requirements for
+our quick ratio, liquidity, and tangible net worth. We were in full compliance with all covenants at December 31, 2007. The Credit Facility also restricts our ability to pay dividends, to make certain investments, to incur additional
+indebtedness, to sell or otherwise dispose of a substantial portion of assets, and to merge or consolidate operations with an unaffiliated entity, without the consent of Comerica. 
+8. 
+LONG-TERM DEBT: 
+December 31, 
+2007 
+2006 
+Note payable to bank, interest payable monthly at 30-day LIBOR plus 0.9%, (5.755% at December 31, 2007), principal payments due at the
+end of each LIBOR period through June 2011, at which time the remaining unpaid principal balance is payable, secured by a first priority security interest in all of our assets. 
+$ 
+9,250,012 
+$ 
+9,750,000 
+Mortgage loan payable to bank, repaid in September 2007 
+— 
+689,442 
+Notes payable to bank, matured in June 2007 
+— 
+19,656 
+Note payable to Pennsylvania Industrial Development Authority, interest at 2% monthly installments of principal and interest of $4,893 through
+March 2010, secured by a second lien on our building. 
+124,408 
+180,038 
+9,374,420 
+10,639,136 
+Less current portion 
+(556,751 
+) 
+(608,595 
+) 
+$ 
+8,817,669 
+$ 
+10,030,541 
+F-16 
+Table of Contents 
+Long-term debt maturities as of December 31, 2007 are as follows: 
+2008 
+$ 
+556,751 
+2009 
+557,897 
+2010 
+509,760 
+2011 
+7,750,012 
+$ 
+9,374,420 
+9. 
+INCOME TAXES: 
+The components of the provision
+(benefit) for income taxes for the years ended December 31, 2007, 2006 and 2005 are as follows: 
+2007 
+2006 
+2005 
+Current 
+Federal 
+$ 
+137,520 
+$ 
+251,074 
+$ 
+224,153 
+State 
+369,977 
+429,085 
+211,726 
+507,497 
+680,159 
+435,879 
+Deferred 
+Federal 
+1,417,925 
+2,976,992 
+3,285,740 
+State 
+(104,086 
+) 
+136,753 
+495,298 
+1,313,839 
+3,113,745 
+3,781,038 
+Change in valuation allowance 
+— 
+— 
+(21,946,106 
+) 
+1,313,839 
+3,113,745 
+(18,165,068 
+) 
+Total provision (benefit) 
+$ 
+1,821,336 
+$ 
+3,793,904 
+$ 
+(17,729,189 
+) 
+A reconciliation of the statutory United States federal tax rate to our effective tax rate for the
+year ended December 31, is as follows: 
+2007 
+2006 
+2005 
+Statutory U.S. federal tax rate 
+34.0 
+% 
+34.0 
+% 
+34.0 
+% 
+State income taxes, net of federal benefit 
+4.1 
+4.1 
+4.8 
+Nondeductible expenses and other 
+11.0 
+3.8 
+4.6 
+Research and development credits 
+(6.7 
+) 
+— 
+— 
+Net change in valuation allowance, federal and state 
+— 
+— 
+(225.8 
+) 
+Effective tax rate 
+42.4 
+% 
+41.9 
+% 
+(182.4 
+)% 
+F-17 
+Table of Contents 
+Deferred income taxes reflect the tax effects of temporary differences between the basis of assets and
+liabilities recognized for financial reporting purposes and tax purposes, and net operating loss and tax credit carryforwards. Significant components of our total deferred tax asset as of December 31, 2007 and 2006 are as follows: 
+2007 
+2006 
+Net operating loss carryforwards 
+$ 
+15,458,795 
+$ 
+18,019,056 
+Inventory 
+1,776,780 
+1,315,262 
+Capitalized research and development costs 
+449,572 
+552,740 
+Accruals and reserves currently not deductible 
+411,328 
+573,819 
+Patent costs 
+896,212 
+764,311 
+Depreciation and amortization 
+37,750 
+472,586 
+Stock-based compensation 
+2,451,303 
+1,418,655 
+Research and development tax credit carryforwards 
+289,106 
+— 
+Alternative minimum tax credit carryforwards 
+555,719 
+405,145 
+Total deferred tax asset 
+$ 
+22,326,565 
+$ 
+23,521,574 
+In assessing the realizability of our deferred tax asset, we follow the guidance contained within
+SFAS No. 109, “Accounting for Income Taxes,” which requires deferred income tax assets to be reduced by a valuation allowance, if after considering all relevant positive and negative evidence, it is more likely than not that some
+portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net
+operating loss (“NOL”) carryforwards. We conclude that it is more likely than not that we will generate sufficient taxable income to recognize our deferred tax assets. Our federal NOL carryforwards expire as follows: 
+Year of Expiration 
+NOLs 
+2009 
+$ 
+139,913 
+2010 
+795,394 
+2011 
+7,731,587 
+2017-2021 
+30,428,371 
+2022-2026 
+6,432,292 
+$ 
+45,527,557 
+The Tax Reform Act of 1986 contains provisions that limit the annual amount of NOLs available to
+be used in any given year in the event of a significant change in ownership. On September 29, 2000, two separate companies, STC Technologies, Inc. and Epitope, Inc., merged to form our Company. A significant change in ownership, as defined by
+Section 382 of the Internal Revenue Code, occurred in connection with this merger. As such, the utilization of NOLs generated prior to September 29, 2000 is limited to approximately $13,700,000 per year. We do not believe that this
+limitation will have a material adverse impact on the utilization of our NOL carryforwards. 
+At the end of 2005, we concluded that it was
+more likely than not that the majority of our deferred tax asset would be recovered. Accordingly, we reduced our valuation allowance by approximately $26,700,000. Included in the 2005 reduction of the valuation allowance was approximately $8,500,000
+related to prior years’ tax benefits associated with the exercise of employee stock options. This amount was recognized as an increase to additional paid-in capital in 2005. A tax benefit of approximately $245,000 associated with employee
+exercises of non-qualified stock options and disqualifying dispositions of stock acquired with incentive stock options during the year ended December 31, 2005 was also recorded as additional paid-in capital during 2005. 
+F-18 
+Table of Contents 
+In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
+Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109,” which clarifies what criteria must be met prior to recognition of the financial statement benefit of a position taken in a tax return. FIN No. 48 also
+provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN No. 48 effective January 1, 2007, and
+pursuant to its provisions, decided to classify interest and penalties as a component of tax expense. As a result of the implementation of FIN No. 48, the Company recognized a $58,183 net increase in liability for unrecognized tax benefits,
+which was accounted for as a reduction to the January 1, 2007 balance of retained earnings. 
+The Company had gross unrecognized tax
+benefits of $2,370,300 and $2,370,526 as of January 1, 2007 and December 31, 2007, respectively, which if recognized, $2,312,232 and $2,292,624, respectively, would result in a reduction of the Company’s effective tax rate. We expect
+a reduction in the liability for unrecognized tax benefits of approximately $84,000 as a result of the anticipated 2008 filing of various state returns related to prior tax periods. Interest and penalties are immaterial at the date of adoption and
+at December 31, 2007. As a result of its net operating loss carryforward position, the Company is subject to audit by the Internal Revenue Service since its inception, as well as by several state jurisdictions for the years ended
+December 31, 2000 through 2007. 
+A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
+Balance at January 1, 2007 
+$ 
+2,370,300 
+Additions based on tax positions related to the current period 
+40,000 
+Additions for tax positions of prior periods 
+60,226 
+Reductions for tax positions of prior periods 
+(100,000 
+) 
+Balance at December 31, 2007 
+$ 
+2,370,526 
+10. 
+STOCKHOLDERS’ EQUITY: 
+Stock-Based Awards
+We grant stock-based awards under the OraSure Technologies, Inc. 2000 Stock Award Plan, as amended and restated (the “2000
+Plan”). The 2000 Plan permits stock-based awards to employees, outside directors and consultants or other third-party advisors. Awards which may be granted under the 2000 Plan include qualified incentive stock options, nonqualified stock
+options, stock appreciation rights, restricted awards, performance awards and other stock-based awards. 
+Under the terms of the 2000 Plan,
+qualified incentive stock options for shares of our common stock may be granted to eligible employees, including our officers. To date, options generally have been granted with ten-year exercise periods and an exercise price not less than the fair
+market value on the date of grant. Options generally vest over four years, with one quarter of the options vesting one year after grant and the remainder vesting on a monthly basis over the next three years. The 2000 Plan also provides that
+nonqualified options may be granted at a price not less than 75 percent of the fair market value of a share of common stock on the date of grant. The option term and vesting schedule of such awards may be either unlimited or have a specified period
+in which to vest and be exercised. 
+As of December 31, 2007, 1,993,376 shares were available for future grants under the 2000 Plan.
+F-19 
+Table of Contents 
+The fair value of each stock option was estimated on the date of the grant using the Black-Scholes
+option- pricing model using the following weighted-average assumptions: 
+Year Ended 
+December 31, 
+Black-Scholes Option Valuation Assumptions 
+2007 
+2006 
+2005 
+Risk-free interest rate(1) 
+4.79 
+% 
+4.53 
+% 
+3.72 
+% 
+Expected dividend yield 
+— 
+— 
+— 
+Expected stock price volatility(2) 
+49 
+% 
+56 
+% 
+58 
+% 
+Expected life of stock options (in years)(3) 
+4 
+5 
+4 
+(1) 
+Based on the constant maturity interest rate of U.S. Treasury securities whose term is consistent with the expected life of our stock options. 
+(2) 
+Expected stock price volatility is based upon historical experience. 
+(3) 
+Expected life of stock options is based upon historical experience. 
+The weighted-average grant date fair value of stock options granted during the years ended December 31, 2007, 2006 and 2005 was $3.62, $4.85 and $3.17, respectively. 
+Amounts recognized in the financial statements related to stock options were as follows: 
+Year Ended 
+December 31, 
+2007 
+2006 
+Total compensation cost during the year 
+$ 
+2,980,915 
+$ 
+3,621,412 
+Amounts capitalized into inventory and property and equipment during the year 
+(303,472 
+) 
+(468,754 
+) 
+Amounts recognized in cost of products sold for amounts previously capitalized 
+280,283 
+264,038 
+Amounts charged against income, before income tax benefit 
+$ 
+2,957,726 
+$ 
+3,416,696 
+Amount of related income tax benefit 
+$ 
+802,300 
+$ 
+842,239 
+As a result of adopting SFAS No. 123R, the Company’s income before income taxes, and net
+income, for the year ended December 31, 2007 were $2,957,726 and $2,155,426 lower, respectively, and for the year ended December 31, 2006 were $3,416,696 and $2,574,457 lower, respectively, than if the Company had continued to account for
+share-based compensation under APB Opinion No. 25. Basic and diluted earnings per share for the years ended December 31, 2007 and 2006 would have been $0.05 and $0.06 per share higher, respectively, if the Company had not adopted SFAS
+No. 123R. 
+The aggregate intrinsic value of options (the amount by which the market price of the stock on the date of exercise
+exceeded the exercise price) exercised during the years ended December 31, 2007, 2006 and 2005 was $1,284,319, $332,261, and $4,338,143, respectively. 
+F-20 
+Table of Contents 
+The following table summarizes the stock option activity under the 2000 Plan: 
+Options 
+Weighted-Average 
+Exercise Price 
+Per Share 
+Weighted-Average 
+Remaining 
+Contractual Term 
+(in years) 
+Average 
+Intrinsic 
+Value 
+Outstanding on January 1, 2005 
+4,874,504 
+$ 
+6.98 
+Granted 
+778,572 
+6.60 
+Exercised 
+(1,009,794 
+) 
+6.01 
+Forfeited 
+(426,497 
+) 
+7.55 
+Outstanding on December 31, 2005 
+4,216,785 
+7.08 
+Granted 
+801,900 
+9.22 
+Exercised 
+(85,013 
+) 
+5.38 
+Forfeited 
+(145,254 
+) 
+7.99 
+Outstanding on December 31, 2006 
+4,788,418 
+7.44 
+Granted 
+519,566 
+8.37 
+Exercised 
+(481,647 
+) 
+6.43 
+Forfeited 
+(99,796 
+) 
+8.22 
+Balance, December 31, 2007 
+4,726,541 
+$ 
+7.63 
+6.73 
+$ 
+5,804,051 
+Vested or expected to vest as of December 31, 2007 
+4,586,500 
+$ 
+7.63 
+6.73 
+$ 
+5,632,085 
+Exercisable on December 31, 2007 
+3,782,869 
+$ 
+7.43 
+6.31 
+$ 
+5,369,858 
+As of December 31, 2007, there was $3,297,777 of unrecognized compensation expense related to
+unvested option awards that is expected to be recognized over a weighted-average period of 1.7 years. 
+Net cash proceeds from the exercise
+of stock options were $3,100,037, $457,334 and $6,067,868 for the years ended December 31, 2007, 2006 and 2005, respectively. As a result of the Company’s net operating loss carryforward position, no actual income tax benefit was realized
+from stock option exercises for these periods. 
+The following table summarizes information about stock options outstanding at
+December 31, 2007: 
+Options outstanding 
+Options exercisable 
+Range of exercise prices 
+Number 
+outstanding 
+Weighted- 
+average 
+remaining 
+life, in 
+years 
+Weighted- 
+average 
+exercise 
+price 
+Number 
+exercisable 
+Weighted- 
+average 
+exercise 
+price 
+$0.80–$5.60 
+712,541 
+10.38 
+$ 
+4.82 
+626,164 
+$ 
+4.71 
+$5.76–$6.96 
+898,937 
+4.67 
+6.52 
+895,603 
+6.52 
+$6.98–$7.77 
+796,278 
+5.11 
+7.53 
+701,694 
+7.51 
+$7.90–$8.18 
+106,000 
+7.23 
+8.05 
+64,935 
+8.03 
+$8.20 
+613,796 
+6.04 
+8.20 
+603,074 
+8.20 
+$8.28–$8.92 
+505,753 
+8.40 
+8.35 
+174,165 
+8.43 
+$8.97–$9.56 
+742,401 
+7.87 
+9.33 
+386,529 
+9.37 
+$9.78–$10.99 
+340,835 
+4.53 
+10.57 
+320,705 
+10.57 
+$12.23 
+5,000 
+1.30 
+12.23 
+5,000 
+12.23 
+$12.69 
+5,000 
+3.68 
+12.69 
+5,000 
+12.69 
+4,726,541 
+6.73 
+$ 
+7.63 
+3,782,869 
+$ 
+7.43 
+F-21 
+Table of Contents 
+The 2000 Plan also permits us to grant restricted shares of our common stock to eligible employees,
+including officers. Generally, these shares are nontransferable and are subject to three-year vesting requirements or forfeiture, as determined by the Compensation Committee of our Board of Directors. The market value of these shares at the date of
+grant is recognized on a straight-line basis over the period during which the restrictions lapse. Compensation cost of $2,877,463, $1,969,178 and $1,500,054 related to restricted shares was recognized during the years ended December 31, 2007,
+2006 and 2005, respectively. 
+The following table summarizes restricted stock award activity under the 2000 Plan: 
+Shares 
+Weighted-Average 
+Grant Date 
+Fair Value 
+Issued and unvested, January 1, 2005 
+485,000 
+$ 
+7.89 
+Granted 
+332,188 
+6.00 
+Vested 
+(197,180 
+) 
+9.26 
+Forfeited 
+(13,563 
+) 
+5.60 
+Issued and unvested, December 31, 2005 
+606,445 
+6.90 
+Granted 
+465,313 
+9.16 
+Vested 
+(199,633 
+) 
+6.99 
+Forfeited 
+(65,071 
+) 
+7.56 
+Issued and unvested, December 31, 2006 
+807,054 
+8.13 
+Granted 
+348,655 
+8.29 
+Vested 
+(258,093 
+) 
+7.91 
+Forfeited 
+(14,655 
+) 
+8.10 
+Issued and unvested, December 31, 2007 
+882,961 
+$ 
+8.24 
+Issued and expected to vest, December 31, 2007 
+882,961 
+$ 
+8.24 
+As of December 31, 2007, there was $5,029,985 of unrecognized compensation expense related to
+unvested restricted stock awards that is expected to be recognized over a weighted average period of 3.0 years. 
+In connection with the
+vesting of restricted shares during the years ended December 31, 2007, 2006 and 2005, we purchased and immediately retired 90,446, 65,519 and 63,080 shares with aggregate values of $785,908, $631,509 and $601,347, respectively, in satisfaction
+of minimum tax withholding obligations. 
+SFAS No. 123R addresses the accounting for awards issued as part of share-based payment
+arrangements in exchange for employee services. Certain of the Company’s share-based payment arrangements are outside the scope of SFAS No. 123R and are subject to EITF Issue No. 00-19, “Accounting for Derivative Financial Instruments
+Indexed to, and Potentially Settled in, a Company’s Own Stock,” which requires that vested stock options held by certain nonemployee consultants be accounted for as liability-classified awards. The fair value of these vested and
+unexercised awards was estimated using the Black-Scholes option pricing model and $109,080 was reclassified from equity to other liabilities as of January 1, 2006 upon the adoption of SFAS No. 123R. An additional $121,579 was reclassified
+for options that vested during 2006. The fair value of these awards is remeasured at each financial reporting date until the awards are settled or expire. During 2007, $51,500 was reclassified from a liability to equity upon the settlement of 20,000
+options. As of December 31, 2007 and 2006, $149,317 and $228,475, respectively, was included in other liabilities for stock options to acquire 63,000 shares of common stock which remain unexercised. 
+Common Stock Warrants 
+As of
+December 31, 2007, warrants to purchase 120,000 shares of common stock at $6.13 per share were outstanding. These warrants were issued on September 30, 1998 and expire on September 30, 2008. 
+F-22 
+Table of Contents 
+11. 
+COMMITMENTS AND CONTINGENCIES: 
+Sublicense
+Agreement 
+In June 2004, we entered into a sublicense agreement with a third party, pursuant to which we have been granted a limited,
+worldwide, non-exclusive sublicense to certain HIV-2 patents held by such party. Under the terms of this sublicense agreement, we are obligated to pay royalties based on a percentage of our net sales of certain products, which incorporate the
+technology covered by the licensed patents. Future minimum payments under this agreement are as follows: 
+2008 
+$ 
+500,000 
+2009 
+500,000 
+2010 
+500,000 
+2011 
+500,000 
+2012 
+500,000 
+Thereafter 
+2,791,667 
+$ 
+5,291,667 
+Royalties from our commercial sale of products covered by the sublicense can be credited against
+these minimum royalty obligations. 
+License Agreement 
+In August 2005, we entered into a license agreement with third parties, pursuant to which we have been granted a limited, personal, non-transferable, non-exclusive license related to certain HCV patents held by such
+parties. Under the terms of the HCV license agreement, we are also obligated to pay royalties based on our net sales of certain products which incorporate the technology covered by the licensed patents. Royalties under the license agreement vary
+based upon the geographical territory where the product is sold. No minimum payments are required under this agreement in 2007 or thereafter. We may, however, be required to pay additional license fees of up to $5,500,000, upon the achievement of
+specific development and/or commercial milestones. 
+Leases 
+We lease office and warehouse facilities under operating lease agreements. Future payments required under these non-cancelable leases are as follows:
+2008 
+$ 
+94,621 
+2009 
+11,413 
+$ 
+106,034 
+Rent expense for 2007, 2006 and 2005 was $186,714, $624,479, and $1,146,697, respectively.
+Purchase Commitments 
+As of December 31, 2007, we had outstanding non-cancelable purchase commitments in the amount of $11,187,294 related to inventory, capital expenditures, and other goods or services. 
+Employment Agreements 
+Under terms of
+employment agreements with certain executive officers, extending through 2010, we are required to pay each individual a base salary for continuing employment with our Company. The agreements require payments of $1,565,375, $727,875 and $237,750 in
+2008, 2009 and 2010, respectively. 
+F-23 
+Table of Contents 
+Litigation 
+From time-to-time, we are involved in certain legal actions arising in the ordinary course of business. In management’s opinion, based upon the advice of counsel, the outcome of such actions are not expected to
+have a material adverse effect on our future financial position or results of operations. 
+On October 22, 2007, we received a decision in the arbitration proceedings with Prestige concluding, among other things, that (1) the acquisition of the competing Warner ® 
+product by Prestige was a breach of our distribution agreement, (2) we were entitled to an award of legal fees and our share of the compensation paid to the arbitrators, (3) all of Prestige’s counterclaims were rejected, (4) our
+request for specific performance of the agreement was denied and we were not entitled to additional compensatory damages, and (5) the distribution agreement would terminate on December 31, 2007. We submitted proof of the incurrence of our
+legal fees and arbitrators’ compensation for approval by the arbitrators and received an award for a portion of those fees and expenses in December 2007. 
+On January 11, 2008, we entered into a settlement and license agreement with Schering-Plough HealthCare Products, Inc. (“Schering”) to resolve our patent infringement litigation against Schering. Under
+the terms of the agreement, Schering has received a license to certain patents in the U.S. OTC cryosurgical market and will pay us royalties on sales to that market. In addition, Schering was required to make a payment of $4.9 million to us. This
+amount will be recorded in other income during the first quarter of 2008. 
+12. 
+RETIREMENT PLANS: 
+Substantially all employees of
+the Company are eligible to participate in the OraSure Technologies, Inc. 401(k) Plan (the “401(k) Plan”). The 401(k) Plan permits voluntary employee contributions to be excluded from an employee’s current taxable income under
+provisions of Internal Revenue Code Section 401(k) and the regulations thereunder. The 401(k) Plan also provides for us to match employee contributions up to $4,000 per year. Contributions to the 401(k) Plan, net of forfeitures, were $477,390,
+$397,970, and $361,629 in 2007, 2006, and 2005, respectively. 
+13. 
+GEOGRAPHIC INFORMATION: 
+Based on guidance in SFAS
+No. 131, “Disclosures about Segments of an Enterprise and Related Information,” we believe we operate within one reportable segment. Our products are sold principally in the United States and Europe. Segmentation of operating income
+and identifiable assets is not applicable since our revenues outside the United States are export sales, and we do not have significant operating assets outside the United States. 
+The following table represents total revenues by geographic area, based on the location of the customer (amounts in thousands): 
+2007 
+2006 
+2005 
+United States 
+$ 
+64,587 
+$ 
+56,780 
+$ 
+59,859 
+Europe 
+9,618 
+9,521 
+7,868 
+Other regions 
+8,481 
+1,854 
+1,639 
+$ 
+82,686 
+$ 
+68,155 
+$ 
+69,366 
+F-24 
+Table of Contents 
+14. 
+QUARTERLY DATA (Unaudited): 
+The following tables
+summarize the quarterly results of operations for each of the quarters in 2007 and 2006. These quarterly results are unaudited, but in the opinion of management, have been prepared on the same basis as our audited financial information and include
+all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information set forth herein (all amounts in thousands, except per share amounts). 
+2007 Results 
+Three months ended 
+Year ended 
+December 31, 
+2007 
+March 31, 
+2007 
+June 30, 
+2007 
+September 30, 
+2007 
+December 31, 
+2007 
+Revenues 
+$ 
+20,109 
+$ 
+21,352 
+$ 
+21,415 
+$ 
+19,810 
+$ 
+82,686 
+Costs and expenses 
+19,513 
+20,768 
+22,373 
+21,251 
+83,905 
+Operating income (loss) 
+596 
+584 
+(958 
+) 
+(1,441 
+) 
+(1,219 
+) 
+Other income, net 
+2,389 
+970 
+1,086 
+1,068 
+5,513 
+Income (loss) before income taxes 
+2,985 
+1,554 
+128 
+(373 
+) 
+4,294 
+Income tax provision (benefit) 
+1,499 
+599 
+124 
+(401 
+) 
+1,821 
+Net income 
+$ 
+1,486 
+$ 
+955 
+$ 
+4 
+$ 
+28 
+$ 
+2,473 
+Earnings per share 
+Basic 
+$ 
+0.03 
+$ 
+0.02 
+$ 
+— 
+$ 
+— 
+$ 
+0.05 
+Diluted 
+$ 
+0.03 
+$ 
+0.02 
+$ 
+— 
+$ 
+— 
+$ 
+0.05 
+2006 Results 
+Three months ended 
+Year ended 
+December 31, 
+2006 
+March 31, 
+2006 
+June 30, 
+2006 
+September 30, 
+2006 
+December 31, 
+2006 
+Revenues 
+$ 
+15,217 
+$ 
+17,564 
+$ 
+17,639 
+$ 
+17,735 
+$ 
+68,155 
+Costs and expenses 
+14,331 
+16,261 
+15,160 
+16,940 
+62,692 
+Operating income 
+886 
+1,303 
+2,479 
+795 
+5,463 
+Other income, net 
+791 
+896 
+920 
+992 
+3,599 
+Income before income taxes 
+1,677 
+2,199 
+3,399 
+1,787 
+9,062 
+Income tax provision 
+777 
+991 
+1,265 
+761 
+3,794 
+Net income 
+$ 
+900 
+$ 
+1,208 
+$ 
+2,134 
+$ 
+1,026 
+$ 
+5,268 
+Earnings per share(1) 
+Basic 
+$ 
+0.02 
+$ 
+0.03 
+$ 
+0.05 
+$ 
+0.02 
+$ 
+0.11 
+Diluted 
+$ 
+0.02 
+$ 
+0.03 
+$ 
+0.05 
+$ 
+0.02 
+$ 
+0.11 
+(1) 
+The summation of the quarterly amounts may not equal the year-end amounts due to the use of weighted-average shares for each period 
+F-25 
+Table of Contents 
+INDEX TO EXHIBITS 
+Exhibit 
+Number 
+Exhibit 
+3.1.1 
+Certificate of Incorporation of OraSure Technologies, Inc. is incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (No. 333-39210), filed June 14,
+2000. 
+3.1.2 
+Certificate of Amendment to Certificate of Incorporation dated May 23, 2000 is incorporated by reference to Exhibit 3.1.1 to the Company’s Registration Statement on Form S-4 (No.
+333-39210), filed June 14, 2000. 
+3.1.3 
+Certificate of Designation of Series A Preferred Stock of OraSure Technologies (filed as Exhibit A to the Rights Agreement referred to in Exhibit 4.1). 
+3.2 
+Amended and Restated Bylaws of OraSure Technologies, effective as of December 6, 2007, are incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed
+December 12, 2007. 
+4.1 
+Rights Agreement, dated as of May 6, 2000, between OraSure Technologies, Inc. and ChaseMellon Shareholder Service, L.L.C. (now called BNY Mellon Shareowner Services), as Rights Agent, is
+incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 (No. 333-39210), filed August 8, 2000. 
+10.1 
+Form of Indemnification Agreement (and list of parties to such agreement) is incorporated by reference to Exhibit 10.1 to Amendment No. 3 to the Company’s Registration Statement on Form S-4
+(No. 333-39210), filed August 30, 2000.* 
+10.2 
+Employment Agreement, dated as of June 22, 2004, between OraSure Technologies, Inc. and Douglas A. Michels, is incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on
+Form 10-Q for the quarter ended June 30, 2004.* 
+10.3 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and Ronald H. Spair, is incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on
+Form 10-Q for the quarter ended June 30, 2004.* 
+10.4 
+Employment Agreement, dated September 23, 2005, between OraSure Technologies, Inc. and Stephen R. Lee, Ph.D., is incorporated herein by reference to Exhibit 99 to the Company’s Current
+Report on Form 8-K filed September 28, 2005.* 
+10.5 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and P. Michael Formica, is incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on
+Form 10-Q for the quarter ended June 30, 2004.* 
+10.6 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and Joseph E. Zack, is incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form
+10-Q for the quarter ended June 30, 2004.* 
+10.7 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and Jack E. Jerrett, is incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on
+Form 10-Q for the quarter ended June 30, 2004.* 
+10.8 
+Employment Agreement, dated as of October 2, 2006, between Mark L. Kuna and OraSure Technologies, Inc., is incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form
+8-K filed October 5, 2006.* 
+10.9 
+Description of Nonemployee Director Compensation Policy, as amended as of February 1, 2007.* 
+10.10 
+Amended and Restated Epitope, Inc. 1991 Stock Award Plan is incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
+Table of Contents 
+Exhibit 
+Number 
+Exhibit 
+10.11 
+OraSure Technologies, Inc. Employee Incentive and Non-Qualified Stock Option Plan, as amended and restated effective September 29, 2000, is incorporated by reference to Exhibit 10.12 to the
+Company’s Annual Report on Form 10-K for the year ended December 31, 2000.* 
+10.12 
+OraSure Technologies, Inc. 2000 Stock Award Plan, as amended and restated effective as of May 16, 2006, is incorporated by reference to Exhibit 10 to the Company’s Current Report on Form
+8-K filed May 18, 2006.* 
+10.13 
+Form of Restricted Share Grant Agreement is incorporated by reference to Exhibit 10.2.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.* 
+10.14 
+Incentive Stock Option General Terms and Conditions (Officers and Employees) is incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended
+December 31, 2004.* 
+10.15 
+Nonqualified Stock Option Award General Terms and Conditions (Officers and Employees) is incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year
+ended December 31, 2004.* 
+10.16 
+Nonqualified Stock Option Award General Terms and Conditions (Non-Employee Directors) is incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year
+ended December 31, 2004.* 
+10.17 
+Description of the OraSure Technologies, Inc. 2007 Management Incentive Plan is incorporated by reference to Item 5.02 to the Company’s Current Report on Form 8-K filed February 8, 2007.*
+10.18 
+Description of the OraSure Technologies, Inc. 2008 Self-Funding Management Incentive Plan is incorporated by reference to Item 5.02 to the Company’s Current Report on Form 8-K filed
+February 25, 2008.* 
+10.19 
+Description of the OraSure Technologies, Inc. 2008 Stock Award Guidelines is incorporated by reference to Item 5.02 to the Company’s Current Report on Form 8-K filed February 25, 2008.*
+10.20 
+Description of the OraSure Technologies, Inc. 2007 Stock Guidelines is incorporated by reference to Item 5.02 to the Company’s Current Report on Form 8-K filed February 8,
+2007.* 
+10.21 
+Distribution Agreement, dated as of June 1, 2005, between OraSure Technologies, Inc. and SSL International plc, is incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
+Report on Form 10-Q for the quarter ended June 30, 2005.** 
+10.22 
+Amendment No. 1 to Distribution Agreement, dated as of January 1, 2007, between OraSure Technologies, Inc. and SSL International plc, is incorporated by reference to Exhibit 10.1 to the
+Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.** 
+10.23 
+Amendment No. 2 to Distribution Agreement, dated as of November 30, 2007, between OraSure Technologies, Inc. and SSL International plc.** 
+10.24 
+Loan and Security Agreement, dated as of September 10, 2002, between Comerica Bank—California and OraSure Technologies, Inc., is incorporated by reference to Exhibit 10.1 to the
+Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002. 
+10.25 
+First Amendment to Loan and Security Agreement, dated as of May 23, 2003, between OraSure Technologies, Inc. and Comerica Bank—California, is incorporated by reference to Exhibit 10.24 to
+the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. 
+Table of Contents 
+Exhibit 
+Number 
+Exhibit 
+10.26 
+Second Amendment to Loan and Security Agreement, dated as of September 12, 2003, between OraSure Technologies, Inc. and Comerica Bank, is incorporated by reference to Exhibit 99.1 to the
+Company’s Current Report on Form 8-K, dated September 17, 2003. 
+10.27 
+Third Amendment to Loan and Security Agreement, dated as of April 21, 2005, between OraSure Technologies, Inc. and Comerica Bank, is incorporated by reference to Exhibit 10 to the Company’s
+Current Report on Form 8-K filed April 27, 2005. 
+10.28 
+Fourth Amendment to Loan and Security Agreement, dated as of June 27, 2006, between OraSure Technologies, Inc. and Comerica Bank, is incorporated by reference to Exhibit 10 to the Company’s
+Current Report on Form 8-K filed June 30, 2006. 
+10.29 
+Fifth Amendment to Loan and Security Agreement, dated as of June 28, 2007, between OraSure Technologies, Inc. and Comerica Bank, is incorporated by reference to Exhibit 10 to the Company’s
+Current Report on Form 8-K filed July 5, 2007. 
+10.30 
+Supply and Distribution Agreement, dated as of February 11, 2005, between Abbott Laboratories and OraSure Technologies, Inc., is incorporated by reference to Exhibit 10.29 to the Company’s
+Annual Report on Form 10-K for the year ended December 31, 2006.** 
+10.31 
+Amendment No. 1 to Supply and Distribution Agreement, dated as of July 21, 2005, between Abbott Laboratories and OraSure Technologies, Inc., is incorporated by reference to Exhibit 10.30 to the
+Company’s Annual Report on Form 10-K for the year ended December 31, 2006.** 
+23 
+Consent of KPMG LLP, Independent Registered Public Accounting Firm. 
+24 
+Powers of Attorney. 
+31.1 
+Certification of Douglas A. Michels required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. 
+31.2 
+Certification of Ronald H. Spair required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. 
+32.1 
+Certification of Douglas A. Michels required by Rule 13a-14(b) or Rule 15a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section
+906 of the Sarbanes-Oxley Act of 2002. 
+32.2 
+Certification of Ronald H. Spair required by Rule 13a-14(b) or Rule 15a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section
+906 of the Sarbanes-Oxley Act of 2002. 
+* 
+Management contract or compensatory plan or arrangement. 
+** 
+Portions of this exhibit were omitted pursuant to an application for confidential treatment and filed separately with the Securities and Exchange Commission.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2007/0001193125-08-054266/filing_metadata.csv b/raw/filings/0001116463/2007/0001193125-08-054266/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..990c64e5b335df8b1fe7766ce28cfba0e4b13848
--- /dev/null
+++ b/raw/filings/0001116463/2007/0001193125-08-054266/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0001116463,OSUR,ORASURE TECHNOLOGIES INC,10-K,2008-03-12,2007-12-31,2008-03-12T20:59:40.000Z,0001193125-08-054266,d10k.htm,FORM 10-K,1296738,0,0,https://www.sec.gov/Archives/edgar/data/1116463/000119312508054266/d10k.htm,https://www.sec.gov/Archives/edgar/data/1116463/000119312508054266/,2007,2007,1
diff --git a/raw/filings/0001116463/2007/0001193125-08-054266/item1.txt b/raw/filings/0001116463/2007/0001193125-08-054266/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..14c05bce44b7b265b8b2d9069b02b05e2ba475a3
--- /dev/null
+++ b/raw/filings/0001116463/2007/0001193125-08-054266/item1.txt
@@ -0,0 +1,589 @@
+ITEM 1. Business. 
+Our business principally involves the development, manufacture,
+marketing and sale of oral fluid diagnostic products and specimen collection devices using our proprietary oral fluid technologies, as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used
+on other specimen types, and other medical devices. Our diagnostic products include tests which are performed on a rapid basis at the point of care and tests which are processed in a laboratory. These products are sold in the United States and
+internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. One of
+our products has been sold in the over-the-counter (“OTC”) or consumer retail market in the United States, Canada, Europe, Mexico and Australia. 
+In vitro diagnostic testing is the process of analyzing oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific substances or markers for infectious diseases, drugs of abuse or
+other conditions. In vitro diagnostic tests are performed outside the body, in contrast to in vivo tests, which are performed directly on or within the body. The substance or marker that a diagnostic test is intended to detect is
+generally referred to as an analyte. 
+Immunodiagnostic testing is the leading method of in vitro testing for antigens and
+antibodies. When an infectious disease is caused by pathogens, such as bacteria, viruses and fungi, or other substances are present, the body responds by producing an antibody. Substances that stimulate production of antibodies are generally
+referred to as antigens. An antibody binds specifically with an antigen in a lock-and-key fashion that initiates a biochemical reaction to attempt to neutralize and, ultimately, eliminate the antigen. The ability of an antibody to bind with a
+specific antigen provides the basis for immunodiagnostic testing. 
+Our Company was formed in May 2000 under Delaware law solely for the
+purposes of combining two companies, STC Technologies, Inc. (“STC” or “STC Technologies”) and Epitope, Inc. (“Epitope”), and changing the state of incorporation of Epitope from Oregon to Delaware. STC Technologies and
+Epitope were merged into our Company on September 29, 2000. Our principal offices are located at 220 East First Street, Bethlehem, Pennsylvania 18015, and our telephone number is (610) 882-1820. 
+Additional information about us can be found on our website. Our website address is www.orasure.com. We make available free of charge through a link
+provided at such website our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and our other filings with the Securities and 
+1 
+Table of Contents 
+Exchange Commission (“SEC”), as well as any amendments to those Reports and filings. These Reports and filings are made available as soon as
+reasonably practicable after they are filed or furnished to the SEC. Our Internet website and the information contained in or connected to that website are not intended to be incorporated by reference into this Annual Report. 
+Products 
+The following is a summary of our principal
+products and their regulatory and commercial status: 
+Product 
+Description 
+Regulatory Status 
+Commercial 
+Status 
+OraQuick 
+ADVANCE ® HIV-1/2 
+A rapid, point-of-care test for antibodies to the Human Immunodeficiency Virus Type 1 (“HIV-1”) and Type 2 (“HIV-2” and together with HIV-1, “HIV-1/2”) that can be
+visually read at the point of care in approximately 20 minutes. 
+Premarket approval (“PMA”) approved by the U.S. Food and Drug Administration (“FDA”) for use with oral fluid, finger-stick and venous whole blood, and plasma. CLIA (Clinical
+Laboratory Improvement Amendments of 1988) waived for use with oral fluid, finger-stick and venous whole blood. 
+Marketed 
+CE mark approved. 
+Marketed 
+Registered in Mexico, Brazil and Peru. 
+Marketed 
+OraQuick ® HIV-1/2 OTC 
+Clinical trials initiated. 
+Pending 
+OraQuick ® HCV 
+A rapid, point-of-care test for antibodies to the hepatitis C virus (“HCV”) 
+Clinical trials initiated. 
+Pending 
+OraSure ® 
+Oral fluid collection device for the detection of antibodies to HIV-1 in an oral fluid sample in a laboratory setting. 
+PMA approved by FDA. 
+Marketed 
+Also FDA 510(k) cleared for use in detecting cocaine and cotinine (an indicator of nicotine) in oral fluid. 
+Marketed 
+CE marked and registered in the United Kingdom. Also registered in Mexico, Canada, Columbia, South Africa, Afghanistan, Argentina, Brazil and Trinidad. 
+Marketed 
+Intercept ® 
+Oral fluid collection device, along with nine related immunoassays, for oral fluid drugs of abuse (“DOA”) testing in a laboratory setting. 
+Collection device—FDA 510(k) cleared. 
+Marketed 
+MICRO-PLATE DOA Assays 
+Used to detect the following drugs in an oral fluid sample: marijuana, cocaine, opiates, amphetamines, methamphetamines, PCP, benzodiazepines, barbiturates and methadone. 
+Nine drug assays—FDA 510(k) cleared. 
+Marketed 
+Intercept ® device CE marked and registered in the United Kingdom. Various assays are CE marked and registered in the United Kingdom, Austria, Belgium, Denmark, Finland, France,
+Germany, Ireland, Italy, Luxembourg, Mexico, Netherlands, Portugal, Spain, Sweden, Korea, Canada, Afghanistan and Brazil. 
+Marketed 
+2 
+Table of Contents 
+Product 
+Description 
+Regulatory Status 
+Commercial 
+Status 
+Homogeneous DOA Assays 
+Homogeneous fully-automated oral fluid DOA assays. 
+In development. 
+Pending 
+Cryosurgical Systems—Professional 
+Cryosurgical system for the removal of warts and other benign skin lesions, marketed under the Histofreezer ® tradename primarily to the physicians’ office market.
+Nine indications—FDA 510(k) cleared. 
+Marketed 
+CE marked and registered in Europe, Venezuela, Thailand, New Zealand, Hong Kong, Brazil, Mexico, Canada and Afghanistan. 
+Marketed 
+Cryosurgical Systems—OTC 
+Cryosurgical (freezing) system for the removal of common and plantar warts, sold in various OTC markets. 
+FDA 510(k) cleared. 
+Registered in Canada. 
+CE marked and registered in several European countries under Scholl Freeze Spray name. 
+Marketed 
+Registered in Mexico under POINTTS name. 
+Marketed 
+Registrations applied for under POINTTS name in certain South and Central American countries and South Africa. 
+Pending 
+Cryosurgical Systems—OTC Product Line Extensions 
+Cryosurgical system for an indication other than common warts or plantar warts. 
+FDA 510(k) filed. 
+Pending 
+In addition to the above products, we also
+sell certain immunoassay tests and reagents for insurance risk assessment, substance abuse testing and forensic toxicology applications; an oral fluid Western blot HIV-1 confirmatory test approved by the FDA for confirming positive HIV-1 test
+results obtained from the use of our OraSure ® collection device; and the FDA 510(k) cleared Q.E.D. ® point-of-care saliva alcohol
+test. 
+OraQuick ® 
+Rapid Test Platform 
+OraQuick ® is our rapid test platform designed to test oral fluid, whole blood (i.e., both finger-stick and venous) and plasma samples for the presence of various antibodies or analytes. The device uses a porous flat pad to
+collect an oral fluid specimen. After collection, the pad is inserted into a vial containing a pre-measured amount of developer solution and allowed to develop. When whole blood or plasma is to be tested, a loop collection device is used to collect
+a drop of blood or plasma and mix it in the developer solution, after which the collection pad is inserted into the solution and allowed to develop. In all cases, the specimen and developer solution then flow through the testing device where test
+results are observable in approximately 20 minutes. The OraQuick ® device is a screening test and requires a confirmation test where an initial positive result is obtained. 
+We have commercialized this technology in the form of our OraQuick ADVANCE ® rapid HIV-1/2 antibody test. This is a rapid, point-of-care test which has received FDA approval for the detection of antibodies to both HIV-1 and HIV-2 in oral fluid, finger-stick and venous
+whole blood and plasma. This test is available for use by the nearly 40,000 locations in the United States certified under the Clinical Laboratory Improvements Amendment of 1988 (“CLIA”) to perform moderately complex tests. We have also
+received a CLIA waiver for use of the OraQuick ADVANCE ® test with oral fluid and finger-stick and venous whole blood. As a result, the test can be used by approximately 140,000
+additional sites in the United States not certified under CLIA to perform moderately complex tests, such as outreach clinics, community-based organizations and physicians’ offices. 
+On the international front, we have obtained a CE mark for our OraQuick ADVANCE ® test so that we can sell this product in Europe and other countries accepting the CE mark for commercialization. We have 
+3 
+Table of Contents 
+distributors in place for the United Kingdom, Ireland and Spain and are pursuing distribution arrangements in several additional European countries. We are
+selling OraQuick ® in Mexico and Africa and are completing registrations of our OraQuick ® test in several countries in Latin
+America, Asia, the Middle East and Russia. We are aggressively seeking to expand our distribution network for this product throughout the world. 
+We believe that the OraQuick ADVANCE ® 
+device, because it is approved for detecting antibodies to both HIV-1 and HIV-2 in finger-stick and venous whole blood, oral fluid and plasma samples, provides a significant competitive advantage in the market for rapid HIV testing in the
+United States and elsewhere around the world. Demand for OraQuick ADVANCE ® has grown since the launch of that product in late 2004. 
+OraSure ® /Intercept ® Collection Devices 
+Our OraSure ® oral fluid collection device is used in conjunction with screening and confirmatory tests for HIV-1 antibodies and other analytes. This device consists of a small,
+treated cotton-fiber pad on a handle that is placed in a person’s mouth for two to five minutes. The device collects oral mucosal transudate (“OMT”), a serum-derived fluid that contains higher concentrations of certain antibodies and
+analytes than saliva. As a result, OMT testing is a highly accurate method for detecting HIV-1 infection and other analytes. 
+We believe
+that oral fluid testing has several significant advantages over blood or urine-based systems for infectious disease testing, for both health care professionals and the individuals being tested. These advantages include eliminating the risk of
+needle-stick accidents, providing a non-invasive collection technique, requiring minimal training to administer, providing rapid and efficient collection in almost any setting, and reducing the cost of administration by a trained health care
+professional. 
+HIV-1 antibody detection using the OraSure ® collection device involves three steps: 
+• 
+Collection of an oral fluid specimen using the OraSure ® 
+device; 
+• 
+Screening of the specimen for HIV-1 antibodies at a laboratory with an enzyme immunoassay (“EIA”) screening
+test approved by the FDA for use with the OraSure ® device; and 
+• 
+Laboratory confirmation of any positive screening test results with our oral fluid Western blot HIV-1 confirmatory test (described below).
+A trained health care professional then conveys test results and provides appropriate counseling to the individual who
+was tested. 
+We have received premarket approval from the FDA to sell the
+OraSure ® collection device for use with a laboratory-based EIA screening test for HIV-1 antibody detection. This EIA screening test was manufactured and sold by bioMerieux, Inc.
+(“BMX”). We have also received FDA 510(k) clearance for use of the OraSure ® collection device with EIAs to test for cocaine and cotinine (a metabolite of nicotine) in oral fluid
+specimens primarily for insurance risk assessment purposes. 
+In 2007, BMX
+discontinued manufacturing the HIV-1 EIA screening test. As a result, we intend to seek FDA approval of an alternative HIV-1 EIA screening test for use with oral fluid samples collected with our OraSure ® device. 
+A collection device that is substantially
+similar to the OraSure ® device is sold under the name Intercept ® , and is used to collect OMT for oral fluid drug testing. We have
+received FDA 510(k) clearance to use the Intercept ® collection device with laboratory-based EIAs to test for drugs of abuse commonly identified by the National Institute for Drug Abuse
+(“NIDA”) as the NIDA-5 (i.e., cannabinoids (marijuana), cocaine, opiates, amphetamines/methamphetamines and phencyclidine (“PCP”)), and for barbiturates, methadone and benzodiazepines. Each of these EIAs is also FDA 510(k)
+cleared for use with the Intercept ® device. 
+4 
+Table of Contents 
+We have received a CE mark for the Intercept ® and OraSure ® devices and both are distributed in Canada, the United Kingdom and Mexico. The OraSure ® device and our oral fluid drugs of abuse assays are also sold in several other foreign countries. 
+We believe that the Intercept ® device
+has several advantages over competing urine and other drugs-of-abuse testing products, including its lower total testing cost, its non-invasive nature, mobility and accuracy, the ease of maintaining a chain-of-custody, the treatment of test subjects
+with greater dignity, no requirement for specially-prepared collection facilities and difficulty of sample adulteration. The availability of an oral fluid test is intended to allow our customers to test for drug impairment, eliminate scheduling
+costs and inconvenience, and thereby streamline the testing process. 
+Cryosurgical Systems (Skin Lesion Removal Products)
+The Histofreezer ® 
+cryosurgical removal system is a low-cost alternative to liquid nitrogen and other methods for removal of warts and other benign skin lesions by physicians. The Histofreezer ® product mixes
+three environmentally friendly cryogenic gases in a small aerosol canister. When released, these gases are delivered to a specially designed foam bud, cooling the bud to a maximum of –50°C to –55°C. The frozen bud is then applied
+to the wart or lesion for 15 to 40 seconds (depending on the type of lesion) creating localized destruction of the target area by freezing. We have received 510(k) clearance for use of the Histofreezer ® product to remove common warts and eight other types of benign skin lesions, and this product has been CE marked and registered for distribution in Canada, throughout Europe and in certain other foreign countries.
+We have also received FDA 510(k) clearance to market and sell a cryosurgical
+product similar to the Histofreezer ® product in the OTC or retail market for the removal of common and plantar warts only. This product was previously distributed in the United States and
+Canadian OTC markets under the name Freeze Off ® by Prestige Brands Holdings, Inc. (“Prestige”), the owner of the Compound W ® 
+line of wart removal products. As a result of the decision in the arbitration proceedings with respect to Prestige’s acquisition of the competing Wartner ® cryosurgical product
+line, our agreement with Prestige terminated on December 31, 2007. We are currently evaluating alternative strategies for the distribution of this product in the United States and Canada. 
+Internationally, we distribute a CE marked cryosurgical wart removal product into the OTC footcare market in Europe, Australia and New Zealand through
+our distributor, SSL International plc (“SSL”), under the Scholl and Dr. Scholl trademarks. SSL is the owner of the Scholl and Dr. Scholl trademarks in countries outside North and South America. We also distribute an OTC
+cryosurgical product in Mexico through our distributor Genomma Labs, under the POINTTS tradename, and have entered into new distribution agreements under which Genomma will distribute our product in a number of South and Central American countries
+and South Africa. 
+Immunoassay Tests and Reagents 
+We develop and sell immunoassay tests in two formats, known as MICRO-PLATE and AUTO-LYTE ® , to meet the specific needs of our customers. 
+In a MICRO-PLATE kit, the sample to be tested is placed into a small plastic receptacle, called a microwell, along with the reagents. The result of the test is determined by the color of the microwell upon completion
+of the reaction. Controlling the reaction involves the use of reagents by laboratory personnel. Test results are analyzed by any of a variety of commercially available laboratory instruments, which we may also provide to our laboratory customers.
+MICRO-PLATE tests can be performed on commonly used instruments and can detect drugs in urine, serum and sweat specimens. MICRO-PLATE tests are also used as part of the Intercept ® product
+line to detect drugs of abuse in oral fluid specimens. 
+AUTO-LYTE ® tests are sold in the form of bottles of liquid reagents. These reagents are run on commercially available laboratory-based automated analytical instruments, which are manufactured by a variety
+5 
+Table of Contents 
+of third parties. AUTO-LYTE ® is typically used in high volume, automated, commercial reference
+insurance laboratories to detect certain drugs or chemicals in urine. Test results are produced quickly, allowing for high throughput. In recent years, sales of our AUTO-LYTE ® tests have
+been substantially reduced largely because of competition from cheaper “home-brew” tests used by our laboratory customers. As a result, we expect to eventually stop selling our AUTO-LYTE ® tests. 
+Western blot HIV-1 Confirmatory Test 
+We sell an oral fluid Western blot HIV-1 confirmatory test that received premarket approval from
+the FDA in 1996. This test uses the original specimen collected with the OraSure ® oral fluid collection device to confirm positive results of initial oral fluid HIV-1 EIA screening tests.
+The oral fluid Western blot HIV-1 confirmatory test was previously marketed under an exclusive arrangement with BMX. 
+In March 2007, BMX
+notified us that it would not renew the agreement under which it supplies the HIV-1 antigen used to manufacture our oral fluid Western blot HIV-1 confirmatory test or the agreement under which it distributed that product on an exclusive, world-wide
+basis. As a result, these agreements terminated on December 31, 2007 and we are now supplying this test directly to our laboratory customers. Pursuant to the terms of the antigen supply agreement, we have purchased an additional two-year supply
+of the antigen from BMX so that we can continue to manufacture and sell our oral fluid Western blot test. When this additional two-year supply is combined with our existing inventory of the HIV-1 antigen, we believe we have a sufficient supply of
+HIV-1 antigen to meet the demand for our Western blot test for at least the next three to four years. 
+Q.E.D. ® Saliva Alcohol Test 
+Our Q.E.D. ® saliva alcohol test is a
+point-of-care test device that is a cost-effective alternative to breath or blood alcohol testing. The test is a quantitative, saliva-based method for the detection of ethanol, has been cleared for sale by the FDA and has received a CLIA waiver. The
+U.S. Department of Transportation (“DOT”) has also approved the test for purchase. 
+Each Q.E.D. ® test kit contains a collection stick that is used to collect a sample of saliva and a disposable detection device that displays results in a format similar to a
+thermometer. The Q.E.D. ® device is easy to operate and instrumentation is not required to read the result. The product has a testing range of 0 to 0.145% blood alcohol and produces results
+in approximately two minutes. 
+Products Under Development 
+OraQuick ® Platform 
+We believe that OraQuick ® has
+significant potential as a point-of-care testing platform for clinics and other public health entities, hospitals, physicians’ offices and other markets. Because the OraQuick ® platform
+is simple to use and can operate in a non-invasive manner with oral fluid, we believe it will be suitable for use by consumers without the assistance of a doctor or other medical professional. We also believe that OraQuick ® provides a platform technology that can be modified for detection of a variety of infectious diseases in addition to HIV, such as viral hepatitis and certain sexually transmitted diseases.
+We are currently devoting significant resources to obtaining FDA approval to sell
+our OraQuick ® HIV-1/2 test in the United States OTC market. We have completed several laboratory-based operational and label comprehension studies and will continue to perform additional
+clinical studies in support of our application for FDA approval. We have developed an information and referral system and product packaging and labeling suitable for the OTC market, all of which will be key components of our clinical studies. We
+expect this clinical work to continue through 2008, and we intend to submit an application for FDA approval after our clinical studies are completed. 
+6 
+Table of Contents 
+We have developed a rapid test on the
+OraQuick ® platform which can detect antibodies to the Hepatitis C virus, or HCV, in oral fluid, blood, serum and plasma samples. Clinical trials have commenced to obtain pre-market approval
+of this test from the FDA. These trials are expected be completed in 2008, after which we intend to file submissions for FDA approval and a CE mark and seek CLIA waiver for this product. We are also in negotiations to obtain rights to a rapid HCV
+test manufactured by a third party for distribution into certain developing foreign countries, which we intend to secure by mid 2008. 
+We have entered into agreements with Schering-Plough Corporation (“Schering-Plough”) to
+collaborate on the development and promotion of our OraQuick ® HCV test for use with oral fluid. Under the terms of these agreements, we have been and will be reimbursed by Schering-Plough
+for a portion of our costs to develop the test and obtain regulatory approvals, and Schering-Plough will provide detailing and other promotional support for the test in the physicians’ office market in the United States and internationally.
+OraSure ® /Intercept ® Applications 
+Oral mucosal transudate, or OMT, contains many constituents found in blood and serum, although in
+lower concentrations. We believe the OraSure ® and Intercept ® devices are a platform technology with a wide variety of potential
+applications, where laboratory testing is available. For example, the OraSure ® device may be useful for the collection of a variety of antibodies or markers for infectious diseases or
+conditions in addition to HIV-1, such as antibodies to viral hepatitis. 
+In 2004,
+the Substance Abuse and Mental Health Services Administration (“SAMHSA”) issued proposed regulations for oral fluid drug testing for federal workers. These proposed regulations have since been withdrawn. If and when reissued in final form,
+these regulations may require certain modifications to our Intercept ® product in order to permit its use by federal workers. As a result, we are developing modifications to the
+Intercept ® collection device that we anticipate will be required by these regulations or are otherwise likely to be desired by our customers. 
+We are also currently developing additional drugs of abuse assays for use with our Intercept ® collection device. In October 2006, we signed a letter of intent with Roche Diagnostics to negotiate a joint development and commercialization agreement for homogeneous fully-automated oral
+fluid drugs of abuse assays that can be run on random access chemistry analyzers. The oral fluid assays are being developed for use with our Intercept ® collection device and Roche’s
+KIMS (kinetic information of microparticles in solution) technology. The assays will run on various automated analyzers to allow oral fluid samples to be processed with the same efficiency currently achieved with urine-based drug tests. Prototype
+assays for cocaine, opiates, methamphetamine and amphetamine have been developed and the development of assays for PCP and cannabinoids (marijuana) continues to progress. 
+OTC Cryosurgical Systems Products 
+We
+currently sell our Histofreezer ® cryosurgical systems product in the physicians’ office or professional market. This product has been approved by the FDA for the treatment of a total
+of nine different types of benign skin lesions. Our OTC cryosurgical product has been approved by the FDA for two types of skin lesions – common warts and plantar warts. 
+We believe that one or more of the seven remaining Histofreezer ® indications may be attractive to the OTC market. We have completed clinical trials of an OTC cryosurgical product for one of these indications, and have submitted an application for FDA 510(k) clearance of that
+product. 
+Business Strategy 
+We have
+adopted a multi-part growth strategy, pursuant to which we intend to leverage our extensive diagnostic experience in order to maximize the available opportunities from our existing products and 
+7 
+Table of Contents 
+technologies, and supplement our existing product pipeline by accessing other technologies and products. We intend to follow a disciplined approach to
+maximize the value of our business for the benefit of our stockholders. 
+Our overall vision is to become a recognized global leader focused
+on providing innovative diagnostic solutions that add substantial value to existing and emerging healthcare needs. In order to achieve this vision, our business strategy includes the following key elements: 
+• 
+Extension of Base Businesses . We intend to maximize the sales potential of our existing
+product lines and technologies in the markets where they are currently sold, with a focus on expanding, where possible, the number of our oral fluid product offerings. Under this part of the strategy, we intend to fully capitalize on the potential
+market reach of our OraQuick ® , OraSure ® , Intercept ® ,
+Histofreezer ® and OTC cryosurgical products by investing in our sales and marketing efforts where appropriate, making product improvements and enhancements, and optimizing our distribution
+channels. We also intend to expand the reach of our existing products and technology platforms into new markets and will focus specifically on expanding into international markets. 
+• 
+Infectious Disease Testing . We will pursue new products and technology platforms in the
+infectious disease, point-of-care testing business to supplement our existing product pipeline. This may include either the development of new infectious disease products or the acquisition of new technologies or products. An important new product
+under clinical development is a rapid HCV test on our OraQuick ® platform. 
+• 
+OTC Opportunities . We intend to identify or develop products that can be sold in the OTC
+or retail marketplace. A significant opportunity that we are pursuing under this part of our strategy is to seek FDA approval to sell our OraQuick ® rapid HIV-1/2 antibody test in the United
+States OTC market. We are also working to expand the international distribution of our OTC cryosurgical product. 
+• 
+Operational Improvements . We intend to remain focused on the continuous improvement of our operations. These improvements will
+include, but not be limited to, expanding the use of automated manufacturing for our product lines as demand increases, expanding the global sourcing of components and assemblies to achieve efficiencies and cost improvements, making infrastructure
+and information technology investments as needed to improve effectiveness and productivity, and modifying our processes in order to continuously improve quality and the effectiveness of our operations. 
+Research and Development 
+In 2007, our research and development activities focused primarily on the development of a rapid HCV test using our OraQuick ® technology platform, clinical
+and regulatory activities related to obtaining a CE mark for the OraQuick ADVANCE ® test, clinical work to obtain FDA approval for use of OraQuick ® in the United States OTC market, and development of certain improvements to existing products in the OraQuick ® , Intercept ® and cryosurgical wart removal product lines. 
+From time to time, we supplement our own research and
+development activities by funding external research at universities and certain other entities. We may continue to fund external research. 
+Research and development expenses totaled $14.1 million in 2007, $8.6 million in 2006 and $5.3 million in 2005. These expenses include the costs associated with research and development, regulatory affairs, clinical trials and product
+support. 
+Sales and Marketing 
+We
+attempt to reach our major target markets through a combination of direct sales, strategic partnerships and independent distributors. Our marketing strategy is to raise awareness through a full array of marketing activities, which include trade
+shows, print advertising, special programs and distributor promotions, to support sales in each target market. 
+8 
+Table of Contents 
+We market our products in the United States and internationally. Revenues attributable to customers in
+the United States were $64.6 million, $56.8 million and $59.9 million in 2007, 2006 and 2005, respectively. Revenues attributable to international customers amounted to $18.1 million, $11.4 million and $9.5 million, or 22%, 17% and 14% of our total
+revenues, in 2007, 2006 and 2005, respectively. 
+Infectious Disease Testing 
+We market the OraQuick ADVANCE ® 
+rapid HIV-1/2 antibody test directly to customers in the public health market for HIV testing. This market consists of a broad range of clinics and laboratories and includes states, counties, the Centers for Disease Control and Prevention
+(“CDC”), SAMHSA and other governmental agencies, family planning clinics, colleges and universities, correctional facilities and the military. There are also a number of organizations in the public health market, such as AIDS service
+organizations and various community-based organizations set up primarily for the purpose of encouraging and enabling HIV testing. 
+Abbott Laboratories (“Abbott”) is our exclusive distributor of OraQuick
+ADVANCE ® in the U.S. hospital market and non-exclusive distributor in the U.S. physicians’ office marketplace. As our exclusive distributor to hospitals, Abbott sells OraQuick
+ADVANCE ® to federal hospitals under the terms of our Federal Supply Schedule on file with the General Services Administration. Under our agreement with Abbott, we have retained
+exclusive rights for all other markets, including sales to the public health and criminal justice markets, the military, the CDC, SAMHSA and other governmental agencies. We have a small sales force that supports Abbott in order to maximize the
+penetration of OraQuick ADVANCE ® in the hospital market. The initial term of our agreement with Abbott expired at the end of 2007, and the agreement has been extended for 2008
+pursuant to its annual renewal terms. 
+We currently distribute our OraQuick ® test in several foreign countries. During 2007, we obtained a CE mark for this product and launched sales in the United Kingdom. We expect to increase the number of countries where this product
+is sold as we find new distributors and complete registrations in additional countries. 
+We also market the OraSure ® oral fluid collection device for HIV-1 testing, separately and as a kit in combination with laboratory testing services. To better serve our public
+health customers, we have entered into agreements with two commercial laboratories to provide prepackaged OraSure ® test kits, with prepaid laboratory testing and specimen shipping costs
+included. We also sell the OraSure ® device in the international public health market. 
+We are currently conducting clinical trials for FDA approval of a rapid HCV test using the
+OraQuick ® platform, and plan to apply for CLIA waiver, a CE mark and other international registrations. We intend to sell this product on a worldwide basis. We have entered into agreements
+with Schering-Plough to collaborate on the development and promotion of our OraQuick ® HCV test for use with oral fluid. Under the terms of these agreements, we have been and will be
+reimbursed by Schering-Plough for a portion of our costs to develop the test and obtain regulatory approvals, and Schering-Plough will provide detailing and other promotional support for the test in the physicians’ office market in the United
+States and internationally. 
+Substance Abuse Testing 
+Our substance abuse testing products are marketed to laboratories serving the workplace testing, forensic toxicology, criminal justice and drug rehabilitation markets. 
+We have entered into agreements for the distribution of Intercept ® collection devices and associated MICRO-PLATE assays for drugs-of-abuse testing in the workplace testing market in the United States and Canada through several laboratory distributors, including Quest Diagnostics
+(“Quest”) and Clinical Reference Laboratory, and internationally for workplace, criminal justice and forensic toxicology testing through Bio-Rad Laboratories, Concateno (which acquired our prior distributor, Altrix HealthCare, plc) and
+other distributors. In 
+9 
+Table of Contents 
+some cases, we assist our laboratory customers in customizing their testing services by selling them equipment required to test oral fluid specimens
+collected with the Intercept ® device. 
+The forensic toxicology market in the
+United States for our substance abuse testing products consists of several hundred laboratories including federal, state and county crime laboratories, medical examiner laboratories and reference laboratories. The criminal justice market consists of
+a wide variety of entities in the criminal justice system that require drug screening, such as pre-trial services, parole and probation officials, police forces, drug courts, prisons, drug treatment programs and community/family service programs.
+We also distribute our Q.E.D. ® 
+saliva alcohol test primarily through various distributors in the United States and internationally. The markets for alcohol testing are relatively small and fragmented with a broad range of legal and procedural barriers to entry. Markets
+range from law enforcement testing to workplace testing of employees in safety sensitive occupations. Typical usage situations include pre-employment, random, post-accident, reasonable-cause and return-to-duty testing. 
+Cryosurgical Systems 
+Most of our Histofreezer ® sales occur
+in the United States to distributors that, in turn, resell the product to primary care physicians and podiatrists in the United States. Major U.S. distributors include Cardinal Healthcare, McKesson HBOC, Physicians Sales & Service,
+AmerisourceBergen Corporation, and Henry Schein. Internationally, we have a sales office in Reeuwijk, The Netherlands, and sell the Histofreezer ® product through a network of distributors
+in more than 20 countries worldwide. 
+In past years, we sold a cryosurgical wart
+removal product similar to Histofreezer ® in the OTC market in the United States and Canada pursuant to a distribution agreement with Prestige, the owner of the Compound W ® line of wart removal products. That distribution agreement terminated at the end of 2007, and we are currently evaluating alternative strategies for the distribution of this product in the
+United States and Canada. Additionally, we distribute cryosurgical wart removal products in the OTC footcare market in Europe, Australia and New Zealand through our distributor, SSL, under its Scholl and Dr. Scholl tradenames, and in the OTC
+market in Mexico under the POINTTS tradename through our distributor, Genomma Labs. We have also entered into new agreements with Genomma Labs for distribution of our OTC cryosurgical wart product in several Central and South American countries and
+in South Africa. 
+Insurance Risk Assessment 
+We currently market the OraSure ® oral
+fluid collection device for use in screening life insurance applicants in the United States and internationally to test for three of the most important underwriting risk factors: HIV-1, cocaine and cotinine (a metabolite of nicotine). Devices are
+sold to insurance testing laboratories, including Quest, Heritage Labs and Clinical Reference Laboratory. These laboratories in turn provide the devices to insurance companies, usually in combination with testing services. 
+We also maintain a direct sales force that promotes use of the OraSure ® device directly to insurance companies for life insurance risk assessment. Insurance companies then make their own decision regarding which laboratory to use to supply their collection devices and testing services.
+Our OraSure ® Western blot confirmatory test was previously distributed through BMX to laboratories and is used to confirm oral fluid specimens
+collected with our OraSure ® device that initially test positive for HIV-1. Because BMX elected not to renew the Western blot agreements after December 31, 2007, we now distribute the
+Western blot test directly to our laboratory customers. 
+Because insurance companies
+are in various stages of their adoption of the OraSure ® device, there exists a wide range of policy limits where the product is being applied. Some insurance companies have chosen to extend
+their testing to lower policy limits where they did not test at all before, while others have used OraSure ® to 
+10 
+Table of Contents 
+replace some of their blood and urine-based testing. In general, most of our insurance company customers use the OraSure ® device in connection with life insurance policies having face amounts of up to $250,000, with some customers using the device for policies of up to $500,000 in amount. 
+In recent years, we have experienced a decline in sales of OraSure ® and related assays for insurance testing, primarily due to a reduction in the number of applications for life insurance policies and changes in underwriting requirements, as well as some consolidation in the industry
+leading to a reevaluation of testing methods. 
+We also sell our AUTO-LYTE ® assays and reagents in the insurance testing market directly to laboratories, including Heritage Labs and Clinical Reference Laboratory. 
+International Markets 
+We sell most
+of our products into international markets primarily through distributors with knowledge of their local markets. Principal markets include foreign governments, physicians’ offices, insurance risk assessment, substance abuse, public health and
+laboratory testing. 
+We assist our international distributors in registering the products and obtaining required regulatory approvals in
+each country, and we provide training and support materials. Our international marketing program includes direct assistance to distributors in arranging for laboratory services, cooperation from screening test manufacturers and performance of
+Western blot confirmatory tests when necessary. 
+Significant Products and Customers 
+Several different products have contributed significantly to our financial performance, accounting
+for 10% or more of total revenues during the past three years. The OraQuick ® rapid HIV testing products, the cryosurgical systems products, and the OraSure ® and Intercept ® oral fluid collection devices accounted for total revenues of $32.7 million, $23.5 million and $15.5 million in 2007, $25.6 million, $17.3
+million and $15.1 million in 2006, and $21.6 million, $22.7 million and $15.9 million in 2005, respectively. As new products are developed and commercialized, we expect to receive a greater portion of our revenues from these products. 
+We currently have two customers, Quest and Abbott, which accounted for 11% and 10% of our total revenues, respectively, during 2007. The loss of Quest or
+Abbott, or a significant decrease in the volume of products purchased by either customer, could have a material adverse effect on our results. 
+Revenue
+by Segment 
+We operate our business within one reportable segment and all of our revenues are generated from this one segment. Our net
+revenue is generated by our product sales and licensing and product development activities. For more information about our revenues from external customers, income and total assets, please see the sections entitled “Selected Financial
+Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report. 
+Supply and Manufacturing 
+We manufacture our OraQuick
+ADVANCE ® test in our Bethlehem, Pennsylvania facility. In addition, we have entered into a supply agreement for the assembly of the OraQuick ® device in Thailand, in order to supply certain international markets. This supply agreement had an initial term of one year, and automatically renews for additional annual periods unless either party provides a
+timely notice of termination prior to the end of an annual period. We believe that other firms would be able to manufacture the OraQuick ® test on terms no less favorable than those set
+forth in the agreement if the Thailand contractor would be unable or unwilling to continue manufacturing this product. 
+11 
+Table of Contents 
+We can purchase the HIV antigen and the
+nitrocellulose required for the OraQuick ® test only from a limited number of sources. The antigen is currently purchased from a single contract supplier under a long-term agreement with an
+initial term ending in January 2010 and one-year automatic renewal terms thereafter. The nitrocellulose used in the test is also provided by a single contract supplier, under a supply agreement with a five-year term ending in 2009. If for any reason
+these suppliers are unwilling or no longer able to supply our antigen or nitrocellulose needs, we believe that alternative supplies could be obtained at a competitive cost. However, a change in the antigen or nitrocellulose would require FDA
+approval and some additional development work. This in turn would require significant time to complete and could disrupt our ability to manufacture and sell the OraQuick ® device.
+We manufacture both the OraSure ® and Intercept ® collection devices in our Bethlehem, Pennsylvania facility, and we expect to continue to do so for the foreseeable future. 
+The oral fluid Western blot HIV-1 confirmatory test is currently manufactured in our Bethlehem, Pennsylvania facility. The HIV antigen needed to
+manufacture the Western blot test is currently available from only a limited number of sources. For many years, we purchased the antigen for this product from BMX on an exclusive basis. Our agreement with BMX for the supply of HIV-1 antigen
+terminated on December 31, 2007. As a result, we purchased an additional two-year supply of the antigen from BMX as permitted under the agreement. When this additional supply is combined with our existing inventory of the HIV-1 antigen, we
+believe we have a sufficient supply of the HIV-1 antigen to meet the demand for our Western blot test for at least the next three to four years. 
+Histofreezer ® is assembled in The
+Netherlands by Koninklijke, Utermöhlen, N.V. (“Utermöhlen”), the company from which we acquired the product in 1998. We purchase the product pursuant to an exclusive production agreement. The cryosurgical wart removal products
+distributed in OTC markets are supplied by vendors located in the United States. We believe that additional suppliers of all of our cryosurgical products are available on terms no less favorable than the terms of our existing supply agreements in
+the event that our current suppliers would be unable or unwilling to continue manufacturing these products. 
+Our AUTO-LYTE ® and MICRO-PLATE assays are manufactured in our Bethlehem, Pennsylvania facility. These tests require the production of highly specific and
+sensitive antibodies corresponding to the antigen of interest. Substantially all our antibody requirements are provided by contract suppliers. We believe that we have adequate reserves of antibody supplies and that we have access to sufficient raw
+materials for these products. 
+The Q.E.D. ® saliva alcohol test is manufactured and packaged for shipment in our Bethlehem, Pennsylvania facility. 
+Employees 
+As of December 31, 2007, we had 282 full-time employees, including 70 in sales, marketing and client services; 24 in research and
+development; 134 in operations, manufacturing, quality control, information systems, purchasing and shipping; 28 in regulatory affairs; and 26 in administration and finance. This compares to 250 employees as of December 31, 2006. Our employees
+are not currently represented by a collective bargaining agreement. 
+Competition 
+The diagnostic industry is a multi-billion dollar international industry and is intensely competitive. Many of our competitors are substantially larger
+than we are, and they have greater financial, research, manufacturing and marketing resources. 
+12 
+Table of Contents 
+Important competitive factors for our products include product quality, performance, price, ease of use,
+customer service and reputation. Industry competition is based on the following: 
+• 
+Scientific and technological capability; 
+• 
+Proprietary know-how; 
+• 
+The ability to develop and market products and processes; 
+• 
+The ability to obtain FDA or other regulatory approvals; 
+• 
+The ability to manufacture products that meet applicable FDA requirements (i.e., good manufacturing practices); 
+• 
+Access to adequate capital; 
+• 
+The ability to attract and retain qualified personnel; and 
+• 
+The availability of patent protection. 
+A few large corporations produce a wide variety of diagnostic tests and other medical devices and equipment. A larger number of mid-size companies generally compete only in the diagnostic industry and a significant number of small companies
+produce only a few diagnostic products. As a result, the diagnostic test industry is highly fragmented and segmented. 
+The future market
+for diagnostic tests is expected to be characterized by consolidation, greater cost consciousness and tighter reimbursement policies. The purchasers of diagnostic products are expected to place increased emphasis on lowering costs, reducing
+inventory levels, automation, service and volume discounts. The increased complexity of the market is expected to force many competitors to enter into joint ventures or license certain products or technologies. 
+We expect competition to intensify as technological advances are made and become more widely known, and as new products reach the market. Furthermore,
+new testing methodologies could be developed in the future that render our products impractical, uneconomical or obsolete. There can be no assurance that our competitors will not succeed in developing or marketing technologies and products that are
+more effective than those we develop or that would render our technologies and products obsolete or otherwise commercially unattractive. In addition, there can be no assurance that our competitors will not succeed in obtaining regulatory approval
+for these products, or introduce or commercialize them before we can do so. These developments could have a material adverse effect on our business, financial condition and results of operations. 
+Several companies market or have announced plans to market oral specimen collection devices and
+tests both within and outside the United States. We expect the number of devices competing with our Intercept ® , OraQuick ® and
+OraSure ® devices to increase as the benefits of oral specimen-based testing become more widely accepted. 
+Competition in the market for HIV testing is intense and is expected to increase. We believe that the principal competition will come from existing laboratory-based blood tests, point-of-care rapid blood tests,
+laboratory-based urine assays or other oral fluid-based tests that may be developed. Our competitors include specialized biotechnology firms, as well as pharmaceutical companies with biotechnology divisions and medical diagnostic companies.
+Significant competitors for our OraQuick ADVANCE ® rapid test, such as the Ortho Diagnostics division of Johnson & Johnson, Bio-Rad Laboratories and Abbott, sell laboratory-based HIV-1/2 EIAs, and Maxim Biomedical (formerly Calypte, Inc.) sells an HIV-1
+screening test for urine, in the United States. MedMira and Trinity Biotech each sell competing rapid HIV-1 blood tests, and Bio-Rad Laboratories and Inverness Medical/Chembio sell competing rapid HIV-1/2 blood tests in the United States. These
+tests compete with our OraQuick ADVANCE ® test in hospitals or other laboratory settings. In addition, Trinity Biotech and Inverness Medical/Chembio have received CLIA waivers for
+their rapid HIV tests, and these tests compete with our OraQuick ADVANCE ® test in the markets outside of the traditional hospital and laboratory settings. These companies, or 
+13 
+Table of Contents 
+others, may continue to expand the bodily fluids with which a rapid HIV test may be performed, or develop and commercialize new rapid HIV tests, which would
+provide further competition for our OraQuick ADVANCE ® test. We believe other companies may also seek FDA approval to sell competing rapid HIV tests in the future. 
+Internationally, our OraQuick ADVANCE ® 
+test competes against rapid HIV tests sold by a number of other entities, and often these competing tests are sold at prices substantially below the prices we charge for our OraQuick ADVANCE ® test. Inverness Medical sells a rapid HIV-1/2 blood test outside the United States and Calypte has developed a rapid oral fluid HIV test which is now being sold in certain foreign countries. 
+The Intercept ® drug testing system
+competes with laboratory-based drug testing products and services using testing matrices such as urine, hair, sweat and oral fluid. Major competitors include Ansys Technologies, Inc., Dade Behring, Psychemedics and Immunalysis. 
+Our MICRO-PLATE oral fluid drug assays, which are sold for use with the Intercept ® and OraSure ® collection devices, are expected to come under increasing competitive pressure from “home-brew” assays
+developed internally by our laboratory customers. Our oral fluid MICRO-PLATE assays also compete with urine-based homogeneous assays that are run on fully-automated, random access analyzers. These tests provide strong competitive pressure because
+they provide the benefits of automation, including lower costs and short turn-around times. In addition, we believe our competitors are developing oral fluid tests suitable for use on these fully automated homogeneous assay systems and these assays,
+if and when they are developed and commercialized, will represent a significant competitive threat to our oral fluid MICRO-PLATE business. In order to meet this competition, we are developing fully-automated homogeneous oral fluid drugs of abuse
+assays with Roche Diagnostics for use with our Intercept ® device. 
+Our
+MICRO-PLATE drugs-of-abuse reagents sold in the forensic toxicology market are targeted to forensic testing laboratories where sensitivity, automation and “system solutions” are important. In the past, these laboratories have typically had
+to rely on radioimmunoassay test methods to provide an adequate level of sensitivity. Radioimmunoassays require radioactive materials, which have a short shelf-life and disposal problems. Our MICRO-PLATE tests meet the laboratories’ sensitivity
+needs, run on automated equipment, are not radioimmunoassays, and are offered to the laboratory as a complete system solution of reagents, instrumentation and software to meet the specific needs of each customer. We compete with both homogeneous and
+heterogeneous tests manufactured by many companies. Significant competitors in the market for these assays include Microgenics, Inc., Roche Diagnostics and Immunalysis. 
+Sales of our AUTO-LYTE ® urine assays
+have declined substantially during the past several years, primarily due to competition from “home-brew” assays developed internally by our laboratory customers, which can be produced at a cost lower than the price typically paid for our
+products. Many of our customers no longer purchase our AUTO-LYTE ® assays, and we eventually expect to stop selling this product line. 
+The Histofreezer ® product’s
+delivery system and operating temperature, which is warmer than liquid nitrogen, provide us with the opportunity to target sales to primary care physicians, such as family practitioners, pediatricians and podiatrists. We do not generally target
+sales to dermatologists because they have the volume of patients required to support the capital costs associated with a liquid nitrogen delivery system, which is also used to remove warts and other benign skin lesions. Major competitors for the
+Histofreezer ® product include Cryosurgery, Inc. in the United States and Wartner in Europe. 
+Competition in the United States and Canada OTC markets comes primarily from cryosurgical products
+sold by Prestige under the Compound W ® and Wartner ® tradenames and by Schering-Plough under the Dr. Scholl’s ® brand. Salicylic acid wart removal products also compete against our OTC cryosurgical product. Internationally, our OTC products compete against a cryosurgical product sold by Wartner ® . 
+Q.E.D. ® has two direct competitors, Ansys Technologies, Inc. and Chematics. These companies offer semi-quantitative saliva-based alcohol tests and have received DOT approval. Indirect competitors who
+offer breath 
+14 
+Table of Contents 
+testing equipment include Intoximeters, Dräger and CMI. Although there are lower priced tests on the market that use oral fluid or breath as a test
+medium, these tests are qualitative tests that are believed to be substantially lower in quality and provide fewer benefits than our Q.E.D. ® test. 
+Patents and Proprietary Information 
+We seek patent
+and other intellectual property rights to protect and preserve our proprietary technology and our right to capitalize on the results of our research and development activities. We also rely on trade secrets, know-how, continuing technological
+innovations and licensing opportunities to provide competitive advantages for our products in our markets and to accelerate new product introductions. We regularly search for third-party patents in fields related to our business to shape our own
+patent and product commercialization strategies as effectively as possible and to identify licensing opportunities. United States patents generally have a maximum term of 20 years from the date an application is filed. 
+We have ten United States patents and numerous foreign patents for the OraSure ® and Intercept ® collection devices and technology relating to oral fluid collection, containers for oral fluids, methods to test oral
+fluid, formulations for the manufacture of synthetic oral fluid, and methods to control the volume of oral fluid collected and dispersed. The patents expire from April 2009 to March 2018. We have also applied for additional patents, in both the
+United States and certain foreign countries, on such products and technology. 
+We
+have two United States patents for our OraQuick ADVANCE ® rapid HIV-1/2 antibody test, and we have several related patent applications pending for this product in the United States
+and internationally. The patents expire from March to April 2019. We have obtained licenses to certain lateral flow patents and to certain HIV-1 and HIV-2 patents held by other parties. We also have obtained a license to certain HCV patents which we
+intend to use to manufacture and sell a rapid HCV test on the OraQuick ® or other technology platform. We obtained these licenses through the payment of certain upfront fees and an agreement
+to pay ongoing royalties. We believe these fees and royalties are comparable to those generally paid by other companies under similar arrangements. 
+We may need to obtain licenses or other rights under, or enter into distribution or other business
+arrangements in connection with, certain other intellectual property patents in order to manufacture and sell the OraQuick ADVANCE ® test or other tests that use the same or similar
+technology platform. See Section 1A, entitled “Risk Factors,” for a further discussion of these issues. 
+We have five United
+States patents and numerous foreign patents issued for apparatuses and methods for the topical removal of skin lesions relating to our cryosurgical wart removal products, and we have a pending patent application related to these products in the
+United States and in certain foreign countries. The patents expire from March 2008 to August 2013. We have also licensed another patent relating to apparatuses and methods for the topical removal of skin lesions relating to our cryosurgical wart
+removal products. 
+We have four United States patents and numerous foreign patents
+and patent applications for the technology used in the Q.E.D. ® test. These patents expire from July 2008 to August 2009. These patents are related to the analog-to-digital technology color
+control systems and methods, systems and devices for the test, and detection of biochemical molecules. 
+We require our employees,
+consultants, outside collaborators and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed by or made
+known to the individual during the course of the individual’s relationship with us, is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all
+inventions conceived by the individual during his or her tenure with us will be our exclusive property. 
+We own rights to trademarks and service marks that we believe are necessary to conduct our business as currently operated. In the United States, we own the OraSure ® 
+, Intercept ® , OraQuick ® , OraQuick ADVANCE ® , 
+15 
+Table of Contents 
+Histofreezer ® , Q.E.D. ® and
+AUTO-LYTE ® trademarks. We also own many of these marks and others in several foreign countries. With respect to our international OTC cryosurgical products, the Scholl and Dr. Scholl
+tradenames are owned by SSL in Europe, Australia, New Zealand and other countries outside North and South America, and the POINTTS tradename is owned by Genomma Labs. 
+Although important, the issuance of a patent or existence of trademark or trade secret protection does not in itself ensure the success of our business. Competitors may be able to produce products competing with our
+patented products without infringing our patent rights. Issuance of a patent in one country generally does not prevent manufacture or sale of the patented product in other countries. The issuance of a patent is not conclusive as to validity or as to
+the enforceable scope of the patent. The validity or enforceability of a patent can be challenged by litigation after its issuance. If the outcome of such litigation is adverse to the owner of the patent, the owner’s rights could be diminished
+or withdrawn. Trade secret protection does not prevent independent discovery and exploitation of the secret product or technique. 
+Government Regulation
+General 
+Most of
+our products are regulated by the FDA, certain state and local agencies and comparable regulatory bodies in other countries. This regulated environment governs almost all aspects of development, production and marketing, including product testing,
+authorizations to market, labeling, promotion, manufacturing and recordkeeping. 
+All of our FDA-regulated products require some form of
+action by the FDA before they can be marketed in the United States. After approval or clearance by the FDA, we must continue to comply with other FDA requirements applicable to marketed products. Both before and after approval or clearance, failure
+to comply with the FDA’s requirements can lead to significant penalties or could disrupt our ability to manufacture and sell these products. In addition, the FDA could refuse permission to obtain certificates needed to export our products if
+the agency determines that we are not in compliance. 
+Domestic Regulation 
+Most of our products are regulated in the United States as medical devices. 
+There are two mechanisms by which regulated medical devices can be placed on the market in the United States. Some products may qualify for clearance under Section 510(k) of the Federal Food, Drug and Cosmetic
+Act. To obtain this clearance from the FDA, the manufacturer must provide a premarket notification that it intends to begin marketing the product, and show that the product is substantially equivalent to another legally marketed product (i.e., that
+it has the same intended use and is as safe and effective as a legally marketed device and does not raise different questions of safety and effectiveness). In some cases, the submission must include data from human clinical studies. Marketing may
+commence when the FDA issues a clearance letter finding substantial equivalence. An applicant must submit a 510(k) application at least 90 days before marketing of the affected product commences. Although FDA clearance may be granted within that
+90-day period, in some cases as much as a year or more may be required before clearance is obtained, if at all. 
+If the medical device does
+not qualify for the 510(k) procedure (either because it is not substantially equivalent to a legally marketed device or because it is required by statute and the FDA’s regulations to have an approved premarket application), the FDA must approve
+a premarket application, or PMA, before marketing can begin. PMAs must demonstrate, among other matters, that the medical device provides a reasonable assurance of safety and effectiveness. A PMA is typically a complex submission, including the
+results of preclinical and clinical studies. Preparing a PMA is a detailed and time-consuming process. Once a PMA has been submitted, the FDA is required to review the submission within 180 days. However, the FDA’s review may, and often is,
+much longer, often requiring one year or more, and may include requests for additional data and facility inspections before approval is granted, if at all. 
+16 
+Table of Contents 
+Some of our products are used for non-medical purposes and many of our drugs-of-abuse products sold to
+state crime laboratories are for forensic use. The FDA does not currently regulate products used for these purposes. 
+Every company that
+manufactures medical devices distributed in the United States must comply with the FDA’s Quality System Regulations (“QSRs”). These regulations govern the manufacturing process, including design, manufacture, testing, release,
+packaging, distribution, documentation and purchasing. In complying with the QSRs, manufacturers must continue to expend time, money and effort in the area of production and quality to ensure full technical compliance. Companies are also subject to
+other post-market and general requirements, including restrictions imposed on marketed products, promotional standards and requirements for recordkeeping and reporting of certain adverse reactions. If there are any modifications made to our marketed
+devices, a premarket notification or PMA may be required to be submitted to, and cleared or approved by, the FDA, before the modified device may be marketed. The FDA regularly inspects companies to determine compliance with the QSRs and other
+post-market requirements. Failure to comply with statutory requirements and the FDA’s regulations can result in warning letters, monetary penalties, suspension or withdrawal of regulatory approvals, operating restrictions, total or partial
+suspension of production, injunctions, product recalls, seizure of products and criminal prosecution. 
+The Clinical Laboratory Improvements Amendments of 1988, or CLIA, prohibit laboratories from performing tests for the purpose of providing information for the diagnosis, prevention or treatment of any disease or
+impairment of, or the assessment of, the health of human beings, unless there is in effect for such laboratories a certificate issued by the U.S. Department of Health and Human Services applicable to the category of examination or procedure
+performed. We consider the applicability of the requirements of CLIA in the design and development of our products. We have obtained a waiver of the CLIA requirements for both our OraQuick ADVANCE ® rapid HIV-1/2 antibody test and our Q.E.D. ® alcohol saliva test and may seek similar waivers for certain other products. A CLIA waiver allows certain
+customers to use the waived products that may not have been able to use them without complying with certain quality control and other requirements. 
+Certain of our products may also be affected by state regulations in the United States. For example, there are several states that restrict or do not currently permit oral fluid drug testing in the workplace or other markets. In addition,
+several states prohibit or limit the use of rapid, point-of-care HIV testing. We are presently working with legislators or regulators in certain of these states in an effort to modify or remove any restrictions affecting our ability to sell
+products. 
+International 
+We are also subject to regulations in foreign countries governing products, human clinical trials and marketing, and may need to obtain approval from international public health agencies, such as the World Health Organization, in order to
+sell products in certain countries. Approval processes vary from country to country, and the length of time required for approval or to obtain other clearances may in some cases be longer than that required for U.S. governmental approvals. We
+generally pursue approval only in those countries that we believe have a significant market opportunity. 
+The International Organization
+for Standardization (“ISO”) is a worldwide federation of national standards bodies from some 130 countries, established in 1947. The mission of the ISO is to promote the development of standardization and related activities in the world
+with a view to facilitating the international exchange of goods and services. ISO certification is a pre-requisite to use of the CE mark and indicates that our quality system complies with standards applicable to activities ranging from initial
+product design and development through production and distribution. The CE mark is a European Union (“EU”) requirement to sell products that fall under the scope of the Medical Devices Directive (“MDD”) and the In Vitro
+Diagnostic Directive (“IVDD”). The CE mark is evidence that the manufacturer and the product meet the requirements of all applicable directives, including the MDD and IVDD. 
+17 
+Table of Contents 
+We received authorization to use the CE mark for
+the OraQuick ADVANCE ® rapid HIV-1/2 test, the OraSure ® and Intercept ® 
+collection devices and our Histofreezer ® product line, and SSL International has obtained authorization to use the CE mark for our cryosurgical wart removal product in the OTC
+European footcare market. 
+We must also comply with certain registration requirements as dictated by Health Canada, prior to commencing
+sales in Canada. We have completed this process for several of our current products and may do so with respect to other products in the future. In addition, Canadian law requires manufacturers of medical devices to have a quality management system
+that meets various ISO requirements in order to obtain a license to sell their devices in Canada. 
+Anti-Kickback Laws 
+The Federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation, or receipt of any form of remuneration in return for, or
+to induce: 
+• 
+The referral of a person; 
+• 
+The furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental programs; or
+• 
+The purchase, lease, or order of, or the arrangement or recommendation of the purchasing, leasing, or ordering of any item or service reimbursable under Medicare,
+Medicaid, or other governmental programs. 
+Our products are or may be purchased by customers that will seek or receive
+reimbursement under Medicare, Medicaid or other governmental programs. Noncompliance with the federal anti-kickback legislation can result in exclusion from Medicare, Medicaid or other governmental programs, and/or restrictions on our ability to
+operate in certain jurisdictions, as well as civil and criminal penalties, any of which could have an adverse effect on our business and results of operations. 
+The Federal Civil Monetary Penalties Law prohibits the offering or transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s
+selection of a particular supplier of Medicare or Medicaid payable items or services. Noncompliance can result in civil money penalties of up to $10,000 for each wrongful act, assessment of three times the amount claimed for each item or service and
+exclusion from the Federal healthcare programs. 
+Many states have also adopted some form of anti-kickback laws. A determination of
+liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions. 
+Foreign Corrupt Practices Act 
+The U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits corporations and
+individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government
+official, government staff member, political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. Our present and future business has and will continue to be
+subject to the FCPA and various other laws, rules and/or regulations applicable to us as a result of our international sales. 
+Environmental Regulation 
+Because of the nature of our current and proposed research, development, and manufacturing
+processes, we are subject to stringent federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge and handling and disposal of materials and wastes.
+18 
+Table of Contents 
+The foregoing discussion of our business should be read in conjunction with the Financial Statements and
+accompanying notes included in Item 15 of this Annual Report.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2007/0001193125-08-054266/item13.txt b/raw/filings/0001116463/2007/0001193125-08-054266/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5256ad376011cdef99ffc83b0670667df5b85bfe
--- /dev/null
+++ b/raw/filings/0001116463/2007/0001193125-08-054266/item13.txt
@@ -0,0 +1,2 @@
+ITEM 13. Certain Relationships and Related Transactions, and Director Independence. 
+The information required by this Item is incorporated by reference to the information under the captions, “Transactions with Related Persons” and “Corporate Governance—Director Independence,” in the Proxy Statement.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2007/0001193125-08-054266/item9a.txt b/raw/filings/0001116463/2007/0001193125-08-054266/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a8c65dea14b722555d04292e39ae842255241f45
--- /dev/null
+++ b/raw/filings/0001116463/2007/0001193125-08-054266/item9a.txt
@@ -0,0 +1,60 @@
+ITEM 9A. Controls and Procedures. 
+(a) Evaluation of Disclosure Controls and
+Procedures. 
+The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial
+Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of December 31, 2007. Based on that evaluation, the
+Company’s management, including such officers, concluded that the Company’s disclosure controls and procedures are adequate and effective to ensure that information required to be disclosed by the Company in the reports that we file or
+submit under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and is
+recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. 
+(b) Management’s Report on Internal Control Over Financial Reporting. 
+The Company’s management is responsible for
+establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of the Company’s
+management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated
+Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework, our management concluded that our internal control over financial reporting was effective to provide
+reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles as of December 31, 2007. 
+The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by KPMG LLP, an independent registered
+public accounting firm, as stated in their report, which is included below. 
+Because of its inherent limitations, internal control over
+financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
+compliance with the policies or procedures may deteriorate. 
+56 
+Table of Contents 
+(c) Changes in Internal Control Over Financial Reporting. 
+During 2006, the Company purchased and installed a new Enterprise Resource Planning System (“ERP”), which became fully operational on
+January 1, 2007. An ERP is a fully-automated set of programs and databases that incorporate order processing, production planning and scheduling, purchasing, accounts receivable and inventory management and accounting. During the three months
+ended December 31, 2007, the Company updated certain of its internal controls over financial reporting to reflect changes to its business processes resulting from the ERP implementation. The Company is continuing to evaluate the impact of the
+ERP on certain of its internal controls and expects the ERP to further improve its control environment by automating manual functions and standardizing the Company’s business processes. Except as described above, there was no change in the
+Company’s internal control over financial reporting during the three months ended December 31, 2007 that was identified in connection with the evaluation referred to in paragraph (b) above that has materially affected, or is
+reasonably likely to materially affect, the Company’s internal control over financial reporting. 
+(d) Report of Independent
+Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+OraSure Technologies, Inc.: 
+We have audited OraSure Technologies, Inc.’s internal control over
+financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). OraSure Technologies,
+Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
+on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 
+We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
+plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
+reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
+considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 
+A company’s
+internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
+accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
+and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
+receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
+acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 
+Because of
+its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
+of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+In our opinion, OraSure
+Technologies, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
+Sponsoring Organizations of the Treadway Commission (COSO). 
+57 
+Table of Contents 
+We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
+(United States), the balance sheets of OraSure Technologies, Inc. as of December 31, 2007 and 2006, and the related statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the
+three-year period ended December 31, 2007, and our report dated March 11, 2008 expressed an unqualified opinion on those financial statements. 
+/s/ KPMG LLP 
+Philadelphia, Pennsylvania 
+March 11, 2008
\ No newline at end of file
diff --git a/raw/filings/0001116463/2007/0001193125-08-054266/rp_note.txt b/raw/filings/0001116463/2007/0001193125-08-054266/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001116463/2007/0001193125-08-054266/rpt_disclosure.txt b/raw/filings/0001116463/2007/0001193125-08-054266/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fb1ac2d9d68ef460d04316aef2a62b8a9f3c2d21
--- /dev/null
+++ b/raw/filings/0001116463/2007/0001193125-08-054266/rpt_disclosure.txt
@@ -0,0 +1,7 @@
+Transactions With Related Persons 
+Since January 1, 2007, there have been no transactions with related persons which would require disclosure in this Proxy Statement. The Audit Committee is required to review and approve in advance all
+transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the transaction is on terms comparable to those that could be obtained in arms’ length dealings with an unrelated third
+party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. These responsibilities are described in the Audit Committee’s charter, a copy of which is available on our website at
+www.orasure.com . 
+Information regarding employment and severance agreements between our executive officers and the Company is set
+forth in the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2012/0001193125-13-105190/filing.txt b/raw/filings/0001116463/2012/0001193125-13-105190/filing.txt
new file mode 100644
index 0000000000000000000000000000000000000000..84e2fdf8ac7b0bbd4d328d82788fed30f63f6e0d
--- /dev/null
+++ b/raw/filings/0001116463/2012/0001193125-13-105190/filing.txt
@@ -0,0 +1,5363 @@
+10-K
+1
+d444996d10k.htm
+FORM 10-K
+Form 10-K 
+Table of Contents 
+UNITED STATES 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 20549
+FORM 10-K 
+ANNUAL REPORT PURSUANT 
+TO SECTION 13 OR 15(d) OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+(Mark One) 
+x 
+ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the fiscal year ended December 31, 2012 
+OR 
+¨ 
+TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
+For the transition period from
+to 
+Commission File No. 001-16537 
+ORASURE TECHNOLOGIES, INC. 
+(Exact Name of Registrant as Specified in Its
+Charter) 
+Delaware 
+36-4370966 
+(State or Other Jurisdiction of 
+Incorporation or Organization) 
+(I.R.S. Employer Identification No.) 
+220 East First Street 
+Bethlehem, Pennsylvania 
+18015 
+(Address of Principal Executive Offices) 
+(Zip Code) 
+(610) 882-1820 
+(Registrant’s Telephone Number, Including Area Code) 
+Securities
+registered pursuant to Section 12(b) of the Act: 
+Title of Each Class 
+Name of Each Exchange on Which Registered 
+Common Stock $0.000001 par value per share 
+The NASDAQ Stock Market LLC 
+Securities registered pursuant to Section 12(g) of the Act: None 
+Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x 
+Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
+Act. Yes ¨ No x 
+Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
+such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ 
+Indicate by check mark whether the Registrant has submitted electronically and
+posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the Registrant was
+required to submit and post such files). Yes x No ¨ 
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in
+definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨ 
+Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
+reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
+Large accelerated filer ¨ 
+Accelerated filer x 
+Non-accelerated filer ¨ 
+Smaller reporting company ¨ 
+(Do not check if a smaller reporting company) 
+Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
+Act). Yes ¨ No x 
+State the aggregate market value of the voting and non-voting common equity held by nonaffiliates, computed by reference to the price at which the common equity was last sold, or the average bid and asked
+price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter (June 30, 2012): $535,010,265 
+Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of March 11, 2013: 55,518,043 shares. 
+Documents Incorporated by Reference: 
+Portions of the Registrant’s Definitive Proxy Statement for the 2013 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report. 
+Table of Contents 
+Table of Contents 
+Page 
+PART I 
+ITEM 1. 
+Business 
+1 
+ITEM 1A. 
+Risk Factors 
+21 
+ITEM 1B. 
+Unresolved Staff Comments 
+44 
+ITEM 2. 
+Properties 
+44 
+ITEM 3. 
+Legal Proceedings 
+44 
+ITEM 4. 
+Mine Safety Disclosures 
+44 
+PART II 
+ITEM 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
+Securities 
+45 
+ITEM 6. 
+Selected Consolidated Financial Data 
+47 
+ITEM 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations 
+48 
+ITEM 7A. 
+Quantitative and Qualitative Disclosures About Market Risk 
+64 
+ITEM 8. 
+Consolidated Financial Statements and Supplementary Data 
+65 
+ITEM 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
+65 
+ITEM 9A. 
+Controls and Procedures 
+65 
+ITEM 9B. 
+Other Information 
+67 
+PART III 
+ITEM 10. 
+Directors, Executive Officers and Corporate Governance 
+68 
+ITEM 11. 
+Executive Compensation 
+68 
+ITEM 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
+Matters 
+68 
+ITEM 13. 
+Certain Relationships and Related Transactions, and Director Independence 
+68 
+ITEM 14. 
+Principal Accountant Fees and Services 
+68 
+PART IV 
+ITEM 15. 
+Exhibits and Consolidated Financial Statement Schedules 
+69 
+Table of Contents 
+This Report contains certain “forward-looking statements,” within the meaning
+of the Federal securities laws. These may include statements about our expected revenues, earnings, expenses or other financial performance, future product performance or development, expected regulatory filings and approvals, planned business
+transactions, expected manufacturing performance, views of future industry, competitive or market conditions, and other factors that could affect our future operations, results of operations or financial position. These statements often include
+words, such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “may,” “will,” “should,” “could,” or similar expressions.
+Forward-looking statements are not guarantees of future performance or results. Known and unknown factors could cause
+actual performance or results to be materially different from those expressed or implied in these statements. Factors that could affect our results are discussed more fully under Item 1A., entitled “Risk Factors,” and elsewhere in
+this Annual Report. Although forward-looking statements help to provide complete information about us, readers should keep in mind that forward-looking statements may not be reliable. Readers are cautioned not to place undue reliance on the
+forward-looking statements. The forward-looking statements are made as of the date of this Annual Report and we undertake no duty to update these statements. 
+References in this Annual Report to “OraSure” mean OraSure Technologies, Inc. References in this Annual Report to “we,” “us,” “our,” or the “Company”
+mean OraSure and its consolidated subsidiaries, unless otherwise indicated. 
+PART I
+ITEM 1. 
+Business. 
+Our business
+principally involves the development, manufacture, marketing and sale of oral fluid diagnostic products and specimen collection devices using our proprietary oral fluid technologies, as well as other diagnostic products including immunoassays and
+other in vitro diagnostic tests that are used on other specimen types. We also manufacture and sell medical devices used for the removal of benign skin lesions by cryosurgery or freezing. Our diagnostic products include tests that are
+performed on a rapid basis at the point of care and tests that are processed in a laboratory. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and
+other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. One of our diagnostic products is sold in the over-the-counter (“OTC”) or consumer retail markets in
+the United States and we sell a cryosurgical product to consumers in North America, Europe, Central and South America, and Australia. 
+In vitro diagnostic testing is the process of analyzing oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific substances or markers. We have targeted the use of
+oral fluid in our products as a differentiating factor and believe that it provides a significant competitive advantage over blood and urine. Our oral fluid tests have sensitivity and specificity comparable to blood and/or urine tests. When combined
+with their ease of use, non-invasive nature, and cost effectiveness, our oral fluid tests represent a very competitive alternative to the more traditional testing methods in the diagnostic space. 
+Through our subsidiary, DNA Genotek Inc. (“DNAG”), a company based in Ottawa, Canada, we also manufacture
+and sell kits that are used to collect, stabilize, and store samples of genetic material for molecular testing in the academic research, clinical genetic testing, pharmacogenomics, personalized medicine, animal and livestock genetics markets. Our
+OraGene ® DNA sample collection kit provides an all-in-one system for the collection, stabilization and
+transportation of DNA from human saliva. We serve customers in several countries worldwide, including many leading research universities and hospitals. 
+On July 3, 2012, the U.S. Food and Drug Administration (“FDA”) issued a pre-market approval (“PMA”) for our OraQuick ® In-Home HIV Test for sale directly to consumers in the OTC market, making it the first and only rapid OTC HIV test approved in the U.S. The OraQuick ® In-Home HIV Test can detect antibodies to both 
+1 
+Table of Contents 
+HIV-1 and HIV-2 with an oral swab, providing a confidential in-home testing option with results in as little as 20 minutes. This test was approved following extensive clinical trials conducted
+during the past several years. In September 2012, we began selling this product to consumers. 
+OraSure was formed in May 2000
+under Delaware law solely for the purposes of combining two companies, STC Technologies, Inc. (“STC Technologies”) and Epitope, Inc. (“Epitope”), and changing the state of incorporation of Epitope from Oregon to Delaware. STC
+Technologies and Epitope were merged into OraSure on September 29, 2000. Our principal offices are located at 220 East First Street, Bethlehem, Pennsylvania 18015, and our telephone number is (610) 882-1820. 
+Additional information about us can be found on our website, www.orasure.com. We make available free of charge through a link provided at
+such website our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and our other filings with the Securities and Exchange Commission (“SEC”), as well as any amendments to those Reports and
+filings. These Reports and filings are made available as soon as reasonably practicable after they are filed or furnished to the SEC. Our Internet website and the information contained in or connected to that website are not intended to be
+incorporated by reference into this Annual Report. 
+Products 
+The following is a summary of our principal products and their regulatory and commercial status: 
+Product 
+Description 
+Regulatory Status 
+Commercial Status 
+OraQuick 
+ADVANCE ® HIV-1/2 
+A rapid, point-of-care 
+qualitative test for antibodies to the Human Immunodeficiency Virus Type 1 (“HIV-1”) and Type 2 (“HIV-2” and together with HIV-1,
+“HIV-1/2”) that can be visually read in approximately 20 minutes. 
+PMA approved by the FDA for use with oral fluid, finger-stick and venous whole blood, and plasma. 
+CLIA (Clinical Laboratory Improvement Amendments of 1988) waived for use with oral
+fluid, finger-stick and venous whole blood. 
+CE mark (European Union)
+approved for use with oral fluid, finger-stick and venous whole blood, serum and plasma. Also registered in various other countries. 
+Marketed 
+Marketed 
+Marketed 
+OraQuick ® In-Home HIV Test 
+A rapid, point-of-care qualitative oral fluid HIV-1/2 test for OTC use that can be visually read in approximately 20 minutes. 
+PMA approved for OTC use. 
+Marketed 
+OraQuick ® HCV 
+A rapid, point-of-care qualitative test for antibodies to the hepatitis C virus (“HCV”) that can be visually read in approximately 20 minutes. 
+PMA approved and CLIA waived for use with venous whole blood and finger-stick whole blood specimens. 
+CE mark (European Union) approved for use with oral fluid, finger-stick and venous
+whole blood, serum and plasma. Also registered in various other countries. 
+Marketed 
+Marketed 
+2 
+Table of Contents 
+Product 
+Description 
+Regulatory Status 
+Commercial Status 
+OraSure
+QuickFlu ™ 
+Rapid Flu 
+A&B Test 
+A rapid, point-of-care qualitative test for antibodies to influenza (flu) Types A and B, including H1N1 infections, with results available in 10 minutes. 
+FDA 510(k) cleared for use with nasal swab, nasopharyngeal swab and nasal aspirate/wash. 
+Marketed 
+OraSure ® 
+Oral fluid collection device for the detection of antibodies to HIV-1 and for detection of cocaine and cotinine in an oral fluid sample in a laboratory setting. 
+PMA approved by FDA for use in detecting antibodies to HIV-1. 
+FDA 510(k) cleared for use in detecting cocaine and cotinine (an indicator of
+nicotine) in oral fluid. 
+CE marked and registered in various
+countries. 
+Marketed 
+Marketed 
+Marketed 
+Oragene ® ·DX 
+Non-invasive all-in-one system for the collection, stabilization, transportation and storage of human DNA from saliva. 
+FDA 510(k) cleared for in vitro diagnostic use with FDA-cleared molecular tests. 
+Marketed 
+Oragene ® ·DNA 
+Non-invasive all-in-one system for the collection, stabilization, transportation, and storage of human DNA from saliva. 
+CE mark and registered as Class 1 Medical Device in Canada. 
+Registered in various other countries. 
+Marketed 
+Oragene ® ·DISCOVER 
+Non-invasive all-in-one system for the collection, stabilization, transportation, and storage of human DNA from saliva. 
+Research use only product. 
+Marketed 
+Oragene ® ·RNA 
+Non-invasive all-in-one system for the collection, stabilization and transportation of RNA from human saliva. 
+Research use only product. 
+Marketed 
+ORAcollect ™ 
+All-in-one system for the collection, stabilization, transportation, and storage of human DNA from saliva. 
+CE marked and registered as Class 1 Medical Device in the U.S. and Canada. 
+Registered in various other countries. 
+Marketed 
+OMNIgene ™ ·DISCOVER 
+Non-invasive all-in-one system for the collection, stabilization, transportation, and storage of microbial DNA from saliva. 
+Research use only product. 
+Marketed 
+Performagene ™ ·
+LIVESTOCK and 
+Oragene ® ·ANIMAL 
+All-in-one systems for the collection, stabilization, transportation, and storage of livestock DNA from nasal samples. 
+Animal research use only 
+Marketed 
+3 
+Table of Contents 
+Product 
+Description 
+Regulatory Status 
+Commercial Status 
+Intercept ® 
+Oral fluid collection device for oral fluid drugs of abuse (“DOA”) testing in a laboratory setting. 
+FDA 510(k) cleared for use with MICRO-PLATE DOA assays. 
+CE marked and registered in certain countries. 
+Marketed 
+Marketed 
+MICRO-PLATE DOA Assays 
+Used to detect the following drugs in an oral fluid sample collected with Intercept ® device: tetrahydrocannabinol (“THC” or marijuana), cocaine, opiates, amphetamines, methamphetamines, phencyclidine (“PCP”), benzodiazepines,
+barbiturates and methadone. 
+Nine drug assays—FDA 510(k) cleared. 
+Assays CE marked and registered in certain countries. 
+Marketed 
+Marketed 
+Homogeneous DOA 
+Assays 
+Homogeneous fully-automated oral fluid DOA assays jointly developed with Roche Diagnostics for use on oral fluid samples collected with Intercept ® device. 
+FDA 510(k) cleared for use of PCP, opiates, cocaine, methamphetamines and amphetamines assays with Intercept ® collection device. 
+Marketed 
+Cryosurgical Systems—Professional 
+Cryosurgical (freezing) system for the removal of warts and other benign skin lesions, marketed under the Histofreezer ® tradename primarily to the physicians’ office market. 
+Nine indications—FDA 510(k) cleared. 
+CE marked and registered in certain countries. 
+Marketed 
+Marketed 
+Cryosurgical Systems—OTC 
+Cryosurgical system for the removal of common and plantar warts, sold in various OTC markets. 
+FDA 510(k) cleared for common and plantar warts. 
+Registered in Canada for warts and skin tags. 
+CE marked and registered for warts in certain countries under Scholl Freeze Spray ® and POINTTS ® 
+names. 
+CE marked for skin tags. 
+Not Marketed 
+Marketed 
+Marketed 
+Not Marketed 
+In addition to the above products, we also sell certain immunoassay tests and
+reagents for insurance risk assessment, substance abuse testing and forensic toxicology applications; an oral fluid Western blot HIV-1 confirmatory test for confirming positive HIV-1 test results obtained from the use of our OraSure ® collection device; and the FDA 510(k) cleared Q.E.D. ® rapid point-of-care saliva alcohol test. 
+OraQuick ® Rapid HIV Test 
+OraQuick ® is our rapid point-of-care test platform designed to test oral fluid, whole blood (i.e., both finger-stick and venous), plasma and serum samples for the presence of
+various antibodies or analytes. The device uses a porous flat pad to collect an oral fluid specimen. After collection, the pad is inserted into a vial containing a pre-measured amount of developer solution and allowed to develop. When blood, plasma
+or serum is to be tested, a loop collection device is used to collect a drop of the specimen and mix it in the developer solution, after which the collection pad is inserted into the solution and allowed to develop. In all cases, the specimen and
+developer 
+4 
+Table of Contents 
+solution then flow through the testing device where test results are observable in approximately 20 minutes. The OraQuick ® device is a screening test and generally requires a confirmation test where an initial positive result is obtained. 
+This product is sold under the OraQuick ADVANCE ® name in North America, Europe and certain other countries and under the OraQuick ® name in other developing countries. The test has received PMA approval from the FDA for the detection of antibodies to both HIV-1 and HIV-2 in oral fluid,
+finger-stick whole blood, venous whole blood and plasma. This test is available for use by laboratories located in the United States certified under the Clinical Laboratory Improvements Amendment of 1988, or CLIA, to perform moderately complex
+tests. We have also received a CLIA waiver for use of the test with oral fluid and finger-stick and venous whole blood. As a result, the test can be used by numerous additional sites in the United States not certified under CLIA to perform
+moderately complex tests, such as outreach clinics, community-based organizations and physicians’ offices. 
+On the international front, we have obtained a CE mark for our OraQuick
+ADVANCE ® test so that we can sell this product in Europe and other countries accepting the CE mark for
+commercialization and this product is registered in other countries. We have distributors in place for several countries and are seeking to increase awareness and expand our distribution network for this product throughout the world. 
+We believe that the OraQuick ADVANCE ® device, because it is approved for detecting antibodies to both HIV-1 and HIV-2 in finger-stick and venous whole blood, oral fluid and plasma samples, provides a
+significant competitive advantage in the market for rapid HIV testing in the United States and elsewhere. 
+OraQuick ® In-Home HIV Test 
+The OraQuick ® In-Home HIV Test is an over-the-counter version of our OraQuick ADVANCE ® HIV 1/2 Antibody Test and is OraSure’s newest product. We have received FDA approval to sell this test in the U.S. OTC market on July 3, 2012. The In-Home Test
+is performed in the same manner as the OraQuick ADVANCE ® test, except that it has product labeling and
+instructions designed for consumers. In addition, we have established a toll free, 24/7, 365-day per year customer call center to provide additional information and referral support for consumers. 
+OraQuick ® HCV Rapid Antibody Test 
+Another test available on the OraQuick ® platform is the OraQuick ® HCV rapid antibody test. Like the OraQuick ® HIV test, this product is a qualitative test that can detect antibodies to the Hepatitis C virus, or HCV, in a variety of sample types. The OraQuick ® HCV test operates in substantially the same manner as the
+OraQuick ® HIV test. 
+We have received FDA approval for use of the test in detecting HCV antibodies in venous whole blood and finger-stick
+whole blood specimens, making it the first rapid HCV test approved by the FDA for use in the United States. We have also received a CLIA waiver for use of this product in the same specimen types. Our clinical program for approval of an oral fluid
+claim for this product is on hold pending further discussions with the FDA. The OraQuick ® HCV test has received
+a CE mark for use with oral fluid, venous whole blood, finger-stick whole blood, plasma and serum and is sold in Europe and other foreign countries. 
+OraSure QuickFlu ™ Rapid Flu A&B Test 
+The OraSure QuickFlu ™ rapid flu A&B test is an FDA 510(k) cleared rapid qualitative test for the detection of influenza (flu) Types A and B, including H1N1 viral infections. The test
+utilizes specimen collected with a nasal swab, nasopharyngeal swab or nasal aspirate/wash. A reagent is first inserted into a test cartridge, the specimen is added and the test is allowed to flow. Results are available in as little as ten minutes.
+This product is manufactured for us under an agreement with Princeton BioMeditech Corporation and is currently for sale in certain U.S. markets. 
+5 
+Table of Contents 
+OraSure ® Collection Device 
+Our OraSure ® oral fluid collection device is used in conjunction with screening and confirmatory tests for HIV-1 antibodies and other analytes. This device consists of a small,
+treated cotton-fiber pad on a handle that is placed in a person’s mouth for two to five minutes. The device collects oral mucosal transudate (“OMT”), a serum-derived fluid that contains higher concentrations of certain antibodies and
+analytes than saliva. As a result, OMT testing is a highly accurate method for detecting HIV-1 infection and other analytes. 
+The OraSure ® collection device is FDA approved for use in the
+detection of HIV-1 antibodies and 510(k) cleared for the detection of cocaine and cotinine in oral fluid specimens. In addition, we have received a CE mark for the OraSure ® device and our cocaine and cotinine assays, all of which are sold through distributors in Canada, the United Kingdom, Mexico and certain other foreign countries.
+HIV-1 antibody detection using the OraSure ® collection device involves three steps: 
+• 
+Collection of an oral fluid specimen using the OraSure ® device; 
+• 
+Screening of the specimen for HIV-1 antibodies at a laboratory with an enzyme immunoassay (“EIA”) screening test approved by the FDA for use
+with the OraSure ® device; and 
+• 
+Laboratory confirmation of any positive screening test results with our oral fluid Western blot HIV-1 confirmatory test (described below).
+A trained health care professional then conveys test results and provides appropriate counseling to the
+individual who was tested. 
+We believe that oral fluid testing has several significant advantages over blood or urine-based
+systems for infectious disease testing, for both health care professionals and the individuals being tested. These advantages include eliminating the risk of needle-stick accidents, providing a non-invasive collection technique, requiring minimal
+training to administer, providing rapid and efficient collection in almost any setting, and reducing the cost of administration by a trained health care professional. 
+Molecular Collection Systems 
+Our wholly-owned
+subsidiary, DNAG, sells a number of products that provide all-in-one systems for the collection, stabilization, transportation, and storage of DNA and/or RNA from human and animal biologic samples. DNAG’s lead product is sold under the Oragene ® name and is used to collect DNA from human saliva. DNAG products are currently sold to thousands of academic and
+research customers in many countries worldwide. 
+DNAG products are available in several different
+configurations and contain proprietary chemical solutions that are optimized for the specific application each product is designed for. Product physical design is focused on providing easy-to-use and reliable products for self or assisted collection
+of samples. For example, several of the Oragene ® products require users to simply hold the product close to
+their mouth and spit into the collection device. When the container is closed, the reagents stored in the lid of the container are mixed with the captured saliva and immediately protect the nucleic acids in the sample. This non-invasive collection
+method yields nucleic acid that remains stable at ambient temperature for extended periods. The stabilizing technology results in high quality and high quantity nucleic acids that are required for most genetic testing and analysis methods.
+We believe these products provide significant advantages over competing DNA and RNA collection methods such as blood
+collection or buccal swabs, particularly in human genetic applications. Benefits include the reliable collection of high quality genetic samples, use of simple non-invasive collection methods, the ability to store and transport collected samples for
+extended periods at ambient temperatures and compatibility with fully-automated laboratory testing systems. 
+6 
+Table of Contents 
+DNAG products historically have been sold primarily as Class I medical
+devices for use by research and academic institutions. DNAG has received FDA 510(k) clearance for the Oragene ® — Dx product and began marketing this product to clinical diagnostics and personalized medicine customers in the U.S. during the first quarter of 2012. This clearance will enable the Oragene ® — Dx product to be used with other FDA-cleared molecular diagnostic
+applications. 
+Intercept ® Drug Testing System 
+A collection device that is substantially similar to the OraSure ® device is sold by us under the name
+Intercept ® , and is used to collect OMT for oral fluid drug testing. We have received FDA 510(k) clearance to use
+the Intercept ® collection device with laboratory-based EIAs to test for drugs of abuse commonly identified by
+the National Institute for Drug Abuse (“NIDA”) as the NIDA-5 (i.e., tetrahydrocannabinol (“THC” or marijuana), cocaine, opiates, amphetamines/methamphetamines and phencyclidine (“PCP”)), and for barbiturates, methadone
+and benzodiazepines. Each of these EIAs is also FDA 510(k) cleared for use with the Intercept ® device. Our
+Intercept ® device and oral fluid assays are sold in the U.S. primarily through laboratory distributors.
+We have received a CE mark for the Intercept ® device and our oral fluid assays and distribute these products in Canada, the United Kingdom and Mexico. 
+We believe that the Intercept ® device has several advantages over competing urine and other drugs-of-abuse testing products, including its lower total testing cost, its non-invasive nature,
+mobility and accuracy, the ease of maintaining a chain-of-custody, the treatment of test subjects with greater dignity, no requirement for specially-prepared collection facilities and difficulty of sample adulteration. The availability of an oral
+fluid test is intended to allow our customers to test for drug impairment and eliminate scheduling costs and inconvenience, thereby streamlining the testing process. 
+In an effort to expand our Intercept ® product line and meet the needs of our laboratory customers, we jointly developed with Roche Diagnostics a series of homogeneous fully-automated oral fluid drugs of
+abuse assays. These assays use Roche’s KIMs (kinetic interaction of micro-particles in solution) technology and are designed to run on various automated analyzers to allow oral fluid samples to be processed with the same efficiency currently
+achieved by our laboratory customers with urine-based drug tests. 
+We have experienced significant delays in completing
+development of the assays under our collaboration, primarily because Roche has not been able to obtain FDA 510(k) clearance of a THC assay. Although the other assays that comprise a NIDA-5 panel have received FDA clearance, the THC assay is needed
+to offer a complete NIDA-5 panel required by our customers. The inability to obtain this clearance has limited our ability to commercialize these initial assays and has delayed development of assays beyond the NIDA-5 panel. As a result, we are in
+discussions with Roche about the THC assay and the future of our collaboration. 
+Cryosurgical Systems (Skin Lesion Removal
+Products) 
+The Histofreezer ® cryosurgical removal system is a low-cost alternative to liquid nitrogen and other methods for removal of warts and other benign skin lesions by physicians. The
+Histofreezer ® product mixes three cryogenic gases in a small aerosol canister. When released, these gases are
+delivered to a specially designed foam bud, cooling the bud to a maximum of –50°C to –55°C. The frozen bud is then applied to the wart or lesion for 15 to 40 seconds (depending on the type of lesion) creating localized destruction
+of the target area by freezing. We have received 510(k) clearance for use of the Histofreezer ® product to remove
+common warts and eight other types of benign skin lesions, and this product has been CE marked and registered for distribution in Canada, throughout Europe and in certain other foreign countries. 
+Internationally, we sell an OTC cryosurgical product through our distributor Genomma Labs (“Genomma”), under the POINTTS
+tradename, in Mexico and a number of South and Central American countries. We also sell a CE marked cryosurgical wart removal product into the OTC footcare market in Europe, Australia and New 
+7 
+Table of Contents 
+Zealand through our distributor, Reckitt Benckiser (“Reckitt”), under the Scholl and Dr. Scholl trademarks. Reckitt is the owner of the Scholl and Dr. Scholl trademarks in
+countries outside North and South America. In 2011, we began selling OTC cryosurgical products for the treatment of both warts and skin tags to retailers in Canada on a private label basis. 
+Immunoassay Tests and Reagents 
+We develop and sell immunoassay tests in two formats, known as MICRO-PLATE and AUTO-LYTE ® , to meet the specific needs of our customers. 
+In a MICRO-PLATE kit, the sample to be tested is placed into a small plastic receptacle, called a microwell, along with the reagents. The result of the test is determined by the color of the microwell
+upon completion of the reaction. Controlling the reaction involves the use of reagents by laboratory personnel. Test results are analyzed by any of a variety of commercially available laboratory instruments, which we may also provide to our
+laboratory customers. MICRO-PLATE tests can be performed on commonly used instruments and can detect drugs in urine, serum and sweat specimens. MICRO-PLATE tests are also used as part of the
+Intercept ® product line to detect drugs of abuse in oral fluid specimens. 
+AUTO-LYTE ® tests are sold in the form of bottles of liquid reagents. These reagents are run on commercially available laboratory-based automated analytical instruments, which
+are manufactured by a variety of third parties. AUTO-LYTE ® is typically used in high volume, automated,
+commercial reference insurance laboratories to detect certain drugs or chemicals in urine. Test results are produced quickly, allowing for high throughput. Our AUTO-LYTE ® tests continue to face strong competition from cheaper “home-brew” tests developed internally by our laboratory customers. As a result, we may eventually
+stop selling our AUTO-LYTE ® tests. 
+Western blot HIV-1 Confirmatory Test 
+We sell an oral
+fluid Western blot HIV-1 confirmatory test that received premarket approval from the FDA in 1996. This test uses the original specimen collected with the OraSure ® oral fluid collection device to confirm positive results of initial oral fluid HIV-1 EIA screening tests. 
+Q.E.D. ® Saliva Alcohol Test 
+Our Q.E.D. ® saliva alcohol test is a point-of-care test device that is a cost-effective alternative to breath or blood alcohol testing. The test is a quantitative, saliva-based
+method for the detection of ethanol, has been cleared for sale by the FDA and has received a CLIA waiver. The U.S. Department of Transportation (“DOT”) has also approved the test. 
+Each Q.E.D. ® test kit contains a collection stick that is used to collect a sample of saliva and a disposable detection device that displays results in a format similar to a
+thermometer. The Q.E.D. ® device is easy to operate and instrumentation is not required to read the result. The
+product has a testing range of 0 to 0.145% blood alcohol and produces results in approximately two minutes. 
+Products Under Development
+OraQuick ® Platform 
+We
+believe that the OraQuick ® point-of-care testing platform has significant potential for clinics and other public
+health entities, hospitals, physicians’ offices and other markets. Because the OraQuick ® platform is simple
+to use and can operate in a non-invasive manner with oral fluid, we believe it is suitable for use by consumers without the assistance of a doctor or other medical professional. We also believe that OraQuick ® provides a platform technology that can be modified for detection of a variety of infectious diseases in addition to
+HIV and HCV, including certain sexually transmitted diseases. Several new products based on the OraQuick ® 
+technology platform are being evaluated. 
+8 
+Table of Contents 
+OraSure ® /Intercept ® Applications
+Oral mucosal transudate, or OMT, contains many constituents found in blood and serum, although in
+lower concentrations. We believe the OraSure ® and Intercept ® devices are a platform technology with a wide variety of potential applications, where laboratory testing is available. For example, the OraSure ® device may be useful for the collection of a variety of antibodies or markers for infectious diseases or conditions
+in addition to HIV-1, such as antibodies to viral hepatitis. 
+Since January 2011, the Drug Testing
+Advisory Board (“DTAB”) has been evaluating oral fluid as a potential alternative specimen to be permitted under the Mandatory Guidelines for Federal Workplace Drug Testing Programs (the “Guidelines”). The Guidelines govern
+workplace drug testing of federally-regulated workers. Based on its evaluation, DTAB has recommended that oral fluid be included as an alternative specimen in the Guidelines, and the Substance Abuse and Mental Health Services Administration has
+approved this recommendation. If and when issued in final form, these regulations will likely require certain modifications to our Intercept ® product in order to permit its use by federal workers. As a result, we are developing modifications to the
+Intercept ® collection device that we anticipate will be required by these regulations or otherwise desired by
+our customers. 
+Molecular Collection Systems 
+Molecular testing in both the research and clinical diagnostics markets continues to evolve at a rapid pace. As a result, we expect to continue development activities designed to modify the capabilities
+and fit of the DNAG products to meet the evolving needs of existing and potential molecular testing market applications. To address unique customer needs, we will continue to develop new chemical and/or physical platforms as needed by our customers.
+DNAG has a number of development projects underway to expand its product offerings in three primary market segments—human genetics, infectious disease testing and animal testing. 
+Research and Development 
+In 2012, our research and
+development activities focused primarily on clinical and regulatory activities related to the PMA application for FDA approval of our OraQuick ® In-Home HIV test, development of next generation versions of our OraQuick ® HIV and Intercept ® products
+and assessing initial feasibility of certain other products. From time to time, we have contracted with third parties to conduct research and development activities and we may do so in the future. 
+Research and development expenses were $12.4 million in 2012 (including $2.8 million of DNAG expenses), $18.4 million in 2011 (including
+$1.0 million of DNAG expenses since the August 2011 acquisition) and $13.2 million in 2010. These expenses include our costs associated with research and development, regulatory affairs, clinical trials and product support. 
+Sales and Marketing 
+We
+attempt to reach our major target markets through a combination of direct sales, strategic collaborations and independent distributors. Our marketing strategy is to create or raise awareness through a full array of marketing activities, which
+include trade shows, print advertising, special programs, distributor promotions, telemarketing and the use of digital and social media in order to stimulate sales in each target market. 
+We market our products in the United States and internationally. Revenues attributable to customers in the United States were $67.5
+million, $67.6 million and $63.5 million in 2012, 2011 and 2010, respectively. Revenues attributable to international customers amounted to $20.3 million, $14.2 million and $11.5 million, or 23%, 17% and 15% of our total revenues, in 2012, 2011 and
+2010, respectively. For more information about our revenues and long-lived assets attributable to U.S. and international customers, please see Note 11 to our consolidated financial statements included elsewhere in this Annual Report.
+9 
+Table of Contents 
+Infectious Disease Testing—Professional 
+We market the OraQuick ADVANCE ® rapid HIV-1/2 antibody test directly to customers in the public health market for HIV testing. This market consists of a broad range of clinics and laboratories and
+includes states, counties, and other governmental agencies, family planning clinics, colleges and universities, correctional facilities and the military. There are also a number of organizations in the public health market, such as AIDS service
+organizations and various community-based organizations, that are set up primarily for the purpose of encouraging and enabling HIV testing. We also sell our OraQuick ADVANCE ® test directly to hospitals in the U.S. and through distributors into the U.S. physician office market and to retail clinics operated by pharmacies. We have engaged
+two manufacturers’ representative organizations to assist with sales to U.S. physicians and retail clinics. Internationally, we distribute our OraQuick ® HIV test in Europe and certain other foreign countries. 
+We market the OraSure ® oral fluid collection device for HIV-1
+testing, on its own and as a kit in combination with laboratory testing services. To better serve our public health customers, we have contracted a commercial laboratory to provide prepackaged
+OraSure ® test kits, with prepaid laboratory testing and specimen shipping costs included. We also sell the
+OraSure ® device in the international public health market. 
+Our OraQuick ® HCV test is sold primarily to the same markets where our OraQuick ® ADVANCE HIV test is sold, including public health, hospitals, physicians and retail clinics. We also sell this test in Europe and other countries through
+distributors. 
+We previously entered into domestic and international collaboration agreements with
+Merck & Co. Inc. (“Merck”), under which Merck agreed to detail our OraQuick ® HCV product to
+physician offices. The initial term of our domestic agreement expired in September 2012 and was not renewed. We have also terminated our international agreement with Merck. Termination of these agreements is not expected to have a material impact on
+sales of our OraQuick ® HCV test, either in the U.S. or in international markets. 
+We have distribution rights to an FDA 510(k) cleared rapid flu A&B test, which we market under our proprietary
+OraSure QuickFlu ™ tradename. Under our agreement with the supplier of this product, we are permitted to sell
+this product into the U.S. hospital and public health markets. 
+Infectious Disease Testing—OTC 
+The OraQuick ® In-Home test has been available for purchase in the U.S. retail or consumer market since September 2012. Retailers carrying the product include CVS, Walgreens, Rite
+Aid, Wal-Mart and Kroger. The product is also available for purchase on-line through certain retailers and our website, www.oraquick.com . The primary target population for our HIV-OTC test is comprised of young, sexually active adults, with
+greater purchase intent found in high-risk sub groups, such as men who have sex with men, African Americans and Latino Americans. In order to increase awareness and consumer sales of this product, we began a national public relations and advertising
+campaign in late 2012. 
+To support individuals that purchase and use our test, we have established a toll-free customer
+support center that operates on a 24/7, 365-day per year basis. Through this center, consumers will have access to highly trained, bi-lingual representatives who can answer questions about HIV/AIDS and the use of our test, and refer consumers to
+appropriate resources for follow-up confirmatory testing, counseling and medical treatment. 
+Our revenue
+recognition practices with respect to the OraQuick ® In-Home HIV Test will initially be different than those
+customarily used in the consumer package goods industry. Because this is a new product for which we do not have a historical record of returns, we will initially recognize revenue only upon the consummation of a sale to the retail customer either in
+a store or over the internet. We are working with our retail distribution partners to gain access to out-sales data to obtain greater transparency into the effectiveness of our launch and the actual uptake of our product in the hands of the
+consumer. 
+10 
+Table of Contents 
+Molecular Collection Systems 
+DNAG primarily sells its products directly to its customers through its own global sales force. In some countries distributors are used,
+particularly in the Asia-Pacific region. Over half of DNAG’s employees work in the areas of sales, marketing, business development or product management. The significant majority of employees who deal directly with customers have molecular
+science backgrounds, which we believe is useful in selling and marketing molecular collection products, and more importantly, in identifying and evaluating new market and business opportunities. 
+Historically, most of DNAG revenues have been derived from product sales into the academic and research markets. A significant portion of
+DNAG’s sales is derived from repeat customers. The clinical diagnostic market for human genetics is still in its early stages with only a few diagnostic customers currently using DNAG’s products. DNAG has a number of established global
+customers in the livestock market, including breed associations and research institutions. A molecular collection product focused on the infectious disease research market has also been launched by DNAG. 
+Substance Abuse Testing 
+Our substance abuse testing products are marketed to laboratories serving the workplace testing, forensic toxicology, criminal justice and drug rehabilitation markets in the U.S. and in certain
+international markets. 
+We have entered into agreements for the distribution of Intercept ® collection devices and associated MICRO-PLATE assays for drugs-of-abuse testing in the workplace testing market in
+the United States and Canada through several laboratory distributors and internationally for workplace, criminal justice and forensic toxicology testing through other distributors. We also market the Intercept ® collection device on its own and as a kit in combination with laboratory testing services. To better serve our
+workplace customers, we have contracted with commercial laboratories to provide prepackaged Intercept ® test
+kits, with prepaid laboratory testing and specimen shipping costs included. 
+The criminal justice market in the United States
+for our substance abuse testing products consists of a wide variety of entities in the criminal justice system that require drug screening, such as pre-trial services, parole and probation offices, police forces, drug courts, prisons, drug treatment
+programs and community/family service programs. The forensic toxicology market consists of several hundred laboratories including federal, state and county crime laboratories, medical examiner laboratories and reference laboratories. 
+As discussed above, the FDA has issued 510(k) clearances for the use of fully-automated high-throughput oral fluid
+assays for the detection of PCP, opiates, cocaine, methamphetamines and amphetamines with oral fluid samples collected with our Intercept ® device. Due to significant development delays under our agreement with Roche Diagnostics, particularly with respect to the assay for THC, the parties are currently in
+discussions regarding the future of our development and commercialization collaboration. 
+We distribute
+our Q.E.D. ® saliva alcohol test primarily through various distributors in the United States and internationally.
+The markets for alcohol testing are relatively small and fragmented with a broad range of legal and procedural barriers to entry. Markets range from law enforcement testing to workplace testing of employees in safety sensitive occupations. Typical
+usage situations include pre-employment, random, post-accident, reasonable-cause and return-to-duty testing. 
+Cryosurgical
+Systems 
+Most of our Histofreezer ® sales occur in the United States to distributors that, in turn, resell the product to primary care physicians and podiatrists in the United States. Our major U.S.
+distributors include Cardinal Healthcare, McKesson HBOC, Physician Sales & Service (PSS), AmerisourceBergen Corporation, and Henry 
+11 
+Table of Contents 
+Schein. We have also engaged two manufacturers’ representative organizations to help our U.S. distributors promote and sell Histofreezer ® . Internationally, we sell the
+Histofreezer ® product through a network of distributors in more than 20 countries worldwide. 
+We distribute cryosurgical wart removal products in the OTC footcare market in Europe, Australia and New Zealand through our distributor,
+Reckitt Benckiser, under its Scholl and Dr. Scholl tradenames, and in the OTC markets in Mexico and several Central and South American countries under the POINTTS tradename through our distributor, Genomma. We also sell OTC cryosurgical
+products for the removal of warts and skin tags under private label arrangements with retailers in Canada. 
+Insurance Risk
+Assessment 
+We currently market the OraSure ® oral fluid collection device for use in screening life insurance applicants in the United States and internationally to test for three of the most important
+underwriting risk factors: HIV-1, cocaine and cotinine (a metabolite of nicotine). Devices are sold to insurance testing laboratories, which in turn sell the devices to insurance companies, usually in combination with testing services. 
+We also promote use of the OraSure ® device directly to insurance companies for life insurance risk assessment. Insurance companies then make their own decision regarding which laboratory to use to
+supply their collection devices and testing services. We sell our OraSure ® Western blot confirmatory test
+directly to insurance testing laboratories for use in confirming oral fluid specimens collected with our
+OraSure ® device that initially test positive for HIV-1. 
+There exists a wide range of policy limits where our OraSure ® product is being used. In general, many (but not all) of our insurance company customers use the OraSure ® device in connection with life insurance policies having face amounts of up to $250,000, with some customers using the device for policies of up to $500,000 in
+amount. Some insurance companies have chosen to extend their testing to lower policy limits where they did not test at all before, while others have used OraSure ® to replace some of their blood and urine-based testing. More recently, some insurance customers have adopted a “Simplified Issues” policy, where lab testing
+is no longer required and instead the applicant completes a questionnaire about personal behaviors. 
+We
+also sell our AUTO-LYTE ® assays and reagents in the insurance testing market directly to certain laboratories.
+Significant Products and Customers 
+Several different products have contributed significantly to our financial performance, accounting for 10% or more of our total revenues during the past three years. In 2012, the OraQuick ® rapid HIV testing products, the cryosurgical systems products, and our Oragene ® product line accounted for total revenues of $37.9 million, $14.9 million and $14.3 million, respectively.
+The OraQuick ® rapid HIV testing products, the cryosurgical systems products, and the OraSure ® and Intercept ® oral fluid collection devices accounted for total revenues of $41.7 million, $12.0 million and $10.7 million in 2011 and $40.0 million, $11.9 million and $11.2
+million in 2010, respectively. 
+We had no individual customers who accounted for more than 10% of our total revenues in 2012,
+2011 or 2010. 
+Financial Information by Segment 
+We operate our business within two reportable segments. The first is our “OSUR” business, which consists of the development, manufacture and sale of oral fluid diagnostic products and specimen
+collection devices and medical devices used for the removal of benign skin lesions by cryosurgery. The second is our “DNAG” or molecular collection systems business, which consists of the development, manufacture and sale of oral fluid
+collection devices that are used to collect, stabilize, and store samples of genetic material for molecular testing. 
+12 
+Table of Contents 
+OSUR revenues consist primarily of product sold into the United States and internationally
+to various clinical laboratories, hospital, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. OSUR also derives revenues
+from licensing and production development activities. DNAG revenues consist of product sold into the academic research, clinical genetic testing, pharmacogenomics, personalized medicine, animal and livestock genetics markets. For more information
+about our revenues from external customers, income and total assets, please see the sections entitled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of
+Operations” and Note 11 to the consolidated financial statements, included elsewhere in this Annual Report. 
+Supply and Manufacturing
+Our OraQuick ADVANCE ® HIV test, OraQuick ® In-Home
+HIV test, OraQuick ® HCV test, OraSure ® and Intercept ® collection
+devices, Western blot HIV-1 confirmatory test, AUTOLYTE and MICRO-PLATE assays and QED ® saliva alcohol test are
+all manufactured in our Bethlehem, Pennsylvania facilities. We expect to continue to manufacture these products at this location for the foreseeable future. 
+We have contracted with a third party in Thailand for the assembly of the OraQuick ® HIV device, in order to supply certain international markets. This supply agreement had an initial term of one year,
+and automatically renews for additional annual periods unless either party provides a timely notice of termination prior to the end of an annual period. We believe that other firms would be able to manufacture the OraQuick ® test on terms no less favorable than those set forth in the agreement if the Thailand contractor would be unable or
+unwilling to continue manufacturing this product. 
+We can purchase the HIV antigens, the nitrocellulose
+and certain other critical components used in the OraQuick ® HIV product lines, the HCV antigens used in the
+OraQuick ® HCV test and the antigen used in the Western blot HIV-1 confirmatory test only from a limited number
+of sources. If for any reason these suppliers are unwilling or no longer able to supply our antigen or nitrocellulose needs, we believe that alternative supplies could be obtained at a competitive cost. However, a change in any of the antigens, the
+nitrocellulose or other critical components used in our products would require FDA approval and some additional development work. This in turn could require significant time to complete and could disrupt our ability to manufacture and sell the
+affected products. 
+Our MICROPLATE and AUTO-LYTE assays require the production of highly specific and sensitive antibodies
+corresponding to the antigen of interest. Substantially all our antibody requirements are provided by contract suppliers. We believe that we have adequate reserves of antibody supplies and that we have access to sufficient raw materials for these
+products. 
+Our OraSure QuickFlu ™ test is manufactured and supplied by a third party, Princeton BioMeditech. There is no other supply source for this product. 
+The Histofreezer ® product sold in the U.S. is assembled by U.S. vendors and the Histofreezer ® product sold internationally is assembled in the Netherlands by Koninklijke, Utermöhlen, N.V., the company from which we acquired the product in 1998. The
+cryosurgical wart removal products distributed in OTC markets are also assembled by vendors located in the United States. We believe that additional suppliers of all of our cryosurgical products are available on terms no less favorable than the
+terms of our existing supply agreements in the event that our current suppliers would be unable or unwilling to continue manufacturing these products. 
+13 
+Table of Contents 
+DNAG has engaged two third-party manufacturers to supply virtually all
+of its products, including the Oragene ® product line. Many of the raw materials and components used in these
+products are also purchased from third parties, including one critical component that is purchased from a sole source supplier. We believe there are other suppliers that can manufacture and supply the raw materials and components for the DNAG
+products. 
+Employees 
+As of December 31, 2012, we had 313 full-time employees (including 71 employees at our subsidiary, DNAG). Of this total, there were 111 in sales, marketing and client services; 32 in research and
+development; 121 in operations, manufacturing, quality control, information systems, purchasing and shipping; 18 in quality assurance and regulatory affairs; and 32 in administration and finance. This compares to 308 employees as of
+December 31, 2011. Our employees are not currently represented by a collective bargaining agreement. 
+Competition 
+The diagnostic industry is a multi-billion dollar international industry and is intensely competitive. Many of our competitors are
+substantially larger than we are, and they have greater financial, research, manufacturing and marketing resources. 
+Important
+competitive factors for our products include product quality, performance, price, ease of use, customer service and reputation. Industry competition is based on the following: 
+• 
+Scientific and technological capability; 
+• 
+Proprietary know-how; 
+• 
+The ability to develop and market products and processes; 
+• 
+The ability to obtain FDA or other regulatory approvals; 
+• 
+The ability to manufacture products that meet applicable FDA requirements (i.e., good manufacturing practices); 
+• 
+Commercial execution and strength of distribution; 
+• 
+Price; 
+• 
+Access to adequate capital; 
+• 
+The ability to attract and retain qualified personnel; and 
+• 
+The availability of patent protection. 
+A few large corporations produce a wide variety of diagnostic tests and other medical devices and equipment. A larger number of mid-size companies generally compete only in the diagnostic industry and a
+significant number of small companies produce only a few diagnostic products. As a result, the diagnostic test industry is highly fragmented and segmented. 
+The future market for diagnostic tests is expected to be characterized by consolidation, greater cost consciousness, the development of new technologies, and tighter reimbursement policies. The purchasers
+of diagnostic products are expected to place increased emphasis on lowering costs, reducing inventory levels, obtaining better performing products, automation, service and volume discounts. The increased complexity of the market is expected to force
+many competitors to enter into joint ventures or license certain products or technologies. 
+14 
+Table of Contents 
+We expect competition to intensify as technological advances are made and become more widely
+known, and as new products reach the market. Furthermore, new testing methodologies could be developed in the future that render our products impractical, uneconomical or obsolete. There can be no assurance that our competitors will not succeed in
+developing or marketing technologies and products that are more effective than those we develop or that would render our technologies and products obsolete or otherwise commercially unattractive. In addition, there can be no assurance that our
+competitors will not succeed in obtaining regulatory approval for these products, or introduce or commercialize them, before we can do so. These developments could have a material adverse effect on our business, financial condition and results of
+operations. 
+Several companies market or have announced plans to market oral specimen collection devices
+and tests both within and outside the United States. We expect the number of devices competing with our
+OraQuick ® , OraSure ® and Intercept ® devices to
+increase as the benefits of oral fluid-based testing become more widely accepted. 
+Competition in the
+U.S. market for infectious disease testing in medical settings is intense and is expected to increase. Our principal competition for HIV testing in the professional market comes from existing and new point-of-care rapid blood tests, automated
+laboratory-based blood tests, or other oral fluid-based tests that may be developed. One of our competitors recently received FDA approval for a rapid oral fluid HIV test, although this product has not yet received a CLIA waiver. Our OraQuick ® rapid HCV test competes against laboratory-based blood tests in the U.S., as there currently are no other rapid HCV
+testing products approved by the FDA. Our competitors include medical diagnostic companies and specialized biotechnology firms, as well as pharmaceutical companies with biotechnology divisions. Competing tests are often sold at a lower price than we
+charge for our products. This competition can result in lost sales and degradation of the price (and therefore the applicable profit margins) we can charge for our HIV and HCV tests. 
+Outside the U.S., our rapid HIV and HCV tests compete against other rapid and laboratory-based tests. Significant
+sales of these products in Europe have not materialized principally because of differences in European healthcare systems compared to our U.S. systems. Unlike the U.S., adoption of rapid point-of-care diagnostics is not widespread in Europe because
+laboratory testing is entrenched and healthcare systems are structured around centralized testing models. In addition, many competing tests in international markets are sold at very low prices. We intend to continue to build awareness and develop
+strategies to expand sales of our OraQuick ® HIV and HCV tests in European and other international markets.
+Our OraQuick ® In-Home HIV oral fluid test is the only rapid HIV test approved by the FDA for sale in the U.S. OTC market. We compete against one other non-rapid HIV blood test
+available in the OTC market, which requires consumers to self-collect a blood sample and then send it to a laboratory for testing. 
+The OraSure QuickFlu ™ test competes primarily against other rapid
+flu tests sold by various third parties in the U.S. hospital and public health markets. 
+Our Oragene ® collection system competes against other types of collection devices used for molecular testing, such as blood
+collection devices and buccal swabs, which often are sold for prices lower than the prices charged for the
+Oragene ® products. Although we believe the Oragene ® device offers a number of advantages over these other products, the availability of lower price competitive devices can result in lost sales and degradation in
+pricing and profit margin. 
+In the substance abuse testing market, our Intercept ® drug testing system competes with laboratory-based drug testing products using sample matrices such as urine, hair,
+sweat and oral fluid. We expect competition for our products to intensify, particularly from other domestic and international companies that have developed, or may develop, competing oral fluid drug testing products. There are at least two
+competitors that sell fully-automated high-throughput oral fluid drug testing products in unregulated settings in the United States. One of these competitors has received 510(k) clearance of its product. This 510(k) cleared product is being offered
+by 
+15 
+Table of Contents 
+one of our large laboratory distributors. This distributor has stopped purchasing our Intercept ® product. Internationally, our distributor in the United Kingdom has reduced its Intercept ® purchases as it transitions to selling its own oral fluid collection device and assays. 
+Our MICRO-PLATE oral fluid drug assays, which are sold for use with the Intercept ® and OraSure ® collection devices, also continue to come under increasing competitive pressure from “home-brew” assays developed internally by our laboratory customers.
+Our oral fluid MICRO-PLATE assays also compete with urine-based homogeneous assays that are run on fully-automated, random access analyzers. These tests provide strong competitive pressure because they provide the benefits of automation, including
+lower costs and short turn-around times. 
+Our MICRO-PLATE drugs-of-abuse reagents sold in the forensic toxicology market are
+targeted to forensic testing laboratories where sensitivity, automation and “system solutions” are important. In the past, these laboratories have typically had to rely on radioimmunoassay test methods to provide an adequate level of
+sensitivity. Radioimmunoassays require radioactive materials, which have a short shelf-life and disposal problems. Our MICRO-PLATE tests meet the laboratories’ sensitivity needs, run on automated equipment, are not radioimmunoassays, and are
+offered to the laboratory as a complete system solution of reagents, instrumentation and software to meet the specific needs of each customer. We compete with both homogeneous and heterogeneous tests manufactured by many companies. 
+Sales of our AUTO-LYTE ® urine assays have declined substantially during the past several years, primarily due to competition from “home-brew” assays developed internally by our
+laboratory customers, which can be produced at a cost lower than the price typically paid for our products. Many of our customers no longer purchase our AUTO-LYTE ® assays, and we may eventually stop selling this product line. 
+Q.E.D. ® competes against other semi-quantitative saliva-based
+alcohol tests that have received U.S. Department of Transportation approval as well as breath alcohol tests. Although there are lower priced tests on the market that use oral fluid or breath as a test medium, these tests are qualitative tests that
+are believed to be substantially lower in quality and provide fewer benefits than our Q.E.D. ® test. 
+Our professional cryosurgical product is sold primarily to physicians, including family practitioners, pediatricians and podiatrists.
+This product primarily competes against other portable cryosurgical systems used for the removal of benign skin lesions in both the U.S. and Europe. Our OTC cryosurgical products compete against other cryosurgical products in certain international
+OTC markets. 
+Patents and Proprietary Information 
+We seek patents and other intellectual property rights to protect and preserve our proprietary technology and our right to capitalize on the results of our research and development activities. We also
+rely on trade secrets, know-how, continuing technological innovations and licensing opportunities to provide competitive advantages for our products in our markets and to accelerate new product introductions. We regularly search for third-party
+patents in fields related to our business to shape our own patent and product commercialization strategies as effectively as possible and to identify licensing opportunities. United States patents generally have a maximum term of 20 years from the
+date an application is filed. 
+We have ten United States patents and numerous foreign patents for the
+OraSure ® and Intercept ® collection devices and technology relating to oral fluid collection, containers for oral fluids, methods to test oral fluid, formulations for the manufacture of
+synthetic oral fluid, and methods to control the volume of oral fluid collected and dispersed. The patents expire from November 2013 to December 2026. We have also applied for additional patents, in both the United States and certain foreign
+countries, on such products and technology. 
+16 
+Table of Contents 
+We have five United States patents for our OraQuick ® platform, as well as corresponding related international patents. We also have patent applications pending in the
+United States and internationally. Four of these patents expire from March to July 2019 and the fifth in July 2028. We have obtained licenses to certain lateral flow patents and to certain HIV-1 and HIV-2 patents held by other parties. We also have
+obtained a license to certain HCV patents which we use to manufacture and sell a rapid HCV test on the OraQuick ® 
+technology platform. We obtained these licenses through the payment of certain upfront fees and an agreement to pay ongoing royalties. We believe these fees and royalties are comparable to those generally paid by other companies under similar
+arrangements. 
+One of the lateral flow patent licenses was obtained as part of a patent infringement
+litigation settlement with Alere (formerly Inverness Medical) in 2009. Under that license, we have paid royalties on net sales of our OraQuick ® HIV and HCV professional products and the royalty rate on our OraQuick ® HIV professional product has increased beginning in 2013. 
+We may need to obtain licenses or other rights under, or enter into distribution or other business arrangements in connection with, certain other intellectual property patents in order to manufacture and
+sell the OraQuick ADVANCE ® HIV test or other tests that use the same or similar technology platform. See
+Section 1A, entitled “Risk Factors,” for a further discussion of these issues. 
+We hold, through our
+subsidiary, DNAG, six United States patents and numerous foreign patents issued for compositions, methods and apparatus for the collection, stabilization, transportation and storage of nucleic acids (DNA and RNA) from oral fluid and other bodily
+fluids and tissues. These patents expire from June 2023 through May 2030. 
+We have four United States patents and numerous
+foreign patents issued for apparatuses and methods for the topical removal of skin lesions relating to our cryosurgical wart removal products, and we have pending patent applications related to these products in the United States and in certain
+foreign countries. These patents expire from August 2013 to September 2025. We have also licensed another patent relating to apparatuses and methods for the topical removal of skin lesions relating to our cryosurgical wart removal products.
+We require our employees, consultants, outside collaborators and other advisors to execute confidentiality agreements upon
+the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed by or made known to the individual during the course of the individual’s relationship with us is to be kept
+confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual during his or her tenure with us will be our exclusive property.
+We own rights to trademarks and service marks that we believe are necessary to conduct our business as
+currently operated. In the United States, we own a number of trademarks, including the OraSure ® , Intercept ® , OraQuick ® , OraQuick ADVANCE ® ,
+Histofreezer ® , OraSure QuickFlu ™ , Q.E.D. ® , Oragene ® , ORAcollect ™ , OMNIgene ™ , Performagene ™ and AUTO-LYTE ® trademarks. We also own many of these marks and others in several foreign countries. With respect to our international OTC cryosurgical products, the Scholl and
+Dr. Scholl tradenames are owned by Reckitt Benckiser in Europe, Australia, New Zealand and other countries outside North and South America, and the POINTTS tradename is owned by Genomma. 
+Although important, the issuance of a patent or existence of trademark or trade secret protection does not in itself ensure the success
+of our business. Competitors may be able to produce products competing with our patented products without infringing our patent rights. Issuance of a patent in one country generally does not prevent manufacture or sale of the patented product in
+other countries. The issuance of a patent is not conclusive 
+17 
+Table of Contents 
+as to validity or as to the enforceable scope of the patent. The validity or enforceability of a patent can be challenged by litigation after its issuance. If the outcome of such litigation is
+adverse to the owner of the patent, the owner’s rights could be diminished or withdrawn. Trade secret protection does not prevent independent discovery and exploitation of the secret product or technique. 
+Government Regulation 
+General 
+Most of our products are regulated by the FDA, certain state and local agencies and comparable regulatory bodies in other countries. This
+regulated environment governs almost all aspects of development, production and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing and recordkeeping. 
+All of our FDA-regulated products require some form of action by the FDA before they can be marketed in the United States. After approval
+or clearance by the FDA, we must continue to comply with other FDA requirements applicable to marketed products. Both before and after approval or clearance, failure to comply with the FDA’s requirements can lead to significant penalties or
+could disrupt our ability to manufacture and sell these products. In addition, the FDA could refuse permission to obtain certificates needed to export our products if the agency determines that we are not in compliance. 
+Domestic Regulation 
+Most of our products are regulated in the United States as medical devices. 
+There are two mechanisms by which regulated medical devices can be placed on the market in the United States. Some products may qualify
+for clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act. To obtain this clearance from the FDA, the manufacturer must provide a premarket notification that it intends to begin marketing the product, and show that the
+product is substantially equivalent to another legally marketed product (i.e., that it has the same intended use and is as safe and effective as a legally marketed device and does not raise different questions of safety and effectiveness). In some
+cases, the submission must include data from human clinical studies. Marketing may only commence when the FDA issues a clearance letter finding substantial equivalence. An applicant must submit a 510(k) application at least 90 days before marketing
+of the affected product commences. Although FDA clearance may be granted within that 90-day period, in some cases as much as a year or more may be required before clearance is obtained, if at all. 
+If the medical device does not qualify for the 510(k) procedure (either because it is not substantially equivalent to a legally marketed
+device or because it is required by statute and the FDA’s regulations to have an approved PMA), the FDA must approve a PMA before marketing can begin. PMAs must demonstrate, among other matters, that the medical device provides a reasonable
+assurance of safety and effectiveness. A PMA is typically a complex submission, including the results of preclinical and clinical studies. Preparing a PMA is a detailed and time-consuming process. Once a PMA has been submitted, the FDA is required
+to review the submission within 180 days. However, the FDA’s review may be, and often is, much longer, often requiring one year or more, and may include requests for additional data and facility inspections before approval is granted, if at
+all. 
+Some of our products are used for research only or other non-medical purposes and many of our drugs-of-abuse products
+sold to state crime laboratories are for forensic use. The FDA does not currently regulate products used for these purposes. 
+Every company that manufactures medical devices distributed in the United States must comply with the FDA’s Quality System
+Regulations (“QSRs”). These regulations govern the manufacturing process, including design, manufacture, testing, release, packaging, distribution, documentation and purchasing. In complying with
+18 
+Table of Contents 
+the QSRs, manufacturers must continue to expend time, money and effort in the area of production and quality to ensure full technical compliance. Companies are also subject to other post-market
+and general requirements, including restrictions imposed on marketed products, promotional standards and requirements for recordkeeping and reporting of certain adverse reactions. If there are any modifications made to our marketed devices, a
+premarket notification or PMA may be required to be submitted to, and cleared or approved by, the FDA, before the modified device may be marketed. The FDA regularly inspects companies to determine compliance with the QSRs and other post-market
+requirements. Failure to comply with statutory requirements and the FDA’s regulations can result in warning letters, monetary penalties, suspension or withdrawal of regulatory approvals, operating restrictions, total or partial suspension of
+production, injunctions, product recalls, seizure of products and criminal prosecution. 
+The Clinical
+Laboratory Improvement Amendments of 1988, or CLIA, prohibit any facility that does laboratory testing on specimens derived from humans from providing information for the diagnosis, prevention or treatment of any disease or impairment of, or the
+assessment of, the health of human beings, unless there is in effect for such facility a certificate issued by the U.S. Department of Health and Human Services applicable to the category of examination or procedure performed. Tests may be waived
+from this regulatory oversight if they meet certain requirements established under CLIA. We consider the applicability of CLIA requirements in the design and development of our products. We have obtained a waiver of the CLIA requirements for our
+OraQuick ADVANCE ® rapid HIV-1/2 antibody test, our OraQuick ® HCV rapid antibody test and our Q.E.D. ® alcohol saliva test and may seek similar waivers for certain other products. A CLIA waiver allows certain customers to use the waived products that may not have been
+able to use them without complying with applicable quality control and other requirements. 
+Certain of our products may also
+be affected by state regulations in the United States. We are presently working with legislators or regulators in certain of these states in an effort to modify or remove any restrictions affecting our ability to sell products. 
+International 
+We are also subject to regulations in foreign countries governing products, human clinical trials and marketing, and may need to obtain approval from international public health agencies, such as the
+World Health Organization, in order to sell products in certain countries. Approval processes vary from country to country, and the length of time required for approval or to obtain other clearances may in some cases be longer than that required for
+U.S. governmental approvals. We generally pursue approval only in those countries that we believe have a significant market opportunity. 
+The International Organization for Standardization (“ISO”) is a worldwide federation of national standards bodies from some 130 countries, established in 1947. The mission of the ISO is to
+promote the development of standardization and related activities in the world with a view to facilitating the international exchange of goods and services. ISO certification is a pre-requisite to use of the CE mark and indicates that our quality
+system complies with standards applicable to activities ranging from initial product design and development through production and distribution. The CE mark is a European Union (“EU”) requirement to sell products that fall under the scope
+of the Medical Devices Directive (“MDD”) and the In Vitro Diagnostic Directive (“IVDD”). The CE mark is evidence that the manufacturer and the product meet the requirements of all applicable directives, including the MDD and
+IVDD. 
+We received authorization to use the CE mark for the OraQuick ADVANCE ® HIV-1/2 test, the OraQuick ® HCV test, the OraSure ® and
+Intercept ® collection devices, our Histofreezer ® product line, our OTC cryosurgical removal product and certain of the Oragene ® collection kits sold by DNA Genotek. 
+We
+must also comply with certain registration and licensing requirements as dictated by Health Canada, prior to commencing sales in Canada. We have completed this process for several of our current products and
+19 
+Table of Contents 
+may do so with respect to other products in the future. In addition, Canadian law requires manufacturers of medical devices to have a quality management system that meets various ISO requirements
+in order to obtain a license to sell their devices in Canada. 
+Anti-Kickback and Other Fraud and Abuse Laws 
+The Federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation, or receipt of any form of remuneration
+in return for, or to induce: 
+• 
+The referral of a person; 
+• 
+The furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental programs; or
+• 
+The purchase, lease, or order of, or the arrangement or recommendation of the purchasing, leasing, or ordering of any item or service reimbursable
+under Medicare, Medicaid, or other governmental programs. 
+Our products are or may be purchased by customers
+that will seek or receive reimbursement under Medicare, Medicaid or other governmental programs. Noncompliance with the federal anti-kickback legislation can result in exclusion from Medicare, Medicaid or other governmental programs, and/or
+restrictions on our ability to operate in certain jurisdictions, as well as civil and criminal penalties, any of which could have an adverse effect on our business and results of operations. 
+The Federal Civil Monetary Penalties Law prohibits the offering or transferring of remuneration to a Medicare or Medicaid beneficiary
+that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable items or services. Noncompliance can result in civil monetary penalties for each wrongful act,
+assessment of three times the amount claimed for each item or service and exclusion from the Federal healthcare programs. 
+Many states have also adopted some form of anti-kickback laws. A determination of liability under such laws could result in fines and
+penalties, restrictions on our ability to operate in these jurisdictions and significant damage to our reputation. 
+We are
+also subject to other federal and state laws targeting fraud and abuse in the healthcare industry, including false claims laws and marketing conduct laws and laws constraining the sales, marketing and other promotional activities of manufacturers of
+medical devices by limiting the kinds of financial arrangements, including sales programs, with physicians, hospitals, laboratories and other potential purchasers of medical devices. Violations of these laws may be punishable by criminal or civil
+sanctions, including substantial fines, imprisonment and exclusion from participation in government healthcare programs such as Medicare and Medicaid. These laws and regulations are wide ranging and subject to changing interpretation and
+application. In recent years, there has been greater scrutiny of marketing practices in the medical device industry which has resulted in several government investigations by various government authorities and the introduction and/or passage of
+federal and state legislation regulating interactions between medical device manufacturers and healthcare professionals and providers and requiring the disclosure by medical device manufacturers of gifts or other payments to healthcare professionals
+and providers. To be in compliance with such disclosure laws, we have implemented necessary systems for accurately tracking gifts and other payments. 
+We have implemented a written Policy on Interactions with Health Care Professionals, which is based on the Code of Conduct for Interactions with Health Care Professionals promulgated by the Advanced
+Medical Technology Association, or AdvaMed, a leading trade association representing medical device manufacturers. The Policy applies to all employees and is intended to comply with applicable state and federal laws, regulations and government
+guidance. The Policy addresses interactions related to sales and marketing practices, research and development, product training and education, grants and charitable contributions, support of third-party educational conferences, and consulting
+arrangements. 
+20 
+Table of Contents 
+Foreign Corrupt Practices Act 
+The U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits corporations and individuals from engaging in certain activities to
+obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government official, government staff member, political party or
+political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. Our present and future business has and will continue to be subject to the FCPA and various other laws, rules and/or
+regulations applicable to us as a result of our international sales. 
+Environmental Regulation 
+Because of the nature of our current and proposed research, development, and manufacturing processes, we are subject to stringent federal,
+state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge and handling and disposal of materials and wastes. 
+The foregoing discussion of our business should be read in
+conjunction with the consolidated financial statements and accompanying notes included in Item 15 of this Annual Report. 
+ITEM 1A. 
+Risk Factors 
+You
+should carefully consider the risks and uncertainties described below, together with all of the other information included in this Annual Report and our other SEC filings, in considering our business and prospects. The risks and uncertainties
+described below are not the only ones facing us. Additional risks and uncertainties not disclosed or not presently known to us or that we currently deem immaterial also may impair our business operations. The occurrence of any of the following risks
+could harm our business, financial condition or results of operations. 
+Regulatory Risks 
+The Need to Obtain Regulatory Approvals Could Increase Our Costs and Adversely Affect Our Financial Performance. 
+Many of our proposed and existing products are subject to regulation by the FDA and other governmental or public health agencies. In
+particular, we are subject to strict governmental controls on the development, manufacture, labeling, distribution and marketing of our products. In addition, we or our distributors are often required to obtain approval or registration with foreign
+governments or regulatory bodies before we can import and sell our products in foreign countries. 
+The process of obtaining
+required approvals or registrations from governmental or public health agencies can involve lengthy and detailed laboratory testing, human clinical trials, sampling activities and other costly, time-consuming procedures. These approvals and
+registrations can require the submission of a large amount of clinical data which can be expensive and may require significant time to obtain. It is also possible that a product will not perform at a level needed to generate the clinical data
+required to obtain approval or registration. The submission of an application to the FDA or other regulatory authority does not guarantee that an approval or registration to market or import the product will be received. A regulatory authority may
+impose requirements as a condition to granting an approval or registration, may include significant restrictions or limitations as part of any approval or clearance it grants and may delay or refuse to grant approval or registration, even though a
+product has been approved or registered without restrictions or limitations in another country or by another agency. 
+All
+in vitro diagnostic products that are to be sold in the EU must bear the CE mark indicating conformance with the essential requirements of the IVDD. We have obtained the CE mark for several of our existing products. We also intend to apply
+for CE marks for certain of our future products and are not aware of any material reason 
+21 
+Table of Contents 
+why we would be unable to obtain those marks. However, there can be no assurance that compliance with all provisions of the IVDD will be demonstrated and the CE mark will be obtained or
+maintained for all products that we desire to sell in the EU. The failure to obtain or maintain the CE mark for one or more of our products could lead to the termination of strategic alliances and agreements for sales of those products in the EU.
+Our Ability to Respond to Changes in Regulatory Requirements Could Adversely Affect Our Business. 
+Newly promulgated regulations could require changes to our products, necessitate additional clinical trials or procedures, or could make
+it impractical or impossible for us to market our products for certain uses, in certain markets, or at all. In addition, the FDA and other regulatory authorities have the ability to change the requirements for obtaining product approval and/or
+impose new or additional requirements as part of the approval process. These changes or new or additional requirements may occur after the completion of substantial clinical work and other costly development activities. The implementation of such
+changes or new or additional requirements may result in additional clinical trials and substantial additional costs and can delay or make it more difficult or complicated to obtain product approvals. 
+Failure to Comply With FDA or Other Regulatory Requirements May Require Us to Suspend Production of Our Products or Institute a Recall
+Which Could Result in Higher Costs and a Loss of Revenues. 
+Regulation by the FDA and other federal, state and foreign
+regulatory agencies impacts many aspects of our operations, and the operations of our suppliers and distributors, including manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record keeping. For example,
+our manufacturing facilities and those of our suppliers and distributors are, or can be, subject to periodic regulatory inspections. The FDA and foreign regulatory agencies may require post-marketing testing and surveillance to monitor the
+performance of approved products or place conditions on any product approvals that could restrict the commercial applications of those products. Regulatory agencies may impose restrictions on our or our distributors’ advertizing and promotional
+activities or preclude these activities altogether if a noncompliance is believed to exist. In addition, the subsequent discovery of previously unknown problems with a product may result in restrictions on the product, including withdrawal of the
+product from the market. We are also subject to routine inspection by the FDA and other agencies for compliance with Quality System Requirement and Medical Device Reporting requirements in the United States and other applicable regulations
+worldwide, including but not limited to ISO regulations. 
+Although we believe that we have adequate processes in place to
+ensure compliance with these requirements, the FDA or other regulatory bodies could force us or our distributors to stop manufacturing, selling, exporting or promoting our products if it concludes that we are out of compliance with applicable
+regulations. The ability of our suppliers to supply critical components or materials and of our distributors to sell our products could be adversely affected if their operations are determined to be out of compliance. The FDA and other regulatory
+bodies could also require us to recall products if we fail to comply with applicable regulations, which could force us to stop manufacturing and selling such products. Such actions by the FDA and other regulatory bodies could adversely affect our
+revenues, costs and results of operations. 
+In the ordinary course of business, we must frequently make subjective judgments
+with respect to compliance with applicable laws and regulations. If regulators subsequently disagree with the manner in which we have sought to comply with these regulations, we could be subjected to substantial civil and criminal penalties, as well
+as product recall, seizure or injunction with respect to the sale of our products. The assessment of any civil and criminal penalties against us could severely impair our reputation within the industry and any limitation on our ability to
+manufacture and market our products could have a material adverse effect on our business. 
+Our Inability to Manufacture
+Products in Accordance With Applicable Specifications, Performance Standards or Quality Requirements Could Adversely Affect Our Business. 
+The materials and processes used to manufacture our products must meet detailed specifications, performance standards and quality requirements to ensure our products will perform in accordance with their
+22 
+Table of Contents 
+label claims, our customers’ expectations and applicable regulatory requirements. As a result, our products and the materials used in their manufacture or assembly undergo regular
+inspections and quality testing. Factors such as defective materials or processes, mechanical failures, human errors, environmental conditions, changes in materials or production methods by our vendors, and other events or conditions could cause our
+products or the materials used to produce or assemble our products to fail inspections and quality testing or otherwise not perform in accordance with our label claims or the expectations of our customers. 
+Any failure or delay in our ability to meet the applicable specifications, performance standards, quality requirements or customer
+expectations could adversely affect our ability to manufacture and sell our products or comply with regulatory requirements. These events could, in turn, adversely affect our revenues and results of operations. 
+We Are Subject to Numerous Government Regulations in Addition to FDA Requirements, Which Could Increase Our Costs and Affect Our
+Operations. 
+In addition to the FDA and other regulations described previously, laws and regulations in some states may
+restrict our ability to sell products in those states. While we intend to work with state legislators and regulators to remove or modify any applicable restrictions, there is no guarantee we will be successful in these efforts. 
+We must also comply with numerous laws relating to such matters as safe working conditions, manufacturing practices, environmental
+protection, fire hazard control, disposal of hazardous substances and labor or employment practices. Compliance with these laws or any new or changed laws regulating our business could result in substantial costs. Because of the number and extent of
+the laws and regulations affecting our industry, and the number of governmental agencies whose actions could affect our operations, it is impossible to reliably predict the full nature and impact of these requirements. To the extent the costs and
+procedures associated with complying with these laws and requirements are substantial or it is determined that we do not comply, our business and results of operations could be adversely affected. 
+Compliance With Regulations Governing Public Company Corporate Governance and Reporting is Complex and Expensive. 
+Many laws and regulations impose obligations on public companies, which have increased the scope, complexity and cost of corporate
+governance, reporting and disclosure practices. Examples include the Sarbanes-Oxley Act of 2002, the requirements of the NASDAQ Global Market, The Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC’s requirements for public
+companies to provide financial statements in interactive data format using the eXtensible Business Reporting Language (“XBRL”), and the International Financial Reporting Standards conversion requirements. Our implementation of certain
+aspects of these laws and regulations has required and will continue to require substantial management time and oversight and may require us to incur significant additional accounting and legal costs. We continually evaluate and monitor developments
+with respect to new and proposed rules and cannot predict or estimate the ultimate amount of additional costs we may incur or the timing of such costs. These laws and regulations are also subject to varying interpretations, in many cases due to
+their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs
+necessitated by ongoing revisions to disclosure and governance practices. Although we are committed to maintaining high standards of corporate governance and public disclosure, if we fail to comply with any of these requirements, legal proceedings
+may be initiated against us and we may be harmed. 
+In August 2012, the SEC adopted a new rule requiring disclosure of
+specified minerals, known as conflict minerals, that are necessary to the functionality or production of products manufactured or contracted to be manufactured by public companies. The new rule, which is effective for calendar year 2013 reporting
+and requires a disclosure report to be filed by May 31, 2014, will require companies to disclose and report whether or not such minerals originate from the Democratic Republic of Congo or an adjoining country. The new rule could
+23 
+Table of Contents 
+affect sourcing at competitive prices and availability in sufficient quantities of minerals used in the manufacture of our products. The number of suppliers who provide conflict-free minerals may
+be limited. In addition, there may be significant costs associated with complying with the disclosure requirements, such as costs related to determining the source of certain minerals used in our products, as well as costs and delays associated with
+possible changes to products, processes, regulatory approvals, or sources of supply as a consequence of such verification and/or potential supplier change activities. We may not be able to sufficiently verify the origins of the relevant minerals
+used in our products, which may harm our reputation. In addition, we may encounter challenges in satisfying those customers who require that all of the components of its products be certified as conflict-free, which could place us at a competitive
+disadvantage if we are unable to do so, or are only able to do so at a higher price. 
+Evolving Legislative, Judicial and
+Ethical Standards on the Use of Technology and Biotechnology Could Affect Our Molecular Collection Systems Business. 
+The
+adoption of genetic testing is occurring within the broader context of a myriad of decisions related to genetic patenting and genotyping. Issues associated with regulatory requirements, health insurance, data access, intellectual property
+protection, national and international legislative initiatives and other variables impact the wide spread adoption of genetic testing or specific segments or tests within the genetic testing market. These developments could impact sales of our
+molecular collection systems products. 
+Federal and State Laws Pertaining to Healthcare Fraud and Abuse Could Adversely
+Affect Our Business, Financial Condition and Results of Operations. 
+We are subject to various federal and state laws
+targeting fraud and abuse in the healthcare industry, including anti-kickback laws, false claims laws, and laws constraining the sales, marketing and other promotional activities of manufacturers of medical devices by limiting the kinds of financial
+arrangements we may enter into with physicians, hospitals, laboratories and other potential purchasers of medical devices. Violations of these laws are punishable by criminal or civil sanctions, including substantial fines, imprisonment and
+exclusion from participation in government healthcare programs such as Medicare and Medicaid. Many of the existing requirements are new and have not been definitively interpreted by state authorities or courts, and available guidance is limited.
+Unless and until we are in full compliance with these laws, we could face enforcement action and fines and other penalties, and could receive adverse publicity, all of which could materially harm our business. In addition, changes in or evolving
+interpretations of these laws, regulations, or administrative or judicial interpretations, may require us to change our business practices or subject our business practices to legal challenges, which could have a material adverse effect on our
+business, financial condition and results of operations. 
+Risks Relating to Our Industry, Business and Strategy
+Our Ability to Sell Products Could be Adversely Affected by Competition From New and Existing Diagnostic Products.
+The diagnostics industry is focused on the testing of biological specimens in a laboratory or at the point of care and is
+highly competitive and rapidly changing. Many of our principal competitors have considerably greater financial, technical and marketing resources. As new products enter the market, our products may become obsolete or a competitor’s products may
+be more effective or more effectively marketed and sold than ours. If we fail to maintain and enhance our competitive position, our customers may decide to use products developed by competitors which could result in a loss of revenues. 
+We also face competition from products that are sold at a lower price. Where this occurs, customers may choose to buy lower cost products
+from third parties or we may be forced to sell our products at a lower price, 
+24 
+Table of Contents 
+both of which could result in a loss of revenues or a lower gross margin contribution from the sale of our products. We may also be required to increase our marketing efforts in order to compete
+effectively, which would increase our costs. 
+Our Research, Development and Commercialization Efforts May Not Succeed and
+Our Competitors May Develop and Commercialize More Effective or Successful Diagnostic Products. 
+In order to remain
+competitive, we must regularly commit substantial resources to research and development and the commercialization of new or enhanced products. The research and development process generally takes a significant amount of time from product inception
+to commercial launch. This process is conducted in various stages. During each stage there is a substantial risk that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a new or enhanced product in which we have
+invested substantial time and money. 
+During 2012, 2011 and 2010, we incurred $12.4 million (including $2.8 million of DNAG
+expenses), $18.4 million (including $1.0 million of DNAG expenses since the August 17, 2011 acquisition) and $13.2 million, respectively, in research and development expenses. We expect to continue to incur significant costs related to our
+research and development activities. 
+Successful products require significant development and investment, including testing to
+demonstrate their performance capabilities, cost-effectiveness or other benefits prior to commercialization. In addition, regulatory approval must be obtained before most products may be sold. Additional development efforts on these products can be
+required before any regulatory authority will review them. As noted above, regulatory authorities may not approve these products for commercial sale or can substantially delay or condition approval. In addition, even if a product is developed and
+all applicable regulatory approvals are obtained, there may be little or no market for the product. Accordingly, if we fail to develop and gain commercial acceptance for our products, or if competitors develop more effective products or a greater
+number of successful new products, customers may decide to use products developed by our competitors. This would result in a loss of revenues and adversely affect our results of operations, cash flow and business. 
+Failure to Achieve Our Financial and Strategic Objectives Could Have a Material Adverse Impact on Our Business Prospects.
+As a result of any number of risk factors identified in this Annual Report, no assurance can be given
+that we will be successful in implementing our financial and strategic objectives, including our efforts to successfully commercialize our OraQuick ® In-Home HIV test and increase sales of our OraQuick ® HCV test. In addition, the funds for research, clinical development and other projects have in the past come primarily from our business operations. If our business
+slows and we have less money available to fund research and development and clinical programs, we will have to decide at that time which programs to cut, and by how much. Similarly, if adequate financial, personnel, equipment or other resources are
+not available, we may be required to delay or scale back our business. Our operations will be adversely affected if our total revenue and gross profits do not correspondingly increase or if our technology, product, clinical and market development
+efforts are unsuccessful or delayed. Furthermore, our failure to successfully introduce new or enhanced products and develop new markets could have a material adverse effect on our business and prospects. 
+If We Lose Our Key Personnel or Are Unable to Attract and Retain Qualified Personnel as Necessary, Our Business Could be Harmed.
+Our success depends to a large extent upon the contributions of our executive officers, management and sales, marketing,
+operations and scientific staff. We may not be able to attract or retain a sufficient number of qualified employees in the future due to the intense competition for qualified personnel among medical products and other life science businesses. We
+generally do not enter into employment agreements requiring our employees to work for us for any specified period. 
+25 
+Table of Contents 
+If we are not able to attract and retain the necessary personnel to accomplish our business
+objectives, we may experience constraints that will adversely affect our ability to effectively manufacture, sell and market our products, to meet the demands of our strategic partners in a timely fashion, or to support research, development and
+clinical programs. Although we believe we will be successful in attracting and retaining qualified personnel, competition for experienced scientists and other personnel from numerous companies and academic and other research institutions may limit
+our ability to do so on acceptable terms. 
+Acquisitions or Investments May Not Generate the Expected Benefits and Could
+Disrupt Our Ongoing Business, Distract Our Management, Increase Our Expenses and Adversely Affect Our Business. 
+We may
+enter into strategic acquisitions or investments as a way to expand our business. These activities, and their impact on our business, are subject to many risk factors, including the following: 
+• 
+Suitable acquisitions or investments may not be found or consummated on terms or schedules that are satisfactory to us or consistent with our
+objectives; 
+• 
+The benefits expected to be derived from an acquisition may not materialize and could be affected by numerous factors, such as regulatory developments,
+general economic conditions and increased competition; 
+• 
+We may be unable to successfully integrate an acquired company’s personnel, assets, management systems, products and/or technology into our
+business; 
+• 
+Worse than expected performance of an acquired business may result in the impairment of intangible assets; 
+• 
+Acquisitions may require substantial expense and management time and could disrupt our business; 
+• 
+We may not be able to accurately forecast the performance or ultimate impact of an acquired business; 
+• 
+An acquisition and subsequent integration activities may require greater capital and other resources than originally anticipated at the time of
+acquisition; 
+• 
+An acquisition may result in the incurrence of unexpected expenses, the dilution of our earnings or our existing stockholders’ percentage
+ownership, or potential losses from undiscovered liabilities not covered by an indemnification from the seller(s) of the acquired business; 
+• 
+An acquisition may result in the loss of our or the acquired company’s key personnel, customers, distributors or suppliers; and
+• 
+An acquisition of a foreign business may involve additional risks, including, but not limited to, foreign currency exposure, liability or restrictions
+under foreign laws or regulations, and our inability to successfully assimilate differences in foreign business practices or overcome language or cultural barriers. 
+The occurrence of one or more of the above or other factors may prevent us from achieving all or a significant part of the benefits
+expected from an acquisition or investment. This may adversely affect our financial condition, results of operations and ability to grow our business or otherwise achieve our financial and strategic objectives. 
+In August 2011, we acquired DNAG with the expectation that the acquisition would result in benefits to both companies. However, we may
+not realize the financial, tax and other benefits of the acquisition to the extent, or in the timeframe, anticipated. For example, the acquisition could result in the loss of key employees, diversion of each company’s management’s
+attention, the disruption or interruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect either company’s ability to
+maintain relationships with customers, licensors, collaborators, partners, suppliers and employees. In addition, DNAG may not perform in a manner consistent 
+26 
+Table of Contents 
+with our expectations. These factors and others could negatively impact our ability to achieve the anticipated benefits of the acquisition, or could reduce our earnings or otherwise adversely
+affect the business and financial results of the combined company. 
+Our Revenues Could be Affected by Third-Party
+Reimbursement Policies and Potential Cost Constraints. 
+The end-users of our products include hospitals, physicians and
+other healthcare providers. Use of our products could be adversely impacted if end-users do not receive adequate reimbursement for the cost of our products from their patients’ healthcare insurers or payors. Our net sales could also be
+adversely affected by changes in reimbursement policies of governmental or private healthcare payors, including in particular the level of reimbursement for our products. 
+In the United States, healthcare providers such as hospitals and physicians who purchase diagnostic products generally rely on third-party payors, such as private health insurance plans, Medicare and
+Medicaid, to reimburse all or part of the cost of the product and procedure. The overall escalating cost of medical products and services has led to, and will continue to lead to, increased pressures on the healthcare industry, both foreign and
+domestic, to reduce the cost of products and services. Given the efforts to control and reduce healthcare costs in the United States in recent years, currently available levels of reimbursement may not continue to be available in the future for our
+existing products or products under development. Third-party reimbursement and coverage may not be available or adequate in either the United States or international markets, current reimbursement amounts may be decreased in the future and future
+legislation, and regulation or reimbursement policies of third-party payors, may reduce the demand for our products or our ability to sell our products on a profitable basis. 
+Changes in Healthcare Regulation Could Affect Our Revenues, Costs and Financial Condition. 
+In recent years, there have been numerous initiatives at the federal and state level for comprehensive reforms affecting the payment for, the availability of and reimbursement for healthcare services in
+the United States. These initiatives have ranged from proposals to fundamentally change federal and state healthcare reimbursement programs, including providing comprehensive healthcare coverage to the public under governmental funded programs, to
+minor modifications to existing programs. One example is the Patient Protection and Affordable Care Act, the Federal healthcare reform law enacted in 2010 (“Affordable Care Act”). Similar reforms may occur internationally. 
+Legislative and regulatory bodies are likely to continue to pursue healthcare reform initiatives and may continue to reduce funding in an
+effort to lower overall federal healthcare spending. The ultimate content and timing of any healthcare reform legislation and its resulting impact on us are impossible to predict. If significant reforms are made to the healthcare system in the
+United States, or in other jurisdictions, those reforms may increase our costs or otherwise have an adverse effect on our financial condition and results of operations. 
+The new Affordable Care Act imposes a 2.3% excise tax on certain transactions, including U.S. sales of many medical devices, which we expect will include domestic sales of certain of our products. This
+new tax became effective in January 2013. It is unclear whether and to what extent other unanticipated developments resulting from the Affordable Care Act, such as an increase in the number of people with health insurance, will provide us with
+additional revenue to help offset this tax. If such additional revenue does not materialize or our efforts to offset the excise tax through spending cuts, price increases or other actions are unsuccessful, the increased tax burden will adversely
+affect our financial performance. 
+New or Changed Testing Guidelines Could Affect Sales of Our Diagnostic Products.
+From time to time, governmental agencies such as the Centers for Disease Control and Prevention (“CDC”) issue
+diagnostic testing guidelines or recommendations, which can affect the usage of our products. For example, 
+27 
+Table of Contents 
+several years ago, the CDC issued guidelines recommending routine HIV screening for all people ages 13 to 64, with more frequent testing for people at higher risk. These recommendations have
+resulted in increased HIV testing, including with our OraQuick ADVANCE ® HIV-1/2 test. The CDC also issued
+guidelines with respect to HCV testing in 2012. The issuance of new testing guidelines, or changes in existing guidelines, and the manner in which these new or changed guidelines are interpreted and applied by healthcare practitioners, could have a
+positive or negative impact on the degree to which our OraQuick ® rapid HIV and HCV testing products are
+used. New or changed guidelines could affect the number of people tested, the frequency of testing and whether testing products such as our OraQuick ® HIV and HCV tests are used broadly for screening large populations or in a more limited capacity as a confirmatory test or otherwise. These factors could in turn
+affect the level of sales of our products and our results of operations. 
+Reductions in Government Funding and Research
+Budgets Could Adversely Affect Our Business and Financial Results. 
+We sell our OraQuick
+ADVANCE ® HIV-1/2 test and certain other products into the public health market which consists of state,
+county and other governmental public health agencies, community based organizations, service organizations and similar entities. We also sell these products into the hospital market, including to hospitals owned or operated by agencies of the U.S.
+government. Many of these customers depend to a significant degree on grants or funding provided by governmental agencies to run their operations including programs that use our products. In international markets, we often sell our products to or
+through foreign governmental agencies or parties funded by such agencies. 
+Our subsidiary, DNAG, sells many of its products to
+researchers at academic institutions, pharmaceutical and biotechnology companies, government laboratories and private foundations. Many of DNAG’s research customers are dependent for their funding on grants from U.S. governmental agencies such
+as the U.S. National Institutes of Health and agencies in other countries. 
+The level of available government grants or
+funding in the U.S. and elsewhere is unpredictable and may be affected by various factors including the current economic downturn, future economic conditions, legislative and regulatory developments, political changes, civil unrest and changing
+priorities for research and development activities. Any reduction or delay in government funding could cause our customers to delay, reduce or forego purchases of our products. 
+In August 2011, President Obama signed into law the Budget Control Act of 2011, which was designed to reduce federal spending over the
+next 10 years by $2.5 trillion. Under that law, a select committee of Congress was tasked with identifying and recommending $1.2 trillion in spending cuts by late November 2011. Because the committee did not agree on spending cuts within that time
+frame, certain automatic cuts to discretionary, national defense and Medicare spending became effective on March 1, 2013 and will remain in effect unless Congress takes further action. We cannot predict whether Congress will attempt to suspend or
+restructure the automatic budget cuts or what other deficit reduction initiatives may be proposed by Congress. Although their full impact is uncertain, the spending cuts implemented under this new law could adversely affect our customers’
+ability to purchase our products. In addition, other legislative or regulatory changes may be adopted which could adversely affect our ability to sell our current products or successfully develop and commercialize new products. 
+Increases in Demand for Our Products Could Require Us to Expend Considerable Resources or Harm Our Customer Relationships if We are
+Unable to Meet That Demand. 
+If we experience significant or unexpected increases in the demand for our products, we and
+our suppliers may not be able to meet that demand without expending additional capital resources. These capital resources could involve the cost of new machinery or new manufacturing facilities. This would increase our capital costs, which could
+adversely affect our earnings. Our suppliers may be unable or unwilling to expend the necessary 
+28 
+Table of Contents 
+capital resources or otherwise expand their capacity. In addition, new manufacturing equipment or facilities may require FDA approval before they can be used to manufacture our products. To the
+extent we are unable to obtain or are delayed in obtaining such approvals, our ability to meet the demand for our products could be adversely affected. 
+If we or our suppliers are unable to develop necessary manufacturing capabilities in a timely manner, our sales could be adversely affected. If we fail to increase production volumes in a cost effective
+manner or if we experience lower than anticipated yields or production problems as a result of changes that we or our suppliers make in our manufacturing processes to meet increased demand, we could experience shipment delays or interruptions and
+increased manufacturing costs, which could also have a material adverse effect on our revenues and profitability. 
+Unexpected
+increases in demand for our products may require us to obtain additional raw materials in order to manufacture products to meet the demand. Some raw materials require significant ordering lead time and some are currently obtained from a sole
+supplier or a limited group of suppliers. We have long-term supply agreements with certain of these suppliers, but these long-term agreements involve risks for us, such as our potential inability to obtain an adequate supply of raw materials and
+components and our reduced control over pricing, quality and timely delivery. It is also possible that one or more of these suppliers may become unwilling or unable to deliver materials to us. Any shortfall in our supply of raw materials and
+components, or our inability to quickly and cost-effectively obtain alternative sources for this supply, could have a material adverse effect on our ability to meet increased demand for our products. This could negatively affect our total revenues
+or cost of sales and related profits. 
+Our inability to meet customer demand for our products could also harm our customer
+relationships and impair our reputation within the industry. This, in turn, could have a material adverse effect on our business and prospects. 
+We Rely on Information Technology in Our Operations and Any Material Failure, Inadequacy, Interruption or Security Breach of that Technology Could Harm Our Ability to Efficiently Operate Our Business.
+We rely heavily on information technology systems across our operations and on the internet, including for management of
+inventory, purchase orders, invoices, shipping, interactions with our third-party logistics provider, revenue and expense accounting, online business and various other processes and transactions. Our ability to effectively manage our business,
+coordinate the production, distribution and sale of our products and ensure the timely and accurate recording and disclosure of financial information depends significantly on the reliability and capacity of these systems and the internet. The
+failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, a breach in security of these systems through a cyber attack or otherwise, or disruptions in the operation of the internet, could cause
+delays in product sales and reduced efficiency of our operations. Significant capital investments could be required to remediate any such problem. Security breaches of employee information or other confidential or proprietary data could also
+adversely impact our reputation, and could result in litigation against us or the imposition of penalties. 
+Risks Relating
+to Collaborators 
+The Use of Sole Supply Sources or Third-Party Suppliers For Critical Components of Our Products Could
+Adversely Affect Our Business. 
+We currently purchase certain critical components of our products from
+sole supply sources or other third party suppliers. For example, the biological antigens, nitrocellulose and certain other components required to make our OraQuick ADVANCE ® HIV-1/2 test, OraQuick ® 
+In-Home HIV test and OraQuick ® HCV test are currently purchased from sole source suppliers. Our OraSure QuickFlu ™ test is manufactured and supplied by a sole source supplier and the conjugates used in our MICROPLATE oral fluid
+drugs of abuse assays are obtained from third party suppliers. 
+29 
+Table of Contents 
+In addition, our subsidiary, DNAG, uses two third party manufacturers
+to supply virtually all of its products, including its Oragene ® line of collection kits. Many of the raw
+materials and components used in its products are also purchased from third parties, a critical one of which is obtained from a sole source supplier. 
+If our third-party suppliers are unable or unwilling to supply or manufacture a required component or product or if they make changes to a component, product or manufacturing process or do not supply
+materials meeting our specifications, we may need to find another source and/or manufacturer. This could require that we perform additional development work. We may also need to obtain FDA or other regulatory approvals for the use of an alternative
+component or for changes to our products or manufacturing process. Completing that development and obtaining such approvals could require significant time and expense and such approvals may not occur at all. The availability of critical components
+and products from sole supply sources or other third parties could also reduce our control over pricing, quality and timely delivery. These events could either disrupt our ability to manufacture and sell certain of our products into one or more
+markets or completely prevent us from doing so, and could increase our costs. Any such event could have a material adverse effect on our results of operations, cash flow and business. 
+Our Failure to Maintain Existing Distribution Channels, or Develop New Distribution Channels, May Result in Lower Revenues.
+We have marketed many of our products by collaborating with laboratories, diagnostic companies and distributors. Our sales
+depend to a substantial degree on our ability to sell products to these customers and on the marketing and distribution abilities of the companies with which we collaborate. 
+Relying on distributors or others to market and sell our products could harm our business for various reasons, including: 
+• 
+Our distributors or other customers may not fulfill their contractual obligations to us or otherwise market and distribute our products in the manner
+or at the levels we expect; 
+• 
+We do not control the incentives provided by our distributors to their sales personnel and the effectiveness of these incentives could affect sales of
+our products; 
+• 
+Agreements with distributors may terminate prematurely due to disagreements or may result in litigation between the parties;
+• 
+We may not be able to renew existing distribution agreements on acceptable terms or at all; 
+• 
+Our distributors may not devote sufficient resources or priority to the sale of our products; 
+• 
+Our existing distributor relationships or contracts may preclude or limit us from entering into arrangements with other distributors; and
+• 
+We may not be able to negotiate future distribution agreements on acceptable terms or at all. 
+Although we will try to maintain and expand our business with distributors and customers and require that they fulfill their contractual
+obligations, there can be no assurance that such companies will do so or that new distribution channels will be available on satisfactory terms. As a result, our revenues and business could be adversely affected. 
+The Unavailability of an FDA-Approved HIV-1 EIA Screening Test Distributed by a Third Party Could Adversely
+Affect Sales of Our OraSure ® Oral Fluid Collection Device. 
+In testing an oral fluid sample collected with an OraSure ® device for HIV-1 in the United States, our customers must use an HIV-1 EIA screening test approved by the FDA for use with our OraSure ® collection device. There is currently only one company, Avioq, Inc., that manufactures and sells such an
+FDA-approved screening test. If at some point in the future our customers cannot purchase the Avioq HIV-1 EIA or otherwise obtain an HIV-1 EIA screening test that has been approved by the FDA for use with our OraSure ® collection device, sales of our OraSure ® device could be negatively affected. 
+30 
+Table of Contents 
+We May Need Strategic Partners to Assist in Developing and Commercializing Some of Our
+Diagnostic Products. 
+Although we intend to pursue some product opportunities independently, opportunities that require a
+significant level of investment for development and commercialization or a distribution network beyond our existing sales force may necessitate involving one or more strategic partners. Our strategy for development and commercialization of products
+may entail entering into arrangements with distributors or other corporate partners, universities, research laboratories, licensees and others. Relying on collaborative relationships could be risky to our business for a number of reasons, including:
+• 
+We may be required to transfer material rights to such strategic partners, licensees and others; 
+• 
+Our collaborators may not devote sufficient resources or attach a sufficiently high priority to the success of our collaboration;
+• 
+Our collaborators may not obtain regulatory approvals necessary to continue the collaborations in a timely manner; 
+• 
+Our collaborators may be acquired by another company, decide to terminate our collaborative arrangement or become insolvent;
+• 
+Our collaborators may develop technologies or components competitive with our products; 
+• 
+Disagreements with collaborators could result in the termination of the relationship or litigation; 
+• 
+Collaborators may not have sufficient capital resources; and 
+• 
+We may not be able to negotiate future collaborative arrangements, or renewals of existing collaborative agreements, on acceptable terms or at all.
+While we generally expect that our collaborative partners will have an economic motivation to succeed in
+performing their contractual responsibilities, there is no assurance that they will do so and the amount and timing of resources to be devoted to these activities will be controlled by others. Consequently, there can be no assurance that any
+revenues or profits will be derived from such arrangements. 
+Actions of Third-Party Inventory Management and Logistics
+Providers Could Adversely Affect Our Ability to Supply Products to Our Customers. 
+We use third-party logistics providers
+to store and manage our finished goods inventory and ship finished product to our customers. We have selected highly reputable providers with extensive experience in the logistics field for these services. However, in the event any of our providers
+lose or damage our products, experience a casualty or catastrophic event at a warehouse or otherwise fail to provide safe storage and timely handling and delivery of our products, we could incur additional costs, experience difficulty in supplying
+our products to our customers or suffer damage to our reputation in the industry. These events could, in turn, reduce our revenues and adversely affect our results of operations. 
+Risks Relating to Intellectual Property 
+Our Success Depends on Our Ability to Protect Our Proprietary Technology. 
+The diagnostics industry places considerable importance on obtaining patent, trademark and trade secret protection, as well as other
+intellectual property rights, for new technologies, products and processes. Our success depends, in part, on our ability to develop and maintain a strong intellectual property portfolio or obtain licenses to patents and technologies both in the
+United States and in other countries. If we cannot continue to develop, obtain and protect intellectual property rights, our revenue and gross profits could be adversely affected. Moreover, our current and future licenses or other rights to patents
+and other technologies may not be adequate for the operation of our business. 
+31 
+Table of Contents 
+As appropriate, we intend to file patent applications and obtain patent protection for our
+proprietary technology. These patent applications and patents will cover, as applicable, compositions of matter for our products, methods of making those products, methods of using those products and apparatus relating to the use or manufacture of
+those products. 
+We will also rely on trade secrets, know-how and continuing technological advancements to protect our
+proprietary technology. We have entered, and will continue to enter, into confidentiality agreements with our employees, consultants, advisors and collaborators. Our employees and third-party consultants also sign agreements requiring that they
+assign to us interests in inventions and original expressions and any patents or copyrights arising from their work. However, these parties may not honor these agreements. 
+We cannot guarantee that the process of filing patents, the laws governing trade secrets and proprietary information, or any agreements we enter into with employees, consultants, advisors or collaborators
+will provide adequate protection of our intellectual property rights. Moreover, issued patents remain in effect for a fixed period and after expiration will not provide protection of the inventions they cover. Once our patents expire, we may be
+faced with increased competition, which could reduce our revenues. We may also not be able to successfully protect our rights to unpatented trade secrets and know-how. Others may independently develop substantially equivalent proprietary information
+and techniques or otherwise gain access to our trade secrets and know-how. 
+Some of our employees, including scientific and
+management personnel, were previously employed by competing companies. Although we encourage and expect all of our employees to abide by any confidentiality agreement with a prior employer, competing companies may allege trade secret violations and
+similar claims against us. 
+We may collaborate with universities and governmental research organizations which, as a result,
+may acquire part of the rights to any inventions or technical information derived from our collaboration with them. 
+To
+facilitate development and commercialization of a proprietary technology base, we may need to obtain licenses to patents or other proprietary rights from other parties. Obtaining and maintaining such licenses may require the payment of substantial
+amounts. In addition, if we are unable to obtain these types of licenses, our product development and commercialization efforts may be delayed or precluded. 
+We May Become Involved in Intellectual Property Disputes, Which Could Increase our Costs and Limit or Eliminate Our Ability to Sell Products or Use Certain Technologies. 
+From time to time, we may seek to enforce our patents or other intellectual property rights through litigation. In addition, there are a
+large number of patents and patent applications in our product areas, and additional patents may be issued to third parties relating to our product areas. We or our customers may be sued for infringement of patents or misappropriation of other
+intellectual property rights with respect to one or more of our products. Litigation in our industry regarding patent and other intellectual property rights is prevalent and is expected to continue. 
+Our industry is characterized by a large number of patents, claims of which appear to overlap in many cases. As a result, there is a
+significant amount of uncertainty regarding the extent of patent protection and infringement. Companies may have pending patent applications, which are typically confidential for the first eighteen months following filing, that cover technologies we
+incorporate in our products. Accordingly, we may be subjected to substantial damages for past infringement or be required to modify our products or stop selling them if it is ultimately determined that our products infringe a third party’s
+proprietary rights. In addition, governmental agencies could commence investigations or criminal proceedings against our employees or us relating to claims of misuse or misappropriation of another party’s proprietary rights. 
+32 
+Table of Contents 
+Our involvement in litigation or other legal proceedings with respect to patents or other
+intellectual property and proprietary technology, either as a plaintiff or defendant, could adversely affect our revenues, market share, results of operations and business because: 
+• 
+As is common with major litigation, it could consume a substantial portion of managerial and financial resources; 
+• 
+Its outcome would be uncertain and a court may find that our patents are invalid or unenforceable in response to claims by another party or that the
+third-party patent claims are valid and infringed by our products; 
+• 
+An adverse outcome could subject us to the loss of the protection of our patents or to liability in the form of past royalty payments, penalties,
+reimbursement of litigation costs and legal fees, special and punitive damages, or future royalty payments significantly affecting our future earnings; 
+• 
+Failure to obtain a necessary license upon an adverse outcome could prevent us from selling our current products or other products we may develop or
+acquire; 
+• 
+The pendency of any litigation may in and of itself cause our distributors and customers to reduce or terminate purchases of our products; and
+• 
+A court could award a preliminary and/or permanent injunction, which would prevent us from selling our current or future products.
+We may indemnify some customers and strategic partners under our agreements with such parties if our
+products or activities have actually or allegedly infringed upon, misappropriated or misused another party’s proprietary rights. Further, our products may contain technology provided to us by other parties, such as contractors, suppliers or
+customers, and we may have little or no ability to determine in advance whether such technology infringes the intellectual property rights of a third party. These other parties may also not be required or financially able to indemnify us in the
+event that an infringement or misappropriation claim is asserted against us. 
+We may also become involved in other types of
+disputes regarding intellectual property rights, including state, federal or foreign court litigation, and patent interference, patent reexamination, patent reissue, or trademark opposition proceedings in the United States Patent and Trademark
+Office. Opposition or revocation proceedings could be instituted in a foreign patent office as well. An adverse decision in any proceeding regarding intellectual property rights could result in the loss or limitation of our rights to a patent, an
+invention or trademark. 
+The Sales Potential for Our OraQuick ® Products Could be Affected by Our Ability to Obtain Certain Licenses and by Future Litigation. 
+Our OraQuick ® test platform is a lateral flow assay that tests for specific antibodies or other substances. The term “lateral flow” generally refers to a test strip
+through which a sample flows and which provides a test result on a portion of the strip downstream from where the sample is applied. There are numerous patents in the United States and other countries which claim lateral flow assay methods and
+devices. There are also patents that cover the type of analyte or antibody (i.e., HIV-1, HIV-2, HCV, etc.) which our
+OraQuick ® test is designed to detect. Some of these patents may broadly cover the aspects of our OraQuick ® test and are in force in the United States and other countries. We may not be able to make or sell the OraQuick ® test in the United States or other countries where these patents are in force. 
+We have obtained licenses under several lateral flow patents, and patents covering assays directed at specific
+analytes, which we believe are sufficient to permit the manufacturing and sale of the OraQuick ® device as
+currently contemplated. However, licenses under additional patents may be required and it is possible that a third party could seek to enforce one or more patents against us. 
+33 
+Table of Contents 
+If we are unable to successfully defend against or resolve patent
+infringement litigation or it is determined that a license is required and it is not possible to negotiate or otherwise obtain a license agreement on reasonable terms under a necessary patent, our ability to manufacture and sell OraQuick ® devices and develop and commercialize new applications using the same technology could be limited and we may incur
+increased costs or damages. In such case, we may be able to modify the OraQuick ® test to avoid the claim of
+infringement or the need for a license. However, this alternative could preclude or limit our ability to sell the
+OraQuick ® test in the United States and other markets, which would adversely affect our results of operations,
+cash flow and business. 
+Risks Relating to Products, Marketing and Sales 
+A Market for Our Products May Not Develop. 
+Our future success will depend, in part, on the market acceptance, and the timing of such acceptance, of new products
+such as our OraQuick ® HCV test, an OraQuick ® In-Home HIV test, and other new products or technologies that may be developed or acquired. To achieve market acceptance, we and/or our distributors will likely be
+required to undertake substantial marketing efforts and spend significant funds to inform potential customers and the public of the existence and perceived benefits of these products. In addition, governmental funding for the purchase of our
+products may be needed to help create market acceptance and expand the use of our products. 
+There may be
+limited evidence on which to evaluate the market reaction to products that may be developed and our marketing efforts for new products may not be successful. It is also possible that governmental funding may be limited for new products, such as an
+OraQuick ® HCV test. As such, there can be no assurance that any products will obtain market acceptance and fill
+the market need that is perceived to exist. 
+If Acceptance and Adoption of Oral Fluid Testing and Collection Products Does
+Not Continue, Our Future Results May Suffer. 
+We have made significant progress in gaining acceptance of oral fluid testing
+products, particularly for (i) HIV testing in the public health, hospital, insurance and other markets, and (ii) drugs of abuse testing in the workplace and criminal justice markets. Our subsidiary, DNAG, has also made significant progress
+in gaining acceptance of oral fluid collection products that are used with genetic and other molecular testing applications. However, the degree of acceptance for these products is uncertain, and one or more markets may resist the adoption of oral
+fluid products as a replacement for other testing or collection methods in use today. As a result, there can be no assurance that we will be able to expand the use of our oral fluid testing products in these or other markets. 
+Our Customers May Resist Adoption of Rapid Point-of-Care Diagnostic Testing. 
+Sales of our rapid point-of-care diagnostic products, such as our OraQuick ADVANCE ® HIV-1/2 and OraQuick ® HCV tests, are an important part of our business. Rapid point-of-care tests are beneficial to healthcare providers because, among other things, they can be
+administered by providers in their own facilities without sending samples to central laboratories and can help ensure that test results are delivered to the individuals being tested. 
+However, clinical reference laboratories and hospital-based laboratories currently provide the majority of diagnostic tests used by
+physicians and other healthcare providers in the U.S. In certain international markets such as Europe, diagnostic testing is performed primarily by centralized laboratories. Our future sales will depend, in part, on our ability to expand market
+acceptance of rapid point-of-care testing by physicians and other healthcare providers and successfully compete against laboratory testing methods and products. We expect that clinical reference and other hospital-based laboratories will continue to
+compete vigorously against our rapid point-of-care products. Even if we can demonstrate that our products are more cost effective, save time, or have 
+34 
+Table of Contents 
+better performance or other benefits, physicians and other healthcare providers may resist changing to rapid point-of-care tests and instead may choose to use competing laboratory tests. Our
+failure to achieve market acceptance of our rapid point-of-care diagnostic tests with customers would have a negative effect on our future sales growth. 
+We Expect to Face Intense Competition From Other Providers of Diagnostic Tests and Collection Products. 
+Our rapid point-of-care tests compete with similar point-of-care products made by our competitors. This competition is particularly evident with respect to our OraQuick ADVANCE ® HIV-1/2 test. In addition, the Oragene ® product line sold by our subsidiary, DNAG, competes against other molecular collection products, such as blood collection kits and buccal swabs. There are a number of
+competitors making investments in competing technologies and products, and a number of our competitors may have a competitive advantage because of their greater financial, technical, research and other resources. Moreover, some competitors offer
+broader product lines, aggressively discount prices for their products and may have greater name recognition than we have. If our competitors’ products are more effective than ours or take market share from our products through more effective
+marketing or competitive pricing, our revenues, margins and operating results could be adversely affected. 
+Our future Growth Depends, In Part, on Our Ability to Commercialize the OraQuick ® In-Home HIV Test. 
+Our future growth will depend, in part, on our ability to commercialize and market the OraQuick ® In-Home HIV Test in the OTC market. Successful commercialization of the OraQuick ® In-Home HIV Test will depend on a number of factors, including achieving widespread awareness and adoption of the product among the targeted consumer base,
+initiating and maintaining relationships with suppliers and retailers, protecting against and effectively responding to any claims by holders of patents and other intellectual property rights that our OTC product infringes their rights,
+obtaining and maintaining sufficient inventory of the product, the performance of our toll-free customer support center and our comprehensive consumer website relating to the product, and our ability to successfully market the product at the
+projected selling price. There can be no assurance that we will be successful in these endeavors. Because of the need to build broad awareness for this new product, our advertising and marketing expenditures are expected to be substantial for the
+foreseeable future. In addition, retailers generally have broad product return rights which may be exercised if sufficiently high sales to consumers are not achieved. Successful commercialization of this product will also depend on whether any
+unanticipated adverse effects result from use of the product, or unfavorable publicity develops in respect of the product, as well as the emergence of new or existing products as competition, which are proven to be more clinically or cost-effective.
+Sales of Our OraSure QuickFlu ™ Test May be Affected by Factors Beyond Our Control. 
+We sell a rapid flu test under the tradename OraSure QuickFlu ™ ,
+primarily in the U.S. hospital and public health markets. A number of factors that are beyond our control could affect sales of this product, including: 
+• 
+Variability in the timing of the onset, length and severity of the flu season, which typically occurs from November of one year to May of the following
+year; 
+• 
+Competition from other rapid flu tests in the markets we serve; 
+• 
+Deficiencies in the manufacture, design or performance of the product or failure by the manufacturer to meet applicable quality and regulatory
+standards; 
+• 
+The failure of our supplier for this product to obtain a CLIA waiver, which we believe is important to expand sales, particularly in the public health
+market; 
+• 
+The inability of our supplier to provide sufficient quantities of the product; 
+• 
+Changes in the types or strains of influenza during a particular flu season; 
+• 
+Lower than expected market penetration of the OraSure QuickFlu ™ test; and 
+• 
+Our inexperience in selling a rapid flu test. 
+35 
+Table of Contents 
+Our Inability to Carry Out Certain of Our Marketing and Sales Plans May Make it
+Difficult for Us to Grow or Maintain Our Business. 
+We have implemented in the past, and we intend to implement in the
+future, an aggressive sales and marketing plan to expand sales of our products. Specifically, we will continue to expand the impact of our direct field sales force, use third party distributors and manufacturers’ sales representatives, and
+implement other sales and marketing programs. If we are unable to successfully implement these programs or modify these programs in response to evolving market and economic conditions, we may be unable to grow and our business could suffer.
+Our Sales Cycles Can be Lengthy, and May Depend on Public Funding, Which Can Cause Variability and Unpredictability in Our
+Operating Results. 
+The sales cycles for certain of our products can be lengthy and unpredictable,
+which makes it more difficult to accurately forecast revenues in a given period and may cause revenues and operating results to vary from period to period. Sales of our products often involve purchasing decisions by large public and private
+institutions, may require many levels of approval and may be dependent on economic or political conditions and the availability of grants or funding from governmental or public health agencies which can vary from period to period in both amount and
+timing. For example, in past years our OraQuick ADVANCE ® HIV-1/2 test has been purchased through bulk
+procurement or other funding provided by governmental agencies. Our OraQuick ® HCV test has been purchased by
+customers who receive government funding, and we believe increased funding from the CDC and other agencies will be required to substantially increase the volume of HCV testing, especially in the public health market. There can be no assurance that
+purchases or funding from these agencies will occur or continue, especially if current negative economic conditions continue or intensify. As a result, we may expend considerable resources on unsuccessful sales efforts or we may not be able to
+complete transactions at all or on a schedule and in an amount consistent with our objectives. 
+We May be Sued for Product
+Liabilities for Injuries Resulting From the Use of Our Products. 
+We may be held liable if any of our products, or any
+product which is made with the use or incorporation of any of our technologies, causes injury of any type or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or usage. There is no assurance that we would be
+successful in defending any product liability lawsuits brought against us. Regardless of merit or eventual outcome, product liability claims could result in: 
+• 
+Decreased demand for our products; 
+• 
+Lost revenues; 
+• 
+Damage to our image or reputation; 
+• 
+Costs related to litigation; 
+• 
+Diversion of management time and attention; and 
+• 
+Incurrence of damages payable to plaintiffs. 
+We are selling cryosurgical products in the consumer or OTC market in certain countries and we may expand OTC sales
+of these products into other countries. We recently launched the OraQuick ® In-Home HIV test in the United States
+OTC market, and we are considering the expansion of this product internationally. We believe the sale of products in the OTC market increases our potential exposure to product liability and other claims. 
+The Insurance We Purchase to Cover Our Potential Business Risks May be Inadequate. 
+Although we believe that our present product liability and other insurance coverage is sufficient to cover our current estimated
+exposures, we cannot be sure that we will not incur liabilities in excess of our policy limits. In addition, although we believe that we will be able to continue to obtain adequate coverage in the future, there is no assurance that we will be able
+to do so at acceptable costs. 
+36 
+Table of Contents 
+We Could Suffer Monetary Damages, Incur Substantial Costs or be Prevented From Using
+Technologies Important to Our Products as a Result of Legal Proceedings. 
+We have been and in the future may become
+involved in various legal proceedings arising out of our businesses. These may include commercial disputes, negligence claims or various other lawsuits arising in the ordinary course of our business, including employment matters. Such lawsuits can
+seek damages, sometimes in substantial amounts, for commercial or personal injuries allegedly suffered and can include claims for punitive or other special damages. An adverse ruling or rulings in one or more such lawsuits could, individually or in
+the aggregate, result in the termination or modification of a material contract or otherwise have a material adverse effect on our sales, operations or financial performance. 
+Performance of Our Products May Affect Our Revenues, Stock Price and Reputation. 
+Our products are generally sold with labeling that contains performance claims approved or cleared by the FDA or other regulators. However, our products may not perform as expected. For example, a defect
+in one of our diagnostic products or a failure by a customer to follow proper testing procedures, may cause the product to report inaccurate information such as a false positive result or a false negative result. A false positive or negative result
+can also occur even when there is no apparent product defect and the customer has apparently used our product properly. Identifying the root cause of a product performance or quality issue can be difficult and time consuming. 
+If our products fail to perform in accordance with the applicable label claims or otherwise in accordance with the expectations or needs
+of our customers, customers may switch to a competing product or otherwise stop using our products, and our revenues could be adversely affected. Under such circumstances, we may be required to implement shipment holds or product recalls and incur
+warranty obligations, which would increase our costs. In addition, poor performance by one or more of our products and publicity surrounding such performance could have an adverse effect on our reputation, our continuing ability to sell products and
+the prevailing market price of our Common Stock. 
+Our International Presence May Increase Our Risks and Expose Our Business
+to Regulatory, Cultural or Other Restraints. 
+We intend to increase revenue derived from international sales of our
+products. Our international sales accounted for $20.3 million or 23% of total revenues in 2012, $14.2 million or 17% of total revenues in 2011 and $11.5 million or 15% of total revenues in 2010. In addition, as a result of our acquisition of DNAG,
+we now have a direct presence in Canada. 
+A number of factors could adversely affect the performance of our business and/or
+cause us to incur substantially increased costs because of our international presence and sales, including those set forth below: 
+• 
+Uncertainty in the application of foreign laws and the interpretation of contracts with foreign parties; 
+• 
+The potential for inconsistent imposition of legal and regulatory requirements; 
+• 
+Cultural and political differences that favor local competitors or make it difficult to effectively market, sell and gain acceptance of our products;
+• 
+Inexperience in international markets and territories and difficulties in staffing and managing foreign operations; 
+• 
+Exchange rates, currency fluctuations, tariffs and other barriers, extended payment terms and dependence on international distributors or
+representatives; 
+• 
+Regulatory requirements (including compliance with applicable customs regulations) and the need for reimbursement approvals;
+37 
+Table of Contents 
+• 
+The inability to obtain or maintain ISO certification for our or our suppliers’ manufacturing facilities; 
+• 
+Our inability to obtain or maintain regulatory approvals or registrations for our products; 
+• 
+Our inability to identify international distributors and negotiate acceptable terms for distribution agreements; 
+• 
+Diversion to the U.S. of our products sold at lower prices into international markets; 
+• 
+The loss of one or more distributors and difficulties or delays in obtaining new or transferred product registrations or approvals for use by a
+replacement distributor; 
+• 
+The creditworthiness of foreign distributors and customers and difficulty in collecting foreign accounts receivable; 
+• 
+Difficulty of enforcing contractual obligations or recovering damages under foreign legal systems; 
+• 
+Economic conditions, political instability, the absence of available funding sources, terrorism, civil unrest, war and natural disasters in foreign
+countries; 
+• 
+Our exposure to liability under the Foreign Corrupt Practices Act and various other laws, rules and/or regulations applicable to us as a result of our
+international sales; 
+• 
+Long sales cycles in international markets, especially for sales to foreign governments, quasi-governmental agencies and international public health
+agencies; 
+• 
+The sale of competing products by foreign competitors at prices at or below the prices we offer for our products; 
+• 
+Restrictions on our ability to repatriate investments and earnings from foreign operations; 
+• 
+Changes in shipping costs; 
+• 
+The unavailability of licenses to certain patents in force in a foreign country which cover our products; and 
+• 
+Reduced protection for, or enforcement of, our patents and other intellectual property rights in foreign countries. 
+In addition, we have contracted with a third party for the manufacture of a portion of our OraQuick ® HIV-1/2 tests in Thailand, and all of DNAG’s products are produced in Canada. In addition, the Histofreezer ® cryosurgical product sold in international markets is currently manufactured by a third party in The Netherlands. We
+may enter into agreements to manufacture these or other products in additional foreign countries as well. However, economic, cultural and political conditions and foreign regulatory requirements may slow or prevent the manufacture of our products in
+countries other than the United States. Interruption of the supply of our products could reduce revenues or cause us to incur significant additional expenses in finding an alternative source of supply. Foreign currency fluctuations and economic
+conditions in foreign countries could also increase the costs of manufacturing our products in foreign countries. 
+Risks
+Relating to the Economy, Our Financial Results, Investments, Credit Facilities and Need for Financing 
+Continued
+Economic Volatility and Disruption Could Adversely Affect Our Results of Operations, Cash Flow and Financial Condition or Those of Our Customers and Suppliers. 
+Current volatile economic conditions may continue for the foreseeable future and intensify. These conditions have adversely affected and could continue to adversely affect our financial performance and
+condition or those of our customers and suppliers. These circumstances could adversely affect our access to 
+38 
+Table of Contents 
+liquidity needed to conduct or expand our business or conduct future acquisitions or make other discretionary investments. Many of our customers rely on public funding provided by federal, state
+and local governments, and this funding has been and may continue to be reduced or deferred as a result of economic conditions. These circumstances may adversely impact our customers and suppliers, which, in turn, could adversely affect their
+ability to purchase our products or supply us with necessary equipment, raw materials or components. 
+We Have a History of
+Losses and May Not Be Able to Achieve Sustained Profitability. 
+We have experienced annual net losses since 2008. In
+addition, as of December 31, 2012, the Company had an accumulated deficit of $162.5 million. Even though we achieved profitability several years ago, there can be no assurance that we will be able to achieve or sustain profitability in the
+future. 
+Our ability to achieve and sustain profitability in the future will be dependent upon a number of factors including,
+without limitation, the following: 
+• 
+Creating market acceptance for and selling increasing volumes of our OraQuick ADVANCE ® HIV-1/2 test and our
+OraQuick ® HCV test in the United States and internationally; 
+• 
+Our ability to successfully commercialize our OraQuick ® In-Home HIV test and the magnitude of promotional costs related to this product; 
+• 
+The level of expenditures we are required to make in order to develop, obtain regulatory approvals for and successfully commercialize our new products;
+• 
+Our ability to successfully launch new products after receipt of required regulatory approvals or the acquisition of rights to those products;
+• 
+The success and revenue growth of our new subsidiary, DNAG, and the sales of its Oragene ® product line; 
+• 
+The degree to which certain of our new products may replace sales of our existing products and the financial impact of that change, including the
+degree to which our OraQuick ADVANCE ® HIV-1/2 test will replace our OraSure ® collection device for HIV-1 testing or sales of our cryosurgical wart removal products in OTC markets will replace
+sales of our Histofreezer ® product to physicians’ offices or other professional markets;
+• 
+The degree to which our major distributors comply with their contractual obligations, including minimum purchase commitments;
+• 
+Whether we are successful in obtaining and maintaining required regulatory approvals and registrations for our new products;
+• 
+Changes in the level of competition, such as would occur if larger and financially stronger competitors introduced new or lower priced products to
+compete with our products; 
+• 
+Changes in economic conditions in domestic or international markets, such as economic downturns, reduced demand, inflation and currency fluctuations;
+• 
+Failure to achieve our targets for growth in revenues; 
+• 
+Changes in distributor buying patterns or a buildup of significant quantities in our distributors’ inventories or distribution channels; and
+• 
+The costs and results of patent infringement, product liability and other litigation or claims asserted against us. 
+We May Experience Fluctuations in Our Financial Results or Fail to Meet Our Financial Projections. 
+Our operating results can fluctuate from quarter to quarter and year to year, which could cause our growth or financial performance to
+fall below the expectations of investors and securities analysts. Our financial projections 
+39 
+Table of Contents 
+for future periods are based on a number of assumptions, including estimated demand for our products. However, sales to our distributors and other customers may fall short of expectations because
+of less than estimated customer demand or other factors, including continued volatility and disruption in economic conditions, reduced governmental funding and other circumstances described elsewhere in this Annual Report. Infrequent, unusual or
+unexpected changes in revenues or costs could also contribute to the variability of our financial results. In addition, our products provide different contributions to our gross margin and our operating results could also fluctuate and be affected
+by the mix of products sold and the relative prices and gross margin contribution of those products. Failure to achieve operating results consistent with the expectations of investors and securities analysts could adversely affect our reputation and
+the price of our Common Stock. 
+Our Estimates or Judgments Relating to Critical Accounting Policies Are Based on
+Assumptions That Can Change or Prove to be Incorrect. 
+Our discussion and analysis of financial condition and results of
+operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting
+principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate significant estimates used in preparing our financial statements,
+including those related to: 
+• 
+Revenue recognition; 
+• 
+Allowance for uncollectible accounts receivable; 
+• 
+Reserve for inventory write-downs; 
+• 
+Stock-based compensation; 
+• 
+Potential impairment of long-lived and intangible assets including goodwill; 
+• 
+Income taxes; and 
+• 
+Contingencies. 
+We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in our discussion and analysis of financial condition
+and results of operations, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these and other estimates if our
+assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price. 
+Changes in Foreign Currency Exchange Rates Could Negatively Affect Our Operating Results. 
+Our financial statements are stated in U.S. Dollars and, historically, most of our international sales have also been denominated in U.S.
+Dollars. As a result, in the past our exposure to foreign currency exchange rate risk has not been material. However, the revenues and operating results of our subsidiary, DNAG, are recorded in Canadian Dollars and certain of its international sales
+are denominated in local currencies, including the Euro, British Pound and Australian Dollar. In 2012, DNAG reported total revenues of U.S. $14.3 million. Our expectation is that the DNAG business will continue to grow and our exposure to
+foreign currency exchange rates may be more significant than in past years. 
+Exchange rate fluctuations may affect DNAG’s
+revenues and expenses and the translation of DNAG’s financial results into U.S. Dollars. Unfavorable currency exchange rate fluctuations could negatively affect our consolidated financial statements including our balance sheet, revenues and
+results of operations. In the past, we have not generally entered into hedging instruments to manage our currency exchange rate risk, but we may need 
+40 
+Table of Contents 
+to do so in the future. However, our attempts to hedge against these risks may not be successful. If we are unable to successfully hedge against unfavorable foreign currency exchange rate
+movements, our consolidated financial results may be adversely impacted. 
+We May Require Future Additional Capital.
+Our future liquidity and ability to meet our future capital requirements will depend on numerous factors, including, but
+not limited to, the following: 
+• 
+The costs and timing of expansion of sales and marketing activities; 
+• 
+The timing and success of the commercial launch of new products; 
+• 
+The extent to which we gain or expand market acceptance for existing, new or enhanced products; 
+• 
+The costs and timing of the expansion of our manufacturing capacity; 
+• 
+The success of our research and product development efforts; 
+• 
+The time, cost and degree of success of conducting clinical trials and obtaining regulatory approvals; 
+• 
+The magnitude of capital expenditures; 
+• 
+Changes in existing and potential relationships with distributors and other business partners; 
+• 
+The costs involved in obtaining and enforcing patents, proprietary rights and necessary licenses; 
+• 
+The costs and liability associated with patent infringement or other types of litigation; 
+• 
+Competing technological and market developments; and 
+• 
+The scope and timing of strategic acquisitions. 
+If additional financing is needed, we may seek to raise funds through the sale of equity or other securities or through bank borrowings. There can be no assurance that financing through the sale of
+securities, bank borrowings or otherwise, will be available to us on satisfactory terms, or at all. 
+Terrorist Attacks or
+National Disasters May Adversely Affect Our Business. 
+Terrorist attacks or natural disasters, and subsequent governmental
+responses to these events, could cause economic instability. These actions could adversely affect economic conditions both within and outside the United States and reduce demand for our products. These events could disrupt the operations of our
+customers and suppliers and eliminate, reduce or delay our customers’ ability to purchase and use our products and our suppliers’ ability to provide raw materials and finished products. 
+Although we have business interruption insurance, our facilities, including some pieces of manufacturing equipment and our computer
+systems, may be difficult to replace and could require substantial replacement lead-time. Various types of disasters, including earthquakes, fires, floods and acts of terrorism, may affect our manufacturing facilities and computer systems. In the
+event our existing manufacturing facilities or computer systems are affected by man-made or natural disasters, we may have difficulty operating our business and may be unable to manufacture products for sale or meet customer demands or sales
+projections. If our manufacturing operations were curtailed or ceased, it would seriously harm our business. 
+Risks Relating
+to Our Common Stock 
+Our Stock Price Could Continue to be Volatile. 
+Our stock price has been volatile, has fluctuated substantially in the past, may be volatile in the future and could experience
+substantial declines. The following factors, among others, could have a significant impact on the market for our Common Stock: 
+• 
+Future announcements concerning us and our products, including with respect to significant acquisitions, strategic collaborations and joint ventures;
+41 
+Table of Contents 
+• 
+The performance of our business, including our efforts to commercialize the OraQuick ® In-Home HIV test; 
+• 
+Clinical results with respect to our products or those of our competitors; 
+• 
+Status of clinical studies and pending submissions for required regulatory approvals; 
+• 
+The gain or loss of significant contracts and availability of funding for the purchase of our products; 
+• 
+Delays in the development, regulatory approval or commercialization of new or enhanced products; 
+• 
+Legislative developments and industry or competitive trends ; 
+• 
+Disputes or developments with key customers, distributors or suppliers; 
+• 
+Additions or departures of key personnel; 
+• 
+Developments in patent or other proprietary rights; 
+• 
+Litigation or threatened litigation; 
+• 
+Complaints or concerns about the performance or safety of our products and publicity about these issues, including publicity expressed through social
+media or otherwise over the internet; 
+• 
+Failure to achieve, or changes in, financial estimates by securities analysts and comments or opinions about us by securities analysts or major
+stockholders; 
+• 
+Governmental regulation; 
+• 
+Changes in the level of competition; 
+• 
+Loss of or declines in sales to major distributors or customers or changes in the mix of products sold; 
+• 
+The relatively low trading volume for our Common Stock; 
+• 
+Period to period fluctuations in our operating results; 
+• 
+Additions or departures of key personnel; 
+• 
+General market and economic conditions; and 
+• 
+Terrorist attacks, civil unrest, war and national disasters. 
+In addition, the stock market in general has experienced extreme price and volume fluctuations that have affected the market price of our
+Common Stock, as well as the stock of many companies in the diagnostics and life sciences industries. Often, price fluctuations are unrelated to operating performance of the specific companies whose stock is affected. 
+In the past, following periods of volatility in the market price of a company’s stock, securities class action litigation has
+occurred against the issuing company. If we were subject to this type of litigation in the future, we could incur substantial costs and a diversion of our management’s attention and resources, each of which could have a material adverse effect
+on our revenue and earnings. Any adverse determination in this type of litigation could also subject us to significant liabilities. 
+Future Sales of Our Common Stock by Existing Stockholders, Executive Officers or Directors Could Depress the Market Price of Our Common Stock and Make It More Difficult For Us to Sell Stock in the
+Future. 
+Sales of our Common Stock in the public market, or the perception that such sales may occur, could negatively
+impact the market price of our Common Stock. We are unable to estimate the number of shares of our Common Stock that may actually be resold in the public market since this will depend on the market price for our Common Stock, the individual
+circumstances of the sellers and other factors. 
+42 
+Table of Contents 
+We have a number of institutional stockholders that own significant blocks of our Common
+Stock. If one or more of these stockholders sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price of our Common Stock could be negatively affected. In addition, it is possible
+that one or more of our executive officers or non-employee members of our Board of Directors could sell shares of our Common Stock during an open trading window or pursuant to a 10b5-1 sales plan under our Insider Trading Policy. These transactions
+and the perceived reasons for these transactions could have a negative effect on the prevailing market price of our Common Stock. 
+Investor Confidence and Share Value May be Adversely Impacted if We and/or Our Independent Registered Public Accounting Firm Conclude That Our Internal Control Over Financial Reporting is Not
+Effective. 
+As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring us, as a
+public company, to include a report in our Annual Reports on Form 10-K that contains an assessment by management of the effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm
+must report on the effectiveness of these internal controls. 
+We expect that our internal controls will continue to evolve as
+our business activities change. Although we seek to diligently and vigorously review our internal control over financial reporting in an effort to ensure compliance with the Section 404 requirements, any control system, regardless of how well
+designed, operated and evaluated, can provide only reasonable, not absolute, assurance that its objectives will be met. In addition, the overall quality of our internal controls may be affected by the internal control over financial reporting
+implemented by any business we acquire, such as DNAG, and our ability to assess and successfully integrate the internal controls of any such business. 
+If, during any year, our independent registered public accounting firm is not satisfied with our internal control over financial reporting or the level at which our controls are documented, designed,
+operated, tested or assessed, or if the independent registered public accounting firm interprets the requirements, rules or regulations differently than we do, then it may issue a report that is qualified. We also could conclude that our internal
+control over financial reporting is not effective. These events could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements and effectiveness of our internal
+controls, which ultimately could negatively impact the market price of our Common Stock. 
+Because We Do Not Intend to Pay
+Cash Dividends on Our Common Stock, an Investor in Our Common Stock Will Benefit Only if it Appreciates in Value. 
+We
+currently intend to retain our current earnings and future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends on our Common Stock in the foreseeable future. As a result, the success of an
+investment in our Common Stock will depend entirely upon any future appreciation. There is no guarantee that our Common Stock will appreciate in value or even maintain the price at which investors purchased their shares. 
+Certain Provisions in Our Certificate of Incorporation and Bylaws and Under Delaware Law Could Make a Third-Party Acquisition of Us
+Difficult. 
+Our Certificate of Incorporation and Bylaws contain provisions that could make it more difficult for a third
+party to acquire us, even if doing so would be beneficial to our stockholders. We are also subject to certain provisions of Delaware law that could delay, deter or prevent a change in control of us. These provisions could limit the price investors
+might be willing to pay in the future for shares of our Common Stock. 
+43 
+Table of Contents 
+Future Sales of Shares of Our Common Stock Could Adversely Affect the Trading Price of
+Our Common Stock and Our Ability to Raise Funds in New Equity Offerings. 
+Future sales of a substantial number of our
+shares of Common Stock or equity-related securities in the public market or privately, or the perception that such sales may occur, could adversely affect prevailing trading prices of our Common Stock, and could impair our ability to raise capital
+through future offerings of equity or equity-related securities. No prediction can be made as to the effect, if any, that future sales of shares of Common Stock or the availability of shares of Common Stock for future sale will have on the trading
+price of our Common Stock. 
+ITEM 1B. 
+Unresolved Staff Comments. 
+Not Applicable. 
+ITEM 2. 
+Properties. 
+We own a
+48,000 square foot facility which is OraSure’s primary corporate office and manufacturing facility, a 31,700 square foot facility that houses our sales and marketing, research and development, human resources, and regulatory and quality
+offices, and a 33,500 square foot facility which is used for manufacturing activities. Each of these facilities is located in Bethlehem, Pennsylvania. We also rent additional warehouse space on an as-needed basis. In addition, our subsidiary, DNAG,
+leases a 23,500 square foot facility in Ottawa, Canada, which is used as its primary corporate office and houses sales and marketing, research and development, and regulatory and quality operations. 
+We believe that the facilities described above are adequate for our current requirements. 
+ITEM 3. 
+Legal Proceedings. 
+Employment
+Termination Claim 
+In August 2012, DNA Genotek Inc. (“DNAG”) received a Statement of Claim filed by a former
+employee with the Ontario Superior Court of Justice alleging, among other things, that DNAG had wrongfully terminated this individual and had breached the terms of his employment. In so doing, DNAG is also alleged to have violated this
+individual’s rights under the Ontario Human Rights Code. The Statement of Claim is seeking to recover in excess of $400,000 CDN in damages from DNAG. A Statement of Defence denying the allegations was filed by DNAG in October 2012. DNAG has
+also served discovery requests on the complainant but has not yet received any response. We believe the claims asserted by the complainant are without merit and DNAG intends to vigorously defend this matter. 
+ITEM 4. 
+Mine Safety Disclosures. 
+Not Applicable. 
+44 
+Table of Contents 
+PART II 
+ITEM 5. 
+Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 
+Market Information 
+Our
+Common Stock is listed for trading on the Global Select Market tier of The Nasdaq Stock Market LLC (“NASDAQ”) under the symbol OSUR. High and low sales prices reported by NASDAQ during the periods indicated are shown below. 
+Year ended December 31, 
+2012 
+2011 
+High 
+Low 
+High 
+Low 
+First Quarter 
+$ 
+11.78 
+$ 
+9.17 
+$ 
+7.87 
+$ 
+5.81 
+Second Quarter 
+12.28 
+8.90 
+9.00 
+7.06 
+Third Quarter 
+14.01 
+9.39 
+10.10 
+6.29 
+Fourth Quarter 
+11.34 
+6.56 
+9.96 
+7.52 
+On March 4, 2013, there were 485 holders of record and approximately 12,500 holders in street name
+of our Common Stock, and the closing price of our Common Stock was $5.42 per share. 
+Dividends 
+We have never paid any cash dividends and our Board of Directors does not anticipate paying cash dividends in the foreseeable future. We
+intend to retain any future earnings to provide funds for the operation and expansion of our business. 
+Share Repurchases and Retirements
+Pursuant to our Stock Award Plan and in connection with the vesting of restricted shares, we retired 2,956 shares to
+satisfy minimum tax withholding obligations during the three months ended December 31, 2012. No shares were repurchased under our $25.0 million share repurchase program during the same period. 
+45 
+Table of Contents 
+Performance Graph 
+The performance graph set forth below shall not be deemed “soliciting material” or “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the
+“Exchange Act”), or otherwise subject to liability under that Section. This graph will not be deemed “incorporated by reference” into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether such
+filing occurs before or after the date hereof, regardless of any general incorporation language in such filing. 
+The
+following graph compares the cumulative total returns to investors in the Company’s Common Stock, the NASDAQ Composite Index and the NASDAQ Biotechnology Index for the period from December 31, 2007 through December 31, 2012. The graph
+assumes that $100 was invested on December 31, 2007 in the Company’s Common Stock and in each of the above-mentioned indices, and that all dividends, if any, were reinvested. 
+The NASDAQ Composite Index was chosen because it is a broad index of companies whose equity securities are traded on the NASDAQ Stock
+Market. The NASDAQ Biotechnology Index was chosen because it includes a number of our competitors. Stockholders are cautioned that the graph shows the returns to investors only as of the dates noted and may not be representative of the returns for
+any other past or future period. 
+12/07 
+12/08 
+12/09 
+12/10 
+12/11 
+12/12 
+OraSure Technologies, Inc. 
+100.00 
+41.39 
+57.14 
+64.68 
+102.47 
+80.76 
+NASDAQ Composite 
+100.00 
+59.03 
+82.25 
+97.32 
+98.63 
+110.78 
+NASDAQ Biotechnology 
+100.00 
+93.40 
+103.19 
+113.89 
+129.12 
+163.33 
+46 
+Table of Contents 
+ITEM 6. 
+Selected Consolidated Financial Data 
+The following table sets forth selected consolidated financial data of the Company. This information should be read in conjunction with the consolidated financial statements and notes thereto included in
+Item 15 and the information set forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 
+Selected Consolidated Financial Data 
+(In thousands, except per share
+data) 
+Years ended December 31, 
+2012 
+2011 2 
+2010 
+2009 
+2008 
+Operating Results: 
+Net revenues 
+$ 
+87,820 
+$ 
+81,881 
+$ 
+75,015 
+$ 
+77,026 
+$ 
+71,104 
+Costs and expenses 
+104,090 
+91,278 
+78,369 
+85,819 
+82,551 
+Operating loss 
+(16,270 
+) 
+(9,397 
+) 
+(3,354 
+) 
+(8,793 
+) 
+(11,447 
+) 
+Other income (expense), net 
+(242 
+) 
+(313 
+) 
+(143 
+) 
+357 
+2,699 
+Income tax provision (benefit) 
+(1,397 
+) 
+(869 
+) 
+— 
+(622 
+) 
+22,527 
+3 
+Net loss 
+(15,115 
+) 
+(8,841 
+) 
+(3,497 
+) 
+(7,813 
+) 
+(31,275 
+) 3 
+Basic and diluted loss per share 
+$ 
+(0.29 
+) 
+$ 
+(0.19 
+) 
+$ 
+(0.08 
+) 
+$ 
+(0.17 
+) 
+$ 
+(0.67 
+) 
+Shares used in computing basic and diluted loss per share 
+51,457 
+46,908 
+46,187 
+45,878 
+46,550 
+Cash Flow: 
+Cash flows (used in) provided by operating activities 
+$ 
+(5,373 
+) 
+$ 
+(2,994 
+) 
+$ 
+3,887 
+$ 
+(293 
+) 
+$ 
+(2,460 
+) 
+December 31, 
+2012 
+2011 2 
+2010 
+2009 
+2008 
+Financial Position: 
+Cash, cash equivalents, and short-term investments 
+$ 
+87,888 
+1 
+$ 
+23,878 
+$ 
+75,738 
+$ 
+79,670 
+$ 
+82,523 
+Working capital 
+103,483 
+30,860 
+77,808 
+89,435 
+90,936 
+Total assets 
+191,725 
+127,861 
+122,520 
+126,991 
+131,918 
+Long-term debt, excluding current portion 
+— 
+— 
+— 
+7,792 
+8,301 
+Accumulated deficit 
+(162,541 
+) 
+(147,426 
+) 
+(138,585 
+) 
+(135,088 
+) 
+(127,275 
+) 
+Stockholders’ equity 
+170,315 
+100,250 
+102,843 
+103,807 
+108,325 
+1 
+We received net proceeds of $70.2 million from a secondary stock offering of 6,100,000 common shares completed on July 11, 2012.
+2 
+Includes the
+results of DNA Genotek, Inc. from the acquisition date of August 17, 2011, as well as $2.6 million of transaction costs associated with the acquisition. 
+3 
+Includes an income tax provision of $25,978 resulting from the establishment of a full valuation allowance on our net deferred tax assets.
+47 
+Table of Contents 
+ITEM 7. 
+Management’s Discussion and Analysis of Financial Condition and Results of Operations. 
+Statements below regarding future events or performance are “forward-looking statements” within the meaning of the Private
+Securities Litigation Reform Act of 1995. Our actual results could be quite different from those expressed or implied by the forward-looking statements. Factors that could affect results are discussed more fully under the Item 1A, entitled
+“Risk Factors,” and elsewhere in this Annual Report. Although forward-looking statements help to provide complete information about us, readers should keep in mind that forward-looking statements may not be reliable. Readers are cautioned
+not to place undue reliance on the forward-looking statements. We undertake no duty to update any forward-looking statements made herein after the date of this Annual Report. 
+The following discussion should be read in conjunction with the consolidated financial statements contained herein and the notes thereto,
+along with the Section entitled “Critical Accounting Policies and Estimates,” set forth below. 
+Overview 
+We are a leader in the development, manufacture, marketing and sale of oral fluid diagnostic products and specimen collection devices
+using our proprietary oral fluid technologies, as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types. Our diagnostic products include tests that are performed on
+a rapid basis at the point of care and tests that are processed in a laboratory. In September 2012, we began selling the first and only rapid point-of-care HIV test approved for use in the domestic consumer retail market. DNAG, a Canadian subsidiary
+acquired on August 17, 2011, manufactures and sell kits that are used to collect, stabilize, and store samples of genetic material for molecular testing in the academic research, clinical genetic testing, pharmacogenomics, personalized
+medicine, animal and livestock genetics markets. We also manufacture and sell medical devices used for the removal of benign skin lesions by cryosurgery, or freezing. One of our cryosurgery products is sold in the over-the-counter or consumer retail
+market in North America, Europe, Central and South America, and Australia. Our products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health
+organizations, research and academic institutions, distributors, government agencies, physicians’ offices, and commercial and industrial entities. 
+Current Consolidated Financial Results 
+During the
+year ended December 31, 2012, our consolidated net revenues were $87.8 million compared to $81.9 million for the year ended December 31, 2011. Net product revenues during the year ended December 31, 2012 increased 6% when compared to
+2011, primarily as a result of the inclusion of DNAG revenues for all of 2012. Full-year 2012 net revenues from our molecular collection systems subsidiary were $14.3 million, compared to $6.2 million in 2011 for the period from the August 17,
+2011 acquisition date through December 31, 2011. Licensing and product development revenues for 2012 increased as a result of a $1.0 million milestone payment received from our achievement of certain regulatory and commercial objectives
+pursuant to the terms of our HCV collaboration agreement with Merck. The initial term of our domestic collaboration agreement with Merck expired in September 2012 and was not renewed. We are also in the process of terminating our international
+agreement with Merck. Termination of these agreements is not expected to have a material impact on sales of our
+OraQuick ® HCV test, either in the U.S. or in international markets. The milestone payment was partially offset
+by a decrease in the royalty rate paid to us on domestic outsales of Merck’s OTC cryosurgical wart removal product, pursuant to a license and settlement agreement executed in January 2008. 
+Our consolidated net loss for the year ended December 31, 2012 was $15.1 million, or $0.29 per share, compared
+to a net loss of $8.8 million, or $0.19 per share, for the year ended December 31, 2011. Our loss for the current period included $9.9 million in costs associated with the commercialization of our OraQuick ® In-Home HIV test. Our consolidated net loss for the year ended December 31, 2011 included $2.6 million of
+transaction costs associated with the acquisition of DNAG and $7.9 million of clinical trial spending related to our
+OraQuick ® In-Home HIV test. 
+48 
+Table of Contents 
+Cash used in operating activities for the year ended December 31, 2012 was $5.4
+million, compared to $3.0 million used during the year ended December 31, 2011. As of December 31, 2012, we had $87.9 million in cash and cash equivalents compared to $23.9 million at December 31, 2011. During 2012, we completed
+a public offering of 6,100,000 shares of our common stock and received $70.2 million in proceeds, net of offering expenses. On July 30, 2012, we repaid the $7.1 million principal balance outstanding under our $10.0 million credit facility with
+Comerica Bank. During 2011, we used $53.0 million of our cash to fund the DNAG acquisition and related transaction expenses. 
+2012
+Developments 
+OraQuick ® In-Home HIV Test 
+On July 3, 2012, the FDA issued a pre-market approval of our OraQuick ® In-Home HIV Test for sale directly to consumers in the OTC market, making it the first and only rapid HIV OTC test
+approved in the U.S. The OraQuick ® In-Home HIV Test can detect antibodies to both HIV-1 and HIV-2 with an oral
+swab with results in as little as 20 minutes, providing a confidential in-home testing option to consumers. It is the first rapid diagnostic test for any infectious disease that has been approved by the FDA for sale over the counter. This test was
+approved following extensive clinical trials conducted during the past several years. 
+The OraQuick ® In-Home HIV Test has been available for purchase by consumers since September 2012 throughout the country, at
+retailers such as CVS, Walgreens, Rite Aid, Wal-Mart and Kroger. The product is also available for purchase on-line through certain retailers and our website, www.oraquick.com . 
+We began our national public relations and advertising campaign in connection with the September product launch. These activities
+substantially increased our sales and marketing expenses during the fourth quarter of 2012 and are expected to continue to substantially increase sales and marketing expenses in 2013. 
+To support individuals that purchase and use our test, we have established a toll-free customer support center that operates on a 24/7,
+365-day per year basis. Through this center, consumers will have access to highly trained, bi-lingual representatives who can answer questions about HIV/AIDS and the use of our test, and refer consumers to appropriate resources for follow-up
+confirmatory testing, counseling and medical treatment. 
+Our revenue recognition practices with respect
+to the OraQuick ® In-Home HIV Test initially will be different than those customarily used in the consumer
+package goods industry. Because this is a new product for which we do not have a historical record of returns, we will initially recognize revenue only upon the consummation of a sale to the retail customer either in a store or over the internet.
+Public Offering of Common Stock 
+On July 11, 2012, we completed a public offering of 6,100,000 shares of our common stock, at a price of $12.30 per share, resulting in total proceeds of $75.0 million before expenses of the offering.
+In connection with the offering, we paid $4.5 million in underwriting discounts and commissions and incurred $282,000 in additional offering expenses. 
+Economic Outlook 
+Current unfavorable economic conditions may continue for
+the foreseeable future and could intensify. These conditions have adversely affected and could continue to adversely affect our financial performance and condition or those of our customers and suppliers. Many of our customers rely on public funding
+provided by federal, state and local governments, and this funding has been and may continue to be reduced or deferred as a result of current economic conditions or sequestration. These circumstances may adversely impact our customers and suppliers,
+which, in turn, could adversely affect their ability to purchase our products or supply us with necessary equipment, raw materials or components. In addition, these circumstances could adversely affect our access to liquidity that may be needed to
+conduct or expand our business, conduct future acquisitions or make other discretionary investments. 
+49 
+Table of Contents 
+In recent years, there have been numerous initiatives on the federal and state levels for
+comprehensive reforms affecting the payment for, the availability of and reimbursement for healthcare services in the United States. One example is the Affordable Care Act, the Federal healthcare reform law enacted in 2010. The Affordable Care Act
+imposes a 2.3% excise tax on certain transactions, including U.S. sales of many medical devices, which will include domestic non-retail sales of some of our products. This new tax became effective in January 2013 and will have a negative impact on
+our gross margin. 
+Also, on August 2, 2011, President Obama signed into law the Budget Control Act of 2011, which was
+designed to reduce federal spending over the next 10 years by $2.5 trillion. Under that law, a select committee of Congress was tasked with identifying and recommending $1.2 trillion in spending cuts by late November 2011. Because the committee did
+not agree on spending cuts within that time frame, certain automatic cuts to discretionary, national defense and Medicare spending became effective on March 1, 2013. Although the full impact is uncertain, the spending cuts implemented under this new
+law could adversely affect our customers’ ability to purchase our products. 
+Business Segments 
+We operate our business within two reportable segments: our “OSUR” business, which consists of the development, manufacture and
+sale of oral fluid diagnostic products, specimen collection devices, and medical devices used for the removal of benign skin lesions by cryosurgery; and our “DNAG” or molecular collection systems business, which consists of the
+development, manufacture and sale of oral fluid collection devices that are used to collect, stabilize, and store samples of genetic material for molecular testing. OSUR revenues consist primarily of products sold into the United States and
+internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. OSUR also
+derives revenues from licensing and product development activities. DNAG revenues consist of products sold into the academic research, clinical genetic testing, pharmacogenomics, personalized medicine, animal and livestock genetics markets.
+Results of Operations 
+Year Ended December 31, 2012 Compared to December 31, 2011 
+CONSOLIDATED NET REVENUES 
+The table below shows the amount of total
+net product revenues (dollars in thousands) generated by each of our business segments and net revenue generated by licensing and product development activities. 
+Year Ended December 31, 
+Dollars 
+% 
+Change 
+Percentage of 
+Total Revenues 
+2012 
+2011 
+2012 
+2011 
+OSUR 
+$ 
+71,495 
+$ 
+74,467 
+(4 
+)% 
+82 
+% 
+91 
+% 
+DNAG 
+14,258 
+6,216 
+129 
+16 
+8 
+Net product revenues 
+85,753 
+80,683 
+6 
+98 
+99 
+Licensing and product development 
+2,067 
+1,198 
+73 
+2 
+1 
+Net revenues 
+$ 
+87,820 
+$ 
+81,881 
+7 
+% 
+100 
+% 
+100 
+% 
+Consolidated net revenues increased 7% to $87.8 million in 2012 from $81.9 million in 2011. The current
+year included $14.3 million in net revenues from our molecular collection systems subsidiary, DNAG, compared to $6.2 million in 2011. Results for 2012 reflect a full twelve months of molecular collection systems sales, while 2011 results include
+only those revenues generated from the August 17, 2011 acquisition date through year end. 
+50 
+Table of Contents 
+Net product revenues increased 6% during the year ended December 31, 2012 when compared
+to the year ended December 31, 2011, primarily as a result of the higher molecular collection system sales and higher sales of our cryosurgical systems products. These increases were partially offset by lower sales of our infectious disease
+testing, substance abuse testing and insurance risk assessment products. Licensing and product development revenues also increased in 2012 as compared to the prior year. 
+Consolidated net revenues derived from products sold to customers outside the U.S. were $20.3 million and $14.2 million, or 23% and 17% of total net revenues, for the years ended December 31, 2012
+and 2011, respectively. This increase was primarily caused by the inclusion of a full twelve months of revenues from DNAG. Because the majority of our international sales are denominated in U.S. dollars, the impact of fluctuating foreign currency
+exchange rates was not material to our operating results. 
+Net Revenues by Segment 
+OSUR Segment 
+The table below shows the amount of total net revenues (dollars in thousands) generated by our OSUR segment in each of our principal markets and by licensing and product development activities.
+Year Ended December 31, 
+Dollars 
+% 
+Change 
+Percentage of 
+Total Revenues 
+Market 
+2012 
+2011 
+2012 
+2011 
+Infectious disease testing 
+$ 
+42,728 
+$ 
+44,691 
+(4 
+)% 
+58 
+% 
+59 
+% 
+Substance abuse testing 
+9,407 
+12,498 
+(25 
+) 
+13 
+16 
+Cryosurgical systems 
+14,876 
+12,046 
+23 
+20 
+16 
+Insurance risk assessment 
+4,484 
+5,232 
+(14 
+) 
+6 
+7 
+Net product revenues 
+71,495 
+74,467 
+(4 
+) 
+97 
+98 
+Licensing and product development 
+2,067 
+1,198 
+73 
+3 
+2 
+Net revenues 
+$ 
+73,562 
+$ 
+75,665 
+(3 
+)% 
+100 
+% 
+100 
+% 
+Infectious Disease Testing Market 
+Sales to the infectious disease testing market decreased 4% to $42.7 million in 2012 from $44.7 million in 2011,
+primarily due to lower OraQuick ® sales. OraQuick ® sales totaled $41.7 million and $43.3 million for the years ended December 31, 2012 and 2011, respectively. 
+The table below shows a breakdown of our total net OraQuick ® revenues (dollars in thousands) during 2012 and 2011. 
+Year Ended December 31, 
+Market 
+2012 
+2011 
+% 
+Change 
+Domestic HIV 
+$ 
+34,265 
+$ 
+38,722 
+(12 
+)% 
+International HIV 
+3,061 
+3,011 
+2 
+Domestic OTC HIV 
+546 
+— 
+N/A 
+Domestic HCV 
+2,805 
+890 
+215 
+International HCV 
+1,059 
+672 
+58 
+Net
+OraQuick ® revenues 
+$ 
+41,736 
+$ 
+43,295 
+(4 
+)% 
+Domestic OraQuick ® HIV sales decreased 12% to $34.3 million in 2012 from $38.7 million in 2011. This decrease was due to changes in public health testing programs and their timing of
+purchases, reductions in 
+51 
+Table of Contents 
+government funding, price competition and a shift to automated laboratory-based blood tests by certain customers. International sales of our OraQuick ® HIV test increased 2% to $3.1 million in 2012 from $3.0 million in 2011 as a result of higher sales in Africa due to
+changes in existing distributor order patterns. 
+We began shipping our OraQuick ® In-Home HIV test to the retail outlets at the end of September 2012. We recorded $902,000 in gross revenues from
+product sales to retail customers either in a store or over the internet. These revenues were offset by $356,000 in customer allowances, including cooperative advertising, cash discounts, and other allowances, which were netted against gross
+revenues in accordance with U.S. generally accepted accounting principles. 
+Domestic OraQuick ® HCV sales increased to $2.8 million in 2012 from $890,000 in 2011 as result of broader adoption of our product by
+customers who are able to use a CLIA waived product. We received a CLIA waiver for this product in November 2011, allowing us to sell our HCV product to many non-CLIA certified customers, such as outreach clinics, community-based organizations and
+physician offices. While we believe the CLIA waiver provides an expanded opportunity for sales growth, demand for our HCV product has been, and will likely continue to be, tempered by the limited availability of government funding allocated to HCV
+testing efforts and the time and effort required to build awareness and demand for rapid HCV testing. International sales of our OraQuick ® HCV test increased 58% to $1.1 million in 2012 from $672,000 in 2011, largely as a result of higher sales into Latin America and Europe. 
+We previously entered into domestic and international collaboration agreements with Merck, under which Merck agreed
+to detail our OraQuick ® HCV product to physician offices. The initial term of our domestic agreement expired in
+September 2012 and was not renewed. We have also terminated our international agreement with Merck. Termination of these agreements is not expected to have a material impact on sales of our OraQuick ® HCV test, either in the U.S. or in international markets. 
+Sales of our OraSure ® oral fluid collection device decreased 30% to
+$865,000 in 2012 from $1.2 million in 2011. Some customers who have purchased our OraSure ® device for laboratory
+HIV-1 testing in the past are now electing to purchase our OraQuick ADVANCE ® or our OraQuick ® In-Home HIV tests. We believe this is the result of customers recognizing the benefits of rapid HIV testing,
+especially with oral fluid. As such, we expect that sales of our OraSure ® device will continue to decline in the
+future. 
+Substance Abuse Testing Market 
+Net substance abuse testing revenues decreased 25% to $9.4 million in 2012 from $12.5 million in 2011, as a result of
+lower sales of our Intercept ® drug testing system. The table below shows a breakdown of our total net Intercept ® revenues (dollars in thousands) generated in each market during 2012 and 2011. 
+Year Ended December 31, 
+Market 
+2012 
+2011 
+% 
+Change 
+Domestic 
+$ 
+6,335 
+$ 
+8,004 
+(21 
+)% 
+International 
+706 
+1,912 
+(63 
+) 
+Net Intercept ® revenues 
+$ 
+7,041 
+$ 
+9,916 
+(29 
+)% 
+Domestic Intercept ® sales decreased 21% to $6.3 million in 2012 from $8.0 million in 2011. In 2011, our largest laboratory distributor began selling its own competing oral specimen
+collection device and a panel of oral fluid drug assays suitable for use on fully-automated high throughput homogenous processing systems. As a result, by the end of 2012, this distributor had stopped purchasing our Intercept ® product line. Intercept ® sales to this distributor were $1.5 million for the year ended December 31, 2012 compared to $3.5 million for the year ended December 31, 2011. 
+52 
+Table of Contents 
+International
+Intercept ® sales decreased 63% to $706,000 in 2012 from $1.9 million in 2011, as a result of lower purchases by
+our UK laboratory distributor as it also has begun selling its own competing oral specimen collection device. We expect sales to this distributor to remain flat in 2013. Intercept ® sales to this distributor were $610,000 for the year ended December 31, 2012 compared to $1.9 million in the year ended December 31, 2011. 
+During 2006, in an effort to expand our Intercept ® product line and meet the needs of our laboratory customers, we entered into a joint development agreement with Roche Diagnostics to develop a series of homogeneous
+fully-automated oral fluid drugs of abuse assays. FDA 510(k) clearance has since been received for assays to detect PCP, opiates, cocaine, methamphetamines and amphetamines. However, we have experienced significant delays in completing development
+of the assays under our collaboration, primarily because Roche has not been able to obtain FDA clearance of a THC assay. A THC assay is needed to offer a complete NIDA-5 panel of assays required by our customers. The inability to obtain clearance of
+this assay has also delayed development of assays beyond the NIDA-5 panel. We are in discussions with Roche about the THC assay and the future of our collaboration. 
+Cryosurgical Systems Market 
+Sales of our products in the cryosurgical
+systems market (which includes both the physicians’ office and OTC markets) increased to $14.9 million for the year ended December 31, 2012 from $12.1 million for the year ended December 31, 2011. 
+The table below shows a breakdown of our total net cryosurgical revenues (dollars in thousands) generated in each market during 2012 and
+2011. 
+Year Ended December 31, 
+Market 
+2012 
+2011 
+% 
+Change 
+Professional domestic 
+$ 
+7,159 
+$ 
+6,775 
+6 
+% 
+Professional international 
+1,462 
+1,400 
+4 
+Over-the-counter 
+6,255 
+3,871 
+62 
+Net cryosurgical systems revenues 
+$ 
+14,876 
+$ 
+12,046 
+23 
+% 
+Sales of our Histofreezer ® product to physicians’ offices in the United States increased 6% to $7.2 million in 2012, compared to $6.8 million in 2011, due to the success of sales and
+promotional efforts by our distributors. During the year ended December 31, 2012, international sales of
+Histofreezer ® increased 4% to $1.5 million compared to $1.4 million in the same period of the prior year,
+largely as a result of higher out-sales in Australia by our distributor in that new market. 
+Sales of our OTC cryosurgical
+products during 2012 increased 62% to $6.3 million from $3.9 million in 2011. This increase was largely the result of higher sales to both our Latin American distributor, Genomma, and our European distributor, Reckitt Benckiser. 
+In 2012, Genomma purchased $2.7 million compared to $990,000 during 2011. Early in 2011, the Mexican government placed limitations on the
+advertising Genomma could use for our product. At the same time, the Brazilian government also required changes to our package insert. Both of these events negatively impacted sales of our product to Genomma during 2011, but were resolved by the end
+of that year. 
+Sales to Reckitt Benckiser increased to $3.3 million in 2012 from $2.6 million in 2011 as a result of increased
+advertising and promotional activities and expansion into additional European countries. Our distribution contract with Reckitt Benckiser has expired and we are currently negotiating the final terms of the renewal of this agreement. 
+53 
+Table of Contents 
+Insurance Risk Assessment Market 
+Sales to the insurance risk assessment market decreased 14% to $4.5 million in 2012 from $5.2 million in 2011, largely as a result of the
+loss of one of our larger customers who changed its underwriting methodologies in 2011. 
+Licensing and Product Development
+Licensing and product development revenues increased 73% to $2.1 million in 2012 from $1.2 million in
+2011. During the first quarter of 2012, we received a $1.0 million milestone payment as a result of our achievement of certain regulatory and commercial objectives pursuant to our collaboration agreement with Merck for the development and promotion
+of our OraQuick ® rapid HCV test in international markets. No such milestone payments were received in the prior
+year. 
+The remaining licensing revenues for these periods represent royalties paid on domestic outsales of Merck’s OTC
+cryosurgical wart removal product, pursuant to a license and settlement agreement executed in January 2008. In the latter half of 2011, t he royalty rate decreased pursuant to the terms of our license. Royalties under this license will
+no longer be payable after certain of our cryosurgical patents expire in August 2013. 
+DNAG Segment 
+Molecular Collection Systems 
+Net molecular collection systems revenues primarily represent sales of the
+Oragene ® product line by our subsidiary, DNA Genotek, which we acquired in August 2011. During 2012, net DNAG
+revenues included several new orders from large commercial customers as well as continued strong sales into the academic research market despite funding challenges in both Canada and the United States. 
+CONSOLIDATED OPERATING LOSS 
+Consolidated gross margin remained unchanged at 63% for both 2012 and 2011. 
+Consolidated operating loss increased $6.9 million to $16.3 million in 2012, compared to $9.4 million in 2011. The increased loss was primarily the result of higher sales and marketing expenses associated
+with the commercialization of our OraQuick ® In-Home HIV test and the inclusion of a full year of DNAG operating
+expenses. These higher expenses were partially offset by lower research and development costs due to decreased clinical trial costs related to our OraQuick ® In-Home HIV test. 
+Operating Loss by Segment
+OSUR Segment 
+OSUR’s gross margin was 62% in 2012 compared to 64% in 2011. OSUR’s 2012 margin was negatively impacted by the overall decrease in sales volume which caused a decline in absorption of our labor
+and fixed overhead costs. This decline was partially offset by the beneficial impact of the $1.0 million HCV milestone payment received in the first quarter of 2012. 
+Beginning in January 2013 and continuing through February 2015, sales of our OraQuick ® product into the professional market are subject to an increase in certain lateral flow patent royalties under a
+litigation settlement we agreed to in 2009. In addition, also beginning in January 2013, certain of our product revenues are subject to a 2.3% medical device excise tax imposed under the Affordable Care Act. The higher royalties and new excise tax
+will negatively impact gross margins in 2013 and beyond. 
+54 
+Table of Contents 
+Research and development expenses declined 44% to $9.7 million in 2012
+from $17.4 million in 2011, primarily as a result of lower clinical trial costs related to the development of our
+OraQuick ® In-Home HIV test. We expect OSUR’s research and development costs in 2013 will remain flat when
+compared to 2012 levels. 
+Sales and marketing expenses increased 52% to $30.5 million in 2012 from $20.1
+million in 2011. This increase was primarily the result of approximately $9.9 million of spending associated with the commercialization of our OraQuick ® In-Home HIV test. We expect 2013 sales and marketing expenses to increase from 2012 levels as we continue to invest in advertising and promotional costs for this
+product. 
+General and administrative expenses remained flat at $19.0 million in both 2012 and 2011. We expect general and
+administrative expenses in 2013 to decline slightly when compared to 2012. 
+All the above contributed to OSUR’s operating
+loss of $13.4 million, which included non-cash charges of $3.5 million for depreciation and amortization expense and $5.0 million of stock-based compensation expense. 
+DNAG Segment 
+DNAG’s gross margin increased to 68% in 2012 from
+50% in the comparable period of 2011. DNAG’s 2011 gross margin included the impact of an $852,000 non-cash purchase accounting adjustment to mark up the acquired finished goods inventory to fair value. Gross margin for 2012 also included $1.3
+million of intangibles amortization expense compared to $499,000 recorded for the period August 17, 2011 through December 31, 2011. 
+DNAG incurred $12.6 million in operating expenses during 2012 compared to $4.7 million incurred in 2011 from the August 17, 2011 acquisition date through December 31, 2011. Expenses for 2012
+included $2.8 million of research and development costs, $6.6 million of sales and marketing costs and $3.3 million of general and administrative costs. Expenses for the period August 17, 2011 through December 31, 2011 included $1.0
+million of research and development costs, $2.3 million of sales and marketing costs and $1.4 million of general and administrative costs. We expect 2013 research and development expense and sales and marketing expense to increase slightly when
+compared to 2012 levels. General and administrative expenses in 2013 are expected to remain flat. 
+All of the above
+contributed to DNAG’s 2012 operating loss of $2.9 million, which included non-cash charges of $3.7 million for depreciation and amortization expense and $189,000 of stock-based compensation expense. 
+CONSOLIDATED INCOME TAXES 
+We continue to believe the full valuation allowance established in 2008 against OSUR’s total U.S. net deferred tax asset is appropriate as the facts and circumstances necessitating the allowance have
+not changed. As a result, no U.S. income tax benefit was recorded for OraSure’s pre-tax loss in 2012. A Canadian income tax benefit of $1.4 million was recorded in 2012 which was associated with the DNAG loss before income taxes and certain
+Canadian research and development and investment tax credits. The income tax benefit for the current year was negatively impacted by a $428,000 adjustment to DNAG’s deferred tax liability recorded in the second quarter of 2012 to reflect a
+change in the enacted Canadian provincial tax rates. The Canadian income tax benefit is considered realizable based upon the scheduled reversal of the deferred tax liabilities recorded in connection with the acquisition of DNAG. 
+55 
+Table of Contents 
+Year Ended December 31, 2011 Compared to December 31, 2010 
+CONSOLIDATED NET REVENUES 
+The table below shows the total net product revenues (dollars in thousands) generated by each of our business segments and net revenues generated by licensing and product development activities.
+Year Ended December 31, 2011, 
+Dollars 
+% 
+Change 
+Percentage of 
+Total Revenues 
+2011 
+2010 
+2011 
+2010 
+OSUR 
+$ 
+74,467 
+$ 
+71,199 
+5 
+% 
+91 
+% 
+95 
+% 
+DNAG 
+6,216 
+— 
+100 
+8 
+— 
+Net product revenues 
+80,683 
+71,199 
+13 
+99 
+95 
+Licensing and product development 
+1,198 
+3,816 
+(69 
+) 
+1 
+5 
+Net revenues 
+$ 
+81,881 
+$ 
+75,015 
+9 
+% 
+100 
+% 
+100 
+% 
+Consolidated net revenues increased 9% to $81.9 million (including $6.2 million attributable to
+operations of DNAG) in 2011 from $75.0 million in 2010. Excluding revenue attributable to DNAG, our net product revenues increased 5% during the year ended December 31, 2011 when compared to the year ended December 31, 2010. Increased
+sales of our infectious disease testing, substance abuse testing and cryosurgical systems products were partially offset by lower sales of our insurance risk assessment products. The higher net product revenues were partially offset by a $2.6
+million reduction in licensing and product development revenues during 2011 as compared to 2010. 
+Consolidated net revenues
+derived from products sold to customers outside the United States were $14.2 million and $11.5 million or 17% and 15% of total revenues for the years ended December 31, 2011 and 2010, respectively. Because the majority of our international
+sales are denominated in U.S. dollars, the impact of fluctuating foreign currencies was not material to our operating results. 
+Revenues
+by Segment 
+OSUR Segment 
+The table below shows the amount of total net revenues (dollars in thousands) generated by our OSUR segment in each of our principal markets. 
+Year Ended December 31, 
+Dollars 
+% 
+Change 
+Percentage of 
+Total Revenues 
+Market 
+2011 
+2010 
+2011 
+2010 
+Infectious disease testing 
+$ 
+44,691 
+$ 
+41,738 
+7 
+% 
+60 
+% 
+59 
+% 
+Substance abuse testing 
+12,498 
+11,671 
+7 
+17 
+16 
+Cryosurgical systems 
+12,046 
+11,965 
+1 
+16 
+17 
+Insurance risk assessment 
+5,232 
+5,825 
+(10 
+) 
+7 
+8 
+Net product revenues 
+$ 
+74,467 
+$ 
+71,199 
+5 
+% 
+100 
+% 
+100 
+% 
+Infectious Disease Testing Market 
+Sales to the infectious disease testing market increased 7% to $44.7 million in 2011. OraQuick ® sales totaled $43.3 million and $40.1 million for the years ended December 31, 2011 and 2010, respectively.
+56 
+Table of Contents 
+The table below shows a breakdown of our total net OraQuick ® revenues (dollars in thousands) during 2011 and 2010. 
+Year Ended December 31, 
+Market 
+2011 
+2010 
+% 
+Change 
+Domestic HIV 
+$ 
+38,722 
+$ 
+38,172 
+1 
+% 
+International HIV 
+3,011 
+1,800 
+67 
+Domestic HCV 
+890 
+46 
+1,835 
+International HCV 
+672 
+119 
+465 
+Net
+OraQuick ® revenues 
+$ 
+43,295 
+$ 
+40,137 
+8 
+% 
+Domestic OraQuick ® HIV sales remained relatively flat at $38.7 million for the twelve months ended December 31, 2011 compared to $38.2 million for the twelve months ended
+December 31, 2010. International sales of our OraQuick ® HIV test increased 67% to $3.0 million for the year
+ended December 31, 2011 from $1.8 million for the year ended December 31, 2010. This increase was largely the result of an improved funding environment as certain private and government customers were able to fund purchases. 
+OraQuick ® net revenues for 2011 included $1.6 million of sales of our OraQuick ® HCV test, compared to $165,000 in 2010. We received a CLIA waiver for this product in November 2011, enabling us to sell our HCV product to many other non-CLIA
+certified customers, such as outreach clinics, community-based organizations and physician offices. 
+Sales of our OraSure ® oral fluid collection device decreased 23% from $1.6 million in 2010 to $1.2 million in 2011. Some customers who have purchased our OraSure ® device for laboratory HIV-1 testing in the past are now electing to purchase our OraQuick ADVANCE ® test. We believe this is the result of customers recognizing the benefits of rapid HIV testing, especially with oral
+fluid. 
+Substance Abuse Testing Market 
+Sales to the substance abuse testing market increased 7% from $11.7 million in 2010 to $12.5 million in 2011, as a
+result of higher domestic sales of our Intercept ® drug testing system. The table below shows a breakdown of our
+total net Intercept ® revenues (dollars in thousands) generated in each market during 2011 and 2010. 
+Year Ended December 31, 
+Market 
+2011 
+2010 
+% 
+Change 
+Domestic 
+$ 
+8,004 
+$ 
+7,274 
+10 
+% 
+International 
+1,912 
+1,976 
+(3 
+) 
+Net Intercept ® revenues 
+$ 
+9,916 
+$ 
+9,250 
+7 
+% 
+Domestic Intercept ® sales increased 10% from $7.3 million in 2010 to $8.0 million in 2011. This increase was largely the result of increased interest in oral fluid testing as well as
+growth achieved in the workplace market as hiring conditions began to improve when compared to 2010. 
+Cryosurgical Systems
+Market 
+Sales of our products in the cryosurgical systems market (which includes both the physicians’ office and OTC
+markets) remained flat at $12.0 million for the years ended December 31, 2011 and 2010. 
+57 
+Table of Contents 
+The table below shows a breakdown of our total net cryosurgical revenues (dollars in
+thousands) generated in each market during 2011 and 2010. 
+Year Ended December 31, 
+Market 
+2011 
+2010 
+% 
+Change 
+Professional domestic 
+$ 
+6,775 
+$ 
+5,967 
+14 
+% 
+Professional international 
+1,400 
+1,385 
+1 
+Over-the-counter 
+3,871 
+4,613 
+(16 
+) 
+Net cryosurgical systems revenues 
+$ 
+12,046 
+$ 
+11,965 
+1 
+% 
+Sales of our Histofreezer ® product to physicians’ offices in the United States increased 14% to $6.8 million in 2011, compared to $6.0 million in 2010, as a result of higher market
+penetration resulting from the continued efforts of our manufacturers’ sales representatives, improved focus by our distributors and an increase in sales to governmental entities. In early 2010, we signed agreements with two manufacturers’
+sales representative organizations to support sales of our Histofreezer ® product in the U.S. Under these
+agreements, over 40 additional sales representatives have been working with our physicians’ office distributors throughout the Unites States. 
+Sales of Histofreezer ® in the international market remained flat at
+$1.4 million in 2011 and 2010. 
+During the year ended December 31, 2011, our OTC cryosurgical sales decreased 16%
+primarily due to a decline in sales to our Latin American distributor, Genomma. Genomma had purchases totaling $1.0 million in 2011, compared to $2.0 million in 2010. In late 2010, the Mexican government placed limitations on the advertising Genomma
+could use for our product. In addition, during the first quarter of 2011, Genomma informed us of some changes required by the Brazilian government to our package insert, which have since been made. Both events negatively impacted sales of our
+product during 2011. 
+Sales to our European OTC distributor Reckitt Benckiser remained flat at $2.6 million in 2011 and 2010.
+Insurance Risk Assessment Market 
+Sales to the insurance risk assessment market decreased 10% from $5.8 million in 2010 to $5.2 million in 2011, as a result of variability in the timing of orders, general softness in the life insurance
+market, and the adoption by some underwriters of a “Simplified Issues” policy. This is a policy where lab-based testing is replaced by having applicants respond to a questionnaire about their behaviors. Two of our larger customers adopted
+this new policy form in 2011. 
+Licensing and Product Development 
+Licensing and product development revenues decreased 69% to $1.2 million in 2011 from $3.8 million in 2010. During
+2010, we received $2.0 million in milestone payments as a result of our achievement of certain regulatory and commercial objectives pursuant to our collaboration agreement with Merck for the development and promotion of our OraQuick ® rapid HCV test in Europe. 
+The remaining licensing revenues for these periods represent royalties received on domestic outsales of Merck’s OTC cryosurgical wart removal product, pursuant to a license and settlement agreement
+executed in January 2008. 
+58 
+Table of Contents 
+DNAG Segment 
+Molecular Collection Systems 
+Net molecular collection systems revenues primarily represent sales of DNAG’s Oragene ® product line in the molecular diagnostics and research markets. The $6.2 million in net revenues reflect DNAG sales from the August 17, 2011 acquisition date
+through December 31, 2011. During the fourth quarter of 2011, DNAG shipped $1.5 million of product to its largest customer, which historically has made bulk purchases once a year. 
+CONSOLIDATED OPERATING LOSS 
+Consolidated
+operating loss increased $6.0 million to $9.4 million in 2011, compared to $3.4 million in 2010. The increased loss was primarily caused by higher research and development expenses due to increased clinical trial costs related to our OraQuick ® HIV OTC test and higher general and administrative expense resulting from the transaction costs associated with the
+DNAG acquisition and increased amortization expense associated with the intangible assets acquired in the DNAG acquisition. Consolidated gross margin was 63% for both 2011 and 2010. 
+Operating Loss by Segment 
+OSUR Segment 
+OSUR’s gross margin was 64% in 2011 compared to 63% in 2010. OSUR’s 2011 margin benefited from improved product mix, more
+efficient manufacturing operations, lower direct labor costs, improved absorption of overhead costs as a result of staffing optimization and a change to automated manufacturing during 2011. The 2010 margin benefited from the $2.0 million in HCV
+milestone payments received during that period. 
+Research and development expenses increased 32% from
+$13.2 million in 2010 to $17.4 million in 2011, primarily as a result of a $6.2 million increase in clinical trial costs related to the development of our OraQuick ® HIV OTC test. Higher clinical trial costs related to our OraQuick ® HIV OTC test were partially offset by lower clinical trial costs related to the development of our OraQuick ® HCV test. 
+Sales and marketing expenses
+declined 3% to $20.1 million in 2011 from $20.7 million in 2010. This decrease was primarily the result of lower consulting expenses. 
+General and administrative expenses increased 13% to $19.0 million in 2011 from $16.8 million in 2010, primarily as a result of $2.6 million in transaction costs associated with the DNAG acquisition.
+DNAG Segment 
+DNAG’s gross margin for the period from August 17, 2011 through December 31, 2011 was 50% and reflects the impact of a $852,000 non-cash purchase accounting adjustment to mark up the
+acquired finished goods inventory to fair value. DNAG’s gross margin also included approximately $499,000 of amortization expense related to the acquisition. 
+DNAG incurred $4.7 million in operating expenses during 2011. This included $1.0 million of research and development costs, $2.3 million of sales and marketing expenses and $1.4 million of general and
+administrative expenses. The DNAG expenses also included a total of $714,000 of amortization expense related to the acquisition. 
+CONSOLIDATED INCOME TAXES 
+In 2011, we continued our evaluation of whether the full valuation allowance established in 2008 against OSUR’s total U.S. net deferred tax asset is still appropriate and concluded that the full
+valuation allowance remained appropriate as the facts and circumstances since the establishment of the allowance had not changed. 
+59 
+Table of Contents 
+As a result, no U.S. income tax benefit was recorded for OSUR’s pre-tax loss in 2011. In connection with the DNAG acquisition, a deferred income tax liability was recorded to reflect the tax
+effects of basis differences of intangible assets and inventories for financial reporting and Canadian income tax purposes. A Canadian income tax benefit of $869,000 was also recorded in 2011 associated with the DNAG loss before income taxes and
+certain Canadian research and development and investment tax credits. 
+Liquidity and Capital Resources 
+December 31, 
+2012 
+2011 
+(In thousands) 
+Cash 
+$ 
+87,888 
+$ 
+23,878 
+Working capital 
+103,483 
+30,860 
+Our cash increased $64.0 million to $87.9 million at December 31, 2012 from $23.9 million at
+December 31, 2011, primarily due to receipt of $70.2 million in net proceeds from a secondary public offering of our common stock completed during the third quarter of 2012. Our working capital also increased to $103.5 million at
+December 31, 2012 from $30.9 million at December 31, 2011. 
+During 2012, we used $5.4 million
+in cash to finance our operating activities. Our net loss of $15.1 million and deferred income tax benefit of $1.4 million were partially offset by non-cash stock-based compensation expense of $5.2 million and depreciation and amortization of $7.2
+million. Additional uses of cash in operating activities included a $296,000 increase in accounts receivable, a $3.1 million increase in inventory largely due to the stocking of our OraQuick ® In-Home HIV tests and a $791,000 decrease in accounts payable. Accrued expenses decreased $1.2 million due to lower year-end accruals for management incentive
+bonuses, professional fees and other miscellaneous expenses. Offsetting these uses of cash was a $4.3 million increase in deferred revenue primarily related to the initial pipeline orders of our OraQuick ® In-Home test by retailers in late September 2012. 
+We used a total of $2.0 million in investing activities during 2012 to acquire property and equipment. During the year ended
+December 31, 2013, we expect to invest approximately $4.0 million in capital expenditures, primarily to purchase additional equipment, upgrade certain older equipment and make improvements to our facilities. 
+Net cash provided by financing activities was $71.4 million in 2012, which primarily resulted from the $70.2 million of net proceeds
+received from our secondary offering of 6.1 million shares of common stock in July 2012 and $10.0 million in proceeds received from the exercise of stock options. These increases in cash were partially offset by $7.3 million in loan principal
+repayments and $1.6 million used for the repurchase of common stock related to the vesting of restricted shares. 
+On
+July 30, 2012, we repaid the $7.0 million principal balance outstanding under our $10.0 million credit facility with Comerica Bank and this facility has been terminated. 
+Our current cash balance is expected to be sufficient to fund our current operating and capital needs through at
+least the next twelve months. Our cash requirements, however, may vary materially from those now planned due to many factors, including, but not limited to, the scope and timing of future strategic acquisitions, the cost and timing of the expansion
+of our manufacturing capacity, the progress of our research and development programs, the scope and results of clinical testing, the cost of any future litigation, the magnitude of capital expenditures, changes in existing and potential
+relationships with business partners, the time and cost of obtaining regulatory approvals, the costs involved in obtaining and enforcing patents, proprietary rights and any necessary licenses, the cost and timing of expansion of sales and marketing
+activities, the timing and amount of costs to commercially launch new products including our OraQuick ® 
+In-Home HIV Test, market acceptance of new products, competing technological and market developments, the impact of the ongoing economic downturn and other factors. 
+60 
+Table of Contents 
+Contractual Obligations and Commercial Commitments 
+The following sets forth our approximate aggregate obligations as of December 31, 2012 (in thousands) for future payments under
+contracts and other contingent commitments, for the year 2013 and beyond: 
+Payments due by December 31, 
+Contractual Obligations 
+Total 
+2013 
+2014 
+2015 
+2016 
+2017 
+Thereafter 
+Operating leases 1 
+$ 
+738 
+$ 
+480 
+$ 
+243 
+$ 
+9 
+$ 
+6 
+$ 
+— 
+$ 
+— 
+Employment contracts 2 
+2,949 
+2,201 
+748 
+— 
+— 
+— 
+— 
+Purchase obligations 3 
+2,511 
+2,511 
+— 
+— 
+— 
+— 
+— 
+Minimum commitments under contracts 4 
+2,792 
+500 
+500 
+500 
+500 
+500 
+292 
+Total contractual obligations 
+$ 
+8,990 
+$ 
+5,692 
+$ 
+1,491 
+$ 
+509 
+$ 
+506 
+$ 
+500 
+$ 
+292 
+1 
+Represents payments required under our operating leases. See Note 12 of the Notes to the consolidated financial statements included herein.
+2 
+Represents salary
+payments payable under the terms of employment agreements executed by us with certain executives. See Note 12 of the Notes to the consolidated financial statements included herein. 
+3 
+Represents payments required by non-cancellable purchase orders related to inventory, capital expenditures and other goods or services. See Note 12 of
+the Notes to the consolidated financial statements included herein. 
+4 
+Represents payments required pursuant to certain licensing agreements executed by the Company. These agreements are cancellable within a specified
+number of days after communication by the Company of its intent to terminate. See Note 12 of the Notes to the consolidated financial statements included herein. 
+Off-Balance Sheet Arrangements. We do not have any off-balance sheet arrangements, as defined in
+Item 303(a)(4) (ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended. 
+Critical Accounting Policies and
+Estimates 
+This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our
+consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that we make estimates and assumptions
+that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an on-going
+basis, we evaluate our judgments and estimates, including those related to bad debts, inventories, intangible assets, income taxes, revenue recognition, contingencies and litigation. We base our judgments and estimates on historical experience and
+on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual
+results may differ from these estimates under different assumptions or conditions. 
+Our significant accounting policies are
+described in Note 2 of the Notes to the consolidated financial statements included in Item 15 of this Annual Report. We consider the following accounting estimates, which have been discussed with our Audit Committee, to be most critical in
+understanding the more complex judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial condition and cash flows. 
+Revenue Recognition. We recognize product revenues when there is persuasive evidence
+that an arrangement exists, the price is fixed or determinable, title has passed and collection is reasonably assured. Product revenues are recorded net of allowances for any discounts or rebates. We do not grant price protection or product return
+rights (other than for our OraQuick ® In-Home HIV Tests, which we began to sell in the third quarter of 2012) to
+our customers, except for warranty returns. Historically, returns arising from warranty issues have been infrequent and immaterial. Accordingly, we expense warranty returns as incurred. 
+61 
+Table of Contents 
+Our revenue practices with respect to the OraQuick ® In-Home HIV Test will initially be different than those customarily used in the consumer package goods industry.
+Under U.S. generally accepted accounting principles, product revenue can not be recognized unless the amount of future returns can be reasonably estimated. Because our OraQuick ® In-Home HIV Test is a new product for which we do not have a historical record of returns, we do not believe we can reasonably determine a return rate at this time.
+As a result we do not recognize revenue upon shipment to the retail trade. For these product shipments, we invoice the retailer or distributor, record deferred revenue at gross invoice sales price, and classify the cost basis of the product held by
+the retailer or distributor as a component of inventory. Initially, we will only recognize revenue upon the consummation of a sale to the retail customer either in a store or over the internet. We expect to apply a more traditional revenue
+recognition policy such that revenue is recognized following shipment to the retailer or distributor when we believe we have sufficient data to develop reasonable estimate of the level of expected returns based upon historical returns. 
+Our net revenues recorded on sales of the OraQuick ® In-Home HIV test represent total gross revenue less customer allowances, including estimates for cooperative advertising, discounts, rebates, and chargebacks. These
+allowances are recorded as a reduction of gross revenue when recognized in the statement of operations. These allowances are established by management as our best estimate based on available information and are adjusted to reflect known changes in
+the factors that impact these estimates. 
+Royalty income from the grant of license rights is recognized during the period in
+which the revenue is earned and the amount is determinable from the licensee. 
+We record shipping and handling charges billed
+to our customers as product revenue and the related expense as cost of products sold. Taxes assessed by governmental authorities, such as sales or value-added taxes, are excluded from product revenues. 
+Allowance for Uncollectible Accounts Receivable . Accounts receivable are reduced by an estimated allowance
+for amounts that may become uncollectible in the future. On an ongoing basis, we perform credit evaluations of our customers and adjust credit limits based upon the customer’s payment history and creditworthiness, as determined by a review of
+their current credit information. We also continuously monitor collections and payments from our customers. 
+Based upon
+historical experience and any specific customer collection issues that are identified, we use our judgment to establish and evaluate the adequacy of our allowance for estimated credit losses, which was $285,000 as of December 31, 2012. While
+credit losses have been within our expectations and the allowance provided, these losses can vary from period to period. Furthermore, there is no assurance that we will experience credit losses at the same rates as we have in the past. The current
+economic environment could adversely affect the operations, cash flows and financial condition of our customers. These circumstances may adversely impact the liquidity or financial position of our customers and could have a material impact on the
+collectability of our accounts receivable and future operating results. 
+Inventories . Our
+inventories are valued at the lower of cost or market, determined on a first-in, first-out basis, and include the cost of raw materials, labor and overhead. The majority of our inventories are subject to expiration dating. We continually evaluate
+quantities on hand and the carrying value of our inventories to determine the need for reserves for excess and obsolete inventories based primarily on the estimated forecast of product sales. When, in the opinion of management, factors indicate that
+impairment has occurred, either a reserve is established against the inventories’ carrying value or the inventories are completely written off, as in the case of lapsing expiration dates. In 2012, we wrote-off inventory which had a cost of $1.3
+million. During 2011 and 2010, we wrote-off inventory which had a cost of $919,000 and $918,000, respectively. These write-offs were as a result of quality, scrap and product expiration issues. Although we make every effort to ensure the accuracy of
+our forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact on the carrying value of our inventories and reported operating results. 
+62 
+Table of Contents 
+Stock-based Compensation . We recognize the fair value of
+equity-based awards as compensation expense in our statement of operations. The fair value of our stock option awards was estimated using a Black-Scholes option valuation model. This valuation model’s computations incorporate highly subjective
+assumptions, such as the expected stock price volatility and the estimated life of each award. The fair value of the options, after considering the effect of expected forfeitures, is then amortized, generally on a straight-line basis, over the
+related vesting period of the option. The fair value of our restricted shares is based on the market value of the shares at the date of grant and is recognized on a straight-line basis over the related vesting period of the award. 
+Long-lived and Intangible Assets . Our long-lived assets are comprised of property and equipment, intangible
+assets and goodwill. Together, these assets had a net book value of $71.2 million, or 37% of our total assets, as of December 31, 2012. Property and equipment and intangible assets are depreciated or amortized on a straight-line basis over
+their estimated useful lives, which we determine based upon our estimate of the period of time over which each asset will generate revenues. An impairment of long-lived or intangible assets could occur whenever events or changes in circumstances
+indicate that the net book value of our assets may not be recoverable. Events which could trigger asset impairment include significant underperformance relative to historical or projected future operating results, significant changes in the manner
+of our use of an asset or in our overall business strategy, significant negative industry or economic trends, and shortening of product life-cycles or changes in technology. If we believe impairment of an asset has occurred, we measure the amount of
+such impairment by comparing the net book value of the affected assets to the fair value of these assets, which is generally determined based upon the present value of the expected cash flows associated with the use of these assets. If the net book
+value exceeds the fair value of the impaired assets, we would incur an impairment expense equal to this difference. 
+We
+currently believe the future cash flows to be received from all remaining long-lived and intangible assets as of December 31, 2012 will exceed their book value. We did not recognize any impairment losses for the years ended December 31,
+2012 or 2011. Any unanticipated significant impairment in the future, however, could have a material adverse impact to our balance sheet and future operating results. 
+Goodwill. Goodwill represents the excess of the purchase price we paid over the fair value of the net tangible and identifiable intangible assets acquired and
+liabilities assumed in our acquisition of DNAG. Goodwill is not amortized but rather is tested annually for impairment or more frequently if we believe that indicators of impairment exist. Performance of goodwill impairment testing permits us to
+first make a qualitative evaluation about the likelihood of goodwill impairment. If we conclude that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then we would not be required to perform the
+two-step quantitative impairment test. Otherwise, performing the two-step impairment test is necessary. The first step of the two-step quantitative impairment test involves comparing the fair values of the applicable reporting units with their
+aggregate carrying values, including goodwill. If the carrying value of a reporting unit exceeds the reporting unit’s fair value, we perform the second step of the test to determine the amount of the impairment loss, if any. The second step
+involves measuring any impairment by comparing the implied fair values of the affected reporting unit’s goodwill and intangible assets with the respective carrying values. 
+We performed the annual impairment test for goodwill as of July 31, 2012 and determined there was no impairment. Our assessment
+determined that our DNAG reporting unit had a fair value in excess of its carrying value (including goodwill of $25,179), of approximately 13%. We believe we have made reasonable estimates and assumptions to calculate the fair value of our reporting
+unit. If actual future results, including projected revenue growth, are not consistent with management’s estimates and assumptions, we may have to take an impairment charge in the future related to our goodwill. Future impairment tests will be
+performed annually in the fiscal third quarter, or sooner if a triggering event occurs. 
+Deferred Tax Assets and
+Liabilities. At December 31, 2012, we had federal NOL carryforwards of $60.6 million. The net deferred tax assets, before a full valuation allowance, associated with these NOLs and other temporary differences was
+$32.0 million at December 31, 2012. In assessing the realizability of net 
+63 
+Table of Contents 
+deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is
+dependent upon the generation of future taxable income during the period in which those temporary differences become deductible or the NOLs and credit carryforwards can be utilized. We consider the scheduled reversal of deferred tax liabilities,
+projected future taxable income and tax planning strategies in making this assessment. 
+We currently have a full valuation
+allowance recorded against our total U.S. net deferred tax asset as we had determined in 2008 that it was more likely than not that we would not realize the benefits associated with our net deferred tax asset in the immediate future. Each year, we
+continued to reevaluate our valuation allowance position and believe that it is more likely than not that our U.S. deferred income tax asset will not be realized in the immediate future. As such, we maintain a full valuation allowance against our
+net deferred tax assets as of December 31, 2012 and 2011 associated with the operations subject to income tax in the U.S. 
+Our ability to use our federal NOL carryforwards to offset future federal income tax obligations could be limited by changes in the
+ownership of our stock. Internal Revenue Code (“IRC”) Section 382 contains provisions that limit the amount of federal NOL carryforwards that can be used in any given year in the event of specified occurrences, including significant
+ownership changes. During 2005, the Company completed an analysis, with the assistance of independent tax specialists, to determine if any IRC Section 382 ownership changes had occurred that would limit the amount of NOLs that could be utilized
+to offset future taxable income. As a result of this analysis, the Company concluded that prior period ownership changes may impose a limitation on the amount of NOLs that can be utilized in a given year. The Company does not believe, however, that
+this limitation will impair our future ability to utilize NOLs to offset our future taxable income. The Company continues to review ownership changes on an annual basis and we do not believe we have had a subsequent ownership change that would
+impact the NOLs. 
+In connection with the DNAG acquisition in August 2011, a deferred tax liability was recorded to reflect the
+tax effects of basis differences of intangible assets and inventories for financial reporting and Canadian income tax purposes. For the years ended December 31, 2012 and 2011, we recorded a Canadian income tax benefit of $1.4 million and
+$869,000, respectively, associated with DNAG’s loss before income taxes and certain Canadian research and development and investment tax credits. The income tax benefit associated with DNAG was considered realizable based upon the scheduled
+reversal of the deferred tax liabilities recorded in connection with the acquisition of DNAG. 
+Contingencies . In the ordinary course of business, we have entered into various contractual relationships
+with strategic corporate partners, customers, distributors, research laboratories and universities, licensors, licensees, suppliers, vendors and other parties. As such, we could be subject to litigation, claims or assessments arising from any or all
+of these relationships. We record a loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial
+statements and the amount of the loss can be reasonably estimated. Accounting for contingencies arising from contractual or legal proceedings requires that we use our best judgment when estimating an accrual related to such contingencies. As
+additional information becomes known, our accrual for a loss contingency could fluctuate, thereby creating variability in our results of operations from period to period. Likewise, an actual loss arising from a loss contingency which significantly
+exceeds the amount accrued for in our financial statements could have a material adverse impact on our operating results for the period in which such actual loss becomes known. 
+ITEM 7A. 
+Quantitative and Qualitative Disclosures About Market Risk. 
+We do not hold any amounts of derivative financial instruments or derivative commodity instruments and, accordingly, we have no material derivative risk to report under this Item. 
+As of December 31, 2012, we did not have any foreign currency exchange contracts or purchase currency options to hedge local
+currency cash flows. We have operations in Canada, Europe and Africa, which are subject 
+64 
+Table of Contents 
+to foreign currency fluctuations. As currency rates change, translation of revenues and expenses for these operations from foreign currencies to U.S. dollars affects year-to-year comparability of
+operating results. Sales denominated in a foreign currency were 6.7% of our total consolidated net revenues for the year ended December 31, 2012 (including revenues from DNAG). We expect the DNAG business will continue to grow and our exposure
+to fluctuations in foreign currency exchange rates may increase. 
+ITEM 8. 
+Consolidated Financial Statements and Supplementary Data. 
+Information with respect to this Item is contained in our Consolidated Financial Statements included in Item 15 of this Annual Report on Form 10-K. 
+ITEM 9. 
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 
+Not applicable. 
+ITEM 9A. 
+Controls and Procedures. 
+(a) Evaluation of Disclosure Controls and Procedures. 
+The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls
+and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of December 31, 2012. Based on that evaluation, the Company’s management, including such officers, concluded that as of
+December 31, 2012 the Company’s disclosure controls and procedures were adequate and effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Securities Exchange Act of
+1934 is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported
+within the time periods specified in the rules and forms of the Securities and Exchange Commission. 
+(b) Management’s
+Report on Internal Control Over Financial Reporting. 
+The Company’s management is responsible for establishing and
+maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of the Company’s management,
+including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework
+issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework, our management concluded that our internal control over financial reporting was effective to provide reasonable
+assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles as of December 31, 2012. 
+The effectiveness of our internal control over financial reporting as of December 31, 2012 has been audited by KPMG LLP, an
+independent registered public accounting firm, as stated in their report, which is included below. 
+Because of its inherent
+limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
+conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+(c) Changes in Internal
+Control Over Financial Reporting. 
+There were no changes in our internal control over financial reporting during the fiscal
+quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 
+65 
+Table of Contents 
+(d) Report of Independent Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+OraSure
+Technologies, Inc.: 
+We have audited OraSure Technologies, Inc.’s internal control over financial reporting as of
+December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). OraSure Technologies, Inc.’s management is
+responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over
+Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 
+We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
+assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
+weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe
+that our audit provides a reasonable basis for our opinion. 
+A company’s internal control over financial reporting is a
+process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
+internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
+company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
+are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
+company’s assets that could have a material effect on the financial statements. 
+Because of its inherent limitations,
+internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
+or that the degree of compliance with the policies or procedures may deteriorate. 
+In our opinion, OraSure Technologies, Inc.
+maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
+Organizations of the Treadway Commission (COSO). 
+We also have audited, in accordance with the standards of the Public Company
+Accounting Oversight Board (United States), the consolidated balance sheets of OraSure Technologies, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss,
+stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated March 13, 2013 expressed an unqualified opinion on those consolidated financial statements. 
+/s/ KPMG LLP 
+Philadelphia, Pennsylvania
+March 13, 2013 
+66 
+Table of Contents 
+ITEM 9B. 
+Other Information. 
+Not
+applicable. 
+67 
+Table of Contents 
+PART III 
+We have omitted from Part III the information that will appear in our Definitive Proxy Statement for our 2013 Annual Meeting of
+Stockholders (the “Proxy Statement”), which will be filed within 120 days after the end of our fiscal year pursuant to Regulation 14A. 
+ITEM 10. 
+Directors, Executive Officers and Corporate Governance. 
+Certain information required by this Item is incorporated by reference to the information under the captions, “Corporate Governance—Committees of the Board—Audit Committee,”
+“Executive Officers,” “Item 1—Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,” in the Proxy Statement. 
+Our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal
+financial officer and principal accounting officer, as well as to the members of our Board of Directors and our other officers and employees. This Code of Business Conduct and Ethics is available on our website at www.orasure.com . We intend
+to satisfy the amendment and waiver disclosure requirements under applicable securities regulations by posting any amendments of, or waivers to, the Code of Business Conduct and Ethics on our website. 
+ITEM 11. 
+Executive Compensation. 
+The information required by this Item is incorporated by reference to the information under the caption, “Executive
+Compensation,” in the Proxy Statement. 
+ITEM 12. 
+Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 
+The information required by this Item with respect to the securities ownership of certain beneficial owners and management, and equity
+compensation plan information, is incorporated by reference to the information under the captions, “Stock Ownership of Certain Beneficial Owners and Management” and “Executive Compensation—Equity Compensation Plan
+Information,” in the Proxy Statement. 
+ITEM 13. 
+Certain Relationships and Related Transactions, and Director Independence. 
+The information required by this Item is incorporated by reference to the information under the captions, “Transactions with Related Persons,” “Corporate Governance—Director
+Independence” and “Corporate Governance—Committees of the Board,” in the Proxy Statement. 
+ITEM 14. 
+Principal Accountant Fees and Services. 
+The information required by this Item is incorporated by reference to the information under the caption,” Item 2—Ratification of Appointment of Independent Registered Public Accounting
+Firm” in the Proxy Statement. 
+68 
+Table of Contents 
+PART IV 
+ITEM 15. 
+Exhibits and Consolidated Financial Statement Schedules. 
+(a)(1) and (a)(2). Consolidated Financial Statements and Schedules . For a list of the consolidated financial statements filed herewith, see the Index to Consolidated Financial Statements following
+the signature page to this Annual Report. No schedules are included with the consolidated financial statements because the required information is inapplicable or is presented in the consolidated financial statements or related notes thereto.
+(a)(3). Exhibits . See Index to Exhibits following the consolidated financial statements in this Annual Report.
+69 
+Table of Contents 
+SIGNATURES 
+Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
+authorized, on March 13, 2013. 
+ORASURE TECHNOLOGIES, INC. 
+By: 
+/s/ D OUGLAS A. M ICHELS 
+Douglas A. Michels 
+President and Chief Executive Officer 
+Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on
+March 13, 2013, by the following persons on behalf of the Registrant and in the capacities indicated. 
+SIGNATURE 
+TITLE 
+/ S / D OUGLAS A. M ICHELS 
+Douglas A. Michels 
+President, Chief Executive Officer and Director 
+(Principal Executive Officer) 
+/ S / R ONALD H. S PAIR 
+Ronald H. Spair 
+Chief Operating Officer, Chief Financial Officer and 
+Director (Principal Financial Officer) 
+/ S / M ARK L. K UNA 
+Mark L. Kuna 
+Senior Vice President, Finance and Controller 
+(Principal Accounting Officer) 
+*M ICHAEL C ELANO 
+Michael Celano 
+Director 
+*R ONNY B. L ANCASTER 
+Ronny B. Lancaster 
+Director 
+*G ERALD M. O STROV 
+Gerald M. Ostrov 
+Director 
+*C HARLES W. P ATRICK 
+Charles W. Patrick 
+Director 
+*R OGER L. P RINGLE 
+Roger L. Pringle 
+Director 
+*S TEPHEN S. T ANG 
+Stephen S. Tang 
+Director 
+*D OUGLAS G. W ATSON 
+Douglas G. Watson 
+Director 
+*By: 
+/s/ J ACK E. J ERRETT 
+Jack E. Jerrett 
+(Attorney-in-Fact) 
+70 
+Table of Contents 
+Index to Consolidated Financial Statements 
+Page 
+Report of Independent Registered Public Accounting Firm 
+F-2 
+Consolidated Balance Sheets 
+F-3 
+Consolidated Statements of Operations 
+F-4 
+Consolidated Statements of Comprehensive Loss 
+F-5 
+Consolidated Statements of Stockholders’ Equity 
+F-6 
+Consolidated Statements of Cash Flows 
+F-7 
+Notes to the Consolidated Financial Statements 
+F-8 
+F-1
+Table of Contents 
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
+The Board of Directors and Stockholders 
+OraSure Technologies, Inc.: 
+We have audited the accompanying consolidated balance sheets of
+OraSure Technologies, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period
+ended December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
+we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
+statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
+our opinion. 
+In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
+position of OraSure Technologies, Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with
+U.S. generally accepted accounting principles. 
+We also have audited, in accordance with the standards of the Public Company Accounting
+Oversight Board (United States), OraSure Technologies, Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
+Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 13, 2013 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. 
+/s/ KPMG LLP 
+Philadelphia, Pennsylvania
+March 13, 2013 
+F-2
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES 
+CONSOLIDATED BALANCE SHEETS 
+(in thousands, except per share amounts) 
+December 31, 
+2012 
+2011 
+ASSETS 
+CURRENT ASSETS: 
+Cash 
+$ 
+87,888 
+$ 
+23,878 
+Accounts receivable, net of allowance for doubtful accounts of $285 and $170 
+17,545 
+17,159 
+Inventories 
+12,758 
+9,621 
+Prepaid expenses 
+1,719 
+1,682 
+Other current assets 
+493 
+496 
+Total current assets 
+120,403 
+52,836 
+PROPERTY AND EQUIPMENT, net 
+18,546 
+19,855 
+INTANGIBLE ASSETS, net 
+27,207 
+30,383 
+GOODWILL 
+25,445 
+24,740 
+OTHER ASSETS 
+124 
+47 
+$ 
+191,725 
+$ 
+127,861 
+LIABILITIES AND STOCKHOLDERS’ EQUITY 
+CURRENT LIABILITIES: 
+Current portion of long-term debt 
+$ 
+— 
+$ 
+7,292 
+Accounts payable 
+3,380 
+4,142 
+Deferred revenue 
+5,580 
+1,318 
+Accrued expenses 
+7,960 
+9,224 
+Total current liabilities 
+16,920 
+21,976 
+OTHER LIABILITIES 
+89 
+— 
+DEFERRED INCOME TAXES 
+4,401 
+5,635 
+COMMITMENTS AND CONTINGENCIES (Note 12) 
+STOCKHOLDERS’ EQUITY 
+Preferred stock, par value $.000001, 25,000 shares authorized, none issued 
+— 
+— 
+Common stock, par value $.000001, 120,000 shares authorized, 55,281 and 47,393 shares issued and outstanding 
+— 
+— 
+Additional paid-in capital 
+333,522 
+249,640 
+Accumulated other comprehensive loss 
+(666 
+) 
+(1,964 
+) 
+Accumulated deficit 
+(162,541 
+) 
+(147,426 
+) 
+Total stockholders’ equity 
+170,315 
+100,250 
+$ 
+191,725 
+$ 
+127,861 
+See accompanying notes to the consolidated financial statements. 
+F-3
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+(in thousands, except per share amounts) 
+For the years ended December 31, 
+2012 
+2011 
+2010 
+NET REVENUES: 
+Product 
+$ 
+85,753 
+$ 
+80,683 
+$ 
+71,199 
+Licensing and product development 
+2,067 
+1,198 
+3,816 
+87,820 
+81,881 
+75,015 
+COST OF PRODUCTS SOLD 
+32,249 
+30,164 
+27,655 
+Gross profit 
+55,571 
+51,717 
+47,360 
+OPERATING EXPENSES: 
+Research and development 
+12,445 
+18,406 
+13,192 
+Sales and marketing 
+37,087 
+22,383 
+20,728 
+General and administrative 
+22,309 
+20,325 
+16,794 
+71,841 
+61,114 
+50,714 
+Operating loss 
+(16,270 
+) 
+(9,397 
+) 
+(3,354 
+) 
+INTEREST EXPENSE 
+(172 
+) 
+(316 
+) 
+(316 
+) 
+OTHER INCOME (EXPENSE) 
+(70 
+) 
+3 
+173 
+Loss before income taxes 
+(16,512 
+) 
+(9,710 
+) 
+(3,497 
+) 
+INCOME TAX BENEFIT 
+(1,397 
+) 
+(869 
+) 
+— 
+NET LOSS 
+$ 
+(15,115 
+) 
+$ 
+(8,841 
+) 
+$ 
+(3,497 
+) 
+LOSS PER SHARE: 
+BASIC 
+$ 
+(0.29 
+) 
+$ 
+(0.19 
+) 
+$ 
+(0.08 
+) 
+DILUTED 
+$ 
+(0.29 
+) 
+$ 
+(0.19 
+) 
+$ 
+(0.08 
+) 
+SHARES USED IN COMPUTING LOSS PER SHARE: 
+BASIC 
+51,457 
+46,908 
+46,187 
+DILUTED 
+51,457 
+46,908 
+46,187 
+See accompanying notes to the consolidated financial statements. 
+F-4
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS 
+(in thousands) 
+For the years ended December 31, 
+2012 
+2011 
+2010 
+NET LOSS 
+$ 
+(15,115 
+) 
+$ 
+(8,841 
+) 
+$ 
+(3,497 
+) 
+OTHER COMPREHENSIVE INCOME (LOSS) 
+Currency translation adjustments 
+1,298 
+(1,729 
+) 
+(4 
+) 
+Other comprehensive income (loss) 
+1,298 
+(1,729 
+) 
+(4 
+) 
+COMPREHENSIVE LOSS 
+$ 
+(13,817 
+) 
+$ 
+(10,570 
+) 
+$ 
+(3,501 
+) 
+See accompanying notes to the consolidated financial statements. 
+F-5
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 
+For the years ended December 31, 2012, 2011 and 2010 
+(in thousands) 
+Common Stock 
+Additional 
+Paid-in 
+Capital
+Accumulated 
+Other 
+Comprehensive 
+Loss 
+Accumulated 
+Deficit 
+Total 
+Shares 
+Amount 
+Balance at January 1, 2010 
+45,930 
+$ 
+— 
+$ 
+239,126 
+$ 
+(231 
+) 
+$ 
+(135,088 
+) 
+$ 
+103,807 
+Common stock issued upon exercise of options 
+3 
+— 
+8 
+— 
+— 
+8 
+Vesting of restricted stock 
+429 
+— 
+— 
+— 
+— 
+— 
+Purchase and retirement of treasury shares 
+(136 
+) 
+— 
+(709 
+) 
+— 
+— 
+(709 
+) 
+Compensation cost for restricted stock 
+— 
+— 
+2,354 
+— 
+— 
+2,354 
+Compensation cost for stock option grants 
+— 
+— 
+884 
+— 
+— 
+884 
+Net loss 
+— 
+— 
+— 
+— 
+(3,497 
+) 
+(3,497 
+) 
+Currency translation adjustments 
+— 
+— 
+— 
+(4 
+) 
+— 
+(4 
+) 
+Balance at December 31, 2010 
+46,226 
+— 
+241,663 
+(235 
+) 
+(138,585 
+) 
+102,843 
+Common stock issued upon exercise of options 
+880 
+— 
+4,783 
+— 
+— 
+4,783 
+Vesting of restricted stock 
+421 
+— 
+— 
+— 
+— 
+— 
+Purchase and retirement of treasury shares 
+(134 
+) 
+— 
+(909 
+) 
+— 
+— 
+(909 
+) 
+Compensation cost for restricted stock 
+— 
+— 
+2,521 
+— 
+— 
+2,521 
+Compensation cost for stock option grants 
+— 
+— 
+1,582 
+— 
+— 
+1,582 
+Net loss 
+— 
+— 
+— 
+— 
+(8,841 
+) 
+(8,841 
+) 
+Currency translation adjustments 
+— 
+— 
+— 
+(1,729 
+) 
+— 
+(1,729 
+) 
+Balance at December 31, 2011 
+47,393 
+— 
+249,640 
+(1,964 
+) 
+(147,426 
+) 
+100,250 
+Common stock issued upon exercise of options 
+1,476 
+— 
+10,040 
+— 
+— 
+10,040 
+Vesting of restricted stock 
+454 
+— 
+— 
+— 
+— 
+— 
+Issuance of common stock for public equity offering 
+6,100 
+70,246 
+— 
+— 
+70,246 
+Purchase and retirement of treasury shares 
+(142 
+) 
+— 
+(1,560 
+) 
+— 
+— 
+(1,560 
+) 
+Compensation cost for restricted stock 
+— 
+— 
+2,894 
+— 
+— 
+2,894 
+Compensation cost for stock option grants 
+— 
+— 
+2,262 
+— 
+— 
+2,262 
+Net loss 
+— 
+— 
+— 
+— 
+(15,115 
+) 
+(15,115 
+) 
+Currency translation adjustments 
+— 
+— 
+— 
+1,298 
+— 
+1,298 
+Balance at December 31, 2012 
+55,281 
+$ 
+— 
+$ 
+333,522 
+$ 
+(666 
+) 
+$ 
+(162,541 
+) 
+$ 
+170,315 
+See accompanying notes to the consolidated financial statements 
+F-6
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES 
+CONSOLIDATED STATEMENTS OF CASH FLOWS 
+(in thousands) 
+For the years ended December 31, 
+2012 
+2011 
+2010 
+OPERATING ACTIVITIES: 
+Net loss 
+$ 
+(15,115 
+) 
+$ 
+(8,841 
+) 
+$ 
+(3,497 
+) 
+Adjustments to reconcile net loss to net cash (used in) provided by operating activities: 
+Stock-based compensation 
+5,197 
+4,100 
+3,229 
+Depreciation and amortization 
+7,250 
+4,891 
+3,012 
+Deferred income taxes 
+(1,397 
+) 
+(868 
+) 
+— 
+Inventory purchase accounting step-up adjustment 
+16 
+852 
+— 
+Changes in assets and liabilities 
+Accounts receivable 
+(296 
+) 
+(3,377 
+) 
+1,219 
+Inventories 
+(3,139 
+) 
+(1,757 
+) 
+1,499 
+Prepaid expenses and other assets 
+(99 
+) 
+491 
+1,413 
+Accounts payable 
+(791 
+) 
+911 
+(472 
+) 
+Deferred revenue 
+4,254 
+112 
+(722 
+) 
+Accrued expenses and other liabilities 
+(1,253 
+) 
+492 
+(1,794 
+) 
+Net cash (used in) provided by operating activities 
+(5,373 
+) 
+(2,994 
+) 
+3,887 
+INVESTING ACTIVITIES: 
+Proceeds from maturities and redemptions of short-term investments 
+— 
+1,895 
+2,841 
+Acquisition of DNA Genotek Inc., net of cash acquired 
+— 
+(49,730 
+) 
+— 
+Payments for patents and product rights 
+— 
+— 
+(4,500 
+) 
+Purchases of property and equipment 
+(2,019 
+) 
+(2,505 
+) 
+(2,106 
+) 
+Net cash used in investing activities 
+(2,019 
+) 
+(50,340 
+) 
+(3,765 
+) 
+FINANCING ACTIVITIES: 
+Repayments of long-term debt 
+(7,292 
+) 
+(500 
+) 
+(510 
+) 
+Proceeds from the issuance of common stock, net of expenses 
+70,246 
+— 
+— 
+Proceeds from exercise of stock options 
+10,040 
+4,783 
+8 
+Repurchase of common stock 
+(1,560 
+) 
+(909 
+) 
+(709 
+) 
+Net cash provided by (used in) financing activities 
+71,434 
+3,374 
+(1,211 
+) 
+EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 
+(32 
+) 
+(5 
+) 
+(2 
+) 
+NET INCREASE (DECREASE) IN CASH 
+64,010 
+(49,965 
+) 
+(1,091 
+) 
+CASH, BEGINNING OF PERIOD 
+23,878 
+73,843 
+74,934 
+CASH, END OF PERIOD 
+$ 
+87,888 
+$ 
+23,878 
+$ 
+73,843 
+See accompanying notes to the consolidated financial statements. 
+F-7
+Table of Contents 
+ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES 
+NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
+(in thousands, except per share amounts, unless otherwise indicated) 
+1. 
+THE COMPANY: 
+We manufacture and market oral fluid diagnostic products and specimen collection devices using our
+proprietary oral fluid technologies, as well as other diagnostic products, including immunoassays and other in vitro diagnostic tests that are used on other specimen types. Our diagnostic products include tests that are performed on a rapid
+basis at the point of care and tests that are processed in a laboratory. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health
+organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. In September 2012 we began selling our rapid point-of-care HIV test in the domestic consumer retail market. We also manufacture and
+sell oral fluid collection devices used to collect, stabilize and store samples of genetic material for molecular testing in the academic research, clinical genetic testing, pharmacogenomics, personalized medicine, and animal genetics markets. Our
+OraGene ® DNA sample collection kit provides an all-in-one system for the collection, stabilization and
+transportation of DNA in saliva. We also manufacture and sell medical devices used for the removal of benign skin lesions by cryosurgery, or freezing. One of our cryosurgery products has been sold in the over-the-counter or consumer retail markets
+in North America, Europe, Central and South America and Australia. 
+2. 
+SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 
+Principles of Consolidation and Basis of Presentation 
+The consolidated financial statements include the accounts of OraSure and its wholly-owned subsidiary, DNA Genotek Inc. (“DNAG”
+and, collectively with OraSure, the “Company”). All intercompany transactions and balances have been eliminated. 
+Use of Estimates 
+The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future
+events. These estimates and underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of
+accounts receivable and inventories and assumptions utilized in impairment testing for intangible assets and goodwill, as well as calculations related to contingencies and accruals, among others. These estimates and assumptions are based on
+management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis, using historical experience and other factors, which management believes to be reasonable under the circumstances, including the
+current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity, foreign currency markets, reductions in government funding, and declines in consumer spending have
+combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates
+resulting from continuing changes in the economic environment and other factors will be reflected in the financial statements in those future periods. 
+Supplemental Cash Flow Information 
+In 2012, 2011 and 2010, we paid interest of $199, $318, and $340, respectively. In 2010, we capitalized interest of $20. No interest was
+capitalized in 2012 or 2011. 
+In 2012, we paid foreign and state income taxes of $22. In 2011, we received a refund of $15 for
+federal and state income taxes, net of state taxes paid. In 2010, we received a federal income tax refund of $597 related to refundable alternative minimum taxes paid in previous years, and we paid state income taxes of $12. 
+F-8
+Table of Contents 
+In 2012 and 2011, we recorded through the consolidated statements of operations an increase
+in our allowance for doubtful accounts of $115 and $64, respectively. In 2010, we recorded through the consolidated statement of operations a decrease in our allowance for doubtful accounts of $115. We had write-offs of $36 against the allowance for
+doubtful accounts in 2010. We had no material write-offs against the allowance for doubtful accounts in 2012 or 2011. 
+Accounts Receivable 
+Accounts receivable have been reduced by an estimated allowance for amounts that may become uncollectible in the future. This estimated
+allowance is based primarily on management’s evaluation of specific balances as they become past due, the financial condition of our customers and our historical experience related to write-offs. 
+Inventories 
+Inventories are stated at the lower of cost or market determined on a first-in, first-out basis, and include the cost of raw materials, labor and overhead. The majority of our inventories are subject to
+expiration dating. We continually evaluate quantities on hand and the carrying value of our inventories to determine the need for reserves for excess and obsolete inventories, based primarily on the estimated forecast of product sales. When factors
+indicate that impairment has occurred, either a reserve is established against the inventories’ carrying value or the inventories are completely written off, as in the case of lapsing expiration dates. In addition to reserving for these items
+identified through specific identification procedures, we also reserve for unidentified scrap or spoilage under a fixed-formula methodology. 
+Property and Equipment 
+Property and equipment are stated at cost. Additions or improvements are capitalized, while repairs and maintenance are charged to
+expense. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets. Buildings are depreciated over twenty to forty years, while computer equipment, machinery and equipment, and
+furniture and fixtures are depreciated over two to ten years. Building improvements are amortized over their estimated useful lives. When assets are sold or otherwise disposed of, the related property amounts are relieved from the accounts, and any
+gain or loss is recorded in the consolidated statement of operations. 
+Intangible Assets 
+Intangible assets consist of a customer list, patents and product rights, acquired technology, tradenames and non-compete agreements.
+Patents and product rights consist of costs associated with the acquisition of patents, licenses and product distribution rights. The customer list, acquired technology, tradenames and non-compete agreements were all part of our acquisition of DNAG
+in August 2011. Intangible assets are amortized using the straight-line method over their estimated useful lives of one to fifteen years. 
+Goodwill 
+Goodwill represents the excess of the purchase price we paid over the fair value of the net tangible and identifiable intangible assets
+acquired and liabilities assumed in our acquisition of DNAG in August 2011. Goodwill is not amortized but rather is tested annually for impairment or more frequently if we believe that indicators of impairment exist. Performance of goodwill
+impairment testing permits us to make a qualitative evaluation about the likelihood of goodwill impairment. If we conclude that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then we would not
+be required to perform the two-step quantitative impairment test. Otherwise, performing the two-step impairment test is necessary. The first step of the two-step quantitative impairment test involves comparing the fair values of the applicable
+reporting units 
+F-9
+Table of Contents 
+with their aggregate carrying values, including goodwill. If the carrying value of a reporting unit exceeds the reporting unit’s fair value, we perform the second step of the test to
+determine the amount of the impairment loss, if any. The second step involves measuring any impairment by comparing the implied fair values of the affected reporting unit’s goodwill and intangible assets with the respective carrying values.
+We performed our annual impairment test for goodwill as of July 31, 2012 and determined there was no impairment. Our
+assessment determined that our DNAG reporting unit had a fair value in excess of its carrying value (including goodwill of $25,179), of approximately 13%. We believe we have made reasonable estimates and assumptions to calculate the fair value of
+our reporting unit. If actual future results are not consistent with management’s estimates and assumptions, we may have to take an impairment charge in the future related to our goodwill. Future impairment tests will be performed annually in
+the fiscal third quarter, or sooner if a triggering event occurs. 
+Impairment of Long-Lived Assets 
+If indicators of impairment exist, we assess the recoverability of the affected long-lived assets, which include property and equipment
+and intangible assets, by determining whether the carrying value of such assets can be recovered through the sum of the undiscounted future cash flows from the use and eventual disposition of the asset. If impairment is indicated, we measure the
+amount of such impairment by comparing the carrying value of the assets to the fair value of these assets, which is generally determined based on the present value of the expected future cash flows associated with the use of the assets. 
+Revenue Recognition 
+We recognize product revenues when there is persuasive evidence that an arrangement exists, the price is fixed or
+determinable, title has passed and collection is reasonably assured. Product revenues are recorded net of allowances for any discounts or rebates. We do not grant price protection or product return rights (other than for our OraQuick ® In-Home HIV tests, which we began to sell in the third quarter of 2012) to our customers, except for warranty
+returns. Historically, returns arising from warranty issues have been infrequent and immaterial. Accordingly, we expense warranty returns as incurred. 
+Our revenue practices with respect to the OraQuick ® In-Home HIV
+test will initially be different than those customarily used in the consumer package goods industry. Under U.S. generally accepted accounting principles, product revenue can not be recognized unless the amount of future returns can be reasonably
+estimated. Because our OraQuick ® In-Home HIV test is a new product for which we do not have a historical record
+of returns, we do not believe we can reasonably determine a return rate at this time. As a result we do not recognize revenue when we ship to the retail trade. For these product shipments, we invoice the retailer or distributor, record deferred
+revenue at gross invoice sales price, and classify the cost basis of the product held by the retailer or distributor as a component of inventory. Initially, we will only recognize revenue upon the consummation of a sale to the retail customer either
+in a store or over the internet. We expect to apply a more traditional revenue recognition policy such that revenue is recognized following shipment to the retailers or distributors when we believe we have sufficient data to develop a reasonable
+estimate of the level of expected returns. 
+Our net revenues recorded on sales of the OraQuick ® In-Home HIV test represent total gross revenue less customer allowances, including estimates for cooperative
+advertising discounts, rebates, and chargebacks. These allowances are recorded as a reduction of gross revenue when recognized in our statement of operations. These allowances are established by management as our best estimate based on available
+information and are adjusted to reflect known changes in the factors that impact those estimates. 
+Royalty income from the
+grant of license rights is recognized during the period in which the revenue is earned and the amount is determinable from the licensee. 
+F-10
+Table of Contents 
+We record shipping and handling charges billed to our customers as product revenue and the
+related expense as cost of products sold. Taxes assessed by governmental authorities, such as sales or value-added taxes, are excluded from product revenues. 
+Deferred Revenue 
+We record deferred revenue when funds are received prior to the recognition of the associated revenue and also when
+shipments of our OraQuick ® In-Home HIV test are made to the retailers or distributors who have product return
+rights. Deferred revenue at December 31, 2012 and 2011 included customer prepayments of $1,880 and $1,318, respectively. As of December 31, 2012, it also included $3,700 related to
+OraQuick ® In-Home HIV tests, representing the value of product held by those retailers or distributors having
+product return rights. 
+Customer and Vendor Concentrations 
+As of December 31, 2012, one of our customers, CVS Distribution, Inc. accounted for approximately 11% of our accounts receivable
+balance. We had no significant concentrations (greater than 10%) in accounts receivable as of December 31, 2011 or in revenues for the years ended December 31, 2012, 2011 or 2010. 
+We currently purchase certain products and critical components of our products from sole-supply vendors, and if these vendors are unable
+or unwilling to supply the required components and products, we could be subject to substantial delays in the delivery of our products to our customers and increased costs. Furthermore, our subsidiary, DNAG, uses two third-party suppliers to
+manufacture its products. Our inability to have a timely supply of any of these components and products could have a material adverse effect on our business, as well as our financial condition and results of operations. 
+Research and Development 
+Research and development expenses consist of costs incurred in performing research and development activities, including salaries and
+benefits, facilities expenses, overhead expenses, clinical trial and related clinical manufacturing expenses, contract services and other outside expenses. Research and development costs are charged to expense as incurred. Clinical trial expenses
+include expenses associated with contract research organizations, or CROs. The invoicing from CROs can precede the services provided or can lag the service period by several months. Invoices paid prior to services being provided are recorded as a
+prepaid expense and then expensed appropriately as services are provided. We accrue the cost of services rendered but unbilled by CROs based on purchase order estimates provided by the CROs. Differences between actual and estimated clinical trial
+expenses recorded are generally not material and are adjusted for in the period in which they become known. 
+Advertising Expenses 
+Advertising costs are charged to expense as incurred. During 2012, 2011, and 2010, we incurred $6,310, $130, and
+$223, respectively, in advertising expenses. 2012 expenses include advertising associated with our OraQuick ® 
+In-Home HIV test which we began selling in the consumer retail market in the fourth quarter. 
+Stock-Based Compensation 
+We account for stock-based compensation to employees and directors using the fair value method. We recognize compensation expense for
+stock option and restricted stock awards issued to employees and directors on a straight-line basis over the requisite service period of the award. To satisfy the exercise of options or to issue restricted stock, we issue new shares rather than
+purchase shares on the open market. 
+F-11
+Table of Contents 
+Income Taxes 
+We follow the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
+between the financial statement carrying amounts of existing assets and liabilities and the respective tax basis of assets and liabilities, and operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted
+tax rates for the respective taxing jurisdiction that are expected to apply to taxable income in the years in which those temporary differences and operating loss and credit carryforwards are expected to be recovered, settled or utilized. The effect
+on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 
+We assess the realizability of our net deferred tax assets on a quarterly basis. If, after considering all relevant positive and negative evidence, it is more likely than not that some portion or all of
+the net deferred tax assets will not be realized we reduce our net deferred tax assets by a valuation allowance. The realization of the net deferred tax assets is dependent on several factors, including the generation of sufficient taxable income
+prior to the expiration of our net operating loss carryforwards. 
+Foreign Currency Translation 
+The assets and liabilities of our foreign operations are translated into U.S. dollars at current exchange rates as of the balance sheet
+date, and revenues and expenses are translated at average exchange rates for the period. Resulting translation adjustments are reflected in accumulated other comprehensive loss, which is a separate component of stockholders’ equity. 
+Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than functional
+currency are included in income in the period in which the change occurs. 
+Loss Per Share 
+Basic and diluted loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding
+during the period. Diluted loss per share is generally computed assuming the exercise or vesting of all dilutive securities such as common stock options and unvested restricted stock. Common stock options and unvested restricted stock totaling
+5,314, 6,296, and 6,296 shares were outstanding as of December 31, 2012, 2011 and 2010, respectively. As a result of our net losses for the years ended December 31, 2012, 2011 and 2010, these shares were excluded from the respective
+periods’ computations of diluted loss per share, as their inclusion would have been anti-dilutive. 
+Accumulated Other Comprehensive Loss 
+We classify items of other comprehensive loss by their nature and disclose the accumulated balance of other comprehensive loss separately
+from accumulated deficit and additional paid-in capital in the stockholders’ equity section of our balance sheet. 
+Our
+accumulated other comprehensive loss for 2012, 2011, and 2010 consisted of foreign currency translation adjustments. 
+We have
+defined the Canadian dollar as the functional currency of our Canadian subsidiary, DNAG, and as such, the results of its operations are translated into U.S. dollars, which is the reporting currency of the Company. The $1,298 and ($1,729) currency
+translation adjustments recorded in 2012 and 2011, respectively, are largely the result of the translation of our Canadian operation’s financial statements into U.S. dollars. 
+F-12
+Table of Contents 
+Fair Value of Financial Instruments 
+As of December 31, 2012 and 2011, the carrying values of cash, accounts receivable, accounts payable and accrued expenses approximate
+their respective fair values based on their short-term nature. 
+Fair value measurements of all financial assets and
+liabilities that are being measured and reported on a fair value basis are required to be classified and disclosed in one of the following three categories: 
+Level 1: 
+Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; 
+Level 2: 
+Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;
+and 
+Level 3: 
+Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market
+activity). 
+Effective January 3, 2012, we implemented a nonqualified Deferred Compensation Plan for highly
+compensated employees. The assets of the plan are held in the name of the Company at a third-party financial institution. Separate accounts are maintained for each participant to reflect the amounts deferred by the participant and all earnings and
+losses on those deferred amounts. The assets of the plan are held in mutual funds. The fair value of the plan assets as of December 31, 2012 was $89 and was calculated using the market price of the mutual funds as of that date. All investments
+in the plan are classified as trading securities and measured as Level 1 instruments. 
+Reclassification 
+Certain prior period amounts have been reclassified to conform to current year presentation. 
+3. 
+Business Combination 
+On August 17, 2011 (the “Acquisition Date”), we acquired all of the outstanding capital stock of DNAG,
+pursuant to the terms of a Support Agreement dated July 25, 2011. The purchase price was $49,750 CDN ($50,467 in U.S. dollars at the Acquisition Date exchange rate) and was funded by OraSure with cash on hand. The purchase price consisted of
+$50,000 CDN ($50,710 million in U.S. dollars at the Acquisition Date exchange rate) less a $250 CDN ($254 U.S. dollars) working capital adjustment received in the fourth quarter of 2011. Of the original $50,000 CDN purchase price, $5,000 CDN (or
+$5,071 in U.S. dollars at the Acquisition Date exchange rate) was deposited in escrow pursuant to the related support agreement. The payment for the working capital adjustment was funded from the escrow account. Subject to certain adjustments and
+the processing of any indemnification claims, $1.9 million CDN was released from the escrow fund to the seller in February 2013 with the balance to be released in February 2014. 
+The acquisition of DNAG strengthens OraSure’s leadership in oral fluid diagnostics, by providing OraSure with a complementary
+portfolio of products that enable easy and reliable collection, stabilization, transportation and storage of high quality nucleic acid (DNA and RNA) samples. These samples can then be used for a wide range of research and diagnostic applications.
+We have accounted for the acquisition of DNAG using the acquisition method of accounting. Under the acquisition method of
+accounting, the total purchase price is allocated to the tangible and identifiable intangible assets acquired and the liabilities assumed based upon their estimated fair values as of the Acquisition Date. The excess of the fair value of the
+consideration paid over the estimated fair value of the assets acquired and liabilities assumed was recorded as goodwill. For purposes of the purchase price allocation, fair value is defined as an exit price, representing the amount that would be
+received to sell an asset or paid to transfer a liability in an 
+F-13
+Table of Contents 
+orderly transaction between market participants. The fair value guidance also requires that the fair value measurements reflect the assumptions market participants use in pricing an asset or
+liability based upon the best information available. Under the acquisition method of accounting, acquisition related transaction costs, such as success-based banking fees and professional fees, are not included as a component of consideration
+transferred, but rather are accounted for as expenses in the periods in which the costs are incurred. 
+During 2011, we
+incurred a total of $2,634 of acquisition related costs, including success-based investment banking fees and accounting, legal and other professional fees, related to the DNAG acquisition, all of which were expensed and included in general and
+administrative expenses in the consolidated statement of operations for the year ended December 31, 2011. 
+The following
+table summarizes the allocation of the fair values of the assets acquired and the liabilities assumed at the Acquisition Date: 
+Current assets 
+$ 
+3,734 
+Property, plant and equipment 
+715 
+Other assets 
+760 
+Intangible assets 
+28,502 
+Goodwill 
+25,619 
+Total assets acquired 
+59,330 
+Current liabilities 
+(1,388 
+) 
+Deferred tax liability 
+(7,475 
+) 
+Total liabilities assumed 
+(8,863 
+) 
+Purchase price 
+50,467 
+Less cash acquired 
+(737 
+) 
+Net cash paid 
+$ 
+49,730 
+Included in the current assets acquired in the DNAG acquisition was inventory having an estimated fair value of $1,413.
+This fair value includes an $892 “step-up” adjustment to capitalize the estimated manufacturing profit in acquired finished goods inventory as of the Acquisition Date, of which we expensed $16 and $852 to cost of products sold during the
+years ended December 31, 2012 and 2011, respectively. 
+The results of operations associated with DNAG have been
+consolidated with those of the Company since the Acquisition Date. Total revenues of $6,216 and a net loss of $693, including $852 of inventory step-up as noted above, attributable to DNAG were recognized in the consolidated statement of operations
+for the year ended December 31, 2011. 
+The following unaudited condensed consolidated pro forma information sets forth
+the revenues, net loss and net loss per share of the Company for the years ended December 31, 2011 and 2010, as if the acquisition had occurred on January 1, 2010. The unaudited pro forma information presented below is not necessarily
+indicative of the results that would have been attained had the transaction occurred at an earlier date, nor are these results necessarily indicative of future consolidated results of operations of the Company. 
+Years Ended December 31, 
+2011 
+2010 
+Total revenues 
+$ 
+89,966 
+$ 
+89,303 
+Net loss 
+(10,911 
+) 
+(4,842 
+) 
+Loss per share: 
+Basic and diluted 
+$ 
+(0.23 
+) 
+$ 
+(0.10 
+) 
+The supplemental pro forma results for the year ended December 31, 2011 exclude $2,634 of transaction costs
+incurred by OraSure that were recorded in operating expenses. 
+F-14
+Table of Contents 
+4. 
+INVENTORIES: 
+December 31, 
+2012 
+2011 
+Raw materials 
+$ 
+6,777 
+$ 
+5,768 
+Work in process 
+393 
+497 
+Finished goods 
+5,588 
+3,356 
+$ 
+12,758 
+$ 
+9,621 
+5. 
+PROPERTY AND EQUIPMENT: 
+December 31, 
+2012 
+2011 
+Land 
+$ 
+1,118 
+$ 
+1,118 
+Buildings and improvements 
+16,589 
+16,532 
+Machinery and equipment 
+18,423 
+17,428 
+Computer equipment and software 
+5,989 
+5,167 
+Furniture and fixtures 
+1,692 
+1,669 
+Construction in progress 
+581 
+438 
+44,392 
+42,352 
+Less accumulated depreciation 
+(25,846 
+) 
+(22,497 
+) 
+$ 
+18,546 
+$ 
+19,855 
+Depreciation expense was $3,347, $2,934, and $2,510 for 2012, 2011, and 2010, respectively. 
+6. 
+GOODWILL AND OTHER INTANGIBLE ASSETS: 
+The changes in goodwill are as follows: 
+December 31, 
+2012 
+2011 
+Balance as of January 1 
+$ 
+24,740 
+$ 
+— 
+Goodwill from DNAG acquisition 
+— 
+25,619 
+Increase (decrease) related to foreign currency translation 
+705 
+(879 
+) 
+Balance as of December 31 
+$ 
+25,445 
+$ 
+24,740 
+Intangible assets consist of the following: 
+Amortization 
+Period 
+(Years) 
+December 31, 2012 
+Gross 
+Accumulated 
+Amortization 
+Net 
+Customer list 
+10 
+$ 
+12,619 
+$ 
+(1,673 
+) 
+$ 
+10,946 
+Patents and product rights 
+3-10 
+10,449 
+(6,926 
+) 
+3,523 
+Acquired technology 
+7 
+9,802 
+(1,829 
+) 
+7,973 
+Tradename 
+15 
+4,837 
+(443 
+) 
+4,394 
+Non-compete agreements 
+1-3 
+842 
+(471 
+) 
+371 
+$ 
+38,550 
+$ 
+(11,342 
+) 
+$ 
+27,207 
+F-15
+Table of Contents 
+Amortization 
+Period 
+(Years) 
+December 31, 2011 
+Gross 
+Accumulated 
+Amortization 
+Net 
+Customer list 
+10 
+$ 
+12,270 
+$ 
+(441 
+) 
+$ 
+11,829 
+Patents and product rights 
+3-10 
+10,449 
+(6,386 
+) 
+4,063 
+Acquired technology 
+7 
+9,531 
+(482 
+) 
+9,049 
+Tradename 
+15 
+4,703 
+(117 
+) 
+4,586 
+Non-compete agreements 
+1-3 
+1,021 
+(165 
+) 
+856 
+$ 
+37,974 
+$ 
+(7,591 
+) 
+$ 
+30,383 
+Patents and products rights are made up of the following: 
+December 31, 
+2012 
+2011 
+HIV-related 
+$ 
+1,900 
+$ 
+1,900 
+HCV-related 
+4,500 
+4,500 
+Lateral flow-related 
+1,500 
+1,500 
+Cryosurgery-related 
+2,549 
+2,549 
+10,449 
+10,449 
+Less accumulated amortization 
+(6,926 
+) 
+(6,386 
+) 
+$ 
+3,523 
+$ 
+4,063 
+Amortization expense for 2012, 2011, and 2010 was $3,903, $1,957, and $502, respectively. 
+Amortization expense for each of the five succeeding fiscal years is estimated as follows: 
+2013 
+$ 
+3,616 
+2014 
+3,483 
+2015 
+3,300 
+2016 
+3,300 
+2017 
+3,300 
+Beyond 
+10,208 
+7. 
+ACCRUED EXPENSES: 
+December 31, 
+2012 
+2011 
+Payroll and related benefits 
+$ 
+4,248 
+$ 
+4,867 
+Royalties 
+1,948 
+1,986 
+Professional fees 
+413 
+835 
+Other 
+1,351 
+1,536 
+$ 
+7,960 
+$ 
+9,224 
+8. 
+LONG-TERM DEBT: 
+As of December 31, 2011, we had in place a $10,000,000 credit facility (the “Credit Facility”), as
+amended, with Comerica Bank (“Comerica”). Pursuant to the terms of the Credit Facility, principal and interest fixed at 4.15% per annum were payable monthly through August 27, 2012, at which time the remaining unpaid principal
+balance was payable. On July 30, 2012, we repaid the $7,042 principal balance outstanding under this Credit Facility and this Credit Facility has been terminated. 
+F-16
+Table of Contents 
+9. 
+INCOME TAXES: 
+Loss before income tax benefit consists of the following: 
+2012 
+2011 
+2010 
+United States 
+$ 
+(13,515 
+) 
+$ 
+(8,147 
+) 
+$ 
+(3,497 
+) 
+Canada 
+(2,997 
+) 
+(1,563 
+) 
+— 
+$ 
+(16,512 
+) 
+$ 
+(9,710 
+) 
+$ 
+(3,497 
+) 
+The components of the income tax provision (benefit) for the years ended December 31, 2012, 2011 and 2010 are as
+follows: 
+2012 
+2011 
+2010 
+Deferred 
+Federal 
+$ 
+(4,370 
+) 
+$ 
+(2,674 
+) 
+$ 
+(1,215 
+) 
+State 
+(272 
+) 
+(273 
+) 
+(92 
+) 
+Canada 
+(1,397 
+) 
+(869 
+) 
+— 
+(6,039 
+) 
+(3,816 
+) 
+(1,307 
+) 
+Increase in valuation allowance 
+4,642 
+2,947 
+1,307 
+Total income tax benefit 
+$ 
+(1,397 
+) 
+$ 
+(869 
+) 
+$ 
+— 
+For the years ended December 31, 2012 and 2011 we recorded an income tax benefit of $1,397 and $869, respectively,
+associated with DNAG’s loss before income taxes and certain Canadian research and development and investment tax credits. The income tax benefit associated with DNAG was considered realizable based upon the estimated scheduled reversal of the
+deferred tax liabilities recorded in connection with the acquisition of DNAG. The income tax benefit for the current year ended December 31, 2012 was negatively impacted by a $428 adjustment to DNAG’s deferred tax liability recorded in the
+second quarter of 2012 to reflect a change in the enacted Canadian provincial tax rates. 
+A reconciliation of the statutory
+United States federal income tax rate to our effective tax rate for each of the years ended December 31, 2012, 2011, and 2010 is as follows: 
+2012 
+2011 
+2010 
+Statutory U.S. federal income tax rate 
+(34.0 
+)% 
+(34.0 
+)% 
+(34.0 
+)% 
+State income taxes, net of federal benefit 
+(1.2 
+) 
+(1.9 
+) 
+(0.9 
+) 
+Canadian income taxes 
+(8.5 
+) 
+(8.9 
+) 
+— 
+Nondeductible expenses and other 
+1.0 
+5.3 
+6.8 
+U.S. research and development credits 
+(0.3 
+) 
+(5.7 
+) 
+(9.7 
+) 
+Change in valuation allowance, federal and state 
+34.5 
+36.3 
+37.8 
+Effective tax rate 
+(8.5 
+)% 
+(8.9 
+)% 
+— 
+% 
+F-17
+Table of Contents 
+Deferred income taxes reflect the tax effects of temporary differences between the basis of
+assets and liabilities recognized for financial reporting purposes and tax purposes, and net operating loss and tax credit carryforwards. Significant components of our total deferred tax asset as of December 31, 2012 and 2011 are as follows:
+2012 
+2011 
+Deferred tax assets (liabilities): 
+Net operating loss carryforwards 
+$ 
+21,207 
+$ 
+16,286 
+Inventories 
+1,781 
+1,216 
+Capitalized research and development costs 
+6,148 
+6,489 
+Accruals and reserves currently not deductible 
+2,123 
+1,968 
+Patent costs 
+1,202 
+1,552 
+Acquired intangible assets 
+(6,278 
+) 
+(6,635 
+) 
+Depreciation and amortization 
+(744 
+) 
+(1,019 
+) 
+Stock-based compensation 
+4,176 
+4,157 
+Research and development tax credit carryforward 
+2,378 
+2,103 
+Net deferred tax asset 
+31,993 
+26,117 
+Valuation allowance 
+(36,394 
+) 
+(31,752 
+) 
+Net deferred tax liability 
+$ 
+(4,401 
+) 
+$ 
+(5,635 
+) 
+In assessing the realizability of our net deferred tax asset, we consider all relevant positive and negative evidence
+in determining whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of
+sufficient taxable income prior to the expiration of the NOL carryforwards. In 2008 we recorded an income tax charge to establish a full valuation allowance against our total U.S. net deferred tax asset. During the subsequent years, we continued to
+reevaluate our valuation allowance position and believe that it is more likely than not that our U.S. deferred income tax asset will not be realized in the immediate future. As such, we maintained a full valuation allowance against our net deferred
+tax assets as of December 31, 2012 and 2011 associated with our U.S. operations. 
+Our Federal NOL carryforwards expire as
+follows: 
+Year of Expiration 
+NOLs 
+2018-2019 
+$ 
+16,273 
+2020-2024 
+16,397 
+2025-2031 
+14,476 
+2032 
+13,407 
+$ 
+60,553 
+The Tax Reform Act of 1986 contains provisions that limit the annual amount of NOLs available to be used in any given
+year in the event of a significant change in ownership. On September 29, 2000, two separate companies, STC Technologies, Inc. and Epitope, Inc., merged to form our Company. A significant change in ownership, as defined by Section 382 of
+the Internal Revenue Code, occurred in connection with this merger. As such, the utilization of NOLs generated prior to September 29, 2000 is limited to approximately $13,700 per year. We do not believe that this limitation will have a material
+adverse impact on the utilization of our Federal NOL carryforwards in future years. 
+As of December 31, 2012, our gross
+unrecognized tax benefits totaled $1,922 and based upon the valuation allowance for the U.S. operations the recognition of any tax benefit would not impact our effective tax rate. We record interest and penalties related to unrecognized tax benefits
+as a component of income tax expense. Interest 
+F-18
+Table of Contents 
+and penalties were immaterial in 2012, 2011 and 2010. As a result of our net operating loss carryforward position, we are subject to audit by the Internal Revenue Service since our inception, as
+well as by several state jurisdictions for the years ended December 31, 2001 through 2012. 
+A reconciliation of the
+beginning and ending amount of unrecognized tax benefits is as follows: 
+2012 
+2011 
+2010 
+Balance as of January 1 
+$ 
+2,015 
+$ 
+2,090 
+$ 
+2,045 
+Additions based on tax positions related to the current period 
+— 
+53 
+52 
+Additions for tax positions of prior periods 
+67 
+19 
+— 
+Reductions for tax positions of prior periods 
+(160 
+) 
+(147 
+) 
+(7 
+) 
+Balance as of December 31 
+$ 
+1,922 
+$ 
+2,015 
+$ 
+2,090 
+10. 
+STOCKHOLDERS’ EQUITY: 
+Stock-Based Awards 
+We grant stock-based awards under the OraSure Technologies, Inc. Stock Award Plan, as amended and restated (the “Stock Plan”). The Stock Plan permits stock-based awards to employees, outside
+directors and consultants or other third-party advisors. Awards which may be granted under the Stock Plan include qualified incentive stock options, nonqualified stock options, stock appreciation rights, restricted awards, performance awards and
+other stock-based awards. We recognize compensation expense for stock option awards issued to employees and directors on a straight-line basis over the requisite service period of the award. To satisfy the exercise of options or to issue restricted
+stock, we normally issue new shares rather than purchase shares on the open market. 
+Under the terms of the Stock Plan,
+nonqualified options may be granted to eligible employees, including our officers at a price not less than 75 percent of the fair market value of a share of common stock on the date of grant. The option term and vesting schedule of such awards may
+be either unlimited or have a specified period in which to vest and be exercised. To date, options generally have been granted with ten-year exercise periods and an exercise price not less than the fair market value on the date of grant. Options
+generally vest over four years, with one quarter of the options vesting one year after grant and the remainder vesting on a monthly basis over the next three years. 
+As of December 31, 2012, 3,105 shares were available for future grants under the Stock Plan. 
+The fair value of each stock option was estimated on the date of the grant using the Black-Scholes option-pricing model using the following weighted-average assumptions: 
+Years Ended 
+December 31, 
+Black-Scholes Option Valuation Assumptions 
+2012 
+2011 
+2010 
+Risk-free interest rate (1) 
+0.99 
+% 
+1.36 
+% 
+1.89 
+% 
+Expected dividend yield 
+— 
+— 
+— 
+Expected stock price volatility (2) 
+52 
+% 
+54 
+% 
+54 
+% 
+Expected life of stock options (in years) (3) 
+6 
+4 
+4 
+(1) 
+Based on the constant maturity interest rate of U.S. Treasury securities whose term is consistent with the expected life of our stock options.
+(2) 
+Expected stock price volatility is based upon historical experience. 
+(3) 
+Expected life of stock options is based upon historical experience. 
+F-19
+Table of Contents 
+The weighted-average grant date fair value of stock options granted during the years ended
+December 31, 2012, 2011 and 2010 was $5.38, $2.82 and $2.24, respectively. 
+Amounts recognized in the financial
+statements related to stock options were as follows: 
+Years Ended December 31, 
+2012 
+2011 
+2010 
+Total compensation cost during the year 
+$ 
+2,262 
+$ 
+1,579 
+$ 
+877 
+Amounts capitalized into inventory during the year 
+(90 
+) 
+(58 
+) 
+(40 
+) 
+Amounts recognized in cost of products sold for amounts previously capitalized 
+58 
+36 
+63 
+Amounts charged against income 
+$ 
+2,230 
+$ 
+1,557 
+$ 
+900 
+The aggregate intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 (the
+amount by which the market price of the stock on the date of exercise exceeded the exercise price) was $6,961, $2,490, and $9, respectively. 
+The following table summarizes the stock option activity under the Stock Plan: 
+Options 
+Weighted-Average 
+Exercise Price Per 
+Share 
+Weighted-Average 
+Remaining 
+Contractual Term 
+(in years) 
+Aggregate 
+Intrinsic 
+Value 
+Outstanding on January 1, 2010 
+5,432 
+$ 
+7.09 
+Granted 
+709 
+5.15 
+Exercised 
+(3 
+) 
+2.81 
+Forfeited 
+(634 
+) 
+7.19 
+Outstanding on December 31, 2010 
+5,504 
+6.83 
+Granted 
+1,143 
+6.78 
+Exercised 
+(880 
+) 
+5.44 
+Expired 
+(163 
+) 
+10.74 
+Forfeited 
+(188 
+) 
+8.11 
+Outstanding on December 31, 2011 
+5,416 
+6.89 
+Granted 
+783 
+11.18 
+Exercised 
+(1,476 
+) 
+6.80 
+Expired 
+(12 
+) 
+6.07 
+Forfeited 
+(67 
+) 
+7.49 
+Outstanding on December 31, 2012 
+4,644 
+$ 
+7.64 
+6.4 
+$ 
+2,805 
+Vested or expected to vest as of 
+December 31, 2012 
+4,595 
+$ 
+7.62 
+6.3 
+$ 
+2,800 
+Exercisable on December 31, 2012 
+3,115 
+$ 
+7.10 
+5.3 
+$ 
+2,285 
+As of December 31, 2012, there was $5,125 of unrecognized compensation expense related to unvested option awards
+that is expected to be recognized over a weighted-average period of 2.5 years. 
+Net cash proceeds from the exercise of stock
+options were $10,040, $4,783 and $8 for the years ended December 31, 2012, 2011 and 2010, respectively. As a result of our net operating loss carryforward position, no actual income tax benefit was realized from stock option exercises for these
+periods. 
+F-20
+Table of Contents 
+The following table summarizes information about stock options outstanding as of
+December 31, 2012: 
+Options outstanding 
+Options exercisable 
+Range of exercise prices 
+Number 
+Outstanding 
+Weighted- 
+Average 
+Remaining 
+Contractual 
+Term (in 
+years) 
+Weighted- 
+Average 
+Exercise 
+Price Per 
+Share 
+Number 
+Exercisable 
+Weighted- 
+Average 
+Exercise 
+Price Per 
+Share 
+$2.55–$5.19 
+467 
+11.1 
+$ 
+3.70 
+434 
+$ 
+3.69 
+$5.19–$5.60 
+646 
+5.5 
+5.32 
+499 
+5.35 
+$5.72–$6.37 
+128 
+7.9 
+5.96 
+63 
+5.98 
+$6.63 
+743 
+8.1 
+6.63 
+328 
+6.63 
+$6.67–$8.06 
+574 
+5.1 
+7.74 
+481 
+7.82 
+$8.18–$8.28 
+673 
+2.8 
+8.23 
+666 
+8.23 
+$8.33–$9.56 
+594 
+3.4 
+9.23 
+567 
+9.25 
+$9.78–$10.99 
+83 
+3.3 
+10.26 
+77 
+10.23 
+$11.30 
+730 
+9.1 
+11.30 
+— 
+$12.14 
+6 
+9.5 
+12.14 
+— 
+4,644 
+6.4 
+$ 
+7.64 
+3,115 
+$ 
+7.10 
+The Stock Plan also permits us to grant restricted shares of our common stock to eligible employees, including
+officers, and our outside directors. Generally, these shares are nontransferable until vested and are subject to vesting requirements and/or forfeiture, as determined by the Compensation Committee of our Board of Directors. The market value of these
+shares at the date of grant is recognized on a straight-line basis over the period during which the restrictions lapse. Compensation cost of $2,894, $2,521 and $2,354 related to restricted shares was recognized during the years ended
+December 31, 2012, 2011 and 2010, respectively. 
+The following table summarizes restricted stock award activity under the
+Stock Plan: 
+Shares 
+Weighted-Average 
+Grant Date Fair 
+Value 
+Issued and unvested, January 1, 2010 
+820 
+$ 
+5.44 
+Granted 
+454 
+5.19 
+Vested 
+(429 
+) 
+5.51 
+Forfeited 
+(53 
+) 
+5.15 
+Issued and unvested, December 31, 2010 
+792 
+5.28 
+Granted 
+527 
+6.53 
+Vested 
+(422 
+) 
+5.47 
+Forfeited 
+(18 
+) 
+6.63 
+Issued and unvested, December 31, 2011 
+879 
+5.91 
+Granted 
+259 
+11.31 
+Vested 
+(454 
+) 
+5.56 
+Forfeited 
+(14 
+) 
+7.77 
+Issued and unvested, December 31, 2012 
+670 
+$ 
+8.19 
+Issued and expected to vest, December 31, 2012 
+670 
+$ 
+8.19 
+As of December 31, 2012, there was $2,989 of unrecognized compensation expense related to unvested restricted
+stock awards that is expected to be recognized over a weighted average period of 1.6 years. 
+F-21
+Table of Contents 
+In connection with the vesting of restricted shares during the years ended December 31,
+2012, 2011 and 2010, we purchased and immediately retired 142, 134 and 136 shares with aggregate values of $1,560, $909 and $709, respectively, in satisfaction of minimum tax withholding obligations. 
+Share Repurchase Program 
+On August 5, 2008, our Board of Directors approved a share repurchase program pursuant to which we are permitted to acquire up to $25,000 of our outstanding common shares. No shares were purchased
+and retired in 2012, 2011 or 2010. 
+Public Equity Offering 
+On July 11, 2012, we completed a public equity offering of 6,100 common shares, at a price of $12.30 per share, raising $75,030
+before expenses of the offering. In connection with the offering, we paid $4,502 in underwriting discounts and commissions and incurred $282 in additional offering expenses. 
+11. 
+BUSINESS SEGMENT INFORMATION: 
+We operate our business within two reportable segments: our “OSUR” business, which consists of the
+development, manufacture and sale of oral fluid diagnostic products and specimen collection devices and the manufacture and sale of medical devices used for the removal of benign skin lesions by cryosurgery; and our molecular collection systems or
+“DNAG” business, which consists of the manufacture, development and sale of oral fluid collection devices that are used to collect, stabilize and store samples of genetic material for molecular testing. OSUR revenues consist primarily of
+products sold in the United States and internationally to various clinical laboratories, hospital, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians’ offices, and
+commercial and industrial entities. In the fourth quarter of 2012, OSUR began selling a product in the domestic OTC marketplace. OSUR also derives revenues from licensing and product development activities. DNAG revenues consist primarily of
+products sold into the academic research, clinical genetic testing, pharmacogenomics, personalized medicine, animal and livestock genetics markets. 
+We organized our operating segments according to the nature of the products included in those segments. The accounting policies of the segments are the same as those described in the summary of
+significant accounting policies (see Note 2). We evaluate performance of our operating segments based on revenue and operating loss. We do not allocate interest income, interest expense, other income, other expenses or income taxes to our operating
+segments. Reportable segments have no inter-segment revenues. 
+F-22
+Table of Contents 
+The following table summarizes segment information for the years ended December 31,
+2012, 2011, and 2010. During the year ended December 31, 2010 we operated within only one reportable segment. 
+Years Ended December 31, 
+2012 
+2011 
+2010 
+Net revenues: 
+OSUR 
+$ 
+73,562 
+$ 
+75,665 
+$ 
+75,015 
+DNAG 
+14,258 
+6,216 
+— 
+Total 
+$ 
+87,820 
+$ 
+81,881 
+$ 
+75,015 
+Operating loss: 
+OSUR 
+$ 
+(13,395 
+) 
+$ 
+(7,855 
+) 
+$ 
+(3,354 
+) 
+DNAG 
+(2,875 
+) 
+(1,542 
+) 
+— 
+Total 
+$ 
+(16,270 
+) 
+$ 
+(9,397 
+) 
+$ 
+(3,354 
+) 
+Depreciation and amortization: 
+OSUR 
+$ 
+3,530 
+$ 
+3,550 
+$ 
+3,012 
+DNAG 
+3,720 
+1,341 
+— 
+Total 
+$ 
+7,250 
+$ 
+4,891 
+$ 
+3,012 
+Capital expenditures: 
+OSUR 
+$ 
+1,794 
+$ 
+2,345 
+$ 
+2,106 
+DNAG 
+225 
+160 
+— 
+Total 
+$ 
+2,019 
+$ 
+2,505 
+$ 
+2,106 
+December 31, 
+2012 
+2011 
+Total assets: 
+OSUR 
+$ 
+137,544 
+$ 
+71,326 
+DNAG 
+54,181 
+56,535 
+Total 
+$ 
+191,725 
+$ 
+127,861 
+Our products are sold principally in the United States, Canada and Europe. 
+The following table represents total net revenues by geographic area, based on the location of the customer: 
+For the Years Ended December 31, 
+2012 
+2011 
+2010 
+United States 
+$ 
+67,460 
+$ 
+67,644 
+$ 
+63,520 
+Europe 
+10,131 
+7,506 
+6,493 
+Other regions 
+10,229 
+6,731 
+5,002 
+$ 
+87,820 
+$ 
+81,881 
+$ 
+75,015 
+The following table represents total long-lived assets by geographic area: 
+December 31, 
+2012 
+2011 
+United States 
+$ 
+17,868 
+$ 
+18,954 
+Canada 
+589 
+706 
+Other regions 
+89 
+195 
+$ 
+18,546 
+$ 
+19,855 
+F-23
+Table of Contents 
+12. 
+COMMITMENTS AND CONTINGENCIES: 
+Sublicense Agreement 
+In June 2004, we entered into a sublicense agreement with a third party, pursuant to which we have been granted a limited, worldwide, non-exclusive sublicense to certain HIV-2 patents held by such party.
+Under the terms of this sublicense agreement, we are obligated to pay royalties based on a percentage of our net sales of certain products, which incorporate the technology covered by the licensed patents. Future minimum payments under this
+agreement are as follows: 
+2013 
+$ 
+500 
+2014 
+500 
+2015 
+500 
+2016 
+500 
+2017 
+500 
+Thereafter 
+292 
+$ 
+2,792 
+Royalties from our commercial sale of products covered by the sublicense can be credited against these minimum royalty
+obligations. 
+Leases 
+We lease office space for our Canadian subsidiary and warehouse facilities under operating lease agreements. Future payments required under these non-cancelable leases are as follows: 
+2013 
+$ 
+480 
+2014 
+243 
+2015 
+9 
+2016 
+6 
+$ 
+738 
+Rent expense for 2012, 2011 and 2010 was $510, $307, and $163, respectively. 
+Purchase Commitments 
+As of December 31, 2012, we had outstanding non-cancelable purchase commitments in the amount of $2,511 related to inventory, capital expenditures, and other goods or services. 
+Employment Agreements 
+Under terms of employment agreements with certain executive officers, extending through 2014, we are required to pay each individual a base salary for continuing employment with us. The agreements require
+payments totaling $2,201 and $748 in 2013 and 2014, respectively. 
+Litigation 
+From time-to-time, we are involved in certain legal actions arising in the ordinary course of business. In management’s opinion,
+based upon the advice of counsel, the outcomes of such actions are not expected to have a material adverse effect on our future financial position or results of operations. 
+F-24
+Table of Contents 
+13. 
+RETIREMENT PLANS: 
+Substantially all of our U.S. employees are eligible to participate in the OraSure Technologies, Inc. 401(k) Plan (the
+“401(k) Plan”). The 401(k) Plan permits voluntary employee contributions to be excluded from an employee’s current taxable income under provisions of Internal Revenue Code Section 401(k) and the regulations thereunder. The 401(k)
+Plan also provides for us to match employee contributions up to $4,000 per year. Contributions to the 401(k) Plan, net of forfeitures, were $592, $533, and $597 in 2012, 2011, and 2010, respectively. 
+In addition to our existing 401(k) plan, effective January 3, 2012, we implemented a nonqualified Deferred Compensation plan to
+permit eligible highly compensated employees of the Company to defer receipt and taxation of their compensation each year. We may make discretionary contributions to the accounts of the participating employees in any amount either in cash or stock.
+Participants in the plan may not purchase OraSure stock as an investment vehicle. As of December 31, 2012, the value of the assets associated with the plan was $89 and is included in other assets in our consolidated balance sheet. Our
+obligation related to the deferred compensation plan is included in other liabilities in our consolidated balance sheet. As of December 31, 2012, our total obligation under this plan was $89. 
+Effective January 2, 2012, all regular full-time employees of DNAG are eligible to participate in the DNA Genotek Registered
+Retirement Savings Plan (the “RRSP”). The RRSP permits voluntary employee contributions to be excluded from an employee’s current taxable income and receive tax preferred treatment with Revenue Canada. The RRSP also provides for DNAG
+to match employee contributions up to $2,000 per year. Contributions to the RRSP were $113 in 2012. 
+14. 
+QUARTERLY DATA (Unaudited): 
+The following tables summarize the quarterly results of operations for each of the quarters in 2012 and 2011. These
+quarterly results are unaudited, but in the opinion of management, have been prepared on the same basis as our audited financial information and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair
+presentation of the information set forth herein. 
+2012 Results 
+Three months ended 
+March 31, 
+2012 
+June 30, 
+2012 
+September 30, 
+2012 
+December 31, 
+2012 
+Net revenues 
+$ 
+20,944 
+$ 
+22,616 
+$ 
+22,115 
+$ 
+22,145 
+Costs and expenses 
+24,596 
+26,156 
+25,043 
+28,295 
+Operating loss 
+(3,652 
+) 
+(3,540 
+) 
+(2,928 
+) 
+(6,150 
+) 
+Other income (expense), net 
+(120 
+) 
+(113 
+) 
+(35 
+) 
+26 
+Loss before income taxes 
+(3,772 
+) 
+(3,653 
+) 
+(2,963 
+) 
+(6,124 
+) 
+Income tax benefit 
+(521 
+) 
+(91 
+) 
+(527 
+) 
+(258 
+) 
+Net loss 
+$ 
+(3,251 
+) 
+$ 
+(3,562 
+) 
+$ 
+(2,436 
+) 
+$ 
+(5,866 
+) 
+Loss per share 
+Basic 
+$ 
+(0.07 
+) 
+$ 
+(0.07 
+) 
+$ 
+(0.04 
+) 
+$ 
+(0.11 
+) 
+Diluted 
+$ 
+(0.07 
+) 
+$ 
+(0.07 
+) 
+$ 
+(0.04 
+) 
+$ 
+(0.11 
+) 
+F-25
+Table of Contents 
+2011 Results 
+Three months ended 
+March 31, 
+2011 
+June 30, 
+2011 
+September 
+30, 
+2011 (1) 
+December 
+31, 
+2011 (1) 
+Net revenues 
+$ 
+17,414 
+$ 
+19,064 
+$ 
+21,714 
+$ 
+23,689 
+Costs and expenses 
+19,967 
+21,423 
+25,919 
+23,970 
+Operating loss 
+(2,553 
+) 
+(2,359 
+) 
+(4,205 
+) 
+(281 
+) 
+Other expense, net 
+(45 
+) 
+(79 
+) 
+(29 
+) 
+(158 
+) 
+Loss before income taxes 
+(2,598 
+) 
+(2,438 
+) 
+(4,234 
+) 
+(439 
+) 
+Income tax benefit 
+— 
+— 
+(315 
+) 
+(554 
+) 
+Net income (loss) 
+$ 
+(2,598 
+) 
+$ 
+(2,438 
+) 
+$ 
+(3,919 
+) 
+$ 
+115 
+Income (loss per share) 
+Basic 
+$ 
+(0.06 
+) 
+$ 
+(0.05 
+) 
+$ 
+(0.08 
+) 
+$ 
+— 
+Diluted 
+$ 
+(0.06 
+) 
+$ 
+(0.05 
+) 
+$ 
+(0.08 
+) 
+$ 
+— 
+(1) 
+Includes the results of operations of DNA Genotek Inc. from the acquisition date of August 17, 2011, as well as $2,534 and $100 of transaction
+costs associated with the acquisition recorded in the three months ended September 30, and December 31, 2011, respectively. 
+F-26
+Table of Contents 
+INDEX TO EXHIBITS 
+Exhibit 
+Number 
+Exhibit 
+3.1.1 
+Certificate of Incorporation of OraSure Technologies, Inc. is incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (No. 333-39210),
+filed June 14, 2000. 
+3.1.2 
+Certificate of Amendment to Certificate of Incorporation dated May 23, 2000 is incorporated by reference to Exhibit 3.1.1 to the Company’s Registration Statement on Form S-4
+(No. 333-39210), filed June 14, 2000. 
+3.2 
+Bylaws of OraSure Technologies, amended and restated as of August 18, 2008, are incorporated by reference to Exhibit 3 to the Company’s Current Report on Form 8-K filed August
+22, 2008. 
+10.1 
+Form of Indemnification Agreement (and list of parties to such agreement) is incorporated by reference to Exhibit 10.1 to Amendment No. 3 to the Company’s Registration
+Statement on Form S-4 (No. 333-39210), filed August 30, 2000.* 
+10.2 
+Employment Agreement, dated as of June 22, 2004, between OraSure Technologies, Inc. and Douglas A. Michels, is incorporated by reference to Exhibit 10.3 to the Company’s
+Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.* 
+10.3 
+Amendment No. 1 to Employment Agreement, dated as of December 16, 2008, between the Company and Douglas A. Michels, is incorporated by reference to Exhibit 10.2 to the
+Company’s Current Report on Form 8-K filed December 19, 2008.* 
+10.4 
+Amendment No. 2 to Employment Agreement, dated as of December 15, 2010, between the Company and Douglas A. Michels, is incorporated by reference to Exhibit 10.4 to the
+Company’s Annual Report on Form 10-K for the year ended December 31, 2010.* 
+10.5 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and Ronald H. Spair, is incorporated by reference to Exhibit 10.4 to the Company’s Quarterly
+Report on Form 10-Q for the quarter ended June 30, 2004.* 
+10.6 
+Amendment No. 1 to Employment Agreement, dated as of December 16, 2008, between the Company and Ronald H. Spair, is incorporated by reference to Exhibit 10.3 to the Company’s
+Current Report on Form 8-K filed December 19, 2008.* 
+10.7 
+Amendment No. 2 to the Employment Agreement, dated as of December 15, 2010, between the Company and Ronald H. Spair, is incorporated by reference to Exhibit 10.7 to the
+Company’s Annual Report on Form 10-K for the year ended December 31, 2010.* 
+10.8 
+Employment Agreement, dated September 23, 2005, between OraSure Technologies, Inc. and Stephen R. Lee, Ph.D., is incorporated herein by reference to Exhibit 99 to the Company’s
+Current Report on Form 8-K filed September 28, 2005.* 
+10.9 
+Amendment No. 1 to Employment Agreement, dated as of December 16, 2008, between the Company and Stephen R. Lee, Ph.D., is incorporated by reference to Exhibit 10.5 to the
+Company’s Current Report on Form 8-K filed December 19, 2008.* 
+10.10 
+Amendment No. 2 to the Employment Agreement, dated as of December 15, 2010, between the Company and Stephen R. Lee, Ph.D., is incorporated by reference to Exhibit 10.10 to the
+Company’s Annual Report on Form 10-K for the year ended December 31, 2010.* 
+10.11 
+Employment Agreement, dated as of July 1, 2004, between OraSure Technologies, Inc. and Jack E. Jerrett, is incorporated by reference to Exhibit 10.7 to the Company’s
+Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.* 
+10.12 
+Amendment No. 1 to Employment Agreement, dated as of December 16, 2008, between the Company and Jack E. Jerrett, is incorporated by reference to Exhibit 10.6 to the Company’s
+Current Report on Form 8-K filed December 19, 2008.* 
+Table of Contents 
+Exhibit 
+Number 
+Exhibit 
+10.13 
+Amendment No. 2 to the Employment Agreement, dated as of December 15, 2010, between the Company and Jack E. Jerrett, is incorporated by reference to Exhibit 10.13 to the
+Company’s Annual Report on Form 10-K for the year ended December 31, 2010.* 
+10.14 
+Employment Agreement, dated as of October 2, 2006, between Mark L. Kuna and OraSure Technologies, Inc., is incorporated by reference to Exhibit 99.1 to the Company’s Current
+Report on Form 8-K filed October 5, 2006.* 
+10.15 
+Amendment No. 1 to Employment Agreement, dated as of December 16, 2008, between the Company and Mark L. Kuna, is incorporated by reference to Exhibit 10.7 to the Company’s
+Current Report on Form 8-K filed December 19, 2008.* 
+10.16 
+Amendment No. 2 to the Employment Agreement, dated as of December 15, 2010, between the Company and Mark L. Kuna, is incorporated by reference to Exhibit 10.16 to the Company’s
+Annual Report on Form 10-K for the year ended December 31, 2010.* 
+10.17 
+Employment Agreement, dated as of January 3, 2011, between the Company and Anthony Zezzo II is incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form
+10-K for the year ended December 31, 2010.* 
+10.18 
+Description of Non-Employee Director Compensation Policy, as amended as of November 14, 2011, is incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on
+Form 10- K for the year ended December 31, 2011.* 
+10.19 
+Amended and Restated Epitope, Inc. 1991 Stock Award Plan is incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended
+December 31, 2002.* 
+10.20 
+OraSure Technologies, Inc. Employee Incentive and Non-Qualified Stock Option Plan, as amended and restated effective September 29, 2000, is incorporated by reference to Exhibit
+10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.* 
+10.21 
+Amended and Restated OraSure Technologies, Inc. Stock Award Plan, effective as of February 12, 2013.* 
+10.22 
+Form of Restricted Share Grant Agreement (Executive Officers) is incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year ended
+December 31, 2011.* 
+10.23 
+Form of Restricted Share Grant Agreement (Non-Employee Directors) is incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended
+December 31, 2011.* 
+10.24 
+Nonqualified Stock Option Award General Terms and Conditions (Executive Officers) is incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for
+the year ended December 31, 2011.* 
+10.25 
+Nonqualified Stock Option Award General Terms and Conditions (Non-Employee Directors) is incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K
+for the year ended December 31, 2011.* 
+10.26 
+Description of the OraSure Technologies, Inc. 2012 Management Incentive Plan is incorporated by reference to Item 5.02 to the Company’s Current Report on Form 8-K filed April
+20, 2012.* 
+10.27 
+OraSure Technologies, Inc. Deferred Compensation Plan is incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed December 21,
+2011.* 
+10.28 
+Adoption Agreement related to OraSure Technologies, Inc. Deferred Compensation Plan is incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K
+filed December 21, 2011.* 
+Table of Contents 
+Exhibit 
+Number 
+Exhibit 
+10.29 
+Settlement Agreement, effective as of November 17, 2009, by and among Inverness Medical Innovations, Inc., Inverness Medical Switzerland GmbH and OraSure Technologies, Inc., is
+incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. 
+10.30 
+License Agreement, effective as of November 17, 2009, by and among Inverness Medical Innovations, Inc., Inverness Medical Switzerland GmbH and OraSure Technologies, Inc., is
+incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. 
+21 
+Subsidiaries of the Registrant. 
+23 
+Consent of KPMG LLP. 
+24 
+Powers of Attorney. 
+31.1 
+Certification of Douglas A. Michels required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. 
+31.2 
+Certification of Ronald H. Spair required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. 
+32.1 
+Certification of Douglas A. Michels required by Rule 13a-14(b) or Rule 15a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted
+Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 
+32.2 
+Certification of Ronald H. Spair required by Rule 13a-14(b) or Rule 15a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant
+to Section 906 of the Sarbanes-Oxley Act of 2002. 
+101.INS 
+XBRL Instance Document 
+101.SCH 
+XBRL Taxonomy Extension Schema Document 
+101.CAL 
+XBRL Taxonomy Extension Calculation Linkbase Document 
+101.DEF 
+XBRL Taxonomy Extension Definition Linkbase Document 
+101.LAB 
+XBRL Taxonomy Extension Label Linkbase Document 
+101.PRE 
+XBRL Taxonomy Extension Presentation Linkbase document 
+* 
+Management contract or compensatory plan or arrangement.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2012/0001193125-13-105190/filing_metadata.csv b/raw/filings/0001116463/2012/0001193125-13-105190/filing_metadata.csv
new file mode 100644
index 0000000000000000000000000000000000000000..c867060df56a49113f3782f6c254eefd913ce7dc
--- /dev/null
+++ b/raw/filings/0001116463/2012/0001193125-13-105190/filing_metadata.csv
@@ -0,0 +1,2 @@
+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0001116463,OSUR,ORASURE TECHNOLOGIES INC,10-K,2013-03-13,2012-12-31,2013-03-13T20:07:54.000Z,0001193125-13-105190,d444996d10k.htm,FORM 10-K,8463276,1,0,https://www.sec.gov/Archives/edgar/data/1116463/000119312513105190/d444996d10k.htm,https://www.sec.gov/Archives/edgar/data/1116463/000119312513105190/,2012,2012,1
diff --git a/raw/filings/0001116463/2012/0001193125-13-105190/item1.txt b/raw/filings/0001116463/2012/0001193125-13-105190/item1.txt
new file mode 100644
index 0000000000000000000000000000000000000000..99e31994df89e9a42a4abdb9931bec9275df010e
--- /dev/null
+++ b/raw/filings/0001116463/2012/0001193125-13-105190/item1.txt
@@ -0,0 +1,660 @@
+ITEM 1. 
+Business. 
+Our business
+principally involves the development, manufacture, marketing and sale of oral fluid diagnostic products and specimen collection devices using our proprietary oral fluid technologies, as well as other diagnostic products including immunoassays and
+other in vitro diagnostic tests that are used on other specimen types. We also manufacture and sell medical devices used for the removal of benign skin lesions by cryosurgery or freezing. Our diagnostic products include tests that are
+performed on a rapid basis at the point of care and tests that are processed in a laboratory. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and
+other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. One of our diagnostic products is sold in the over-the-counter (“OTC”) or consumer retail markets in
+the United States and we sell a cryosurgical product to consumers in North America, Europe, Central and South America, and Australia. 
+In vitro diagnostic testing is the process of analyzing oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific substances or markers. We have targeted the use of
+oral fluid in our products as a differentiating factor and believe that it provides a significant competitive advantage over blood and urine. Our oral fluid tests have sensitivity and specificity comparable to blood and/or urine tests. When combined
+with their ease of use, non-invasive nature, and cost effectiveness, our oral fluid tests represent a very competitive alternative to the more traditional testing methods in the diagnostic space. 
+Through our subsidiary, DNA Genotek Inc. (“DNAG”), a company based in Ottawa, Canada, we also manufacture
+and sell kits that are used to collect, stabilize, and store samples of genetic material for molecular testing in the academic research, clinical genetic testing, pharmacogenomics, personalized medicine, animal and livestock genetics markets. Our
+OraGene ® DNA sample collection kit provides an all-in-one system for the collection, stabilization and
+transportation of DNA from human saliva. We serve customers in several countries worldwide, including many leading research universities and hospitals. 
+On July 3, 2012, the U.S. Food and Drug Administration (“FDA”) issued a pre-market approval (“PMA”) for our OraQuick ® In-Home HIV Test for sale directly to consumers in the OTC market, making it the first and only rapid OTC HIV test approved in the U.S. The OraQuick ® In-Home HIV Test can detect antibodies to both 
+1 
+Table of Contents 
+HIV-1 and HIV-2 with an oral swab, providing a confidential in-home testing option with results in as little as 20 minutes. This test was approved following extensive clinical trials conducted
+during the past several years. In September 2012, we began selling this product to consumers. 
+OraSure was formed in May 2000
+under Delaware law solely for the purposes of combining two companies, STC Technologies, Inc. (“STC Technologies”) and Epitope, Inc. (“Epitope”), and changing the state of incorporation of Epitope from Oregon to Delaware. STC
+Technologies and Epitope were merged into OraSure on September 29, 2000. Our principal offices are located at 220 East First Street, Bethlehem, Pennsylvania 18015, and our telephone number is (610) 882-1820. 
+Additional information about us can be found on our website, www.orasure.com. We make available free of charge through a link provided at
+such website our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and our other filings with the Securities and Exchange Commission (“SEC”), as well as any amendments to those Reports and
+filings. These Reports and filings are made available as soon as reasonably practicable after they are filed or furnished to the SEC. Our Internet website and the information contained in or connected to that website are not intended to be
+incorporated by reference into this Annual Report. 
+Products 
+The following is a summary of our principal products and their regulatory and commercial status: 
+Product 
+Description 
+Regulatory Status 
+Commercial Status 
+OraQuick 
+ADVANCE ® HIV-1/2 
+A rapid, point-of-care 
+qualitative test for antibodies to the Human Immunodeficiency Virus Type 1 (“HIV-1”) and Type 2 (“HIV-2” and together with HIV-1,
+“HIV-1/2”) that can be visually read in approximately 20 minutes. 
+PMA approved by the FDA for use with oral fluid, finger-stick and venous whole blood, and plasma. 
+CLIA (Clinical Laboratory Improvement Amendments of 1988) waived for use with oral
+fluid, finger-stick and venous whole blood. 
+CE mark (European Union)
+approved for use with oral fluid, finger-stick and venous whole blood, serum and plasma. Also registered in various other countries. 
+Marketed 
+Marketed 
+Marketed 
+OraQuick ® In-Home HIV Test 
+A rapid, point-of-care qualitative oral fluid HIV-1/2 test for OTC use that can be visually read in approximately 20 minutes. 
+PMA approved for OTC use. 
+Marketed 
+OraQuick ® HCV 
+A rapid, point-of-care qualitative test for antibodies to the hepatitis C virus (“HCV”) that can be visually read in approximately 20 minutes. 
+PMA approved and CLIA waived for use with venous whole blood and finger-stick whole blood specimens. 
+CE mark (European Union) approved for use with oral fluid, finger-stick and venous
+whole blood, serum and plasma. Also registered in various other countries. 
+Marketed 
+Marketed 
+2 
+Table of Contents 
+Product 
+Description 
+Regulatory Status 
+Commercial Status 
+OraSure
+QuickFlu ™ 
+Rapid Flu 
+A&B Test 
+A rapid, point-of-care qualitative test for antibodies to influenza (flu) Types A and B, including H1N1 infections, with results available in 10 minutes. 
+FDA 510(k) cleared for use with nasal swab, nasopharyngeal swab and nasal aspirate/wash. 
+Marketed 
+OraSure ® 
+Oral fluid collection device for the detection of antibodies to HIV-1 and for detection of cocaine and cotinine in an oral fluid sample in a laboratory setting. 
+PMA approved by FDA for use in detecting antibodies to HIV-1. 
+FDA 510(k) cleared for use in detecting cocaine and cotinine (an indicator of
+nicotine) in oral fluid. 
+CE marked and registered in various
+countries. 
+Marketed 
+Marketed 
+Marketed 
+Oragene ® ·DX 
+Non-invasive all-in-one system for the collection, stabilization, transportation and storage of human DNA from saliva. 
+FDA 510(k) cleared for in vitro diagnostic use with FDA-cleared molecular tests. 
+Marketed 
+Oragene ® ·DNA 
+Non-invasive all-in-one system for the collection, stabilization, transportation, and storage of human DNA from saliva. 
+CE mark and registered as Class 1 Medical Device in Canada. 
+Registered in various other countries. 
+Marketed 
+Oragene ® ·DISCOVER 
+Non-invasive all-in-one system for the collection, stabilization, transportation, and storage of human DNA from saliva. 
+Research use only product. 
+Marketed 
+Oragene ® ·RNA 
+Non-invasive all-in-one system for the collection, stabilization and transportation of RNA from human saliva. 
+Research use only product. 
+Marketed 
+ORAcollect ™ 
+All-in-one system for the collection, stabilization, transportation, and storage of human DNA from saliva. 
+CE marked and registered as Class 1 Medical Device in the U.S. and Canada. 
+Registered in various other countries. 
+Marketed 
+OMNIgene ™ ·DISCOVER 
+Non-invasive all-in-one system for the collection, stabilization, transportation, and storage of microbial DNA from saliva. 
+Research use only product. 
+Marketed 
+Performagene ™ ·
+LIVESTOCK and 
+Oragene ® ·ANIMAL 
+All-in-one systems for the collection, stabilization, transportation, and storage of livestock DNA from nasal samples. 
+Animal research use only 
+Marketed 
+3 
+Table of Contents 
+Product 
+Description 
+Regulatory Status 
+Commercial Status 
+Intercept ® 
+Oral fluid collection device for oral fluid drugs of abuse (“DOA”) testing in a laboratory setting. 
+FDA 510(k) cleared for use with MICRO-PLATE DOA assays. 
+CE marked and registered in certain countries. 
+Marketed 
+Marketed 
+MICRO-PLATE DOA Assays 
+Used to detect the following drugs in an oral fluid sample collected with Intercept ® device: tetrahydrocannabinol (“THC” or marijuana), cocaine, opiates, amphetamines, methamphetamines, phencyclidine (“PCP”), benzodiazepines,
+barbiturates and methadone. 
+Nine drug assays—FDA 510(k) cleared. 
+Assays CE marked and registered in certain countries. 
+Marketed 
+Marketed 
+Homogeneous DOA 
+Assays 
+Homogeneous fully-automated oral fluid DOA assays jointly developed with Roche Diagnostics for use on oral fluid samples collected with Intercept ® device. 
+FDA 510(k) cleared for use of PCP, opiates, cocaine, methamphetamines and amphetamines assays with Intercept ® collection device. 
+Marketed 
+Cryosurgical Systems—Professional 
+Cryosurgical (freezing) system for the removal of warts and other benign skin lesions, marketed under the Histofreezer ® tradename primarily to the physicians’ office market. 
+Nine indications—FDA 510(k) cleared. 
+CE marked and registered in certain countries. 
+Marketed 
+Marketed 
+Cryosurgical Systems—OTC 
+Cryosurgical system for the removal of common and plantar warts, sold in various OTC markets. 
+FDA 510(k) cleared for common and plantar warts. 
+Registered in Canada for warts and skin tags. 
+CE marked and registered for warts in certain countries under Scholl Freeze Spray ® and POINTTS ® 
+names. 
+CE marked for skin tags. 
+Not Marketed 
+Marketed 
+Marketed 
+Not Marketed 
+In addition to the above products, we also sell certain immunoassay tests and
+reagents for insurance risk assessment, substance abuse testing and forensic toxicology applications; an oral fluid Western blot HIV-1 confirmatory test for confirming positive HIV-1 test results obtained from the use of our OraSure ® collection device; and the FDA 510(k) cleared Q.E.D. ® rapid point-of-care saliva alcohol test. 
+OraQuick ® Rapid HIV Test 
+OraQuick ® is our rapid point-of-care test platform designed to test oral fluid, whole blood (i.e., both finger-stick and venous), plasma and serum samples for the presence of
+various antibodies or analytes. The device uses a porous flat pad to collect an oral fluid specimen. After collection, the pad is inserted into a vial containing a pre-measured amount of developer solution and allowed to develop. When blood, plasma
+or serum is to be tested, a loop collection device is used to collect a drop of the specimen and mix it in the developer solution, after which the collection pad is inserted into the solution and allowed to develop. In all cases, the specimen and
+developer 
+4 
+Table of Contents 
+solution then flow through the testing device where test results are observable in approximately 20 minutes. The OraQuick ® device is a screening test and generally requires a confirmation test where an initial positive result is obtained. 
+This product is sold under the OraQuick ADVANCE ® name in North America, Europe and certain other countries and under the OraQuick ® name in other developing countries. The test has received PMA approval from the FDA for the detection of antibodies to both HIV-1 and HIV-2 in oral fluid,
+finger-stick whole blood, venous whole blood and plasma. This test is available for use by laboratories located in the United States certified under the Clinical Laboratory Improvements Amendment of 1988, or CLIA, to perform moderately complex
+tests. We have also received a CLIA waiver for use of the test with oral fluid and finger-stick and venous whole blood. As a result, the test can be used by numerous additional sites in the United States not certified under CLIA to perform
+moderately complex tests, such as outreach clinics, community-based organizations and physicians’ offices. 
+On the international front, we have obtained a CE mark for our OraQuick
+ADVANCE ® test so that we can sell this product in Europe and other countries accepting the CE mark for
+commercialization and this product is registered in other countries. We have distributors in place for several countries and are seeking to increase awareness and expand our distribution network for this product throughout the world. 
+We believe that the OraQuick ADVANCE ® device, because it is approved for detecting antibodies to both HIV-1 and HIV-2 in finger-stick and venous whole blood, oral fluid and plasma samples, provides a
+significant competitive advantage in the market for rapid HIV testing in the United States and elsewhere. 
+OraQuick ® In-Home HIV Test 
+The OraQuick ® In-Home HIV Test is an over-the-counter version of our OraQuick ADVANCE ® HIV 1/2 Antibody Test and is OraSure’s newest product. We have received FDA approval to sell this test in the U.S. OTC market on July 3, 2012. The In-Home Test
+is performed in the same manner as the OraQuick ADVANCE ® test, except that it has product labeling and
+instructions designed for consumers. In addition, we have established a toll free, 24/7, 365-day per year customer call center to provide additional information and referral support for consumers. 
+OraQuick ® HCV Rapid Antibody Test 
+Another test available on the OraQuick ® platform is the OraQuick ® HCV rapid antibody test. Like the OraQuick ® HIV test, this product is a qualitative test that can detect antibodies to the Hepatitis C virus, or HCV, in a variety of sample types. The OraQuick ® HCV test operates in substantially the same manner as the
+OraQuick ® HIV test. 
+We have received FDA approval for use of the test in detecting HCV antibodies in venous whole blood and finger-stick
+whole blood specimens, making it the first rapid HCV test approved by the FDA for use in the United States. We have also received a CLIA waiver for use of this product in the same specimen types. Our clinical program for approval of an oral fluid
+claim for this product is on hold pending further discussions with the FDA. The OraQuick ® HCV test has received
+a CE mark for use with oral fluid, venous whole blood, finger-stick whole blood, plasma and serum and is sold in Europe and other foreign countries. 
+OraSure QuickFlu ™ Rapid Flu A&B Test 
+The OraSure QuickFlu ™ rapid flu A&B test is an FDA 510(k) cleared rapid qualitative test for the detection of influenza (flu) Types A and B, including H1N1 viral infections. The test
+utilizes specimen collected with a nasal swab, nasopharyngeal swab or nasal aspirate/wash. A reagent is first inserted into a test cartridge, the specimen is added and the test is allowed to flow. Results are available in as little as ten minutes.
+This product is manufactured for us under an agreement with Princeton BioMeditech Corporation and is currently for sale in certain U.S. markets. 
+5 
+Table of Contents 
+OraSure ® Collection Device 
+Our OraSure ® oral fluid collection device is used in conjunction with screening and confirmatory tests for HIV-1 antibodies and other analytes. This device consists of a small,
+treated cotton-fiber pad on a handle that is placed in a person’s mouth for two to five minutes. The device collects oral mucosal transudate (“OMT”), a serum-derived fluid that contains higher concentrations of certain antibodies and
+analytes than saliva. As a result, OMT testing is a highly accurate method for detecting HIV-1 infection and other analytes. 
+The OraSure ® collection device is FDA approved for use in the
+detection of HIV-1 antibodies and 510(k) cleared for the detection of cocaine and cotinine in oral fluid specimens. In addition, we have received a CE mark for the OraSure ® device and our cocaine and cotinine assays, all of which are sold through distributors in Canada, the United Kingdom, Mexico and certain other foreign countries.
+HIV-1 antibody detection using the OraSure ® collection device involves three steps: 
+• 
+Collection of an oral fluid specimen using the OraSure ® device; 
+• 
+Screening of the specimen for HIV-1 antibodies at a laboratory with an enzyme immunoassay (“EIA”) screening test approved by the FDA for use
+with the OraSure ® device; and 
+• 
+Laboratory confirmation of any positive screening test results with our oral fluid Western blot HIV-1 confirmatory test (described below).
+A trained health care professional then conveys test results and provides appropriate counseling to the
+individual who was tested. 
+We believe that oral fluid testing has several significant advantages over blood or urine-based
+systems for infectious disease testing, for both health care professionals and the individuals being tested. These advantages include eliminating the risk of needle-stick accidents, providing a non-invasive collection technique, requiring minimal
+training to administer, providing rapid and efficient collection in almost any setting, and reducing the cost of administration by a trained health care professional. 
+Molecular Collection Systems 
+Our wholly-owned
+subsidiary, DNAG, sells a number of products that provide all-in-one systems for the collection, stabilization, transportation, and storage of DNA and/or RNA from human and animal biologic samples. DNAG’s lead product is sold under the Oragene ® name and is used to collect DNA from human saliva. DNAG products are currently sold to thousands of academic and
+research customers in many countries worldwide. 
+DNAG products are available in several different
+configurations and contain proprietary chemical solutions that are optimized for the specific application each product is designed for. Product physical design is focused on providing easy-to-use and reliable products for self or assisted collection
+of samples. For example, several of the Oragene ® products require users to simply hold the product close to
+their mouth and spit into the collection device. When the container is closed, the reagents stored in the lid of the container are mixed with the captured saliva and immediately protect the nucleic acids in the sample. This non-invasive collection
+method yields nucleic acid that remains stable at ambient temperature for extended periods. The stabilizing technology results in high quality and high quantity nucleic acids that are required for most genetic testing and analysis methods.
+We believe these products provide significant advantages over competing DNA and RNA collection methods such as blood
+collection or buccal swabs, particularly in human genetic applications. Benefits include the reliable collection of high quality genetic samples, use of simple non-invasive collection methods, the ability to store and transport collected samples for
+extended periods at ambient temperatures and compatibility with fully-automated laboratory testing systems. 
+6 
+Table of Contents 
+DNAG products historically have been sold primarily as Class I medical
+devices for use by research and academic institutions. DNAG has received FDA 510(k) clearance for the Oragene ® — Dx product and began marketing this product to clinical diagnostics and personalized medicine customers in the U.S. during the first quarter of 2012. This clearance will enable the Oragene ® — Dx product to be used with other FDA-cleared molecular diagnostic
+applications. 
+Intercept ® Drug Testing System 
+A collection device that is substantially similar to the OraSure ® device is sold by us under the name
+Intercept ® , and is used to collect OMT for oral fluid drug testing. We have received FDA 510(k) clearance to use
+the Intercept ® collection device with laboratory-based EIAs to test for drugs of abuse commonly identified by
+the National Institute for Drug Abuse (“NIDA”) as the NIDA-5 (i.e., tetrahydrocannabinol (“THC” or marijuana), cocaine, opiates, amphetamines/methamphetamines and phencyclidine (“PCP”)), and for barbiturates, methadone
+and benzodiazepines. Each of these EIAs is also FDA 510(k) cleared for use with the Intercept ® device. Our
+Intercept ® device and oral fluid assays are sold in the U.S. primarily through laboratory distributors.
+We have received a CE mark for the Intercept ® device and our oral fluid assays and distribute these products in Canada, the United Kingdom and Mexico. 
+We believe that the Intercept ® device has several advantages over competing urine and other drugs-of-abuse testing products, including its lower total testing cost, its non-invasive nature,
+mobility and accuracy, the ease of maintaining a chain-of-custody, the treatment of test subjects with greater dignity, no requirement for specially-prepared collection facilities and difficulty of sample adulteration. The availability of an oral
+fluid test is intended to allow our customers to test for drug impairment and eliminate scheduling costs and inconvenience, thereby streamlining the testing process. 
+In an effort to expand our Intercept ® product line and meet the needs of our laboratory customers, we jointly developed with Roche Diagnostics a series of homogeneous fully-automated oral fluid drugs of
+abuse assays. These assays use Roche’s KIMs (kinetic interaction of micro-particles in solution) technology and are designed to run on various automated analyzers to allow oral fluid samples to be processed with the same efficiency currently
+achieved by our laboratory customers with urine-based drug tests. 
+We have experienced significant delays in completing
+development of the assays under our collaboration, primarily because Roche has not been able to obtain FDA 510(k) clearance of a THC assay. Although the other assays that comprise a NIDA-5 panel have received FDA clearance, the THC assay is needed
+to offer a complete NIDA-5 panel required by our customers. The inability to obtain this clearance has limited our ability to commercialize these initial assays and has delayed development of assays beyond the NIDA-5 panel. As a result, we are in
+discussions with Roche about the THC assay and the future of our collaboration. 
+Cryosurgical Systems (Skin Lesion Removal
+Products) 
+The Histofreezer ® cryosurgical removal system is a low-cost alternative to liquid nitrogen and other methods for removal of warts and other benign skin lesions by physicians. The
+Histofreezer ® product mixes three cryogenic gases in a small aerosol canister. When released, these gases are
+delivered to a specially designed foam bud, cooling the bud to a maximum of –50°C to –55°C. The frozen bud is then applied to the wart or lesion for 15 to 40 seconds (depending on the type of lesion) creating localized destruction
+of the target area by freezing. We have received 510(k) clearance for use of the Histofreezer ® product to remove
+common warts and eight other types of benign skin lesions, and this product has been CE marked and registered for distribution in Canada, throughout Europe and in certain other foreign countries. 
+Internationally, we sell an OTC cryosurgical product through our distributor Genomma Labs (“Genomma”), under the POINTTS
+tradename, in Mexico and a number of South and Central American countries. We also sell a CE marked cryosurgical wart removal product into the OTC footcare market in Europe, Australia and New 
+7 
+Table of Contents 
+Zealand through our distributor, Reckitt Benckiser (“Reckitt”), under the Scholl and Dr. Scholl trademarks. Reckitt is the owner of the Scholl and Dr. Scholl trademarks in
+countries outside North and South America. In 2011, we began selling OTC cryosurgical products for the treatment of both warts and skin tags to retailers in Canada on a private label basis. 
+Immunoassay Tests and Reagents 
+We develop and sell immunoassay tests in two formats, known as MICRO-PLATE and AUTO-LYTE ® , to meet the specific needs of our customers. 
+In a MICRO-PLATE kit, the sample to be tested is placed into a small plastic receptacle, called a microwell, along with the reagents. The result of the test is determined by the color of the microwell
+upon completion of the reaction. Controlling the reaction involves the use of reagents by laboratory personnel. Test results are analyzed by any of a variety of commercially available laboratory instruments, which we may also provide to our
+laboratory customers. MICRO-PLATE tests can be performed on commonly used instruments and can detect drugs in urine, serum and sweat specimens. MICRO-PLATE tests are also used as part of the
+Intercept ® product line to detect drugs of abuse in oral fluid specimens. 
+AUTO-LYTE ® tests are sold in the form of bottles of liquid reagents. These reagents are run on commercially available laboratory-based automated analytical instruments, which
+are manufactured by a variety of third parties. AUTO-LYTE ® is typically used in high volume, automated,
+commercial reference insurance laboratories to detect certain drugs or chemicals in urine. Test results are produced quickly, allowing for high throughput. Our AUTO-LYTE ® tests continue to face strong competition from cheaper “home-brew” tests developed internally by our laboratory customers. As a result, we may eventually
+stop selling our AUTO-LYTE ® tests. 
+Western blot HIV-1 Confirmatory Test 
+We sell an oral
+fluid Western blot HIV-1 confirmatory test that received premarket approval from the FDA in 1996. This test uses the original specimen collected with the OraSure ® oral fluid collection device to confirm positive results of initial oral fluid HIV-1 EIA screening tests. 
+Q.E.D. ® Saliva Alcohol Test 
+Our Q.E.D. ® saliva alcohol test is a point-of-care test device that is a cost-effective alternative to breath or blood alcohol testing. The test is a quantitative, saliva-based
+method for the detection of ethanol, has been cleared for sale by the FDA and has received a CLIA waiver. The U.S. Department of Transportation (“DOT”) has also approved the test. 
+Each Q.E.D. ® test kit contains a collection stick that is used to collect a sample of saliva and a disposable detection device that displays results in a format similar to a
+thermometer. The Q.E.D. ® device is easy to operate and instrumentation is not required to read the result. The
+product has a testing range of 0 to 0.145% blood alcohol and produces results in approximately two minutes. 
+Products Under Development
+OraQuick ® Platform 
+We
+believe that the OraQuick ® point-of-care testing platform has significant potential for clinics and other public
+health entities, hospitals, physicians’ offices and other markets. Because the OraQuick ® platform is simple
+to use and can operate in a non-invasive manner with oral fluid, we believe it is suitable for use by consumers without the assistance of a doctor or other medical professional. We also believe that OraQuick ® provides a platform technology that can be modified for detection of a variety of infectious diseases in addition to
+HIV and HCV, including certain sexually transmitted diseases. Several new products based on the OraQuick ® 
+technology platform are being evaluated. 
+8 
+Table of Contents 
+OraSure ® /Intercept ® Applications
+Oral mucosal transudate, or OMT, contains many constituents found in blood and serum, although in
+lower concentrations. We believe the OraSure ® and Intercept ® devices are a platform technology with a wide variety of potential applications, where laboratory testing is available. For example, the OraSure ® device may be useful for the collection of a variety of antibodies or markers for infectious diseases or conditions
+in addition to HIV-1, such as antibodies to viral hepatitis. 
+Since January 2011, the Drug Testing
+Advisory Board (“DTAB”) has been evaluating oral fluid as a potential alternative specimen to be permitted under the Mandatory Guidelines for Federal Workplace Drug Testing Programs (the “Guidelines”). The Guidelines govern
+workplace drug testing of federally-regulated workers. Based on its evaluation, DTAB has recommended that oral fluid be included as an alternative specimen in the Guidelines, and the Substance Abuse and Mental Health Services Administration has
+approved this recommendation. If and when issued in final form, these regulations will likely require certain modifications to our Intercept ® product in order to permit its use by federal workers. As a result, we are developing modifications to the
+Intercept ® collection device that we anticipate will be required by these regulations or otherwise desired by
+our customers. 
+Molecular Collection Systems 
+Molecular testing in both the research and clinical diagnostics markets continues to evolve at a rapid pace. As a result, we expect to continue development activities designed to modify the capabilities
+and fit of the DNAG products to meet the evolving needs of existing and potential molecular testing market applications. To address unique customer needs, we will continue to develop new chemical and/or physical platforms as needed by our customers.
+DNAG has a number of development projects underway to expand its product offerings in three primary market segments—human genetics, infectious disease testing and animal testing. 
+Research and Development 
+In 2012, our research and
+development activities focused primarily on clinical and regulatory activities related to the PMA application for FDA approval of our OraQuick ® In-Home HIV test, development of next generation versions of our OraQuick ® HIV and Intercept ® products
+and assessing initial feasibility of certain other products. From time to time, we have contracted with third parties to conduct research and development activities and we may do so in the future. 
+Research and development expenses were $12.4 million in 2012 (including $2.8 million of DNAG expenses), $18.4 million in 2011 (including
+$1.0 million of DNAG expenses since the August 2011 acquisition) and $13.2 million in 2010. These expenses include our costs associated with research and development, regulatory affairs, clinical trials and product support. 
+Sales and Marketing 
+We
+attempt to reach our major target markets through a combination of direct sales, strategic collaborations and independent distributors. Our marketing strategy is to create or raise awareness through a full array of marketing activities, which
+include trade shows, print advertising, special programs, distributor promotions, telemarketing and the use of digital and social media in order to stimulate sales in each target market. 
+We market our products in the United States and internationally. Revenues attributable to customers in the United States were $67.5
+million, $67.6 million and $63.5 million in 2012, 2011 and 2010, respectively. Revenues attributable to international customers amounted to $20.3 million, $14.2 million and $11.5 million, or 23%, 17% and 15% of our total revenues, in 2012, 2011 and
+2010, respectively. For more information about our revenues and long-lived assets attributable to U.S. and international customers, please see Note 11 to our consolidated financial statements included elsewhere in this Annual Report.
+9 
+Table of Contents 
+Infectious Disease Testing—Professional 
+We market the OraQuick ADVANCE ® rapid HIV-1/2 antibody test directly to customers in the public health market for HIV testing. This market consists of a broad range of clinics and laboratories and
+includes states, counties, and other governmental agencies, family planning clinics, colleges and universities, correctional facilities and the military. There are also a number of organizations in the public health market, such as AIDS service
+organizations and various community-based organizations, that are set up primarily for the purpose of encouraging and enabling HIV testing. We also sell our OraQuick ADVANCE ® test directly to hospitals in the U.S. and through distributors into the U.S. physician office market and to retail clinics operated by pharmacies. We have engaged
+two manufacturers’ representative organizations to assist with sales to U.S. physicians and retail clinics. Internationally, we distribute our OraQuick ® HIV test in Europe and certain other foreign countries. 
+We market the OraSure ® oral fluid collection device for HIV-1
+testing, on its own and as a kit in combination with laboratory testing services. To better serve our public health customers, we have contracted a commercial laboratory to provide prepackaged
+OraSure ® test kits, with prepaid laboratory testing and specimen shipping costs included. We also sell the
+OraSure ® device in the international public health market. 
+Our OraQuick ® HCV test is sold primarily to the same markets where our OraQuick ® ADVANCE HIV test is sold, including public health, hospitals, physicians and retail clinics. We also sell this test in Europe and other countries through
+distributors. 
+We previously entered into domestic and international collaboration agreements with
+Merck & Co. Inc. (“Merck”), under which Merck agreed to detail our OraQuick ® HCV product to
+physician offices. The initial term of our domestic agreement expired in September 2012 and was not renewed. We have also terminated our international agreement with Merck. Termination of these agreements is not expected to have a material impact on
+sales of our OraQuick ® HCV test, either in the U.S. or in international markets. 
+We have distribution rights to an FDA 510(k) cleared rapid flu A&B test, which we market under our proprietary
+OraSure QuickFlu ™ tradename. Under our agreement with the supplier of this product, we are permitted to sell
+this product into the U.S. hospital and public health markets. 
+Infectious Disease Testing—OTC 
+The OraQuick ® In-Home test has been available for purchase in the U.S. retail or consumer market since September 2012. Retailers carrying the product include CVS, Walgreens, Rite
+Aid, Wal-Mart and Kroger. The product is also available for purchase on-line through certain retailers and our website, www.oraquick.com . The primary target population for our HIV-OTC test is comprised of young, sexually active adults, with
+greater purchase intent found in high-risk sub groups, such as men who have sex with men, African Americans and Latino Americans. In order to increase awareness and consumer sales of this product, we began a national public relations and advertising
+campaign in late 2012. 
+To support individuals that purchase and use our test, we have established a toll-free customer
+support center that operates on a 24/7, 365-day per year basis. Through this center, consumers will have access to highly trained, bi-lingual representatives who can answer questions about HIV/AIDS and the use of our test, and refer consumers to
+appropriate resources for follow-up confirmatory testing, counseling and medical treatment. 
+Our revenue
+recognition practices with respect to the OraQuick ® In-Home HIV Test will initially be different than those
+customarily used in the consumer package goods industry. Because this is a new product for which we do not have a historical record of returns, we will initially recognize revenue only upon the consummation of a sale to the retail customer either in
+a store or over the internet. We are working with our retail distribution partners to gain access to out-sales data to obtain greater transparency into the effectiveness of our launch and the actual uptake of our product in the hands of the
+consumer. 
+10 
+Table of Contents 
+Molecular Collection Systems 
+DNAG primarily sells its products directly to its customers through its own global sales force. In some countries distributors are used,
+particularly in the Asia-Pacific region. Over half of DNAG’s employees work in the areas of sales, marketing, business development or product management. The significant majority of employees who deal directly with customers have molecular
+science backgrounds, which we believe is useful in selling and marketing molecular collection products, and more importantly, in identifying and evaluating new market and business opportunities. 
+Historically, most of DNAG revenues have been derived from product sales into the academic and research markets. A significant portion of
+DNAG’s sales is derived from repeat customers. The clinical diagnostic market for human genetics is still in its early stages with only a few diagnostic customers currently using DNAG’s products. DNAG has a number of established global
+customers in the livestock market, including breed associations and research institutions. A molecular collection product focused on the infectious disease research market has also been launched by DNAG. 
+Substance Abuse Testing 
+Our substance abuse testing products are marketed to laboratories serving the workplace testing, forensic toxicology, criminal justice and drug rehabilitation markets in the U.S. and in certain
+international markets. 
+We have entered into agreements for the distribution of Intercept ® collection devices and associated MICRO-PLATE assays for drugs-of-abuse testing in the workplace testing market in
+the United States and Canada through several laboratory distributors and internationally for workplace, criminal justice and forensic toxicology testing through other distributors. We also market the Intercept ® collection device on its own and as a kit in combination with laboratory testing services. To better serve our
+workplace customers, we have contracted with commercial laboratories to provide prepackaged Intercept ® test
+kits, with prepaid laboratory testing and specimen shipping costs included. 
+The criminal justice market in the United States
+for our substance abuse testing products consists of a wide variety of entities in the criminal justice system that require drug screening, such as pre-trial services, parole and probation offices, police forces, drug courts, prisons, drug treatment
+programs and community/family service programs. The forensic toxicology market consists of several hundred laboratories including federal, state and county crime laboratories, medical examiner laboratories and reference laboratories. 
+As discussed above, the FDA has issued 510(k) clearances for the use of fully-automated high-throughput oral fluid
+assays for the detection of PCP, opiates, cocaine, methamphetamines and amphetamines with oral fluid samples collected with our Intercept ® device. Due to significant development delays under our agreement with Roche Diagnostics, particularly with respect to the assay for THC, the parties are currently in
+discussions regarding the future of our development and commercialization collaboration. 
+We distribute
+our Q.E.D. ® saliva alcohol test primarily through various distributors in the United States and internationally.
+The markets for alcohol testing are relatively small and fragmented with a broad range of legal and procedural barriers to entry. Markets range from law enforcement testing to workplace testing of employees in safety sensitive occupations. Typical
+usage situations include pre-employment, random, post-accident, reasonable-cause and return-to-duty testing. 
+Cryosurgical
+Systems 
+Most of our Histofreezer ® sales occur in the United States to distributors that, in turn, resell the product to primary care physicians and podiatrists in the United States. Our major U.S.
+distributors include Cardinal Healthcare, McKesson HBOC, Physician Sales & Service (PSS), AmerisourceBergen Corporation, and Henry 
+11 
+Table of Contents 
+Schein. We have also engaged two manufacturers’ representative organizations to help our U.S. distributors promote and sell Histofreezer ® . Internationally, we sell the
+Histofreezer ® product through a network of distributors in more than 20 countries worldwide. 
+We distribute cryosurgical wart removal products in the OTC footcare market in Europe, Australia and New Zealand through our distributor,
+Reckitt Benckiser, under its Scholl and Dr. Scholl tradenames, and in the OTC markets in Mexico and several Central and South American countries under the POINTTS tradename through our distributor, Genomma. We also sell OTC cryosurgical
+products for the removal of warts and skin tags under private label arrangements with retailers in Canada. 
+Insurance Risk
+Assessment 
+We currently market the OraSure ® oral fluid collection device for use in screening life insurance applicants in the United States and internationally to test for three of the most important
+underwriting risk factors: HIV-1, cocaine and cotinine (a metabolite of nicotine). Devices are sold to insurance testing laboratories, which in turn sell the devices to insurance companies, usually in combination with testing services. 
+We also promote use of the OraSure ® device directly to insurance companies for life insurance risk assessment. Insurance companies then make their own decision regarding which laboratory to use to
+supply their collection devices and testing services. We sell our OraSure ® Western blot confirmatory test
+directly to insurance testing laboratories for use in confirming oral fluid specimens collected with our
+OraSure ® device that initially test positive for HIV-1. 
+There exists a wide range of policy limits where our OraSure ® product is being used. In general, many (but not all) of our insurance company customers use the OraSure ® device in connection with life insurance policies having face amounts of up to $250,000, with some customers using the device for policies of up to $500,000 in
+amount. Some insurance companies have chosen to extend their testing to lower policy limits where they did not test at all before, while others have used OraSure ® to replace some of their blood and urine-based testing. More recently, some insurance customers have adopted a “Simplified Issues” policy, where lab testing
+is no longer required and instead the applicant completes a questionnaire about personal behaviors. 
+We
+also sell our AUTO-LYTE ® assays and reagents in the insurance testing market directly to certain laboratories.
+Significant Products and Customers 
+Several different products have contributed significantly to our financial performance, accounting for 10% or more of our total revenues during the past three years. In 2012, the OraQuick ® rapid HIV testing products, the cryosurgical systems products, and our Oragene ® product line accounted for total revenues of $37.9 million, $14.9 million and $14.3 million, respectively.
+The OraQuick ® rapid HIV testing products, the cryosurgical systems products, and the OraSure ® and Intercept ® oral fluid collection devices accounted for total revenues of $41.7 million, $12.0 million and $10.7 million in 2011 and $40.0 million, $11.9 million and $11.2
+million in 2010, respectively. 
+We had no individual customers who accounted for more than 10% of our total revenues in 2012,
+2011 or 2010. 
+Financial Information by Segment 
+We operate our business within two reportable segments. The first is our “OSUR” business, which consists of the development, manufacture and sale of oral fluid diagnostic products and specimen
+collection devices and medical devices used for the removal of benign skin lesions by cryosurgery. The second is our “DNAG” or molecular collection systems business, which consists of the development, manufacture and sale of oral fluid
+collection devices that are used to collect, stabilize, and store samples of genetic material for molecular testing. 
+12 
+Table of Contents 
+OSUR revenues consist primarily of product sold into the United States and internationally
+to various clinical laboratories, hospital, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. OSUR also derives revenues
+from licensing and production development activities. DNAG revenues consist of product sold into the academic research, clinical genetic testing, pharmacogenomics, personalized medicine, animal and livestock genetics markets. For more information
+about our revenues from external customers, income and total assets, please see the sections entitled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of
+Operations” and Note 11 to the consolidated financial statements, included elsewhere in this Annual Report. 
+Supply and Manufacturing
+Our OraQuick ADVANCE ® HIV test, OraQuick ® In-Home
+HIV test, OraQuick ® HCV test, OraSure ® and Intercept ® collection
+devices, Western blot HIV-1 confirmatory test, AUTOLYTE and MICRO-PLATE assays and QED ® saliva alcohol test are
+all manufactured in our Bethlehem, Pennsylvania facilities. We expect to continue to manufacture these products at this location for the foreseeable future. 
+We have contracted with a third party in Thailand for the assembly of the OraQuick ® HIV device, in order to supply certain international markets. This supply agreement had an initial term of one year,
+and automatically renews for additional annual periods unless either party provides a timely notice of termination prior to the end of an annual period. We believe that other firms would be able to manufacture the OraQuick ® test on terms no less favorable than those set forth in the agreement if the Thailand contractor would be unable or
+unwilling to continue manufacturing this product. 
+We can purchase the HIV antigens, the nitrocellulose
+and certain other critical components used in the OraQuick ® HIV product lines, the HCV antigens used in the
+OraQuick ® HCV test and the antigen used in the Western blot HIV-1 confirmatory test only from a limited number
+of sources. If for any reason these suppliers are unwilling or no longer able to supply our antigen or nitrocellulose needs, we believe that alternative supplies could be obtained at a competitive cost. However, a change in any of the antigens, the
+nitrocellulose or other critical components used in our products would require FDA approval and some additional development work. This in turn could require significant time to complete and could disrupt our ability to manufacture and sell the
+affected products. 
+Our MICROPLATE and AUTO-LYTE assays require the production of highly specific and sensitive antibodies
+corresponding to the antigen of interest. Substantially all our antibody requirements are provided by contract suppliers. We believe that we have adequate reserves of antibody supplies and that we have access to sufficient raw materials for these
+products. 
+Our OraSure QuickFlu ™ test is manufactured and supplied by a third party, Princeton BioMeditech. There is no other supply source for this product. 
+The Histofreezer ® product sold in the U.S. is assembled by U.S. vendors and the Histofreezer ® product sold internationally is assembled in the Netherlands by Koninklijke, Utermöhlen, N.V., the company from which we acquired the product in 1998. The
+cryosurgical wart removal products distributed in OTC markets are also assembled by vendors located in the United States. We believe that additional suppliers of all of our cryosurgical products are available on terms no less favorable than the
+terms of our existing supply agreements in the event that our current suppliers would be unable or unwilling to continue manufacturing these products. 
+13 
+Table of Contents 
+DNAG has engaged two third-party manufacturers to supply virtually all
+of its products, including the Oragene ® product line. Many of the raw materials and components used in these
+products are also purchased from third parties, including one critical component that is purchased from a sole source supplier. We believe there are other suppliers that can manufacture and supply the raw materials and components for the DNAG
+products. 
+Employees 
+As of December 31, 2012, we had 313 full-time employees (including 71 employees at our subsidiary, DNAG). Of this total, there were 111 in sales, marketing and client services; 32 in research and
+development; 121 in operations, manufacturing, quality control, information systems, purchasing and shipping; 18 in quality assurance and regulatory affairs; and 32 in administration and finance. This compares to 308 employees as of
+December 31, 2011. Our employees are not currently represented by a collective bargaining agreement. 
+Competition 
+The diagnostic industry is a multi-billion dollar international industry and is intensely competitive. Many of our competitors are
+substantially larger than we are, and they have greater financial, research, manufacturing and marketing resources. 
+Important
+competitive factors for our products include product quality, performance, price, ease of use, customer service and reputation. Industry competition is based on the following: 
+• 
+Scientific and technological capability; 
+• 
+Proprietary know-how; 
+• 
+The ability to develop and market products and processes; 
+• 
+The ability to obtain FDA or other regulatory approvals; 
+• 
+The ability to manufacture products that meet applicable FDA requirements (i.e., good manufacturing practices); 
+• 
+Commercial execution and strength of distribution; 
+• 
+Price; 
+• 
+Access to adequate capital; 
+• 
+The ability to attract and retain qualified personnel; and 
+• 
+The availability of patent protection. 
+A few large corporations produce a wide variety of diagnostic tests and other medical devices and equipment. A larger number of mid-size companies generally compete only in the diagnostic industry and a
+significant number of small companies produce only a few diagnostic products. As a result, the diagnostic test industry is highly fragmented and segmented. 
+The future market for diagnostic tests is expected to be characterized by consolidation, greater cost consciousness, the development of new technologies, and tighter reimbursement policies. The purchasers
+of diagnostic products are expected to place increased emphasis on lowering costs, reducing inventory levels, obtaining better performing products, automation, service and volume discounts. The increased complexity of the market is expected to force
+many competitors to enter into joint ventures or license certain products or technologies. 
+14 
+Table of Contents 
+We expect competition to intensify as technological advances are made and become more widely
+known, and as new products reach the market. Furthermore, new testing methodologies could be developed in the future that render our products impractical, uneconomical or obsolete. There can be no assurance that our competitors will not succeed in
+developing or marketing technologies and products that are more effective than those we develop or that would render our technologies and products obsolete or otherwise commercially unattractive. In addition, there can be no assurance that our
+competitors will not succeed in obtaining regulatory approval for these products, or introduce or commercialize them, before we can do so. These developments could have a material adverse effect on our business, financial condition and results of
+operations. 
+Several companies market or have announced plans to market oral specimen collection devices
+and tests both within and outside the United States. We expect the number of devices competing with our
+OraQuick ® , OraSure ® and Intercept ® devices to
+increase as the benefits of oral fluid-based testing become more widely accepted. 
+Competition in the
+U.S. market for infectious disease testing in medical settings is intense and is expected to increase. Our principal competition for HIV testing in the professional market comes from existing and new point-of-care rapid blood tests, automated
+laboratory-based blood tests, or other oral fluid-based tests that may be developed. One of our competitors recently received FDA approval for a rapid oral fluid HIV test, although this product has not yet received a CLIA waiver. Our OraQuick ® rapid HCV test competes against laboratory-based blood tests in the U.S., as there currently are no other rapid HCV
+testing products approved by the FDA. Our competitors include medical diagnostic companies and specialized biotechnology firms, as well as pharmaceutical companies with biotechnology divisions. Competing tests are often sold at a lower price than we
+charge for our products. This competition can result in lost sales and degradation of the price (and therefore the applicable profit margins) we can charge for our HIV and HCV tests. 
+Outside the U.S., our rapid HIV and HCV tests compete against other rapid and laboratory-based tests. Significant
+sales of these products in Europe have not materialized principally because of differences in European healthcare systems compared to our U.S. systems. Unlike the U.S., adoption of rapid point-of-care diagnostics is not widespread in Europe because
+laboratory testing is entrenched and healthcare systems are structured around centralized testing models. In addition, many competing tests in international markets are sold at very low prices. We intend to continue to build awareness and develop
+strategies to expand sales of our OraQuick ® HIV and HCV tests in European and other international markets.
+Our OraQuick ® In-Home HIV oral fluid test is the only rapid HIV test approved by the FDA for sale in the U.S. OTC market. We compete against one other non-rapid HIV blood test
+available in the OTC market, which requires consumers to self-collect a blood sample and then send it to a laboratory for testing. 
+The OraSure QuickFlu ™ test competes primarily against other rapid
+flu tests sold by various third parties in the U.S. hospital and public health markets. 
+Our Oragene ® collection system competes against other types of collection devices used for molecular testing, such as blood
+collection devices and buccal swabs, which often are sold for prices lower than the prices charged for the
+Oragene ® products. Although we believe the Oragene ® device offers a number of advantages over these other products, the availability of lower price competitive devices can result in lost sales and degradation in
+pricing and profit margin. 
+In the substance abuse testing market, our Intercept ® drug testing system competes with laboratory-based drug testing products using sample matrices such as urine, hair,
+sweat and oral fluid. We expect competition for our products to intensify, particularly from other domestic and international companies that have developed, or may develop, competing oral fluid drug testing products. There are at least two
+competitors that sell fully-automated high-throughput oral fluid drug testing products in unregulated settings in the United States. One of these competitors has received 510(k) clearance of its product. This 510(k) cleared product is being offered
+by 
+15 
+Table of Contents 
+one of our large laboratory distributors. This distributor has stopped purchasing our Intercept ® product. Internationally, our distributor in the United Kingdom has reduced its Intercept ® purchases as it transitions to selling its own oral fluid collection device and assays. 
+Our MICRO-PLATE oral fluid drug assays, which are sold for use with the Intercept ® and OraSure ® collection devices, also continue to come under increasing competitive pressure from “home-brew” assays developed internally by our laboratory customers.
+Our oral fluid MICRO-PLATE assays also compete with urine-based homogeneous assays that are run on fully-automated, random access analyzers. These tests provide strong competitive pressure because they provide the benefits of automation, including
+lower costs and short turn-around times. 
+Our MICRO-PLATE drugs-of-abuse reagents sold in the forensic toxicology market are
+targeted to forensic testing laboratories where sensitivity, automation and “system solutions” are important. In the past, these laboratories have typically had to rely on radioimmunoassay test methods to provide an adequate level of
+sensitivity. Radioimmunoassays require radioactive materials, which have a short shelf-life and disposal problems. Our MICRO-PLATE tests meet the laboratories’ sensitivity needs, run on automated equipment, are not radioimmunoassays, and are
+offered to the laboratory as a complete system solution of reagents, instrumentation and software to meet the specific needs of each customer. We compete with both homogeneous and heterogeneous tests manufactured by many companies. 
+Sales of our AUTO-LYTE ® urine assays have declined substantially during the past several years, primarily due to competition from “home-brew” assays developed internally by our
+laboratory customers, which can be produced at a cost lower than the price typically paid for our products. Many of our customers no longer purchase our AUTO-LYTE ® assays, and we may eventually stop selling this product line. 
+Q.E.D. ® competes against other semi-quantitative saliva-based
+alcohol tests that have received U.S. Department of Transportation approval as well as breath alcohol tests. Although there are lower priced tests on the market that use oral fluid or breath as a test medium, these tests are qualitative tests that
+are believed to be substantially lower in quality and provide fewer benefits than our Q.E.D. ® test. 
+Our professional cryosurgical product is sold primarily to physicians, including family practitioners, pediatricians and podiatrists.
+This product primarily competes against other portable cryosurgical systems used for the removal of benign skin lesions in both the U.S. and Europe. Our OTC cryosurgical products compete against other cryosurgical products in certain international
+OTC markets. 
+Patents and Proprietary Information 
+We seek patents and other intellectual property rights to protect and preserve our proprietary technology and our right to capitalize on the results of our research and development activities. We also
+rely on trade secrets, know-how, continuing technological innovations and licensing opportunities to provide competitive advantages for our products in our markets and to accelerate new product introductions. We regularly search for third-party
+patents in fields related to our business to shape our own patent and product commercialization strategies as effectively as possible and to identify licensing opportunities. United States patents generally have a maximum term of 20 years from the
+date an application is filed. 
+We have ten United States patents and numerous foreign patents for the
+OraSure ® and Intercept ® collection devices and technology relating to oral fluid collection, containers for oral fluids, methods to test oral fluid, formulations for the manufacture of
+synthetic oral fluid, and methods to control the volume of oral fluid collected and dispersed. The patents expire from November 2013 to December 2026. We have also applied for additional patents, in both the United States and certain foreign
+countries, on such products and technology. 
+16 
+Table of Contents 
+We have five United States patents for our OraQuick ® platform, as well as corresponding related international patents. We also have patent applications pending in the
+United States and internationally. Four of these patents expire from March to July 2019 and the fifth in July 2028. We have obtained licenses to certain lateral flow patents and to certain HIV-1 and HIV-2 patents held by other parties. We also have
+obtained a license to certain HCV patents which we use to manufacture and sell a rapid HCV test on the OraQuick ® 
+technology platform. We obtained these licenses through the payment of certain upfront fees and an agreement to pay ongoing royalties. We believe these fees and royalties are comparable to those generally paid by other companies under similar
+arrangements. 
+One of the lateral flow patent licenses was obtained as part of a patent infringement
+litigation settlement with Alere (formerly Inverness Medical) in 2009. Under that license, we have paid royalties on net sales of our OraQuick ® HIV and HCV professional products and the royalty rate on our OraQuick ® HIV professional product has increased beginning in 2013. 
+We may need to obtain licenses or other rights under, or enter into distribution or other business arrangements in connection with, certain other intellectual property patents in order to manufacture and
+sell the OraQuick ADVANCE ® HIV test or other tests that use the same or similar technology platform. See
+Section 1A, entitled “Risk Factors,” for a further discussion of these issues. 
+We hold, through our
+subsidiary, DNAG, six United States patents and numerous foreign patents issued for compositions, methods and apparatus for the collection, stabilization, transportation and storage of nucleic acids (DNA and RNA) from oral fluid and other bodily
+fluids and tissues. These patents expire from June 2023 through May 2030. 
+We have four United States patents and numerous
+foreign patents issued for apparatuses and methods for the topical removal of skin lesions relating to our cryosurgical wart removal products, and we have pending patent applications related to these products in the United States and in certain
+foreign countries. These patents expire from August 2013 to September 2025. We have also licensed another patent relating to apparatuses and methods for the topical removal of skin lesions relating to our cryosurgical wart removal products.
+We require our employees, consultants, outside collaborators and other advisors to execute confidentiality agreements upon
+the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed by or made known to the individual during the course of the individual’s relationship with us is to be kept
+confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual during his or her tenure with us will be our exclusive property.
+We own rights to trademarks and service marks that we believe are necessary to conduct our business as
+currently operated. In the United States, we own a number of trademarks, including the OraSure ® , Intercept ® , OraQuick ® , OraQuick ADVANCE ® ,
+Histofreezer ® , OraSure QuickFlu ™ , Q.E.D. ® , Oragene ® , ORAcollect ™ , OMNIgene ™ , Performagene ™ and AUTO-LYTE ® trademarks. We also own many of these marks and others in several foreign countries. With respect to our international OTC cryosurgical products, the Scholl and
+Dr. Scholl tradenames are owned by Reckitt Benckiser in Europe, Australia, New Zealand and other countries outside North and South America, and the POINTTS tradename is owned by Genomma. 
+Although important, the issuance of a patent or existence of trademark or trade secret protection does not in itself ensure the success
+of our business. Competitors may be able to produce products competing with our patented products without infringing our patent rights. Issuance of a patent in one country generally does not prevent manufacture or sale of the patented product in
+other countries. The issuance of a patent is not conclusive 
+17 
+Table of Contents 
+as to validity or as to the enforceable scope of the patent. The validity or enforceability of a patent can be challenged by litigation after its issuance. If the outcome of such litigation is
+adverse to the owner of the patent, the owner’s rights could be diminished or withdrawn. Trade secret protection does not prevent independent discovery and exploitation of the secret product or technique. 
+Government Regulation 
+General 
+Most of our products are regulated by the FDA, certain state and local agencies and comparable regulatory bodies in other countries. This
+regulated environment governs almost all aspects of development, production and marketing, including product testing, authorizations to market, labeling, promotion, manufacturing and recordkeeping. 
+All of our FDA-regulated products require some form of action by the FDA before they can be marketed in the United States. After approval
+or clearance by the FDA, we must continue to comply with other FDA requirements applicable to marketed products. Both before and after approval or clearance, failure to comply with the FDA’s requirements can lead to significant penalties or
+could disrupt our ability to manufacture and sell these products. In addition, the FDA could refuse permission to obtain certificates needed to export our products if the agency determines that we are not in compliance. 
+Domestic Regulation 
+Most of our products are regulated in the United States as medical devices. 
+There are two mechanisms by which regulated medical devices can be placed on the market in the United States. Some products may qualify
+for clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act. To obtain this clearance from the FDA, the manufacturer must provide a premarket notification that it intends to begin marketing the product, and show that the
+product is substantially equivalent to another legally marketed product (i.e., that it has the same intended use and is as safe and effective as a legally marketed device and does not raise different questions of safety and effectiveness). In some
+cases, the submission must include data from human clinical studies. Marketing may only commence when the FDA issues a clearance letter finding substantial equivalence. An applicant must submit a 510(k) application at least 90 days before marketing
+of the affected product commences. Although FDA clearance may be granted within that 90-day period, in some cases as much as a year or more may be required before clearance is obtained, if at all. 
+If the medical device does not qualify for the 510(k) procedure (either because it is not substantially equivalent to a legally marketed
+device or because it is required by statute and the FDA’s regulations to have an approved PMA), the FDA must approve a PMA before marketing can begin. PMAs must demonstrate, among other matters, that the medical device provides a reasonable
+assurance of safety and effectiveness. A PMA is typically a complex submission, including the results of preclinical and clinical studies. Preparing a PMA is a detailed and time-consuming process. Once a PMA has been submitted, the FDA is required
+to review the submission within 180 days. However, the FDA’s review may be, and often is, much longer, often requiring one year or more, and may include requests for additional data and facility inspections before approval is granted, if at
+all. 
+Some of our products are used for research only or other non-medical purposes and many of our drugs-of-abuse products
+sold to state crime laboratories are for forensic use. The FDA does not currently regulate products used for these purposes. 
+Every company that manufactures medical devices distributed in the United States must comply with the FDA’s Quality System
+Regulations (“QSRs”). These regulations govern the manufacturing process, including design, manufacture, testing, release, packaging, distribution, documentation and purchasing. In complying with
+18 
+Table of Contents 
+the QSRs, manufacturers must continue to expend time, money and effort in the area of production and quality to ensure full technical compliance. Companies are also subject to other post-market
+and general requirements, including restrictions imposed on marketed products, promotional standards and requirements for recordkeeping and reporting of certain adverse reactions. If there are any modifications made to our marketed devices, a
+premarket notification or PMA may be required to be submitted to, and cleared or approved by, the FDA, before the modified device may be marketed. The FDA regularly inspects companies to determine compliance with the QSRs and other post-market
+requirements. Failure to comply with statutory requirements and the FDA’s regulations can result in warning letters, monetary penalties, suspension or withdrawal of regulatory approvals, operating restrictions, total or partial suspension of
+production, injunctions, product recalls, seizure of products and criminal prosecution. 
+The Clinical
+Laboratory Improvement Amendments of 1988, or CLIA, prohibit any facility that does laboratory testing on specimens derived from humans from providing information for the diagnosis, prevention or treatment of any disease or impairment of, or the
+assessment of, the health of human beings, unless there is in effect for such facility a certificate issued by the U.S. Department of Health and Human Services applicable to the category of examination or procedure performed. Tests may be waived
+from this regulatory oversight if they meet certain requirements established under CLIA. We consider the applicability of CLIA requirements in the design and development of our products. We have obtained a waiver of the CLIA requirements for our
+OraQuick ADVANCE ® rapid HIV-1/2 antibody test, our OraQuick ® HCV rapid antibody test and our Q.E.D. ® alcohol saliva test and may seek similar waivers for certain other products. A CLIA waiver allows certain customers to use the waived products that may not have been
+able to use them without complying with applicable quality control and other requirements. 
+Certain of our products may also
+be affected by state regulations in the United States. We are presently working with legislators or regulators in certain of these states in an effort to modify or remove any restrictions affecting our ability to sell products. 
+International 
+We are also subject to regulations in foreign countries governing products, human clinical trials and marketing, and may need to obtain approval from international public health agencies, such as the
+World Health Organization, in order to sell products in certain countries. Approval processes vary from country to country, and the length of time required for approval or to obtain other clearances may in some cases be longer than that required for
+U.S. governmental approvals. We generally pursue approval only in those countries that we believe have a significant market opportunity. 
+The International Organization for Standardization (“ISO”) is a worldwide federation of national standards bodies from some 130 countries, established in 1947. The mission of the ISO is to
+promote the development of standardization and related activities in the world with a view to facilitating the international exchange of goods and services. ISO certification is a pre-requisite to use of the CE mark and indicates that our quality
+system complies with standards applicable to activities ranging from initial product design and development through production and distribution. The CE mark is a European Union (“EU”) requirement to sell products that fall under the scope
+of the Medical Devices Directive (“MDD”) and the In Vitro Diagnostic Directive (“IVDD”). The CE mark is evidence that the manufacturer and the product meet the requirements of all applicable directives, including the MDD and
+IVDD. 
+We received authorization to use the CE mark for the OraQuick ADVANCE ® HIV-1/2 test, the OraQuick ® HCV test, the OraSure ® and
+Intercept ® collection devices, our Histofreezer ® product line, our OTC cryosurgical removal product and certain of the Oragene ® collection kits sold by DNA Genotek. 
+We
+must also comply with certain registration and licensing requirements as dictated by Health Canada, prior to commencing sales in Canada. We have completed this process for several of our current products and
+19 
+Table of Contents 
+may do so with respect to other products in the future. In addition, Canadian law requires manufacturers of medical devices to have a quality management system that meets various ISO requirements
+in order to obtain a license to sell their devices in Canada. 
+Anti-Kickback and Other Fraud and Abuse Laws 
+The Federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation, or receipt of any form of remuneration
+in return for, or to induce: 
+• 
+The referral of a person; 
+• 
+The furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental programs; or
+• 
+The purchase, lease, or order of, or the arrangement or recommendation of the purchasing, leasing, or ordering of any item or service reimbursable
+under Medicare, Medicaid, or other governmental programs. 
+Our products are or may be purchased by customers
+that will seek or receive reimbursement under Medicare, Medicaid or other governmental programs. Noncompliance with the federal anti-kickback legislation can result in exclusion from Medicare, Medicaid or other governmental programs, and/or
+restrictions on our ability to operate in certain jurisdictions, as well as civil and criminal penalties, any of which could have an adverse effect on our business and results of operations. 
+The Federal Civil Monetary Penalties Law prohibits the offering or transferring of remuneration to a Medicare or Medicaid beneficiary
+that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable items or services. Noncompliance can result in civil monetary penalties for each wrongful act,
+assessment of three times the amount claimed for each item or service and exclusion from the Federal healthcare programs. 
+Many states have also adopted some form of anti-kickback laws. A determination of liability under such laws could result in fines and
+penalties, restrictions on our ability to operate in these jurisdictions and significant damage to our reputation. 
+We are
+also subject to other federal and state laws targeting fraud and abuse in the healthcare industry, including false claims laws and marketing conduct laws and laws constraining the sales, marketing and other promotional activities of manufacturers of
+medical devices by limiting the kinds of financial arrangements, including sales programs, with physicians, hospitals, laboratories and other potential purchasers of medical devices. Violations of these laws may be punishable by criminal or civil
+sanctions, including substantial fines, imprisonment and exclusion from participation in government healthcare programs such as Medicare and Medicaid. These laws and regulations are wide ranging and subject to changing interpretation and
+application. In recent years, there has been greater scrutiny of marketing practices in the medical device industry which has resulted in several government investigations by various government authorities and the introduction and/or passage of
+federal and state legislation regulating interactions between medical device manufacturers and healthcare professionals and providers and requiring the disclosure by medical device manufacturers of gifts or other payments to healthcare professionals
+and providers. To be in compliance with such disclosure laws, we have implemented necessary systems for accurately tracking gifts and other payments. 
+We have implemented a written Policy on Interactions with Health Care Professionals, which is based on the Code of Conduct for Interactions with Health Care Professionals promulgated by the Advanced
+Medical Technology Association, or AdvaMed, a leading trade association representing medical device manufacturers. The Policy applies to all employees and is intended to comply with applicable state and federal laws, regulations and government
+guidance. The Policy addresses interactions related to sales and marketing practices, research and development, product training and education, grants and charitable contributions, support of third-party educational conferences, and consulting
+arrangements. 
+20 
+Table of Contents 
+Foreign Corrupt Practices Act 
+The U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits corporations and individuals from engaging in certain activities to
+obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government official, government staff member, political party or
+political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. Our present and future business has and will continue to be subject to the FCPA and various other laws, rules and/or
+regulations applicable to us as a result of our international sales. 
+Environmental Regulation 
+Because of the nature of our current and proposed research, development, and manufacturing processes, we are subject to stringent federal,
+state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge and handling and disposal of materials and wastes. 
+The foregoing discussion of our business should be read in
+conjunction with the consolidated financial statements and accompanying notes included in Item 15 of this Annual Report.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2012/0001193125-13-105190/item13.txt b/raw/filings/0001116463/2012/0001193125-13-105190/item13.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b566f3c0a9f9573cdf89c5abcbcf30f53f13efb2
--- /dev/null
+++ b/raw/filings/0001116463/2012/0001193125-13-105190/item13.txt
@@ -0,0 +1,4 @@
+ITEM 13. 
+Certain Relationships and Related Transactions, and Director Independence. 
+The information required by this Item is incorporated by reference to the information under the captions, “Transactions with Related Persons,” “Corporate Governance—Director
+Independence” and “Corporate Governance—Committees of the Board,” in the Proxy Statement.
\ No newline at end of file
diff --git a/raw/filings/0001116463/2012/0001193125-13-105190/item9a.txt b/raw/filings/0001116463/2012/0001193125-13-105190/item9a.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ec426b6fccee13c416876abc128bc29da73917e6
--- /dev/null
+++ b/raw/filings/0001116463/2012/0001193125-13-105190/item9a.txt
@@ -0,0 +1,58 @@
+ITEM 9A. 
+Controls and Procedures. 
+(a) Evaluation of Disclosure Controls and Procedures. 
+The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls
+and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of December 31, 2012. Based on that evaluation, the Company’s management, including such officers, concluded that as of
+December 31, 2012 the Company’s disclosure controls and procedures were adequate and effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Securities Exchange Act of
+1934 is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported
+within the time periods specified in the rules and forms of the Securities and Exchange Commission. 
+(b) Management’s
+Report on Internal Control Over Financial Reporting. 
+The Company’s management is responsible for establishing and
+maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of the Company’s management,
+including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework
+issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework, our management concluded that our internal control over financial reporting was effective to provide reasonable
+assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles as of December 31, 2012. 
+The effectiveness of our internal control over financial reporting as of December 31, 2012 has been audited by KPMG LLP, an
+independent registered public accounting firm, as stated in their report, which is included below. 
+Because of its inherent
+limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
+conditions, or that the degree of compliance with the policies or procedures may deteriorate. 
+(c) Changes in Internal
+Control Over Financial Reporting. 
+There were no changes in our internal control over financial reporting during the fiscal
+quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 
+65 
+Table of Contents 
+(d) Report of Independent Registered Public Accounting Firm 
+The Board of Directors and Stockholders 
+OraSure
+Technologies, Inc.: 
+We have audited OraSure Technologies, Inc.’s internal control over financial reporting as of
+December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). OraSure Technologies, Inc.’s management is
+responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over
+Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 
+We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
+assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
+weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe
+that our audit provides a reasonable basis for our opinion. 
+A company’s internal control over financial reporting is a
+process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
+internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
+company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
+are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
+company’s assets that could have a material effect on the financial statements. 
+Because of its inherent limitations,
+internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
+or that the degree of compliance with the policies or procedures may deteriorate. 
+In our opinion, OraSure Technologies, Inc.
+maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
+Organizations of the Treadway Commission (COSO). 
+We also have audited, in accordance with the standards of the Public Company
+Accounting Oversight Board (United States), the consolidated balance sheets of OraSure Technologies, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss,
+stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated March 13, 2013 expressed an unqualified opinion on those consolidated financial statements. 
+/s/ KPMG LLP 
+Philadelphia, Pennsylvania
+March 13, 2013 
+66 
+Table of Contents
\ No newline at end of file
diff --git a/raw/filings/0001116463/2012/0001193125-13-105190/rp_note.txt b/raw/filings/0001116463/2012/0001193125-13-105190/rp_note.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391
diff --git a/raw/filings/0001116463/2012/0001193125-13-105190/rpt_disclosure.txt b/raw/filings/0001116463/2012/0001193125-13-105190/rpt_disclosure.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ed588688f037fa2fb5e6eba85769a5a55b964a77
--- /dev/null
+++ b/raw/filings/0001116463/2012/0001193125-13-105190/rpt_disclosure.txt
@@ -0,0 +1,7 @@
+Transactions With Related Persons 
+Since January 1, 2012, there have been no transactions with related persons which would require disclosure in this Proxy Statement.
+The Audit Committee is required to review and approve in advance all transactions with related persons involving the Company. The Audit Committee may approve a related party transaction if the transaction is on terms comparable to those that could
+be obtained in arms’ length dealings with an unrelated third party. The Audit Committee also reviews any public disclosures of a related party transaction contained in our SEC filings. These responsibilities are described in the Audit
+Committee’s charter, a copy of which is available on our website at www.orasure.com . 
+Information regarding
+employment and severance agreements between our executive officers and the Company is set forth in the Section entitled, “Employment Agreements and Potential Payments Upon Termination or Change in Control,” in this Proxy Statement.
\ No newline at end of file