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+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,2004-07-30,2004-05-31,2004-07-31T01:04:26.000Z,0001193125-04-128270,d10k.htm,FORM 10-K,1480021,0,0,https://www.sec.gov/Archives/edgar/data/320187/000119312504128270/d10k.htm,https://www.sec.gov/Archives/edgar/data/320187/000119312504128270/,2003,2003,1

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+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. 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 and through a mix of independent
+distributors, licensees and subsidiaries in over 120 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 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, 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 ® , g Series © , and Bragano © through our wholly-owned subsidiary, Cole Haan Holdings Incorporated, headquartered in Yarmouth, Maine. 
+2 
+Table of Contents 
+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, 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. 
+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 September 4, 2003, the Company purchased Converse Inc., headquartered in North Andover, Massachusetts, which designs and distributes athletic and
+casual footwear, apparel, and accessories under the Converse ® , Chuck Taylor ® , All
+Star ® , One Star ® , and Jack Purcell ® brand names. 
+Sales and Marketing 
+Financial
+information about geographic and segment operations appears in Note 17 of the consolidated financial statements on page 57. 
+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 2004, sales in the United States (including U.S. sales of Cole Haan, Bauer NIKE Hockey, Hurley, NIKE Golf, and Converse) accounted for approximately 47 percent of total revenues, compared to 49 percent in fiscal 2003 and 53 percent in fiscal
+2002. We sell to approximately 28,000 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 2004, our three largest customers accounted for approximately 26 percent of NIKE brand sales in the United States excluding sales from NIKE Golf and Bauer NIKE Hockey, and 23 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 2004, 90
+percent of our U.S. wholesale footwear shipments (excluding Cole Haan, Bauer NIKE Hockey, Hurley, NIKE Golf, and Converse) were made under the futures program, compared to 91 percent in fiscal 2003 and 92 percent in fiscal 2002. In fiscal 2004 and
+2003, 67 percent of our U.S. wholesale apparel shipments (excluding U.S. licensed team apparel, Cole Haan, Bauer NIKE Hockey, Hurley, NIKE Golf and Converse) were made under the futures program, compared to 69 percent in 2002. 
+3 
+Table of Contents 
+We utilize 21 NIKE sales offices to solicit sales in the United States. We also utilize 10 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: 
+U.S. Retail Stores 
+Number 
+NIKE factory stores (which carry primarily B-grade and closeout merchandise) 
+78 
+NIKE stores (including NIKE Women Stores) 
+5 
+NIKETOWNs (designed to showcase NIKE products) 
+13 
+Employee-only stores 
+4 
+Cole Haan stores (including factory and employee stores) 
+65 
+Total 
+165 
+NIKE’s domestic
+distribution centers for footwear are located in Wilsonville, Oregon, Memphis, Tennessee, and Greenland, New Hampshire. Apparel and equipment products are shipped from our Memphis, Tennessee, Tigard, Oregon, and Foothill Ranch, California
+distribution centers. Cole Haan and Bauer NIKE Hockey products are distributed primarily from Greenland, New Hampshire, Converse products are shipped from Ontario and Fontana, California, and Hurley products are shipped from Costa Mesa, California.
+International Markets 
+We sell our
+products in over 120 countries outside of the United States through retail accounts, independent distributors, licensees, subsidiaries and branch offices. Non-U.S. sales (including Non-U.S. sales of Cole Haan, Bauer NIKE Hockey, Hurley, NIKE Golf,
+and Converse) accounted for 53 percent of total revenues in fiscal 2004, compared to 51 percent in fiscal 2003 and 47 percent in fiscal 2002. We operate 23 distribution centers in Europe, Asia, Australia, Latin America, Africa and Canada, and also
+distribute through independent distributors and licensees. We estimate that we sell to more than 23,000 retail accounts outside the United States, excluding sales by independent distributors and licensees. 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 13 percent of 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 and employee-only stores 
+2 
+NIKETOWNs 
+2 
+Cole Haan stores (including factory and employee stores) 
+35 
+Total 
+165 
+International branch
+offices and subsidiaries of NIKE are located in Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Chile, Croatia, Czech Republic, Denmark, Finland, France, Germany, Hong Kong, Hungary, Indonesia, India, Ireland, Israel, Italy, Japan,
+Korea, Lebanon, Malaysia, Mexico, New Zealand, The Netherlands, Norway, Peoples Republic of China, The Philippines, Poland, Portugal, Russia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand,
+Turkey, the United Kingdom, and Vietnam. 
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+Table of Contents 
+Orders 
+Worldwide futures orders
+for NIKE brand athletic footwear and apparel, scheduled for delivery from June through November 2004, were $5.6 billion compared to $5.0 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 some orders may be cancelled. Futures orders are not necessarily indicative of future sales trends. 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 revenue is not derived from futures
+orders, including wholesale sales of equipment, U.S. licensed team apparel, Bauer NIKE Hockey, Cole Haan, Converse, NIKE Golf, Hurley, 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 reduce 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 
+Virtually all of
+our footwear is produced outside of the United States. In fiscal 2004, contract suppliers in China, Indonesia, Vietnam, and Thailand manufactured 36 percent, 24 percent, 22 percent, and 16 percent of total NIKE brand footwear, respectively. We also
+have manufacturing agreements with independent factories in Argentina, Brazil, India, Mexico, and South Africa to manufacture footwear for sale primarily within those countries. Our largest single footwear supplier accounted for approximately 7
+percent of total fiscal 2004 footwear production. 
+Almost all
+of NIKE brand apparel production for sale to the United States market was manufactured outside of the United States by independent contract manufacturers located in 37 countries. Most of this apparel production occurred in Bangladesh, China, Greece,
+Honduras, India, Indonesia, Malaysia, Mexico, Pakistan, The Philippines, Sri Lanka, Taiwan, Thailand, and Turkey. 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 5 percent of total fiscal 2004 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., 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. 
+Since 1972, Sojitz Corporation of America (“Sojitz America”) and its predecessor, Nissho Iwai American Corporation, a subsidiary of Nissho Iwai
+Corporation, a large Japanese trading company that recently merged with Nichimen Corporation, have performed significant import-export financing services for us. Currently, Sojitz 
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+Table of Contents 
+America 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 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 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, 2005. 
+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 has 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 (“C-TPAT”), to reduce risks of
+possible supply disruptions caused by U.S. and international cargo security mandates and terrorism. 
+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, 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 and 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. 
+Imports into the European Union 
+In 1994, the European Commission (“EU”) imposed quotas on certain types of footwear manufactured in China. These quotas replaced national quotas that had previously been in effect in several European 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”), has been 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 has confirmed that footwear quotas will be eliminated globally beginning
+January 1, 2005. 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 reserve the right to impose (1) safeguard measures 
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+Table of Contents 
+(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. 
+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 may be renewed pressure from some sectors within Europe to re-impose some level of trade protection on imported footwear. While it is unlikely that the EU will pursue any
+such action, we will monitor the circumstances closely and if action is initiated, we will work to mitigate any significant business risks. We believe that our major competitors stand in much the same position of risk regarding these potential trade
+measures. 
+On May 1, 2004 ten new countries joined the EU and
+the EU single market. An agreement was reached to increase the current EU quotas on footwear 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, since the EU increased quotas take into account the enlarged consumer and market demand. 
+If EU trade measures become substantially more restrictive we would consider shifting, to the extent possible, 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 principal competitors are subject to similar risks regarding these trade
+measures. 
+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 that approval, the U.S. granted an annual extension of NTR to Vietnam. The U.S. President must renew this grant annually with the opportunity for review by Congress. In June 2004, 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. The annual extensions on NTR will remain in place until Vietnam enters the WTO, at which time the U.S. must grant Vietnam permanent NTR. Vietnam’s WTO accession negotiations are ongoing, and
+may conclude as early as the end of 2005. 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 continue to enter the United States at NTR
+tariff rates. 
+Expiration of the Textile and Apparel
+Multi-Fiber Arrangement 
+Under the WTO, the Multi-Fiber
+Arrangement, a four-decade old agreement that allows WTO countries to impose quotas on the import of textile and apparel products, will expire on January 1, 2005. This effectively means that all trade of textile and apparel products between WTO
+members will be free from quotas at the end of the 2004 calendar year. Elimination of textile and apparel quotas is significant for NIKE and other textile and apparel companies as it provides these companies greater flexibility in their global
+sourcing decisions. At the same time, we are monitoring closely actions by textile and apparel importing countries to ensure that they do not unilaterally attempt to re-impose restrictions through some other legal mechanism, such as safeguards,
+anti-dumping measures, or in the case of China (as part of the agreement reached in China’s 2001 WTO accession), through the short-term re-imposition of quotas on certain categories of textile and apparel products in order to 
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+Table of Contents 
+protect a domestic market from surging Chinese imports. In the event of any significant protectionist trade actions, we will evaluate alternative sourcing
+options and will work to mitigate any significant business risks. We believe that our principal competitors are subject to similar risks regarding these potential 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 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 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 patents covering components, features, and
+designs 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 2024, although the duration of patents varies by country. 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
+24,667 employees at May 31, 2004. 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 47 percent, or approximately 232, are covered by three union collective bargaining agreements with three separate bargaining units, and all of Bauer NIKE Hockey’s approximately 130 non-immigrant employees in Italy are
+covered by three collective bargaining agreements. The collective bargaining agreements expire on various dates from 2005 through 2007. There has never been a material interruption of operations due to labor disagreements. 
+8 
+Table of Contents 
+Executive Officers of the Registrant 
+The executive officers of NIKE as of July 25, 2004 are as follows: 
+Philip H. Knight, Chief Executive Officer, Chairman of the Board, and President — Mr. Knight, 66, 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, 46, 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, 53, 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, 54, 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, 48, 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, 47, 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, 41, 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, 46, 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. 
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+Table of Contents 
+Adam S. Helfant , Vice President, Global Sports Marketing — Mr. Helfant, 39, 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 US Sports Marketing in 2001, Vice President of US Sports
+Marketing in 2003, and corporate Vice President, Global Sports Marketing effective August 2004. Prior to joining NIKE, he was in private practice and an attorney for NHL Enterprises, Inc. 
+P. Eunan McLaughlin, Vice President, Europe, Middle East & Africa — Mr. McLaughlin, 46, joined NIKE as
+Director of Sales, NIKE Europe in February 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.
+D. Scott Olivet, Vice President, NIKE Subsidiaries and
+New Business Development — Mr. Olivet, 42, 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, 48, 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 March 2001.
+Eric D. Sprunk, Vice President, Global Footwear —
+Mr. Sprunk, 40, 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, 57, 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.
+Roland P. Wolfram, Vice President and General Manager,
+Asia Pacific — Mr. Wolfram, 44, joined NIKE as Vice President, Strategic Planning in November 1998, and was appointed Vice President, Global Operations & Technology in 2002, and Vice President, Asia Pacific in April 2004. Prior to NIKE, Mr.
+Wolfram was Vice President and General Manager at Pacific Bell Video Services. 
+10 
+Table of Contents

raw/filings/0000320187/2003/0001193125-04-128270/item13.txt

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+Item 13. Certain Relationships and Related Transactions 
+The information required by this Item is included under “Certain Transactions and Business Relationships” in the definitive Proxy Statement for
+our 2004 Annual Meeting of Shareholders and is incorporated herein by reference.

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+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 Company’s Chief Executive Officer and 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, 2004. 
+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. 
+60 
+Table of Contents 
+PART III

raw/filings/0000320187/2004/0000950124-05-004551/filing_metadata.csv

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+0000320187,NKE,"NIKE, Inc.",10-K,2005-07-29,2005-05-31,2005-07-30T01:12:55.000Z,0000950124-05-004551,v10583e10vk.htm,FORM 10-K,950848,0,0,https://www.sec.gov/Archives/edgar/data/320187/000095012405004551/v10583e10vk.htm,https://www.sec.gov/Archives/edgar/data/320187/000095012405004551/,2004,2004,1

raw/filings/0000320187/2004/0000950124-05-004551/item1.txt

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+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. 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 160 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, cross-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, bicycling,
+volleyball, wrestling, cheerleading, aquatic activities, hiking,
+outdoor activities and other athletic and recreational uses.
+We sell sports apparel 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 golf clubs, sport balls, eyewear,
+timepieces, electronic media devices, skates, bats, gloves, 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 and eyewear. We also sell small amounts of various
+plastic products to other manufacturers through our wholly-owned
+subsidiary, NIKE IHM, Inc.
+Our wholly-owned subsidiary Converse Inc., 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.
+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,
+headquartered in Yarmouth, Maine.
+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.
+Our wholly-owned subsidiary, Bauer NIKE Hockey Inc.,
+headquartered in Greenland, New Hampshire, manufactures and
+distributes ice skates, skate blades, protective gear, hockey
+sticks, licensed apparel and accessories under the Bauer®
+and NIKE® brand names. Bauer also offers a full selection
+of products for street and roller hockey.
+In the fiscal quarter ended August 31, 2004 the Company
+formed Exeter Brands Group LLC, a wholly-owned subsidiary of the
+Company, to develop the Company’s athletic footwear and
+apparel business in retail channels for value-conscious
+consumers, and to market and license athletic footwear and
+apparel under the Starter®, Shaq® and Asphalt®
+brand names, which we purchased during that quarter.
+Sales and Marketing 
+Financial information about geographic and segment operations
+appears in Note 17 of 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 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 2005, sales in the United States (including
+U.S. sales of Bauer NIKE Hockey, Cole Haan, Converse,
+Exeter Brands Group, Hurley and NIKE Golf) accounted for
+approximately 46 percent of total revenues, compared to
+47 percent in fiscal 2004 and 49 percent in fiscal
+2003. We sell to approximately 22,000 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 2005,
+our three largest customers accounted for approximately
+31 percent of NIKE brand sales in the United States
+excluding sales from NIKE Golf and Bauer NIKE Hockey, 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 commitment that 90 percent of
+their orders will be delivered within a set time period at a
+fixed price. In fiscal year 2005, 91 percent of our
+U.S. wholesale footwear shipments (excluding Bauer NIKE
+Hockey, Cole Haan, Converse, Exeter Brands Group, Hurley and
+NIKE Golf) were made under the futures program, compared to
+90 percent in fiscal 2004 and 91 percent in fiscal
+2003. In fiscal 2005 and 2004, 71 percent of our
+U.S. wholesale apparel shipments (excluding
+U.S. licensed team apparel, Bauer NIKE Hockey, Cole Haan,
+Converse, Exeter Brands Group, Hurley and NIKE Golf) were made
+under the futures program, compared to 67 percent in 2004
+and 2003.
+3
+Table of Contents 
+We utilize 22 NIKE sales offices to solicit sales in the United
+States. We also utilize 9 independent sales representatives to
+sell specialty products for golf and outdoor activities. In
+addition, we sell NIKE brand products through our internet
+website, www.niketown.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) 
+77 
+NIKE stores (including NIKE Women Stores) 
+11 
+NIKETOWNs (designed to showcase NIKE products) 
+12 
+NIKE employee-only stores 
+4 
+Cole Haan, Converse, and Hurley stores (including factory and
+employee stores) 
+80 
+Total 
+184 
+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 Bauer NIKE Hockey products are
+distributed primarily from Greenland, New Hampshire, Converse
+products are shipped from Ontario and Fontana, California, and
+Hurley products are shipped from Costa Mesa, California.
+International Markets 
+We sell our products to retail accounts, through NIKE-owned
+retail stores, and through a mix of independent distributors and
+licensees, in over 160 countries around the world.
+Non-U.S. sales (including non-U.S. sales of Bauer NIKE
+Hockey, Cole Haan, Converse, Exeter Brands Group, Hurley and
+NIKE Golf) accounted for 54 percent of total revenues in
+fiscal 2005, compared to 53 percent in fiscal 2004 and
+51 percent in fiscal 2003. We estimate that we sell to more
+than 37,000 retail accounts outside the United States, excluding
+sales by independent distributors and licensees. We operate 21
+distribution centers in Europe, Asia, Australia, Latin America,
+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 12 percent of non-U.S. sales.
+We operate the following retail outlets outside the United
+States:
+Non-U.S. Retail Stores 
+Number 
+NIKE factory stores 
+129 
+NIKE stores and employee-only stores 
+8 
+NIKETOWNs 
+2 
+Cole Haan stores (including factory and employee stores) 
+51 
+Total 
+190 
+International branch offices and subsidiaries of NIKE are
+located in Argentina, Australia, Austria, Belgium, Brazil,
+Bulgaria, Canada, Chile, Croatia, 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 and Vietnam.
+Significant Customer 
+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, Inc.
+during fiscal 2005. No other customer accounted for
+10 percent or more of our net sales during fiscal 2005.
+4
+Table of Contents 
+Orders 
+Worldwide futures orders for NIKE brand athletic footwear and
+apparel, scheduled for delivery from June through November 2005,
+were $6.3 billion compared to $5.7 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 some orders may be
+cancelled. 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 advance/futures
+and at-once orders. In addition, foreign currency 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
+revenue is not derived from futures orders, including wholesale
+sales of equipment, U.S. licensed team apparel, Bauer NIKE
+Hockey, Cole Haan, Converse, Exeter Brands Group, Hurley, 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, 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 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 2005, contract suppliers in China, Vietnam,
+Indonesia and Thailand manufactured 36 percent,
+26 percent, 22 percent and 15 percent of total
+NIKE brand footwear, respectively. We also have manufacturing
+agreements with independent factories in Argentina, Brazil,
+India, Italy, Mexico and South Africa to manufacture footwear
+for sale primarily within those countries. Our largest single
+footwear supplier accounted for approximately 7 percent of
+total fiscal 2005 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
+38 countries. Most of this apparel production occurred in
+Bangladesh, China, Honduras, India, Indonesia, Malaysia, Mexico,
+Pakistan, Sri Lanka, Taiwan, Thailand, Turkey and Vietnam. Our
+largest single apparel supplier accounted for approximately
+5 percent of total fiscal 2005 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., 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.
+Since 1972, Sojitz Corporation of America (“Sojitz
+America”) and its predecessor, Nissho Iwai American
+Corporation, a subsidiary of Nissho Iwai Corporation, a large
+Japanese trading company, have performed significant
+import-export financing services for us. During fiscal 2005,
+Sojitz America provided such financing services for nearly all
+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. However, less
+5
+Table of Contents 
+than 11 percent of NIKE brand products, excluding products
+produced and sold in the same country, were sold outside of the
+United States, Europe, Middle East, Africa and Japan in fiscal
+2005. 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
+(“C-TPAT”), to reduce risks of possible supply
+disruptions caused by U.S. and international cargo security
+mandates and terrorism.
+All of our products manufactured overseas and imported into the
+United States, the European Union 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
+and 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 European Union
+(“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 9 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.
+6
+Table of Contents 
+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 mid-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 are currently participating actively as
+respondents in this investigation and are taking the position
+that athletic footwear (i) should not be within the product
+scope of this investigation and (ii) does not meet the
+legal requirements of injury and price in an anti-dumping
+investigation. We believe that our major competitors stand in
+much the same position of risk regarding these potential trade
+measures.
+Expiration of the Textile and Apparel Multi-Fiber
+Arrangement 
+Under the WTO, the Multi-Fiber Arrangement, a four-decade old
+agreement that allows WTO countries to impose quotas on the
+import of textile and apparel products, expired on
+January 1, 2005. This effectively meant that absent some
+other form of trade restrictions (see China discussion below)
+all trade of textile and apparel products between WTO members is
+free from quotas as of the end of the 2004 calendar year.
+Elimination of textile and apparel quotas is significant for
+NIKE and other textile and apparel companies as it provides
+these companies greater flexibility in their global sourcing
+decisions. At the same time, we are monitoring closely actions
+by textile and apparel importing countries to ensure that they
+do not unilaterally attempt to re-impose restrictions through
+some other legal mechanism, such as safeguards, anti-dumping
+measures, or in the case of China (as part of the agreement
+reached in China’s 2001 WTO accession), through the
+short-term re-imposition of quotas on certain categories of
+textile and apparel products in order to protect a domestic
+market from rising Chinese imports.
+We are currently monitoring potential restrictions by the United
+States and the European Union. In early 2005 the EU began
+consultations with China over imposition of quotas. However, as
+a result of those negotiations, in June of 2005, the EU and
+China reached an agreement which voluntarily limits the amount
+of apparel product China can export to the EU in particular
+categories until January 1, 2008. NIKE monitored these
+negotiations closely, adjusted its sourcing and distribution
+strategy, and as a result, the agreement has not had a material
+effect on our business.
+In early 2005 the United States launched provisional safeguard
+measures on several categories of apparel products from China.
+In May of 2005, the U.S. found that imports from China of
+certain apparel categories were causing market disruption to the
+U.S. industry and the United States reimposed quota on
+certain apparel categories. NIKE monitored these negotiations
+closely, adjusted its sourcing and distribution strategy, and as
+a result, the actions have not had a material effect on our
+business. We believe that our principal competitors face the
+same risks 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 that approval, the U.S. granted an annual
+extension of NTR to Vietnam. The U.S. President must renew
+this grant annually with the opportunity for review by Congress.
+In June 2005, President Bush renewed NTR for Vietnam for an
+additional year and we anticipate Congress will support this
+decision, as it has done for the past four years. 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. The annual
+extensions on NTR will remain in place until Vietnam enters the
+WTO, at which time the U.S. must grant Vietnam permanent
+NTR. Vietnam’s WTO accession negotiations are ongoing, and
+may conclude as early as the end of 2005. 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 continue to enter the United
+States at NTR tariff rates.
+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 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 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 patents covering
+components, features, and designs 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 2025, although the duration of patents varies by country.
+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 26,000 employees at May 31, 2005.
+Management considers its relationship with employees to be
+excellent. None of our employees is represented by a union, with
+the exception of Bauer NIKE Hockey Inc. Of Bauer NIKE
+Hockey’s employees, approximately 33 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
+2005 through 2007. 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, 2005 are as
+follows:
+Philip H. Knight, Chairman of the Board —
+Mr. Knight, 67, 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 
+William D. Perez, Chief Executive Officer and
+President — Mr. Perez, 57, joined NIKE in
+December 2004 as CEO and President. Immediately prior to joining
+NIKE, he was President and Chief Executive Officer of S. C.
+Johnson & Son, Inc., a household consumer products
+company in Racine, Wisconsin, a position he held since 1997.
+Mr. Perez joined S. C. Johnson & Son, Inc. in
+1970, where he held a number of senior positions in marketing,
+regional management, and global management, becoming President
+and Chief Operating Officer of Worldwide Consumer Products in
+1993. Mr. Perez is also a director of Kellogg Company,
+where he serves on the Audit Committee and the Consumer
+Marketing Committee.
+Donald W. Blair, Vice President and Chief Financial
+Officer — Mr. Blair, 47, 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, 54, 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.
+Wesley A. Coleman, Vice President, Global Human
+Resources — Mr. Coleman, 55, 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 & Son, Inc., including Vice
+President HR, North America and Vice President HR, Asia/ Pacific.
+Charles D. Denson, President of the NIKE
+Brand — Mr. Denson, 49, has been employed by NIKE
+since 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 2000, and President
+of the NIKE Brand in 2001.
+Gary M. DeStefano, President of USA
+Operations — Mr. DeStefano, 48, 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, and President of USA Operations in 2001.
+Trevor Edwards, Vice President, Global Brand
+Management — Mr. Edwards, 42, 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, US Brand Marketing in 2000. Mr. Edwards was
+appointed corporate Vice President, Global Brand Management in
+2002.
+Mindy F. Grossman, Vice President of Global
+Apparel — Ms. Grossman, 47, joined NIKE in 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.
+Adam S. Helfant, Vice President, Global Sports
+Marketing — Mr. Helfant, 40, 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
+US Sports Marketing in 2001, Vice President of US 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.
+9
+Table of Contents 
+P. Eunan McLaughlin, Vice President, Europe, Middle
+East & Africa — Mr. McLaughlin, 47, 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.
+D. Scott Olivet, Vice President, NIKE Subsidiaries
+and New Business Development — Mr. Olivet, 43,
+joined NIKE in 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).
+Mark G. Parker, President of the NIKE Brand —
+Mr. Parker, 49, 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.
+Eric D. Sprunk, Vice President, Global
+Footwear — Mr. Sprunk, 41, 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 Pricewaterhouse from 1987 to
+1993.
+Lindsay D. Stewart, Vice President and Chief of Staff,
+and Secretary — Mr. Stewart, 58, 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.
+Roland P. Wolfram, Vice President and General Manager,
+Asia Pacific — Mr. Wolfram, 45, 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.

raw/filings/0000320187/2004/0000950124-05-004551/item13.txt

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+Item 13. 
+Certain Relationships and Related Transactions 
+The information required by this Item is included under
+“Certain Transactions and Business Relationships” in
+the definitive Proxy Statement for our 2005 Annual Meeting of
+Shareholders and is incorporated herein by reference.

raw/filings/0000320187/2004/0000950124-05-004551/item9a.txt

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+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 Company’s Chief Executive Officer
+and 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, 2005.
+Management’s report on internal control over financial
+reporting and the related attestation report of
+PricewaterhouseCoopers LLP are included in Item 8 on
+pages 34-36 of this Report.
+There has been no change in the Company’s internal control
+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 control
+over financial reporting.

raw/filings/0000320187/2005/0001193125-06-156152/filing_metadata.csv

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+0000320187,NKE,"NIKE, Inc.",10-K,2006-07-28,2006-05-31,2006-07-29T01:04:57.000Z,0001193125-06-156152,d10k.htm,FORM 10-K,1265560,0,0,https://www.sec.gov/Archives/edgar/data/320187/000119312506156152/d10k.htm,https://www.sec.gov/Archives/edgar/data/320187/000119312506156152/,2005,2005,1

raw/filings/0000320187/2005/0001193125-06-156152/item1.txt

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+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. 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 160 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, cross-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,
+walking, hiking, 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 golf clubs and balls, 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. 
+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. 
+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. 
+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, and youth lifestyle apparel, and accessories under the Hurley ® trademark. 
+Our wholly-owned subsidiary, NIKE Bauer Hockey Inc. (“NIKE Bauer Hockey”), headquartered in Greenland, New Hampshire, manufactures and distributes ice skates, skate blades, protective gear, hockey sticks, licensed apparel and
+accessories under the NIKE Bauer ® , 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 New York City, New York, sells athletic footwear
+and apparel in retail channels for value-conscious consumers, and markets and licenses athletic footwear and apparel under the Starter logo ® and Shaq ® brand names. 
+Sales and Marketing 
+Financial information about geographic and segment operations appears in Note 17 of the
+consolidated financial statements on page 68. 
+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 2006, 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 46 percent in fiscal 2005 and 47 percent in fiscal 2004. We sell to approximately 24,000 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 2006, our
+three largest customers accounted for approximately 30 percent of NIKE brand sales in the United States excluding sales from NIKE Bauer Hockey and NIKE Golf, and 25 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 2006, 90 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 91 percent in fiscal 2005 and 90 percent in fiscal 2004. In fiscal 2006, 69 percent of our U.S. wholesale apparel shipments (excluding U.S. licensed team apparel, Cole Haan,
+Converse, Exeter Brands Group, Hurley, NIKE Bauer Hockey and NIKE Golf) were made under the futures program, compared to 71 percent in fiscal 2005, and 67 percent in fiscal 2004. 
+3 
+Table of Contents 
+We utilize 20 NIKE sales offices to solicit sales in the United States. We also utilize 10 independent
+sales representatives to sell specialty products for golf and outdoor activities. In addition, we sell NIKE brand products through our internet website, www.niketown.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) 
+87 
+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) 
+83 
+Converse stores (including factory and employee stores) 
+9 
+Hurley stores 
+3 
+Total 
+212 
+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, Converse products are shipped from Ontario and Fontana, California, and Hurley products are shipped from Irvine, California. 
+International Markets 
+We sell our products to retail accounts, through NIKE-owned retail stores, and through a
+mix of independent distributors and licensees, in over 160 countries around the world. 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 2006, compared to 54 percent in fiscal 2005 and 53 percent in fiscal 2004. 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 21 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 11 percent of NIKE brand sales outside the United States excluding sales from NIKE Bauer Hockey and NIKE Golf, and
+approximately 10 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 
+106 
+NIKE stores and employee-only stores 
+38 
+NIKETOWNs 
+2 
+Cole Haan stores (including factory and employee stores) 
+59 
+Hurley stores 
+1 
+Total 
+206 
+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 2006. No other customer accounted for 10 percent or more of our net sales during fiscal 2006. 
+Orders 
+Worldwide futures and advance orders for NIKE brand athletic footwear and apparel, scheduled for
+delivery from June through November 2006, were $6.6 billion compared to $6.3 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, U.S. licensed team apparel, 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 2006, contract
+suppliers in China, Vietnam, Indonesia and Thailand manufactured 35 percent, 29 percent, 21 percent and 13 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 2006 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 40 countries. Most of this apparel production occurred in Bangladesh, China, Honduras, India, Indonesia, Malaysia, Mexico, Pakistan, Sri Lanka, Taiwan,
+Thailand, Turkey and Vietnam. Our largest single apparel factory accounted for approximately 5 percent of total fiscal 2006 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., wholly-owned subsidiaries of NIKE, 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
+threads, plastic and metal hardware, and specialized 
+5 
+Table of Contents 
+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”) and its predecessor, Nissho Iwai American Corporation, a subsidiary of Nissho Iwai
+Corporation, a large Japanese trading company, have performed significant import-export financing services for us. During fiscal 2006, Sojitz America provided such 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. However, less than 13 percent of NIKE brand products, excluding products produced and sold in the same country, were sold outside of the United
+States, Europe, Middle East, Africa and Japan in fiscal 2006. 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. Additionally in 2006, 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 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 and 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 European Union (“EU”) imposed limits (or “quotas”) on the import of certain types of footwear manufactured in China. Footwear designed for use in
+sporting activities, meeting 
+6 
+Table of Contents 
+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 are
+currently participating actively as respondents in this investigation and are taking the position that athletic footwear (i) should not be within the product scope of this investigation and (ii) does not meet the legal requirements of
+injury and price in an anti-dumping investigation. The EU agreed on provisional anti-dumping duties in March 2006 but excluded STAF from the measures. We anticipate that the definitive anti-dumping duties will be adopted by early October 2006 and we
+expect STAF to be excluded from the final measures. We believe that our major competitors stand in much the same position regarding these potential 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 that approval, the U.S. granted an annual extension of NTR to Vietnam. The U.S. President must renew this grant annually with the opportunity for review by Congress. In June 2006,
+President Bush renewed NTR for Vietnam for an additional year and we anticipate Congress will support this decision, as it has done for the past five years. Additionally, in the spring of 2006 Vietnam finished its WTO accession negotiations with
+several WTO countries and has embarked on entering the WTO as a full member. Legislation has been introduced within Congress to provide Vietnam Permanent Normal Trade Relations (“PNTR”) and we anticipate Congressional approval of this
+legislation in 2006. Vietnam’s entry into the WTO and the U.S. providing Vietnam PNTR 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. 
+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 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. 
+7 
+Table of Contents 
+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 patents covering components, features, and designs 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 2026, although the duration of patents varies by country. 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 28,000 employees at May 31, 2006. 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 Inc. Of NIKE Bauer Hockey’s employees, approximately 37 percent, or approximately 183, are covered by three union
+collective bargaining agreements with three 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, 2006 are as follows:
+Philip H. Knight, Chairman of the Board — Mr. Knight, 68, 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, 50, 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. 
+Lewis L. Bird III, President, Subsidiaries — Mr. Bird, 42, joined NIKE as President, Subsidiaries in July 2006. Prior to joining NIKE,
+he held a number of management positions within multinational companies with 
+8 
+Table of Contents 
+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, 48, 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 and NIKE Bauer Hockey — Ms. Buckley, 46, 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 and NIKE Bauer Hockey in July 2006. Prior
+to joining NIKE, Ms. Buckley worked in several positions in finance, marketing and strategic planning for The Walt Disney Company. 
+Thomas E. Clarke, President of New Ventures — Dr. Clarke, 55, 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. 
+Wesley A. Coleman, Vice President, Global Human Resources —
+Mr. Coleman, 56, 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 & Son, Inc., including Vice President HR, North
+America and Vice President HR, Asia/Pacific. 
+Charles D. Denson, President of the NIKE Brand — Mr. Denson, 50, 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 USA Operations — Mr. DeStefano, 49, 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, and President of USA Operations in 2001. 
+Trevor Edwards, Vice President, Global Brand Management —
+Mr. Edwards, 43, 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. 
+Adam S. Helfant, Vice President, Global Sports Marketing — Mr. Helfant, 41, 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. 
+9 
+Table of Contents 
+P. Eunan McLaughlin, Vice President, Europe, Middle East & Africa —
+Mr. McLaughlin, 48, 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, 42, 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, 59, 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, 40, 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. 
+Roland P. Wolfram, Vice President and General Manager, Asia Pacific — Mr. Wolfram, 46, 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, 49, 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.

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+Item 13. Certain Relationships and Related Transactions 
+The
+information required by this Item is included under “Certain Transactions and Business Relationships” in the definitive Proxy Statement for our 2006 Annual Meeting of Shareholders and is incorporated herein by reference.

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+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,
+2006. 
+“Management’s Report on Internal Control Over Financial Reporting” and the related attestation report of
+PricewaterhouseCoopers LLP are included in Item 8 on pages 43-45 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.

raw/filings/0000320187/2007/0001193125-08-159004/filing_metadata.csv

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+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.

raw/filings/0000320187/2007/0001193125-08-159004/item13.txt

@@ -0,0 +1,3 @@
+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.

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+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.

raw/filings/0000320187/2012/0000320187-13-000092/filing_metadata.csv

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+0000320187,NKE,"NIKE, Inc.",10-K,2013-07-23,2013-05-31,2013-07-24T00:32:32.000Z,0000320187-13-000092,nke-5312013x10k.htm,10-K,26524396,1,0,https://www.sec.gov/Archives/edgar/data/320187/000032018713000092/nke-5312013x10k.htm,https://www.sec.gov/Archives/edgar/data/320187/000032018713000092/,2012,2012,1

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+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 internet address is 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 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 website are available free of charge. 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” operations) and through a mix of independent distributors and licensees, in virtually all 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 NIKE Brand and Brand Jordan product offerings in seven key categories: Running, Basketball, Football (Soccer), Men’s Training, Women’s Training, NIKE Sportswear (our sports-inspired lifestyle 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, 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 our products. 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-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. 
+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. 
+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 certain apparel, digital devices and applications and other equipment designed for sports activities. 
+As part of our long-term growth strategy, we continually evaluate our portfolio of businesses to ensure we are investing in those businesses that are accretive to the NIKE Brand with the largest growth potential and highest returns. 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. 
+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 
+1 
+Table of Contents 
+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 2013, sales in the United States, including U.S. sales of our Other Businesses, accounted for approximately 45% of total revenues, compared to 42% in both fiscal 2012 and fiscal 2011. Converse and Hurley, our affiliate brands, and NIKE Golf comprise our Other Businesses. 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 2013, 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 period at a fixed price. In fiscal 2013, 87% of our U.S. wholesale footwear shipments (excluding our Other Businesses) were made under the futures program, compared to 86% in fiscal 2012 and 87% in fiscal 2011. In fiscal 2013, 67% of our U.S. wholesale apparel shipments (excluding our Other Businesses) were made under the futures program, compared to 64% in fiscal 2012 and 60% in fiscal 2011. 
+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 internet 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 
+171 
+NIKE Brand in-line stores, including NIKETOWNs and employee-only stores 
+33 
+Converse stores (including factory stores) 
+72 
+Hurley stores (including factory and employee stores) 
+27 
+TOTAL 
+303 
+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 2013, non-U.S. sales including non-U.S. sales of our Other Businesses accounted for 55% of total revenues, compared to 58% in both fiscal 2012 and fiscal 2011. 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 2013, NIKE’s three largest customers outside of the U.S. 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 
+388 
+NIKE Brand in-line stores, including NIKETOWNs and employee-only stores 
+59 
+Converse stores (including factory stores) 
+3 
+TOTAL 
+450 
+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, 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 2013. 
+Orders 
+Worldwide futures orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from June through November 2013, were $12.1 billion compared to $11.2 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 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 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, 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. 
+Manufacturing 
+Virtually all of our footwear is manufactured outside of the United States by independent contract manufacturers. In fiscal 2013, contract factories in Vietnam, China and Indonesia manufactured approximately 42%, 30%, and 26% 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 with which we have contracted accounted for approximately 6% of total fiscal 2013 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, Indonesia, Sri Lanka, Pakistan, Malaysia, Turkey, Mexico, and Cambodia. The largest single apparel factory that we have contracted with accounted for approximately 6% of total fiscal 2013 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 2013, NIKE IHM, Inc., a wholly-owned subsidiary of NIKE, Inc., with facilities in Beaverton, Oregon and 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, plastic and metal hardware, and specialized performance fabrics designed to repel rain and snow, retain heat, or efficiently wick moisture away from the body. 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 2013, Sojitz America provided financing and purchasing services for NIKE Brand products sold in Argentina, Uruguay, Canada, Brazil, India, Indonesia, the Philippines, Malaysia, South Africa, Korea, and Thailand, excluding products produced and sold in the same country. Approximately 13% 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, 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 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 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. 
+2 
+Table of Contents 
+Competition 
+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, 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 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, 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 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 file and maintain many U.S. and foreign utility patents, as well as many U.S. and foreign design patents covering components, manufacturing techniques and features 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 year in the U.S. will last until 2027 for design patents and until 2033 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 foreign patents on inventions, designs, and improvements that we deem valuable. 
+Employees 
+As of May 31, 2013, we had approximately 48,000 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. 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 19, 2013 are as follows: 
+Philip H. Knight, Chairman of the Board of Directors — Mr. Knight, 75, 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, 57, 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, 53, 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, 55, 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. 
+Trevor A. Edwards, President, NIKE Brand — Mr. Edwards, 50, 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 
+3 
+Table of Contents 
+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, 61, 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, 49, 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, 51, 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, 44, 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, 49, 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 corporate 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. 
+4 
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+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 2013 Annual Meeting of Shareholders and is incorporated herein by reference.

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+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, 2013 . 
+“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.

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+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

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+10-K
+1
+l85672ae10-k.txt
+MERIDIAN DIAGNOSTICS, INC. FORM 10-K
+1
+SECURITIES AND EXCHANGE COMMISSION
+Washington, D.C. 20549
+FORM 10-K
+X ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
+FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000.
+[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
+EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________
+TO__________________.
+MERIDIAN DIAGNOSTICS, INC.
+Incorporated under 3471 River Hills Drive IRS Employer ID
+the Laws of Ohio Cincinnati, Ohio 45244 No. 31-0888197
+Phone: (513) 271-3700
+Securities Registered Pursuant to Section 12(b) of the Act:
+None
+Securities Registered Pursuant to Section 12(g) of the Act:
+Common Stock
+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, and (2) has been subject to such filing requirements
+for the past 90 days.
+YES NO
+--- --
+X
+----- ------
+Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
+of Regulation S-K (Section 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. [ ]
+The aggregate market value of Common Stock held by non-affiliates is $53,641,941
+based on a closing sale price of $5.56 per share on December 8, 2000. As of
+December 8, 2000, 14,597,614 shares of no par value Common Stock were issued and
+outstanding.
+Documents Incorporated by Reference
+Portions of the Registrant's Annual Report to Shareholders for 2000 furnished to
+the Commission pursuant to Rule 14a-3(b) as specified and portions of the
+Registrant's Proxy Statement filed with the Commission for its 2001 Annual
+Meeting as specified are incorporated by reference in Parts II and III as
+specified.
+2
+MERIDIAN DIAGNOSTICS, INC.
+INDEX TO ANNUAL REPORT
+ON FORM 10-K
+Part I Page
+Item 1 Business ................................................................................ 1
+Item 2 Properties ..............................................................................12
+Item 3 Legal Proceedings .......................................................................13
+Item 4 Submission of Matters to a Vote of Security Holders .....................................14
+Part II
+Item 5 Market for Registrant's Common Equity and Related Stockholder Matters ...................14
+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 .............................15
+Item 8 Financial Statements and Supplementary Data .............................................15
+Item 9 Disagreements on Accounting and Financial Disclosure ....................................16
+Part III
+Item 10 Directors and Executive Officers of the Registrant. ....................................16
+Item 11 Executive Compensation .................................................................16
+Item 12 Security Ownership of Certain Beneficial Owners and Management .........................16
+Item 13 Certain Relationships and Related Transactions .........................................16
+Part IV
+Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......................16
+i
+3
+PART I.
+ITEM 1.
+BUSINESS
+--------
+GENERAL
+Meridian is a fully integrated life sciences company that develops, manufactures
+and markets a broad range of innovative, disposable diagnostic test kits and
+related diagnostic products used for the rapid diagnosis of infectious diseases,
+and also offers biopharmaceutical capabilities. Meridian's diagnostics products
+provide accuracy, simplicity, and speed, and enable early diagnosis and
+treatment of common medical conditions such as gastrointestinal, viral, urinary
+tract and respiratory infections. All of Meridian's diagnostics products are
+used in procedures performed in vitro (outside the body) and enhance patient
+well-being while reducing total outcome costs of healthcare. In addition to the
+diagnostic business, Meridian is expanding further into the area of life
+sciences. Through recent acquisitions, Meridian has the technical expertise to
+enable research efforts of genomics scientists in drug and vaccine development.
+The expansion into life sciences prompted the Company's decision to change its
+official name to Meridian Bioscience, Inc., subject to shareholder approval in
+January 2001.
+Meridian's product development strategy is to combine existing technologies with
+new product designs both through internal or joint product development and
+through product acquisitions, licensing or supply arrangements. Internal and
+joint product development activities focus on the development or enhancement of
+immunodiagnostic technologies and applications to simplify, accelerate or
+increase the accuracy of diagnoses of certain infectious diseases. Since 1991,
+Meridian has also acquired or obtained rights to distribute a number of products
+and technologies.
+Meridian utilizes its resources to serve each of the strategic domestic and
+international medical markets it has targeted: hospital networks and clinical
+and hospital laboratories; alternate site markets, including physicians'
+offices, outpatient clinics, nursing homes and health maintenance organizations
+(HMOs); and new markets, including veterinary laboratories and water treatment
+facilities. Meridian markets over 200 products representing four major disease
+states through a direct sales force in the United States, Italy, France, Belgium
+and the Netherlands, supplemented by a network of national and international
+distributors. International sales in more than 60 countries were 31% of total
+fiscal 2000 sales.
+During the fourth quarter of fiscal 2000, a plan was implemented to restructure
+European distribution operations and eliminate the Company's direct presence in
+Germany. This plan involves (i) the shutdown of the German distribution center,
+(ii) the transfer of the export business from Germany to the Company's Belgian
+operations and (iii) movement of the German in-country business to an
+independent distributor. This plan was adopted as a means to improve operating
+results in Europe.
+1
+4
+ACQUISITIONS AND ALLIANCES
+An important facet of Meridian's long-term business strategy is the expansion
+into life sciences, as well as the acquisition, licensing or entrance into
+supply arrangements to obtain innovative diagnostic testing technologies,
+product formats and products that complement its existing operations and address
+the needs of Meridian's existing and targeted customer base. Prior to fiscal
+2000, Meridian's management had pursued the acquisition and licensing of
+products and technologies that fit Meridian's niche diagnostic test markets,
+which are characterized by a large number of users. Examples of this included
+the acquisition of Gull Laboratories, Inc. in fiscal 1999, the acquisition of
+the enteric product line of Cambridge Biotech Corporation in fiscal 1996, the
+acquisitions of the infections disease and mononucleosis product lines of
+Johnson & Johnson in fiscal 1994 and 1993, respectively, and numerous smaller
+product acquisitions and licensing arrangements.
+In the late fiscal 2000, Meridian completed its acquisition of Viral Antigens,
+Inc. VAI further expands Meridian's life sciences capabilities through VAI's
+protein expression lab which provides Meridian the opportunity to serve as an
+enabler to biopharmaceutical companies in the development of new drugs and
+vaccines. VAI also manufactures infectious disease antigens that are used in
+immunodiagnostics testing, and a Pseudorabies Virus antibody test kit and equine
+infectious anemia antibody test kit for the veterinary market.
+The purchase price for VAI was $9 million in cash, and was funded with bank debt
+from the Company's existing credit facilities. The purchase agreement provides
+for additional consideration, up to $8.25 million, contingent upon VAI's future
+earnings though September 30, 2006. See Note 2 to the consolidated financial
+statements for further information. On September 29, 2000, Meridian filed on
+Form 8-K/A certain financial statements and pro forma financial information
+relating to this acquisition.
+Also during fiscal 2000, Meridian executed a Research and Development Agreement
+and an Exclusive Supply Agreement with OraSure Technologies, Inc. to
+commercialize the Uplink technology. Meridian believes that this technology will
+offer competitive advantages including the elimination of background
+interference, simultaneous detection of multiple biological markers and improved
+sensitivity. These agreements require Meridian to make future payments to
+OraSure to fund research and development costs and to obtain an exclusive
+license to market and sell related products on a global basis.
+In early fiscal 1999, Meridian acquired Gull Laboratories, Inc. for $19 million
+in cash. Gull develops, manufactures and markets diagnostic test kits and
+materials designed to detect past or present infection caused by certain
+microbial agents such as viruses, bacteria and protozoa and to detect certain
+autoimmune disorders. The products are based on established immunological assay
+methods including indirect immunofluorescent antibody assay (IFA), enzyme-linked
+immunosorbent assay (EIA), immunodiffusion and Western Blot. Gull's products are
+used by private laboratories and hospital clinical laboratories worldwide.
+Included in the Gull acquisition was its subsidiary, BIODESIGN International,
+which manufactures and markets antigens and
+2
+5
+antibodies to diagnostic and pharmaceutical manufacturers as well as academic
+researchers.
+During fiscal 2000, Meridian completed the transfer of Gull's Salt Lake City
+production to the Company's Cincinnati facilities, and the sale of the Salt Lake
+City facilities and real estate. During fiscal 1999, Meridian shut down Gull's
+European manufacturing activities. See Note 2 to the consolidated financial
+statements for further information.
+A key component in the success of Meridian's acquisition and licensing of new
+products and technologies has been the ability of Meridian's management to
+respond quickly to acquisition and licensing opportunities as they arise in the
+marketplace. The success of this strategy has also been due in part to
+management's selective acquisition and licensing philosophy as well as the
+availability of cash on hand and available lines of credit.
+IMMUNODIAGNOSTICS OVERVIEW
+In vitro diagnostic testing is the process of analyzing constituents of blood,
+urine, stool, other body fluids or tissue for the presence of specific
+infectious diseases. Immunodiagnostic testing, which is the leading method of in
+vitro testing for infectious diseases, tests for antigens and antibodies. When
+an infectious disease caused by pathogens, such as bacteria, viruses and fungi,
+and their related antigens are present, the body responds by producing an
+antibody. The antibody binds specifically with the antigen in a lock-and-key
+fashion and initiates a biochemical reaction to attempt to neutralize and,
+ultimately, to eliminate the antigen. The ability of an antibody to bind with a
+specific antigen provides the basis for immunodiagnostic testing.
+Immunodiagnostic testing detects the presence of specific infectious diseases
+through "visualization", such as color changes or the formation of visible
+aggregates, of the biochemical reactions caused by the antigen/antibody. Most
+immunodiagnostic tests utilize one of two alternative methods to determine the
+presence of a specific disease in a patient specimen. In one method, the test
+employs the antibody to detect directly the presence of an antigen.
+Alternatively, certain tests employ the antigen to detect the presence of an
+antibody. In addition to the diagnosis of infectious diseases, immunodiagnostic
+testing is also used to monitor the status of various patient therapy programs.
+MARKET TRENDS
+The global market for infectious disease tests continues to expand as new
+disease states are identified, new therapies become available and worldwide
+standards of living and access to health care improve. More importantly, within
+this market there is a continuing shift from conventional testing, which
+requires highly trained personnel and lengthy turnaround times for test results,
+to more technologically advanced testing which can be performed by less highly
+trained personnel and completed in minutes or hours.
+3
+6
+Technological advances permitting accurate testing to occur outside the
+traditional hospital or laboratory setting have also affected the market for
+diagnostic products. These technological developments have contributed to the
+emergence of alternate site markets, such as physicians' offices, outpatient
+clinics, nursing homes and HMOs, as important diagnostic market segments. These
+technological advances should also contribute to the development of new markets
+for Meridian's products, including food testing, veterinary laboratories and
+water treatment facilities.
+The increasing pressures to contain total health care costs have accelerated the
+increased use of diagnostic testing and the market shift to alternate sites.
+With rapid and accurate diagnoses of infectious diseases, physicians can
+pinpoint appropriate therapies quickly, leading to faster recovery, shorter
+hospital stays and less treatment expense. In addition, these pressures have led
+to a major consolidation among reference laboratories and the formation of
+multi-hospital alliances that have reduced the number of institutional customers
+for diagnostic products and resulted in changes in buying practices.
+Specifically, multi-year exclusive or primary source marketing or distribution
+contracts with institutional customers have become more common, replacing less
+formal distribution arrangements of shorter duration and involving lower product
+volumes. In Europe, the reexamination of health care costs, access and funding
+is causing similar pressures.
+BUSINESS STRATEGY
+Meridian continues to execute its long-term strategy consisting of the following
+elements:
+Developing New Product Applications from Core Technologies - Meridian employs a
+market-driven product development strategy to adapt or enhance diagnostic
+testing technologies and product formats in response to newly identified disease
+states and customer demands for improvements in product accuracy, simplicity,
+speed and cost-efficiency. Meridian accomplishes this by monitoring existing
+markets, interacting closely with its customers and recognizing emerging
+diseases and therapies. In the last ten years, Meridian has developed 35 new
+products, including one new product in fiscal 2000.
+Acquiring and Licensing Products and Technology - Meridian intends to acquire,
+license or enter into supply arrangements to obtain innovative diagnostic
+testing technologies, product formats and products that complement its existing
+operations and address the needs of Meridian's existing and targeted customer
+base. Management regularly identifies and reviews opportunities through its
+broad industry contacts and recognized position in the industry. In the last ten
+years, Meridian has acquired, licensed or entered into supply arrangements
+relating to approximately 100 products. The Gull acquisition accounted for 65 of
+the 100 products.
+Enabling Biomedical Research and Early Stage Biopharmaceutical Development -
+Meridian intends to leverage its skills and capabilities in the life sciences
+market. Meridian has an established position in this market through its
+BIODESIGN subsidiary. BIODESIGN manufactures and distributes essential antigen
+and antibody reagents to diagnostic and
+4
+7
+pharmaceutical manufacturers as well as academic researchers. These reagents are
+essential to the development of assay systems, control standards and new drug
+development research.
+During fiscal 2000, Meridian further improved its skills and capabilities in the
+life sciences market through the acquisition of VAI and the expansion of outside
+collaborations with academic and government research laboratories. VAI recently
+completed the installation of a pharmaceutical quality proteomics laboratory
+that will be used to produce drug and vaccine proteins through gene expression
+techniques. These proteins will be used by biopharmaceutical companies in the
+development of drugs and vaccines for Phase I, II and III clinical trials.
+In September 2000, Meridian expanded its relationship with Texas Tech University
+Health Sciences Center for the development of highly specific, gene-mediated
+antigen and antibody systems. Texas Tech's capabilities utilize gene
+manipulation technologies to produce proteins that are reproducible and specific
+for a variety of disease states.
+Increasing International Sales - Meridian has targeted international sales as an
+attractive source of growth. Meridian has developed a strong presence in Italy
+through its Italian subsidiary, Meridian Diagnostics Europe s.r.l., and with the
+acquisition of Gull has an established sales force in Belgium, France and the
+Netherlands. Meridian has added management to expand its ability to serve Latin
+American markets and has expanded its international distributor base to include
+distributors in Argentina and Asia. Over the last six years, Meridian's
+international sales have grown from $2.1 million in fiscal 1993 to $17.7 million
+in fiscal 2000 and represented 31% of total consolidated sales in fiscal 2000.
+Strengthening Partnerships With Consolidated Health Care Organizations -
+Meridian seeks to develop strategic partnerships with the major reference
+laboratories and other consolidated health care providers. Meridian believes it
+is in a position to develop partnerships because it is an integrated
+manufacturer, has a broad product line, offers tests in multiple formats and is
+willing to invest resources in building relationships and facilitating open
+communications with those large customers. During fiscal 1999 and 1998, several
+exclusive multiple-year contracts were signed with consolidated health care
+providers. In the fall of 1998, a major national reference laboratory added
+Premier Platinum HpSA to its test menu and actively markets HpSA to its client
+list of primary care physicians and specialists. During fiscal 2000 and 1999,
+Meridian extended or renewed supply agreements with several major reference
+laboratories and other consolidated health care providers.
+Global Sales Excellence - Meridian has launched an initiative to improve its
+worldwide excellence in customer service, sales support and technical
+assistance. Meridian believes that its customers have rewarded it for the high
+level of customer service and support it has provided in the past. However,
+Meridian desires to provide a level of service that exceeds the current
+standards of the health care industry and, most importantly, the customer's
+expectations. Meridian is implementing several customer satisfaction training
+programs and information system improvements in order to achieve global sales
+excellence.
+5
+8
+PRODUCTS AND MARKETS
+Meridian has expertise in the development and manufacture of products based on
+multiple core diagnostic technologies, each of which enables the visualization
+and identification of antigen/antibody reactions for specific pathogens. As a
+result, Meridian is able to develop and manufacture diagnostic tests in a
+variety of formats that satisfy customer needs and preferences, whether in a
+hospital, commercial or reference laboratory or alternate site location. These
+technologies include enzyme immunoassay, immunofluorescence, particle
+agglutination, membrane filtration/concentration, immunodiffusion, complement
+fixation and chemical stains.
+Enzyme Immunoassay (EIA) - Products incorporating the EIA technology achieve
+extremely high levels of accuracy in detecting disease-related antigens or
+antibodies through the use of special color-based enzyme-substrate reactions.
+Meridian utilizes this technology in its multiple test format, the Premier(TM)
+product for large volume users, and in its single test formats, the
+ImmunoCard(R) and Monolert(R) products, for single physician users.
+Immunofluorescence - When the microscopic visualization of an antigen/antibody
+reaction is necessary or desired, immunofluorescence technology is frequently
+utilized. Fluorescing immunochemicals, in the presence of the target antigen or
+antibody, can be viewed via a fluorescent microscope. Meridian utilizes this
+technology in its Merifluor(R) products.
+Particle Agglutination - This technology utilizes microparticles (e.g., latex,
+red blood cells) coated with specific antigens or antibodies that form visible
+aggregates in the presence of a specimen containing the complementary antigen or
+antibody. This technology is rapid and economical and is used in Meridian's
+Meritec(TM), MeriStar(R) and MonoSpot(R) products.
+Membrane Filtration/Concentration - Meridian utilizes this technology to detect
+infection-causing bacteria present in human urine. These bacteria are
+concentrated on a unique filter membrane for detection via the addition of a
+special dye solution. This technology is utilized in Meridian's proprietary
+rapid, single-unit FiltraCheck-UTI(R) test format.
+Other Technologies - Meridian utilizes other technologies that include
+immunodiffusion, complement fixation and chemical stains. Meridian also
+manufactures and markets specimen collection, transportation, preservation and
+concentration products, such as Para-Pak(R), Macro-CON(R) and Spin-CON.
+Meridian's product line, including products acquired in the VAI and Gull
+acquisitions, consists of over 250 medical diagnostic products representing four
+major disease states. Currently, the most important product lines from the
+perspective of sales are products to diagnose gastrointestinal, viral and
+parasitic diseases. Meridian's products generally range in list price from $1
+per test to $33 per test. A discussion of Company's key products and their
+competitive advantage follows.
+Parasitic Diseases - Meridian manufactures products for the diagnosis and
+collection, preservation, transportation and concentration of parasites.
+Parasitic diseases include Giardiasis,
+6
+9
+Cryptosporidiosis, Amebiasis and Lyme disease. The markets for these products
+are hospital, reference and veterinary laboratoties.
+Gastrointestinal Diseases - Meridian manufactures products for the rapid
+diagnosis of stomach ulcers, toxigenic E.coli, antibiotic associated diarrhea
+(C. difficile) and pediatric diarrhea (Rotavirus and Adenovirus). The markets
+for these products are hospital, reference, veterinary and state health
+laboratories.
+Respiratory Diseases - Meridian manufactures a broad range of diagnostic
+reagents for detecting respiratory diseases including pneumonia (mycoplasma
+pneumoniae) and valley fever (coccidioides immittis). The markets for these
+products are hospital, reference, veterinary and state health laboratories.
+Urogenital Diseases - Meridian manufactures products for the rapid detection of
+urinary tract infection and Chlamydia. The markets for these products are
+hospital, reference, physicians' office and public health laboratories.
+Viral Diseases - Meridian manufactures a broad range of products for the
+detection of various viruses including Epstein -Barr (mononucleosis), Herpes
+simplex, Cytomegalovirus (organ transplant infections) and Varicella -Zoster
+(chicken pox and shingles). The markets for these products are hospital,
+reference, physicians' office and public health laboratories.
+MARKETING AND SALES
+Meridian's marketing efforts are focused on a continual process of seeking ways
+to assist health care providers in improving outcomes for patients exposed to
+serious infectious diseases. Rapid, accurate diagnosis can mean faster recovery,
+shorter hospital stays and less expense, both for the patient and the health
+care system.
+Meridian believes that its marketing goals are best served by forming
+partnerships with key customers to develop concepts for future products and
+technology applications. These partnerships facilitate close customer
+interaction, including product strategy sessions and co-marketing programs.
+Marketing utilizes its strong industry contacts, plus key customer focus
+sessions, to identify new products and other opportunities. Through the use of
+cross-functional teams that include marketing, research and development and
+manufacturing personnel, marketing guides the development process to meet
+customers' needs with products that are easier to use, require less technical
+expertise, and yield faster results--often in minutes or hours rather than days.
+Changes in the health care delivery system have resulted in major consolidation
+among reference laboratories and the formation of multi-hospital alliances.
+Meridian has structured its marketing, selling and customer service to
+anticipate and respond to these changes. This involved the
+7
+10
+addition of sales and marketing personnel; the expansion of technical services
+staff to support Meridian's customers and distribution network through a
+toll-free service hotline; and the implementation of major marketing programs to
+target key customers.
+Meridian markets products through direct sales forces, both domestically and in
+Italy, France, Belgium and the Netherlands, and through national and
+international independent distributors. In the United States, Meridian's direct
+sales force consists of three regional sales managers, one Corporate Health
+System Manager, three inside sales representatives and 18 technical sales
+representatives. In Europe, Meridian's sales force consists of a vice president
+of sales and marketing, six sales and marketing managers, two product managers,
+five product specialists and 20 technical sales representatives. Where Meridian
+utilizes distributors, Meridian participates in selling efforts involving key
+customers. Meridian has nearly 80 independent distributors in more than 60
+foreign countries including key distributor relationships in Canada, Central and
+South America, Mexico, Australia, New Zealand and the Pacific Rim, which are
+managed directly from the United States by an international manager. Meridian's
+sales in Europe, North Africa and the Middle East are shipped from Meridian
+Diagnostics Europe (MDE) distribution centers in Milan, Italy and Nivelle,
+Belgium.
+RESEARCH AND DEVELOPMENT
+Meridian's research and development activities focus on developing new and
+improved diagnostic solutions. Working in conjunction with the marketing
+department, Meridian's research and development department focuses its
+activities on enhancements to, and new applications for, Meridian's
+technologies. Over the past ten years, Meridian has developed internally 35 new
+products. Meridian has patent protection on a limited number of its products
+including Premier Platinum HpSA(TM). The research and development department is
+proficient in a number of diagnostic technologies, each of which can be applied
+to meet new product specifications that marketing has established. Meridian's
+product development staffs are experts in binding various biological materials
+to numerous solid phases, including plastics, membranes, latex beads,
+immunofluorescent dyes and immunogold, to develop testing formats. Meridian
+believes that its proprietary know-how and technologies in these areas enable it
+to develop products that have longer shelf-lives and provide improved
+performance and quicker test results.
+The research and development department initiates Meridian's quality process
+through its design control mechanism which establishes manufacturing standards
+and specifications. By working closely with the manufacturing department, the
+same standards and specifications ensure consistent high-quality products.
+Meridian estimates that it takes approximately 18 to 24 months from the
+conceptualization of a product to its marketing.
+The research and development department includes the Vice President of Research
+and Development and 14 research scientists. The disciplines represented in the
+group include biochemistry, immunology, mycology, bacteriology, virology and
+parasitology. In fiscal 1998, fiscal 1999 and fiscal 2000, Meridian spent $2.0
+million, $2.0 million, and $2.3 million
+8
+11
+respectively, on its research and development activities.
+CUSTOMERS
+The principal customers for Meridian's products are hospitals, commercial and
+reference laboratories, alternate site markets, such as physicians' offices,
+outpatient clinics, nursing homes and HMOs, and new markets, such as veterinary
+laboratories and water treatment facilities. Meridian also serves as an original
+equipment manufacturer for other diagnostic companies. Two distributors together
+accounted for more than 25% of Meridian's fiscal 2000 sales. However, Meridian
+does not believe that the loss of either of these distributors would have a
+material adverse effect on Meridian because of its ability to sell to the
+end-use customers served by these distributors through alternative means.
+MANUFACTURING
+During fiscal 2000, substantially all of Meridian's manufacturing was performed
+at its Cincinnati, Ohio facility. Meridian's acquisition of VAI has added
+additional manufacturing capacity in Memphis, Tennessee. VAI's manufacturing of
+veterinary products is regulated by the USDA and VAI's proteomics laboratory is
+regulated by CBER (see Government Regulation). VAI's manufacturing facilities
+are also subject to audit by certain customers. To maintain the highest quality
+standards, Meridian utilizes both external and internal quality auditors who
+routinely evaluate Meridian's manufacturing processes. Meridian strives to
+quickly evaluate, remedy and review the implementation of corrective actions to
+further assure compliance with medical device regulation.
+Meridian is required to comply with, among other regulations, the FDA's Quality
+System Regulation and is subject to periodic audits by the FDA. In response to
+audits conducted in fiscal 2000, the Company implemented various programs to
+address necessary corrective actions which it identified and increased its
+quality assurance and control staffing. The costs attributable to the additional
+staff and consulting assistance for fiscal 2000 were approximately $800,000. The
+FDA is currently conducting a follow-up audit and is reviewing certain
+validation procedures for certain products. The Company is fully cooperating
+with the FDA in an effort to complete this process. While the outcome of the
+audit is unknown at this time, if the FDA requires that validation procedures be
+re-performed, the Company estimates that the lost revenue impact, while the
+product is being re-validated and not available for sale, and the potential
+work-in-process inventory that is not saleable, could be significant.
+Meridian's immunodiagnostic products require the production of highly specific
+and sensitive antigens and antibodies. Meridian produces substantially all of
+its own requirements including monoclonal antibodies and polyclonal antibodies,
+plus a variety of fungal, bacterial and viral antigens. For many of its key raw
+materials acquired from third parties, Meridian has developed dual sources. As a
+result, Meridian believes it has access to sufficient raw materials for its
+9
+12
+products. Meridian believes it has sufficient manufacturing capacity for
+anticipated growth. Meridian Diagnostics Europe s.r.l. achieved ISO 9002
+certification in fiscal 1998, BIODESIGN achieved ISO 9001 certification in
+fiscal 2000 and Meridian is working towards achieving ISO 9000 certification in
+Cincinnati in fiscal 2001.
+COMPETITION
+The market for diagnostic tests is a multi-billion dollar international industry
+which is highly competitive. Many of Meridian's competitors are larger with
+greater financial, research, manufacturing and marketing resources. Important
+competitive factors of Meridian's products include product quality, price, ease
+of use, customer service, and reputation. In a broader sense, industry
+competition is based upon scientific and technological capability, proprietary
+know-how, access to adequate capital, the ability to develop and market products
+and processes, the ability to attract and retain qualified personnel and the
+availability of patent protection. To the extent that Meridian's product lines
+do not reflect technological advances, Meridian's ability to compete in those
+product lines could be adversely affected.
+Companies competing in the diagnostic test industry generally focus on a limited
+number of tests or limited segments of the market. As a result, the diagnostic
+test industry is highly fragmented and segmented. Hundreds of companies in the
+United States alone supply immunodiagnostic tests. These companies range from
+multi-national health care companies, for which immunodiagnostics is one line of
+business, to small start-up companies. Of central importance in the industry are
+mid-sized medical diagnostic specialty companies, like Meridian, that offer
+multiple, broad product lines and have the ability to deliver high value new
+products quickly to the marketplace. Among the companies with which Meridian
+competes in the marketing of one or more of its products are Abbott Laboratories
+Inc., Becton, Dickinson and Company, Diagnostic Products Corporation, Quidel
+Corporation and Wampole Laboratories Division of Carter-Wallace, Inc.
+INTELLECTUAL PROPERTY, PATENTS AND LICENSES
+Meridian owns or licenses U.S. and foreign patents for approximately 25 of its
+products, including a patent for Premier Platinum HpSA(TM) issued in February
+1998. The Company's VAI subsidiary has U.S. patents for four of its
+manufacturing processes. The patents or licenses for most of Meridian's products
+were acquired in connection with the purchase of the products or the licensing
+of the technology on which the products are based. In the absence of patent
+protection, Meridian may be vulnerable to competitors who successfully replicate
+Meridian's production and manufacturing techniques and processes. Meridian's
+laboratory and research personnel are required to execute confidentiality
+agreements designed to protect Meridian's proprietary products.
+10
+13
+Meridian has no reason to believe that its products and proprietary rights
+infringe the proprietary rights of any third parties. There can be no assurance,
+however, that third parties will not assert infringement claims in the future.
+GOVERNMENT REGULATION
+FDA Regulation of Medical Devices - Meridian's products are regulated by the
+Food & Drug Administration as "devices" pursuant to the Federal Food, Drug and
+Cosmetic Act (FDCA). Under the FDCA, medical devices are classified into one of
+three classes (i.e., Class I, II or III). Class I and II devices are not
+expressly approved by the FDA, but, instead, are "cleared" for marketing. Class
+III devices generally must receive "pre-market approval" from the FDA as to
+safety and effectiveness.
+A 510(k) clearance will be granted if the submitted data establishes that the
+proposed device is "substantially equivalent" to an existing Class I or Class II
+medical device or to a Class III medical device for which the FDA has not
+required pre-market approval. The 510(k) clearance process for "substantially
+equivalent" devices allows product sales to be made after the filing of an
+application and upon acknowledgment by the FDA, typically within 90 to 120 days
+after submission. If the FDA requests additional information, the product cannot
+be sold until the application has been supplemented and upon acknowledgment by
+the FDA within 90 to 120 days of the supplemental application. In practice, the
+FDA has been granting clearance in about 30 days following submission of the
+supplemental information. If there are no existing FDA-approved products or
+processes comparable to a diagnostic product or process, approval by the FDA
+involves the more lengthy pre-market approval procedures.
+Each of the products currently marketed by Meridian has been cleared by the FDA
+pursuant to the 510(k) clearance process or is exempt from such requirements.
+Meridian believes that most, but not all, products under development will be
+classified as Class I or II medical devices and will be eligible for 510(k)
+clearance.
+Other Medical Device Regulation - Sales of Meridian's products in foreign
+countries are subject to foreign government regulation, the requirements of
+which vary substantially from country to country. The time required to obtain
+approval by a foreign country may be longer or shorter than that required for
+FDA approval, and the requirements may differ. During fiscal 1999, Meridian
+received approval for several new product registrations in Japan. Currently,
+Meridian is supporting foreign product registrations in Mexico, Korea, Japan,
+China and Argentina via the distributors in the respective countries.
+VAI's veterinary products are approved and licensed by the United States
+Department of Agriculture (USDA). This typically requires six months to one year
+for the approval process. In addition, assays for monitoring "controlled
+diseases" require testing and release of each production serial before it is
+available to the market.
+11
+14
+The proteins produced in VAI's proteomics laboratory are intended to be used as
+"injectibles". As such they are produced under more stringent regulations under
+the auspices of the Center for Biologicals Evaluation & Research (CBER).
+Approval and licensing, following clinical trials, of these products will be the
+responsibility of the company that owns the rights to each protein. Such
+products are approved under the "pre-market approval" guidelines which requires
+substantially more time than 510(k) clearance.
+The Clinical Laboratory Improvement Act of 1988 prohibits 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.
+Although these certificates are required only for Meridian's laboratory
+customers (but not for Meridian itself), Meridian considers the requirements of
+The Clinical Laboratory Improvement Act of 1988 in the design and development of
+its products.
+Meridian is a conditionally exempt small quantity generator of hazardous waste
+and has a U.S. Environmental Protection Agency identification number. All
+hazardous waste is manifested and disposed of properly. Meridian is in
+compliance with the applicable portions of the federal and state hazardous waste
+regulations and has never been a party to any environmental proceeding.
+EMPLOYEES
+As of September 30, 2000, Meridian had 369 full-time employees, including 75 in
+sales, marketing and technical support, 106 in manufacturing, 15 in research and
+product development, and 35 in administration and finance. 93 of Meridian's
+employees hold scientific degrees.
+Meridian maintains a Savings and Investment Plan for its U.S. employees and has
+established stock option plans for its officers, directors and employees. In
+addition, a stock purchase plan was established on October 1, 1997 for all
+employees.
+None of Meridian's employees is represented by a labor organization and Meridian
+is not a party to any collective bargaining agreement. Meridian has never
+experienced any strike or work stoppage and considers its relationship with its
+employees to be good.
+ITEM 2.
+PROPERTIES
+----------
+Meridian's corporate offices, manufacturing facility and research and
+development facility are located in three buildings totaling approximately
+94,000 square feet on 6.2 acres of land in a suburb of Cincinnati. These
+properties are owned by Meridian. Meridian has approximately
+12
+15
+51,000 square feet of manufacturing space and 9,000 square feet of warehouse
+space in the Cincinnati facility.
+In the VAI acquisition, Meridian acquired VAI's executive offices and
+manufacturing facility located in Memphis, Tennessee. This facility is comprised
+of two buildings totaling approximately 31,000 square feet, including
+approximately 25,000 square feet of manufacturing space.
+The distribution center in Italy conducts its operations in a two-story building
+in the Milan, Italy area consisting of approximately 18,000 square feet. This
+facility is owned by Meridian Diagnostics Europe s.r.l.
+In the Gull acquisition, Meridian acquired Gull's executive offices and
+principal U.S. manufacturing facilities located in two buildings totaling 33,000
+square feet on approximately five acres of land in Salt Lake City, Utah. Both
+the land and the building were sold during fiscal 2000.
+BIODESIGN rents a 10,000 square foot facility that houses administration,
+distribution and manufacturing facilities in Saco, Maine under a lease that
+expires in 2006.
+Meridian rents approximately 3,000 square feet of space in Nivelle, Belgium for
+sales, warehousing and distribution. The lease expires in 2009. Meridian also
+rents office space in France and the Netherlands for small sales offices.
+ITEM 3.
+LEGAL PROCEEDINGS
+-----------------
+In June 2000, Meridian filed suit against a former employee and certain other
+defendants for breach of an employment agreement and misappropriation of trade
+secrets. The lawsuit seeks injunctive relief as well as compensatory and
+punitive damages against the defendants. Meridian successfully obtained a
+temporary restraining order and a preliminary injunction against its former
+employee. Meridian intends to seek recovery from the defendants for its damages,
+costs and expenses, including its legal fees which amounted to approximately
+$450,000 at September 30, 2000. There are no assurances, however, that Meridian
+will be able to recover all or some of those amounts.
+Management is not aware of any other material pending or threatened litigation,
+claims or assessments, asserted or unasserted, against Meridian or its
+subsidiaries except those arising in the ordinary course of business.
+13
+16
+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 fiscal 2000.
+PART II.
+ITEM 5.
+MARKET FOR REGISTRANT'S COMMON
+EQUITY AND RELATED STOCKHOLDER MATTERS
+--------------------------------------
+"Common Stock Information" on page 27 and "Quarterly Financial Data" on page 25
+of the Registrant's Annual Report to Shareholders for 2000 are incorporated
+herein by reference. There are no external restrictions on cash dividend
+payments.
+Meridian follows a cash dividend policy consisting of regular quarterly
+dividends and special year-end dividends. The Board has set a targeted payout
+ratio of 45% to 55% of annual net earnings. Approximately 30% to 35% of
+forecasted annual net earnings is intended to be paid in regular quarterly
+dividends with any balance being paid as a year-end special dividend. All or a
+portion of the year-end dividend may be paid in stock. The declaration and
+amount of dividends are determined by the Board of Directors in its discretion
+based upon its evaluation of earnings, cash flow requirements and future
+business developments. There is no assurance that dividends will continue.
+Meridian paid dividends of $0.22 per share, $0.20 per share, and $0.23 per share
+in fiscal 1998, fiscal 1999, and fiscal 2000, respectively.
+On November 16, 2000, the Board of Directors voted to increase the annual cash
+dividend rate to $0.26 per share, an increase of 13%.
+ITEM 6.
+SELECTED FINANCIAL DATA
+-----------------------
+"Ten Year Summary" on page 26 of the Registrant's Annual Report to Shareholders
+for 2000 is incorporated by reference.
+14
+17
+ITEM 7.
+MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
+CONDITION AND RESULTS OF OPERATIONS
+-----------------------------------
+"Management's Discussion and Analysis of Financial Condition and Results of
+Operations" commencing on page 10 of the Registrant's Annual Report to
+Shareholders for 2000 is incorporated herein by reference.
+ITEM 7A.
+QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
+----------------------------------------------------------
+The information required by Item 7A is incorporated by reference from the
+discussion of "Market Risk Exposure" contained on page 13 of the Registrants
+Annual Report to Shareholders for 2000.
+ITEM 8.
+FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
+-------------------------------------------
+"Quarterly Financial Data" on page 25 of the Registrant's Annual Report to
+Shareholders for 2000 along with the Consolidated Financial Statements of the
+Registrant shown on pages 14 through 25 of its Annual Report to Shareholders for
+2000, are incorporated herein by reference:
+Consolidated Balance Sheets as of September 30, 2000 and 1999.
+Consolidated Statements of Earnings for the years ended September 30, 2000,
+1999 and 1998.
+Consolidated Statements of Shareholders' Equity for the years ended
+September 30, 2000, 1999 and 1998.
+Consolidated Statements of Cash Flows for the years ended September 30,
+2000, 1999 and 1998.
+Notes to Consolidated Financial Statements.
+Report of Independent Public Accountants.
+The following schedules are filed herewith:
+15
+18
+Schedule
+No. Description Page
+--- ----------- ----
+Report of Independent Public Accountants. 23
+II. Valuation and Qualifying Accounts for the years ended
+September 30, 2000, 1999 and 1998. 24
+All other supplemental schedules are omitted due to the absence of conditions
+under which they are required or because the information is shown in the
+Consolidated Financial Statements or Notes thereto.
+ITEM 9.
+DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
+----------------------------------------------------
+None.
+PART III
+Items 10., 11., 12., and 13. of Part III are incorporated by reference to the
+Registrant's Proxy Statement for its 2001 Annual Shareholders' Meeting to be
+filed with the Commission pursuant to Regulation 14A.
+PART IV
+ITEM 14.
+EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
+----------------------------------------------------------------
+(a) (1) and (2) FINANCIAL STATEMENTS AND SCHEDULES.
+All financial statements and schedules required to be filed by Item 8 of this
+Form and included in this report have been listed previously under Item 8. No
+additional financial statements or schedules are being filed since the
+requirements of paragraph (d) under Item 14 are not applicable to Meridian.
+(a) (3) EXHIBITS.
+16
+19
+Exhibit Number Description of Exhibit Filing Status
+-------------- ---------------------- -------------
+3.1 Articles of Incorporation, including amendments A
+3.2 Code of Regulations B
+4 Indenture between Meridian and Star Bank, National C
+Association, as Trustee, relating to Meridian's 7%
+Convertible Subordinated Debentures due 2006
+10.3 License Agreement dated October 6, 1983 with Marion B
+Laboratories, Inc.
+10.5 Sublicense Agreement dated June 17, 1993 among Johnson & D
+Johnson, the Scripps Research Institute and Meridian
+Concerning certain Patent Rights
+10.6 Assignment dated June 17, 1993 from Ortho Diagnostic D
+Systems Inc. to Meridian concerning certain Patent Rights
+10.7 Agreement dated January 24, 1994 between Meridian E
+Diagnostics, Inc. and Immulok, Inc.
+10.8 Asset Purchase Agreement dated June 24, 1996 between F
+Cambridge Biotech Corporation and Meridian Diagnostics,
+Inc.
+10.9 Merger Agreement among Gull Laboratories, Inc., Meridian G
+Diagnostics, Inc. Fresenius AG and Meridian Acquisition
+Co. dated as of September 15, 1998
+10.10* Savings and Investment Plan, as amended H
+10.11* Savings and Investment Plan Trust I
+10.12* 1986 Stock Option Plan J
+10.14* 1994 Directors' Stock Option Plan K
+10.15* 1996 Stock Option Plan L
+10.16* Salary Continuation Agreement for John A. Kraeutler M
+10.17 First Amendment to Merger Agreement Among Gull N
+Laboratories, Inc., Meridian Diagnostics
+17
+20
+Inc. Fresenius AG and Meridian Acquisition Co.
+10.18* 1999 Directors' Stock Option Plan O
+10.19* 1996 Stock Option Plan Amended and Restated Effective O
+January 22, 1999
+10.20 Dividend Reinvestment Plan Q
+10.21 Merger Agreement dated September 13, 2000 among Meridian P
+and the Shareholders of Viral Antigens, Inc.
+13 2000 Annual Report to Shareholders Filed herewith(1)
+21 Subsidiaries of the Registrant Filed herewith
+23 Consent of Independent Public Accountants Filed herewith
+27 Financial Data Schedule Filed herewith
+99 Forward Looking Statements Statement Filed herewith
+--------
+1 Only portions of the 2000 Annual Report to Shareholders specifically
+incorporated by reference in this Form 10-K are filed herewith. A supplemental
+paper copy of the 2000 Annual Report to Shareholders has been provided to the
+Securities and Exchange Commission for informational purposes only.
+18
+21
+*Management Compensatory Contracts
+Incorporated by reference to:
+A. Registration Statement No. 333-02613 on Form S-3 filed with the Securities
+and Exchange Commission on April 18, 1996.
+B. Registration Statement No. 33-6052 filed under the Securities Act of 1933.
+C. Registration Statement No. 333-11077 on Form S-3 filed with the Securities
+and Exchange Commission on August 29, 1996.
+D. Meridian's Form 8-K filed with the Securities and Exchange Commission on
+June 17, 1993.
+E. Meridian's Forms 8-K filed with the Securities and Exchange Commission on
+February 8, 1994 and April 6, 1994.
+F. Meridian's Form 8-K filed with the Securities and Exchange Commission on
+July 2, 1996.
+G. Meridian's Form 8-K filed with the Securities and Exchange Commission on
+September 17, 1998.
+H. Meridian's Annual Report on Form 10-K for the Fiscal Year Ended September
+30, 1994 and to Registration Statement No. 33-65443 on Form S-8 filed with
+the Securities and Exchange Commission on December 28, 1995.
+I. Meridian's Annual Report on Form 10-K for the Fiscal Year Ended September
+30, 1994.
+J. Registration Statement No. 33-89214 on Form S-8 filed with the Securities
+and Exchange Commission on April 5, 1995.
+K. Registration Statement No. 33-78868 on Form S-8 filed with the Securities
+and Exchange Commission on May 12, 1994.
+L. Meridian's Annual Report on Form 10-K for the Fiscal Year Ended September
+30, 1996.
+M. Meridian's Annual Report on Form 10-K for the Fiscal Year Ended September
+30, 1995.
+N. Company's Report on Form 8-K filed with the Securities and Exchange
+Commission filed on November 13, 1998.
+19
+22
+O. Meridian's Proxy Statement filed with the Securities and Exchange
+Commission on December 21, 1998.
+P. Meridian's Current Report on Form 8-K dated September 29, 2000.
+Q. Meridian's Annual Report on Form 10-K for the Fiscal Year Ended September
+30, 1999.
+(b) REPORTS ON FORM 8-K.
+Meridian filed Reports on Form 8-K dated September 14, 2000 and September 29,
+2000 related to the acquisition of all of the outstanding common stock of Viral
+Antigens, Inc.
+20
+23
+SIGNATURES
+----------
+Pursuant to the requirements of Section 13 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.
+MERIDIAN DIAGNOSTICS, INC.
+By: /s/ William J. Motto
+--------------------------------------
+Date: December 22, 2000 William J. Motto
+Chairman of the Board of
+Directors and Chief Executive
+Officer (Principal Executive Officer)
+21
+24
+Pursuant to the requirements of the Securities Exchange Act of 1934, this report
+has been signed by the following persons on behalf of the Registrant and in the
+capacities and on the dates indicated.
+Signature Capacity Date
+--------- -------- ----
+/s/ William J. Motto Chairman of the Board of Directors and December 22, 2000
+---------------------------------------- Chief Executive Officer (Principal
+William J. Motto Executive Officer)
+/s/ John A. Kraeutler President and Chief Operating December 22, 2000
+---------------------------------------- Officer, Director
+John A. Kraeutler
+/s/ Melissa Lueke Corporate Controller December 22, 2000
+---------------------------------------- (Acting Principal Accounting Officer)
+Melissa Lueke
+/s/ James A. Buzard Director December 22, 2000
+----------------------------------------
+James A. Buzard
+/s/ Gary P. Kreider Director December 22, 2000
+----------------------------------------
+Gary P. Kreider
+/s/ David C. Phillips Director December 22, 2000
+----------------------------------------
+David C. Phillips
+/s/ Robert J. Ready Director December 22, 2000
+----------------------------------------
+Robert J. Ready
+22
+25
+Report of Independent Public Accountants
+----------------------------------------
+To Meridian Diagnostics, Inc:
+We have audited in accordance with generally accepted auditing standards, the
+consolidated financial statements included in Meridian Diagnostics, Inc. and
+subsidiaries' annual report to shareholders incorporated by reference in this
+Form 10-K, and have issued our report thereon dated November 16, 2000. Our audit
+was made for the purpose of forming an opinion on those statements taken as a
+whole. The schedule listed in Item 8 is the responsibility of the Company's
+management and is presented for purposes of complying with the Securities and
+Exchange Commission's rules and is not part of the basic financial statements.
+This schedule has been subjected to the auditing procedures applied in the audit
+of the basic financial statements and, in our opinion, fairly states in all
+material respects the financial data required to be set forth therein in
+relation to the basic financial statements taken as a whole.
+ARTHUR ANDERSEN LLP
+Cincinnati, Ohio
+November 16, 2000
+23
+26
+SCHEDULE II
+Meridian Diagnostics, Inc.
+and Subsidiaries
+Valuation and Qualifying Accounts
+(Amounts in Thousands)
+Years Ended September 30, 2000, 1999 and 1998
+Balance at Charged to Charged Balance
+Beginning Costs and to Other at End of
+Description of Period Expenses Accounts Deductions Other(1) Period
+----------- --------- -------- -------- ---------- -------- ------
+Year Ended September 30, 2000:
+------------------------------
+Allowance for Doubtful Accounts $ 380 $ 122 $ - $ (45) $(19) $ 438
+Inventory Reserves 1,013 568 - (806) (90) 685
+Merger Integration Accounts 157 - - (157) - -
+Year Ended September 30, 1999:
+------------------------------
+Allowance for Doubtful Accounts $ 171 $ 150 $ 7 $ (303) $355 $ 380
+Inventory Reserves 857 667 - (1,242) 731 1,013
+Merger Integration Accounts - 3,415 - (3,258) - 157
+Year Ended September 30, 1998:
+------------------------------
+Allowance for Doubtful Accounts $ 166 $ 27 $ 7 $ (29) $ - $ 171
+Inventory Reserves 416 1,029 - (588) - 857
+--------
+1 Balances in fiscal 2000 reflect acquired valuation accounts related to the
+Viral Antigens, Inc. acquisition ($5 for the allowance for doubtful accounts)
+and the effects of currency translation. Balances in fiscal 1999 reflect the
+acquired valuation accounts related to the Gull Laboratories, Inc. acquisition.
+24

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+ITEM 1.
+BUSINESS
+--------
+GENERAL
+Meridian is a fully integrated life sciences company that develops, manufactures
+and markets a broad range of innovative, disposable diagnostic test kits and
+related diagnostic products used for the rapid diagnosis of infectious diseases,
+and also offers biopharmaceutical capabilities. Meridian's diagnostics products
+provide accuracy, simplicity, and speed, and enable early diagnosis and
+treatment of common medical conditions such as gastrointestinal, viral, urinary
+tract and respiratory infections. All of Meridian's diagnostics products are
+used in procedures performed in vitro (outside the body) and enhance patient
+well-being while reducing total outcome costs of healthcare. In addition to the
+diagnostic business, Meridian is expanding further into the area of life
+sciences. Through recent acquisitions, Meridian has the technical expertise to
+enable research efforts of genomics scientists in drug and vaccine development.
+The expansion into life sciences prompted the Company's decision to change its
+official name to Meridian Bioscience, Inc., subject to shareholder approval in
+January 2001.
+Meridian's product development strategy is to combine existing technologies with
+new product designs both through internal or joint product development and
+through product acquisitions, licensing or supply arrangements. Internal and
+joint product development activities focus on the development or enhancement of
+immunodiagnostic technologies and applications to simplify, accelerate or
+increase the accuracy of diagnoses of certain infectious diseases. Since 1991,
+Meridian has also acquired or obtained rights to distribute a number of products
+and technologies.
+Meridian utilizes its resources to serve each of the strategic domestic and
+international medical markets it has targeted: hospital networks and clinical
+and hospital laboratories; alternate site markets, including physicians'
+offices, outpatient clinics, nursing homes and health maintenance organizations
+(HMOs); and new markets, including veterinary laboratories and water treatment
+facilities. Meridian markets over 200 products representing four major disease
+states through a direct sales force in the United States, Italy, France, Belgium
+and the Netherlands, supplemented by a network of national and international
+distributors. International sales in more than 60 countries were 31% of total
+fiscal 2000 sales.
+During the fourth quarter of fiscal 2000, a plan was implemented to restructure
+European distribution operations and eliminate the Company's direct presence in
+Germany. This plan involves (i) the shutdown of the German distribution center,
+(ii) the transfer of the export business from Germany to the Company's Belgian
+operations and (iii) movement of the German in-country business to an
+independent distributor. This plan was adopted as a means to improve operating
+results in Europe.
+1
+4
+ACQUISITIONS AND ALLIANCES
+An important facet of Meridian's long-term business strategy is the expansion
+into life sciences, as well as the acquisition, licensing or entrance into
+supply arrangements to obtain innovative diagnostic testing technologies,
+product formats and products that complement its existing operations and address
+the needs of Meridian's existing and targeted customer base. Prior to fiscal
+2000, Meridian's management had pursued the acquisition and licensing of
+products and technologies that fit Meridian's niche diagnostic test markets,
+which are characterized by a large number of users. Examples of this included
+the acquisition of Gull Laboratories, Inc. in fiscal 1999, the acquisition of
+the enteric product line of Cambridge Biotech Corporation in fiscal 1996, the
+acquisitions of the infections disease and mononucleosis product lines of
+Johnson & Johnson in fiscal 1994 and 1993, respectively, and numerous smaller
+product acquisitions and licensing arrangements.
+In the late fiscal 2000, Meridian completed its acquisition of Viral Antigens,
+Inc. VAI further expands Meridian's life sciences capabilities through VAI's
+protein expression lab which provides Meridian the opportunity to serve as an
+enabler to biopharmaceutical companies in the development of new drugs and
+vaccines. VAI also manufactures infectious disease antigens that are used in
+immunodiagnostics testing, and a Pseudorabies Virus antibody test kit and equine
+infectious anemia antibody test kit for the veterinary market.
+The purchase price for VAI was $9 million in cash, and was funded with bank debt
+from the Company's existing credit facilities. The purchase agreement provides
+for additional consideration, up to $8.25 million, contingent upon VAI's future
+earnings though September 30, 2006. See Note 2 to the consolidated financial
+statements for further information. On September 29, 2000, Meridian filed on
+Form 8-K/A certain financial statements and pro forma financial information
+relating to this acquisition.
+Also during fiscal 2000, Meridian executed a Research and Development Agreement
+and an Exclusive Supply Agreement with OraSure Technologies, Inc. to
+commercialize the Uplink technology. Meridian believes that this technology will
+offer competitive advantages including the elimination of background
+interference, simultaneous detection of multiple biological markers and improved
+sensitivity. These agreements require Meridian to make future payments to
+OraSure to fund research and development costs and to obtain an exclusive
+license to market and sell related products on a global basis.
+In early fiscal 1999, Meridian acquired Gull Laboratories, Inc. for $19 million
+in cash. Gull develops, manufactures and markets diagnostic test kits and
+materials designed to detect past or present infection caused by certain
+microbial agents such as viruses, bacteria and protozoa and to detect certain
+autoimmune disorders. The products are based on established immunological assay
+methods including indirect immunofluorescent antibody assay (IFA), enzyme-linked
+immunosorbent assay (EIA), immunodiffusion and Western Blot. Gull's products are
+used by private laboratories and hospital clinical laboratories worldwide.
+Included in the Gull acquisition was its subsidiary, BIODESIGN International,
+which manufactures and markets antigens and
+2
+5
+antibodies to diagnostic and pharmaceutical manufacturers as well as academic
+researchers.
+During fiscal 2000, Meridian completed the transfer of Gull's Salt Lake City
+production to the Company's Cincinnati facilities, and the sale of the Salt Lake
+City facilities and real estate. During fiscal 1999, Meridian shut down Gull's
+European manufacturing activities. See Note 2 to the consolidated financial
+statements for further information.
+A key component in the success of Meridian's acquisition and licensing of new
+products and technologies has been the ability of Meridian's management to
+respond quickly to acquisition and licensing opportunities as they arise in the
+marketplace. The success of this strategy has also been due in part to
+management's selective acquisition and licensing philosophy as well as the
+availability of cash on hand and available lines of credit.
+IMMUNODIAGNOSTICS OVERVIEW
+In vitro diagnostic testing is the process of analyzing constituents of blood,
+urine, stool, other body fluids or tissue for the presence of specific
+infectious diseases. Immunodiagnostic testing, which is the leading method of in
+vitro testing for infectious diseases, tests for antigens and antibodies. When
+an infectious disease caused by pathogens, such as bacteria, viruses and fungi,
+and their related antigens are present, the body responds by producing an
+antibody. The antibody binds specifically with the antigen in a lock-and-key
+fashion and initiates a biochemical reaction to attempt to neutralize and,
+ultimately, to eliminate the antigen. The ability of an antibody to bind with a
+specific antigen provides the basis for immunodiagnostic testing.
+Immunodiagnostic testing detects the presence of specific infectious diseases
+through "visualization", such as color changes or the formation of visible
+aggregates, of the biochemical reactions caused by the antigen/antibody. Most
+immunodiagnostic tests utilize one of two alternative methods to determine the
+presence of a specific disease in a patient specimen. In one method, the test
+employs the antibody to detect directly the presence of an antigen.
+Alternatively, certain tests employ the antigen to detect the presence of an
+antibody. In addition to the diagnosis of infectious diseases, immunodiagnostic
+testing is also used to monitor the status of various patient therapy programs.
+MARKET TRENDS
+The global market for infectious disease tests continues to expand as new
+disease states are identified, new therapies become available and worldwide
+standards of living and access to health care improve. More importantly, within
+this market there is a continuing shift from conventional testing, which
+requires highly trained personnel and lengthy turnaround times for test results,
+to more technologically advanced testing which can be performed by less highly
+trained personnel and completed in minutes or hours.
+3
+6
+Technological advances permitting accurate testing to occur outside the
+traditional hospital or laboratory setting have also affected the market for
+diagnostic products. These technological developments have contributed to the
+emergence of alternate site markets, such as physicians' offices, outpatient
+clinics, nursing homes and HMOs, as important diagnostic market segments. These
+technological advances should also contribute to the development of new markets
+for Meridian's products, including food testing, veterinary laboratories and
+water treatment facilities.
+The increasing pressures to contain total health care costs have accelerated the
+increased use of diagnostic testing and the market shift to alternate sites.
+With rapid and accurate diagnoses of infectious diseases, physicians can
+pinpoint appropriate therapies quickly, leading to faster recovery, shorter
+hospital stays and less treatment expense. In addition, these pressures have led
+to a major consolidation among reference laboratories and the formation of
+multi-hospital alliances that have reduced the number of institutional customers
+for diagnostic products and resulted in changes in buying practices.
+Specifically, multi-year exclusive or primary source marketing or distribution
+contracts with institutional customers have become more common, replacing less
+formal distribution arrangements of shorter duration and involving lower product
+volumes. In Europe, the reexamination of health care costs, access and funding
+is causing similar pressures.
+BUSINESS STRATEGY
+Meridian continues to execute its long-term strategy consisting of the following
+elements:
+Developing New Product Applications from Core Technologies - Meridian employs a
+market-driven product development strategy to adapt or enhance diagnostic
+testing technologies and product formats in response to newly identified disease
+states and customer demands for improvements in product accuracy, simplicity,
+speed and cost-efficiency. Meridian accomplishes this by monitoring existing
+markets, interacting closely with its customers and recognizing emerging
+diseases and therapies. In the last ten years, Meridian has developed 35 new
+products, including one new product in fiscal 2000.
+Acquiring and Licensing Products and Technology - Meridian intends to acquire,
+license or enter into supply arrangements to obtain innovative diagnostic
+testing technologies, product formats and products that complement its existing
+operations and address the needs of Meridian's existing and targeted customer
+base. Management regularly identifies and reviews opportunities through its
+broad industry contacts and recognized position in the industry. In the last ten
+years, Meridian has acquired, licensed or entered into supply arrangements
+relating to approximately 100 products. The Gull acquisition accounted for 65 of
+the 100 products.
+Enabling Biomedical Research and Early Stage Biopharmaceutical Development -
+Meridian intends to leverage its skills and capabilities in the life sciences
+market. Meridian has an established position in this market through its
+BIODESIGN subsidiary. BIODESIGN manufactures and distributes essential antigen
+and antibody reagents to diagnostic and
+4
+7
+pharmaceutical manufacturers as well as academic researchers. These reagents are
+essential to the development of assay systems, control standards and new drug
+development research.
+During fiscal 2000, Meridian further improved its skills and capabilities in the
+life sciences market through the acquisition of VAI and the expansion of outside
+collaborations with academic and government research laboratories. VAI recently
+completed the installation of a pharmaceutical quality proteomics laboratory
+that will be used to produce drug and vaccine proteins through gene expression
+techniques. These proteins will be used by biopharmaceutical companies in the
+development of drugs and vaccines for Phase I, II and III clinical trials.
+In September 2000, Meridian expanded its relationship with Texas Tech University
+Health Sciences Center for the development of highly specific, gene-mediated
+antigen and antibody systems. Texas Tech's capabilities utilize gene
+manipulation technologies to produce proteins that are reproducible and specific
+for a variety of disease states.
+Increasing International Sales - Meridian has targeted international sales as an
+attractive source of growth. Meridian has developed a strong presence in Italy
+through its Italian subsidiary, Meridian Diagnostics Europe s.r.l., and with the
+acquisition of Gull has an established sales force in Belgium, France and the
+Netherlands. Meridian has added management to expand its ability to serve Latin
+American markets and has expanded its international distributor base to include
+distributors in Argentina and Asia. Over the last six years, Meridian's
+international sales have grown from $2.1 million in fiscal 1993 to $17.7 million
+in fiscal 2000 and represented 31% of total consolidated sales in fiscal 2000.
+Strengthening Partnerships With Consolidated Health Care Organizations -
+Meridian seeks to develop strategic partnerships with the major reference
+laboratories and other consolidated health care providers. Meridian believes it
+is in a position to develop partnerships because it is an integrated
+manufacturer, has a broad product line, offers tests in multiple formats and is
+willing to invest resources in building relationships and facilitating open
+communications with those large customers. During fiscal 1999 and 1998, several
+exclusive multiple-year contracts were signed with consolidated health care
+providers. In the fall of 1998, a major national reference laboratory added
+Premier Platinum HpSA to its test menu and actively markets HpSA to its client
+list of primary care physicians and specialists. During fiscal 2000 and 1999,
+Meridian extended or renewed supply agreements with several major reference
+laboratories and other consolidated health care providers.
+Global Sales Excellence - Meridian has launched an initiative to improve its
+worldwide excellence in customer service, sales support and technical
+assistance. Meridian believes that its customers have rewarded it for the high
+level of customer service and support it has provided in the past. However,
+Meridian desires to provide a level of service that exceeds the current
+standards of the health care industry and, most importantly, the customer's
+expectations. Meridian is implementing several customer satisfaction training
+programs and information system improvements in order to achieve global sales
+excellence.
+5
+8
+PRODUCTS AND MARKETS
+Meridian has expertise in the development and manufacture of products based on
+multiple core diagnostic technologies, each of which enables the visualization
+and identification of antigen/antibody reactions for specific pathogens. As a
+result, Meridian is able to develop and manufacture diagnostic tests in a
+variety of formats that satisfy customer needs and preferences, whether in a
+hospital, commercial or reference laboratory or alternate site location. These
+technologies include enzyme immunoassay, immunofluorescence, particle
+agglutination, membrane filtration/concentration, immunodiffusion, complement
+fixation and chemical stains.
+Enzyme Immunoassay (EIA) - Products incorporating the EIA technology achieve
+extremely high levels of accuracy in detecting disease-related antigens or
+antibodies through the use of special color-based enzyme-substrate reactions.
+Meridian utilizes this technology in its multiple test format, the Premier(TM)
+product for large volume users, and in its single test formats, the
+ImmunoCard(R) and Monolert(R) products, for single physician users.
+Immunofluorescence - When the microscopic visualization of an antigen/antibody
+reaction is necessary or desired, immunofluorescence technology is frequently
+utilized. Fluorescing immunochemicals, in the presence of the target antigen or
+antibody, can be viewed via a fluorescent microscope. Meridian utilizes this
+technology in its Merifluor(R) products.
+Particle Agglutination - This technology utilizes microparticles (e.g., latex,
+red blood cells) coated with specific antigens or antibodies that form visible
+aggregates in the presence of a specimen containing the complementary antigen or
+antibody. This technology is rapid and economical and is used in Meridian's
+Meritec(TM), MeriStar(R) and MonoSpot(R) products.
+Membrane Filtration/Concentration - Meridian utilizes this technology to detect
+infection-causing bacteria present in human urine. These bacteria are
+concentrated on a unique filter membrane for detection via the addition of a
+special dye solution. This technology is utilized in Meridian's proprietary
+rapid, single-unit FiltraCheck-UTI(R) test format.
+Other Technologies - Meridian utilizes other technologies that include
+immunodiffusion, complement fixation and chemical stains. Meridian also
+manufactures and markets specimen collection, transportation, preservation and
+concentration products, such as Para-Pak(R), Macro-CON(R) and Spin-CON.
+Meridian's product line, including products acquired in the VAI and Gull
+acquisitions, consists of over 250 medical diagnostic products representing four
+major disease states. Currently, the most important product lines from the
+perspective of sales are products to diagnose gastrointestinal, viral and
+parasitic diseases. Meridian's products generally range in list price from $1
+per test to $33 per test. A discussion of Company's key products and their
+competitive advantage follows.
+Parasitic Diseases - Meridian manufactures products for the diagnosis and
+collection, preservation, transportation and concentration of parasites.
+Parasitic diseases include Giardiasis,
+6
+9
+Cryptosporidiosis, Amebiasis and Lyme disease. The markets for these products
+are hospital, reference and veterinary laboratoties.
+Gastrointestinal Diseases - Meridian manufactures products for the rapid
+diagnosis of stomach ulcers, toxigenic E.coli, antibiotic associated diarrhea
+(C. difficile) and pediatric diarrhea (Rotavirus and Adenovirus). The markets
+for these products are hospital, reference, veterinary and state health
+laboratories.
+Respiratory Diseases - Meridian manufactures a broad range of diagnostic
+reagents for detecting respiratory diseases including pneumonia (mycoplasma
+pneumoniae) and valley fever (coccidioides immittis). The markets for these
+products are hospital, reference, veterinary and state health laboratories.
+Urogenital Diseases - Meridian manufactures products for the rapid detection of
+urinary tract infection and Chlamydia. The markets for these products are
+hospital, reference, physicians' office and public health laboratories.
+Viral Diseases - Meridian manufactures a broad range of products for the
+detection of various viruses including Epstein -Barr (mononucleosis), Herpes
+simplex, Cytomegalovirus (organ transplant infections) and Varicella -Zoster
+(chicken pox and shingles). The markets for these products are hospital,
+reference, physicians' office and public health laboratories.
+MARKETING AND SALES
+Meridian's marketing efforts are focused on a continual process of seeking ways
+to assist health care providers in improving outcomes for patients exposed to
+serious infectious diseases. Rapid, accurate diagnosis can mean faster recovery,
+shorter hospital stays and less expense, both for the patient and the health
+care system.
+Meridian believes that its marketing goals are best served by forming
+partnerships with key customers to develop concepts for future products and
+technology applications. These partnerships facilitate close customer
+interaction, including product strategy sessions and co-marketing programs.
+Marketing utilizes its strong industry contacts, plus key customer focus
+sessions, to identify new products and other opportunities. Through the use of
+cross-functional teams that include marketing, research and development and
+manufacturing personnel, marketing guides the development process to meet
+customers' needs with products that are easier to use, require less technical
+expertise, and yield faster results--often in minutes or hours rather than days.
+Changes in the health care delivery system have resulted in major consolidation
+among reference laboratories and the formation of multi-hospital alliances.
+Meridian has structured its marketing, selling and customer service to
+anticipate and respond to these changes. This involved the
+7
+10
+addition of sales and marketing personnel; the expansion of technical services
+staff to support Meridian's customers and distribution network through a
+toll-free service hotline; and the implementation of major marketing programs to
+target key customers.
+Meridian markets products through direct sales forces, both domestically and in
+Italy, France, Belgium and the Netherlands, and through national and
+international independent distributors. In the United States, Meridian's direct
+sales force consists of three regional sales managers, one Corporate Health
+System Manager, three inside sales representatives and 18 technical sales
+representatives. In Europe, Meridian's sales force consists of a vice president
+of sales and marketing, six sales and marketing managers, two product managers,
+five product specialists and 20 technical sales representatives. Where Meridian
+utilizes distributors, Meridian participates in selling efforts involving key
+customers. Meridian has nearly 80 independent distributors in more than 60
+foreign countries including key distributor relationships in Canada, Central and
+South America, Mexico, Australia, New Zealand and the Pacific Rim, which are
+managed directly from the United States by an international manager. Meridian's
+sales in Europe, North Africa and the Middle East are shipped from Meridian
+Diagnostics Europe (MDE) distribution centers in Milan, Italy and Nivelle,
+Belgium.
+RESEARCH AND DEVELOPMENT
+Meridian's research and development activities focus on developing new and
+improved diagnostic solutions. Working in conjunction with the marketing
+department, Meridian's research and development department focuses its
+activities on enhancements to, and new applications for, Meridian's
+technologies. Over the past ten years, Meridian has developed internally 35 new
+products. Meridian has patent protection on a limited number of its products
+including Premier Platinum HpSA(TM). The research and development department is
+proficient in a number of diagnostic technologies, each of which can be applied
+to meet new product specifications that marketing has established. Meridian's
+product development staffs are experts in binding various biological materials
+to numerous solid phases, including plastics, membranes, latex beads,
+immunofluorescent dyes and immunogold, to develop testing formats. Meridian
+believes that its proprietary know-how and technologies in these areas enable it
+to develop products that have longer shelf-lives and provide improved
+performance and quicker test results.
+The research and development department initiates Meridian's quality process
+through its design control mechanism which establishes manufacturing standards
+and specifications. By working closely with the manufacturing department, the
+same standards and specifications ensure consistent high-quality products.
+Meridian estimates that it takes approximately 18 to 24 months from the
+conceptualization of a product to its marketing.
+The research and development department includes the Vice President of Research
+and Development and 14 research scientists. The disciplines represented in the
+group include biochemistry, immunology, mycology, bacteriology, virology and
+parasitology. In fiscal 1998, fiscal 1999 and fiscal 2000, Meridian spent $2.0
+million, $2.0 million, and $2.3 million
+8
+11
+respectively, on its research and development activities.
+CUSTOMERS
+The principal customers for Meridian's products are hospitals, commercial and
+reference laboratories, alternate site markets, such as physicians' offices,
+outpatient clinics, nursing homes and HMOs, and new markets, such as veterinary
+laboratories and water treatment facilities. Meridian also serves as an original
+equipment manufacturer for other diagnostic companies. Two distributors together
+accounted for more than 25% of Meridian's fiscal 2000 sales. However, Meridian
+does not believe that the loss of either of these distributors would have a
+material adverse effect on Meridian because of its ability to sell to the
+end-use customers served by these distributors through alternative means.
+MANUFACTURING
+During fiscal 2000, substantially all of Meridian's manufacturing was performed
+at its Cincinnati, Ohio facility. Meridian's acquisition of VAI has added
+additional manufacturing capacity in Memphis, Tennessee. VAI's manufacturing of
+veterinary products is regulated by the USDA and VAI's proteomics laboratory is
+regulated by CBER (see Government Regulation). VAI's manufacturing facilities
+are also subject to audit by certain customers. To maintain the highest quality
+standards, Meridian utilizes both external and internal quality auditors who
+routinely evaluate Meridian's manufacturing processes. Meridian strives to
+quickly evaluate, remedy and review the implementation of corrective actions to
+further assure compliance with medical device regulation.
+Meridian is required to comply with, among other regulations, the FDA's Quality
+System Regulation and is subject to periodic audits by the FDA. In response to
+audits conducted in fiscal 2000, the Company implemented various programs to
+address necessary corrective actions which it identified and increased its
+quality assurance and control staffing. The costs attributable to the additional
+staff and consulting assistance for fiscal 2000 were approximately $800,000. The
+FDA is currently conducting a follow-up audit and is reviewing certain
+validation procedures for certain products. The Company is fully cooperating
+with the FDA in an effort to complete this process. While the outcome of the
+audit is unknown at this time, if the FDA requires that validation procedures be
+re-performed, the Company estimates that the lost revenue impact, while the
+product is being re-validated and not available for sale, and the potential
+work-in-process inventory that is not saleable, could be significant.
+Meridian's immunodiagnostic products require the production of highly specific
+and sensitive antigens and antibodies. Meridian produces substantially all of
+its own requirements including monoclonal antibodies and polyclonal antibodies,
+plus a variety of fungal, bacterial and viral antigens. For many of its key raw
+materials acquired from third parties, Meridian has developed dual sources. As a
+result, Meridian believes it has access to sufficient raw materials for its
+9
+12
+products. Meridian believes it has sufficient manufacturing capacity for
+anticipated growth. Meridian Diagnostics Europe s.r.l. achieved ISO 9002
+certification in fiscal 1998, BIODESIGN achieved ISO 9001 certification in
+fiscal 2000 and Meridian is working towards achieving ISO 9000 certification in
+Cincinnati in fiscal 2001.
+COMPETITION
+The market for diagnostic tests is a multi-billion dollar international industry
+which is highly competitive. Many of Meridian's competitors are larger with
+greater financial, research, manufacturing and marketing resources. Important
+competitive factors of Meridian's products include product quality, price, ease
+of use, customer service, and reputation. In a broader sense, industry
+competition is based upon scientific and technological capability, proprietary
+know-how, access to adequate capital, the ability to develop and market products
+and processes, the ability to attract and retain qualified personnel and the
+availability of patent protection. To the extent that Meridian's product lines
+do not reflect technological advances, Meridian's ability to compete in those
+product lines could be adversely affected.
+Companies competing in the diagnostic test industry generally focus on a limited
+number of tests or limited segments of the market. As a result, the diagnostic
+test industry is highly fragmented and segmented. Hundreds of companies in the
+United States alone supply immunodiagnostic tests. These companies range from
+multi-national health care companies, for which immunodiagnostics is one line of
+business, to small start-up companies. Of central importance in the industry are
+mid-sized medical diagnostic specialty companies, like Meridian, that offer
+multiple, broad product lines and have the ability to deliver high value new
+products quickly to the marketplace. Among the companies with which Meridian
+competes in the marketing of one or more of its products are Abbott Laboratories
+Inc., Becton, Dickinson and Company, Diagnostic Products Corporation, Quidel
+Corporation and Wampole Laboratories Division of Carter-Wallace, Inc.
+INTELLECTUAL PROPERTY, PATENTS AND LICENSES
+Meridian owns or licenses U.S. and foreign patents for approximately 25 of its
+products, including a patent for Premier Platinum HpSA(TM) issued in February
+1998. The Company's VAI subsidiary has U.S. patents for four of its
+manufacturing processes. The patents or licenses for most of Meridian's products
+were acquired in connection with the purchase of the products or the licensing
+of the technology on which the products are based. In the absence of patent
+protection, Meridian may be vulnerable to competitors who successfully replicate
+Meridian's production and manufacturing techniques and processes. Meridian's
+laboratory and research personnel are required to execute confidentiality
+agreements designed to protect Meridian's proprietary products.
+10
+13
+Meridian has no reason to believe that its products and proprietary rights
+infringe the proprietary rights of any third parties. There can be no assurance,
+however, that third parties will not assert infringement claims in the future.
+GOVERNMENT REGULATION
+FDA Regulation of Medical Devices - Meridian's products are regulated by the
+Food & Drug Administration as "devices" pursuant to the Federal Food, Drug and
+Cosmetic Act (FDCA). Under the FDCA, medical devices are classified into one of
+three classes (i.e., Class I, II or III). Class I and II devices are not
+expressly approved by the FDA, but, instead, are "cleared" for marketing. Class
+III devices generally must receive "pre-market approval" from the FDA as to
+safety and effectiveness.
+A 510(k) clearance will be granted if the submitted data establishes that the
+proposed device is "substantially equivalent" to an existing Class I or Class II
+medical device or to a Class III medical device for which the FDA has not
+required pre-market approval. The 510(k) clearance process for "substantially
+equivalent" devices allows product sales to be made after the filing of an
+application and upon acknowledgment by the FDA, typically within 90 to 120 days
+after submission. If the FDA requests additional information, the product cannot
+be sold until the application has been supplemented and upon acknowledgment by
+the FDA within 90 to 120 days of the supplemental application. In practice, the
+FDA has been granting clearance in about 30 days following submission of the
+supplemental information. If there are no existing FDA-approved products or
+processes comparable to a diagnostic product or process, approval by the FDA
+involves the more lengthy pre-market approval procedures.
+Each of the products currently marketed by Meridian has been cleared by the FDA
+pursuant to the 510(k) clearance process or is exempt from such requirements.
+Meridian believes that most, but not all, products under development will be
+classified as Class I or II medical devices and will be eligible for 510(k)
+clearance.
+Other Medical Device Regulation - Sales of Meridian's products in foreign
+countries are subject to foreign government regulation, the requirements of
+which vary substantially from country to country. The time required to obtain
+approval by a foreign country may be longer or shorter than that required for
+FDA approval, and the requirements may differ. During fiscal 1999, Meridian
+received approval for several new product registrations in Japan. Currently,
+Meridian is supporting foreign product registrations in Mexico, Korea, Japan,
+China and Argentina via the distributors in the respective countries.
+VAI's veterinary products are approved and licensed by the United States
+Department of Agriculture (USDA). This typically requires six months to one year
+for the approval process. In addition, assays for monitoring "controlled
+diseases" require testing and release of each production serial before it is
+available to the market.
+11
+14
+The proteins produced in VAI's proteomics laboratory are intended to be used as
+"injectibles". As such they are produced under more stringent regulations under
+the auspices of the Center for Biologicals Evaluation & Research (CBER).
+Approval and licensing, following clinical trials, of these products will be the
+responsibility of the company that owns the rights to each protein. Such
+products are approved under the "pre-market approval" guidelines which requires
+substantially more time than 510(k) clearance.
+The Clinical Laboratory Improvement Act of 1988 prohibits 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.
+Although these certificates are required only for Meridian's laboratory
+customers (but not for Meridian itself), Meridian considers the requirements of
+The Clinical Laboratory Improvement Act of 1988 in the design and development of
+its products.
+Meridian is a conditionally exempt small quantity generator of hazardous waste
+and has a U.S. Environmental Protection Agency identification number. All
+hazardous waste is manifested and disposed of properly. Meridian is in
+compliance with the applicable portions of the federal and state hazardous waste
+regulations and has never been a party to any environmental proceeding.
+EMPLOYEES
+As of September 30, 2000, Meridian had 369 full-time employees, including 75 in
+sales, marketing and technical support, 106 in manufacturing, 15 in research and
+product development, and 35 in administration and finance. 93 of Meridian's
+employees hold scientific degrees.
+Meridian maintains a Savings and Investment Plan for its U.S. employees and has
+established stock option plans for its officers, directors and employees. In
+addition, a stock purchase plan was established on October 1, 1997 for all
+employees.
+None of Meridian's employees is represented by a labor organization and Meridian
+is not a party to any collective bargaining agreement. Meridian has never
+experienced any strike or work stoppage and considers its relationship with its
+employees to be good.

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+Item 13 Certain Relationships and Related Transactions .........................................16

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+0000794172,VIVO,MERIDIAN BIOSCIENCE INC,10-K,2001-12-20,2001-09-30,2001-12-20T05:00:00.000Z,0000950109-01-505814,d10k.htm,ANNUAL REPORT,574517,0,0,https://www.sec.gov/Archives/edgar/data/794172/000095010901505814/d10k.htm,https://www.sec.gov/Archives/edgar/data/794172/000095010901505814/,2001,2001,1

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+ITEM 1. 
+BUSINESS 
+General 
+Meridian was incorporated in 1976 as an Ohio corporation. Meridian is a fully integrated life sciences company that develops, manufactures and markets a broad range of innovative, disposable diagnostic test kits and related
+diagnostic products used for the rapid diagnosis of infectious diseases. Meridian also offers biopharmaceutical capabilities and serves as an original equipment manufacturer for other diagnostics companies. 
+Meridian’s diagnostics products provide accuracy, simplicity and speed, and enable early diagnosis and treatment of common medical conditions such as gastrointestinal, viral and respiratory infections. All of Meridian's
+diagnostics products are used in procedures performed in vitro (outside the body) and enhance patient well-being while reducing total outcome costs of healthcare. 
+In addition to the diagnostic business, Meridian is expanding further into the area of life sciences. Through recent acquisitions, Meridian has the technical expertise to enable research efforts of genomics scientists in drug and
+vaccine development. The expansion into life sciences prompted the Meridian’s decision to change its official name to Meridian Bioscience, Inc. 
+Meridian's diagnostic product development strategy is to combine existing technologies with new product designs, both through internal or joint product development, and through product acquisitions, licensing or supply arrangements.
+Internal and joint product development activities focus on the development or enhancement of immunodiagnostic technologies and applications to simplify, accelerate or increase the accuracy of diagnoses of certain infectious diseases. Since 1990,
+Meridian has also acquired or obtained rights to distribute numerous products and technologies. 
+Meridian utilizes its resources to serve each of the strategic domestic and international medical markets it has targeted: hospital networks and clinical and hospital laboratories; alternate site markets, including physicians'
+offices, outpatient clinics, nursing homes and health maintenance organizations (HMOs); and new markets, including veterinary laboratories and water treatment facilities. Meridian markets over 200 products representing four major disease states
+through a direct sales force in the United States, Italy, France, Belgium and the Netherlands, supplemented by a network of national and international distributors. International sales in more than 60 countries were 30% of total fiscal 2001 sales
+(see Note 12 to the Consolidated Financial Statements for information regarding sales by business segment). 
+1 
+During the fourth quarter of fiscal 2000, a plan was implemented to restructure European distribution operations, eliminate Meridian’s direct presence in Germany and improve operating results. Effective October 1, 2000, the
+European export business was transferred from Germany to Belgium. During the second quarter of fiscal 2001, Meridian completed the transfer of the German business to an independent distributor. Meridian believes that the results of the restructuring
+plan to date have been successful. Excluding restructuring costs, the European business segment generated operating income of $852,000 during fiscal 2001 compared to an operating loss of $566,000 in fiscal 2000. Substantial savings have been
+realized from the closure of the German distribution facility. 
+Acquisitions and Alliances 
+Important elements of Meridian's long-term business strategy are the expansion into life sciences and the acquisition, licensing or entrance into supply arrangements to obtain innovative diagnostic testing technologies, product
+formats and products that complement its existing operations. During the last 14 months, Meridian executed a number of supply arrangements, both domestically and internationally, that included approximately 30 products. 
+In late fiscal 2000, Meridian completed its acquisition of Viral Antigens, Inc. VAI further expanded Meridian's life sciences capabilities through VAI’s protein expression laboratories, providing Meridian the opportunity to
+serve as an enabler to biopharmaceutical companies in the development of new drugs and vaccines. VAI’s facilities are currently being expanded to accommodate a larger volume of business and are expected to be operational in March 2002. VAI also
+manufactures infectious disease antigens that are used in immunodiagnostics testing, and a Pseudorabies Virus antibody test kit and equine infectious anemia antibody test kit for the veterinary market. See Note 3 to the Consolidated Financial
+Statements for further information. 
+Also during fiscal 2000, Meridian executed a Research and Development Agreement and an Exclusive Supply Agreement with OraSure Technologies, Inc. to commercialize the Up link technology . Meridian believes that this technology will offer competitive advantages including the elimination of background interference, simultaneous detection of multiple biological markers
+and improved sensitivity. These agreements require Meridian to make future payments to OraSure to fund research and development costs and to obtain an exclusive license to market and sell related products on a global basis. Meridian expects to begin
+the commercial sale of Up link™ products in late fiscal 2002 or early fiscal 2003. 
+In early fiscal 1999, Meridian completed its acquisition of Gull Laboratories, Inc. Gull further expanded Meridian’s diagnostic test product offerings and European distribution channels. Included in the Gull acquisition was its
+subsidiary, BIODESIGN International, which manufactures and markets antigens and antibodies to diagnostic and pharmaceutical manufacturers as well as academic researchers. See Note 3 to the Consolidated Financial Statements for further information.
+2 
+Prior to fiscal 2000, Meridian pursued the acquisition and licensing of products and technologies that fit Meridian's niche diagnostic test markets, which are characterized by a large number of users. Examples of this included the
+acquisition of Gull Laboratories, Inc. in fiscal 1999, the acquisition of the enteric product line of Cambridge Biotech Corporation in fiscal 1996, the acquisitions of the infectious disease and mononucleosis product lines of Johnson & Johnson
+in fiscal 1994 and 1993, respectively, and numerous smaller product acquisitions and licensing arrangements. 
+A key component in the success of Meridian's acquisition and licensing of new products and technologies has been the ability of Meridian to respond quickly to acquisition and licensing opportunities as they arise in the marketplace.
+The success of this strategy has also been due in part to management's selective acquisition and licensing philosophy as well as the availability of cash on hand and available lines of credit. 
+Immunodiagnostics Overview 
+In vitro diagnostic testing is the process of analyzing constituents of blood, urine, stool, other body fluids or tissue for the presence of specific infectious diseases. Immunodiagnostic testing, which is
+the leading method of in vitro testing for infectious diseases, tests for antigens and antibodies. When an infectious disease caused by pathogens, such as bacteria, viruses and fungi, and their related
+antigens are present, the body responds by producing an antibody. The antibody binds specifically with the antigen in a lock-and-key fashion and initiates a biochemical reaction to attempt to neutralize and, ultimately, to eliminate the antigen. The
+ability of an antibody to bind with a specific antigen provides the basis for immunodiagnostic testing. 
+Immunodiagnostic testing detects the presence of specific infectious diseases through "visualization", such as color changes or the formation of visible aggregates, of the biochemical reactions caused by the antigen/antibody. Most
+immunodiagnostic tests utilize one of two alternative methods to determine the presence of a specific disease in a patient specimen. In one method, the test employs the antibody to detect directly the presence of an antigen. Alternatively, certain
+tests employ the antigen to detect the presence of an antibody. In addition to the diagnosis of infectious diseases, immunodiagnostic testing is also used to monitor the status of various patient therapy programs. 
+Market Trends 
+The global market for infectious disease tests continues to expand as new disease states are identified, new therapies become available and worldwide standards of living and access to health care improve. More importantly, within
+this market there is a continuing shift from conventional testing, which requires highly trained personnel and lengthy turnaround times for test results, to more technologically advanced testing which can be performed by less highly trained
+personnel and completed in minutes or hours. 
+3 
+Technological advances permitting accurate testing to occur outside the traditional hospital or laboratory setting have also affected the market for diagnostic products. These technological developments have contributed to the
+emergence of alternate site markets, such as physicians' offices, outpatient clinics, nursing homes and HMOs, as important diagnostic market segments. These technological advances should also contribute to the development of new markets for
+Meridian's products, including food testing, veterinary laboratories and water treatment facilities. 
+The increasing pressures to contain total health care costs have accelerated the increased use of diagnostic testing and the market shift to alternate sites. With rapid and accurate diagnoses of infectious diseases, physicians can
+pinpoint appropriate therapies quickly, leading to faster recovery, shorter hospital stays and less treatment expense. In addition, these pressures have led to a major consolidation among reference laboratories and the formation of multi-hospital
+alliances that have reduced the number of institutional customers for diagnostic products and resulted in changes in buying practices. Specifically, multi-year exclusive or primary source marketing or distribution contracts with institutional
+customers have become more common, replacing less formal distribution arrangements of shorter duration and involving lower product volumes. In Europe, the reexamination of health care costs, access and funding is causing similar pressures.
+Business Strategy 
+Meridian continues to execute its long-term strategy consisting of the following elements: 
+Developing New Product Applications from Core Technologies - Meridian employs a market-driven product development strategy to adapt or enhance
+diagnostic testing technologies and product formats in response to newly identified disease states and customer demands for improvements in product accuracy, simplicity, speed and cost-efficiency. Meridian accomplishes this by monitoring existing
+markets, interacting closely with its customers and recognizing emerging diseases and therapies. Since 1991, Meridian has developed 35 new products. 
+Acquiring and Licensing Products and Technology - Meridian intends to acquire, license or enter into supply arrangements to obtain innovative diagnostic testing
+technologies, product formats and products that complement its existing operations and address the needs of Meridian's existing and targeted customer base. Management regularly identifies and reviews opportunities through its broad industry contacts
+and recognized position in the industry. Since 1991, Meridian has acquired, licensed or entered into supply arrangements relating to approximately 100 products. 
+Enabling Biomedical Research and Early Stage Biopharmaceutical Development - Meridian intends to leverage its skills and capabilities in the life
+sciences market. Meridian has an established position in this market through 
+4 
+its BIODESIGN subsidiary. BIODESIGN manufactures and distributes essential antigen and antibody reagents to diagnostic and pharmaceutical manufacturers as well as academic researchers. These reagents are essential to the development
+of assay systems, control standards and new drug development research. 
+During fiscal 2000, Meridian further improved its skills and capabilities in the life sciences market through the acquisition of VAI. VAI’s pharmaceutical quality proteomics laboratories, which are currently being expanded,
+will be used to produce drug and vaccine proteins through gene expression techniques. These proteins will be used by biopharmaceutical companies in the development of drugs and vaccines for Phase I and II clinical trials. 
+Increasing International Sales - Meridian has targeted international sales as an attractive source of growth. Meridian has developed a strong presence in Italy
+through its Italian subsidiary, Meridian Bioscience Europe s.r.l., and with the acquisition of Gull has an established sales force in Belgium, France and the Netherlands. Meridian has expanded its ability to serve Latin American markets and has
+expanded its international distributor base to include distributors in Argentina and Asia. Over the last several years, Meridian's international sales have grown from $2.1 million in fiscal 1993 to $16.7 million in fiscal 2001 and represented 30% of
+total consolidated sales in fiscal 2001. 
+Strengthening Partnerships With Consolidated Health Care Organizations - Meridian seeks to develop strategic
+partnerships with the major reference laboratories and other consolidated health care providers. Meridian believes it is in a position to develop partnerships because it is an integrated manufacturer, has a broad product line, offers tests in
+multiple formats and is willing to invest resources in building relationships and facilitating open communications with those large customers. During the last four years, several exclusive multiple-year contracts were signed with consolidated health
+care providers and Meridian also extended or renewed supply agreements with several major reference laboratories and other consolidated health care providers. 
+Global Sales Excellence - Meridian continues to focus on an initiative to improve its worldwide excellence in customer service, sales support and
+technical assistance. Meridian believes that its customers have rewarded it for the high level of customer service and support it has provided in the past. However, Meridian desires to provide a level of service that exceeds the current standards of
+the health care industry and, most importantly, the customer’s expectations. Meridian is implementing several customer satisfaction training programs and information system improvements in order to achieve global sales excellence. 
+Products and Markets 
+Meridian has expertise in the development and manufacture of products based on multiple core diagnostic technologies, each of which enables the visualization and identification of antigen/antibody reactions for specific pathogens.
+As a result, Meridian is able to develop and manufacture diagnostic tests in a variety of formats that satisfy customer needs and preferences, whether in a hospital, commercial or reference laboratory or alternate site 
+5 
+location. These technologies include enzyme immunoassay, immunofluorescence, particle agglutination, membrane filtration/concentration, immunodiffusion, complement fixation and chemical stains. 
+Enzyme Immunoassay (EIA) - Products incorporating the EIA technology achieve extremely high levels of accuracy in detecting disease-related antigens or antibodies through the use of special color-based
+enzyme-substrate reactions. Meridian utilizes this technology in its multiple test format, the Premier TM 
+product for large volume users, and in its single test formats, the Immuno Card ® 
+and Monolert ® 
+products, for single physician users. 
+Immunofluorescence - When the microscopic visualization of an antigen/antibody reaction is necessary or desired,
+immunofluorescence technology is frequently utilized. Fluorescing immunochemicals, in the presence of the target antigen or antibody, can be viewed via a fluorescent microscope. Meridian utilizes this technology in its Merifluor ® 
+products. 
+Particle Agglutination - This technology utilizes microparticles (e.g., latex, red blood cells) coated with specific antigens or antibodies that form visible aggregates in the presence of a specimen
+containing the complementary antigen or antibody. This technology is rapid and economical and is used in Meridian's Meritec TM 
+, MeriStar ® 
+and MonoSpot ® 
+products. 
+Other Technologies - Meridian utilizes other technologies that include immunodiffusion, complement fixation and chemical stains. Meridian also
+manufactures and markets specimen collection, transportation, preservation and concentration products, such as Para-Pak ® 
+, Macro-CON ® 
+and SpinCON ® 
+. 
+Meridian's product line consists of over 200 medical diagnostic products representing four major disease states. Currently, the most important product lines from the perspective of sales are products to diagnose gastrointestinal,
+viral and parasitic diseases. Meridian's products generally range in list price from $1 per test to $33 per test. A discussion of Meridian's key products and their competitive advantage follows. 
+Parasitic Diseases - Meridian manufactures products for the diagnosis and collection, preservation, transportation and concentration of parasites. Parasitic diseases
+include Giardiasis, Cryptosporidiosis, Amebiasis and Lyme disease. The markets for these products are hospital, reference and veterinary laboratories . 
+Gastrointestinal Diseases - Meridian manufactures products for the rapid diagnosis of stomach ulcers, toxigenic E. coli , antibiotic associated diarrhea (C. difficile ) and pediatric diarrhea ( Rotavirus and Adenovirus). The markets for these
+products are hospital, reference, veterinary and state health laboratories. 
+6 
+Respiratory Diseases - Meridian manufactures a broad range of diagnostic reagents for detecting respiratory diseases including pneumonia ( mycoplasma pneumoniae ) and valley fever ( coccidioides immittis ). The markets for these products are hospital, reference, veterinary and state health laboratories.
+Urogenital Diseases - Meridian manufactures a product for the rapid detection of Chlamydia . The markets for this product are hospital,
+reference, physicians’ office and public health laboratories. 
+Viral Diseases - Meridian manufactures a broad range of products for the detection of various viruses including Epstein - Barr (mononucleosis), Herpes simplex, Cytomegalovirus (organ transplant infections) and Varicella- Zoster (chicken pox and shingles). The markets for these products are hospital, reference, physicians' office and public health laboratories. 
+Marketing and Sales 
+Meridian's marketing efforts are focused on a continual process of seeking ways to assist health care providers in improving outcomes for patients exposed to serious infectious diseases. Rapid, accurate diagnosis can mean faster
+recovery, shorter hospital stays and less expense, both for the patient and the health care system. 
+Meridian believes that its marketing goals are best served by forming partnerships with key customers to develop concepts for future products and technology applications. These partnerships facilitate close customer interaction,
+including product strategy sessions and co-marketing programs. 
+Marketing utilizes its strong industry contacts, plus key customer focus sessions, to identify new products and other opportunities. Through the use of cross-functional teams that include marketing, research and development and
+manufacturing personnel, marketing guides the development process to meet customers' needs with products that are easier to use, require less technical expertise, and yield faster results--often in minutes or hours rather than days. 
+Changes in the health care delivery system have resulted in major consolidation among reference laboratories and the formation of multi-hospital alliances. Meridian has structured its marketing, selling and customer service to
+anticipate and respond to these changes. This involved the addition of sales and marketing personnel; the expansion of technical services staff to support Meridian's customers and distribution network through a toll-free service hotline; and the
+implementation of major marketing programs to target key customers. 
+Meridian markets products through direct sales forces, both domestically and in Italy, France, Belgium and the Netherlands, and through national and international independent distributors. In the United States, Meridian's 
+7 
+direct sales force consists of three regional sales managers, one corporate health system manager, two inside sales representatives and 21 technical sales representatives. In Europe, Meridian’s sales force consists of five
+sales and marketing managers, three product specialists and 11 technical sales representatives. Where Meridian utilizes distributors, Meridian participates in selling efforts involving key customers. Meridian has nearly 80 independent distributors
+in more than 60 foreign countries including key distributor relationships in Canada, Central and South America, Mexico, Australia, New Zealand and the Pacific Rim, which are managed directly from the United States by an international manager.
+Meridian's sales in Europe, North Africa and the Middle East are shipped from Meridian Bioscience Europe (MBE) distribution centers in Milan, Italy and Nivelle, Belgium. 
+Research and Development 
+Meridian's research and development activities focus on developing new and improved diagnostic solutions, both internally and with collaborative partners such as OraSure. Working in conjunction with the marketing department,
+Meridian's research and development department focuses its activities on enhancements to, and new applications for, Meridian's technologies. Since 1990, Meridian has developed internally 35 new products. Meridian has patent protection on a limited
+number of its products including Premier Platinum HpSA ™ . The research and development department is proficient in a number of diagnostic technologies, each of which can be applied to meet new product specifications that
+marketing has established. Meridian's product development staffs are experts in binding various biological materials to numerous solid phases, including plastics, membranes, latex beads, immunofluorescent dyes and immunogold, to develop testing
+formats. Meridian believes that its proprietary know-how and technologies in these areas enable it to develop products that have longer shelf-lives and provide improved performance and quicker test results. 
+The research and development department initiates Meridian's quality process through its design control mechanism which establishes manufacturing standards and specifications. By working closely with the manufacturing department,
+the same standards and specifications ensure consistent high-quality products. Meridian estimates that it takes approximately 18 to 24 months from the conceptualization of a product to its marketing. 
+The research and development department includes the Vice President of Research and Development and nine research scientists. The disciplines represented in the group include biochemistry, immunology, mycology, bacteriology,
+virology and parasitology. In fiscal 1999, fiscal 2000 and fiscal 2001, Meridian spent $2.0 million, $2.3 million, and $3.4 million, respectively, on its research and development activities. 
+Customers 
+The principal customers for Meridian's products are hospitals, commercial and reference laboratories, alternate site markets, such as physicians' offices, outpatient clinics, nursing homes and HMOs, and new markets, such as
+8 
+veterinary laboratories and water treatment facilities. Meridian also serves as an original equipment manufacturer for other diagnostic companies. Two distributors together accounted for more than 20% of Meridian's fiscal 2001
+sales. However, Meridian does not believe that the loss of either of these distributors would have a material adverse effect on Meridian because of its ability to sell to the end-use customers served by these distributors through alternative means.
+Manufacturing 
+During fiscal 2001, substantially all of Meridian's manufacturing was performed at its Cincinnati, Ohio facility and VAI's Memphis, Tennessee facility. To maintain the highest quality standards, Meridian utilizes both external and
+internal quality auditors who routinely evaluate Meridian's manufacturing processes. Meridian strives to quickly evaluate, remedy and review the implementation of corrective actions to further assure compliance with medical device regulation.
+Meridian's immunodiagnostic products require the production of highly specific and sensitive antigens and antibodies. Meridian produces substantially all of its own requirements including monoclonal antibodies and polyclonal
+antibodies, plus a variety of fungal, bacterial and viral antigens. Meridian believes it has sufficient manufacturing capacity for anticipated growth. 
+During January 2001, the FDA completed a follow-up inspection of Meridian’s compliance with the Quality Systems Regulations that govern the manufacturing of in vitro diagnostics. This inspection included a review of,
+among other things, procedures for validation, document control, corrective actions and design control. In June 2001, Meridian received a Warning Letter from the FDA which summarized and reiterated certain of the observations made by the FDA during
+their follow-up inspection completed in January 2001. Meridian responded to the Warning Letter on July 20, 2001. 
+In January 2001, Meridian submitted a comprehensive plan to the FDA outlining specific steps it committed to undertake to improve its quality systems. To concentrate and focus resources on QSR compliance, Meridian discontinued the
+manufacture and distribution of approximately 30 products. The costs to date of implementing the plan include costs for outside consultants with experience in the quality system regulations, validation and computer software and equipment. During the
+fiscal 2001, Meridian incurred plan implementation costs in the amount of $2,322,000, primarily related to consulting fees. On an on-going basis, Meridian has considered the effects of incremental costs of compliance with QSR in its cost structure.
+Meridian believes that such incremental costs of compliance with QSR will be offset by cost reductions and efficiencies related to the restructuring of Cincinnati manufacturing operations discussed below, and consequently, gross profit margins for
+the diagnostics business are expected to approach 1999 - 2000 levels. 
+9 
+Meridian continues to engage in other activities designed to reduce costs, improve operations and replace products that were discontinued. Meridian restructured its Cincinnati manufacturing operations and quality functions by, among
+other things, hiring a number of professionals with experience in monitoring and improving a FDA-compliant quality system. During the second quarter, Meridian entered into a three-year supply agreement (with renewal options) with Zeus Scientific,
+Inc., whereby Zeus will manufacture, on an OEM basis, replacement products for 27 of the 30 discontinued Meridian products. 
+As a result of the decision to discontinue the manufacturing and distribution of approximately 30 products, Meridian could not recover the cost of certain assets, and consequently, recorded a pre-tax charge in the amount of $12.8
+million during fiscal 2001 (see Note 4 to the Consolidated Financial Statements for further discussion). 
+In accordance with the FDA's directive in the Warning Letter, Meridian engaged an outside independent auditor to evaluate Meridian’s progress in implementing its corrective plan. Based on an extensive review of documents and an
+on-site visit, the auditors substantiated Meridian’s progress in addressing the issues raised in the FDA inspection and Warning Letter. 
+Contingent upon the successful restructuring of operations and the acceptance of the plan by the FDA, Meridian expects cash flows from operations to be sufficient to fund working capital needs, debt service, dividends and the stock
+buyback program referred to in Note 1 to the Consolidated Financial Statements during fiscal 2002. Meridian is communicating with the FDA on a periodic basis to advise it on the progress of the plan implementation. At present, it is uncertain
+whether Meridian’s actions will be sufficient so that no further remedial action or enforcement action by the FDA will occur. 
+Competition 
+The market for diagnostic tests is a multi-billion dollar international industry which is highly competitive. Many of Meridian's competitors are larger with greater financial, research, manufacturing and marketing resources.
+Important competitive factors of Meridian's products include product quality, price, ease of use, customer service, and reputation. In a broader sense, industry competition is based upon scientific and technological capability, proprietary know-how,
+access to adequate capital, the ability to develop and market products and processes, the ability to attract and retain qualified personnel and the availability of patent protection. To the extent that Meridian's product lines do not reflect
+technological advances, Meridian's ability to compete in those product lines could be adversely affected. 
+Companies competing in the diagnostic test industry generally focus on a limited number of tests or limited segments of the market. As a result, the diagnostic test industry is highly fragmented and segmented. Hundreds of companies
+in the United States alone supply immunodiagnostic tests. These companies range from multi-national health care companies, for which immunodiagnostics is one line of business, to small start-up companies. Of 
+10 
+central importance in the industry are mid-sized medical diagnostic specialty companies, like Meridian, that offer multiple, broad product lines and have the ability to deliver high value new products quickly to the marketplace.
+Among the companies with which Meridian competes in the marketing of one or more of its products are Abbott Laboratories Inc., Becton, Dickinson and Company, Diagnostic Products Corporation, Quidel Corporation and Wampole Laboratories Division of
+Carter-Wallace, Inc. 
+Intellectual Property, Patents and Licenses 
+Meridian owns or licenses U.S. and foreign patents for approximately 25 of its products, including a patent for Premier Platinum HpSA TM 
+issued in February 1998. Meridian’s VAI subsidiary has U.S. patents for four of its manufacturing processes. The patents or licenses for most of Meridian’s products were acquired in connection with the
+purchase of the products or the licensing of the technology on which the products are based. In the absence of patent protection, Meridian may be vulnerable to competitors who successfully replicate Meridian's production and manufacturing techniques
+and processes. All of Meridian's employees are required to execute confidentiality and non-disclosure agreements designed to protect Meridian's proprietary products. 
+Meridian does not believe that its products and proprietary rights infringe the proprietary rights of any third parties. There can be no assurance, however, that third parties will not assert infringement claims
+in the future. 
+Government Regulation 
+FDA Regulation of Medical Devices - Meridian’s products are regulated by the Food & Drug Administration as "devices" pursuant to the Federal
+Food, Drug and Cosmetic Act (FDCA). Under the FDCA, medical devices are classified into one of three classes (i.e., Class I, II or III). Class I and II devices are not expressly approved by the FDA, but, instead, are "cleared"
+for marketing. Class III devices generally must receive "pre-market approval" from the FDA as to safety and effectiveness. 
+A 510(k) clearance will be granted if the submitted data establishes that the proposed device is "substantially equivalent" to an existing Class I or Class II medical device or to a Class III medical device for which the FDA has
+not required pre-market approval. The 510(k) clearance process for "substantially equivalent" devices allows product sales to be made after the filing of an application and upon acknowledgment by the FDA, typically within 90 to 120 days after
+submission. If the FDA requests additional information, the product cannot be sold until the application has been supplemented and upon acknowledgment by the FDA within 90 to 120 days of the supplemental application. In practice, the FDA has been
+granting clearance in about 90 days following submission of the supplemental information. If there are no existing FDA-approved products or processes comparable to a diagnostic product or process, approval by the FDA involves the more lengthy
+pre-market approval procedures. 
+11 
+Each of the products currently marketed by Meridian has been cleared by the FDA pursuant to the 510(k) clearance process or is exempt from such requirements. Meridian believes that most, but not all, products under development will
+be classified as Class I or II medical devices and will be eligible for 510(k) clearance. 
+Other Medical Device Regulation - Sales of Meridian's products in foreign countries are subject to foreign government regulation, the requirements of
+which vary substantially from country to country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA approval and the requirements may differ. Currently, Meridian is
+supporting foreign product registrations in Mexico, Korea, Japan, China and Argentina via the distributors in the respective countries. 
+VAI’s veterinary products are approved and licensed by the United States Department of Agriculture (USDA). This typically requires six months to one year for the approval process. In addition, assays for monitoring
+“controlled diseases” require testing and release of each production serial before it is available to the market. 
+The proteins produced in VAI’s proteomics laboratories are intended to be used as “injectibles”. As such they are produced under more stringent regulations under the auspices of the Center for Biologicals Evaluation
+& Research (CBER). Approval and licensing, following clinical trials, of these products will be the responsibility of Meridian that owns the rights to each protein. Such products are approved under the “pre-market approval” guidelines
+which requires substantially more time than 510(k) clearance. 
+The Clinical Laboratory Improvement Act of 1988 prohibits 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. Although these
+certificates are required only for Meridian's laboratory customers (but not for Meridian itself), Meridian considers the requirements of The Clinical Laboratory Improvement Act of 1988 in the design and development of its products. 
+Meridian is a conditionally exempt small quantity generator of hazardous waste and has a U.S. Environmental Protection Agency identification number. All hazardous waste is manifested and disposed of properly. Meridian is in
+compliance with the applicable portions of the federal and state hazardous waste regulations and has never been a party to any environmental proceeding. 
+Employees 
+As of September 30, 2001, Meridian had 325 full-time employees and 9 part-time employees. None of Meridian's employees is represented by a labor organization and Meridian is not a party to any collective
+bargaining 
+12 
+agreement. Meridian has never experienced any strike or work stoppage and considers its relationship with its employees to be good. 
+Meridian maintains a Savings and Investment Plan for its U.S. employees and has established stock option plans for its officers, directors and employees. In addition, a stock purchase plan was established on October 1, 1997 for all
+employees.

raw/filings/0000794172/2001/0000950109-01-505814/item13.txt

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+Item 13 
+Certain Relationships and Related Transactions 
+52

raw/filings/0000794172/2002/0001206774-02-000020/filing_metadata.csv

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+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
+0000794172,VIVO,MERIDIAN BIOSCIENCE INC,10-K,2002-12-20,2002-09-30,2002-12-20T14:47:18.000Z,0001206774-02-000020,d11628.txt,,228860,0,0,https://www.sec.gov/Archives/edgar/data/794172/000120677402000020/d11628.txt,https://www.sec.gov/Archives/edgar/data/794172/000120677402000020/,2002,2002,1

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+ITEM 1.
+BUSINESS
+General
+Meridian is a fully integrated life sciences company that develops,
+manufactures, markets and distributes a broad range of innovative, disposable
+diagnostic test kits and related diagnostic products used for the rapid
+diagnosis of infectious diseases. Meridian also offers biopharmaceutical
+capabilities through its cGMP protein production laboratory at its Viral
+Antigens subsidiary.
+Meridian's diagnostics products provide accuracy, simplicity and speed, and
+enable early diagnosis and treatment of common medical conditions such as
+gastrointestinal, viral, and respiratory infections. All of Meridian's
+diagnostics products are used in procedures performed in vitro (outside the
+body) and enhance patient well-being while reducing total outcome costs of
+healthcare.
+In addition to the diagnostic business, Meridian is expanding further into the
+area of life sciences. Through recent acquisitions, Meridian has the technical
+expertise to enable research efforts of genomics scientists in drug and vaccine
+development. The expansion into life sciences prompted Meridian's decision to
+change its official name to Meridian Bioscience, Inc. in fiscal 2001.
+Meridian's diagnostic product development strategy is to combine existing
+technologies with new product designs, both through internal or joint product
+development, and through product acquisitions, licensing or supply arrangements.
+Internal and joint product development activities focus on the development or
+enhancement of immunodiagnostic technologies and applications to simplify,
+accelerate or increase the accuracy of diagnoses of certain infectious diseases.
+Since 1990, Meridian has acquired or obtained rights to distribute numerous
+products and technologies.
+Meridian utilizes its resources to serve each of the strategic domestic and
+international medical markets it has targeted: hospital networks and clinical
+and hospital laboratories; outpatient clinics, and health maintenance
+organizations (HMOs); and new markets, including veterinary laboratories and
+water treatment facilities. Meridian markets over 200 products representing four
+major disease states through a direct sales force in the United States, Italy,
+France, Belgium and the Netherlands, supplemented by a network of national and
+international distributors. International sales in more than 60 countries were
+30% of total fiscal 2002 sales (see Note 11 to the Consolidated Financial
+Statements for information regarding sales by business segment.)
+During the fourth quarter of fiscal 2000, a plan was implemented to restructure
+European distribution operations and improve operating results. Effective
+October 1, 2000, the European export business was transferred from Germany to
+Belgium. During the second quarter of fiscal 2001 Meridian completed the
+transfer of the German business to an independent distributor. Meridian believes
+that the results of the restructuring plan to date have been successful.
+Excluding restructuring costs, the European business segment generated operating
+income of $1,565,000 and $852,000 during fiscal 2002 and 2001, respectively,
+compared to an operating loss of $566,000 in fiscal 2000. Substantial savings
+have been realized from the closure of the German distribution facility and
+further cost-cutting measures implemented in fiscal 2002.
+Acquisitions
+Important elements of Meridian's long-term business strategy are the expansion
+into life sciences and the acquisition, licensing or entrance into supply
+arrangements to obtain innovative diagnostic testing technologies, product
+formats and products that complement its existing operations. Meridian has
+executed a number of supply arrangements, both domestically and internationally,
+that include more than 80 products. In late fiscal 2000, Meridian completed its
+acquisition of Viral Antigens, Inc. VAI further expanded Meridian's life
+sciences capabilities through VAI's cGMP protein production laboratory,
+providing Meridian the opportunity to serve as an enabler to biopharmaceutical
+companies in the development of new drugs and vaccines. VAI also manufactures
+1
+infectious disease antigens that are used in immunodiagnostics testing, and a
+Pseudorabies Virus antibody test kit and equine infectious anemia antibody test
+kit for the veterinary market.
+In early fiscal 1999, Meridian completed its acquisition of Gull Laboratories,
+Inc. Gull further expanded Meridian's diagnostic test product offerings and
+European distribution channels. Included in the Gull acquisition was its
+subsidiary, BIODESIGN International, which manufactures, markets and distributes
+antigens and antibodies to diagnostic and pharmaceutical manufacturers as well
+as academic researchers.
+Meridian pursues the acquisition and licensing of products and technologies that
+fit Meridian's niche diagnostic test markets, which are characterized by a large
+number of users. Examples of this included the acquisition of Gull Laboratories,
+Inc. in fiscal 1999, the acquisition of the enteric product line of Cambridge
+Biotech Corporation in fiscal 1996, the acquisitions of the infectious disease
+and mononucleosis product lines of Johnson & Johnson in fiscal 1994 and 1993,
+respectively, and numerous smaller product acquisitions and licensing
+arrangements.
+A key component in the success of Meridian's acquisition and licensing of new
+products and technologies has been the ability of Meridian to respond quickly to
+acquisition and licensing opportunities as they arise in the marketplace. The
+success of this strategy has also been due in part to management's selective
+acquisition and licensing philosophy as well as the availability of cash on hand
+and available lines of credit.
+Immunodiagnostics Overview
+In vitro diagnostic testing is the process of analyzing constituents of blood,
+urine, stool, other body fluids or tissue for the presence of specific
+infectious diseases. Immunodiagnostic testing, which is the leading method of in
+vitro testing for infectious diseases, tests for antigens and antibodies. When a
+pathogen, such as bacteria, viruses and fungi, and its related antigens is
+present, the body responds by producing an antibody. The antibody binds
+specifically with the antigen in a lock-and-key fashion and initiates a
+biochemical reaction to attempt to neutralize and, ultimately, to eliminate the
+antigen. The ability of an antibody to bind with a specific antigen provides the
+basis for immunodiagnostic testing.
+Immunodiagnostic testing detects the presence of specific infectious diseases
+through "visualization", such as color changes or the formation of visible
+aggregates, of the biochemical reactions caused by the antigen/antibody. Most
+immunodiagnostic tests utilize one of two alternative methods to determine the
+presence of a specific disease in a patient specimen. In one method, the test
+employs the antibody to detect directly the presence of an antigen.
+Alternatively, certain tests employ the antigen to detect the presence of an
+antibody. In addition to the diagnosis of infectious diseases, immunodiagnostic
+testing is also used to monitor the status of various patient therapy programs.
+Market Trends
+The global market for infectious disease tests continues to expand as new
+disease states are identified, new therapies become available and worldwide
+standards of living and access to health care improve. More importantly, within
+this market there is a continuing shift from conventional testing, which
+requires highly trained personnel and lengthy turnaround times for test results,
+to more technologically advanced testing which can be performed by less highly
+trained personnel and completed in minutes or hours. These technological
+advances permit accurate testing to occur outside the traditional hospital or
+laboratory.
+The increasing pressures to contain total health care costs have accelerated the
+increased use of diagnostic testing and the market shift to alternate sites.
+With rapid and accurate diagnoses of infectious diseases, physicians can
+pinpoint appropriate therapies quickly, leading to faster recovery, shorter
+hospital stays and less treatment expense. In addition, these pressures have led
+to a major consolidation among reference laboratories and the formation of
+multi-hospital alliances that have reduced the number of institutional customers
+for diagnostic products and resulted in changes in buying practices.
+Specifically, multi-year exclusive or primary source marketing or distribution
+contracts with institutional customers have become more common, replacing less
+formal distribution arrangements of shorter duration and involving lower product
+volumes. In Europe, the reexamination of health care costs, access and funding
+is causing similar pressures.
+2
+Business Strategy
+Meridian continues to execute its long-term strategy consisting of the following
+elements:
+Developing New Product Applications from Core Technologies - Meridian employs a
+market-driven product development strategy to adapt or enhance diagnostic
+testing technologies and product formats in response to newly identified disease
+states and customer demands for improvements in product accuracy, simplicity,
+speed and cost-efficiency. Meridian accomplishes this by monitoring existing
+markets, interacting closely with its customers and recognizing emerging
+diseases and therapies.
+Acquiring and Licensing Products and Technology - Meridian intends to acquire,
+license or enter into supply arrangements to obtain innovative diagnostic
+testing technologies, product formats and products that complement its existing
+operations and address the needs of Meridian's existing and targeted customer
+base. Management regularly identifies and reviews opportunities through its
+broad industry contacts and recognized position in the industry. Meridian has
+acquired, licensed or entered into supply arrangements relating to more than 100
+products.
+Enabling Biomedical Research and Early Stage Biopharmaceutical Development -
+Meridian intends to leverage its skills and capabilities in the life sciences
+market. Meridian has an established position in this market through its
+BIODESIGN subsidiary. BIODESIGN manufactures and distributes essential antigen
+and antibody reagents to diagnostic and pharmaceutical manufacturers as well as
+academic researchers. These reagents are essential to the development of assay
+systems, control standards and new drug development research.
+During fiscal 2000, Meridian further improved its skills and capabilities in the
+life sciences market through the acquisition of VAI. VAI's pharmaceutical
+quality proteomics laboratory will be used to produce drug and vaccine proteins
+through gene expression techniques. These proteins will be used by
+biopharmaceutical companies in the development of drugs and vaccines for Phase I
+and II clinical trials. Meridian expects to have its first customer for the cGMP
+protein production laboratory in the second quarter of fiscal 2003.
+Increasing International Sales - Meridian has targeted international sales as an
+attractive source of growth. Meridian has developed a strong presence in Italy
+through its Italian subsidiary, Meridian Bioscience Europe s.r.l., and with the
+acquisition of Gull has an established sales force in Belgium, France and the
+Netherlands. Meridian has expanded its ability to serve Latin American and Asian
+markets and has expanded its international distributor base. Over the last
+several years, Meridian's international sales have grown from $2.1 million in
+fiscal 1993 to $18.0 million in fiscal 2002 and represented 30% of total
+consolidated sales in fiscal 2002.
+Strengthening Partnerships With Consolidated Health Care Organizations -
+Meridian seeks to develop strategic partnerships with the major reference
+laboratories and other consolidated health care providers. Meridian believes it
+is in a position to develop partnerships because it is an integrated
+manufacturer, has a broad product line, offers tests in multiple formats and is
+willing to invest resources in building relationships and facilitating open
+communications with those large customers. Since 1998, several exclusive
+multiple-year contracts have been signed with consolidated health care providers
+and Meridian also extended or renewed supply agreements with major reference
+laboratories and other consolidated health care providers.
+Global Sales Excellence - Meridian continues to focus on an initiative to
+improve its worldwide excellence in customer service, sales support and
+technical assistance. Meridian believes that its customers have rewarded it for
+the high level of customer service and support it has provided in the past.
+However, Meridian desires to provide a level of service that exceeds the current
+standards of the health care industry and, most importantly, the customer's
+expectations. Meridian is implementing several customer satisfaction training
+programs and information system improvements in order to achieve global sales
+excellence.
+Products and Markets
+Meridian has expertise in the development and manufacture of products based on
+multiple core diagnostic technologies, each of which enables the visualization
+and identification of antigen/antibody reactions for specific pathogens. As a
+result, Meridian is able to develop and manufacture diagnostic tests in a
+variety of formats that
+3
+satisfy customer needs and preferences, whether in a hospital, commercial or
+reference laboratory or alternate site location. These technologies include
+enzyme immunoassay, immunofluorescence, particle agglutination/aggregation,
+immunodiffusion, complement fixation and chemical stains.
+Enzyme Immunoassay (EIA) - Products incorporating the EIA technology achieve
+extremely high levels of accuracy in detecting disease-related antigens or
+antibodies through the use of special color-based enzyme-substrate reactions.
+Meridian utilizes this technology in its multiple test format, the Premier(TM)
+product for large volume users, and in its single test formats, the
+ImmunoCard(R), ImmunoCard STAT!(R) and Monolert(R) products, for lower volume
+users.
+Immunofluorescence - When the microscopic visualization of an antigen/antibody
+reaction is necessary or desired, immunofluorescence technology is frequently
+utilized. Fluorescing immunochemicals, in the presence of the target antigen or
+antibody, can be viewed via a fluorescent microscope. Meridian utilizes this
+technology in its Merifluor(R) products.
+Particle Agglutination/Aggregation - This technology utilizes microparticles
+(e.g., latex, red blood cells) coated with specific antigens or antibodies that
+form visible aggregates in the presence of a specimen containing the
+complementary antigen or antibody. This technology is rapid and economical and
+is used in Meridian's Meritec(TM), MeriStar(R) and MonoSpot(R) products.
+Other Technologies - Meridian utilizes other technologies that include
+immunodiffusion, complement fixation and chemical stains. Meridian also
+manufactures and markets specimen collection, transportation, preservation and
+concentration products, such as Para-Pak(R), Macro-CON(R) and Spin-CON.
+Meridian's product line consists of over 200 medical diagnostic products
+representing four major disease types discussed below. Currently, the most
+important product lines from the perspective of sales are products to diagnose
+gastrointestinal, viral and parasitic diseases. Meridian's products generally
+range in list price from $1 per test to $33 per test. A discussion of Meridian's
+key products and their competitive advantage follows.
+Parasitic Diseases - Meridian manufactures products for the diagnosis and
+collection, preservation, transportation and concentration of parasites.
+Parasitic diseases include Giardiasis, Cryptosporidiosis, and Lyme disease. The
+markets for these products are hospital, reference and veterinary laboratories.
+Gastrointestinal Diseases - Meridian manufactures products for the rapid
+diagnosis of stomach ulcers, toxigenic E.coli, antibiotic associated diarrhea
+(C. difficile) and pediatric diarrhea (Rotavirus and Adenovirus). The markets
+for these products are hospital, reference, veterinary and state health
+laboratories.
+Respiratory Diseases - Meridian manufactures a broad range of diagnostic
+reagents for detecting respiratory diseases including pneumonia (Mycoplasma
+pneumoniae) and valley fever (Coccidioides immittis). The markets for these
+products are hospital, reference, veterinary and state health laboratories.
+Viral Diseases - Meridian manufactures a broad range of products for the
+detection of various viruses including Epstein-Barr (mononucleosis), Herpes
+simplex, Cytomegalovirus (organ transplant infections) and Varicella -Zoster
+(chicken pox and shingles). The markets for these products are hospital,
+reference, physicians' office and public health laboratories.
+Marketing and Sales
+Meridian's marketing efforts are focused on a continual process of seeking ways
+to assist health care providers in improving outcomes for patients exposed to
+serious infectious diseases. Rapid, accurate diagnosis can mean faster recovery,
+shorter hospital stays and less expense, both for the patient and the health
+care system.
+Meridian believes that its marketing goals are best served by forming
+partnerships with key customers to develop concepts for future products and
+technology applications. These partnerships facilitate close customer
+interaction, including product strategy sessions and co-marketing programs.
+4
+Marketing utilizes its strong industry contacts, plus key customer focus
+sessions, to identify new products and other opportunities. Through the use of
+cross-functional teams that include marketing, research and development and
+manufacturing personnel, marketing guides the development process to meet
+customers' needs with products that are easier to use, require less technical
+expertise, and yield faster results--often in minutes or hours rather than days.
+Changes in the health care delivery system have resulted in major consolidation
+among reference laboratories and the formation of multi-hospital alliances.
+Meridian has structured its marketing, selling and customer service to
+anticipate and respond to these changes. This involved dedicating sales and
+marketing personnel to these accounts; the expansion of technical services staff
+to support Meridian's customers and distribution network; and the implementation
+of major marketing programs to target key customers.
+Meridian markets products through direct sales forces, both domestically and in
+Italy, France, Belgium and the Netherlands, and through national and
+international independent distributors. In the United States, Meridian's direct
+sales force consists of three regional sales managers, one corporate health
+system manager, two inside sales representatives and 21 technical sales
+representatives. In Europe, Meridian's sales force consists of five sales and
+marketing managers, three product specialists and 11 technical sales
+representatives. Where Meridian utilizes distributors, Meridian participates in
+selling efforts involving key customers. Meridian has nearly 80 independent
+distributors in more than 60 foreign countries including key distributor
+relationships in Canada, Central and South America, Mexico, Australia, New
+Zealand and the Pacific Rim, which are managed directly from the United States
+by an international manager. Meridian's sales in Europe, North Africa and the
+Middle East are shipped from Meridian Bioscience Europe (MBE) distribution
+centers in Milan, Italy and Nivelle, Belgium.
+Research and Development
+Meridian's research and development activities focus on developing new and
+improved diagnostic solutions, both internally and with collaborative partners.
+Working in conjunction with the marketing department, Meridian's research and
+development department focuses its activities on enhancements to, and new
+applications for, Meridian's technologies. Meridian's internally developed
+products include Premier Platinum HpSA and Premier(TM) Toxins A&B. Meridian has
+patent protection on certain of its products including Premier Platinum
+HpSA(TM). The research and development department is proficient in a number of
+diagnostic technologies, each of which can be applied to meet new product
+specifications that marketing has established. Meridian's product development
+staffs are experts in binding various biological materials to numerous solid
+phases, including plastics, membranes, latex beads, immunofluorescent dyes and
+immunogold, to develop testing formats. Meridian believes that its proprietary
+know-how and technologies in these areas enable it to develop products that have
+longer shelf-lives and provide improved performance and quicker test results.
+The research and development department initiates Meridian's quality process
+through its design control mechanism which establishes manufacturing standards
+and specifications. By working closely with the manufacturing department, the
+same standards and specifications ensure consistent high-quality products.
+Meridian estimates that it takes approximately 18 to 24 months from the
+conceptualization of a product to its marketing.
+The research and development department includes the Vice President of Research
+and Development and 14 research scientists, up from nine one year ago. The
+disciplines represented in the group include biochemistry, immunology, mycology,
+bacteriology, virology and parasitology. In fiscal 2000, fiscal 2001 and fiscal
+2002, Meridian spent $2.3 million, $3.4 million, and $2.9 million respectively,
+on its research and development activities.
+Customers
+The principal customers for Meridian's products are hospitals, commercial and
+reference laboratories and HMOs, and new markets, such as veterinary
+laboratories and water treatment facilities. Two distributors together accounted
+for 25% of Meridian's fiscal 2002 sales. However, Meridian does not believe that
+the loss of either of these distributors would have a material adverse effect on
+Meridian because of its ability to sell to the end-use customers served by these
+distributors through alternative means.
+5
+Manufacturing
+During fiscal 2002, substantially all of Meridian's manufacturing was performed
+at its Cincinnati, Ohio facility and VAI's Memphis, Tennessee facility. To
+maintain the highest quality standards, Meridian utilizes both external and
+internal quality auditors who routinely evaluate Meridian's manufacturing
+processes. Meridian strives to quickly evaluate, remedy and review the
+implementation of corrective actions to further assure compliance with medical
+device regulation.
+Meridian's immunodiagnostic products require the production of highly specific
+and sensitive antigens and antibodies. Meridian produces substantially all of
+its own requirements including monoclonal antibodies and polyclonal antibodies,
+plus a variety of fungal, bacterial and viral antigens. Meridian believes it has
+sufficient manufacturing capacity for anticipated growth.
+During January 2001, the FDA completed a follow-up inspection of Meridian's
+compliance with the Quality Systems Regulations that govern the manufacturing of
+in vitro diagnostics. This inspection included a review of, among other things,
+procedures for validation, document control, corrective actions and design
+control. In June 2001, Meridian received a Warning Letter from the FDA which
+summarized and reiterated certain of the observations made by the FDA during
+their follow-up inspection completed in January 2001. Meridian responded to the
+Warning Letter on July 20, 2001.
+In January 2001, Meridian submitted a comprehensive plan to the FDA outlining
+specific steps it committed to undertake to improve its quality systems. To
+concentrate and focus resources on QSR compliance, Meridian discontinued the
+manufacturing and distribution of approximately 30 products. During fiscal 2001,
+Meridian incurred costs in the amount of $2,322,000, primarily for outside
+consultants with experience in the quality system regulations, validation and
+computer software and equipment. Meridian has considered the effects of
+incremental costs of compliance with QSR in its cost structure. Meridian
+continues to engage in activities designed to reduce costs, improve operations
+and replace products that were discontinued.
+As a result of the decision to discontinue the manufacturing and distribution of
+approximately 30 products, Meridian could not recover the cost of certain
+assets, and consequently, recorded a pre-tax charge in the amount of $12.8
+million during fiscal 2001 (see Note 4 to the Consolidated Financial Statements
+for further discussion).
+In accordance with the FDA's directive in the Warning Letter, in September 2001,
+Meridian engaged an independent auditor to evaluate Meridian's progress in
+implementing its corrective plan. Based on an extensive review of documents and
+an on-site visit, the auditors substantiated Meridian's progress in addressing
+the issues raised in the FDA inspection and Warning Letter. As anticipated by
+Meridian, the FDA commenced an on-site follow-up inspection during late fiscal
+2002. This follow-up inspection was completed in August 2002. The FDA issued
+several observations primarily aimed at fine-tuning established quality control
+systems and procedures. Meridian submitted written corrective action plans to
+address these refinements and continues its periodic communications with the FDA
+on the progress of its plan submitted to the FDA in January 2001 and the
+observations from the recently completed inspection.
+Meridian expects cash flows from operations to be sufficient to fund working
+capital needs, debt service and dividends during fiscal 2003. Meridian is
+communicating with the FDA on a periodic basis to advise it on the progress of
+its plan. At present, it is uncertain whether Meridian's actions will be
+sufficient so that no further remedial action or enforcement action by the FDA
+will occur.
+Competition
+The market for diagnostic tests is a multi-billion dollar international industry
+which is highly competitive. Many of Meridian's competitors are larger with
+greater financial, research, manufacturing and marketing resources. Important
+competitive factors of Meridian's products include product quality, price, ease
+of use, customer service, and reputation. In a broader sense, industry
+competition is based upon scientific and technological capability, proprietary
+know-how, access to adequate capital, the ability to develop and market products
+and processes, the ability to attract and retain qualified personnel and the
+availability of patent protection. To the extent that
+6
+Meridian's product lines do not reflect technological advances, Meridian's
+ability to compete in those product lines could be adversely affected.
+Companies competing in the diagnostic test industry generally focus on a limited
+number of tests or limited segments of the market. As a result, the diagnostic
+test industry is highly fragmented and segmented. Hundreds of companies in the
+United States alone supply immunodiagnostic tests. These companies range from
+multi-national health care companies, for which immunodiagnostics is one line of
+business, to small start-up companies. Of central importance in the industry are
+mid-sized medical diagnostic specialty companies, like Meridian, that offer
+multiple, broad product lines and have the ability to deliver high value new
+products quickly to the marketplace. Among the companies with which Meridian
+competes in the marketing of one or more of its products are Abbott Laboratories
+Inc., Becton, Dickinson and Company, Diagnostic Products Corporation, Quidel
+Corporation and Inverness Medical.
+Intellectual Property, Patents and Licenses
+Meridian owns or licenses U.S. and foreign patents for approximately 25 of its
+products, including a patent for Premier Platinum HpSA(TM) issued in February
+1998. Meridian's VAI subsidiary has U.S. patents for four of its manufacturing
+processes. The patents or licenses for most of Meridian's products were acquired
+in connection with the purchase of the products or the licensing of the
+technology on which the products are based. In the absence of patent protection,
+Meridian may be vulnerable to competitors who successfully replicate Meridian's
+production and manufacturing techniques and processes. Meridian's employees are
+required to execute confidentiality and non-disclosure agreements designed to
+protect Meridian's proprietary products.
+Meridian does not believe that its products and proprietary rights infringe the
+proprietary rights of any third parties. There can be no assurance, however,
+that third parties will not assert infringement claims in the future.
+Government Regulation
+FDA Regulation of Medical Devices - Meridian's products are regulated by the
+Food & Drug Administration as "devices" pursuant to the Federal Food, Drug and
+Cosmetic Act (FDCA). Under the FDCA, medical devices are classified into one of
+three classes (i.e., Class I, II or III). Class I and II devices are not
+expressly approved by the FDA, but, instead, are "cleared" for marketing. Class
+III devices generally must receive "pre-market approval" from the FDA as to
+safety and effectiveness.
+A 510(k) clearance will be granted if the submitted data establishes that the
+proposed device is "substantially equivalent" to an existing Class I or Class II
+medical device or to a Class III medical device for which the FDA has not
+required pre-market approval. The 510(k) clearance process for "substantially
+equivalent" devices allows product sales to be made after the filing of an
+application and upon acknowledgment by the FDA, typically within 90 to 120 days
+after submission. If the FDA requests additional information, the product cannot
+be sold until the application has been supplemented and upon acknowledgment by
+the FDA within 90 to 120 days of the supplemental application. In practice, the
+FDA has been granting clearance in about 90 days following submission of the
+supplemental information. If there are no existing FDA-approved products or
+processes comparable to a diagnostic product or process, approval by the FDA
+involves the more lengthy pre-market approval procedures.
+Each of the products currently marketed by Meridian in the United States has
+been cleared by the FDA pursuant to the 510(k) clearance process or is exempt
+from such requirements. Meridian believes that most, but not all, products under
+development will be classified as Class I or II medical devices and, in the case
+of Class II devices, will be eligible for 510(k) clearance.
+Other Medical Device Regulation - Sales of Meridian's products in foreign
+countries are subject to foreign government regulation, the requirements of
+which vary substantially from country to country. The time required to obtain
+approval by a foreign country may be longer or shorter than that required for
+FDA approval and the requirements may differ. Currently, Meridian is supporting
+foreign product registrations in Mexico, Korea, Japan, China and Argentina via
+the distributors in the respective countries.
+7
+VAI's veterinary products are approved and licensed by the United States
+Department of Agriculture (USDA). This typically requires six months to one year
+for the approval process. In addition, assays for monitoring "controlled
+diseases" require testing and release of each production serial before it is
+available to the market.
+The proteins that will be produced in VAI's cGMP protein production laboratory
+are intended to be used as "injectibles". As such they will be produced under
+cGMP Regulations for Biologics and Human Drugs under the auspices of the FDA.
+Approval and licensing, following clinical trials, of these products will be the
+responsibility of the applicant, who owns the rights to each protein. VAI may or
+may not be the applicant depending on specific circumstances with particular
+customers.
+The Clinical Laboratory Improvement Act of 1988 prohibits 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.
+Although these certificates are required only for Meridian's laboratory
+customers (but not for Meridian itself), Meridian considers the requirements of
+The Clinical Laboratory Improvement Act of 1988 in the design and development of
+its products.
+Meridian is a conditionally exempt small quantity generator of hazardous waste
+and has a U.S. Environmental Protection Agency identification number. All
+hazardous waste is manifested and disposed of properly. Meridian is in
+compliance with the applicable portions of the federal and state hazardous waste
+regulations and has never been a party to any environmental proceeding.
+Employees
+As of September 30, 2002, Meridian had 339 full-time employees and 11 part time
+employees. None of Meridian's employees is represented by a labor organization
+and Meridian is not a party to any collective bargaining agreement. Meridian has
+never experienced any strike or work stoppage and considers its relationship
+with its employees to be good.
+Meridian maintains a Savings and Investment Plan for its U.S. employees and has
+established stock option plans for its officers, directors and employees. In
+addition, a stock purchase plan was established on October 1, 1997 for all
+employees.

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+Item 13 Certain Relationships and Related Transactions .......................................... 45