11.20.2006 - 09:45am ET

(CSRwire) BEAVERTON, OR - November 20, 2006 - NIKE, Inc. (NYSE:NKE) today announced that the company is ceasing orders with its hand-stitched soccer ball supplier, Saga Sports, based in Sialkot, Pakistan, due to the contract factory's failure to correct significant labor compliance violations. As a result, Nike is limiting its supply of hand-stitched soccer balls for the foreseeable future. Nike is engaging with a diverse group of governmental, non-governmental and industry stakeholders to secure support for affected workers and jointly explore sustainable, fresh approaches to local manufacturing and social enterprise models in Sialkot.

"This contract factory has persistently broken its commitments and irrevocably breached its trust with us; most importantly, the factory has failed its employees," said Nike CEO and president Mark Parker. "Rather than continue with Saga, we have decided to limit our supply of hand-stitched soccer balls as we are developing new sources with factories committed to upholding our standards and treating workers fairly."

While Nike continues to source apparel in Pakistan, the company currently does not have other soccer ball vendors in Sialkot able to absorb production under conditions acceptable to the company. Soccer teams and leagues sponsored by Nike will not be affected by the decision. For its retail partners, Nike is working to mitigate any shortfalls between supply and demand. Nike will continue to work with several existing contract factories in China and Thailand to supply premium hand-stitched and machine-stitched soccer balls. Those contract factories already supply a significant portion of Nike's total soccer business.

Nike made the decision to end its relationship with Saga following a six-month investigation into conditions and a concerted effort to remediate. Efforts included repeated meetings between Nike and Saga executives, detailed remediation plans and timeframes, and adjustments of Nike orders to provide Saga the opportunity to devote more management time and resources to implement the agreed-upon plans. Despite those efforts by Nike, Saga did not make needed changes.

Through both company-led and independent investigative efforts, Nike discovered widespread unauthorized outsourcing of its products from Saga facilities, resulting in the production of Nike soccer balls inside homes in the Sialkot area. Nike has a long-standing policy against such practices because of the potential for using under-aged workers and the inability to ensure safe working conditions in home-based settings. The company also found numerous labor, environmental and health and safety compliance violations within Saga's facilities, including serious allegations by trade union representatives and other Saga employees of worker harassment, wrongful termination and inaccurate payment of wages. The Fair Labor Association, in a recent unannounced audit of Saga unrelated to Nike's investigation, found similar violations.

Hannah Jones, Nike's vice president of corporate responsibility, said that in support of workers the company strives to work with its contract factories to remediate compliance violations and create continuous improvement in contract factory conditions. However, in this case, the company exhausted all options and was left with no alternative but to cease orders, despite the potential impact to workers and the near-term affect on Nike's soccer ball business.

"In this case, remediation didn't work," Jones said. "In fact, we saw a further significant deterioration of working conditions due to a lack of commitment by management to address the problems. We also are deeply concerned about the broader conditions and practices we saw in home-based settings."

"Our energies are now focused in two areas: first, helping to protect the rights of Saga workers potentially affected, and second, exploring with stakeholders ways in which this moment can become a catalyst for transforming local manufacturing models and creating sustainable development," Jones said. "We see the potential that fresh approaches like social enterprise initiatives can create for economic diversification and the long-term health of the community."

About Nike, Inc.
NIKE Inc., based near Beaverton, Oregon, is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly owned Nike subsidiaries include Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories; NIKE Bauer Hockey Inc., a leading designer and distributor of hockey equipment; Cole Haan, a leading designer and marketer of luxury shoes, handbags, accessories and coats; Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories, and Exeter Brands Group LLC, which designs and markets athletic footwear and apparel for the value retail channel.

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