FACTORY MANAGEMENT AND REMEDIATION PROCESS

As in the past, we continue to evolve remediation efforts from one focused on monitoring compliance to one

supporting on-going management and continued systemic improvement. Factory monitoring and remediation is

handled through both regularly scheduled audits and through formal incident reporting. Additionally, we report

our remediation practices to the Fair Labor Association to calibrate our efforts in line with their guidance.

Factory audits are tailored to each factorys compliance history, with more rigorous audit schedules assigned to

factories with repeated non-compliance issues. Nikes internal audit teams work with both factory employees and

management to gather audit data and compare progress against the prior factory audit. A Master Action Plan

(MAP) is developed at the close of an audit to highlight improvements and important focus points for the factory

going forward. The action plan items must be addressed and completed within a specific time period, the timescale

being dependent on the severity of the issue. The MAP and subsequent progress reports are ultimately included in

a contract factorys record for the duration of Nikes business relationship and is used to provide a benchmark to

measure progress and assess improvement.

To supplement scheduled factory audits, Nike has a formal system in place to respond to reported incidents. Nike

leverages internal teams and third party communications to jointly identify factory-related incidents. We have an

established factory remediation process in place to assist in ensuring incidents are investigated and addressed in a

timely and effective manner. The nature of the incident determines whether a unique remediation plan will be

developed or if the incident will be managed through our formal incident report and improvement cycle.

A formal incident report is first investigated through a factory visit. During the visit, Nike teams evaluate the

impact level, gather data, then rate the incident on a three color-coded scale. The color code identifies the severity

of the incident and determines which parties are to be involved. Green-code events, the lowest severity grade,

engage regional management. Yellow-code events require involvement from management at Nikes World Head-

quarters. Red-code events, the highest severity grade, are escalated immediately to senior leadership at Nike.

While our two-tiered process has established a strong foundation for factoring management and monitoring, we

are constantly working to improve our own processes. In summer 2012, we will launch a new program that

leverages an innovative framework for remediation. Check back with us this summer for an update.