Nike, Inc. reports the following information relating to its manufacturing activities in footnotes to its 10-K report for the year ended May 31, 2013.

a. What effect does the use of contract manufacturers have on Nike's balance sheet?

b. How does Nike's use of contract manufacturers affect Nike's return on net operating assets (RNOA) and its components, net operating profit margin (NOPM) and net operating asset turnover (NOAT)? Explain.

c. Nike executes agreements with its contract manufacturers to purchase their output. How are such "executory contracts" reported under GAAP? Does your answer suggest a possible motivation for the use of contract manufacturing?

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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.