Nike 2006 Annual Report Download - page 69

NIKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values of all derivatives recorded on the consolidated balance sheet are as follows:
May 31,
2006 2005
(In millions)
Unrealized Gains:
Foreign currency exchange contracts and options ...................... $ 75.7 $113.2
Interest rate swaps .............................................. 0.9 9.0
Unrealized (Losses):
Foreign currency exchange contracts and options ...................... (122.2) (62.9)
Interest rate swaps .............................................. (6.0) (1.3)
Concentration of Credit Risk
The Company is exposed to credit-related losses in the event of non-performance by counterparties to
hedging instruments. The counterparties to all derivative transactions are major financial institutions with
investment grade credit ratings. However, this does not eliminate the Company’s exposure to credit risk with
these institutions. This credit risk is generally limited to the unrealized gains in such contracts should any of
these counterparties fail to perform as contracted. To manage this risk, the Company has established strict
counterparty credit guidelines that are continually monitored and reported to senior management according to
prescribed guidelines. The Company utilizes a portfolio of financial institutions either headquartered or operating
in the same countries the Company conducts its business. As a result of the above considerations, the Company
considers the risk of counterparty default to be minimal.
In addition to hedging instruments, the Company is subject to concentrations of credit risk associated with
cash and equivalents and accounts receivable. The Company places cash and equivalents with financial
institutions with investment grade credit ratings and, by policy, limits the amount of credit exposure to any one
financial institution. The Company considers its concentration risk related to accounts receivable to be mitigated
by the Company’s credit policy, the significance of outstanding balances owed by each individual customer at
any point in time and the geographic dispersion of these customers.
Note 17 — Operating Segments and Related Information
Operating Segments. The Company’s operating segments are evidence of the structure of the Company’s
internal organization. The major segments are defined by geographic regions for operations participating in
NIKE brand sales activity excluding NIKE Golf and NIKE Bauer Hockey. Each NIKE brand geographic segment
operates predominantly in one industry: the design, production, marketing and selling of sports and fitness
footwear, apparel, and equipment. The “Other” category shown below represents activities of Cole Haan,
Converse (beginning September 4, 2003), Exeter Brands Group (beginning August 11, 2004), Hurley, NIKE
Bauer Hockey, and NIKE Golf, which are considered immaterial for individual disclosure based on the
aggregation criteria in SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information”.
Where applicable, “Corporate” represents items necessary to reconcile to the consolidated financial
statements, which generally include corporate activity and corporate eliminations.
Net revenues as shown below represent sales to external customers for each segment. Intercompany
revenues have been eliminated and are immaterial for separate disclosure. The Company evaluates performance
of individual operating segments based on pre-tax income. On a consolidated basis, this amount represents
income before income taxes as shown in the Consolidated Statements of Income. Reconciling items for pre-tax
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