Nike 2009 Annual Report Download - page 39

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Foreign currency gains and losses include conversion gains and losses generated by our centrally managed
foreign currency hedging program and other conversion gains and losses. Foreign currency gains and losses also
include gains and losses resulting from the difference between actual foreign currency rates and standard rates
assigned to our regions. With the exception of foreign currency gains and losses generated by the EMEA Region
and Other businesses, which are reported within their respective operating results, substantially all of the
Company’s remaining conversion gains and losses as well as standard to actual foreign currency gains and losses
reside at Corporate. In fiscal 2009, foreign currency conversion gains (losses) reported in Corporate expense totaled
$45.9 million compared to ($76.3) million in fiscal 2008, which was primarily driven by a net gain from currency
hedges in fiscal 2009 versus a net hedge loss in fiscal 2008.
Fiscal 2008 Compared to Fiscal 2007
The increase in corporate expense from fiscal 2007 to fiscal 2008 was primarily driven by increased employee
compensation expense due to the increase in centralized corporate functions, higher performance-based
compensation as well as increased investments in demand creation, including other spending around the Beijing
Summer Olympics.
In fiscal 2008, foreign currency conversion loss reported in Corporate expense totaled $76.3 million
compared to $31.7 million in fiscal 2007, which was primarily driven by a larger net loss from currency hedges
in fiscal 2008 versus 2007.
Foreign Currency Exposures and Hedging Practices
Overview
As a global company with significant operations outside the U.S., in the normal course of business we are
exposed to risk arising from changes in currency exchange rates. Foreign currency fluctuations affect the
recording of transactions, such as sales, purchases and intercompany transactions denominated in non-functional
currencies and the translation of foreign currency denominated results of operations, financial position and cash
flows into U.S. dollars for consolidated reporting. Our primary foreign currency exposures are related to U.S.
dollar transactions at wholly-owned foreign subsidiaries, as well as transactions and translation of results
denominated in the Euro, British pound, Chinese renminbi and Japanese yen.
Our foreign exchange risk management program is intended to minimize both the positive and negative
effects of currency fluctuations on our reported consolidated results of operations, financial position and cash
flows. This also has the effect of delaying the impact of current market rates on our consolidated financial
statements, dependent upon hedge horizons. We manage global foreign exchange risk centrally on a portfolio
basis, to manage those risks that are material to NIKE, Inc. on a consolidated basis. We manage these exposures
by taking advantage of natural offsets and currency correlations that exist within the portfolio, and by hedging
remaining material exposures, where practical, using derivative instruments such as forward contracts and
options. The Company’s hedging policies are designed to partially or entirely offset changes in the underlying
exposures being hedged. We account for derivative financial instruments in accordance with SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” as issued and amended (“FAS 133”). We do
not hold or issue derivative financial instruments for speculative trading purposes.
Transactional exposures
We transact business in various currencies and have significant revenues and costs denominated in
currencies other than the functional currency of the relevant subsidiary, which subjects us to foreign currency
risk. Our most significant transactional foreign currency exposures are:
1. Inventory Purchases — Most of our inventory purchases around the world are denominated in U.S.
dollars. This generates foreign currency exposures for all subsidiaries with a functional currency other
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