Nike 2009 Annual Report Download - page 50

actual cash needs of our U.S. entities may exceed our current expectations, or the actual cash needs of our foreign
entities may be less than our current expectations. This would result in additional income tax expense in the year
we determined that amounts were no longer indefinitely reinvested offshore. Conversely, our approach may also
result in a determination that accumulated foreign earnings (for which U.S. income taxes have been provided)
will be indefinitely reinvested offshore. In this case, our income tax expense would be reduced in the year of such
determination.
On an interim basis, we estimate what our effective tax rate will be for the full fiscal year. The estimated
annual effective tax rate is then applied to the year-to-date pre-tax income excluding infrequently occurring or
unusual items, to determine the year-to-date tax expense. The income tax effects of infrequent or unusual items
are recognized in the interim period in which they occur. As the fiscal year progresses, we continually refine our
estimate based upon actual events and earnings by jurisdiction during the year. This continual estimation process
periodically results in a change to our expected effective tax rate for the fiscal year. When this occurs, we adjust
the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date
provision equals the expected annual rate.
We account for uncertain tax positions in accordance with FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (“FIN 48”). On a quarterly basis, we reevaluate the probability that a tax position
will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based
on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit
activity. Changes in our assessment may result in the recognition of a tax benefit or an additional charge to the
tax provision in the period our assessment changes. We recognize interest and penalties related to income tax
matters in income tax expense.
Other Contingencies
In the ordinary course of business, we are involved in legal proceedings regarding contractual and
employment relationships, product liability claims, trademark rights, and a variety of other matters. We record
contingent liabilities resulting from claims against us, including related legal costs, when a loss is assessed to be
probable and the amount of the loss is reasonably estimable. Assessing probability of loss and estimating
probable losses requires analysis of multiple factors, including in some cases judgments about the potential
actions of third party claimants and courts. Recorded contingent liabilities are based on the best information
available and actual losses in any future period are inherently uncertain. If future adjustments to estimated
probable future losses or actual losses exceed our recorded liability for such claims, we would record additional
charges as other (income) expense, net during the period in which the actual loss or change in estimate occurred.
In addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a
reasonable possibility that the ultimate loss will materially exceed the recorded liability. Currently, we do not
believe that any of our pending legal proceedings or claims will have a material impact on our financial position
or results of operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
In the normal course of business and consistent with established policies and procedures, we employ a
variety of financial instruments to manage exposure to fluctuations in the value of foreign currencies and interest
rates. It is our policy to utilize these financial instruments only where necessary to finance our business and
manage such exposures; we do not enter into these transactions for speculative purposes.
We are exposed to foreign currency fluctuation as a result of our international sales, product sourcing and
funding activities. Our foreign exchange risk management program is intended to minimize both the positive or
negative effects of currency fluctuations on our 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 use forward exchange contracts and options to hedge certain
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