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NIKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The effective tax rate for the year ended May 31, 2009 of 24.0% decreased from the fiscal 2008 effective tax
rate of 24.8%. The effective tax rate for the year ended May 31, 2009 was favorably impacted by a benefit
associated with the impairment of goodwill, intangible, and other assets of Umbro (see Note 4 — Acquisition,
Identifiable Intangible Assets, Goodwill and Umbro Impairment), the impact of the resolution of audit items and
the retroactive reinstatement of the research and development tax credit. The Tax Extenders and Alternative
Minimum Tax Relief Act of 2008, which was signed into law during the second quarter of fiscal 2009, reinstated
the U.S. federal research and development tax credit retroactive to January 1, 2008. The effective tax rate for the
year ended May 31, 2008 of 24.8% decreased from the fiscal 2007 effective tax rate of 32.2%. Over the few
years preceding fiscal 2008, a number of international entities generated losses for which the Company did not
recognize offsetting tax benefits because the realization of those benefits was uncertain. The necessary steps to
realize these benefits were taken in the first quarter of fiscal 2008, resulting in a one-time reduction of the
effective tax rate for the year ended May 31, 2008. Also reflected in the effective tax rate for the years ended
May 31, 2009 and May 31, 2008 is a reduction in our on-going effective tax rate resulting from our operations
outside of the United States, as our tax rates on those operations are generally lower than the U.S. statutory rate.
The Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN
48”) effective June 1, 2007. Upon adoption, the Company recognized an additional long-term liability of $89.4
million for unrecognized tax benefits, $15.6 million of which was recorded as a reduction to the Company’s
beginning retained earnings, and the remaining $73.8 million was recorded as a reduction to the Company’s
noncurrent deferred tax liability. In addition, the Company reclassified $12.2 million of unrecognized tax
benefits from income taxes payable to other long term liabilities in conjunction with the adoption of FIN 48.
At the adoption date of June 1, 2007, the Company had $122.5 million of gross unrecognized tax benefits,
excluding related interest and penalties, $30.7 million of which would affect the Company’s effective tax rate if
recognized in future periods. Including related interest and penalties and net of federal benefit of interest and
unrecognized state tax benefits, at June 1, 2007, the Company had $135.0 million of total unrecognized tax
benefits, $52.0 million of which would affect the Company’s effective tax rate if recognized in future periods. As
of May 31, 2009, the total gross unrecognized tax benefits, excluding related interest and penalties, were $273.9
million, $110.6 million of which would affect the Company’s effective tax rate if recognized in future periods.
Total gross unrecognized tax benefits, excluding interest and penalties, as of May 31, 2008 was $251.1 million,
$60.6 million of which would affect the Company’s effective tax rate if recognized in future periods. The
Company does not anticipate total unrecognized tax benefits will change significantly within the next 12 months.
The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits:
May 31,
2009 2008
(In millions)
Unrecognized tax benefits, as of the beginning of the period .................. $251.1 $122.5
Gross increases related to prior period tax positions ........................ 53.2 71.6
Gross decreases related to prior period tax positions ........................ (61.7) (23.1)
Gross increases related to current period tax positions ....................... 71.5 87.7
Settlements ........................................................ (29.3) (13.4)
Lapse of statute of limitations .......................................... (4.1) (0.7)
Changes due to currency translation ..................................... (6.8) 6.5
Unrecognized tax benefits, as of the end of the period ....................... $273.9 $251.1
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