Nike 2009 Annual Report Download - page 76

NIKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company recognizes interest and penalties related to income tax matters in income tax expense. Upon
adoption of FIN 48 at June 1, 2007, the Company had $32.0 million (excluding federal benefit) accrued for
interest and penalties related to uncertain tax positions. The liability for payment of interest and penalties
increased $2.2 million and $41.2 million during the years ended May 31, 2009 and 2008, respectively. As of
May 31, 2009 and 2008, accrued interest and penalties related to uncertain tax positions was $75.4 million and
$73.2 million, respectively (excluding federal benefit).
The Company is subject to taxation primarily in the United States, China and the Netherlands as well as
various state and other foreign jurisdictions. The Company has concluded substantially all U.S. federal income
tax matters through fiscal year 2006. The Company is currently subject to examination by the Internal Revenue
Service for the 2007, 2008 and 2009 tax years. The Company’s major foreign jurisdictions, China and the
Netherlands, have concluded substantially all income tax matters through calendar year 1998 and fiscal year
2002, respectively.
The Company has indefinitely reinvested approximately $2.6 billion of the cumulative undistributed
earnings of certain foreign subsidiaries. Such earnings would be subject to U.S. taxation if repatriated to the U.S.
Determination of the amount of unrecognized deferred tax liability associated with the permanently reinvested
cumulative undistributed earnings is not practicable.
Deferred tax assets at May 31, 2009 and 2008, respectively, were reduced by a valuation allowance relating
to tax benefits of certain foreign subsidiaries with operating losses where it is more likely than not that the
deferred tax assets will not be realized. The net change in the valuation allowance was a decrease of $14.7
million during fiscal 2009 and a decrease of $1.6 million during fiscal 2008.
The Company does not anticipate any foreign tax credit carry-forwards will expire. A benefit was
recognized for foreign loss carry-forwards of $13.1 million at May 31, 2009. Such losses will expire as follows:
Year Ending
May 31, 2014 Indefinite
(In millions)
Net Operating Losses ............................................ $2.2 $10.9
During the years ended May 31, 2009, 2008, and 2007, income tax benefits attributable to employee stock-
based compensation transactions of $25.4 million, $68.9 million, and $56.6 million, respectively, were allocated
to shareholders’ equity.
Note 10 — Redeemable Preferred Stock
Sojitz America is the sole owner of the Company’s authorized Redeemable Preferred Stock, $1 par value,
which is redeemable at the option of Sojitz America or the Company at par value aggregating $0.3 million. A
cumulative dividend of $0.10 per share is payable annually on May 31 and no dividends may be declared or paid
on the common stock of the Company unless dividends on the Redeemable Preferred Stock have been declared
and paid in full. There have been no changes in the Redeemable Preferred Stock in the three years ended May 31,
2009, 2008 and 2007. As the holder of the Redeemable Preferred Stock, Sojitz America does not have general
voting rights but does have the right to vote as a separate class on the sale of all or substantially all of the assets
of the Company and its subsidiaries, on merger, consolidation, liquidation or dissolution of the Company or on
the sale or assignment of the NIKE trademark for athletic footwear sold in the United States.
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