Nike 2010 Annual Report Download - page 50

Table of Contents
Critical Accounting Policies
Our previous discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities.
We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on
our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could
differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account
balances, including the policies for revenue recognition, the allowance for uncollectible accounts receivable, inventory reserves, and contingent payments
under endorsement contracts. These policies require that we make estimates in the preparation of our financial statements as of a given date. However, since
our business cycle is relatively short, actual results related to these estimates are generally known within the six−month period following the financial
statement date. Thus, these policies generally affect only the timing of reported amounts across two to three fiscal quarters.
Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result
in materially different amounts being reported.
Revenue Recognition
We record wholesale revenues when title passes and the risks and rewards of ownership have passed to the customer, based on the terms of sale. Title
passes generally upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Retail store
revenues are recorded at the time of sale.
In some instances, we ship product directly from our supplier to the customer and recognize revenue when the product is delivered to and accepted by
the customer. Our revenues may fluctuate in cases when our customers delay accepting shipment of product for periods up to several weeks.
In certain countries outside of the U.S., precise information regarding the date of receipt by the customer is not readily available. In these cases, we
estimate the date of receipt by the customer based upon historical delivery times by geographic location. On the basis of our tests of actual transactions, we
have no indication that these estimates have been materially inaccurate historically.
As part of our revenue recognition policy, we record estimated sales returns, discounts and miscellaneous claims from customers as reductions to
revenues at the time revenues are recorded. We base our estimates on historical rates of product returns, discounts and claims, and specific identification of
outstanding claims and outstanding returns not yet received from customers. Actual returns, discounts and claims in any future period are inherently
uncertain and thus may differ from our estimates. If actual or expected future returns, discounts and claims were significantly greater or lower than the
reserves we had established, we would record a reduction or increase to net revenues in the period in which we made such determination.
Allowance for Uncollectible Accounts Receivable
We make ongoing estimates relating to the ability to collect our accounts receivable and maintain an allowance for estimated losses resulting from the
inability of our customers to make required payments. In determining the amount of the allowance, we consider our historical level of credit losses and
make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Since we cannot predict
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